Policing Private Parties: How to Get Kleptocrats’ Seized Assets to their Citizens

As Rick has pointed out, it is exciting to see the successful forfeiture of U.S.-based assets owned by sitting Vice President of Equatorial Guinea, kleptocrat and international playboy Teodoro Nguema Obiang Mangue (“Obiang”). The Department of Justice estimates that the assets are worth an estimated $30 million. Also encouraging is the fact that the bulk of the settlement funds will be returned to the people of Equatorial Guinea. This is the first case in which the assets of a current leader’s cronies will be seized and repatriated to the country of origin by the U.S. Disbursing millions of dollars transparently in country that ranks 163/177 on Transparency International’s Corruption Perception Index will be challenging.

In stolen asset repatriation cases, the debate over disbursement typically boils down to whether to channel reclaimed cash through the government or through private actors. In Equatorial Guinea, returning the money directly to the government is a non-starter: the Obiang family has an extensive record of human rights and corruption abuses and a tight grip on power. The DOJ settlement accordingly cuts the government and its henchmen out of the forfeiture proceeds and channels repatriated funds through a private charity. But simply relying on private actors will not eliminate corruption challenges; there are pitfalls in channeling aid through private NGOs as well.

The DOJ should keep the following risks in mind as works out a disbursement plan for the Obiang settlement funds:

  • Political reprisal against aid recipients: Obiang’s father, President Teodoro Obiang Nguema Mbasogo, has silenced dissent, tortured opposition leaders, and shut down or coopted all independent media organizations in Equatorial Guinea. Bearing the dubious distinction “world’s longest-ruling, non-royal head of state,” Obiang may be tempted to act vengefully toward aid recipients, and so the DOJ should do what it can to prevent such retaliation. This will be especially challenging since there are few independent voices within the country that could raise the alarm should intimidation occur.
  • Ingrained corruption in non-governmental organizations: In an environment where exploiting power and money for favors is common, local NGOs may be susceptible to the same pressures that have fostered corruption in other sectors. As a 2010 Transparency International report highlights, even when local NGOs do not themselves engage in corrupt activities, they may outsource certain pieces of development projects to intermediaries that make the “facilitation” payments necessary to proceed. DOJ’s settlement in the Obiang case provides some safeguards against this, including by prohibiting the government, public officials, their relatives or legal entities controlled by them from receiving payments or other consideration from the funds. Nevertheless, ensuring that all local partners operate bribe-free will be a another tough challenge.
  • Weak infrastructure: Equatorial Guinea has weak infrastructure and few trained personnel with the administrative capacity to manage large capital inflows or development initiatives. This significantly increases the risk of corruption. Afghanistan provides a cautionary example: Local Afghan organizations proved incapable of effectively absorbing, utilizing, and monitoring the massive aid disbursements that followed the U.S. invasion, and corruption burgeoned. Ensuring that funds reach the intended beneficiaries will likely require building disbursement systems from the ground up, tapping local resources but also relying heavily on external expertise.

These challenges, though particularly pronounced in Equatorial Guinea, are present in other nations as well. So what can the DOJ do here—and elsewhere—to mitigate these risks?

One encouraging example is the DOJ, Swiss, and Kazakh government settlement in the Giffen case. The US and Swiss governments seized the assets of an American businessman who had been giving and taking kickbacks from Kazakh officials to secure business deals. The Giffen agreement, which has been widely hailed as a success in transparent, private disbursement, laid out clear guidelines for the repatriation of the funds to ensure that they actually reached needy Kazakhs.

The settlement (and MOU it incorporated) required the establishment of a new, private charity—the BOTA Foundation—to oversee the conveyance of seized funds to poor Kazakh children and youth for specified purposes like improving nutrition, education, and child safety. The settlement clearly delineated the scope of the program, external monitoring mechanisms, and selection procedures for key BOTA Foundation officers. It also conditioned later disbursements on proof of appropriate use of earlier funds, and created two anticorruption initiatives within the Kazakh government to be overseen by the World Bank.

By contrast, the Obiang settlement avoids such specifics. It notes merely that the funds are to be used “for the benefit” of the people of Equatorial Guinea through a private charity, which must publish its accounts and expenditures annually, and provides a charity-selection mechanism. As the Justice Department hammers out the details of a disbursement plan and selects a charity, it should insist on stringent oversight and reporting mechanisms like those embraced in Giffen, and clear, measurable goals. (The settlement terms require input from both the US and Equatorial Guinea in selecting a charity, but gives the US the upper hand in case of persistent disagreement.) In addition, DOJ should secure specific guarantees against political reprisal for aid recipients; with the kleptocrats still in power, Guinean citizens face greater risks than those in Kazakhstan did.

These safeguards are no silver bullet–America’s ability to monitor and redress problems in another sovereign nation are limited, and ruthless dictators may flout even the most carefully designed procedures. But the BOTA Foundation’s success suggests that with the appropriate safeguards, there are reasons for optimism.

7 thoughts on “Policing Private Parties: How to Get Kleptocrats’ Seized Assets to their Citizens

  1. I know the Kazak model has its downsides–something like a third of the money has gone to administrative costs, I think?–but I’m inclined to agree with you that in cases where corruption in the state and NGO level is pervasive and existing NGOs don’t have strong infrastructure, it’s the way to go. It’s important to involve the country to which the assets are being restituted to the greatest extent possible (on both practical grounds–local expertise, minimize costs by using existing infrastructure–and principled grounds–respect for sovereignty), but in a case like Equatorial Guinea, the sliding scale unfortunately has to be heavily favoring less local involvement. If there are any local NGOs that can be relied upon, though, they might be useful as additional monitors (sort of like the model used in returning the Abacha money to Nigeria, but with the monitoring occurring from the beginning instead of so late in the process).

    Though the conditions of asset restitution should vary based on country context, I do think the U.S. could benefit from establishing (at the least) some sort of internal guidelines about factors to consider for these sorts of agreements. Maybe such guidelines do exist, but if not, we’re getting to the point (especially after all of Switzerland’s efforts to return the proceeds of grand corruption) where enough asset restitutions have occurred that some lessons can be drawn.

  2. You are raising a good point that was recently highlighted by Few and Far report. The report calls upon countries to “consider legislative changes necessary to permit the inclusion of third parties in settlement agreements in foreign bribery cases”. A similar point was covered by the report entitled “left out of bargain” Which mentioned that only 3% of the payments imposed on companies over the last 13 years were returned to the countries where the bribe took place.

  3. I think your point about the risk of political reprisal against aid recipients is a really important one. I also wanted to note that, to my mind at least, it seems likely that a less dire (though still troubling) type of reprisal in these situations will simply be the unjust imposition of additional taxes/fees/fines on aid recipients so that these funds are, in one manner or another, eventually returned (in whole or in part) to the state’s government. Moreover, it is difficult to conceive of a way in which the DOJ could appropriately structure a disbursement plan to address this kind of state action as such measures would presumably occur after the funds had been dispersed and attempts by the US government to limit such conduct would likely run afoul of various diplomatic/state sovereignty concerns.

  4. Julissa, I think that the question you’ve raised here (and elsewhere) of public versus private disbursement mechanisms is a challenging and interesting one. Even with the government out of the running in this case, myriad options remain. Although the BOTA Foundation sounds like a good model, I wonder if it would not be preferable to work through an existing, domestic NGO.

    Although a local organization would be all the more susceptible to the shortcomings you identify, using it could be an appealing capacity-building opportunity. For one, officials and employees there could gain experience with compliant money management. The public would also be less likely to perceive the program as a Western-dominated initiative. Furthermore, the institution would outlast the recovered funds. In fact, the private charity might even be the target, as well as the vehicle, of repatriated assets. Money could be dedicated to training related to integrity and transparent financial management. I suppose the success of such a plan would require insight, oversight, and resources that the DOJ is ill-equipped to provide.

    In thinking about your post and these ideas, I had a couple questions: (1) What exactly does “for the benefit of the people” entail? Would channeling funds to training and capacity-building for specific organizations be too limited to serve the purpose of the settlement? (2) After the details of the disbursement plan are finalized, will the DOJ continue to play a role in the plan’s implementation? You indicate that the disbursing authority retains monitoring power in BOTA’s case and I believe an American sits on the BOTA Board. I’ve already noted the DOJ’s resource and mandate limitations but I am curious about the actual degree of involvement.

  5. Pingback: Corruption Currents: Hackers Target Sony’s Playstation Store | Guess Who Leads the Bribery World?

  6. Thank you, Julissa, for getting this discussion started and pointing out the US, Swiss and Kazakh government settlement in the Giffen case as an encouraging example of asset repatriation. I’ve spent the last five and a half years leading the team at IREX (a Washington, DC-based international NGO) that built and managed the BOTA Foundation. I can tell you that it was no easy task and everyone involved learned a lot along the way, but as we are winding up the repatriation and looking back, I believe we can say it was a success.

    The three risks you highlight were certainly considered in the BOTA Foundation repatriation, and the set up and structure of the repatriation sought to address all three concerns at the outset. The combination of 1) an international organization (IREX) to manage operations and provide technical guidance, 2) a Board of Trustees with two international representatives (one US and one Swiss) and five Kazakhstanis to provide overall governance, 3) the World Bank to provide continuous supervisory support to the Board and three government parties, and 4) the three government parties to make final approvals on key issues such as transferring funds to the Foundation mitigated reprisal, corruption and infrastructure/capacity risks.

    I noticed that one of the replies referred to the BOTA Foundation repatriation as expensive. The expectation should be to return as much of the money to the people as possible. That being said, it is important to understand that transparent and effective repatriation isn’t free. In the case of the BOTA Foundation, our goal was to maximize the funds to the people while at the same time investing in the management and systems necessary to ensure transparent and effective return. It is natural that people would be interested in where the money actually went and we have worked very hard to account for every last cent. Our final numbers for the $115,700,000 in disputed assets are:
    • $79.1 million directly into the hands of Kazakhstani beneficiaries;
    • $18.1 million on direct program costs (costs directly associated with programs such as travel or trainings for beneficiaries); and
    • $18.5 million on administration.

    To Elizabeth’s point about using existing, domestic NGOs – I absolutely agree that this should always be considered. BOTA was a domestic NGO but did not exist prior to the decision to repatriate the funds through a Kazakhstani Foundation. It was created from the ground up in part to mitigate some of the risks that Julissa pointed out in her original post. The larger point to consider here is sustainability and legacy. IREX spent considerable energy on both. The BOTA Foundation repatriation leaves behind 200,000 plus beneficiaries, improved social protection policies at the national level, new service delivery models at the community level, and a coalition of BOTA grantee NGOs (that received both institutional and technical capacity support) that will fill some of the space that BOTA leaves behind. Additionally, IREX and the BOTA Foundation trained over 120 Kazakhstani staff on transparent financial and grant management, organizational policies and procedures that meet international standards, and technical skills that they will certainly pass on to others as they find new jobs in Kazakhstan. This capacity will not be lost.

    IREX is always happy to discuss our experience with the BOTA Foundation repatriation. We have drawn lessons that have been discussed with the US and Swiss governments as well as the World Bank and we look forward to sharing the learning more widely as well.

    I’ll end with a link to a film we pulled together based on our experience with the BOTA Foundation repatriation that may be of interest. https://vimeo.com/assetsforimpact/overview

    • Lots of useful information here, thanks. I’m currently looking at possibilities for how the French government can repatriate funds confiscated from Obiang (Equatorial Guinea). One of my immediate thoughts was; how to prevent the government simply cutting social spending once the funds are repatriated and in this way effectively getting back the confiscated assets. Example: ONG funded by recovered assets builds hospital, government closes public hospital and pockets the savings. Was this considered in the Kazakh case? Any info available on this?

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