Goldman Sachs Caught Up in Libyan Funds Scandal

Goldman Sachs is once again caught up in its past. After having paid heavy fines in successive scandals, the American merchant bank hoped to be able to do its job in peace, without any publicity.

The legal proceedings that the Libyan sovereign fund, the Libyan Investment Authority, started on Jan. 23 in front of a British court in order to obtain compensations from the New York-based company have suddenly and once again dragged it out from behind its desired curtain.

The case started back in 2008, when the West had welcomed Col. Gadhafi with open arms. Banks then rushed to sell highly sophisticated financial products to the sovereign fund, guardians of the Great Socialist People’s Libyan Jamahiriya petrodollars.

Michael Sherwood, the trading manager of the London Goldman Sachs branch, had negotiated directly with Saïf al-Islam, the younger son of the Libyan Guide and strongman of the LIA, fascinated by the notoriety of the operators of the firm.

However, the transactions concocted by the top trading bankers revealed catastrophic. Because Goldman Sachs had unsoundly bet on diverse currencies, the LIA lost 98 percent of its original value — more than $1 billion — in May 2011.

Buried Case

In order to find a gentlemen’s agreement with the LIA, Goldman Sachs had offered to pay $50 million initially, but the bank had used an intermediary, the son-in-law of the Libyan oil society’s directing manager, which meant that U.S. justice suspected the corruption of foreign officials. Yet, the case was buried subsequently with the ignition of the summer 2011 civil war and fall of Gadhafi regime.

Considered as the secular arm of the regime, next to the national oil company, the LIA had been created to diversify the source of incomes beyond the exploitation of hydrocarburant, which constitutes between 80 percent and 90 percent of state revenue. According to the last report of the London consulate Preqin, the LIA’s assets amounted to $65 billion in 2013.

Rebound

In fall of 2008, Goldman Sachs was considered the symbol of the excess of finance and had to suffer a long dry period before it rebounded. Thus, the denouement of the trial of the French Fabrice Tourre, found guilty of financial fraud in Aug. 2013 by the American justice system, has put an end to the “Abacus Case,” which amounted to a $500 million fine for the bank.

The normalization of the euro crisis has put into oblivion the fraudulent role the bank had in the Greek accounting falsification.