FACTI Background Paper: To Curb Grand Corruption, Subject Lawyers and Other Professionals to the AML Laws

Last March, the President of the United Nations General Assembly and the President of the United Nations Economic and Social Council formed a panel to review global rules on financial accountability, transparency and integrity (here).  The two presidents explained that the current regime countenances a massive outflow of resources from developed nations, depriving them of the resources required to meet the 2030 Agenda for Sustainable Development.  Formally known as the High-Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda Financing for Sustainable Development (FACTI), the panel will recommend how tax and anticorruption laws, asset recovery rules, beneficial ownership disclosure requirements, and other international norms can be changed to staunch illicit financial flows and hasten the return of corrupt monies held abroad.

The FACTI Panel’s interim report will be released for comment September 24. The report will draw on consultations with governments, civil society groups, interested organizations, and a series of background papers commissioned by the United Nations Department of Economic and Social Affairs, the panel’s Secretariat.  With Fatima Kanji of the International State Crime Initiative, this writer authored the paper on asset recovery. A post summarizing it is below.  Over the coming weeks GAB will publish posts draw drawn from the other papers. Readers who can’t wait can click here to access the full text of the papers now.  The page also includes links to FACTI’s extensive global consultations. FACTI members are listed here.

Accelerating and Streamlining

the Return of Assets Stolen by Corrupt Public Officials

Corruption is hardly a new problem. Three centuries before the Common Era the author of the Arthaśātra advised the Maurya Empire’s rulers on ways to prevent corruption, and the first statute the English Parliament enacted made bribery a crime.  What is new is the ease with which corrupt money flows out of the victim state.  For a hefty fee, corrupt officials can today readily find a lawyer, real estate agent or other professional willing to help hide the assets they have stolen offshore.

The damage this unholy alliance of corrupt officials and professional “enablers” does, particularly to developing nations, is enormous.  The World Bank/UN Office on Drugs and Crime’s Stolen Asset Recovery Initiative estimates corrupt officials steal somewhere between $20 billion to $40 billion from developing states each year.  Money that is held abroad is money that is not available for domestic investment.  For developing states, it is money they do not have to meet the Sustainable Development Goals and thus to achieve the poverty reduction and climate protections objectives of the United Nation’s 2030 Agenda for Sustainable Development.

Assets stolen from developing nations should be promptly located, seized, and returned to the victim state.  The United Nations Convention Against Corruption, in effect since December 2005, sets the basic recovery rules.  As experience with them has developed, a number of recommendations have made to streamline and accelerate the process: by UN bodies, expert groups, and practitioners. At the request of the High-Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda Financing for Sustainable Development, we identified those that have drawn broad support and for which a compelling case has been made.  We explain how they would eliminate obstacles to the speedy return of assets and urge their adoption.

The most important recommendation is to crack down on enablers by subjecting them to the same anti-money laundering laws governing banks.  Before a bank can accept a deposit from a public official, a family member, or close associate, it must be satisfied the assets were obtained honestly, and the bank must report any suspicion it has they were not.  The same rule should apply to lawyers, accountants, and other potential enablers.  Those who are accomplices to asset theft must everywhere be brought fully to heel.

Information is the lifeblood of the asset recovery process.  Victim states need to locate where corrupt officials have hidden assets. To reduce barriers to obtaining this information, an international focal point should be created to facilitate its provision.  Some states have been slow to respond to formal information requests embodied in a Mutual Legal Assistance request. States should regularly disclose how long it takes to respond to such requests.  That will allow their legislatures, audit agencies, and citizens and the international community to know how well they are complying with their obligation under international law “to provide the “widest measure of assistance” in the return of stolen assets. 

Recognizing that some victim states lack the capacity to undertake the sometimes complex investigations and legal maneuvers required to recover assets, the paper recommends that states where assets are hidden do more to help. They should enact legislation modeled on the Swiss Foreign Illicit Assets Act and the U.K. Unexplained Wealth Order law, statutes which give these governments the power to confiscate assets stolen from the government of another country without need of a formal request from the victim state.  The paper also suggests states where large amount of assets may be hidden establish a dedicated unit to help victim states recover assets similar to the U.S. Kleptocracy Initiative or the U.K.’s International Corruption Unit. 

To reduce the costs of recovery, limits should be put on the use of frozen assets to pay legal fees. The international community has made significant resources available to help victim states recover stolen assets.  They should make use of these before engaging a private firm to help with recovery.  If they do conclude private assistance is needed, they should avoid fees arrangements based on a percentage of what is recovered; they can run into the tens of millions of dollars if not more. All states should enact legislation allowing assets to be confiscated in the event the corrupt official has died, is unavailable, or has given them to another.  Measures should be adopted to ensure returned assets go to meeting the sustainable development goals.

These reforms have been discussed and analyzed by international agencies, prosecutors and investigators in victim states, and academics. The case for adopting them is overwhelming.

1 thought on “FACTI Background Paper: To Curb Grand Corruption, Subject Lawyers and Other Professionals to the AML Laws

  1. Pingback: FACTI: Launch of Interim Report// Background Paper on Global Anticorruption Efforts | GAB | The Global Anticorruption Blog

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