Tag Archives: United Kingdom

Passports for Sale: Why We Should Worry about Golden Visa Programs

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In 1984, the government of the small Caribbean island state of Saint Kitts and Nevis had a bright idea for attracting foreign capital: the country would grant permanent resident status to any foreign national who invested a sufficient amount in the country. The idea caught on, and now dozens of countries around the world—including not only small island states, but also major developed economies like the United States and the United Kingdom—have so-called “golden visa” programs. Golden visa programs have proven especially attractive during times of economic hardship, as demonstrated by the spread of these programs across Europe in the wake of the 2008 recession. These European programs are especially notable, as getting a visa in one country in the Schengen visa zone provides access to the other 25 as well. Some states—including EU members Austria, Bulgaria, Cyprus, and Malta—even offer investors outright citizenship, rather than simply residency status, in exchange for sufficiently large investments. And due to pre-existing visa waiver agreements, these “golden passports” may allow access to other countries as well. Those with Maltese passports, for example, can travel to the US visa-free.

According to a recent Transparency International-Global Witness report, in the last decade alone, countries with these sorts of programs have “sold” (that is, traded for investment) more than 6,000 passports and nearly 100,000 residency permits. Yet these policies have always been controversial, and are becoming more so. Canada terminated its golden visa program in 2014 (though it continues in Quebec). Last June, the Trump Administration demanded that Congress either terminate or reform the US investor visa program. And the UK abruptly announced it would suspend its program on December 6th, although it reversed course six days later.

Part of the reason for the growing disillusionment with golden visa programs is that their supposed economic benefits haven’t lived up to expectations. Rather than stimulate economic growth and job creation, the investments used to qualify for golden visas are often passive, such as government bonds or real estate. In Portugal, for example, 95% of total investment has been in real estate—6,141 investments compared to just 12 in employment creation. Real estate investments not only offer limited benefits, but may also distort housing markets. In the US, investments have been, in the words of US Senator Chuck Grassley, funneled towards “big moneyed Manhattan interests” rather than “direct investment to rural and high unemployment areas.” Hungary even managed to lose money on its program—$221 million—as it offered investors discounted bonds that were then fully repaid after five years with an additional 2% interest.

But the bigger problem with golden visa programs is their potential to both facilitate and stimulate corruption and money laundering. This problem, which was highlighted both by the TI-Global Witness report mentioned above, as well as another report from the European Commission, takes several forms. Continue reading →

Are Corporate Anticorruption Compliance Programs Effective?

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Requiring business corporations to institute an anticorruption compliance program should be a part of any national strategy to fight corruption.  The argument is simple.  Corporate employees or their agents are always on the paying side of a bribery offense and often a facilitator of conflict of interest and other forms of corruption.  Making it against company policy for employees or agents to participate in any corrupt act with stringent sanctions up to and including termination for a violation will help shut down the supply side of the corruption equation.

Even where a company’s compliance program is a sham, established simply to comply with the law, it can still help in combating corruption.  A sham program would be a violation of law, and were the company investigated, the existence of a sham program would be easy for investigators to spot, easing their task of determining wrongdoing.  So there seems to be no reason why lawmakers shouldn’t insist that firms subject to their law, whether state-owned or privately-held, establish a program.  And between the many guides published by international organizations (examples here and here), NGOs (here and here), academics, the burgeoning compliance industry, and the issuance of an international standard for such programs, there is no dearth of information on how to create and operate an effective one.

I have argued the case for a compliance requirement in several posts (examples here and here), as have many other GAB contributors (examples here and here).  My most recent plea for mandating private sector compliance programs came in this one noting such a requirement in Vietnam’s new anticorruption law.  But one thing I have not done is address two obvious questions about compliance programs that Matthew posed in a comment to the Vietnam post: How are compliance requirement laws enforced? How effective are they in practice?

It turns out these obvious, innocent sounding questions (the kind law professors always seem to ask) aren’t all that easy to answer.  What I have found so far follows.  Readers with more information earnestly requested to supplement it. Continue reading →

The UK Parliament Should Broaden and Sharpen the Legal Advice Privilege in Order to Encourage More Internal Investigations into Corruption

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On September 5, 2018, the compliance departments and outside counsel of large corporations operating in the UK breathed a collective sigh of relief. In a much anticipated ruling, the Court of Appeal of England and Wales overturned a trial judge’s order that would have compelled a London-based international mining company, Eurasian Natural Resources Corporation Limited (ENRC), to hand over documents to UK prosecutors investigating the enterprise for bribery in Kazakhstan and Africa. Those documents were the product of an investigation that ENRC’s outside legal counsel had conducted following an internal whistleblower report that surfaced in late 2010. In conducting that internal investigation, lawyers from the law firm interviewed witnesses, reviewed financial records, and advised ENRC’s management on the company’s possible criminal exposure. Though the company tried to keep everything quiet, the UK’s Serious Fraud Office (SFO) came knocking in mid-2011. The SFO agreed to let ENRC and its lawyers continue to investigate on their own, periodically updating the SFO on their progress. In 2013, ENRC’s legal counsel submitted its findings to the SFO in a report arguing that, on the basis of the facts presented, the company should not be charged. The SFO disagreed and launched a formal criminal investigation. But the SFO then also demanded that ENRC turn over all of the files and documents underpinning its report—including presentations given by the lawyers to ENRC’s management and the lawyers’ notes from their interviews with 184 potential witnesses.

ENRC refused to comply, claiming that these documents were covered by two legal privileges under UK law: the “litigation privilege,” which guarantees the confidentiality of documents created by lawyers for the “dominant purpose” of adversarial litigation (including prosecution) that is “in reasonable contemplation,” and the “legal advice privilege,” which protects communications between lawyers and clients exchanged for legal advice. The trial court rejected ENRC’s privilege claims, a decision that sent shockwaves through the English defense bar and spurred much criticism on legal and policy grounds. But the Court of Appeal reversed, holding that ENRC’s lawyers didn’t have to share the documents. The Court’s ruling relied on the litigation privilege, holding, first, that documents created to help avoid criminal prosecution counted as those created for the “dominant purpose” of litigation, and, second, that criminal legal proceedings were in “reasonable contemplation” for ENRC once the SFO contacted the company in 2011.

Many commentators have hailed the Appeal Court’s decision (which the SFO declined to appeal) as a “landmark ruling” and a “decisive victory” for defense lawyers. The reality is a bit more nuanced. The Court of Appeal’s fact-specific ruling was very conservative in its legal conclusions, and it’s unlikely that its holding regarding the litigation privilege is sufficient to create the right incentives for companies and their lawyers. It’s also unlikely that further judicial tinkering with the scope of the litigation privilege will resolve the problem promptly or satisfactorily. The better solution would involve a different institutional actor and a different privilege: Parliament should step in and expand the scope of the legal advice privilege to cover all communications between a company’s lawyers and the company’s current and former employees. Continue reading →

Guest Post: To Be Effective, Public Company Ownership Registries Must Be Linked

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Today’s guest post is from Louise Russell-Prywata, Program Manager at OpenOwnership, a global non-governmental organization that promotes greater corporate transparency by making it easier to publish and access data on company ownership.

Danske Bank’s Estonian branch appears to have enabled international money laundering on an enormous scale, with Danske Bank currently investigating  about $236 billion in suspicious transactions (including, but not limited to, the notorious “Azerbaijani Laundromat” in operation from 2012-2014). Yet while money laundering on this scale may be unusual, the mechanisms that allowed funds to flow undetected from countries such as Russia, through Danske Bank Estonia, and into jurisdictions including the UK, are quite familiar. One of the most important of these techniques is the use (and abuse) of anonymously-owned companies.

If we want to stem the tide of money laundering through corporate vehicles, then public registers of the every company’s “ultimate beneficial owners” (UBOs) are an important part of the solution. Publicly available information would decrease reliance on whistleblower allegations to uncover money laundering, and companies themselves would benefit by reducing the costs of due diligence. There has been significant progress to implement public UBO registers in some countries, including the UK and Ukraine, and several other countries have committed to adopting UBO registers in future. There is already some evidence that these registers can make a difference. For example, following the requirement for UBO disclosure for Scottish Limited Partnerships (SLPs), the number of new incorporations fell dramatically; this is encouraging, as SLPs have featured prominently in several grand corruption cases. However, the Danske Bank revelations highlight that the power of national registers in isolation is limited.

To effectively deter and detect corruption and money laundering, public UBO data from different countries needs to be linked in a manner that is useful for law enforcement, investigative journalists, and others. The data from different registers must be compatible, so that it would be possible, for example, to ascertain whether the Ms. Doe owning Doe Holdings Ltd. registered in the UK, is the same Ms. Doe owning Doe’s Ltd. in Cayman Islands. This is important because a money-laundering trail rarely leads neatly from source jurisdiction straight to a company whose UBO is listed in a public register. Criminals and their associates tend to create a complex chain of legal entities to hide the illicit origin of their funds. This was the case in the Azerbaijani Laundromat, for example. Linking together UBO information from different jurisdictions would make it far easier to “follow the money” in grand corruption and money laundering cases. While law enforcement in some cases have powers to do this now, in practice the process can be complex and expensive, and it is not easily possible to link information at scale. Continue reading →

Unexplained Wealth Orders and London Property Bargain Hunters: Part II

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Last week I dangled before readers hunting for a home in an upscale London neighborhood the possibility that prices might take a sudden nose dive. Britain’s recently enacted law on Unexplained Wealth Orders (UWO) authorizes law enforcement agencies to seize a property if the owner cannot show it was bought with monies honestly come by. Given estimates some 40,000 U.K. properties can’t pass this test, I suggested it was possible the London real estate market could soon be flooded with properties for sale at bargain basement prices as those fearing an UWO try to dump them before law enforcers confiscate them.

But to the great disappointment of GAB readers looking for bargains on London properties, I explained that another new law makes this scenario highly unlikely.  Those trying to offload a property purchased with criminally obtained money are, under U.K. law, committing the crime of laundering money, and thanks to the recent tightening of the U.K. money laundering rules, British real estate agents must alert authorities to any transaction where they suspect money laundering.  With enactment of the UWO law, selling a property of questionable provenance now at less than full market price would scream money laundering. So loudly that no real estate agent no matter how hard of hearing could ignore it.

While the post dampened the hopes of readers thinking the UWO law might shave a couple of million pounds off a place in Mayfair, Knightsbridge, or other neighborhood where many anticorruption activists now dwell (okay, or more likely wish they dwelled), it did serve my real purpose: to prompt reader reactions.    And so it did. Continue reading →

Bad News for Bad People: Decision in U.K.’s First Unexplained Wealth Order Case

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Reports of a $21 million shopping spree at the posh London department store Harrods (examples here, here, and here) dominated accounts of the first court decision to test the new U.K. law requiring those owning a high-end property to show how they could afford it. The court cited the Harrod’s binge in its October 3 decision denying Zamira Hajiyeva’s application to quash an order compelling her to explain how she could afford her $15 million London home in Knightsbridge (walking distance to Harrods) when her only visible means of support is Mr. Hajiyeva, a deposed Azerbaijan oligarch now serving 15 years in an Azeri prison for bank fraud. Tabloid fascination with Mrs. Hajiyeva’s spending binge is understandable, but the decision’s import stretches far beyond the disclosure of the crass excesses typical of a gangland moll.

Even before the law took effect, concerns were heard it would not advance its objective of making the United Kingdom “a more hostile place for those seeking to move, hide or use the proceeds of crime or corruption or to evade sanctions.”  Would the British judiciary’s traditional respect for property rights and qualms about forcing individuals to reveal their personal finances produce such narrow readings of the law as to eviscerate it? Would law enforcement authorities reach too broadly when seeking an order, giving well-financed targets multiple grounds on which to mount a challenge?  The Hajiyeva decision is the first to answer these questions, and for kleptocrats, crime bosses, drug kingpins, and other malefactors hoping the law would go awry, the answers are all bad. Continue reading →

Guest Post: By Refusing to Respect Attorney-Client Confidentiality, European Courts Threaten To Undermine Anti-Bribery Enforcement

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GAB is pleased to welcome back Frederick Davis, a lawyer in the Paris and New York offices of Debevoise & Plimpton and a Lecturer at Columbia Law School, who contributes the following guest post:

In the fight against transnational bribery and other forms of corporate crime, a key element of some national prosecution agencies’ strategy is to encourage corporations to “self-report” to the government and to cooperate with any subsequent investigation. The United States Department of Justice (DOJ) pioneered this strategy, but other jurisdictions are beginning to adopt it as well. The basic approach is to offer companies both a stick and a carrot: The stick: If corporations do not self-report and are ultimately discovered, they will be prosecuted vigorously. The carrot: A self-reporting, cooperating company can obtain a more favorable settlement, and perhaps avoid prosecution altogether. From a public policy perspective, it is vastly more efficient for prosecutors to work with corporations in the fight against corruption, essentially enlisting them as partners to detect, investigate, and bring to justice the individuals responsible for corruption, than for prosecutors to do all this work themselves.

From the company’s perspective, though, the decision whether to self-report is difficult: By making a first phone call to a prosecutor, the company all but commits to negotiating a settlement and abandons both the chance of non-detection and the (perhaps scant) possibility of a successful defense. At a minimum, starting this process will entail large costs (particularly legal fees), as well as risks, including the risk that prosecutors may discover more matters to be investigated. There is also the problem, already discussed on this blog, of evaluating whether a negotiated outcome in one country will preclude or deter prosecution in another. And at least at the early stages, the company may not even be certain whether a violation has in fact taken place, or how widespread or egregious such violations may have been. For these reasons, when a company’s leaders learn that there may have been violations of anti-bribery or other laws, the company will retain a seasoned legal team to oversee a thorough internal investigation of the facts in order to make a reasoned decision whether, and where, to self-report.

When a company asks lawyers to do this, it is essential that the attorneys’ work be protected by the attorney-client privilege, at least until such time as the company decides to share fruits of the investigation with prosecutors. If a company knew that everything learned or generated by its lawyers in the course of an internal investigation could be subject to seizure or forced disclosure to prosecutors, then companies would face a huge disincentive to start the process of conducting an internal investigation at all, since doing so could simply create a handy road map – and compelling evidence — for the prosecutor. In the United States, although the conduct of such an internal investigation poses a number of possible traps for the unwary, if the investigation is properly managed then the company can generally be assured that no prosecutor will get her hands on the fruits of its lawyers’ work unless and until the company specifically authorizes such disclosure. Matters are more complicated in Europe, however. For example, in-house counsel are generally not considered to be “attorneys” capable of generating a protectable professional privilege. And in some countries, such as France, the client does not necessarily have the power to “waive” the secret professionel (the rough equivalent of the attorney-client privilege) at all. Most notably—and most troublingly—recent court decisions in the UK and Germany have gone even further in making the results of lawyers’ internal investigations discoverable by prosecutors without the company’s consent. These decisions, if not reviewed or curtailed by legislation, will create huge disincentives to self-investigation, and hence to self-reporting. Continue reading →

Guest Post: The UK’s Compensation Principles in Overseas Corruption Cases–A New Standard for Aiding Victims of Corruption?

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

The issue of whether money from foreign bribery settlements should go back to the people of affected countries has generated a fair amount of heat over the years. Back in 2013, the World Bank’s Stolen Asset Recovery Initiative (StAR) asked whether countries whose people were most harmed by corrupt practices were being left out of the bargain in foreign bribery settlements. According to the StAR study, out of the $6 billion in monetary sanctions imposed for foreign bribery in 395 settlements between 1999 and 2012, only 3.3%, or $197 million, had been returned to the countries where the bribes were paid. Those statistics have provoked considerable controversy, as has the question whether the UN Convention Against Corruption (UNCAC) requires states parties to share money from foreign bribery settlements with affected countries. Yet the fact remains that when the huge fines paid by US and European companies for bribing officials in developing countries go into the treasuries of the US and Europe, while the people of those countries affected by that bribery get nothing, this creates a serious credibility and legitimacy problem for the international anticorruption regime.

For that reason, the UK enforcement bodies’ publication, this past June 1st, of joint principles to compensate overseas victims of economic crime is a welcome development, and provides another opportunity to think again about what is possible and what is desirable in terms of compensating the people of affected countries when companies get sanctioned for paying bribes. The UK Compensation Principles were first mooted and drafted at the 2016 London Anti-Corruption Summit; that Summit’s Joint Communique recognized that “compensation payments and financial settlements … can be an important method to support those who have suffered from corruption,” and led nine countries (though only four from the OECD) to commit to develop common principles for compensation payments to be made “safely, fairly and in a transparent manner to the countries affected.” The UK’s new principles are an effort to fulfill that Summit commitment. They commit the UK’s enforcement bodies to:

  • Consider compensation in all relevant cases;
  • Use whatever legal means to achieve it;
  • Work cross-government to identify victims, assess the case and obtain evidence for compensation, and identify a means by which compensation can be paid in a transparent, accountable and fair way that avoids risk of further corruption; and
  • Proactively engage where possible with law enforcement in affected states.

Interestingly, these principles have been in informal operation since late 2015, which helps shed some light on how these principles are likely to operate in practice. Continue reading →

Guest Post: More on the Hazards of Public Beneficial Ownership Registries–What Stephenson and Others Miss

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Today’s guest post, from Geoff Cook (the CEO of Jersey Finance), continues an ongoing debate an exchange we’ve been hosting here at GAB regarding the desirability of public (as opposed to confidential) registries of the ultimate beneficial owners (UBOs) of companies and other legal entities. This exchange was prompted by a piece that Martin Kenney, a lawyer specializing in asset recovery in the British Virgin Islands, published on the FCPA Blog, which criticized the UK’s decision to mandate that the 14 British Overseas Territories create public UBO registries. Mr. Kenney’s post prompted reactions from Rick Messick and from me. Our critical reactions stimulated another round of elaboration on the critique of the UK’s decision, with a new post from Mr. Kenney and another from Mr. Cook. I subsequently replied, explaining why I did not find Mr. Kenney’s or Mr. Cook’s criticisms fully persuasive. Mr. Kenney responded to that post earlier this month, and in today’s post Mr. Cook contributes his critical reactions to my response: Continue reading →

Applying Anti-Money Laundering Reporting Obligations on Lawyers: The UK Experience

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Anticorruption advocates and reformers have rightly been paying increased attention to the role of “gatekeepers”—bankers, attorneys, and other corporate service providers—in enabling kleptocrats or other bad actors to hide their assets and launder their wealth through the use of anonymous companies. An encouraging development on this front are the bills currently pending in the U.S. Congress that would require corporate formation agents to verify and file the identity of a registered company’s real (or “beneficial”) owners, and also would extend certain anti-money laundering (AML) rules, particularly those requiring the filing of suspicious activity reports (SARs) with the US Treasury, to these corporate formation agents.

Not everyone is thrilled. The organization legal profession, for example, is crying foul. American Bar Association (ABA) President Hilarie Bass wrote to Congress that the proposed expansion of SAR obligations to corporate formation agents, many of whom are attorneys or law firms, would compromise traditional duties of lawyer-client confidentiality and loyalty. As Matthew pointed out in a prior post, it’s not clear that this assertion is correct, as the proposed bills contain express exemptions for lawyers. But even putting that aside, it’s worth recognizing that applying SAR obligations to attorneys wouldn’t be unprecedented. Many European countries have had similar requirements in place since the early 2000s, when the European Commission issued directive 2001/97/EC, which required states to adopt legislation imposing obligations on non-financial professionals, including lawyers, to file suspicious transaction reports (STRs, essentially another term for SARs). As in the US right now, that aspect of the 2001 EC directive was extremely controversial. One EU Commission Staff Working Document went so far as to say it was “the most controversial element of the Directive” because it represented “a radical change to the principle of confidentiality that the legal profession has traditionally observed.” Some EU states and national bar associations launched an ultimately unsuccessful legal challenge to the requirement that attorneys file STRs, on the grounds that it violated the right of professional secrecy guaranteed by the Charter of Fundamental Rights of the European Union.

Yet in the end, the imposition of the STR obligations on lawyers does not seem to have radically altered the legal profession in Europe. Countries appear to have developed safeguards that preserve the essential aspects of attorney-client confidentiality, even while implementing the EC Directive. Consider, for example, how this all played out in the United Kingdom. Continue reading →