In the first few years after trade restrictions were lifted — Colonel Qaddafi had given up his country’s nuclear capabilities and pledged to renounce terrorism — many American companies were hesitant to do business with Libya’s government, officials said. But with an agreement on a settlement over Libya’s role in the Pan Am bombing over Lockerbie, Scotland, finally reached in 2008, officials at the United States Commerce Department began to serve as self-described matchmakers for American businesses.
At least a dozen American corporations, including Boeing, Raytheon, ConocoPhillips, Occidental, Caterpillar and Halliburton, gained footholds, or tried to do so. In May, the Obama administration and the Qaddafi government signed a new trade agreement, designed, according to Gene Cretz, the American ambassador to Libya, to “broaden and deepen our bilateral economic relations.”
Libya became so flush with cash that Bernard L. Madoff, the New York financial manager who stole billions of dollars in a long-running Ponzi scheme, approached officials overseeing the country’s $70 billion sovereign fund a few years ago about an “investment opportunity,” according to a State Department summary of the episode in 2010. “We did not accept,” a Libyan official reported.
Colonel Qaddafi, the State Department said, was personally involved in many business decisions. He worked with local “riqaba” councils, an oversight committee set up by the Libyan government to dole out business with foreign firms, and insisted on signing off on all contracts worth more than $200 million. He also learned how to hide money and investments in case sanctions were ever imposed again, as they recently have been.
Colonel Qaddafi and his family set up accounts in banks around the world that are in the names of members of Libyan tribes that remain loyal to his government, said Idris Abdulla Abed al-Sonosi, a member of the exiled Libyan royal family, who is familiar with many of Colonel Qaddafi’s business dealings. (Some accounts may have been frozen by authorities, who have blocked access to tens of billions of dollars.) And Qaddafi relatives adopted lavish lifestyles — including posh homes, Hollywood film investments and private parties with American pop stars.
When Colonel Qaddafi was not making the decisions, one of his sons — whom he has anointed to run various sectors of the country’s economy — often was.
Daniel E. Karson, executive managing partner at Kroll, a risk-consulting firm, recalled in an interview that an international communications company he represented tried to enter the Libyan cellular phone market in 2007. From the outset, Libyan officials made it clear that the foreign company’s local business partner would have to be Muhammad Qaddafi, the eldest son of the Libyan ruler.
“We advised them they would have to go through Muhammad Qaddafi,” said Mr. Karson, who declined to identify the client. “This was not going to be done on the basis of, as they say in retail, price, quality and delivery.” Fearful of going into business with the Qaddafis, he said, the company made no investments in Libya.
Coca-Cola got caught in the middle of a fierce dispute between Muhammad Qaddafi and his brother Mutassim over control of a bottling plant the soda maker had opened in 2005, forcing it to shut down the plant for months amid armed confrontations, a diplomatic cable noted.
And Caterpillar , the Illinois machine maker, was about to finalize a lucrative deal in 2009 to provide equipment for infrastructure projects when Libya demanded the company become a partner with a state-owned company controlled by the Qaddafis, according to the State Department documents. Caterpillar resisted and was blocked by Libya from the work after intervention by American diplomats failed to break the impasse.
When Qaddafi aides demanded payment for the Lockerbie settlement from oil companies operating in Libya, a State Department cable in February 2009 reported, industry executives had indicated “that smaller operators and service companies might relent and pay.” Several industry officials and someone close to the settlement, all speaking only on condition of anonymity, said the payments went through but declined to identify the businesses.
Other companies also struck costly deals with the government. In 2008, Occidental Petroleum, based in California, paid a $1 billion “signing bonus” to the Libyan government as part of 30-year agreement. A company spokesman said it was not uncommon for firms to pay large bonuses for long-term contracts.
The year before, Petro-Canada, a large Canadian oil company, made a similar $1 billion payment after Libyan officials granted it a 30-year oil exploration license, according to diplomatic cables and company officials.
The company also hired Jack Richards, a business consultant based in the British Virgin Islands and close friend of the Qaddafis, as their local agent to cement the deal, according to The Globe and Mail, a Canadian newspaper. Mr. Richards, who could not be reached for comment, reportedly used shooting trips to British royal estates to win the family’s support.
The company also courted a Qaddafi son, Seif al-Islam. Petro-Canada sponsored an exhibit of his paintings — ridiculed by Canadian critics as “lurid” and a “triumph of banality“ — after museums refused. A Montreal business, SNC-Lavalin, which won more than $1 billion in Libyan contracts, also sponsored the exhibit and a soccer team that hired another Qaddafi son, Saadi, as a player.
In Norway, two top officials at the state-run oil company quit in 2007 and came under government investigation after it was revealed the company had made more than $7 million in apparently illegal “consultancy agreements” with Libya.
Looking back on the decision in 2004 to resume business dealings, Juan Zarate, a former top White House and Treasury official in the administration of President George W. Bush, said that officials had believed then that the benefits of trying to rehabilitate Colonel Qaddafi outweighed the obvious risks. “It was a deal with the devil,” Mr. Zarate said.
“The hope was that with normalization, Qaddafi would serve less as the mad dog of the Middle East and more as a partner,” he added. “But I don’t think this is the way anyone would have wanted it to work out.”
—Barclay Walsh contributed research.