The Murky Business of Asset Recovery for Hire UPDATE

Premium Times and Finance Uncovered offered yesterday a glimpse of the lucrative business of asset recovery for hire.  A story posted on the websites of both the Nigerian paper and the London NGO (here and here) reports that the Nigerian government has hired Johnson & Johnson, a small Lagos-based law firm, to recover as much as several hundred of millions of dollars stolen from it through corrupt oil deals.  In return the firm will be paid five percent of whatever is recovered.  Johnson & Johnson, which apparently “won” the contract through an unsolicited proposal, has partnered with an investor who will pick up the firm’s cost to recover the money in return for a 300 percent return on its investment.  UPDATE: The Premium Times reports a coalition of civil society groups has asked Nigeria’s justice minister, Abubakar Malami, to release details of the agreement with Johnson & Johnson.

The Johnson & Johnson deal is not the first time the Nigerian government has turned to a private firm to recover stolen assets.  To recoup what General Sani Abacha stole while head of state in the nineteen nineties, it hired Geneva lawyer Enrico Monfrini. His take of the recovery was only four percent, not Johnson & Johnson’s five, but he still came out rather well.  For the 3,000 hours per year he told Swiss journalist Sylvain Besson he and his colleagues put in to recover $600 million of Abacha funds, which works out to roughly one lawyer working full-time and one-half time each year, his firm was paid $24 million (4% x $600 million).

Ever since UNCAC put the recovery of stolen assets on the international agenda, private contractors have been lining up to help developing country governments recover assets.  While there have been some successes, they have, as the Abacha case shows, come at a very high price.  Are they worth what the governments are being charged?  Are there better, cheaper alternatives?

The non-profits which spent years investigating Nigeria’s corrupt oil deals are demanding that the contracts between Nigeria, Johnson & Johnson, and the other private agents the government has hired to recover assets be disclosed.  The Nigerian public would then be able to judge the wisdom of the deal.  As they do, here are some issues they and others deciding whether to hire a private firm should consider.

Alternatives.  The most important consideration is whether some entity will help recover assets at little or no cost. If a government has a good idea of where the assets are hidden, it should meet with the authorities of the country or countries.  If law enforcement authorities are willing to help, it will come at little or no cost.  Even better, law enforcement has tools to help in the location and recovery of assets no private firm can match — search warrants, confidential data bases, access to bank records. The United States, the United Kingdom, and Switzerland – three jurisdictions where crooked politicians like to park their money – have all helped many countries.  In recent years, financial centers in the Caribbean and East Asia have also assisted developing countries find and recover assets.

Two other no-cost alternatives are the World Bank/UNODC Stolen Asset Recovery Initiative (StAR) and the Basel Institute’s International Centre for Asset Recovery (ICAR).  Particularly when a country does not have information on where the assets are located, these two can help unearth the needed information, both by searching public records around the globe and through the contacts they have in countries where assets are hidden. Like law enforcement agencies, they do not charge for their services.

Law enforcement agencies, StAR, and ICAR do not exhaust the possibilities of finding pro bono or “low bono” (highly discounted) legal help.  There is for example the London-based International Senior Lawyers Project.  It maintains a list of retired and active counsel in many countries that can advise on asset recovery.

Prices & Services.   Before any firm is hired, it must be clear what they are going to do and what they are charging or what they expect to recoup from the monies returned.  This will provide a baseline against which to see if the prices are reasonable.

The first step in virtually any investigation is a search of the public records.  Not only press accounts but, depending upon the country, examination of land and vehicle registries, corporate ownership documents, and court records. How extensive a search is planned?  Who is going to be employed to do it? For comparison’s sake, graduate students at premier American universities can be hired for $20/hour to conduct such searches.

What else is the firm promising to do? Conduct investigations in the country or countries where assets may be located? How many?  How extensive? Extreme care must be exercised if it says it will interview individuals or conduct surveillance in a third country.  In one case I know of, a private contractor was arrested for interviewing bank employees and real estate agents in a country where assets were thought to be hidden.  Although the interviews were voluntary, the country’s Attorney General considered it a violation of his nation’s sovereignty for an agent of another country to conduct an investigation on its territory.  The agent was deported, and the Attorney General refused to provide any assistance to help the country that hired him recover assets.

An important consideration is whether the agent will represent the country as a “civil party” in a criminal case in a third country?  Many civil law countries allow the victim of a crime to be a party to the prosecution and recover damages if the defendant is found guilty.  In several cases, Switzerland has allowed governments to recover stolen assets by joining a criminal prosecution as a civil party. For a country pressed for resources, this is an enormous boon as Swiss prosecutors do all the work, and if they succeed, the government gets the money.

Swiss lawyers recommend that governments wanting to be civil parties in Switzerland retain counsel to guide them through the process and protect their interests.  Representation is not nearly as expensive as it would be in a private civil suit for damages, however.  Not too long ago, an experienced former Swiss prosecutor quoted Swiss francs 25,000 to serve as counsel to a government wanting to be a civil party.

Fees. The disclosure of the Nigerian deals illustrates several questions that should be asked in any deal.  How was the percentage of the recovery to be paid the contractor determined?  Monfrini got four percent while John & Johnson is to receive five.  Why?

Is there any cap on the total amount?  There is no reason a contingent fee agreement could not set a ceiling on the fee, say $5 million, or cap the hourly rate.  Should Monfrini have been allowed to collect $8,000 for every hour he and his colleagues worked on the case? Wouldn’t they have still taken it if the contract had provided a cap of $2500 per hour, double what priciest New York and London lawyers earn.

There may well be times when circumstances merit a government’s hiring a private firm to help it recover stolen assets.  And firms taking work on contingency deserve to be paid well for taking the risk that if they don’t find anything, they don’t get paid. But governments should not hire a firm until it has publicly explored the kind of questions raised above and come to a firm conclusion that the public interest is furthered by retaining private counsel.

THIS POST UPDATED TO CORRECT ERROR NOTED BY COMMENTATOR.

 

4 thoughts on “The Murky Business of Asset Recovery for Hire UPDATE

  1. The Article about the Swiss Recovery Effort says that they had ” 3000 heures par an” which amounts to 45,000 billing hours and a loan of around $533.33 per hour before taxes which amounted 65%. So basically only $4 Million left according to the article.

    • My mistake. Thanks for catching. I have to say I wonder about the amount of time claimed. In the United States, lawyers working on public interest and class action matters have to file their time records with the court to recover their fees. Would think that would be a useful way to ensure governments are not being fleeced. Agree?

      $533/house still isn’t peanuts. There are non-profits that help countries recover assets for much, much less.

      But thanks again for correcting my error. Please don’t tell my high school French teacher. Merci

  2. Dear Richard,

    Thank you for sharing your ideas on this topic.

    I am a reporter with Finance Uncovered, and am one of the co-authors of the story you cited.

    Would you have any objection if our publishing partners at the Premium Times republished your blog?

    You are welcome to get in touch with me directly via the email address provided.

    Yours truly,

    Lionel Faull

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