Thursday, 4 May 2017

Société Générale Settles with the Libyan Investment Authority for $1 Billion: A Telling Tale of the Culture of Big Banks

Today’s short post looks at the news that Société Générale (hereafter SocGen) has settled with the Libyan Investment Authority (LIA) for €963 million ($1.05 billion) over alleged bribery. The settlement, which averted a large court case in London, was the result of a claim from the LIA regarding a $58.4 million payment made to a Libyan businessmen made to secure future investment deals; the investment group had asserted that the payment was a bribe, and thus any trades that occurred afterwards were invalid. In this post, this story will be dissected further, but the ultimate conclusion will be a brief analysis on the culture of big banks; the situation in Libya over recent years is a key indicator to the behaviour of big banks once a market is opened up to them, and for all of us this is an important factor to bear in mind.

The Libyan Investment Authority was established in 2006, under the control of then-leader Colonel Muammar Gaddafi, to control the ever-increasing surplus stemming from Libya’s oil revenues. Upon creation, the LIA was endowed with the assets of the Libyan Arab Foreign Investment Company, the Libyan African Investment Portfolio, and the Oilinvest company, and today holds shares in massively successful and visible companies around the world, including Citigroup, the Carlyle Group, AT&T, and the famous Italian Football Club Juventus. In 2006, Libya’s fortunes changed dramatically when it was removed from the U.S. State Sponsor of Terrorism list, officially because of the country’s ‘renunciation of terrorism and the excellent cooperation Libya has provided to the United States’ in the so-called ‘War on Terror’. The effects of this move were many, and have been the subject of many analyses; however, for our purposes here in Financial Regulation Matters, the influx of foreign investment from world-renowned financial institutions became a major factor in the relative development of the country.

This correlation between the removal of Libya from the State Sponsors of Terrorism list is proven by this recent settlement. The LIA was accusing SocGen of running a ‘fraudulent and corrupt scheme’ that involved five particular trades between 2007 and 2009 i.e. as soon as the influx was officially facilitated. Although the particular details of the settlement have not been made public as of yet, we do know that the LIA had alleged that SocGen had paid the $58 million into a Panamanian bank account that was controlled by Walid Giahmi (associate of the LIA), for the purposes of ‘influencing the LIA’s decision to enter into each and every one of the disputed trades’ – whilst there is no admission of guilt from SocGen, the statement that was made after the settlement was confirmed seems to tell its own story: ‘[SocGen would like] to place on record its regret about the lack of caution of some of its employees’. The bank is now making headlines because of this semi-admission, and news of a drop in its profits as a result are dominating the business news pages. However, the ability to settle should not distract us from the reality of the situation; the bank used bribery to take advantage of a nascent situation. So, what can we learn from this?

Well, in reality, not very much. We cannot ‘learn’ from this because the lesson should be one that we are familiar with. The opening up of a specific marketplace, whether that be a national marketplace or a domestic one i.e. U.S. Mortgages, presents the ideal environment for the financial elite to drop their façade and act in a way that is very natural to them. Big business does not have any regard for the effect of their actions, only the results. The plight of Libyans was not a consideration for SocGen, only maximising their position. The plight of many Americans in the run-up to the Financial Crisis was not a concern of institutions like Bank of America and JPMorgan Chase, only maximising their position. This should not be a revelation to you reading this, because financial crises are a one-in-10-years event, with every crisis precipitated by greed and maximisation. So, if this is not new, then what is to be gained from this story of SocGen bribing Libyan businesses to maximise its position in a new marketplace? What is to be gained is another instance that can be used as proof that these large financial institutions act in this manner – this is what they do. If we combine this with the realisation that a new ‘marketplace’ does not have to be ‘new’ in a traditional sense, just that it must contain new boundaries, then the people of the U.S. and the UK need to pay attention. The U.S. under Donald Trump, and the U.K. after Brexit, represent new parameters and it is this refreshing of parameters that ‘ping’ the radar of large financial institutions. It would be hoped that, for the U.K. (and France) at least, that the electorate would consider this because destructive finance is a greater threat than any terrorist ideology, and natural disaster, and political shake-up – unfortunately, the two elections will demonstrate the existence and development of social amnesia and, ultimately, we will see the notion of ‘one-in-10’ continue onwards unimpeded.

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