Author Archives: Richard Messick

Conference on Empirical Approaches to Anti-Money Laundering and Financial Crimes

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The Central Bank of the Bahamas hosts the Third International Research Conference on Empirical Approaches to Anti-money Laundering and Financial Crimes this January 20 and 21 in Nassau. 

Countering the laundering of the proceeds of corruption and other financial crimes has become a critical issue at both the national and international level. Enormous time and attention has been devoted to putting an end to money laundering and enormous sums spent complying with existing laws and directives. Few, however, are happy with the results to date. 

The principal reason for the failure of anti-money laundering laws is the lack of a sound empirical base on which to build an enforcement regime, a point their critics have made at since Reuter and Truman’s 2004 Chasing Dirty Money. The conference is an important step towards remedying our lack of knowledge about how such basic issues as how money launderers works, where the risks are the greatest, and what are the most effective means for reducing them. Details on attending either in person or online here. Current list of speakers and papers follows.

[Submissions to last week’s poll on the definition of corruption still being received.  It is not too late to enter with the chance to win a lifetime subscription to GAB at the current rate.]

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Defining Corruption: What Do Readers Say?

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Recent posts have treated readers to a discussion of what corruption means.  Professor Rothstein suggested coming at it from its opposite and offered “impartiality” so corruption would mean the absence of impartiality or bias. [Note: I had flubbed Prof. Rothstein’s view in the original text as per his comment below.] Professor Johnson argued that at its core corruption is about an imbalance of power and suggested tying the definition to notions of “justice.” Transparency International’s “abuse of entrusted power for private gain” was also examined.

I think it time for GAB readers to be heard. Rather than asking which one of these definitions they prefer, or whether they have another candidate, however, I thought it more interesting to see how a definition of corruption helps them judge actual conduct in the real world. 

Below are six cases where at least some have alleged corruption was afoot. What say, GAB readers? Do any of the cases described below involve corruption as you define it?

A yea or nay on each in a comment to this post will suffice. Extra credit for explaining how one of the definitions proffered helped you decide. Lifetime subscription to GAB at the current rate to the best entry or entries. How each played out in court and in the court of public opinion will be revealed in a future post.

Case 1. To defeat a motion of no confidence, Vanuatu’s Unity of Change government offered two MPs parliamentary appointments in return for withdrawing their support for the motion.  Another MP was offered the position of Minister of Health, and a fourth Parliamentary Secretary to the Minister of Fisheries. All four accepted the offers, and the government defeated the motion. Bribery?

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Is Italy Backtracking on the Fight Against Foreign Bribery?

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Press reports, informed commentary, and the recent acquittal of ENI and Royal Dutch Shell despite overwhelming evidence they bribed Nigerian officials provide alarming evidence that Italy’s commitment to curbing foreign bribery is waning.

That commitment was never that strong to begin with. Although bound by the OECD Antibribery Convention to investigate and prosecute foreign bribery cases, in 2011 the OECD Working Group on Bribery found Italy had done little to comply. In the decade since ratifying the convention, only a few dozen cases had been brought, almost all against individuals for small-time bribery, and most had ended in acquittals. This dismal record was not surprising, the Working Group observed, given no one had been trained on how to investigate foreign bribery cases, and no public prosecutor’s office specialized in such cases.

The one bright spot the Working Group found was the Milan office of the public prosecutor.  It had aggressively pursued foreign bribery cases, opening by far the lion’s share of cases, including all those where a corporation was involved. Its future is now in doubt.

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New Research on the Effect of Income and Asset Disclosures

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GAB readers have recently been treated to a vigorous back-and-forth on the efficacy of anticorruption laws. Gothenburg University Professor Rothstein sharply questions their value whereas GAB editor-in- chief Matthew Stephenson and Sussex Professor and anticorruption practitioner Robert Barrington take issue with such a sweeping claim, Professor Barrington pointing to the U.K. 2010 Bribery Act as an example of an effective legal reform.

In today’s Guest Post, George Washington University Assistant Professor David Szakonyi offers additional evidence that anticorruption laws make a difference — and in a surprising place: the Russian Federation. Exploiting a 2015 change in law that required those running for local office to disclose their income and assets (the kind of natural experiment the Nobel committee lauded when awarding this year’s prize in economics), he shows how disclosures affected different individuals’ willingness to seek office.

Professor Szakonyi is also a co-founder of the Anti-Corruption Data Collective. His academic research focuses on corruption and political economy in Russia, Western Europe, and the United States. He is a Research Fellow at the Higher School of Economics in Moscow.

There are few anti-corruption reforms as widespread as mandating officials submit income and asset disclosures. According to the World Bank, 161 out of 176 countries surveyed have some sort of disclosure system in place. Yet there still is deep skepticism that forcing public officials to disclose their personal wealth makes much of an impact. Officials have every incentive to lie on their forms, and many fail to submit them entirely. Others stash their assets in the names of relatives or cloak their ownership in offshore chains out of the reach of those tasked with oversight. In brief, verification is tough. Given all the opportunities for evasion, are disclosures anything more than an anti-corruption paper tiger?

My forthcoming paper at the American Journal of Political Science provides some encouraging evidence: requiring income and asset disclosures deters those prone to corruption from seeking office. The case studied is Russia, which perhaps surprisingly has one of the most comprehensive anti-corruption disclosure laws on the books anywhere in the world. Each year over 2 million public officials must submit detailed reports to oversight commissions about their income and assets, as well as those of their spouses and dependent children. A portion of every official’s disclosure is posted online for the general public to access.

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Beneficial Ownership Disclosure Mandates and the Legitimate Privacy Interest in Anonymously-Owned Real Estate

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In a forthcoming article in the Notre Dame Law Review, Professors Reid Weisbord of Rutgers Law School and Stewart Sterk of the Cardozo Law School examine the trade-offs posed by requiring the public disclosure of the beneficial owners of real estate. While promoting real estate ownership transparency and curbing criminals’ ability to use anonymously-owned real estate, there are clear disadvantages to making the home addresses of all citizens public, the recent murder of a federal judge’s son at the family home by a disgruntled litigant who found their address online the most patent.

As Professors Weisbord and Sterk explain, a common law trust is one way citizens can keep their home address private, but as they also say, the Pandora Papers shows how easy it is for corrupt officials and criminals of all kinds to use a trust to thwart law enforcement. As Congress considers legislation to end trust abuses, the two urge lawmakers not to lose sight of the downsides of requiring the unrestricted public disclosure of the home addresses of all citizens.  At GAB’s request, Professor Weisbord summarized the relevant portion of their article for GAB readers. The Notre Dame article and an earlier article by Professor Weisbord prompted by publication of the Panama Papers should be required reading for those struggling with how to ensure criminals cannot hide from law enforcement through the use of anonymous corporations, trusts, and other “offshore vehicles,” while protecting judges, victims of domestic or sexual abuse, or others with a legitimate need to keep their home address private.

On October 3, 2021, the International Consortium of Investigative Journalists (“ICIJ”) published the findings of a massive worldwide investigation that painstakingly reviewed nearly 12 million confidential financial documents, a collection now known as the Pandora Papers. In keeping with its prior bombshell investigations, including the Panama and Paradise Papers, the ICIJ has once again exposed a trove of secret financial transactions by a global cohort of world leaders, politicians, and billionaires who have offshored assets by covertly acquiring or storing property in foreign countries. There can be legitimate reasons for individuals to secretly acquire property abroad, but such transactions are also notoriously used to launder money and defraud creditors or tax collectors by evading the jurisdictional reach of the individual’s domestic legal system.

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In Pari Delicto & Parens Patriae: Latin All Corruption Fighters Should Know

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In pari delicto, Latin for “of equal fault,” is a legal doctrine that prevented the government that succeeded Saddam Hussein’s from recovering hundreds of millions of dollars in damages from those involved in Saddam and cronies’ corruption. It has deterred other governments taking power after a kleptocrat’s fall from attempting to recover damages as well. Parens patriae, Latin for another legal doctrine, is one way around the result in pari delicto dictates in kleptocracy cases.

Corruption hunters thus have good reason to learn Latin. At least enough to ensure that those who profit from a kleptocrat’s reign don’t escape reckoning when there is a regime change.

The barrier in pari delicto raises to a government recovering damages from a kleptocrat’s accomplices was first revealed in a suit the post-Saddam government filed in 2008.

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Current and Former Mozambican Presidents, Other Higher Ups “Cleared” in Hidden Debt Scandal

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Last week the presiding judge in Mozambique’s hidden debt trial made it plain that the country’s current and former presidents and other senior members of the country’s ruling party would not have to answer for their role in the hidden scandal. The massive corruption scheme has cost the impoverished nation billions and ended any hope millions of its citizens could escape a life of abject poverty.

Nineteen middle-level officials and accomplices are on trial in Maputo for accepting bribes to approve $2.1 billion in contracts to the Middle East shipbuilding company Privinvest and then taking more bribes to have the government secretly borrow the money to finance the projects. The economy tanked and poverty rates skyrocketed when the secret loans were revealed.

As he was finishing his testimony last Thursday, the General Director of the State Intelligence and Security Services, the highest ranking official on trial, complained to trial judge Efigénio Baptista, “I am here alone.” He said he was the only member of the Joint Command and the Operation Command, the inter-agency groups that cooked up the scheme, to be prosecuted.

“The former Minister of National Defense, Filipe Nyusi, and the former Minister of the Interior, Alberto Mondlane, should be answering. They were also part of the Joint Command.”

The judge explained that Nyusi, now the country’s president, and Mondlane, governor of an important province, were not charged because the prosecution had no evidence they had taken bribes.  He also helpfully went on to add that for the same reason Armando Guebuza, president when the contracts were let and the loans taken out, was not on trial. 

The above comes from the Centro para Democracia e Desenvolvimento reports on the trial. This one, recounting the state security director’s testimony, also helpfully reminded readers of the testimony of Jean Boustani at a 2018 trial in New York. There the Privinvest senior executive provided details about the bribes Privinvest paid Nyusi, Guebuza, and other officials not among the 19 on trial in Mozambique. Perhaps Judge Baptista and the Mozambican prosecutor have overlooked something?

Guest Post: Corporate Criminal Liability and Corruption in Italy — Early Findings from an Ongoing Research Project

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In Italy, as in many other countries, little data is available to evaluate the effect of the corporate liability regime — on deterring corporate crime and on the companies themselves. A research project supported by the Milan-based Fondazione Centro Nazionale di Prevenzione e Difesa Sociale (the National Center for Social Protection and Defense Foundation or CNPDS) has set out to fill the void. Coordinated by Professors Stefano Manacorda and Francesco Centonze, the project has enlisted Italian judicial institutions and the private sector in the collection of empirical data.

For the first time the Ministry of Justice, the Office of the General Public Prosecutor of the Supreme Court of Cassation, and two business associations, — Confindustria, which represents more than 150,000 Italian companies, and Assonime, representing the Italian companies listed on the Italian stock market, — are collaborating to gather information on the impact of a law.  Below Marco Colacurci of the Università della Campania and Pierpaolo Astorina of the Università di Bergamo, two assistant Professors involved in the project, explain the data they are gathering and summarize what they have learned so far about corporate liability for corruption.

Their findings will likely be of great interest not only to GAB readers but to the OECD, which will soon assess Italy’s compliance with the Anti-Bribery Convention. Thanks to Professors Colacurci and Astorina for sharing their work with GAB and to Professor Stefano Manacorda for facilitating it.

Twenty years have passed since Italy introduced liability for companies (the liability is formally administrative but modelled on the criminal features). Possible reforms to the legislation are now a matter of intense debate.. Anniversaries indeed represent valuable occasions to reflect on what works and what does not, and the same goes for Legislative Decree n. 231/2001. Conferences and seminars are underway in Italy both to celebrate the law that introduced the direct liability of corporations for crimes committed by individuals acting for them, and, at the same time, to highlight the critiques that have emerged over the years.

These latter have several aspects, such as the under-use of international standards in the creation and judicial evaluation of compliance programs, the intense discretionary powers of public prosecutors and criminal judges, the lack of recognition of pretrial diversion mechanisms apt to stimulate effective forms of corporate cooperation, the failure to consider the size and organizational complexity of companies, and the list could go on.

Most of all, and despite the growing attention which scholars (and law firms) have been directing towards liability over the last two decades, the praxis seems to show that prosecutions for corporate crimes are rare. Consequently, judgments too are rare, and decisions acknowledging the adequacy of the compliance programs adopted by indicted companies are scarce. This could reflect a degree of indifference in this area, on the part of the public prosecutors’ offices or, alternatively, could be interpreted as a sign of the preventive effects of the Decree 231.

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Will FRELIMO Betray the Mozambican People to Protect Its Own?

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FRELIMO, Mozambique’s governing party, is at a historic crossroads. A party once known for the integrity of its leaders and its commitment to the welfare of all Mozambicans must choose: Pursue a lawsuit to recoup damages from the “hidden debt scandal” that will expose the role of Felipe Nyusi, its leader and the country’s president, in the corruption. Or scrap the suit to protect him.

The scandal arose from some $150 million Dubai-based shipbuilder Privinvest paid Mozambican officials to approve $2.1 billion in contracts to supply it with coastal patrol vessels, tuna boats, and a shipyard to maintain them. Privinvest kicked back $50 million from the deal to Credit Suisse executives in return for their arranging financing for the purchases. The loans they secured were not disclosed: either to the Mozambique parliament, as required by law, or to the IMF, as required under the terms of an IMF bailout loan. When the Wall Street Journal revealed them, donors cut funding, foreign investors pulled out, and the economy tanked.  

This hidden debt scandal may well go down as the most damaging corruption scam in modern history. According to a recent estimate by a team from Mozambique’s Centro de Integridade Pública and Norway’s Chr. Michelsen Institute, the damages from the scandal over the 2016-2019 period alone equals $11 billion, $403 for every man, woman, and child in Mozambique. At the same time, the World Bank ranks it as the world’s third poorest nation with a GDP per capita for 2020 of a little over $1200.

Mozambique’s only chance to recover the enormous damage the scandal has done is a civil law suit the government filed against Privinvest, Credit Suisse, and many of the individuals involved.  Privinvest has now countered. At paragraph 22.5 of its defense, the shipbuilder claims Nyusi was “fully aware of, and/or participated, in [the corruption], and indeed was at the heart of the matters now complained of by the Republic.”

The threat is now on the table. If Mozambique continues to press the suit, Privinvest will produce in excruciating detail evidence of Nyusi’s involvement. The only way to avoid the likely discrediting of the party’s ruling elite is for Mozambique to scrap the suit.

Will a party once led by the likes of Eduardo Mondlane and Samora Machel sell out the Mozambican people to maintain its grip on power? Will those party members who were their colleagues and those whom they inspired with their dream of a free and prosperous Mozambique stand up?

Guest Post. Effective AML Strategy: A Small Country Perspective

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Smaller states are often thought to be more vulnerable to money laundering: less resources, fewer personnel, a lackadaisical attitude towards others’ problems. But as Charles Littrell explains in today’s guest post, even the smallest jurisdictions can prevent money laundering if there is the will to do so, and those don’t care or think they will benefit by turning a blind eye towards it are inviting a particularly virulent strain of cancer into their society.  Mr. Littrell is head of bank and trust company supervision for the Central Bank of The Bahamas, including AML supervision.  He was formerly an executive at the Australian Prudential Regulation Authority, and a member of the Basel Committee on Banking Supervision. He founded and is the Convener of the International Research Conference on Empirical Approaches to Anti-Money Laundering. This post represents Mr. Littrell’s personal views.

This post outlines a suggested strategy for small states to engage in the international money laundering movement.  The strategy comprises three elements:

  • Know what you don’t want—which is engagement with dirty money and the people associated with dirty money.
  • Deploy locally successful AML tactics in a globally unsuccessful world.
  • Proactively manage the FATF relationship.

Despising dirty money and dirty people

The core element in a successful small state AML strategy is sincere and comprehensive rejection of foreign illicit money, and the people associated with that money. The world’s major league criminals and their financial facilitators are among the least attractive and most dangerous human beings on the planet, and a successful small state will absolutely not welcome such people, their money, or their activities.

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