Guest Post: Just Because UBO Data Isn’t Available for Everyone to See, It Doesn’t Make It Secret

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Today’s guest post comes from Geoff Cook, CEO of Jersey Finance (a non-profit organization established to promote Jersey as an international financial center of excellence). Mr. Cook’s piece continues a debate over the UK’s recent decision to require British Overseas Territories to adopt centralized public registers with information on the ultimate beneficial owners (UBOs) of legal entities registered in those jurisdictions. The discussion of this issue at GAB was prompted by Martin Kenney’s post on the FCPA Blog, which sharply criticized the UK’s decision. GAB published two replies to Mr. Kenney’s criticisms, the first from Senior Contributor Rick Messick, and the second from Editor-in-Chief Matthew Stephenson. Earlier this week, GAB published Mr. Kenney’s response, and today Mr. Cook continues the discussion by explaining why, from the perspective particularly of a jurisdiction like Jersey, public UBO registers are unnecessary and potentially dangerous.

It is claimed that jurisdictions such as the Crown Dependencies that fail to introduce public registers of company ownership are advocating secrecy and encouraging the laundering of “dirty” money through the financial system. But the call for public registers, which serves a political agenda, is proposed in isolation, ignoring other effective measures for exchanging information that have been implemented during the last few years.

The Common Reporting Standard (CRS), for instance, has been largely ignored in the debate.  Through this OECD inspired agreement, the values of all bank accounts and investments in whatever form are exchanged automatically each year to the owner’s home tax authority. Company ownership details are included in that exchange. Jersey was an early adopter of the system in 2017 and has already swapped information with the other 50 countries that participate. More countries are joining, and will be exchanging data again in September – not a measure that fits with a secrecy agenda.

Jersey has been examined by independent standard setters such as the OECD as recently as 2017, and found to be in the top drawer for the quality of its standards and response to transparency. Jersey is one of only two jurisdictions to have the top rating so far, yet the standards attained by global organizations that truly understand the financial system are rarely quoted in the debate. Instead we are accused by detractors of obstruction and secrecy, with no regard for what is actually taking place. Continue reading →

Uzbek Civil Society to Swiss Government: Hasty Return of Stolen Assets to Uzbek Government Not Warranted

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GAB readers know that the Government of Uzbekistan has been pressing countries to return some $1.0 billion under their control which Gulnara Karimova, daughter of the late dictator Islam Karimov, stole through corrupt schemes.   They also know that Uzbek civil society has urged a “responsible return,” one that recognizes that despite modest changes since Karimov’s death, Uzbekistan is still ruled by the same close-knit group in charge during Karimov’s time and with the same kleptocratic proclivities.  Responding to reports that the Swiss government, which holds several hundred million dollar of Gulnara’s corrupt monies, may soon send these funds back to Uzbekistan with little guarantee they will to go improve the welfare of the Uzbek people, members of Uzbek civil society living in exile wrote the Swiss government today asking it to refrain from any hasty repatriation. Their request is particularly urgent given the evidence they cite that stolen assets Switzerland returned to Kazakhstan through a World Bank program were misused. The request is joined by members of Kazakh civil society members in exile.

OPEN LETTER OF CIVIL SOCIETY ORGANIZATIONS TO THE SWISS GOVERNMENT

We, the undersigned representatives of civil society organizations advocating for transparent and responsible repatriation of assets stolen from the Uzbek people, are urgently calling upon the Swiss government to ensure that any decision regarding the ill-gotten assets of Gulnara Karimova, currently the subject of litigation in several countries, be made with due consideration to the rights and development prospects of the Uzbek people.

We urge the Swiss government not to act hastily and to consider that the promise of reform by the Mirziyoev regime have not yet materialized in practice. Based on all available information we strongly believe that return of these assets without sound conditionalities developed in consultation with major stakeholders, including civil society – which has been in a stranglehold in Uzbekistan for more than two decades – would only further perpetuate corrupt practices in Uzbekistan, leaving the systemic causes of the original criminal conduct untouched. The Swiss government can and should use these assets as an incentive to promote and support the course of reforms in Uzbekistan in the long-term interests of the Uzbek people. Continue reading →

Guest Post: The UK Order on UBO Registries in Overseas Territories–A Reply

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Earlier this month, Martin Kenney, the Managing Partner of Martin Kenney & Co. Solicitors (a specialized investigative and asset recovery practice based in the British Virgin Islands (BVI)) posted a widely-read piece on the FCPA Blog that criticized the UK Parliament’s decision to require that British Overseas Territories create public registries of the ultimate beneficial owners (UBOs) of legal entities registered in those jurisdictions. Mr. Kenney’s post provoked two critical responses here on GAB, the first from Senior Contributor Rick Messick, the second from Editor-in-Chief Matthew Stephenson. GAB is delighted that Mr. Kenney has chosen to continue the debate over this important topic by providing the following rebuttal to those criticisms:

Matthew Stephenson wrote in his recent response to my FCPA Blog, about the futility of the UK Parliament’s proposed changes to open company UBO registers in the British Overseas Territories, that: “At the very least, beneficial ownership information should be verified and kept on file so that it will be available to law enforcement in the event of an investigation.”

In my piece, I had explained: “The fact is that the BVI already has its house in order. The island’s systems now include the Beneficial Ownership Secure Search system (BOSS System). A database that is searchable, with the information being available to UK law enforcement agencies within 24 hours. In addition, the BVI has signed up to no fewer than 28 Tax Information Exchange Agreements, with countries that include the UK, USA, Canada, Germany, France, Australia, Japan, Netherlands, etc. So what part of this is secret?” Continue reading →

Revisiting the “Public International Organization” Designation for International Sports Organizations under the FCPA

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Three years have passed since U.S. federal prosecutors rocked the global sports community by indicting roughly 40 individuals in connection with an investigation into corruption at FIFA. Some preliminary commentary suggested that prosecutors in the FIFA case might bring charges under the Foreign Corrupt Practices Act (FCPA). U.S. prosecutors instead pursued cases under money laundering, racketeering, and fraud charges against the individuals—primarily officials at FIFA and other soccer organizations—who accepted the bribes. In December 2017, for example, prosecutors obtained their first convictions from jury trials in this case, as Juan Ángel Napout (former president of South American football’s governing body) and José Maria Marin (the former president of Brazil’s football federation) were found guilty of racketeering, money laundering, and fraud for accepting large sums of money in exchange for lucrative FIFA media rights deals and influence over FIFA tournament hosting decisions.

The reason that the DOJ has only targeted bribe-taking FIFA officials, and has not used the FCPA to prosecute those who paid those bribes, is that bribes paid to FIFA officials fall outside the FCPA’s scope. But that could, and perhaps should, change.

The 1998 amendments to the FCPA expanded the statute’s scope to cover bribes not just to officials of foreign governments, but to officials of “public international organizations.” An organization may be designated as a public international organization either through an executive order pursuant to an existing statute (the International Organizational Immunities Act), or—importantly for present purposes—“any other international organization that is designated by the President by Executive order[.]” Pursuant to this statutory authority, the President has the power to designate international sports governing bodies like FIFA, the International Olympic Committee (IOC) and others as “public international organizations” for FCPA purposes. (The fact that these sports bodies are nominally private does not prevent this; while most of the roughly 80 public international organizations currently covered by the FCPA are intergovernmental organizations like the World Bank and the International Monetary Fund, the list also includes some private, non-profit organizations, such as the International Fertilizer Development Center.) If the President designated international sports organizations like FIFA or the IOC as “public international organizations” for FCPA purposes, then individuals or firms that bribed officials at those organizations could be prosecuted under the FCPA, so long as the U.S. has jurisdiction over the defendants.

This is not a novel or radical idea. For decades, legislators and activists have clamored for designating sports organizations such as FIFA and the IOC as public international organizations under the FCPA. The discussion first surfaced in 1999, when U.S. Senator George Mitchell requested President Clinton to declare the IOC a public international organization following findings of a bribery-ridden culture in the Olympic movement. Senator John McCain later introduced a bill that would bring the IOC under the definition of public international organization under the FCPA, but the bill never made it out of committee. Although these past efforts proved unsuccessful, the time is ripe for revisiting this idea. Indeed, there are at least two compelling arguments for designating FIFA and the IOC as public international organizations under the FCPA.

Continue reading →

The South African Turnover: Anticorruption or Political Consolidation?

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Last February, South African President Jacob Zuma—who has been dogged for years by credible allegations of corruption and other serious malfeasance in office—finally resigned under pressure.  In April, only a couple of months later, Zuma went on trial; he faces 16 counts of corruption, fraud, money laundering, and racketeering related to arms deals that took place in the 1990s (before his election as president). Zuma fought these charges for years, but now it seems as if his political cover has run out.

Yet the story behind Zuma’s corruption trial may go deeper than Zuma’s past bad behavior finally catching up with him. It’s important also to note the political context. Zuma’s resignation came at the urging of his party, the African National Congress (ANC), after Deputy President Cyril Ramaphosa secured the leadership of the ANC in December 2017, igniting a power struggle that led to a planned vote of no confidence, brokered by Ramaphosa. Zuma resigned in order to avoid a vote he was likely to lose, and Deputy President Ramaphosa immediately took over. In his first few months in office, Ramaphosa has been shaking up the political establishment, but is himself also the subject of multiple corruption allegations. This leads one to question: Should the retrial of Zuma be understood principally as part of Ramaphosa strategy for political consolidation? More generally, has South Africa’s recent political shakeup set the country on a course for a better, less corrupt future?

Many have expressed precisely this hope, but I’m more pessimistic. True, President Ramaphosa has acknowledged South Africa’s serious corruption problem and pledged to address it, and that is in some ways welcome news. But Ramaphosa is not an immaculate outsider with the capacity to reform from a position of moral authority. He is a deep insider, enmeshed in the corrupt system he has pledged to reform. He has profited heavily from the relationship between the ANC and the wealthy (mostly white) elites, and his rise to power came not from a landslide toward a new party, but from a successful destabilization of the ANC from within. Moreover, while Ramaphosa’s government is cracking down on corruption, its investigations seem carefully and narrowly targeted, focusing mainly on those who might be a political threat or rival. Therefore, I worry that Ramaphosa may prove to be equally corrupt, and the latest string of crackdowns may be nothing more than a way of securing his position as leader of South Africa for the many years to come.

Continue reading →

Dear American Congress, Please Don’t Destroy Guatemala’s Best Hope for Combatting Corruption

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Unproven, implausible allegations about Russian meddling in Guatemala’s judicial system threaten one of the most innovative and successful efforts to curb grand corruption now underway.  The Commission against Impunity in Guatemala, a hybrid UN-Guatemalan investigative agency known by its Spanish initials CICIG, has made enormous progress taming grand corruption, drug trafficking, the wholesale murder of indigenous people, and other crimes committed by an insular elite who, until the advent of CICIG, operated without fear of prosecution.  CICIG’s success rests on its independence from Guatemala’s corrupt elite, both in the investigators it hires, often from other Spanish-speaking countries with no ties to anyone in Guatemala, and its funding, a significant portion of which is provided by the U.S. Congress.  Thanks to these conditions, it has presented Guatemalan prosecutors with air-tight cases against former presidents, vice-presidents, ministers, and senior military and civil servants.

CICIG’s American funding is now in doubt thanks to a story those most in danger from CICIG sold Wall Street Journal opinion writer Mary O’ Grady.  O’Grady wrote in March that CICIG took money from Russian interests to push the prosecution of Russian dissidents who emigrated to Guatemala.  O’Grady’s story caught the attention of several in Congress who now question whether the U.S. should continue supporting CICIG.  Thankfully, the story has not gone unanswered.  A wave of stories knocking it down and noting its origin among the very elite in CICIG’s cross-hairs has appeared in, among other outlets, the Economist (here), the Washington Post (here), and the Guatemalan media (here and here [Spanish].  The American Bar Association (here) sharply questioned the premises underpinning O’Grady’s claims.

The latest support for CICIG comes from a former Guatemalan vice president and several former foreign ministers and ambassadors in a letter to the U.S. Congress.   The letter itself is a welcome sign that a new elite is rising that is not afraid to counter the old corrupt elite.  In it they write forcefully of CICIG’s critical importance to the well-being of Guatemala’s citizens:

Continue reading →

Public Beneficial Ownership Registries: A Response To Recent Criticisms

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Anticorruption activists and other advocates for greater corporate and financial transparency scored a big win earlier this month when the UK announced that it would require the 14 British Overseas Territories (such as the British Virgin Islands (BVI) and the Cayman Islands) to create public beneficial ownership registers for all corporations and other legal entities registered in those jurisdictions. Many in the pro-transparency community believe that such registers are critical for fighting corruption and money laundering, as they make it harder to use anonymous companies to engage in unlawful transactions and hide the proceeds of crime by requiring information on the actual human beings (the ultimate “beneficial owners”) who own or control these artificial legal entities. At the very least, beneficial ownership information should be verified and kept on file so that it will be available to law enforcement in the event of an investigation, but many in the pro-transparency community believe that public beneficial ownership registers would be even more effective, as they would provide open data that civil society groups, the media, and others could scrutinize and analyze in order to unearth shady transactions and make it harder for kleptocrats and others to hide their loot. The British Overseas Territories are not the only or even the worse offenders when it comes to corporate secrecy—the United States is still struggling to enact laws that would provide for a non-public register, which the BVI and some other Overseas Territories already have—but there’s no doubt that these jurisdictions are often a preferred destination for dirty money.

So when the UK announced that it would require the Overseas Territories to adopt public beneficial ownership registers, many cheered. But not everybody. A couple weeks back, over at the FCPA Blog, Martin Kenney, a lawyer based in the BVI, published an intemperate denunciation of the new policy, lambasting the so-called “transparency brigade” for having a “mob mentality,” for being “naïve,” “hypocritical,” and neo-imperialist (and possibly racist), and of taking advantage of the devastation that many of the Caribbean Islands suffered in Hurricanes Irma and Maria to push their agenda at a time when “they perceive their prey to be weakened.” Indeed, the ad hominem invective in the post is so thick that it’s sometimes hard to discern the serious, substantive objections underneath all the vitriol. Which is a pity, because Kenney actually does advance at least one or two arguments that, while in my view likely incorrect, are worth taking seriously.

Last week, Rick offered a thoughtful, measured response to Mr. Kenney’s piece that got at some, but perhaps not all, of the core issues. I want to pick up where Rick left off, to lay out what I think are the most sensible concerns about the new UK policy (and about public beneficial ownership registers more generally). And, following Rick’s lead, I’ll try to turn the rhetorical temperature down a few notches, as there’s little to be gained in a (virtual) shouting match on a complicated issue like this. Continue reading →

It’s Time for China to Show Its Foreign Bribery Law is Not a Paper Tiger

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In May 2011, China criminalized the bribery of foreign public officials. More specifically, the 8th Amendment to China’s Criminal Law, among other things, added Article 164(2), which prohibits both natural persons and units (i.e. companies and other organizations) under Chinese criminal jurisdiction from giving “property to any foreign public official or official of an international public organization for the purpose of seeking illegitimate commercial benefit.” This legislative action, intended in part to fulfill China’s obligations as a State Party to the United Nations Convention Against Corruption, was considered an accomplishment given the under-criminalization of foreign bribery in Asia Pacific at the time. Many commentators devoted substantial attention to questions about the law’s meaning, including the definition of almost every term in the provision (“property,” “foreign public official,” “international public organization,” “illegitimate commercial benefit,” etc.—for a sampling, see here, here, here, here, here, or just search for “China Criminal Law 164” using any search engine).

However, almost seven years have passed, and nothing substantial has happened, except for some minor movements related to the law as observed by the media and commentators in some official and unofficial statements (see, for example, here, here, and here). Not a single enforcement action has been brought (or at least publicized) under Article 164(2). Even after President Xi Jinping launched in 2013 the most extensive anti-graft campaign China has ever seen, there have been no foreign anti-bribery enforcement actions.

There are several possible explanations for China’s non-enforcement of 164(2). One possibility, discussed previously on this blog, is that China’s traditional “non-interference” foreign policy might make China reluctant to go after transnational bribery; more generally, China might not be interested in devoting resources to fighting forms of corruption that don’t have domestic effects. Some have also suggested that China has little incentive to enforce its foreign anti-bribery law because bribery of foreign officials gives Chinese firms a competitive advantage in certain jurisdictions. It’s also possible that simple inertia is part of the story: It’s worth keeping in mind that although the U.S. Foreign Corrupt Practices Act (FCPA) was enacted in 1977, almost 80% of the FCPA enforcement actions (amounting to 95% of the total FCPA sanctions) occurred after 2007. Similarly, the UK Bribery Act came into force in 2011, but the first foreign bribery case under that act wasn’t resolved until 2014. South Korea enacted its foreign bribery law in 1999 but didn’t prosecute its first case until 2003, while Japan took even longer, enacting a foreign bribery law in 1998 but not bringing its first case until nine years later, in 2007. In fact, Transparency International observed in 2015 that about half of the then-42 countries taking part in the OECD Convention on Combating Foreign Bribery (to which China is not a party) have not yet prosecuted a single foreign bribery case since the Convention came into force in 1999. So China’s inertia is hardly unique.

Yet regardless of the reasons why China has not enforced its foreign bribery law, and regardless of whether this inaction renders China unusual or typical, it is now high time for China to start enforcing this law aggressively. Doing so is in China’s long-term strategic interests, for three reasons: Continue reading →

The Chinese Corruption Crackdown and Political Maneuvering

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China’s broad anticorruption drive, spearheaded by President Xi Jinping, has been making splashy headlines over the last five years. The scale of this effort has been huge, with hundreds of thousands of Chinese Communist Party (CCP) officials punished in the first half of 2017 alone, and recent reports of nearly a million officials under supervision as of December 2017.  Yet while China’s anticorruption efforts have been met with some qualified praise from the beginning, many critics have been troubled by signs that the anticorruption crackdown is being used for political purposes. These purposes include consolidating President Xi’s power, particularly in light of rule changes that allow him to serve indefinitely, and also protecting the CCP’s reputation (see, for example, here and here). And because so many top Chinese officials have been involved in some kind of illicit activity (perhaps because in the current system bribery and patronage is essential to advancement), selective enforcement of anticorruption and related laws could allow President Xi to take out anyone sufficiently disloyal or threatening.

A recent example of the political considerations of the anticorruption campaign is found in the story of Guo Wengui, a Chinese billionaire currently residing in the US. Continue reading →

Guest Post: Paris Conference on the Transnationalization of Anticorruption Law–Call for Papers

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Jan Dunin-Wasowicz, Vice Chair of the Anti-Corruption Law Interest Group of the American Society of International Law (ASIL), contributes today’s post, which announces a conference that might interest GAB readers:

The ASIL Anti-Corruption Law Interest Group, Sciences Po Law School, and the Zicklin Center for Business Ethics Research of the Wharton School of the University of Pennsylvania are organizing an international symposium on the “Transnationalization of Anti-Corruption Law.” The conference will take place at Sciences Po in Paris, France, on Thursday and Friday 6-7 December 2018. The organizers are accepting paper proposals until 23 July 2018.

The purpose of the conference will be to look back at the evolution of anticorruption law as it affects cross-border business, trade, and regulation, but without taking the standpoint of a particular jurisdiction. This retrospective review will seek to explore the mechanisms that have led to the development of modern “transnational” anticorruption law and standards. The conference will also discuss current challenges and possible ways forward. It will undertake to achieve these goals through an interdisciplinary approach considering public international law and private international law methods, as well as comparative law, among other fields, while looking at the role and influence of a variety of actors. The conference will also explore the contribution of other disciplines such as economics, political science, psychology, and anthropology to understand their impact on the development of anticorruption standards and their implementation in the transnational context.

With this in mind, the conference will consider whether and how anticorruption laws and standards should synergistically lean towards transnational harmonization, unification, or remain a multitude of overlapping and possibly at times conflicting regulatory and procedural regimes. Discussing possible adjustments in transnational anticorruption norms would imply looking at the following issues, among others:

  • What prompted the process of transnationalization in the area of anticorruption?
  • What does transnationalization mean in the anticorruption context?
  • Is there a normative hierarchy in anticorruption standards?
  • How are anticorruption law, concepts, and practices transplanted?
  • What is the role of international organizations, regulators, national courts, NGOs, civil society, private actors, and international tribunals in defining anticorruption norms and standards?
  • How should anticorruption regulators cooperate?
  • What is the effectiveness and legitimacy of transnational anticorruption law?
  • Can transnational anticorruption law find a coercive authority?
  • Should there be a world anticorruption court?
  • Has the transnationalization of anticorruption law gone too far?
  • What can be learnt from other disciplines when it comes to devising or implementing anticorruption laws and policies?

Additional details on how to contribute to the conference are available here. We hope many GAB contributors and readers will participate.