Wednesday, 16 June 2010

Libya - Bribery and corruption looks set to remain endemic

Bribery and corruption are endemic in Libya at all levels of the government and its agencies. "Sweeteners" in Libya are part of the culture. The country works on an extended client-patron dependency using family, tribal and regional linkages. Patrons pass benefits to clients through hierarchies. In certain circumstances benefits taken from third parties are then cascaded down the client-patron structure.

The economic imperatives are also powerful in fuelling corruption. With the exception of a brief period in the mid-1970s, government officials have been badly paid or, at times, not paid at all. The problem has been exacerbated by severe consumer price inflation which has rarely been less than 25 per cent annually in recent times.

Poor accounting procedures and loose financial controls have also enabled some to appropriate state funds. The oil business is a case in point, where, for example, there have been a number of Libyan investigations into allegations of corruption affecting the operations of Oilinvest, its Tamoil brand and their subsidiaries.

Former head of the Arab Banking Corporation, Abdullah Saudi, concluded that it was “strange” that the cash holdings of the company had declined so persistently and that the accounting system used by Oilinvest was “odd”. A subsequent commission set up with Musa Kusa, Abdel Hafid Zlitni and Mohammed Ali Huwaij came to similar conclusions. It resulted in one of Oilinvest's senior cadres, who had been in place abroad, being recalled to Tripoli.

This was probably also one reason why NOC's head Shukri Ghanem repatriated the company's procurement subsidiaries – the London based Umm al-Jawaby and Teknica (UK) Limited and the Dusseldorf based Mediterranean Oil Services GmbH (Medoil) - back to Tripoli in 2006.

Bribery is now widespread at the top level for a number of reasons including greed and insecurity as well as the constant shifting of personnel as the internal political tide ebbs and flows.

The condemnation of corruption by the Leader and particularly by his son Saif al-Islam has put the élite, who engage in corrupt practices, more on guard. In a way, however, it has also liberated this class by declaring that corruption is beyond cure. Bribery and corruption looks set to remain endemic until radical change takes place - possibly with the takeover of the reins of power by Saif al-Islam, although even he is not exempt from misconduct.

As long as the people with the power to influence the granting of licenses, agencies and contracts are united the understanding that bribery bears no stigma will remain unchallenged. There is also a low level of sensitivity on the issue because of the lack of a political opposition which could expose those who have diverted State funds.

A widespread pattern amongst those with power has been to become greedy, self-seeking and in many cases financially corrupt. In such circumstances there are openings for forms of high level influence broking. Indeed, it is possible that, outside the upstream oil sector, progress for a commercial deal would only be feasible with illicit payments or side deals.

The best advice for foreign companies is that, quite apart from ethical considerations, involvement in corrupt deals which are associated with individuals who might fall from power or who could become political pawns in a complex Libyan internal political game, carries very considerable risks.

For more news and expert analysis about Libya please see Libya Focus and Libya Politics & Security.

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