12:01am

Fri March 25, 2011
Conflict In Libya

Financial Sanctions Part Of Arsenal Against Gadhafi

The military objective of the Libya campaign is to protect civilians, but the U.S. and other governments have a larger goal: They want Libyan leader Moammar Gadhafi out of power. And if airstrikes and 1,000 or so rebel fighters cannot bring down the regime, the anti-Gadhafi effort will depend on financial sanctions.

Every time U.S. military leaders are asked whether this could all end with Gadhafi still in power, they answer the same way: Getting Gadhafi is not their assignment. President Obama, speaking in Chile this week, did not challenge that view of the Libyan mission, but he said military action is only part of the story.

"It is U.S. policy that Gadhafi needs to go," he said. "And we've got a wide range of tools in addition to our military efforts to support that policy."

The president then cited the sanctions put in place against the Gadhafi regime. There are unilateral U.S. sanctions plus sanctions imposed by the U.N. and the European Union.

Gadhafi's Money Supply

Stuart Levey, until last month the Treasury official in charge of U.S. sanctions policy, says cutting off Gadhafi's money supply should weaken his hold on power. After all, keeping up the attacks on those who oppose him requires a lot of cash.

"That means paying mercenaries, and if he's able to obtain weapons on the black market and ammunition and so forth, he needs that," Levey said. "To the extent he wants to keep the loyalty of people besides military personnel, he needs cash to pay them."

Before leaving the Treasury Department last month, Levey helped draw up the U.S. actions against Gadhafi. In addition, Gadhafi faces tough international sanctions: stricter, in fact, than anything imposed on other states, even North Korea.

"He's got a U.N. Security Resolution which prevents countries all over the world from doing business with his regime, with his central bank, with his investment authority, with his national oil company," Levey said. "These are things that are going to make his financial life extraordinarily difficult over time."

But how long will it be before Gadhafi runs out of money to buy ammunition or pay the African mercenaries he's brought in to fight the Libyan rebels? Even if his external financing is shut off, Gadhafi has reserves at home that he can spend down: a stash of foreign currency — dollars and euros — in his bank in Tripoli, plus as much as $6 billion worth of gold bullion.

Problems For Libyan Leader

But David Cohen, the new acting undersecretary for terrorism and financial intelligence at Treasury, says Gadhafi may not have as much cash as people think he does. As for the gold, Cohen says it won't be easy for Gadhafi to use it to cover his daily expenses.

"He, I suppose, could, you know, chip off pieces of his gold bars to pay his mercenaries, but more realistically what he'd like to be able to do is convert those gold reserves into hard currency," Cohen said.

To do that, he'd have to somehow get that gold out of Libya — overland, maybe, to a neighboring country like Niger. But Cohen says it won't be easy for Gadhafi to cash it in anywhere.

"In light of the sanctions that we've imposed, that the U.N. has imposed, that the EU has imposed, there really should be no bank in the world that is prepared to exchange hard currency for that gold," he said.

Levey, now a senior fellow at the Council on Foreign Relations, raises one more problem for Ghadafi: He may have money now to pay the people on whom he depends, but they may be looking ahead.

"How much confidence do the people around him have in his ability to keep paying them?" Levey said.

The U.S. is doing all it can to erode that confidence — in the thought it could weaken their loyalty to Gadhafi. In fact, Levey says, the U.S. structured its sanctions to provide incentives for senior Libyan officials to defect. The overseas assets of some "designated" Gadhafi servants have been frozen, so Libyan officials have a reason to leave the regime before they get designated as well and lose their assets.

"Whatever else is happening on the ground in Libya, over time that's going to put an enormous amount of pressure on Moammar Gadhafi," Levey said. "Whether it's enough pressure, and I think this is a big question, whether it's enough pressure to cause him to step down is another question, but it will be significant financial pressure."

Levey does raise the question whether it's enough pressure — because U.S. policy in Libya will likely be judged in the end on whether Gadhafi stays or goes. Copyright 2011 National Public Radio. To see more, visit http://www.npr.org/.