Proposed Method for Assessing the Transparency, Accountability, and Inclusiveness of the Return of Stolen Assets: Comments Requested

France recently enacted an asset repatriation law enshrining GFAR-inspired principles of transparency, accountability, and inclusivity. Now that the principles are law, the French chapter of Transparency International has set out to ensure they are observed in practice.

To that end, it has developed a method for evaluating the return process on each of the three dimensions using indicators for each as shown in the diagram.

The organization plans to publish its methodology, alongside concrete examples from past restitution processes of good and weak practices, as a handbook. Publication is now scheduled for the beginning of October.

TI-France welcomes feedback and comments on its methodology. Click here for the French version of the paper explaining it and here for the English translation. The group would be pleased to receive thoughts and suggestions by September 10th.  They should be directed to Sara Brimbeuf and Rahima Zitoumbi at sara.brimbeuf@transparency-france.org and rahima.zitoumbi@transparency-france.org.

Guest Post: A Response to Commentary on the FACTI Panel Report and Recommendations

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.

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Commentary on the FACTI Panel’s Report and Recommendations (Part 1)

This past February, the United Nation’s cumbersomely-named “High-Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda”—which, thankfully, everyone simply refers to as the FACTI Panel—released its report on Financial Integrity for Sustainable Development. The report (which was accompanied by a briefer executive summary and an interactive webpage) laid out a series of recommendation for dealing with the problem of illicit international financial flows. Though the report states that it contains 14 recommendations, most of these have multiple subparts, which are really distinct proposals, so by my count the report actually lays out a total of 35 recommendations.

I had the opportunity to interview one of the FACTI panelists, Thomas Stelzer—currently the Dean of the International Anti-Corruption Academy—for the KickBack podcast, in an episode that aired last week. Our conversation touched on several of the report’s recommendations. But this seems like a sufficiently important topic, and the FACTI Panel report like a sufficiently important contribution to the debates over that topic, that it made sense to follow up with a more extensive analysis of and engagement with the FACTI Panel’s recommendations.

Of the 35 distinct recommendations in the report, eight of them (Recommendations 2, 3B, 4A, 4B, 4C, 8A, 11A, and 14B) all deal with tax matters (such as tax fairness, anti-evasion measures, information sharing among tax authorities, etc.). While this is an important topic, it is both less directly related to anticorruption and well outside my areas of expertise. So, I won’t address these recommendations. That leaves 27 recommendations. That’s too much for one post, so I’ll talk about 13 recommendations in this post and the other 14 in my next post.

I should say at the outset that, while some of my comments below are critical, overall I am hugely grateful to the members of the FACTI Panel for their important work on this topic. The Panel’s report should, and I hope will, prompt further discussion and careful consideration both of the general problem and the Panel’s specific recommendation. Part of that process is critical engagement, which includes a willingness to raise concerns and objections, and to probe at weak or underdeveloped parts of the arguments. I emphasize this because I don’t want my criticisms below to be mistaken for an attack on the Panel or its report. Rather, I intend those criticisms in a constructive spirit, and I hope they will be so interpreted.


With that important clarification out of the way, let’s dig in, taking each recommendation in sequence.

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New Podcast, Featuring Thomas Stelzer

A new episode of KickBack: The Global Anticorruption Podcast is now available. In this week’s episode, I interview Thomas Stelzer, who is currently the Dean of the International Anti-Corruption Academy (IACA), and who recently served as a member of the United Nations High-Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda (a mouthful of a name, which is why this distinguished group is usually referred to as the FACTI Panel). After Dean Stelzer opens our conversation with a discussion of his own professional background and interest in corruption, the interview turns to the FACTI Panel’s report, published this past February, and the report’s recommendations for combating illicit international financial flows. (In addition to the full report, which runs to 49 pages not including annexes and references, FACTI has released a shorter executive summary, as well as an interactive web page.) I asked Dean Stelzer about several of the report’s recommendations that seemed especially pertinent to the fight against grand corruption, and he gamely responded some of the questions and concerns that I raised about certain aspects of the report. In addressing these issues, Dean Stelzer emphasized the importance of more and better research on the topic of illicit financial flows, as well as the need for sustained efforts to ensure effective implementation of reforms such as those that the FACTI Panel outlined. You can also find both this episode and an archive of prior episodes at the following locations: KickBack is a collaborative effort between GAB and the ICRN. If you like it, please subscribe/follow, and tell all your friends! And if you have suggestions for voices you’d like to hear on the podcast, just send me a message and let me know.

Three Measures to Put Corruption Enablers Out of Business

The most common way corrupt officials hide money is by stashing it in an “offshore vehicle.” The “vehicle” will be a corporation, trust, or other legal person. It is termed “offshore” because it will be organized under the laws of another country. Stolen funds and assets purchased with them can then be listed in the name of the offshore entity.

To create an offshore vehicle, the official will turn to someone with expertise in creating offshore entities and disguising their ownership: a lawyer, accountant or other professional who knows corporate and trust law and how to use it to hide the owner’s identity. The anticorruption community has dubbed these intermediaries “enablers,” for they enable corruption by providing corrupt officials with a way to enjoy the proceeds of their corruption.   A typical scheme is shown in the diagram below.

An official in country A wanting to hide assets first hires an enabler.  Although the enabler could be a professional in country A, hiring one located in another state makes it that much harder for local authorities to uncover wrongdoing. The enabler, shown in the diagram as located in country B (most often a wealthy country), then creates the offshore vehicle.  The enabler could have created the vehicle, in this case a corporation, in the enabler’s own country.

 But again, to make it harder for investigators to trace assets, the enabler will usually form the vehicle in still another country, here labelled C. As the diagram shows, to further frustrate efforts to track money flows the anonymous corporation (or shell or letter-box company — the terminology differs in different jurisdictions) will then open a bank account and buy real estate and perhaps art works or other personal or moveable property in still a fourth country.

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Comments Requested on UNOHCHR Draft Guidelines: Human Rights Framework for Asset Recovery

As readers of this blog know, the asset recovery provisions of the United Nations Convention Against Corruption sit uneasily with states’ duties under the International Covenant on Civil and Political Rights and other human rights conventions (here and here).  Most notable is the conflict between states’ obligations under UNCAC to return stolen assets in response to a confiscation order issued by a foreign court and their obligation under the ICCPR to refuse recognition to a judgment issued in violation of a defendant’s basic rights. What is a state to do if presented with an asset recovery order secured by torture?

The fair trial/judgement recognition conflict is not the only tension between states’ anticorruption and human rights responsibilities under international law. What if the state requesting return of stolen assets is guilty of rampant human rights abuses? Does UNCAC’s mandatory return provisions trump the requested state’s duties to further human rights and avoid being an accomplice to violations?

For the past year the United Nations Office of the High Commissioner for Human Rights has consulted with governments, academics, and human rights and corruption lawyers on how to reconcile the tensions between the two bodies of international law.  The resolution may not please states with poor human rights records, but the rest of global community will surely applaud the careful, scholarly approach found in its draft Guidelines on a Human Rights Framework for Asset Recovery. The OHCHR now asks Member States, intergovernmental organizations, national, regional and global human rights groups, NGOs, academic experts, and practitioners for comments on its handiwork.  Details on how and where to submit them are here. The deadline is October 30. 

Financial Asset Recovery Conditions: The IMF’s New Anticorruption Playbook

Since the Euromaidan revolution in 2014, the IMF has provided substantial macroeconomic stabilization assistance to Ukraine, but has conditioned disbursements on, among other things, significant anticorruption reforms—an approach that has been hotly debated, including on GAB (see here, here, here, and here). The most recent financial assistance agreement also targets corruption, but in a more indirect fashion. Last December, the IMF and Ukraine provisionally agreed to a $5 billion financial assistance program. It soon became clear, though, that the launch of the new program hinged on the Ukrainian parliament successfully passing legislation on land and banking reform. Ukraine complied, and the new agreement is likely to be signed in the coming weeks.

The banking bill, which provides a more general bank resolution framework, is clearly designed to address outstanding issues for the country’s largest commercial bank, PrivatBank, which was nationalized in December 2016. The PrivatBank case is particularly complicated due to the historically close relationship between President Volodymyr Zelensky and the bank’s former owner, the oligarch Igor Kolomoisky. (Prior to winning Ukraine’s presidential election in April 2018, Zelensky—a former TV comedian—had no political experience, and his only political connection appeared to be his friendship with Kolomoisky, who owned the television network that broadcast the TV program that catapulted Zelensky’s political career.) Many commentators speculated that the IMF had been delaying a bailout for Ukraine due to concerns that Zelensky’s administration would not aggressively pursue efforts to recoup money stolen from PrivatBank. By successfully leveraging and re-purposing past conditionalities, the IMF has driven a wedge between the Zelensky and Kolomoisky, forcing the new President to abandon his toxic personal relationship with this oligarch in order to unlock international financial assistance. While Ukraine is an interesting case study in its own right, the IMF should make more frequent use of financial asset recovery conditions in other countries. Not only can such conditions support a country’s fiscal sustainability framework, but they may be especially helpful if and when well-intentioned political leaders struggle to break ties with corrupt allies. Continue reading

New Podcast, Featuring Robert Manzanares

A new episode of KickBack: The Global Anticorruption Podcast is now available. In this week’s episode, I interview Robert Manzanares, who served for many years as a Special Agent with Homeland Security Investigations, a division of the U.S. Department of Homeland Security that investigates a variety of federal laws dealing with cross-border criminal activity. Though Mr. Manzanares worked on a wide variety of fraud and corruption cases during his career at HSI, he is best known in the anticorruption community for his role as the lead agent in the case that ultimately lead to the seizure of substantial illegally-acquired assets of Teodorin Obiang, the Vice President of Equatorial Guinea and the son of Equatorial Guinea’s president, Teodoro Obiang. Much of our conversation focuses on that case, including the background on how HSI and Mr. Manzanares got involved in the case, some of the challenges that the investigators faced, and the broader significance of this case for the fight against global kleptocracy. We also use our discussion of that case to explore some broader issues, including the question of why it makes sense for the U.S. government to prioritize these cases, what can or should be done to target the Western individuals and firms that facilitate misconduct like Obiang’s, and what to do with seized assets in settings where the corrupt actors are still in power in their home countries.

You can find this episode here. You can also find both this episode and an archive of prior episodes at the following locations:

KickBack is a collaborative effort between GAB and the ICRN. If you like it, please subscribe/follow, and tell all your friends! And if you have suggestions for voices you’d like to hear on the podcast, just send me a message and let me know.

The Murky Business of Asset Recovery for Hire UPDATE

Premium Times and Finance Uncovered offered yesterday a glimpse of the lucrative business of asset recovery for hire.  A story posted on the websites of both the Nigerian paper and the London NGO (here and here) reports that the Nigerian government has hired Johnson & Johnson, a small Lagos-based law firm, to recover as much as several hundred of millions of dollars stolen from it through corrupt oil deals.  In return the firm will be paid five percent of whatever is recovered.  Johnson & Johnson, which apparently “won” the contract through an unsolicited proposal, has partnered with an investor who will pick up the firm’s cost to recover the money in return for a 300 percent return on its investment.  UPDATE: The Premium Times reports a coalition of civil society groups has asked Nigeria’s justice minister, Abubakar Malami, to release details of the agreement with Johnson & Johnson.

The Johnson & Johnson deal is not the first time the Nigerian government has turned to a private firm to recover stolen assets.  To recoup what General Sani Abacha stole while head of state in the nineteen nineties, it hired Geneva lawyer Enrico Monfrini. His take of the recovery was only four percent, not Johnson & Johnson’s five, but he still came out rather well.  For the 3,000 hours per year he told Swiss journalist Sylvain Besson he and his colleagues put in to recover $600 million of Abacha funds, which works out to roughly one lawyer working full-time and one-half time each year, his firm was paid $24 million (4% x $600 million).

Ever since UNCAC put the recovery of stolen assets on the international agenda, private contractors have been lining up to help developing country governments recover assets.  While there have been some successes, they have, as the Abacha case shows, come at a very high price.  Are they worth what the governments are being charged?  Are there better, cheaper alternatives? Continue reading

The Swiss U-Turn on Asset Return Explained

Historically, a Swiss bank has been the bank of choice for corrupt leaders wanting to hide money. The reality is quite different today.  Just ask Tunisia’s ousted strong man Ben Ali, deposed Ukrainian president Victor Yanukovich, or the relatives of deceased former Haitian president Jean-Claude Duvalier, of the late Nigerian dictator Sani Abacha, or of Hosni Mubarak, the recently passed Egyptian president.  All believed money stolen from their nations’ citizens was safe in a Swiss bank.

At the time, they were not wrong. Dating back to when its secrecy rules protected the wealth of France’s Catholic kings from the prying eyes of nosey Protestant journalists, Swiss law permitted banks to take money with few questions asked and sanctioned those disclosing information about an account or its holder. Strict bank secrecy laws gave the Swiss financial industry an enormous advantage over other financial centers; it’s one reason why today financial services plays an outsized role in the Swiss economy — accounting for 10 percent of the GDP, twice the average of other OECD nations.

As the Duvaliers, Abachas, and Murabanks of the world learned to their chagrin  however, over the past decade Swiss policy has made a sharp U-turn.  Despite the weight of history and tradition, and the economic interest of so many Swiss citizens, current Swiss policy not only no longer condones the deposit of stolen assets in its banks, it now demands that banks and others in the financial services industry come to the aid of governments searching for money stolen by former rulers and cronies.  No other nation today goes to such lengths to help countries recover stolen assets.

Swiss lawyers François Membrez and Matthieu Hösli document this extraordinary change in Swiss policy in How To Return Stolen Assets: The Swiss policy pathway. Just published by the Geneva Centre for Civil and Political Rights, the two explain how Swiss  asset recovery law has turned Switzerland from the destination of choice for stolen funds into the least hospitable jurisdiction in the world.  The paper is an essential guide to Swiss law on asset recovery and provides a blueprint for other nations wanting nothing to do with stolen assets.