Today’s guest post is from Bolaji Owasanoye, the Chair of Nigeria’s Independent Corrupt Practices and Other Related Offenses Commission, and a member of the UN High-Level Panel on International Financial Accountability, Transparency and Integrity (the FACTI Panel).

A few weeks ago, Professor Matthew Stephenson published two posts on this blog (see here and here) that offered some reactions to the report and recommendations of the UN High-Level Panel on International Financial Accountability, Transparency and Integrity (the FACTI Panel), on which I served as a member. I want to first thank Professor Stephenson for his serious discussion of the report. Critical engagement on the Panel’s recommendations is very welcome, and indeed Panel members are keen to continue engagement with researchers, policymakers, and the wider public in order to accomplish our shared purpose: strengthened systems for financial integrity. Now isn’t the time for the lowest common denominator approach but instead for governments to be ambitious and thus unlock the large resources currently being drained aggressively from public finances.

Professor Stephenson generously concluded that “the FACTI Panel has done us all a useful service by providing a document that can serve as the focus for discussion and debate over this vitally important topic.” That said, on a few recommendations he called for more detail, and on an even smaller number he found what he considered as faults with the recommendations. It is on only some of these final few, and within my own area of expertise, that I want to respond to points Professor Stephenson raised. In particular, I want to explain my understanding of the Panel’s thinking in three areas: standards for settlement in bribery cases, strengthening asset recovery, and the use of escrow accounts.

Common international standards for settlements in cross-border corruption cases

Professor Stephenson noted that the world already has made broad commitments related to tackling cross-border bribery cases (for example, in the UN Convention Against Corruption (UNCAC) and the OECD Anti-Bribery Convention), and he argued that more specific international commitments would not match with countries’ specific systems and circumstances. In the FACTI Panel Recommendation 1B, I think the Panel is envisioning something in between the broad commitments in the UNCAC and some advocates’ proposals for binding international standards on specific procedures and mechanisms. Settlement guidelines could further provide good practices to ensure that settlements serve both the interests of justice and the global fight against bribery.

First, it is worth remembering that commitments made under the OECD Anti-Bribery Convention, which Professor Stephenson mentions, are not applicable to all countries, and countries outside the OECD have no way to discuss with OECD countries their success or failure to meet those commitments. The UNCAC commitments in this area are so broad that they do not provide sufficient basis on which to issue specific recommendations for improvement, for example in a UNCAC implementation review.

Here are some ideas for taking this forward. There can be settlement guidelines that are not overly specific and provide flexibility. For example, on the size of fines, internationally agreed guidance could establish ranges based on the corporate turnover, estimated profit from the bribery, harm done, and cooperation with investigators. This kind of guidance is regularly done in the criminal justice field.

Standards can also tackle the timeliness of disclosure to countries where the bribery took place, and information sharing to enable prosecution of the demand side of the bribe. This could help reinforce FACTI Panel Recommendation 8C on information exchange. The standards can also do more to encourage compensation to victims, without mandating a specific percentage of penalties be transferred. Again, ranges can be provided, as can guidelines for cooperation on victim compensation, the expectation of assistance and templates for making compensation requests, etc.

Transparency over settlement agreements is currently lacking in some jurisdictions. Guidelines for transparency, including the reasons for agreeing to a settlement rather than proceeding to prosecution, can be helpful. Settlement guidelines can also emphasize disclosure of the underlying wrongdoing, which can help improve peer learning on enforcing bribery laws.

The guidelines would not need to be mandatory hard law, though a protocol to the UNCAC or a resolution of the UNCAC Conference of State Parties might be desirable. Any soft law set of good practices can help guide both those who evaluate UNCAC implementation and those who provide technical assistance. And international guidelines can help prevent settlements from becoming part of the business model of multinational companies, and thus creating uneven playing fields for smaller businesses.

Finally, not all multi-national corporations are headquartered in countries with long established anti-bribery practices, like the US and UK. The FACTI Panel wants to encourage good practices, especially in countries with less experience of regulating emerging foreign direct investors, for example my own country Nigeria and others such as Turkey, Saudi Arabia, Thailand, India, China, Brazil, and South Africa. Having all countries bought into internationally agreed standards can help. That said, if members of the OECD Anti Bribery Working Group choose to go ahead and start creating standards for their group, I think the world should cheer them.

Strengthening asset recovery

The FACTI Panel fully agrees that there are multiple, genuine problems with the international asset recovery system. In discussing our Recommendation 5, Professor Stephenson fears that “the Panel was addressing relatively small items while avoiding the larger problems.” It is essential to note that not all asset recovery issues are covered under FACTI Panel Recommendation 5, and Professor Stephenson’s critical engagement on recommendations 5A and 5B miss the bigger picture of the Panel’s approach. Recommendation 5 is meant to cover fairness aspects only. Larger problems with information for asset recovery are tackled elsewhere in the recommendations—for example, Recommendations 3A (beneficial ownership information) and 8B and 8C (information exchange). Incentivizing more compliance is also addressed in Recommendation 11B to provide a baseline of data on asset recovery efforts and failures which can be one of the inputs used to hold asset-holding jurisdictions accountable under strengthened implementation review mechanisms (Recommendation 12A).

The FACTI Panel intended to highlight the critical role that could be played by a mediation mechanism to address both any intransigence and inexperience of the jurisdictions where the assets are located, as well as low capacity in the requesting State. In the views of governments that spoke to the Panel in consultations, lack of cooperation is a much bigger problem than Professor Stephenson makes it out to be. While UNCAC includes key provisions to enable asset recovery, these provisions become toothless where there is no trust between jurisdictions. Some countries have become so frustrated with the lack of response to mutual legal assistance (MLA) requests that they in fact proposed a binding international mechanism for asset recovery. Members of the FACTI Panel, however, did not feel a binding mechanism could garner sufficient political support. Meanwhile, requesting States also often need assistance with collecting information and formulating asset recovery MLA requests. While the Stolen Asset Recovery Initiative does support such requests already, this can be strengthened under the mediation mechanism.

The Panel also heard that politics often gets in the way of international cooperation, with global geopolitics shaping (for worse) what ought to be straightforward technical cooperation. Additionally, small countries feel that their needs are not prioritized when they request assistance. Finally, States hosting newer financial centers (e.g. Singapore, Dubai) may have less experience in these matters, especially within their judicial systems, which can slow or complicate cooperation and recovery processes.

Professor Stephenson also wrote that the FACTI Panel does not “have much to say about the design of alternative mechanisms (such as funneling returned assets to NGOs or directly to citizens).” The Panel did not pronounce directly on the questions of channeling returned assets through NGOs, because the Panel did not find that the current system needs drastic changes. A government which has “original thieves” or “their cronies” in charge (Professor Stephenson’s wording; I might say “captured state” instead) would not be genuinely requesting asset recovery assistance in the first place. The UNCAC provision on third-party disbursement is clear, and in certain circumstances it requires agreement of both states.

The mediation mechanism does touch on this through the discussion of victims. One way a mediation mechanism might help with victims’ compensation is to help shape mutually agreed third-party disbursement mechanisms. In general, there is no one size fits all solution regarding third-party involvement and the Panel did not think the UNCAC provision needs to change.

Professor Stephenson also suggests the Panel report “conflates the return of stolen assets … [with] the sharing of fines or other penalties.” The report does cover fines in the context of bribery enforcement under the heading of “Fairness in asset recovery.” The discussion on compensation is given a separate subsection to distinguish it from “stolen assets” cases, though I’d also note that the Panel does not use the phrase “stolen assets”.

Overall, the mediation mechanism can be effective in both types of cases. The aim is that the staff of a mechanism can help facilitate information collection, information sharing, and international cooperation on bribery enforcement to make sure it coincides with prosecution in demand side and assist in the victim compensation, and the mediation mechanism can also work on cases involving asset recovery/return based on state capture or corruption of public finances. The Panel did not see a need to restrict the mandate of the mechanism at this time, Member States will do that on their own if and when the time comes.

The use of escrow accounts

I would strongly object to Professor Stephenson’s characterization of the use of escrow accounts as the pet idea of some low-level staffer. It was proposed in the 2015 report of the AU-ECA High Level Panel on Illicit Financial Flows from Africa (widely known as the Mbeki Panel). The use of escrow accounts is also part of the Common African Position on Asset Recovery (CAPAR), a joint position of all 54 African governments that I helped shepherd to African-Union-wide agreement in 2019. African countries presented this position to the FACTI Panel and the FACTI Panel has looked at its recommendations and demands. Professor Stephenson’s dismissal of the influence of the incentives here is quite surprising. There are also unintended consequences he does not consider.

First, other jurisdictions besides the United States play host to assets, including an increasing number in emerging and developing countries. It would not be wise to base recommendations for the international community solely on the political economy of one Member State. The Panel makes clear under Recommendation 6 that the political economy of a country matters, and that the influence of powerful sectoral interests are important. Bankers can have political power and influence. They can both influence the cooperation of government on specific cases (e.g. some 1MDB cases) as well as the overall level of public resources and attention provided to regulation, supervision, enforcement, and international cooperation. Reducing the incentives to hold assets matters broadly.

Second, Professor Stephenson states that it’s not always the case that the financial institution where the assets are located in fact “enabled the wrongdoing.” It is certainly the case that they did not do sufficient due diligence to uncover it. Or even if they did uncover it, they were willing to look the other way. If a financial institution is holding an illicit asset, it is possible that they already filed suspicious transaction reports, are aware of the dubious provenance of the asset, or at a minimum are complicit perhaps through negligence. These are not valid defenses for their holding/hosting of this asset.

Asset retention also matters for the financial institutions beyond the fees they earn. Holding frozen assets affects their capital base, which has direct implications for ability to use leverage while meeting their financial regulatory requirements. Simply, it can affect their profitability in many ways.

Third, prohibiting the earning of management fees is not a solution. Fees are legally provided for in UNCAC. Prohibiting fees would also likely result in degradation of asset value because financial institutions holding the assets would have no incentive to do anything but hold them in cash. Assuming that asset recovery takes 10 years, and at 2% inflation a year (the inflation target of most countries hosting financial centers), non-managed assets held as cash would be worth approximately 25% less at the time of final disposition. Many asset recovery cases take much more than 10 years. The losses would be large.

Finally, regional development banks already have large Treasury departments used to handling and managing assets because they host collectively billions of dollars in trust funds for governments which are being used for an array of purposes such as grants, subsidized lending, provision of technical assistance, financing capacity building, and paying for research or other public goods provision. This would not add much additional work for them, and would of course pay for itself out of the management fees.

I hope these responses have been helpful to furthering the discussion. The Panel is hoping the international community can have many more discussions on these topics and find a way forward to create financial integrity for sustainable development.