Libyan Rebels Get U.S. Recognition Without Keys to Qaddafi’s Frozen Cash

Photographer: Colin Summers/AFP/Getty Images

Libyan rebels celebrate as forces loyal to Libyan leader Moamer Kadhafi retreat during fighting in Libya's western mountain region of Qalaa, June 7, 2011. Close

Libyan rebels celebrate as forces loyal to Libyan leader Moamer Kadhafi retreat during... Read More

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Photographer: Colin Summers/AFP/Getty Images

Libyan rebels celebrate as forces loyal to Libyan leader Moamer Kadhafi retreat during fighting in Libya's western mountain region of Qalaa, June 7, 2011.

Leaders of the Libyan rebels’ Transitional National Council flew to Istanbul seeking legitimacy and money. They will leave with the official recognition of the U.S. and 31 other nations.

As for the cash, they will have to wait.

The decision to treat the council as the “legitimate governing authority” in Libya is a key step to freeing up some of the government’s frozen assets for rebels seeking the ouster of Muammar Qaddafi. Still, obstacles such as existing United Nations sanctions won’t disappear overnight.

“We still have to work through various legal issues, but we expect this recognition will allow the TNC to access various forms of funding,” said U.S. Secretary of State Hillary Clinton.

At stake are about $34 billion in frozen Libyan government assets that are held by U.S. institutions and as much as $130 billion more held around the world. Speaking by phone from Istanbul, Transitional National Council spokesman Mahmoud Shammam put the total in excess of $100 billion globally.

Qaddafi, in an audio message broadcast to supporters in the town of Zlitan yesterday, said the Libyan people “will never give up” in the fight to prevent him being ousted, the Associated Press reported. “The Libyan people will persevere,” he said.

Oil Purchases

In the coming weeks, U.S. officials will consult with the TNC and international partners on the most effective and appropriate method of making additional significant financial assistance available, according to a Treasury official who was not authorized to discuss the matter publicly.

Shammam said the TNC needs $3 billion to cover the budget for six months. The council is seeking loans secured by the Qaddafi regime’s assets abroad as a means of funding, he said.

Recognition may lawfully allow nations to buy state-owned oil from the TNC, which controls the oil-rich eastern part of the country. Italy’s Eni SpA (ENI) and France’s Total SA (FP) are the top oil companies operating in Libya, a former Italian colony.

How much money the Benghazi-based government can get, and when, may be more tied to politics than the law.

“The legal issues are in the eye of the beholder,” said Gary Clyde Hufbauer, a senior fellow at the Peterson Institute for International Economics in Washington. “If Obama and Clinton want to go slow in paying out the money, their lawyers can invent plenty of legal issues to justify the chosen pace.”

Asset Freeze

The U.S. envisions a “short timeframe” for releasing some of the Libyan government assets frozen by the U.S., State Department spokesman Mark Toner said yesterday.

President Barack Obama signed an order on Feb. 25 freezing any U.S. assets of Muammar Qaddafi, his family and members of his regime in Libya. As a practical matter, most of the frozen $34 billion is tied up in complicated property interests, including ownership interests in non-publicly traded companies or real estate, according to the Treasury official.

The mechanics of how the U.S. will unfreeze assets still has to be worked out. United Nations sanctions against Libya remain in place, a hindrance to efforts to get money to the rebels.

The U.K. and France, which led the campaign to unseat Qaddafi, yesterday didn’t commit any financial contributions.

Recognition of the council “will allow some countries to unfreeze some money,” French Foreign Minister Alain Juppe said. Libyan frozen assets in France total $250 million, he said.

International Law

Other nations have already found the means to act.

Italy will open a credit line to rebels using frozen assets as collateral, and will provide them with 100 million euros ($141 million), Italian Foreign Minister Franco Frattini said yesterday. Another 300 million euros will be released in two weeks and in total, Italy will release 400 million euros, he said, describing the money as loans.

The council is expecting $100 million from Turkey within three days, Shammam said.

The main criterion for international law for the recognition of a rebel group as the government of a state is its effective control over the territory.

The recognition of the TNC, given the fact that Qaddafi still controls Tripoli, could “arguably constitute an illegal interference in internal affairs,” Stefan Talmon, a professor of International Law at the University of Oxford, wrote in a paper for the American Society of International Law.

‘Genuine Cease-Fire’

A number of actions by the rebels convinced the U.S. to offer recognition, including a commitment to pursue a reform process, and to seek more inclusive representation of Libyans, politically, geographically and tribally,” according to a State Department officially. The U.S. will continue to watch closely how they perform, according to the official, who spoke on condition of anonymity.

The contact group laid out conditions for a “genuine ceasefire” in a final statement and declared that “Qaddafi and certain of his family members must go.”

The way he will leave power has yet to be defined, the group said. The ceasefire conditions call for complete withdrawal of Qaddafi-led forces to their bases, the release of detainees and hostages, provision of water and electricity to all regions, and the opening of all borders for the quick return of refugees.

Food Shortages

The North Atlantic Treaty Organization started airstrikes in late March to protect civilians, an intervention that aided rebels seeking Qaddafi’s ouster. Qaddafi has already lasted longer than allies had anticipated, though his hold on the capital, Tripoli, appears to be weakening amid shortages of food and fuel. There are reports that his government is seeking a political solution to end the fighting.

UN Secretary-General Ban Ki-moon will be the only person authorized by the contact group to negotiate with both sides in Libya. Ban will set up a board of two to three interlocutors from Tripoli and the rebel-held town of Benghazi, Frattini said.

The military campaign against Qaddafi will continue “indefinitely” until he steps down, U.K. Foreign Secretary William Hague told reporters yesterday in Istanbul.

To contact the reporters on this story: Nicole Gaouette in Istanbul at ngaouette@bloomberg.net; Flavia Krause-Jackson in Washington at fjackson@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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