Rome sits at hub of former colony’s web

By Guy Dinmore in Rome, published: March 3 2011

Italian finance ministry officials just have to lift their gaze from their computers to be reminded of the complex web they face as they try to unravel Libya’s assets in Europe as a first step towards imposing possible sanctions.

Opposite the ministry, an imposing seven-storey building houses the new headquarters of Banca UBAE, a Libyan-controlled bank that handles payments for Libyan oil and gas from across Europe and holds significant deposits on behalf of Libyan government institutions.

In spite of assertions by Franco Frattini, Italy’s foreign minister, that the international community must cut off money flows to Muammer Gaddafi’s regime, Banca UBAE says it continues to operate ­normally.

In a brief exchange in the bank’s lobby, spokeswoman Lucia Balietti notes that the European Union assets freeze imposed on Libya this week covered individuals and not “entities”. Colonel Gaddafi does not hold an account there, she adds. Her comments touch on the nub of the problem.

While the Obama administration on Monday froze some $30bn in assets held by Libyan individuals and organisations, the EU has restricted its measures to ­individuals.

“It’s a pretty big hole, it definitely is,” Judith Lee, a partner at Gibson Dunn & Crutcher who specialises in international trade and sanctions issues, said of the EU omission.

“There is a huge risk of misappropriation of nat­ional assets,” she added.

Diplomats and EU officials say that freezing the assets of entities is legally highly complicated.

Silvio Berlusconi’s government rejects suggestions that Rome has dragged its feet, even as Günther Oettinger, the European energy commissioner, noted that Italy, which imports some 10 per cent of its gas and 25 per cent of its oil from Libya, would have the most to lose from sanctions.

In spite of Mr Berlusconi’s close association with Col Gaddafi, Italy’s allies say the country has softened to the idea of expanding sanctions against the Lybian regime while Rome establishes contacts with the rebels.

But Italian officials point to Banca UBAE, which sits in the middle of a complex web of cross shareholdings, as an example of the problems they face in applying sanctions. “It is not clear who is controlling what,” one official said.

Established in 1972, Banca UBAE is 67.5 per cent owned by the Libyan Foreign Bank, which is wholly owned by Libya’s central bank. UniCredit, Italy’s largest bank by assets, owns 10.8 per cent of UBAE, while Eni, Italy’s state-controlled energy company, has a 5.4 per cent stake.

UniCredit in turn is 4.9 per cent owned by the Libyan central bank and 2.5 per cent by the Libyan Investment Authority, a sovereign wealth fund with assets reported to be worth between $60bn to $80bn. Farhat Omar Bengdara, the central bank governor, is also vice-chairman of UniCredit.

UniCredit’s complicated ties to Libya stem from its takeover of Banca di Roma, and its stake in UBAE, in 2007. Banca di Roma’s tangled links with the north African country date back to 1911-43, when Italy was the colonial power.

The bank helped fund the Italian overthrow of Ottoman rule over Libyan ­territories.

Banca di Roma was one of UBAE’s founding shareholders. In 1970, Banca di Roma’s assets in Libya were nationalised after Col Gaddafi’s coup, ending a period of prosperity enjoyed by the bank since its launch in 1911.

Libyan Foreign Bank, the controller of UBAE, bought 5 per cent of Banca di Roma in 1997 for some $400m.

According to a 2010 report by Fitch, the rating agency, UBAE has “a leading market share in payment services related to oil trading between Italy and Libya”. It also operates through “consultants” in Lebanon, Egypt, Iran and Algeria. Fitch this week said the impact of sanctions against Libya on UBAE remained uncertain.

UBAE’s total deposits were €2.24bn ($3.12bn) at the end of 2009, mostly from Libyan institutions. The bank holds equity and bond portfolios. Italy’s finance ministry does not disclose Libya’s holding of Italian government bonds.

According to western bankers, UBAE handles deposits and transactions for the Libyan-Arab Foreign Investment Company (Lafico), which was set up in 1981 with the prime goal of evading US financial sanctions imposed at the time on Libya.

In 1986 Fiat, in order to expand into the US market, told the Libyans to sell their 14 per cent stake back to the Italian carmaker. Fiat’s cheque for $3bn was handed to Abdullah Saudi, then head of UBAE.

UBAE said late on Thursday that its current president, Abdullatif El Kib, was in Libya and that they were in daily telephone contact.