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.

 

Asset Recovery: Report from Angola

Angola appears at last to have turned the corner in the fight against corruption.  The long-awaited trial of two “big fish,” the son of the former president and a former central bank governor, for looting the sovereign wealth fund began December 9.  While the international media have focused on what the trial means for the government’s fight against corruption  (Reuters story here, Bloomberg here, and BBC here), a less heralded equally significant development is quietly unfolding in Eduarda Rodrigues’ office. Deputy prosecutor general and since January head of the newly created asset recovery agency (Serviço Nacional vai Recuperar Activos), Rodrigues has begun slowly clawing back assets corrupt Angolan officials have stolen over the years. 

Below is an account the results to date taken from a November presentation to the Norwegian Corruption Hunters Network.

AssetQuantityAmount Kz
Properties2519,438, 912, 257
Vehicles2110,000,000
Cash Kwanza33,879,229
Cash Dollars322,832
  19,482,791,487
approx $40 million

As the table shows, Rodrigues’ agency has recovered assets worth more than 19 billion Angolan Kwanza or some $40 million along with more than $300,000 in U.S. currency. 

Rodrigues’ efforts began with the expiration of the Law of Repatriation of Financial Resources.   Passed June 26, 2018, it gave those holding stolen assets 180 days to voluntary return them without sanction.  Few took the government up on its offer (here), apparently believing the law was meant simply to show the international community the government was doing something to fight corruption. 

As Rodrigues and her growing team of experts expand their work, an ever larger number of corrupt official will regret passing on amnesty.   Law enforcement authorities in jurisdictions where Angolan stolen assets may be stashed now have a trustworthy partner to work with to see that monies stolen from the Angolan people are returned.

 

Will the Swiss Condone Torture in the Rush to Return Assets to Uzbekistan?

Allegations of torture have dogged the planned return of stolen assets from Switzerland to Uzbekistan for years (here). In a recent interview, a cellmate of one of the alleged torture victims has given the claims new life.  And should give Swiss citizens and their government pause before proceeding with any return.

The assets to be returned are the several hundred million dollars in bribes paid to Gulnara Karimova for the grant of mobile phone licenses in Uzbekistan, something within her power as daughter of the country’s then president.  She stashed most of the money in Switzerland, and when the scheme was exposed, Swiss prosecutors promptly opened a money laundering case against Gulnara and her accomplices. From the outset, the Swiss government made it clear that, if and when defendants were found guilty, the laundered funds would be returned to Uzbekistan.

A breakthrough came in 2018 when Gayane Avakyan, one of Gulnara’s accomplices, signed a Swiss Summary Penalty Order confessing to her role in the money laundering scheme and giving up any claim to the laundered funds.  The order was signed while she was serving time in an Uzbekistan prison, and because of multiple, credible reports that torture is commonly practiced in Uzbek prisons, questions were immediately raised about whether torture or the threat of torture was used to get Avakyan to sign.  A prison cellmate now says she was in fact subjected to a particularly harsh form of torture while incarcerated. Continue reading

New Podcast Episode, Featuring Kevin Davis

A new episode of KickBack: The Global Anticorruption Podcast is now available. In this episode, I interview Professor Kevin Davis, of the New York University Law School, about his new book, Between Impunity and Imperialism: The Regulation of Transnational Bribery (OUP 2019). As the book’s provocative title suggests, Professor Davis has a mixed assessment of the current legal framework on the regulation of transnational corruption (a framework dominated by rules set by the OECD countries, especially the United States), recognizing the progress that has been made in ending impunity, but at the same time highlighting the costs and limitations of the current system, especially from the perspective of developing countries. In addition to our general discussion of his critique–including the reasons for his use of the term “legal imperialism”–we also discuss a number of more specific legal questions, including individual vs. corporate liability for corruption, the nullification of contracts tainted by bribery, the asset recovery framework, and victim compensation more generally.

You can find this episode, along with links to previous podcast 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.

Guest Post: Toward a Meaningful “Common African Position on Asset Recovery”

GAB is delighted to welcome back Mat Tromme, Director of the Sustainable Development & Rule of Law Programme at the Bingham Centre for the Rule of Law, who contributes the following guest post:

It’s no secret that kleptocratic rulers in Africa have robbed their countries of substantial assets that could have  otherwise been used to promote development and social welfare. Indeed, the amounts are often staggering: $16 billion reportedly stolen by former Libyan President Gaddafi; $1 billion by Gambia’s ex-President Jammeh; billions by former Congolese President Kabila; and the list goes on. Recently, Nigeria’s Economic and Financial Crime Commission suggested that up to $50 billion has been looted from Africa, and whether or not particular estimate is accurate, there’s little doubt the problem is serious. More troubling is the fact that only a small proportion of these stolen assets have been recovered and repatriated to the country of origin.

As part of the effort to address the challenges of asset recovery—and to give African states more clout in negotiating the terms and conditions of asset return with the states that initially seize the stolen loot—African countries are currently undertaking an effort to develop a “Common African Position on Asset Recovery” (CAPAR). Incidentally, a common african position was the chosen theme of this year’s African Union Anti-corruption day. At this early stage, it seems likely that this effort will result only in a political proclamation (perhaps within the framework of this month’s UN General Assembly), one that will re-emphasize the importance of the speedy and unconditional return of assets, and call for better collaboration across countries. That’s a good start, but not enough! Developing a pan-African position on asset recovery—perhaps similar to the multilateral framework adopted by the Mercosur countries and by the EU—is a worthwhile endeavor, one that will likely produce tangible benefits only if it goes beyond mere statements of intent or general principles, and lays out some concrete steps to translate the vision into reality.

Ideally, CAPAR should seek to streamline policies and resources devoted to recovering assets and developing better investigative and prosecutorial capacity across African states, for example by implementing cross-border investigations and fostering collaboration, experience and information-sharing between countries. There are various ways to achieve this broad objective: Continue reading

Making Political Parties Liable for Corruption

When corrupt politicians are caught and convicted, they may suffer a variety of penalties, including fines and incarceration, and the government might also seize assets that were the proceeds of the wrongdoing. But punishing the individual politicians is not enough to deter wrongdoing or to compensate for the harm that the corruption causes. Moreover, even when an individual politician was the only actor who deliberately and intentionally engaged in corrupt criminal activity, that individual politician is not the only one at fault. Politicians’ decisions are affected by norms within a political party— for example, by expectations (sometimes unstated) that politicians will bring in a certain amount of money for campaign funds through graft.

For these reasons, political parties— in addition to the individual politicians— should be held liable for corrupt acts committed by their members in the course of their political activities or official duties. And such liability should attach even if the political parties’ leaders did not specifically know about or overtly endorse the corrupt acts in question.

This may seem like a radical suggestion, but in fact there are many contexts in which the law imposes so-called “vicarious liability” on organizations for acts committed by the organization’s members or agents. For example, the legal doctrine of respondeat superior (Latin for “let the master answer”) says that an employer (or other principal) can be held accountable for the wrongful actions of an employee (or agent), if the wrongful actions were within the normal “scope of employment.” Common examples include suing a hospital for the malpractice of one of its physicians or holding the government financially liable for wrongful conduct by law enforcement officers. (Although respondeat superior derives from English common law, other legal systems, such as those of Brazil and France have broadly similar concepts of vicarious liability.) Similarly, under the law of many jurisdictions, a corporation may be held liable (not only civilly, but also criminally) for acts committed by corporate employees—even if corporate management did not condone or even know about the criminal acts. These vicarious liability doctrines are important because a single employee frequently does not have the resources to redress the wrongs committed, and also because the employer often bears some responsibility for whatever the employee did, due to company culture, training, and incentive schemes. Because of this, economists point out that vicarious liability can be more socially efficient: The organization may be in a better position to detect and prevent wrongful conduct, so placing the liability on the organization can give it the appropriate incentives to take cost-justified measures to prevent the wrongful activity from occurring in the first place.

Although vicarious liability is a well-established legal principle, often used to hold employers responsible for the conduct of their employees, that concept has not yet been extended to hold political parties, as organizations, legally responsible for the corrupt acts of their members. Such an extension may seem radical, and in a sense it is, but it would be justified.

To make this case, I’ll apply the three-pronged standard that Black’s Law Dictionary lays out for respondeat superior liability to be appropriate in the employment context: (1) The individual was an employee when the occurred; (2) The employee was acting within the scope of his or her employment; and (3) The activities of the employee were a benefit to the employer. Continue reading

Guest Post: Mercosur’s New Framework Agreement Is an Asset Recovery Landmark, But Significant Flaws Remain

GAB is delighted to welcome back Mat Tromme, Director of the Sustainable Development & Rule of Law Programme at the Bingham Centre for the Rule of Law, who contributes the following guest post:

In asset recovery, international collaboration is key. In December 2018, four Mercosur countries—Argentina, Brazil, Paraguay, and Uruguay—adopted a new kind of landmark framework agreement to collaborate in investigations and sharing of forfeited assets resulting from transnational organized crime, corruption, and illicit drug trafficking. The agreement’s provisions on law enforcement collaboration are important but not groundbreaking, as many countries collaborate in investigations, including through Mutual Legal Assistance (MLA) agreements. This framework agreement can be seen as a direct application of Article 57(5) of the UN Convention Against Corruption, which calls on state parties to “give consideration to concluding agreements or mutually acceptable arrangements, on a case-by-case basis, for the final disposal of confiscated property.”

Where the new framework agreement is particularly novel and innovative is in its provisions on asset return. While there are a number of technical details, the big picture is that any of the four countries may lay claim to a portion of the assets, so long as that country played a role in its forfeiture, irrespective of where the assets are located. The framework agreement provides (in Articles 7 and 8 in particular), that the asset shares will be negotiated on a case-by-case basis, with each country’s share to be based principally on that country’s role in the investigation, prosecution, and forfeiture of the assets. Other factors that may be considered include the nature of the forfeited assets, the complexity and significance of international cooperation, and the extent to which cooperation led to the forfeiture.

To the best of my knowledge, this sort of framework agreement is rare, the only other recent example is the “Framework for Return of Assets from Corruption and Crime in Kenya (FRACCK)”, a multilateral non-binding initiative for the return of assets between the Governments of Kenya, Jersey, Switzerland and the UK. There had been calls to establish a similar initiative in Latin America going back several years (see here and here). The framework agreement has the potential to set a precedent by institutionalizing the return of assets across borders, not only improving the asset recovery and return process in Latin America, but also serving as an example for other regional collaboration agreements in Africa, Latin America, or Asia. Indeed, the 3rd African Anti-Corruption Day (held last week, on July 11th) was organized on the theme of finding a “Common African Position on Asset Recovery.” According to the African Union, the purpose of this is to advocate for Africa’s unity in demanding the recovery and return of stolen assets, and making the return process transparent and accountable.

While the approach and ambition of the agreement is laudable, the framework agreement has three important shortcomings: Continue reading