The issue of repatriating the proceeds of corruption to the countries from which they were stolen has attracted substantial commentary, including in multiple posts on this blog (see here, here, here, here and here). Much of the discussion focuses on whether and how to return funds to countries that still suffer from systemic corruption or outright kleptocracy. In these cases, the risk that the assets, if simply returned, will be stolen again is, in the view of some critics, unacceptably high. In some cases, despite these risks, the government that seized the assets nevertheless repatriates the seized funds directly to the government from which they were originally stolen; the US Department of Justice (DOJ) has done this in several cases, including asset returns to Peru, Italy, and Nicaragua. In other cases, by contrast, the seized funds have been funneled to a local NGO rather than to the government. This was done in the agreement among the United States, Switzerland, and Kazakhstan regarding the transfer of corruption proceeds to Kazakhstan (an agreement which created a new NGO called the BOTA Foundation). This mechanism was also included in the DOJ’s settlement with Equatorial Guinea over the disposition of assets stolen by the President’s son, Teodorin Obiang. Another approach, which we saw in this past February’s trilateral agreement among the United States, Jersey, and Nigeria regarding the return of $308 million in assets stolen by former Nigerian dictator General Sani Abacha (which I discussed at greater length in a previous post), entails the earmarking of the repatriated funds for specific infrastructure projects, coupled with oversight by a yet-to-be-determined independent auditor and yet-to-be-determined independent civil society organizations (CSOs), with both the auditor and the CSOs selected by Nigeria, but subject to a veto by the United States and Jersey.
The inclusion of these various conditions is understandable. Notwithstanding the sovereignty-based objections advanced by the so-called “victim countries”—which often assert that they have an absolute right to the unconditional return of assets stolen from their national treasuries—returning huge sums to corrupt or weak governments without any safeguards would be irresponsible. Nevertheless, there are many pitfalls involved with leaving oversight largely to the victim country government and local CSOs, and the ability of countries like the United States to monitor compliance with the terms of repatriation agreements in foreign countries is limited. The best way to address these concerns is to involve an international institution—such as the World Bank, or possibly one of the regional multilateral development banks—in monitoring the terms of repatriation agreements.
This has already been done in several cases. Under the US-Switzerland-Kazakhstan agreement mentioned above, the World Bank played a key role. First, the World Bank, together with the BOTA Foundation’s Board of Trustees, selected the NGO that served as the Program Manager for the foundation, and the World Bank also drafted the Management Agreement that laid out the Program Manager’s responsibilities. Second, the World Bank prepared the BOTA Foundation’s operational manual, which governed the daily operations of each of the foundation’s programs and established the procedures for awarding grants and disbursing funds. Funds approved by the World Bank for disbursement were deposited in a BOTA Program Operational Account, and the World Bank could review the account records at any time. Third, the World Bank was tasked with ensuring that the BOTA Foundation had an adequate financial management system in place, such that the foundation could prepare semi-annual financial statements in accordance with accounting standards approved by the World Bank. The World Bank also assisted the three governments in selecting an independent auditor and provided the terms for the audit. World Bank officials themselves also made semi-annual office visits to review the foundation’s accounting records, and the World Bank also prepared regular progress reports on the BOTA Foundation’s programs to the three governments.
Similarly, a 2017 agreement between Switzerland, Nigeria, and the World Bank to return $321 million, also stolen by Abacha, provided that the World Bank would monitor the deployment of the funds. The funds are being used to help finance Nigeria’s National Social Safety Net Project, which already receives loans from the World Bank through the International Development Association (IDA). The World Bank monitors the repatriated funds through the same mechanisms it already employs to monitor IDA loans.
There are two principal advantages to World Bank monitoring of repatriated assets:
First, World Bank monitoring guarantees professional financial oversight by an independent organization. In many states where corrupt proceeds are repatriated, local private firms and CSOs may not have the capacity to conduct sufficient independent monitoring. World Bank monitoring could operate in two ways to address the capacity or independence concerns with financial auditing and program monitoring. Similar to the Kazakh case, the World Bank could oversee the selection of NGOs and auditors and ensure that the selected organizations are reputable and that accounting reports meet World Bank standards. Given the World Bank’s expertise, it may have better information on international NGOs and auditing firms with the capacity to operate effectively in different countries around the world than the Western governments typically participating in asset repatriation agreements. And giving the World Bank a meaningful role in selecting independent auditors and NGO monitors would ameliorate concerns with relying on public procurement processes in the victim countries to select these oversight entities.(To continue with Nigeria as in illustration, the Nigerian public procurement is rife with corruption, and this poses a challenge to the proper implementation of February 2020 agreement with the US and Jersey.) Alternatively, or in addition, the World Bank itself could conduct financial audits and program monitoring. The World Bank did directly review BOTA Foundation accounting records and prepared its own progress reports, so such direct oversight is not without precedent.
Second, while victim countries would prefer unconditional asset return, that option will often not be on the table due to the resistance of the returning state, and from a victim country’s perspective, involving the World Bank (or one of the regional development banks) in overseeing the implementation of the terms and conditions of the asset repatriation agreement may be preferable to the alternative of letting the returning state (almost always a Western country) dictate the terms. Additionally, making the World Bank a party to repatriation agreements, as in the 2017 Switzerland-Nigeria-World Bank agreement, would also give victim states the opportunity to negotiate the extent of the World Bank’s monitoring role directly with the organization. Bringing the World Bank in as a party to repatriation agreements and having it serve in a monitoring capacity may actually allow for the greatest respect for victim state sovereignty while simultaneously ensuring independent, professional financial audits.
For these reasons, it seems better to rely on World Bank monitoring, rather than leaving monitoring to the returning and victim states, and the World Bank’s involvement in the Kazakh and Nigerian cases should be a precedent for future repatriation agreements.