Last week, the U.S. Department of Justice (DOJ) announced that it had frozen about $458 million in corruption proceeds that former Nigerian dictator Sani Abacha and his conspirators allegedly embezzled from Nigeria’s central bank, laundered through U.S. financial institutions, and deposited in bank accounts around the world. The freeze is a first step in the DOJ’s largest-ever forfeiture action under its recent Kleptocracy Asset Recovery Initiative (KARI). There is much to say about this development, but the question that most immediately comes to my mind (and likely many Nigerians’ minds) is: What will the DOJ do with all this money?
The DOJ has no legal obligation to repatriate seized assets. Nonetheless, it has declared its commitment, in Attorney General Eric Holder’s words, to using the assets seized under the Kleptocracy Initiative “to benefit the people of a victim country.” So far, that has resulted in at least two approaches to repatriation:
giving the money back to the government (as has happened with Peru, Italy and Nicaragua); and
giving the money to a local non-profit (as has happened in Kazakhstan).
What makes the DOJ pick one approach over the other? The U.S. State Department must concur with every act of repatriation, so foreign policy might be one factor. The continued presence of the kleptocrat in question–as with Nursultan Nazarbayev in Kazakhstan–might be another. Overall perceptions of corruption in that country might also affect the decision. According to Transparency International’s 2013 Corruption Perceptions Index, Italy (rank 69), Peru (83), and Nicaragua (127) are all perceived as corrupt–but at rank 140, Kazakhstan is worse.
I expect to see the U.S. return the forfeited assets to the Nigerian government. Yes, Nigeria (rank 144) is perceived as being more corrupt than Kazakhstan. The country is a byword for fraud in the West, and many Nigerians resign themselves to a deeply corrupt culture. (Brown University’s Daniel Jordan Smith captures Nigeria’s corruption culture in an excellent book.) The U.S. State Department is also rightfully alarmed by the recent violence and human rights abuses by security forces in the country,
Nevertheless, Abacha’s legacy has largely been wiped out, and Nigeria has spent over a decade now successfully recovering the dictator’s stolen assets (as Stephen Kingah notes in a 2011 paper). In 2006, Switzerland returned millions of Abacha’s dollars to Nigeria, and in 2009, a Swiss court ordered a freeze on $350 million in Abacha family assets held in Luxembourg and the Bahamas. In 2010, the UK agreed to repatriate a further 43 million pounds to Nigeria. Many of Nigeria’s asset recovery efforts occurred under former President–and Abacha opponent–Olusegun Obasanjo’s leadership.
Especially given this precedent, not returning the assets would smack of both paternalism and opportunism. Paternalism, because the U.S. would be holding onto a sovereign country’s assets essentially on the grounds that the country is unworthy of the stolen property. Opportunism, because Western economies have for too long benefited from the ill-gotten wealth of African kleptocrats. Not returning Abacha’s assets would incense Nigeria’s public, who would likely point out that Western financial institutions were complicit in Abacha’s money laundering scheme.
That said, the U.S. may attach some conditions on how the repatriated assets will be used. Earlier, Switzerland only agreed to release Abacha’s funds on the condition that the money would be used to provide social services. And in 2010, when the U.S. returned about $40 million in laundered assets to Panama, it directed that the proceeds be used to enhance law enforcement in that country. Given this precedent, and Nigeria’s ongoing corruption, human rights, and conflict issues, the DOJ might want to steer Abacha’s recovered assets towards socially constructive, peaceful uses.
Thanks for a terrific post on a fascinating issue.
One quick clarifying question: In your last paragraph, you discuss the possibility that the U.S. might attach conditions to the repatriated assets, and note that Switzerland and the U.S. have used this approach before. I’m not familiar with these arrangements, and I was wondering if you (or some other reader out there) could explain exactly how they work, and how they are enforced. Is the money put in some special account, with the repatriating country (in this case the U.S.) having some say in how money from that account is spent? Is the money released in stages, with some kind of auditing or monitoring? Or is the enforcement mechanism more reputational? And how tight are the controls? If a condition is something like “use this money only for social services” (or law enforcement, or whatever), are there special safeguards to prevent diversion?
I ask these questions in part because it seems challenging to make these conditions strong enough to be meaningful, but not so strong that they would seem overly intrusive, the sort of paternalistic interference with sovereignty that your post rightly notes may be a sensitive issue.
Thanks for this informative and interesting post! I had a similar reaction to the suggestion that the U.S. attach conditions to the repatriated funds: how would this actually work?
It may be true that Abacha’s legacy has been largely wiped out, but it’s not clear that President Goodluck has been able to establish any sort of serious anti-corruption ethos in his government. Case in point is a story from today’s Times about the leader of Nigeria’s Central Bank, who was recently removed from office by Goodluck when he pushed too hard on Nigeria’s corrupt oil practices (link: http://tinyurl.com/ngtt6xl).
On the logistical side, there are questions of resource allocation and administrative burden. The Panama case, for example, was not a simple directive to use the funds to enhance law enforcement. It involved the creation of a six-member Executive Sharing Committee composed of U.S. representatives from DOJ, Treasury, and the Department of State, as well as their Panamanian counterparts. The Committee met regularly to approve specific expenditures, programs and projects. This is all not to suggest that attaching conditions is a bad idea, just that the U.S. should balance them against the associated costs of making sure that the conditions are not merely symbolic.
These are excellent questions. On the one hand, the U.S.would want the repatriated funds to be put to socially constructive use, and this is easier said than done when the recipient is the Nigerian government. On the other hand, heavy-handed monitoring will seem paternalistic.
Addar: you’re right in pointing out that the US-Panama repatriation process was more than an American directive; it was a joint effort. That is also what Switzerland did when it returned some of Abacha’s loot. The Swiss and Nigerian governments created a framework for spending the repatriated funds, and agreed to a PEMFAR. Both Swiss and Nigerian NGOs were involved.
The results were mixed. There were issues with accounting, and with the quality of some completed projects. Switzerland learned from this and strengthened the monitoring process when it returned funds to Kazakhstan more recently. (See the lower right-hand box once you click the link at the end of my reply.)
The U.S. can learn from the Swiss-Nigerian experience, and work with Nigeria’s government and civil society. (Civil society involvement is important, given recent news events.)
Click to access Poster_EOC2008_simon.pdf
As a matter of international law I fear the U.S. government will be hard pressed to do anything short of unconditionally returning the funds to Nigeria. The asset recovery provisions of the U.N. Convention Against Corruption (articles 51 – 59) contain no language that would allow the U.S. to condition return and a great deal of language suggesting that return is to be unconditional. Ditto for the convention’s travaux préparatoire.
During the negotiation of the convention countries where assets were likely to be stolen (“source countries”) strongly resisted suggestions of conditional return by countries where the assets were likely to be found (“destination countries”). Those in possession of stolen goods, most likely as a result of lax enforcement of their anti-money laundering laws, were in no position, source country representative argued, to condition their return to the victim. To do so was high handed and smacked of neo-colonialism.
On the other hand, nothing in UNCAC prevents source and destination countries from entering into an agreement about how and when stolen assets will be returned, and indeed article 59 invites such agreements. Those present during the negotiations say this otherwise superfluous article (two states are always free to enter an agreement so long as it is consistent with international law) was a sop to destination countries by source countries. So Nigerian and U.S. officials could agree that the returned funds were to be used for a specified purpose or purposes.
The public sector management community contends that such “earmarking” agreements are of little value, however. Suppose the U.S. actually recovers the $458 million from the defendant banks and Nigeria agrees to use all $458 million for worthy purposes, say maternal and child health care. What would prevent the Nigerian government from simply cutting existing maternal and child health care spending by $458 million? The agreement might provide that spending on such programs remain constant, say at the previous year’s level. But wouldn’t there be some natural growth in the program as more citizens become eligible? So would such a clause really be effective if the government were bent on ignoring the earmark?
In any case, the way budgets are formulated and executed in most source countries make monitoring such a commitment close to impossible. The amount actually budgeted for a program is seldom the amount actually spent, and determining actual outlays is often more guestimate than accounting science. Tracking funds is even more complex in federal states like Nigeria.
A case can be made, on political grounds rather than good budgeting grounds, for setting up a special fund to oversee the distribution of returned assets. See “Management of Returned Assets: Policy Considerations,” available on the web site of the World Bank/UNODC’s Stolen Asset Recovery Initiative. But the more productive course is to put whatever resources were planned to oversee the use of the returned assets into improving the public financial management system of the source country.
Sorry, just a quick clarification question, since I’m unfamiliar with the law in this area. Raj’s original post notes that the US is not under a legal obligation to return any of the forfeited money; that certainly seems to be the US government’s position, though they also say that they will (as a matter of policy, not legal obligation) repatriate the money seized under the Kleptocracy Initiative.
But Rick, in your post, you seem to be saying that international law (in particular, the US’s obligations under UNCAC) require the US to return the seized assets. That seems to imply that the US is, in fact, legally obligated to return the money.
It would be great if you (or someone else out there) explained how to resolve this tension. I can see a range of possibilities, but I’m not sure which are correct.
One possibility is that UNCAC’s asset recovery provisions are not self-executing, such that even though the US would be in violation of its treaty commitments if it failed to repatriate the assets, there is currently no law enforceable in US courts that requires the US to do this.
Another possibility is that although the UNCAC provisions do not allow unilateral conditions on repatriated funds, they don’t actually require the seizing country to repatriate in all circumstances.
Yet another possibility is that either the US’s position on its obligations, or Rick’s reading of UNCAC, are not right: that is, maybe the US is in fact obligated to repatriate the assets, or maybe UNCAC is fuzzy enough on this point that the US can plausibly argue it’s under no obligation to repatriate unconditionally.
This is welcome insight! You raise two important points: (1) the UNCAC only encourages, but does nothing to compel, agreements on how repatriated funds are to be used; and (2) it is very hard to ensure that repatriated funds are effectively used for their intended purpose.
Regarding the first point, I believe Nigeria would be willing to reach an agreement with the U.S., given the Swiss-Nigeria precedent. That makes monitoring the more interesting issue. It’s true that the money can disappear, or Nigeria can cut back on its own development-related expenses, and the U.S. will not be able to do much. To this, I would add two points:
The U.S. may simply be interested in showing that it put the money to good use. Once the media attention dies down, it may care little about how the funds are used. In such case, there is little incentive to monitor.
Or the U.S. might actually care a lot about how the money is used, given its security concerns in Nigeria (re: Boko Haram). If the funds end up in the hands of local agencies in northern Nigeria, for example, American authorities would want to ensure that money doesn’t somehow reach Boko Haram.
So perhaps the U.S. wouldn’t care too much about whether these assets are put to good use, but would care if they were put to bad use.
Just to note that similar questions and concerns are being raised in relation to the FCPA. Currently the US does not return any of the funds collected through FCPA-related fines and settlements, even when the payment of the bribe occurred in a developing country whose government (and therefore people) may have suffered a financial loss as a result. A commonly heard argument is that the USG Does not share the proceeds of the fine because it would simply mean giving the money back to a corrupt government. I think this raises a lot of interesting questions.
On the US obligation to return stolen assets under UNCAC, the U.S. has never been happy with the mandatory return obligation in UNCAC. The lore is that that resistance originated with the experience of asset recovery staff in returning some of the Marcos money. U.S. government personnel went to enormous lengths to find where some of the Marcos money was hidden, digging down through some 100 layers of anonymous corporations and trusts. Almost as soon as the funds were returned, it was stolen again. Or at least that is the lore. Hence the U.S. view that money should be returned only when there are safeguards in place to ensure it is not filched again.
Matthew is correct that the U.S. obligation to return stolen assets unconditionally is not a part of U.S. domestic law. It is only mandated by UNCAC and hence only an obligation under international law.
Raj’s statement that the U.S. has no obligation to return whatever Abacha money it finds cites a statement by a U. S. government official. A useful law review piece (hint, hint) would be to analyze whether that statement is correct. The scenario that could unfold if the U.S. obtains some of the money sought through the in rem action that prompted Raj’s post is different than that contemplated by article 53 of UNCAC so the U.S. might have some room to argue as a matter of law that that article does not apply. Whatever the legal analysis, I am not sure I would want to advocate that position in the court of public opinion — at least not if the jury consisted of officials from source countries!
On assesing the legal obligation of the USA it is better to pay attention to whether USA had some reservation, declarations or understanding on the ratification of the UNCAC
on the other hand it is better to use conditions in this case, so as to ensure that the funds benefits the negerian people, this can be done by using international organizations as it was the case in UK were DFID was the kernel part in setting up conditions for the use of 29£ billion in Tanzania paid as compensation for a corrupt transaction, for this method to work there must be a stable mutual agreement by both part in setting those conditions otherwise it is a peril bussines in practical; a question of sovereignty more less simiral to the russia-crimea crisis
The BAE company (radar case UK and Tanzania) advanced a suggestion to give the funds for compensation in interval and after being sure that the funds had been used properly it will pay the remained amount. ‘it was a good suggestion from wrong people’ and it was rejected.
The use of civil soceity have some challenges in developing country, as many of this organation are financialy unstable; they are hungry,, “hungry people are the stuffs from which corruption is made”
I think its fantastic you wrote a blog post on this issue! I think the questions you have raised in this post are extremely important and should be part of the conversation when anti-corruption enforcement results in repatriation.
While your blog post refers to repatriation mandated by the U.S. government, I think it is also worth considering the implications of companies voluntarily agreeing to repatriation. This is something that has been done in anti-corruption cases with a famous example being the case against British Aerospace (BAE). BAE had voluntarily agreed to give money to the Tanzanian government.
Some have criticized BAE’s actions because they believe that voluntary payments arising from a settlement will convey the message that any company can pay its way out of a corruption charge. This NYT touches upon these critiques in further detail. http://www.nytimes.com/2010/02/06/business/global/06bribe.html?_r=0
I think the criticisms related to the BAE case and the DOJ’s freeze of Abacha’s assets raise some interesting questions. Should we use these policies to prioritize deterrence or compensation? Should policy makers be required to choose one over the other?
Thanks for the post. I wasn’t aware of the US’s policy under the Kleptocracy Initiative of returning the funds to the source country. I was wondering whether you’re aware of any exceptions to the general practice of returning the funds? I can imagine situations in which it’d be next to impossible either to return the funds to the government or to find NGOs that could handle the volume of available funds. In those cases, what happens? Or has it not come up?
Pumping hundreds of millions of dollars into a country with corruption issues (either in the government or nonprofit space) seems like it could sometimes be a recipe for disaster.
This is a great discussion. I will confess that I do not know much about the legal framework surrounding this issue. I’d like to pick up on a few really interesting points made.
First, Francesco points out something interesting re: the FCPA. In response, I feel that we must distinguish between FCPA fines and assets hidden abroad by kleptocrats. I do not think that FCPA fines need to be shared with another country, since the fines do not represent assets taken out of a country. With KARI, however, we are dealing with a foreign country’s assets.
Second, does international law oblige the US to return assets seized under KARI? Rick notes that this would make a good topic for a law review article. I would be willing to help somebody thinking of looking into this question!
Maryum, your question could also apply to financial institutions. If a bank believes its receiving stolen money, should it voluntarily return the funds to the host country? What would be the best way to do this?
Eden, I am not sure if there has been a situation where a country refuse to return funds simply on the grounds that they didn’t trust the government or an NGO to receive money. (I would really like to know if this has happened anywhere.) My guess is a situation like this will generate bad press, and so a government might want to hand over the money just for the optics.
A late reply to a very interesting post on a subject I’ve had long personal and professional history of working on. I won’t attempt to comment on many of theother great points in the post and the replies and will limit myself to 3 things: (1) Raj’s point about how “not returning the assets would smack of both paternalism and opportunism,” (2) Rick’s note on what the UNCAC means in Chapter V’s reference to the return of assets and (3) what some of the possible, arguably just, options on return might be from my experience.
I was a commissioner in the Philippine government commission that oversaw the litigation of corruption and human rights cases against the Ferdinand Marcos family and the national and international effort to recover their assets. I was in the Ad Hoc Commtitee that drafted the UNCAC, and was particularly involved in the long, difficult negotiations over Chapter V. (I now work in the field of transitional justice and have tried, whenever it becomes relevant, to link my work on accountability for human rights violations with accountability for large-scale corruption and other economic crimes in post-dictatorship and even post-conflict countries.)
I agree with Raj’s point on paternalism and opportunism. There can be many different legal and policy arguments for not returning assets obtained through corruption or for imposing conditions for their return. Some may even be rational — such as preventing their loss if returned to a country ruled by another set of corrupt officials — or legal, such as arguing that the UNCAC Chapter V reference to return isn’t self-executing. But the fact is that these assets were stolen from an invariably developing country, many times emerging from dictatorship or conflict, and
as Raj points out, have been the source of enormous profit for complicit banks and the foreign governments that fail to curtail and regulate their banks’ willingness to accept proceeds of corruption or even crimes against humanity.
I can’t pretend to have read the entire travaux preparatoire of the UNCAC, but can recall that during the negotiations involving draft Chapter V, when Switzerland and Liechtenstein adopted positions that were unbelievably paternalistic and opportunistic (Switzerland, for example, proposed that money they returned should be counted as official development assistance), the views of negotiators for developing countries on the other side of the table (literally, in the side conference rooms at the UN building in Vienna) simply and naturally cohered and led to most of what is now found in Chapter V. To not return ill-gotten funds on the pretext that it could be stolen adds insult to injury. In any case, there was no empirical basis for that position since Switzerland had no history of restitution, until the return of Marcos funds in 2003. But to entrench the insult in a treaty was clearly offensive and explains why Chapter V, even if unclear in some parts, makes the responsibility to return a default position.
Rick Messnick’s reference to the lore regarding the US attitude vis-a-vis Marcos funds: I can’t speak to what the attitude was in the first 15 years of the effort, since I was in college when those efforts began. I was already a lawyer for over 10 years by the time I worked on the return of Swiss assets from 2001-2004. In that period, the US government in fact assisted in the return of assets to the Philippines, including real property, funds in US banks, proceeds of paintings recovered and sold (although the recovery last year of Imelda’s Monets is still subject of a complicated process that overlaps with US ATCA litigation against the Marcoses by victims of his dictatorship.) The UNCAC isn’t clear about the responsibility to return; my recollection is that this isn’t self-executing and that we ended up agreeing to reflect in the travaux that asset recovery and return was to be elevated and referred to as a “principle.” Since then, there have been a few other international mechanisms that I would argue have reinforced this principle. The Rome Statute creating the ICC, for example, contains provisions governing the freeze, confiscation and seizure of a convicted person’s assets and the use of these assets as reparations for the crime’s victims.
But the third point I wanted to make is where practice might help those, like the bloggers that write here, reflect on what can be done in the actual countries in which the implications of these debates have real, life-and-death importance. In the process of negotiating the return of $680M in Marcos assets in 2002-2003 with Swiss officials, I ended crafting one of the approaches that I think and hope will be seen as a logical and just outcome in similar contexts. I proposed that Switzerland return the assets unconditionally while we would make a political commitment to use part of the assets as reparations for the Marcos dictatorship’s victims. I then drafted what is now the reparations law for Marcos dictatorship victims, with $200M out of the $680 returned funding the ongoing reparations program.