asset recovery: issues and challenges - american bar ... financial centers\爀屮why tax evasion...

$: Asset Recovery: Issues and Challenges - American Bar ... Financial Centers\爀屮Why Tax evasion assets are particularly hard to trace?\爀屮Bank Secrecy, high bar for cooperation$
Key Legal Issues & Challenges in Asset RecoveryJanuary 26, 2012

Presented by

ABA International’s Rule of Law CommitteeJason Matechak · Steven Hendrix · Lelia Mooney · Carol Mates · Matthew Nicely ·

Alexandra Wrage

Co-Sponsoring International Law Committees: Africa· Anti-Money Laundering· International Securities and Capital Markets · NGO and Not-for-Profit Organizations · Private International Law Coordinating Committee · UN &

International Institutions Coordinating Committee

Moderator: • Jason Matechak, ABA International Rule of Law Officer

Panelists: • Kenneth Barden, Certified Anti-Money Laundering Specialist, Senior

Anticorruption Advisor in the Office of Democracy and Governance (USAID)

• Mark Vlasic, Adjunct Professor of Law/Senior Fellow, Institute for Law, Science & Global Security Georgetown; Principal, Madison Law & Strategy Group PLLC

• Hari Mulukutla, Anti-Corruption, Asset Recovery and Data Management Specialist

• Tom Lasich, Consultant, International Centre for Asset Recovery • Jack Smith, Certified Anti-Money Laundering Specialist and Founder of

the International Centre for Asset Recovery• Phil Matsheza, Anti-Corruption Advisor, United Nations Development

Programme

Kenneth E. Barden, J.D., CAMS, CSARSenior Anticorruption Advisor, USAID

Asset Recovery

Logical Next Step in Attacking Crime and Corruption

Builds on FATF 40 + 9 Principles (being revised)

United Nations Convention Against Corruption and

other treaties and conventions

Bilateral agreements and MLATs

National legislation

Issues:

What assets?

Funds

Rights over property (monopoly powers, etc.)

Antiquities

Asset Recovery

Penalty, Disincentive, or both

Asset Forfeiture

Asset Restoration

Legal issues:

Burden of proof

Presumptions –

Politically Exposed Persons (“PEPs”)

Burden on claimant v. accused

Criminal v. Civil Proceedings

In Rem

Proceedings

Special matters

Rights of third parties

Conflict of Laws

Control, custody and disbursement

Who should recover assets?

Capacity issues of victimized society

Political will

Responsibilities of jurisdiction in which assets are

located

Public or State‐sponsored recovery

Private recovery efforts

Swiss RIAA example –

holding in trust in absence of

capacity or political will for failed states

Useful Resources:

Financial Action Task Force 40 + 9 Recommendations

(being revised in 2012)

United Nations Convention against Corruption

www.assetrecovery.org

www.iaaronline.org

http://www.assetrecovery.org/

http://www.iaaronline.org/

International Cooperation for Asset Recovery & Grand Corruption

Presented by Mark Vlasic, Adjunct Professor of Law/Senior Fellow, Institute for Law, Science & Global Security Georgetown; Principal, Madison Law & Strategy Group PLLC

StARWhy?Today

Future – Arab Spring and Beyond

10

What do these men have in common?

Mohamed Suharto

Ferdinand Marcos

Mobutu Sese Seko

Sani Abacha

11

Encourage and facilitate more systematic and timely return of assets stolen by politically exposed persons through acts of corruption

StAR’s Objective

Getting Back the Bad Guy's LootThe New York Times/International Herald Tribune By MARK V. VLASICJanuary 20, 2012http://www.nytimes.com/2012/01/20/opinion/getting‐back‐the‐bad‐guys‐loot.html?_r=1

Authorities Confiscate a Plane of Ben Ali Son-in-Law

11 Supercars of Teodoro Obiang Nguema Mbasogo Seized by French Police—

BY DES ON SEPTEMBER 29, 2011

Legal Barriers to Asset Recovery

Illicit Assets originating from Tax Evasion

Hari Mulukutla Anticorruption & Asset Recovery Consultant World Bank.

Tax Evasion/Tax Fraud

Legal Barriers to Asset Recovery

Tax Evasion and Tax Fraud are considered criminal offences in most of the developed world

Some financial centers make a distinction between the two and avoid compelling their banks to disclose information.

Presenter

Presentation Notes

93 Financial Centers Why Tax evasion assets are particularly hard to trace? Bank Secrecy, high bar for cooperation and MLA How to measure legal barriers? Financial Secrecy Index Corruption Perceptions Index FATF Recommendations, OECD Regulations Anti-Money Laundering Index (Under development by Basel Institute)

Barriers to Asset Recovery – StAR

Initiative Publication

“Most of the legal barriers are onerous requirements to the provision of mutual legal assistance (MLA); excessive banking secrecy; lack of non-conviction based asset confiscation procedures; and overly burdensome procedural and evidentiary laws, including the need to disclose information to asset holders during investigations

(???)

Removing the legal barriers is obviously essential. Absent a clear and sound legal framework, asset recovery becomes, in a best-case scenario, arduous and, in a worst case scenario, impossible”.

Changing Scenario: Recent History

Switzerland Example: Bank Secrecy

Does not recognize Tax Evasion as a criminal offence

Exceptions: DOJ vs

UBS cases

Recent cases against Basler

Cantonal, Credit Suisse

and Wegelin

private Banks

LGT case from Liechenstein

(CD-Rom purchased by

German Authorities)

OECD Grey Lists, tax treaties (India signed 16 TIEAs)

Presenter

Presentation Notes

Landmark UBS Case, settlement with DOJ with a fine of $780 million paid by UBS Disclosure of 4,450 names out a total estimated 52,000 American accounts valued at $20 billion in unreported income Ongoing cases against Credit Suisse, Basler Kantonal Bank, Wegelin (private bank) Dual Criminality (Tax Fraud/Evasion Distinction in CH) Switzerland is an UNCAC Signatory.

Impact for Rest of World

Financial Centers with Bank Secrecy allow concealment of wealth to avoid Tax –

Rids countries of billions in revenue

Without cooperation from tax havens (mutual legal assistance etc.) countries cannot pursue cases using all legal remedies possible

Heavy Burden on victim countries (trace tax evasion assets, connect them to criminal activity).

Studies show : A huge portion of illicit assets in financial centers are from tax evasion, in many cases more than proceeds of corruption.

Presenter

Presentation Notes

Source: Global Financial Integrity Action Item: Require governments to collect from financial institutions data on income, gains, and property paid to non-resident individuals, corporations, and trusts. Mandate that data collected automatically be provided to the governments where the non-resident entity is located. Background: Globalization and the liberalization of economic activity has converted the private sector into a world without borders. This creates a major problem for national tax authorities because similar changes in their enforcement powers have not kept pace with industry. National tax authorities continue to be constrained by national borders and collecting tax revenue has been difficult. Additionally, bank secrecy and other confidentiality laws in many jurisdictions (such as tax havens and international financial centers) prevent disclosure of relevant information by financial institutions to government authorities. Further, lax response by tax authorities in those jurisdictions to information requests from foreign governments often delays or prevents cases against tax cheats. Tax, not aid, is the most sustainable source of finance for development, and tax havens undermine developing countries’ efforts to pay their way. The United Nations’ 2002 Monterrey Consensus and the 2005 UN World Summit require developing countries to mobilize domestic resources for development. This means tackling illicit capital flight and tax evasion. Moreover, the Commentary to the OECD Model Income Tax Treaty and the Commentary to the UN Model Income Tax Treaty both refer to automatic exchange of information. Some steps have already been taken on this issue. The EU Savings Tax Directive was adopted to ensure the proper operation of the internal market and tackle the problem of tax evasion. It was approved in 2003 and came into effect on July 1st, 2005. The automatic exchange of data on interest paid has been agreed upon by all member states except Austria, Belgium and Luxembourg. More needs to be done to ensure that all nations, developing and developed, collect a fair amount of tax from both individuals and corporations. G-20 Jurisdiction: Working Group 1 (Enhancing sound regulation and strengthening transparency) and Working Group 2 (Reinforcing international cooperation and promoting integrity in financial markets). Executing Authority: European Union; UN Committee of Experts on International Cooperation in Tax Matters. Benefit: It is estimated that individuals have about $12 trillion of assets in jurisdictions other than their countries of residence and not declared in their countries of residence; the lost tax revenue annually from such undeclared assets is estimated at $255 billion. Tax evasion by corporations and other entities is also a major problem.

Tax Evasion: Trillions of dollars

Swiss bankers themselves estimate that they hold at least 30% of the estimated $11.5 trillion of personal wealth hidden in the world's tax havens. Konrad

Hummler,

president of the Swiss private bankers' association, has said: "The large majority of foreign investors with money placed in Switzerland evade taxes.”

–

Guardian, 2009

Solutions

Automatic Transfer of tax information

Bilateral Tax Treaties

Due Diligence on PEPs

& Beneficial Owners

Income and Asset Disclosure Systems

Aiders and Abettors (What about the BANKS??)

Importance of Non-state actors (NGOs, Whistleblowers)

Tunis to Zurich (Arab Revolutions) –

Wikileaks

Open Source Intelligence (OSI)

Presenter

Presentation Notes

Solutions for rest of world Take action against the Banks, accountants, lawyers, shell companies that set up these structures and assist the corruptors and tax evaders. Monitoring of Banks and financial institutions Below: Source: Barriers to AR: World Bank StAR Initiative In most jurisdictions, a criminal conviction must be obtained before stolen assets can be confiscated. In addition, to freeze, seize, or confiscate assets, many jurisdictions require that the prosecution establish a link between the offense and the assets. As stolen assets are frequently commingled with legitimate assets, meeting the criminal standard of proof in showing this link is not easy. • lower the burden of proof for confiscation of proceeds of crime in cases involving UNCAC and UNTOC offenses • shift the burden of proof to the alleged offender to show that the assets in fact stem from a legitimate source, when the prosecution has provided credible evidence that assets cannot stem from a legitimate source; permit confiscation without a criminal conviction. • allow for direct and indirect enforcement of foreign non-conviction based asset Confiscation orders; and, • allow for substitute- or equivalent-value restraint and confiscation of legitimate assets of the same value as the stolen assets.

Asset Recovery

Myths and Challenges by

Tom Lasich, Consultant, International Centre for Asset

Recovery

Asset Recovery - Myths

Sani Abacha – President of Nigeria

MLA filed with no evidence or bank identification

5 years of negotiating with little evidence

Applying political pressure – not producing evidence

Swiss Supreme Ct ruled – Abacha family was a criminal organization

Utilized forfeiture provision in OC law – reversed burden of proof - $1 Billion

Asset Recovery - Myths

• Ferdinand Marcos – President of Philippines

MLA filed with no evidence or bank identification

10+ years of negotiating with little evidence

Applying political pressure – not producing evidence

Philippines Supreme Ct ruled – Marcos salary could not support the accumulation of $1 Billion

Asset Recovery - Myths• Libya

UN Security Council released freeze on government accounts:

Libyan National Oil Corp

Central Bank of Libya

Libyan Arab Foreign Bank

Libyan African Investment Portfolio

Did not allow Gaddafi family accounts returned

No evidence to change ownership

Rule of Law Challenges• Asset Recovery is the final stage in the process

Sufficient legislation – anti-corruption and ML

Country #1 – only 6 ML predicates – including rape

CPC must allow thorough investigations

Country #2 – 60 days to complete the investigation

Country # 3 – only the bank record of the subject can be obtained

Asset confiscation provisions

Capacity for investigators, prosecutors and judges

MLA skills – must connect assets to illegal activity

Political will

From the Times of Zambia

“A Lusaka magistrates' court has acquitted former Republican president, Frederick Chiluba of six counts of theft by public servant.

Ndola High Court deputy registrar, Jones Chinyama in delivering the six-hour judgment, stated that the prosecution team failed to prove the ingredients of the case against Dr Chiluba on all the counts.”

Elements Must be Proved

Recovery Actions against Politically Exposed Persons and Those Who Aid Them

Jack D. SmithProfessorial Lecturer

George Washington University Law SchoolWashington, DC

[email protected]

mailto:[email protected]

Presenter

Presentation Notes

The Financial Action Task Force (FATF), also known by its French name, Groupe d'action financière (GAFI), is an intergovernmental organization founded in 1989 on the initiative of the G7. The purpose of the FATF is to develop policies to combat money laundering and terrorism financing. The FATF Secretariat is housed at the headquarters of the OECD in Paris.

FATF Recommendation No. 6

Financial institutions should, in relation to politically exposed

persons, in addition to performing normal due diligence

measures:

a)

Have appropriate risk management systems to determine

whether the customer is a politically exposed person.

b)

Obtain senior management approval for establishing

business relationships with such customers.

c)

Take reasonable measures to establish the source of wealth

and source of funds.

d)

Conduct enhanced ongoing monitoring of the business

relationship.

UNCAC – Article 51

“The return of assets pursuant to this chapter is a fundamental principle of this convention, and States Parties shall afford one another the

widest measure of cooperation and assistance in this regard.”

UNCAC –

Article 52 (1)

• Each State Party shall take such measures as may be necessary…

“to conduct enhanced scrutiny of

accounts sought or maintained by or on behalf of individuals who are, or have been, entrusted with prominent public functions and their family members and close associates.

• Such enhanced scrutiny shall be reasonably designed to detect suspicious transactions for the purpose of reporting to competent authorities….

“African dreams of peace and prosperityhave been shattered by the greedy, corrupt and unscrupulous rule of Africanstrongmen.” Wole Soyinka (Nigerian,Nobel Prize for Literature 1986)

“Ten Ways of Changing Africa’’

#1. Introduce Mechanisms For Tracing and Recovering Public Funds

#2. Require All Heads of State, MinistersAnd Senior Officials To Open Their BankAccounts to Public Scrutiny

Ben‐Ali, Tunisa, 2008

Gadaffi

Sons (Mohamed, Saif

Al‐Islam, Al‐Saadi, Hannibal, Mutassim) ‐

Libya

Randy “Duke”

Cunningham ‐

San Diego

Presenter

Presentation Notes

Cunningham, a decorated Navy fighter pilot during the Vietnam War, represented San Diego as a Republican in the U.S. House from 1991 to 2005, when he resigned from Congress in disgrace. His story is best told in the book, “The Wrong Stuff: The Extraordinary Tale of Randy ‘Duke’ Cunningham, the Most Corrupt Congressman Ever Caught,” written by the Copley News Service reporters who helped expose him. The Cunningham sat on the powerful House subcommittee that designates spending to certain defense programs, and he resigned from Congress in November 2005 after pleading guilty to bribery. He admitted taking bribes of at least $2.4 million -- the highest known amount a congressman has ever taken -- from at least three defense contractors in exchange for government business. Cunningham had used the bribes to make extravagant purchases such as a yacht, Roll Royce, suburban-D.C. condominium and a mansion. On March 3, 2006, Cunningham was sentenced to eight years in federal prison and ordered to pay $1.8 million in restitution.

Liability of aiders and abettorsJudge Stanley Sporkin:

“The questions that must be asked are:Where were these professionals, a number of whom are now

asserting their rights under the Fifth Amendment, when these clearly improper transactions were being consummated?

Why didn’t any of them speak up or disassociate themselves from the transactions?

Where also were the outside accountants and attorneys when these transactions were effectuated?

What is difficult to understand is that with all the professional talent involved (both accounting and legal), why at least one professional would not have blown the whistle to stop the overreaching that took place in this case.”

Lincoln Savings & Loan Ass'n. v. Wall, 743 F.Supp. 901, 905‐06 (D.D.C. 1990).

Aiders and abettors

• Accountants• Lawyers• Realtors• Escrow Agents• Lobbyists• Offshore Corporations• Universities• Banks

Equatorial Guinea and the “Oil Curse”

• Population ‐

670,000

• GDP Per Capita ‐

$36,600 (#29 in world)

• Oil

sector is 91% of GDP ‐

#36 Producer in world, 3d largest in Africa

• UN Human Development Index –

136/187

• Infant Mortality –

77.3/1000 ‐

#16 in world

• Life Expectancy –

62.4 years

• Fertility Rate – 4.91 ‐

#22 in world

• Literacy – 87%

• Unemployment ‐

22.3% (#171 in world)

• Percent living below the poverty line – 70%

• Corruption Perceptions List –

172/182

Presenter

Presentation Notes

Equatorial Guinea has experienced rapid economic growth due to the discovery of large offshore oil reserves, and in the last decade has become Sub-Saharan Africa's third largest oil exporter. Despite the country's economic windfall from oil production resulting in a massive increase in government revenue in recent years, improvements in the population's living standards have been slow to develop.

Tedorin

Obiang

Presenter

Presentation Notes

Fresh Prince: Despite officially making only $5,000 per month as Equatorial Guinea's minister of agriculture and forestry, Teodoro Nguema Obiang Mangue -- Teodorin to his friends -- has been living the life of royalty in the United States. He also owns luxury properties in his home country, including this beachfront estate in the town of Bata.

Tedorin

Obiang, son of the President of Equatorial Guinea, and a minister of forestry and agriculture. Salary, $6,800 a month.

Teodorin

Obiang's

$35 million, 15,000‐square‐foot California mansion feature

a swimming pool, tennis court, and four‐hole golf course. According to U.S.

Senate investigators, Teodorin

shelled out $59,850 for rugs, $58,000 for a

home theater, and even $1,734.17 for a pair of wine glasses. The

palace is

reported by Forbes Magazine as one of the most expensive house purchased

in the United States in 2006. He paid cash for the property.

Actions to Freeze/Recover the Money

• Asset Freeze Orders• Criminal Forfeiture (in personam)

• Criminal Restitution (in personam)

• Private Civil Actions (in personam)

• Civil procedures against Property (in rem)

In Rem

Complaint against Obiang Assets in US (10/13/11)

18 USC 981 – Civil Forfeiture

(a)(1)

The following property is subject to forfeiture to the United States:

(A)Any property, real or personal, involved in a transaction or

attempted transaction in violation of section 1956, 1957

or 1960

of

this title, or any property traceable to such property.

(C)

Any property, real or personal, which constitutes or is derived

from

proceeds traceable to a violation of section 215, 471, 472, 473,

474, 476, 477, 478, 479, 480, 481, 485, 486, 487, 488, 501, 502,

510, 542, 545, 656, 657, 842, 844, 1005, 1006, 1007, 1014, 1028,

1029, 1030, 1032, or 1344

of this title or any offense constituting

“specified unlawful activity”

(as defined in section 1956

(c)(7)

of

this title), or a conspiracy to commit such offense.

http://www.law.cornell.edu/uscode/html/uscode18/usc_sec_18_00001956----000-.html

http://www.law.cornell.edu/uscode/html/uscode18/usc_sec_18_00001956----000-.html

http://www.law.cornell.edu/uscode/html/uscode18/usc_sec_18_00001956----000-.html#c_7

Specified Unlawful Activities

Burdens of Proof

• The government bears the burden of proof to establish the forfeitability

of the property by a

“preponderance of the evidence”, not “beyond a reasonable doubt”

as with a criminal case.

• Notice must be provided to potential claimants, who may assert an “innocent owner”

defense, under

which they must prove by a preponderance of the evidence, both their ownership interest in the

defendant property and their own innocence regarding the properties forfeitability.

Aff’d

of Tedorin

Obiang, High Court of South Africa (Cape

Provincial Div.), Case No. 1407/2006, 8/8/2006

• Cabinet Ministers and public servants in Equatorial Guinea are by law allowed to owe [sic] companies that,

in consortium with a foreign company, can bid for government contracts and should the company be successful, then what percentage of the total cost of

the contract the company gets, will depend on the terms negotiated between the parties.

• But, in any event, it means that a cabinet minister ends up with a sizeable part of the contract price in his bank account.

What about the people who aided and abetted Obiang

to move

over $110 million of corrupt funds into the U.S. ?

• Two California lawyers helped Tedorin

purchase the Malibu estate and the Gulf‐

Stream jet.

• Two California real estate agents helped him to purchase the Malibu estate and other properties.

• A California escrow agent helped him to purchase the Gulfstream jet.

• Banks helped because their inadequate compliance systems allowed him to transfer millions of dollars

into the United States without being reported to authorities.

COSP Doha, Qatar (2009)

Presenter

Presentation Notes

COSP Doha, Qatar (2009)

Second Claim Under 18 USC 981 (a)(1)(A)

Specified Unlawful Activities

Third Claim Pursuant to 18 USC 981(a)(1)(A)

Managing Expectations in Asset Recovery: My Experiences from Egypt

Phil Matsheza, Global Policy Advisor: Anti-Corruption United Nations Development Programme

EgyptIn 2009, I was told corruption in Egypt is low level and not at the high Political levelIn May 2010, asset recovery on top of agendaGovernment worried that media was misleading population on recovered assetsFear that anti-corruption could become a destabilizing factor became realGovernment not clear how to communicate messages on asset recovery to a skeptic public

https://publicintelligence.net/wp-content/uploads/2011/01/egypt-revolution9.jpg

Figures stick OutEstimates of stolen state resources follow overthrow of Kleptocracy or arrests of former leadersMubarak family stashed away about $70 billion

(The Muammar Gaddafi family $150 billion; Sani Abacha about $5 billion)Population not aware of magnitude of looting by elites corruptionRevelation creates initial disbelief then anger and resentmentAsset recovery should not just focus on the international level but the national level as well

Translating Legal language to population

Public expects actionIssues of MLA not easily understoodPopulation unlikely to swallow process of legal finesse that easilyLack of communication strategyDangers of mob rule Frustration of the public

Public ReactionEstimates good news Estimates are not verifiableState fails to give an accurate picture because

investigation underway State comes out unconvincingPublic frustration & belief that new players also involved or at best persecuting members of the old regimeIf issue drags for too long public becomes skeptical and could be seen as political persecution

Asset recovery ProceduresRecovery of proceeds of Crime at the national level is easier. Existing legal framework adequate and law enforcement familiar with issues.Basis of forfeiture can be both conviction or non conviction based

Money looted from banks then written off loans as bad debt

Assets in relatives names but generally known

Lessons learned Balancing political crimes with technocratic solutionsWe want our money. Whose money is itLack of political will Vs Justice must be doneBalance justice vs Revengedevelop a communication strategy to mange High

Public ExpectationsHave a media person and brief the population regularly

ChallengesSystem broken down due to excessive patronage and rent seeking of the whole system

Political legitimacy: Public loses confidence of population

Government went through plea bargaining process

No independent body to review

No capacity to track and trace the money trail

Process not understoodOpportunities

Caretaker govt’s anti-corruption programme became popular among the population

Reality of Asset Recovery

Success stories are rareMost successful stories involve plea- bargaining – process neither transparent nor reviewed by the oversight bodiesTakes 4-5 years for successful asset recovery (Egypt- estimation 9 years) The language is legalistic and incapable of translating in day to day communication

Thank you Further informationwww.undp.org/[email protected]:1-212-906-5043

Q&AFor previous panels or additional

information, please visithttp://ambar.org/introl

Or email

[email protected]

THANK YOU TO OUR HOSTS, PAUL HASTINGS, LLP!

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