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
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.
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)
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.
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)
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
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
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
Tedorin
Obiang
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.
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)
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
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
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