How American Bank, Goldman Sachs Lost $1.2 Billion of Libya’s Money

When Colonel Gaddafi’s relationship with the West improved albeit for a short while, western companies looked to the North African country to exploit the new frontier that had been opened. With billions of dollars’ worth of oil revenues waiting for bold capitalists to plug into the system and make killings, Goldman Sachs rushed in, fronted by Youssef Kabaj, a securities salesman working in the bank’s London office. According to Bloomberg, Kabbaj, a son of a wealthy Rabat family had joined Goldman Sachs’ London office in 2006. He was hired after a brief showing at a Moroccan bank starting as a behind the scenes mind formulating trading strategies and ending up getting a role in sales as part of a team covering Africa. He is the man who won big deals for Goldman Sachs with the Libyan Investment Authority and felt the heat when things went off the rails. He is the man the Libyan Investment Authority deputy boss, Mustafa Zarti threatened with disappearance and called just a Moroccan who lived in Libya. His family was not spared in the tirade. More than a billion dollars had already been lost yet Kabbaj was still trying to sell high dreams to Libya.

The one sided Business Deal

Bloomberg says, “The story of Goldman’s seduction of Libya—based on court evidence, testimony from witnesses, and interviews with people who were involved in the transactions—is as brief as it was costly. Barely 12 months elapsed between Zarti’s first tour of the bank and his threat to murder its brightest young star, and Libya wound up losing $1.2”

After a pitch from Kabbaj, Zarti and his assistant had taken to London to get more detail on what Goldman Sachs could do for Libya. The company which had 26,000 employees, $69 billion in revenue and $9.5 billion in profit was convincing enough and the newly formed Libyan Investment Authority bought into the idea to do business. Thinking they were buying shares in undervalued companies, the Libyans went on a “shopping spree”, ironically buying nothing at all. The deals have been described as complex derivatives deals which Goldman Sachs in the case of Citigroup shares called, “a cash settled forward purchase agreement for Citigroup shares with downside protection in the form of a put option at the same price as the forward”. In other words, if the shares fell below a certain threshold, the LIA would lose its money and yet Goldman Sachs stood to gain monstrous profits either way. To keep the LIA interested, Kabbaj started working closely with its employees even going as far as buying them iPods and in the case of Zarti’s young brother, getting him prostitutes in Dubai. However, his motives were not well-meaning with him on record for referring to one of the employees as “someone who lives in the middle of the desert with his camels.”

The realities of the Goldman Sachs deals only emerged after one Catherine McDougall from English Law firm, Allen & Overy went to Tripoli to work with the LIA. She expressed concern over the dealings and asked if the LIA had done a due diligence. The employees are said to have dramatically asked her, “Due what?” It is after this that Zarti called Kabbaj and a colleague of his to his office, threatened their lives and told them to leave. Soon after, the 2008 financial crisis hit Libya where it hurt the most resulting in losses of no less than $1.2 billion. Further investigations show that the LIA’s investment portfolio was a mess with Global Witness releasing leaks of the disastrous investments made. 

In evidence led by the LIA in a London court of law, Ben Brahim, former partner in Goldman Sachs emails to his team, "Don't push hard to do big deals – not now – it has risk of backfiring. Do large delta 1 trades, avoid as much as possible complicated derivatives," His email also adds, “I will always use my own judgment and be fair to GS. I don’t believe in all GS stands for but for most of what GS stands for. I expect to be a good ambassador even after I have left." Ben Brahim was not called by Goldman Sachs as a witness and this has raised suspicions. What is clear at this point is that a ruling in favour of the LIA will change how Western companies do business with African countries. There is need for respect from both sides and not this shameful buying of African business using prostitutes and iPods.