Tag Archives: asset return

The UK’s Promised War on Kleptocracy: Reinforcements Needed

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Putin’s invasion of Ukraine has created a new-found resolve among the world’s financial centers. They are now committed to seizing the money Putin and oligarchic cronies have stolen from the Russian people and hidden in their territories. Given the enormous media attention on where it is stashed (examples here, here, and here), that may sound straightforward.

It is not.  Even bad guys have rights, and as Radha Ivory reminds, that includes the right to their property. To confiscate the assets Putin and cronies have squirrelled away outside Russia will require proof that (a) no matter what ownership records show, the assets really do belong to one of them and (b) the assets were acquired with the proceeds of corruption or other criminal activity.

London has been one of the premier destinations of dirty Russian money. James Mather, a barrister of the U. K’s Serle Court, explains below what the British government must do to fulfill its pledge to confiscate every shilling of stolen Russian money hidden in its territory.

The gloves have come off in the United Kingdom’s effort to cleanse itself of ‘dirty money’, or so we are told.  To signal its commitment, the UK government has sped up new legislation, but its contents seem unlikely to advance matters very far.  There is amendment of the legislation for Unexplained Wealth Orders (totemic but misunderstood powers that are of quite limited practical use) and new requirements to register the beneficial ownership of property (as always easily evaded by clever structuring or simple lies).  What has really been lacking all these past years is harder to legislate for: the adequate enforcement of the asset recovery laws that exist. 

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New York Real Estate Owned by Putin’s Buddies

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Source: Jennifer Gould, Here’s where Russian oligarchs and their families own property in NYC, New York Post, February 27, https://nypost.com/2022/02/27/heres-where-russian-oligarchs-and-their-families-own-property-in-nyc/

Several media reports suggest sanctioning Putin’s supporters won’t be that easy because their ownership is hidden under layers of corporate vehicles. As Jennifer Gould’s story in the New York Post shows, thanks to the work of many investigative reporters and NGOs. we do know where many of Putin’s buddies have stashed their wealth in the Big Apple. Click here for a similar guide to London properties TI-UK has drawn up.

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

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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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Three Measures to Put Corruption Enablers Out of Business

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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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World Bank Monitoring of Repatriated Assets Should Be Part of Major Settlements

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The issue of repatriating the proceeds of corruption to the countries from which they were stolen has attracted substantial commentary, including in multiple posts on this blog (see here, here, here, here and here). Much of the discussion focuses on whether and how to return funds to countries that still suffer from systemic corruption or outright kleptocracy. In these cases, the risk that the assets, if simply returned, will be stolen again is, in the view of some critics, unacceptably high. In some cases, despite these risks, the government that seized the assets nevertheless repatriates the seized funds directly to the government from which they were originally stolen; the US Department of Justice (DOJ) has done this in several cases, including asset returns to Peru, Italy, and Nicaragua. In other cases, by contrast, the seized funds have been funneled to a local NGO rather than to the government. This was done in the agreement among the United States, Switzerland, and Kazakhstan regarding the transfer of corruption proceeds to Kazakhstan (an agreement which created a new NGO called the BOTA Foundation). This mechanism was also included in the DOJ’s settlement with Equatorial Guinea over the disposition of assets stolen by the President’s son, Teodorin Obiang. Another approach, which we saw in this past February’s trilateral agreement among the United States, Jersey, and Nigeria regarding the return of $308 million in assets stolen by former Nigerian dictator General Sani Abacha (which I discussed at greater length in a previous post), entails the earmarking of the repatriated funds for specific infrastructure projects, coupled with oversight by a yet-to-be-determined independent auditor and yet-to-be-determined independent civil society organizations (CSOs), with both the auditor and the CSOs selected by Nigeria, but subject to a veto by the United States and Jersey.

The inclusion of these various conditions is understandable. Notwithstanding the sovereignty-based objections advanced by the so-called “victim countries”—which often assert that they have an absolute right to the unconditional return of assets stolen from their national treasuries—returning huge sums to corrupt or weak governments without any safeguards would be irresponsible. Nevertheless, there are many pitfalls involved with leaving oversight largely to the victim country government and local CSOs, and the ability of countries like the United States to monitor compliance with the terms of repatriation agreements in foreign countries is limited. The best way to address these concerns is to involve an international institution—such as the World Bank, or possibly one of the regional multilateral development banks—in monitoring the terms of repatriation agreements.

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

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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 →

The Trilateral Nigeria-US-Jersey Agreement to Return Nigerian Dictator Abacha’s Assets: A Preliminary Assessment

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This past February, the United States signed a trilateral agreement with Nigeria and the British dependency of Jersey to repatriate to Nigeria $308 million in funds that the late General Sani Abacha had stolen from the Nigerian government during his time as Head of State from 1993-1998. This enormous sum was a mere fraction of the estimated $2-5 billion that Abacha had laundered through the global banking system. Back in 2013, the U.S. Department of Justice (DOJ) filed a civil forfeiture complaint against more than $625 million that could be traced as proceeds from Abacha’s corruption. Shortly afterwards, in 2014, a U.S. federal court entered a forfeiture judgment against over $500 million of these assets, including the $308 million held in Jersey bank accounts. Appeals of the forfeiture judgment in the United States were finally exhausted in 2018, at which point the United States, Jersey, and Nigeria entered into negotiations to repatriate the recovered assets. The February 2020 trilateral agreement represents the culmination of those negotiations.

Back in 2014, when DOJ first froze Abacha’s assets, Raj Banerjee asked on this blog an important question, one that has come up in several other asset recovery cases too: Who will get Abacha’s assets? Would the United States simply give the money back to the Nigerian government? Or would the United States, out of concerns that the repatriated assets would be stolen again, insist on attaching conditions to the returned funds, or even create or empower a non-governmental nonprofit entity to allocate the funds (as the United States has done in some other cases)? Now, six years later, we finally have an answer. Under the terms of the trilateral agreement, the repatriated funds will be used to help finance three infrastructure projects that had already been approved by the Nigerian legislature and President Muhammadu Buhari: the construction of the Second Niger Bridge, the Lagos-Ibadan Expressway, and the Abuja-Kano road. These projects aim to better connect people and supply chains in Nigeria’s impoverished Eastern and Northern regions to the developed Western region. Additionally, the agreement declares that the Nigeria Sovereign Investment Authority (NSIA) will oversee the funds, that a yet-to-be-determined independent auditor will conduct a financial review, and that a yet-to-be-determined independent civil society organization with expertise in engineering, among other areas, will have a monitoring role.

There is much to admire about the agreement. Using these assets to fund critical infrastructure projects that Nigeria’s legislative and executive branches had already approved demonstrates a respect for Nigerian sovereignty and democratic institutions, while at the same time directing the money to projects that would tangibly benefit the Nigerian people, particularly in some of the country’s poorest areas—the people who were most victimized by Abacha’s looting of the national treasury. Yet while the governments of the United States, Nigeria, and Jersey all heralded the trilateral agreement has a landmark, some voices, particularly in the United States, have expressed skepticism. Most notably, U.S. Senator Chuck Grassley sent a letter to DOJ questioning whether the returned funds will truly be protected from misuse. Senator Grassley suggested that senior officials in the Buhari Administration, including the Attorney General, could not be trusted to ensure that the Nigerian government would face consequences if it misappropriated the returned funds, and he questioned why DOJ would return the money without “proper safeguards” to prevent misuse a second time. Unsurprisingly, Nigeria took issue with Grassley’s accusations. But his concerns have some merit.

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The Continuing Controversy Over the Destination of the Petrobras Penalties: The Coronavirus Crisis Has Ended One Debate, But May Start Another

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As most readers of this blog are likely aware, the Brazilian state-owned oil company Petrobras has been at the center of a massive bribery scandal in Brazil, and the main focus of Brazil’s so-called Car Wash (Lava Jato) Operation. That Operation uncovered evidence that between 2006 and 2014, corporations paid kickbacks to senior Petrobras officials for inflated contracts, and the Petrobras officials funneled a substantial portion of those illicit proceeds to the political parties in the government’s coalition. These revelations lead to legal actions not only in Brazil, but also in the United States. Because Petrobras issued securities in the U.S., and because U.S. law imposes criminal liability on a corporation for the conduct of the corporation’s employees, Petrobras was potentially liable under the U.S. Foreign Corrupt Practices Act (FCPA), because Petrobras officers had facilitated corruption abroad (that is, in Brazil). In September 2018,Petrobras signed a non-prosecution agreement (NPA) with the United States Department of Justice, according to which the company would pay over US$850 million in penalties. But, crucially, only 20% of that penalty would be paid to the United States; the remaining 80%, according to the terms of the NPA, was to be paid by Petrobras “to Brazil.”

This provision sparked great controversy and debate in Brazil over the destination of that money—a debate that seems to have been ended (for now) by the coronavirus crisis. The root of the problem is that under Brazilian law, Petrobras (the corporate entity) was considered victim of the bribery scheme, not a perpetrator. So, from a Brazilian perspective, it was hard to comprehend why the company should be obligated to pay for crimes that harmed it. Indeed, in many of the Car Wash cases resolved in Brazil, penalties recovered from other entities (such as the firms that paid kickbacks) were transferred to Petrobras. But under the NPA with U.S. authorities, Petrobras was required to pay over US$650 million to Brazil. What Brazilian entity or entities should get that money? And who should decide on the allocation?

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The Swiss U-Turn on Asset Return Explained

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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

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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 Kwanza–33,879,229
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.