FP Explainer

How Hard Is it for Governments to Get Rid of Their Gold?

Depends where they keep it.

Libya's new central bank governor reported that Muammar al-Qaddafi had raised more than $1 billion to pay salaries to pro-government fighters in the final days of his regime by selling off 29 tons of gold from Libya's reserves. How does one go about getting rid of that much gold?

If the gold's not in an international market, it's not easy. Qaddafi reportedly sold the gold from his treasury -- mostly in the form of coins and smaller bars -- into the jewelry market in Tripoli, with a good amount likely smuggled over the border into Tunisia. He also didn't get a particularly good price --20 tons of gold should be worth more than $1.7 billion at current spot prices.

Governments and central banks hold about 16 percent of the world's gold reserves, with the United States boasting the largest reserve. The vast majority of countries opt to keep their gold in banks in the major bullion centers of the world -- London, New York, and Switzerland -- where there's actually high-level gold trading going on. But the Qaddafi regime was unusual in that it kept its gold in Libya. And in a country of only 6 million people, facing sanctions and the loss of oil revenues, there's not much liquidity for a commodity like gold in Libya these days.

Given the hit Qaddafi took on the gold-to-cash conversion, it would seem that it's an object lesson in why to keep gold reserves in international markets. And yet Venezuelan President Hugo Chávez raised eyebrows by proposing to repatriate $11 billion of his country's gold reserves, currently held in various foreign banks -- mostly in London. (Chavez seems to have given up on the idea, likely because of what a phenomenally difficult enterprise moving 211 tons of gold over an ocean would be.)

Pretty much the only reason for a government to keep its gold so close at hand is if it's expecting international sanctions, which would prevent it from accessing its foreign reserves. In this sense, Qaddafi's decision to keep his gold at home actually turned out to be prescient when his country fell into revolution and he was hit with tough international sanctions.

So where's Qaddafi's gold going to end up? Hard to say. Gold that's kept in vaults in a major bullion center has to conform to standards set by trading bodies like that London Bullion Market Association, which monitor both the quality of the gold and keep track of transactions -- in theory, to assure that no gold involved in criminal enterprises makes it into the official global market. Laws such as the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act also aim to keep "conflict gold" off the market. The gold sold by Qaddafi obviously won't meet these standards, another reason why the Libyan government may have had trouble finding buyers.

Ultimately, of course, the gold will find its way back into the system. Pretty much all the gold that's ever been mined is still in circulation in one form or another-- if melted together into one cube it would weigh about 165,600 tons but would only be about 20 meters on each side.)

Leaders like Qaddafi and Chavez will rise and fall, but their gold will remain behind.

Thanks to Adrian Ash, head of research at BullionVault, a London-based gold-trading service.


FP Explainer

Is It Legal for Americans to Fight in Another Country's Army?

For the most part, yes, unless they're fighting against America.

Chris Jeon, a 21-year-old university student from Los Angeles, has had quite the summer vacation. He informed family and friends that he was heading off to Cairo, but then crossed into Libya and spent the last few weeks fighting with the anti-Qaddafi rebels. The latest reports suggest his fed-up cohorts may have finally sent him packing. When a reporter from the Abu Dhabi-based National caught up with the L.A. Clippers jersey-wearing math major this week, he explained that he "thought it would be cool to join the rebels." And it seems like he didn't do it for attention: He concluded the interview by pleading, "Whatever you do, don't tell my parents." Parental consequences aside, did Jeon break U.S. law?

Probably not. The U.S. government certainly doesn't encourage citizens to go off and fight in foreign wars, but there's a long history of it -- from the Abraham Lincoln Brigade that fought against Francisco Franco during the Spanish Civil War to the many Jewish Americans who have served in the Israel Defense Forces.

According to the U.S. code, any citizen who "enlists or enters himself, or hires or retains another to enlist or enter himself, or to go beyond the jurisdiction of the United States with intent to be enlisted or entered in the service of any foreign prince, state, colony, district, or people as a soldier or as a marine or seaman ... shall be fined under this title or imprisoned not more than three years, or both." But a court ruling from 1896 involving U.S. citizens who fought with Cuban revolutionaries against Spanish colonial rule interpreted this to mean that it was only illegal for citizens to be recruited for a foreign army in the United States, not to simply fight in one. (Note to Libya's National Transitional Council: It probably wouldn't be wise to set up a recruiting station on the UCLA campus in hopes of attracting more fighters.)

Since Jeon appears to have traveled to Libya without any encouragement (he bought a one-way ticket because he didn't want to risk losing $800 "if I get captured or something"), he's probably in the clear.

A few caveats: If an American joins an army engaged in hostilities against the United States, that's considered an act of treason and punishable by death. The law also, obviously, doesn't sanction membership in designated terrorist organizations, though the family of "American Taliban" John Walker Lindh has tried to argue that he was simply serving in the armed forces of another country and didn't intend to aid al Qaeda or attack U.S. troops.

But what if Jeon happened to take part in an attack on Sirte or some other Libyan city, in which civilians were slaughtered? There might be precedent in the case of Chuckie Taylor, a U.S. citizen and son of the former Liberian warlord Charles Taylor. The younger Taylor was convicted in 2008 in a court in Florida for acts of torture committed during Liberia's civil war, the first U.S. citizen to be convicted in the United States of crimes against humanity in another country. 

What about citizenship? If you hold a U.S. passport, you'll note that it advises that you "may lose your U.S. citizenship" by "serving in the armed forces of a foreign state." The word may is critical. In the 1967 case Afroyim v. Rusk, the Supreme Court ruled that under the 14th amendment, U.S. citizens cannot be involuntarily stripped of their citizenship. (That case involved a dual U.S.-Israeli citizen who had his U.S. citizenship revoked after voting in an Israeli election, but the precedent applies to military service as well.) Since then, the government has had to prove that an individual joined a foreign army with the intention of relinquishing his or her U.S. citizenship. The army in question must be engaged in hostilities against the United States or the individual must serve as an officer.*

So as long as Jeon manages to avoid committing treason or war crimes and doesn't get promoted -- which seems unlikely given that he reportedly asked, "How do you fire this thing?" after being handed an AK-47 -- he's probably safe from legal consequences. As for what his mom is going to do to him when he gets home, he's on his own.

Thanks to Laura Danielson, an attorney with the firm of Fredrickson & Byron who teaches immigration law at the University of Minnesota Law School.

*Correction: This sentence originally suggested a citizen could be involuntarily stripped of their citizenship under these circumstances. Intent to relinquish citizenship must still be demonstrated.