The anticorruption community has recently put more emphasis on freezing, seizing, and repatriating the assets of corrupt kleptocrats. But while this move is in many ways welcome, it is still the case that essentially none of the most infamous kleptocrats have ended up behind bars. Even when governments go after the illicit assets of these kleptocrats, their cronies, and other “politically exposed persons” (PEPs), the governments seeking asset recovery often find themselves put to an uncomfortable choice: either to accept the return of only a part (sometimes a small part) of the looted wealth in a settlement, or to continue to pursue their attempts, often in vain, to seize and repatriate all (or at least most) of the stolen assets.
Sophisticated PEPs know this, and usually take advantage of the slowness of the asset recovery process (as well as their ability to use their ill-gotten wealth to hire top-notch legal talent to wage a protracted legal battle), to the point where the governments are willing to allow the PEP to secure the “golden handshake” of a favorable settlement. Nothing illustrates this better than the attempts to recover the assets of former Nigerian President Sani Abache and of former Kenyan President Daniel Arap Moi. Abache’s family’s lawyers stiff resistance to asset recovery efforts eventually led to a settlement whereby the Abache family returned $1 billion–but got to keep $300 million. In the latter case, the Kenyan authorities insisted on recovering the full amount–and have ended up with nothing. The Kenyan experience has served as a cautionary tale, inducing for example many of the Arab Spring countries to accept settlements they would have never accepted two years ago. This result frustrates the foundational principle of penology that a criminal who gets caught should end up worse off than he would have been if he did not commit the crime. A corrupt official who knows that the worst that can happen is that he might have to give back half or two-thirds of the money he stole is unlikely to be deterred.
At the moment, it does not seem realistic to expect more severe criminal punishment for many kleptocrats, so reliance on settlement will continue for a while. Accordingly it is important to figure out how to use settlements to guarantee the maximum restoration of assets. The two most important factors that shape the content of a settlement are national and foreign justice. Consider each in turn.
- First, with respect to domestic legal capacity, as the Stolen Asset Recovery Initiative‘s Few and Far report emphasizes, a key area for improvement is the administrative process for asset freezing; this is likely to be particularly important for countries in the midst of a restructuring after revolution or other conflict. For example, a more lenient threshold of proof and streamlined procedures will strengthen the state’s bargaining position in settlement negotiations. While one might argue that a streamlined administrative process with a lower standard of proof runs the risk of arbitrary freezing by the government against its opponents, or at least without sufficient guarantees for the accused, the fact that all administrative decisions are judicially challengeable mitigates this risk. The ability of the government to use an administrative process to temporarily freeze assets while the dispute is ongoing is not a replacement for criminal litigation or even a final seizure order; rather, such a process serves the dual functions of preserving the money and creating a better bargaining position for the state (as the PEP no longer gains so much from delay).
- Secondly, foreign jurisdictions inadvertently play a role in creating the pressure on governments seeking asset recovery to accept a favorable settlement, by imposing overly complicated procedures for mutual legal assistance (MLA). This puts the PEP in a better bargaining position, because if the government fails to settle, it will face so much administrative difficulty and delay in securing the necessary foreign cooperation. Accordingly, simplifying the MLA process weakens the bargaining power of the criminal. Although there has been considerable progress on this front recently, these efforts still have not done enough to overhaul the formalistic, red-tape nature of the MLA process in asset recovery cases. Moreover, the lack of a uniform centralized MLA mechanism works to the advantage of PEPs trying to delay or disrupt asset recovery efforts. Thus, as I suggested in an earlier post, there is a need for optional protocol to the UN Convention Against Corruption (UNCAC) that would harmonize or supervise the enforcement of UNCAC’s MLA obligations through accrediting certain domestic procedures as enforceable in other state parties, and also expediting the MLA process in requested countries.
In sum, as long as PEPs can continue to exploit the slow pace of asset seizure processes, and can use their associated leverage to secure favorable settlements, these individuals will continue to view corruption as largely a risk-free crime, at least if they have nothing to fear from prosecution in their home countries. The best way to combat this problem is to strengthen the government’s bargaining position by streamlining the process and giving the government relatively more leverage.
Mohamed — Great post. I think your suggests are spot on. I argued in a prior post (https://globalanticorruptionblog.com/2014/07/14/conference-room-advocacy-the-negotiating-power-of-corporate-fcpa-defendants/) that the cumbersome nature of MLA requests provides corporate targets in FCPA investigations with bargaining power. I viewed that as a reason to discount oft-expressed fears that companies are bullied by an overly aggressive DOJ into dubious FCPA settlements. But I was not, of course, suggesting that it is a “good thing” that the MLA process is so cumbersome. As you point out, when our goal is to improve the capacity of government to prosecute complex transnational corruption schemes, the limiting features of the MLA regime are, well, quite limiting.
One thing that also stood out to me is that the settlement practice actually creates perverse incentives — because (1) these kleptocrats are generally able to use the money to hire lawyers that generally are effective at preventing complete recovery and (2) they only have to give up a portion of the funds they illicitly accrued while in office, they have an incentive to just hoard more and more and more. The more you take, the more likely you are to keep it and the more you’ll get to keep even when you have to give some of it back.
Your MLA suggestion makes a lot of sense (and, having missed Jordan’s earlier post, it’s something that hadn’t previously occurred to me–another good reason for reform on that front). I can see people objecting to your first point, but the second suggestion seems like it’s something a little harder to object to (though I’m sure there are still some reasons to do so, which another reader will probably point out). Jordan’s points about perverse incentives are also troubling. Still, given how incredibly drawn-out corruption cases, particularly high-profile ones, end up being, I, too, have trouble envisioning a decline in settlements any time in the near future.
This is a great post and I agree completely with your two points. I just have two thoughts.
First, while settlement can create perverse incentives, sometimes it ends up being a good outcome as in the Abache case. It’s true they got to keep $300 million, which is far from ideal, but it’s better than finding less than $1 billion in frozen assets and being able to forfeit a far lesser amount. I don’t think the Abache case is necessarily a bad case because the recovery was incomplete considering how difficult and rare it is to get a complete recovery. Also, settlements saves costs/resources of lengthy investigations and litigation, finding assets, etc. So I still think settlements are necessary though I agree with a lot of your concerns that apply even outside of the anticorruption realm and across settlements in prosecutions generally.
Second, there are ways to temporarily seize assets in the domestic realm that have come out of AML regulations and the like. For instance, in New York County where I worked, it is possible to seize assets in a bank account temporarily by conducting what is technically a “search warrant” of the account, for which the legal standard is lower than seizing the account, instead of formally seizing it. These kinds of measures often require the local authority to get these warrants so it doesn’t solve the problem of assets which have been laundered overseas. Your suggestion also doesn’t solve the problem of assets that simply don’t appear in any accounts or have been otherwise hidden. An easier ability to seize the assets doesn’t solve the problem of actually finding them.
Thanks for sharing, Mohamed.
I share your frustrations on impediments to return, and agree that the implementation of the MLA process is ineffective. I however don’t think an optional protocol to UNCAC would be particularly helpful. It would not fix the implementation issue. UNCAC as it stands, is flexible enough to allow for effective cooperation and return if requested states choose to do act. It again comes to the clichéd political will.
On the related penological point: I suspect that we are all still feeling our way around settlements in transnational corruption and embezzlement-type cases (as distinct from corporate FCPA type settlements). And the pending litigation on the Abacha case is a good example. Curious to see how it all goes.