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Africa: Stolen Assets Recovery
AfricaFocus Bulletin
Feb 16, 2011 (110216)
(Reposted from sources cited below)
Editor's Note
The United Nations Convention against Corruption (UNCAC ) ... has
71 articles addressing numerous tools to combat corruption ...
However, it is the "return of assets" that has been singled out as
"a fundamental principle of this Convention". - U4 Anti-Corruption
Resource Center
This AfricaFocus Bulletin, available on the web but not sent out by
e-mail, contains this summary brief on the recovery of stolen
assets, from the U4 Anti-Corruption Resource Center at the Chr.
Michelsen Institute (http://www.U4.no), published in 2007. The
brief examines why the return of assets is so critical, the
obstacles standing in the way of recovering stolen monies, and what
donors can do to make the situation better.
Another AfricaFocus Bulletin sent out by e-mail to subscribers and
available at http://www.africafocus.org/docs11/sw1102.php, contains
a statement United Nations Convention against Corruption (UNCAC)
Coalition on the recovery of Egypt's stolen assets, and other
related documents and links, including a listing of previous
AfricaFocus Bulletins on related topics.
++++++++++++++++++++++end editor's note++++++++++++++++++++
The Recovery of Stolen Assets: A Fundamental Principle of the UN
Convention against Corruption
February 2007 - No. 2
This Brief is written for U4 by Jack Smith, Mark Pieth, and
Guillermo Jorge at the Basel Institute on Governance, International
Centre for Asset Recovery
http://www.baselgovernance.org/icar/
http://www.u4.no
Despite hundreds of billions of dollars in aid, the United Nations
determined in 2004 that 54 countries had actually become poorer
than they were 15 years previously. Most analysts now agree with
findings of the World Bank that it is corruption that has been "the
single greatest obstacle to economic and social development."To
confront this problem, 80 countries have ratified the United
Nations Convention against Corruption (UNCAC ), a document of
unprecedented scope and application. The Convention has 71 articles
addressing numerous tools to combat corruption such as codes of
conduct, increased bank scrutiny of "politically exposed persons"
and anti-money laundering measures. However, it is the "return of
assets" that has been singled out as "a fundamental principle of
this Convention". This Brief examines why the return of assets is
so critical, the obstacles standing in the way of recovering stolen
monies, and what donors can do to make the situation better.
Scope of the Problem
Corruption impacts all aspects of life from access to clean water
and clean air to life expectancy rates, poverty levels, and
personal safety from crime and terrorism. Still, there are no
universally accepted standards for measuring corruption. What is
agreed upon is that by any measure the numbers involved are
staggering:
- The World Bank estimates that more than $1 trillion is paid in
bribes each year. That figure does not even include amounts of
public funds embezzled and plundered by high government officials.
- Transparency International estimates that former Indonesian
leader Suharto embezzled anywhere between $15-35 billion from his
country, while Ferdinand Marcos in the Philippines, Mobutu in Zaire
and Abacha in Nigeria are alleged to have embezzled up to $5
billion each.
- A 2002 UNODC study estimated that between $600 billion and $1.8
trillion is the amount of money that is illegally laundered
throughout the world each year, and a substantial portion of that
is money derived from corruption.
- Press reports out of Chile described a 2006 discovery of 10 tons
of gold stashed in a Hong Kong bank by the former dictator of
Chile, Augusto Pinochet.
- After the 2004 Tsunami, over $7 billion was pledged to aid
devastated areas, but the flow of that money has slowed because of
concerns about corruption. In Indonesia's Aceh province, the
anticorruption group Gerakan Anti-Korupsi, estimates that 30
percent to 40 percent of tsunami aid money provided was stolen.
Others estimate that a quarter of the 50,000 homes constructed for
victims are already collapsing and will have to be rebuilt because
70% of the wood utilized did not meet building codes and will not
last even 12 months.
- A 2004 report by the African Union claims that Africa loses an
estimated $148 billion annually to corrupt practices, a figure that
represents 25% of the continent's gross domestic product.
The amount of money extorted and stolen each year from developing
countries is over 10 times the approximately $100 billion in
foreign assistance being provided by all the governments and civil
organizations in the world. There is little wonder that so many
countries are falling behind and donors are becoming discouraged.
However, the way out of this quandary is becoming clear. Perhaps
the World Bank has said it best, "countries that tackle corruption
and improve their rule of law can increase their national incomes
by as much as four times in the long term, and child mortality can
fall as much as 75%." No other aid project can yield so much for
developing countries.
Obstacles to Overcome
The UNCAC addresses the myriad of actions necessary for an
effective global approach against corruption. As for asset
recovery, the primary problems have been political will and the
ease of instantaneous electronic transfers of large sums across
borders in a globalized economy composed of 193 countries.
Countries that are the victims of government corruption are often
impeded by the fact that individuals still in power are the
perpetrators or beneficiaries of corruption, while countries that
are the recipients of stolen funds are sometimes reluctant to move
against powerful interest groups such as banks. Where the political
will exists, interests of sovereignty and a patchwork of
inconsistent legal requirements have spread a protective umbrella
over the activities of corrupt bureaucrats and money launderers of
every stripe.
Often, governments seem to move at a glacial pace, largely
ineffective when confronting crimes involving assets hidden across
borders. There have been notable successes in a handful of large
cases against kleptocrats caught in a regime change, but a huge
challenge remains to systemize procedures for the thousands of
cases involving hidden assets in the $100,000 to $5 million dollar
range. There are solutions, but they involve increased coordination
and action by developing countries victimized by corruption, the
developed countries that receive stolen funds, and and the donor
community.
Victim Countries
Acquiring expertise:
The recovery of assets across international borders is nothing new.
Countries have been doing it sporadically for generations. However,
it is only in recent years that states have begun to understand the
possibilities of more systematic cross-border asset recovery
actions. Therefore, there is no large body of practitioners with
substantial expertise in this area either inside or outside
governments. An asset recovery action is one of the most complex
projects in the field of law, often requiring financial
investigators to trace assets, forensic accountants to unravel
complex transactions and attorneys skilled in multi-disciplinary,
multi-jurisdictional litigation.
Most public officials in victim countries have never been trained
in these complexities. Laundered money generally migrates to
countries with large financial centers where the laws are usually
more restrictive and complex with higher evidentiary and procedural
standards than those in victim countries. Failure to fulfill the
standards of the requested state has frustrated many attempts by
victim countries to recover assets.
Accordingly, it is essential for victim countries to acquire
expertise in the area of asset recovery and to become acquainted
with the requirements and specialists in the financial center
countries to be successful in this area. There is a growing number
of resources available to help acquire the necessary expertise:
- The UNODC has released a "Mutual Legal Assistance Request Writer
Tool", a free of charge internet application [http://www.
unodc.org/mla/en/index.html].
- The G-8 has planned "accelerated response teams" of
forfeiture-related mutual legal assistance experts to be committed
at the request of victim states whose assets have been secreted
abroad, as well as case coordination task forces for specific
cases.
- The World Bank and a number of financial center countries will
provide ad hoc training to developing countries upon request.
- The Millennium Challenge Corporation in Washington, D.C. offers
grants to qualifying countries to fight corruption which can
include money for training of investigators, prosecutors and judges
in asset recovery techniques.
- The Basel Institute on Governance has created the International
Centre for Asset Recovery (ICAR) to provide training to developing
countries on asset recovery, follow-up mentoring and handson
assistance in complex cases.
Financing and oversight of recovery actions:
Asset recovery is a costly and time consuming enterprise. It
requires lawyers, forensic accountants, expert opinions,
translators, travel expenses, etc. Private law firms often prove
helpful in tracing and recovering assets abroad, as in the efforts
of the Philippines against Ferdinand Marcos and Nigeria against the
estate of Sani Abacha. Such firms are expensive, generally charging
from $200 to $600 per hour. Corruption offenders can be relied upon
to spare no expense to keep their ill gotten gains. As the former
Mafia Don Gaspare Motolo said, "people prefer to be put behind bars
and keep their money than to stay free without the money." Some
victim countries have invested considerable sums without any other
result than being blamed by their constituencies, and many others
have been reluctant to engage in asset recovery enterprises at high
costs with uncertain results.
The other side of the coin is that over time, asset recovery
programs can be enormously profitable. Nigeria recovered over $700
million of the money stolen by Abacha, and over $600 million was
returned to the Philippines from the loot plundered by Marcos. Over
a period of 15 years the United States recovered over $6 billion
from cases involving misconduct contributing to the
savings-and-loan crisis of the 1980s and 1990s. Those cases cost
less than $1.5 billion, yielding a 425% return.
There are a number of steps that victim countries can take to limit
their costs and increase their probabilities of substantial
recoveries:
- The UNCAC is replete with provisions that will assist in this
area, including Article 31 (hereafter, "Article" or "Art."
designates provisions of the UNCAC) on the freezing, seizure and
confiscation of illegal assets.
- The G8, UNODC, ICAR and other organizations can provide technical
assistance, strategic planning and case-management support. A
professionally managed case frequently makes the difference between
a handsome recovery and one that costs more than is recaptured.
- Contingency fee arrangements may reduce risk and expense. However
they are not permitted in some jurisdictions (Switzerland). Also
some countries diminish their chances of success by restricting the
hiring of outside counsel for government cases, instead relying
upon in-house lawyers who are not specialists in asset recovery
litigation. Both of these restrictions should be modified for cases
of public corruption.
- Some large firms may take significant cases on a pro bono basis.
Coordinate early:
Victim countries can eliminate many of the false steps and much
delay in asset recovery actions by initiating early communication
and coordination with officials in the relevant recipient
countries. Particularly, since the passage of UNCAC, financial
centers should prove more helpful than in the past about navigating
the asset recovery requirements in their country.
Simplify criminal actions:
Most corruption cases involve numerous violations of law, both
large and small. Victim countries must streamline their actions to
concentrate on the largest losses with the highest probability of
success, and discard many attractive, but less cost effective
claims. In many developing countries, government officials are the
wealthiest citizens even though their official salaries are quite
modest. Public officials should be held to the highest standards in
the land. Too much time and resources are wasted trying to prove
that unexplained wealth of government officials is illegal. The
following changes to law will start to rectify matters quickly:
- Require codes of conduct and declarations of assets from all
public officials upon entry to public service and annually
thereafter(Art. 8), regularily review those declarations and make
any false statements punishable under the criminal law.
- Legislate that any unexplained wealth of government officials is
subject to criminal penalties and forfeiture (Art. 20), that
professionals who aid and abet officials to conceal fruits of
corruption are subject to criminal and civil penalties, and that
rewards of between 10 and 20% can be paid for information leading
to asset recoveries.
Establishing non-criminal avenues for recovery:
Typically, jurisdictions only allow confiscation of assets on the
basis of a criminal conviction. In many instances, however, it is
not possible to get a criminal conviction. Corrupt leaders may have
protected themselves with legal abuses such as constitutional
amendments creating lifelong immunities (eg. Pinochet's "senator
for life" status). Alternatively, the defendant might have died
(Abacha) or fled (Fujimori), or the evidence might not cover
specific requirements of the crime that are related to the assets
in question or might simply not satisfy a criminal standard of
proof. For those situations, countries should enact laws permitting
forfeiture actions to be brought against the stolen property itself
(In Rem Forfeitures). These laws exist in South Africa and the
United States, and all they require is proof of the nexus between
property subject to forfeiture and criminal conduct.
Article 54(1)(c) of the UNCAC recommends that states parties
establish non-criminal systems of confiscation, which have several
advantages for recovery actions: the standard of evidence is lower
("preponderance of the evidence" rather than "beyond a reasonable
doubt"); they are not subject to some of the more restrictive
traditional safeguards of international cooperation such as the
offense for which the defendant is accused has to be a crime in the
receiving state (dual criminality); and it opens more formal
avenues for negotiation and settlements. This is already the
practice in some jurisdictions such as the US, Ireland, the UK,
Italy, Colombia, Slovenia, and South Africa, as well as some
Australian and Canadian States.
Return and management of confiscated assets:
Some financial centers have been reluctant to repatriate assets to,
or even to cooperate with, countries with which there are concerns
that returned assets will be wasted or stolen again because of
corruption. While Article 57 mandates that confiscated property
shall be returned to its prior legitimate owners, subsection 5 of
that article permits state parties to enter into mutually
acceptable arrangements for the disposal of confiscated property.
In any event, it benefits victim countries to maintain good
practices with regard to disposition of all assets recovered.
Recipient Countries (Financial Centers)
Intensify political will/enact conforming legislation:
In the final analysis, the success or failure of UNCAC rests upon
the effectiveness of its implementation. Recipient countries must
swiftly enact new laws that conform to the provisions of UNCAC.
Particular attention should be focused on increasing scrutiny by
financial institutions on transactions of Politically Exposed
Persons (PEPs). However, if new laws are not accompanied by
governmental action to change past irresolute practices, corruption
will continue unabated.
Freezing assets:
Article 31 of the UNCAC requires each state party to implement
measures to enable "the identification, tracing, freezing or
seizure" of proceeds of crime and property used in crime. As
freezing assets may restrict basic rights, many jurisdictions have
elaborate judicial procedures before a freeze order can be
effective. Overly burdensome procedures impose delays which often
allow the corrupt funds to disappear before the order is issued. To
avoid this, laws must be changed to allow rapid freezing procedures
(within 24 hours). There must still be measures to protect
constitutional safeguards. Switzerland accomplishes this by
mandating financial institutions to automatically freeze reported
transactions for five days, while a magistrate reviews the
reasonableness of the measure. France allows for administrative
freezing by the Financial Intelligence Unit upon receiving a report
of a suspicious transaction.
Burden of proof:
Many recipient countries now require victim countries to prove that
assets of corrupt officials were not obtained lawfully before an
action to freeze or confiscate assets will be considered. These
difficulties of proof have allowed numerous corrupt officials to
retain millions of dollars that they could never have possibly
earned lawfully through their government positions. Recipient
countries should consider criminalizing unexplained, substantial
increases in wealth of public officials (Art. 20) and allowing
confiscation of assets where public officials cannot demonstrate
the lawful origin of alleged proceeds of crime (Art. 31(8)).
Technical assistance:
Financial centers should recognize that victim countries are not
familiar with the peculiarities of the laws of every recipient
country, and therefore financial centers should provide technical
support and ensure that political impediments to asset recovery are
minimized.
Donor Community
Use the UNCAC to foster reforms in donor countries:
Corrupt officials generally choose the larger financial centers to
shelter their ill-gotten gains, and it is those same financial
centers that are the key sources of bribery payments to officials
in developing countries. Donor agencies can sponsor analyses
comparing the laws and practices of their country with the
standards set forth in the UNCAC. Local law professors may perform
this kind of "gap analysis" gratis in exchange for assistance in
publication. Donor agencies will have greater credibility to hold
recipient countries to UNCAC standards if their own countries are
in compliance themselves.
Fund "gap analyses" in developing countries:
The UNCAC can be a powerful tool for reforming a culture of
corruption in developing countries, as well as insuring that laws
are in place to enforce anti-corruption provisions through a
vigorous asset recovery program. All too often corrupt officials
succeed in keeping their stolen funds because the laws of the
victim country are woefully inadequate. An accurate "gap analysis"
will reveal the deficiencies in local laws and can be used to lobby
legislatures for corrective actions. For example, in November 2006,
the Corruption Eradication Commission of Indonesia (funded by GTZ)
published a thorough comparison of its laws and the requirements of
UNCAC, together with recommendations to cure the areas of
deficiency.
Fund training, technical assistance and capacity building:
Chapter VI of the UNCAC provides an agreed framework for providing
support to developing countries in the areas of anticorruption and
asset recovery. Training programs must be developed and efficiently
delivered to build the capacity of investigators, prosecutors and
members of the judiciary. The instruction must be coordinated and
systematic in order to avoid promulgating insufficient or erroneous
information which can debilitate an asset recovery program.
Properly delivered, and followed up with mentoring and technical
assistance for difficult cases, such programs over time will build
up an international network of asset recovery specialists in both
victim and financial center countries that will close down money
laundering sanctuaries.
Establish a trust fund for significant cases:
There are certain cases which could establish useful precedents or
which are so important to individual countries that they should go
forward even if the victim country lacks the resources to prosecute
litigation. For those cases, a fund should be created to distribute
loans for legal fees and expenses. The loans could be repaid with
interest from recoveries. Donor countries could replenish the fund
with additional monies upon proper requests supported by evidence
of high probabilities of success.
Pressure governments to make legal systems compatible:
The global patchwork of disparate laws on mutual legal assistance
requests, standards of proof, criminalization, freezing and
confiscation, etc. has given aid, comfort and protection to corrupt
officials whose unconstrained looting keeps over 3 billion people
in abject poverty and despair. Donor agencies should use their
influence to convince financial center countries and victim
countries to standardize these inconsistent provisions. The planet
cannot longer afford to allow this unconscionable situation to
continue.
Additional Resources
[see full pdf version at http://www.u4.no]
AfricaFocus Bulletin is an independent electronic publication
providing reposted commentary and analysis on African issues, with
a particular focus on U.S. and international policies. AfricaFocus
Bulletin is edited by William Minter.
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