Public Disclosure of Beneficial Ownership: Do the Naysayers Have a Point?

Readers are no doubt celebrating the British House of Commons approval May 1 of legislation making it harder for corrupt officials to hide money offshore.  The new law requires that, starting 2021, the British Virgin Islands and the Cayman Islands along with other U.K. overseas territories must publicly disclose the actual person or persons – the “beneficial owners” – of companies organized under their laws.  Some half of the companies identified in the Panama Papers were organized in the British Virgin Islands, and estimates are that between 2007 and 2016 over $90 billion surreptitiously left Russia via British overseas territories.  Somewhere among the billions that mobsters, drug traffickers, and tax evaders are hiding in British overseas territory corporations are likely billions in monies stolen through corruption.  Forcing the corporations to reveal who is behind them will make recovering the monies that much easier.

No reform, no matter how powerful the arguments in support, is without its doubters.  Given the hefty fees banks, lawyers, accountants, and secrecy accomplices of all kinds earn helping hide money, it is no wonder the beneficial ownership legislation has attracted its share of naysayers.  The most thoughtful, and certainly the one who can turn the cleverest phrase, is BVI solicitor Martin Kenney. On Monday on the FCPA blog, he castigated “the NGO ‘transparency’ brigade.” It had “once again raised its guns and placed its cross-hairs over its preferred target: the offshore service providers in the British Overseas Territories.” And thanks to the Commons vote, the brigade can now mount its most wanted “trophy,” the BVI, on its wall.

Laying aside his colorful rhetoric, Kenney has a point.  Actually two.    Continue reading

The Missing Piece in UK’s Unexplained Wealth Order Mechanism

All of a sudden politicians, public figures, and oligarchs – such as Russian First Deputy Prime Minister Ignor Shuvalov and former Nigerian Oil Minister Diezani Alison-Madueke – have to explain how they are able to afford the swanky apartments in London’s posh Mayfair neighborhood on their modest official salaries. This is due to the UK’s new Criminal Finances Act (CFA), which came into force in February and is meant to crack down on the flow of dirty money into the UK—a flow that has given London in particular a reputation as a “Death Star” of global kleptocracy. Most notably, the CFA adds a new investigative tool, the Unexplained Wealth Order (UWO), into the civil recovery regime. Originally proposed by Transparency International UK a few years ago, a UWO is an order granted by the High Court in cases where there are reasonable grounds to believe (1) the respondent owns some property worth more than £50,000; (2) either the respondent is a politically exposed person (PEP), or the respondent or a person connected to the respondent has been involved in a serious crime; and (3) respondent’s lawfully earned income would not be sufficient to obtain the property in question. If there are reasonable grounds to believe that each of these three conditions is satisfied, the High Court may issue an order requiring the respondent to provide information regarding the nature of her interests in the property in question and how she was able to lawfully obtained such property. If the respondent is unable to provide a reasonable explanation, the UK Government can subsequently initiate the civil forfeiture process and seize these assets.

Lauded as “a powerful new weapon in[] the anti-corruption arsenal,” UWOs are expected to be particularly helpful when there is no conviction against the respondents in their countries of origin, or when efforts to get a corrupt foreign government to cooperate with investigations have led to naught. Moreover, even though UWOs are a civil enforcement mechanism, the information they uncover may be useful in pursuing criminal investigations, and if respondents recklessly or knowingly make false statements or mislead the enforcement body in responding to an order, they may be criminally prosecuted. There’s already some evidence that the new law will make a difference: In March, a month after the promulgation of the CFA, two UWOs were issued requiring a tycoon in Central Asia to explain how he is able to afford real properties in the UK totaling £22 million.

Yet notwithstanding the enthusiasm for UWOs in some quarters, the effectiveness of the UFO mechanism is likely to be hampered by an important missing piece in the UK’s anticorruption framework, namely an effective means for ensuring genuine transparency regarding the beneficial ownership of real and movable property. Without knowing who really owns what, the new law is unlikely to realize its full potential, and indeed may not make much difference outside of a handful of cases involving particularly careless criminals.

Continue reading

Conference on Human Rights and Asset Recovery

The Open Society Foundations hosts a conference this Friday, March 16, at its Washington office on the human rights issues raised when stolen assets are returned.  During the morning session new strategies for addressing corruption before UN treaty bodies and the complementarity of international laws on human rights and criminal justice governing asset recovery will be discussed.  In the afternoon, speakers will examine the role of asset-holding states and international organizations in ensuring accountability in asset recovery and return and civil society’s role. Previously unpublicized information on the return of stolen assets to Kazakhstan will be reviewed for the lessons it offers.

Click here for more on the agenda and a list of speakers.  Those wishing to attend should RSVP to Joshua Russell.

Asset Recovery and Fair Trials: The European Court of Human Rights Jurisprudence

Article 54 of the UN Convention Against Corruption requires state parties to have procedures “to give effect to an order of confiscation issued by a court of another State Party.”  Once a party receives a request to return assets backed by a confiscation order issued by a court in the requesting state, the process is simple.  The requested party brings the order before a domestic court, and the court orders the assets forfeited.  The requested state then hands over the money, securities, title to the property, or whatever is required to transfer the assets from their current owner to the requesting state.

What if the asset’s owner contests the transfer, however?  What if the owner asserts the court proceedings that led to the confiscation order issuing in the requesting state were not fair?  Does the requested state have an obligation to entertain the complaint? Continue reading

Returning Assets to Governments Run by Kleptocrats

The return to the victim country of assets stolen by a corrupt official has been much commented upon on this blog (here, here, here, here, and here).  The discussion centers around whether governments holding the stolen assets must return them when the government requesting the return continues to be dominated by thieves.

Not surprisingly, the asset recovery provisions of the UN Convention Against Corruption provide little guidance.  It was written at a particular moment in history — just after Ferdinand Marcos of the Philippines, Sani Abacha of Nigeria, and Suharto of Indonesia had fallen.  These kleptocrats, whose massive theft of their nation’s resources inspired the UNCAC asset recovery chapter, had been replaced by democratically inclined leaders committed to the rule of law and the welfare of their citizens.  The question then occupying UNCAC’s drafters was how to return the money to such rulers as quickly and inexpensively as possible.

But in hindsight, the replacement of these kleptocrats by enlightened rulers seems more an accident of history than a harbinger of future events.  It is all too rare for a kleptocrat to be replaced by a democratically chosen successor of the likes of the Philippines’ Cory Aquino or South Africa’s Nelson Mandela. Far more common is the replacement of one kleptocrat by another — or by a gang of kleptocrats.  When this is the case, must nations holding the fallen kleptocrat’s assets return them to another thieving government?  Knowing chances are slim the assets will ever benefit those the thieves rule?

Although UNCAC offers no answer to these questions, in a paper delivered at a conference organized by Geneva Center for Civil and Political Rights I argue that UNCAC is not the only treaty governing states’ obligation to return stolen assets.  There are as well provisions in the International Covenant on Civil and Political Rights and the International Covenant on Economic, Social and Cultural Rights that states must observe.  And these point decidedly against returning stolen assets to a kleptocracy. Thye dictate instead that the assets be returned directly to citizens.

My paper is here.  Comments welcome.  Other papers presented at the conference’s rich and stimulating discussion on human rights and corruption are here.

February 19 – 20 Conference on Human Rights and Corruption

GAB readers know of the close relationship between corruption and human rights (here).  They know too that how to use that relationship to both combat corruption and advance human rights is still in the initial stages of debate (here and here).

To move the discussion forward, the Geneva Centre for Civil and Political Rights is holding a conference February 19 – 20 titled “Anti-Corruption Strategies for UN Human Rights Treaty Bodies” (Flyer).  Members of the anticorruption community and those who work for or with the bodies responsible for seeing states comply with their human rights treatu obligations will gather to examine how the two groups can work together to advance shared goals. A special focus will be corruption victims and asset recovery.  Details on the conference are here.

Guest Post: Global Forum or Global Farce on Asset Recovery?

GAB is delighted to welcome back Susan Hawley, Policy Director at Corruption Watch, to contribute today’s guest post:

The global record on recovering assets looted from public treasuries is not good. The World Bank and UNODC estimate that between $20-40 billion is stolen each year. Between 2006 and 2012, $2.6 billion stolen assets were frozen in so-called “destination” countries, and $423.5 million was returned. That means of the roughly $120 billion (taking the lowest end of the World Bank and UNODC’s estimate) thought to have been potentially looted globally in that 6 year period, only 0.3% was actually recovered.

To strengthen international efforts to combat this problem, the 2016 London Anti-Corruption Summit called for the creation of a Global Forum on Asset Recovery (GFAR); the World Bank and UNODC’s Stolen Asset Recovery Initiative organized the inaugural Global Forum on Asset Recovery (GFAR), in December 2017 in Washington, D.C., with the US and UK governments as co-hosts. The GFAR, which welcomed over 300 participants from 26 jurisdictions, focused on four countries: Nigeria, (thought to have to have lost $32 billion to corruption under previous President Goodluck Jonathan); Sri Lanka (where former President Rajapaksa allegedly stole up to $5.38 billion); Tunisia (where former ruler Ben Ali and his family are thought to have amassed wealth of over $13 billion); and Ukraine (where former president Yanukovych and his associates are thought to have stolen around $7.5 billion). These countries were selected for their political will to recover stolen assets and the considerable assets they have to recover.

The stated objectives for the GFAR were “progress on cases achieved by the four focus countries, increased capacity through technical sessions, renewed commitment to advancing asset recovery cases, and increased collaboration among involved jurisdictions.” As measured against these objectives, was the GFAR a success? Should it be a regular event? More generally, do asset recovery forums like this have sufficient positive impact to justify their cost? Continue reading