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Asset Recovery (Proceeds of Corruption)

Asset Recovery is a term used to describe efforts by governments to confiscate or reclaim stolen assets, particularly those looted by corrupt public officials. Such assets may include monies in bank accounts, certificates of deposits, equity in companies, property, vehicles, precious metals, arts and artifacts. Asset Recovery can quickly become complex, time and resource intensive when assets are hidden in foreign banks, away from the country of origin. Over the years, offshore financial centers and tax-havens have attracted attention for their banking secrecy laws that protect billions of dollars of stolen money from developing countries.

Often used to emphasize the ‘multi-jurisdictional’ or ‘international’ aspects of a corruption investigation, asset recovery include the numerous necessary investigative and legal hurdles that must be overcome when reclaiming assets stored in foreign jurisdictions, "making it one of the most complex projects in the field of law." Even considering the difficulties present, Africa specialist Daniel Scher counters that asset recovery's "potential rewards in developing states countries make it a highly attractive undertaking."

Despite several countries previously allowing proceeds of crime confiscation (also known as asset forfeiture), improvements in finance, transportation, and communications technologies in the 20th century made it easy for corrupt leaders and other “Politically Exposed Persons’ to hide massive amounts of illicitly gained wealth in offshore financial centers. By taking advantage of incompatible legal systems, high costs in coordinating follow-up investigations, and traditional bank secrecy standards in some recipient countries, corrupt leaders were able to preserve much their loot outside the country for decades.

Why Pursue Stolen Assets?

Social Impact

Recovering stolen assets is important for a variety of reasons. According to the World Bank, the cross-border flow of proceeds from criminal activity, corruption and tax evasion is estimated between one and U.S. $1.6 trillion per year—half of this amount is looted from developing and transition economies. US $20-40 billion dollars of this flow originated in bribes received by public officials from developing and transition countries. A 2005 report by the Commission for Africa cites European Commission estimates that "stolen African assets equivalent to more than half of the continent's external debt are held in foreign banks accounts." Put by the World Bank in 2004, "corruption is... the single greatest obstacle to economic and social development. Corruption undermines development by distorting the rule of law and weakening the institutional foundation on which economic growth depends. The harmful effects of corruption are especially severe on the world’s poorest people, who are most reliant on the provision of public services, and are least capable of paying the extra costs associated with fraud and corruption."

Deterrence to Future Corruption

Successful conviction of criminals and repatriation of monies stolen by them will send a strong message to potential corruptors that there will not be a safe haven for hiding illicit wealth any longer. Several countries, especially economically deprived nations, have endured the brunt of systemic corruption as their public wealth illegally flowed into bank accounts and properties in developed countries and offshore financial centres.

Successful asset recovery efforts will help stem this flow by reducing safe havens for stolen monies.

Current Feasibility

Successes in recent years in recovering billions of dollars of looted assets stored in financial centers from President Sani Abacha of Nigeria and President Ferdinand Marcos of the Philippines proved that asset recovery is feasible. In 2005, asset recovery was recognized as “a fundamental principle” of the UNCAC. The signing and ratification of the UNCAC by many countries is seen as a major step in furthering cooperation between countries to join forces to fight corruption and assist each other in recovering looted assets.

The Asset Recovery Process

Managing the stages of an asset recovery investigation can be extremely time consuming, complex and requires a great deal of resources, expertise, and political will. First, a victim country must succeed in tracing the stolen assets. Second, the victim country must request cooperation from authorities in the jurisdictions where the assets reside to freeze the assets; these requests usually comes in the form of a Mutual Legal Assistance request or a Letter Rogatory, though some common law countries allow the filing of a Mareva injunction in civil courts to achieve the same end. Third, legal processes must be initiated in the requested country to allow the assets to be confiscated and permanently removed from their illegal owner. Following this, requested authorities must finally repatriate the assets back to the requesting country.

Each of the necessary steps-—tracing, freezing, confiscation and repatriation—-presents its own unique challenges.

Tracing- Determining the existence of assets is the first requirement in any asset recovery investigation and often the most difficult. The properties and bank accounts of corrupt leaders are seldom a matter of public record, so often documents found when a leader has died or fled. For example, investigators seeking to recover Ferdinand Marcos' looted billions were thrown a boon by finding the 'Malacanang Documents' in the former presidential palace. Such documents can give investigators important leads. As stolen assets are usually layered through several different accounts and transactions, investigators will often require outside information such as seized financial documents and suspicious transaction reports filed with banking regulators and other law enforcement agencies to continue to follow the money. These tiny pieces of evidence and leads can help investigators to trace the bank accounts suspected of being involved in providing a haven for the stolen assets and put together a complete picture of the crime.

When investigating cases involving the so-called grand corruption, routine reports can often uncover connections that lead to much larger discoveries and expose highly sophisticated corruption cases involving the highest offices and political persons. Though national governments can send out their own requests for information, it is also possible and sometimes politically smart to consult with many international and inter-governmental bodies with technical expertise to increase the chances of success in obtaining legal assistance across the border.

In situations involving non-public information from foreign bank accounts, asset recovery practitioners must either submit a "Mutual Legal Assistance" (MLA) request, obtain a disclosure action through a tort claim, or submit a traditional Letter Rogatory through diplomatic channels.

Freezing- Once assets are identified as being possible proceeds of crime/corruption, freezing the assets in a timely fashion becomes critical. If alerted, the beneficiaries of bank accounts will most likely try to transfer or hide the assets to make them unreachable by practitioners. Additionally, some banks have recently begun proactively cooperating with their national financial intelligence units and seeking consent on suspicious transfers.

Confiscation- Whether by criminal or civil actions, a court judgment is essential to transfer legal ownership of seized assets back to the requesting party. See Legal Avenues to Obtaining Judgment below.

Repatriation- There is no standard procedure for the restitution of illicitly acquired assets, as no two cases are exactly alike. Certain cases involving asset recovery have seen difficulties emerge during the final repatriation stage. While stolen money is unquestionably the sovereign property of the requesting government, enforcing asset recovery requests is costly and often paid for by the requested state. Additionally, requested countries and the international community as a whole does not want to see that money embezzled once again. Although determining the disposal of assets is handled on a case-by-case basis, the World Bank has acted as a neutral third party to ensure that the assets are invested into development efforts such as health and education.

Legal Avenues to Obtaining Judgment

Determining the tactic by which an asset recovery practitioner can obtain court judgments to freeze, seize, and repatriate assets is also of critical importance. Generally, there are five approaches through which national prosecutors can recover stolen assets:

• Common Law- Criminal Proceedings
• Common Law- Civil Procedure against Person (in personam)
• Common Law- Civil Procedure against Property (in rem)
• Civil Law- Criminal Proceedings
• Civil Law- Civil Proceedings

Asset Recovery through Criminal Proceedings For certain crimes, common law jurisdictions usually give courts the authority to confiscate assets that have been identified as the proceeds or instrumentalities of crime. However, using criminal convictions to recover stolen assets is possible only when a legal basis exists between states, such as a bi-lateral or multilateral agreement. If no other arrangement is in place, UNCAC signatories may use the convention itself as sufficient legal basis for honoring foreign court seizure orders. Additionally, dual criminality must exist between the jurisdictions, whereby the predicate offense must be recognized as a crime by the requested state.

In the context of asset recovery, Mutual Legal Assistance (MLA) are necessary to this process, in that a country is not bound to help another country enforce the law except by pre-existing treaty. Such requests can give effect to confiscation orders made either by foreign courts, allowing for the seizure and repatriation of assets. Additionally, MLA requests can generate information in tracing, identifying, and temporarily freezing the beneficiaries of accounts linked to corruption. Though to be truly effective, asset recoveries through MLA requires strong inter-state cooperation as well as two critical elements—a criminal conviction either in the victim state or the harbor state, and an enforceable confiscation order. Prior to UNCAC, MLA requests were sent via diplomatic pouch through Letters Rogatory, causing delay and frustration.

Yet even now, satisfying conditions for asset recovery using criminal convictions can be problematic. Criminal proceedings usually require that the accused is present before the court, where many wrongdoers may be dead or have fled the country to avoid arrest or prosecution. MLA requests must be detailed and precisely written in domestic languages. Additionally, influential and powerful defendants can use their influence to suppress investigations or manipulate witnesses or judges, or hire law firms to create endless adjournments and appeals.

Asset Recovery through Civil Procedures against Suspect (in personam)

States have another option to recover stolen assets— civil proceedings. This tactic is not dependent on government-to-government cooperation through criminal mutual legal assistance mechanisms. In relation to foreign assets, a State will bring a private action in the civil courts of the foreign jurisdiction where corruptly acquired assets are located. This is the same process that would be used by private citizens or corporate entities with a claim against another, in the context of fraud for example, by a liquidator seeking to recover assets wrongfully diverted from an insolvent company.

This mechanism has been particularly successful in international cases involving government officials where a criminal conviction of corruption is difficult or impossible to obtain. Among the benefits of civil proceedings include lower burden of proof (clear and convincing instead of beyond reasonable doubt) and the absence of a defendant not serving as a bar for moving forward in the proceedings. Instead, the court is satisfied as long as the defendant has been properly served notice of the proceedings. In England, serving notice to a lawyer acting on behalf of a defendant has also been used when the individual is in hiding.

Additionally, civil courts retain some of the benefits of criminal action, including the ability to freeze, pierce bank secrecy, and even in extreme cases order search/seizure actions. Additionally, gag orders can be placed upon banks to prevent asset dispersal. Still, law enforcement agencies and prosecutors are more effective for timely freezing/restraining orders than in civil court. Many practitioners have found that effective programs to recover corruptly acquired assets often use a coordinated package of criminal and civil measures to secure and recover assets. Where criminal mechanisms can secure but not recover the assets, civil proceedings can intervene.

Asset Recovery through Civil Procedures against Property (in rem) A third tactic is the use of in rem civil actions, also known as Non-Conviction Based Asset Forfeiture (NCBF) to recover assets directly. This method is controversial in that it does not require a civil or criminal conviction against an individual in order to confiscate his/her assets. Instead, guilt is assigned to the property and prosecutors must only prove that the property in question was involved in an illegal activity. Hence, the case names for in rem include jewels such as United States of America vs. US $100,000 in a Toyota Pickup. The owner or beneficiary of targeted property must then prove that either that the property was not involved or that he/she provide an innocent owner defense.

In rem asset recovery is controversial in that burden of proof requirements for the state are lowered or even reversed. While encouraged, adapting domestic law to create legal basis for in rem recoveries is not required of UNCAC state parties. Examples can be found in the United States experience against drug smugglers (asset forfeiture).

In addition, some individual jurisdictions have unique systems such as Querrella, found in Latin America that comprises a mixture of civil and criminal process. Also, mention should be made of civil law systems, for example in Switzerland, where foreign States seeking the return of corruptly acquired assets are often permitted to be a civil party to Swiss criminal investigations or proceedings concerning those assets (for example into the laundering of those assets). Such investigations or proceedings may be commenced by an investigating magistrate on receipt of a request for mutual legal assistance. The foreign State will have the ability to access documents on the Court file, to participate in the examination of witnesses, to make submissions to the investigating magistrate, and to seek the repatriation of the assets. This procedure produces an efficient and often effective combination of civil and criminal proceedings.

International Frameworks

United Nations Convention against Corruption (2005)

Developed countries and financial centres have also begun recognizing the role they play in enabling continued theft of public money. Responding to increasing recognition of the problems caused by public corruption, the international community, led by the United Nations took a bold step in 2005 by creating and ratifying an internationally legally binding instrument called the United Nations Convention Against Corruption (UNCAC).

The UNCAC came into force on December 14th 2005 and so far has been ratified by 132 parties. While the UNCAC is not the first international effort to combat corruption, it is innovative in two respects: it is the first treaty to reference the recovery of stolen assets as a priority in the fight against corruption. Second, the treaty also contains multilateral (as opposed to bilateral) mutual legal assistance in crimes concerning money laundering.

OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (1999) - A convention signed by 37 countries, this OECD convention requires that bribery of foreign public officials be criminalized. The framework of the convention is housed in the OECD Secretariat, but country-level compliance is followed by monitoring and surveillance procedures by the OECD Working Group on Bribery.

More specifically, the OECD convention "requires that bribery of foreign public officials be punishable, by effective, proportionate and dissuasive criminal penalties comparable to those applicable to their own public officials. It commits Parties to interpret territorial jurisdiction in as broad a manner as possible and to establish nationality jurisdiction if this is in accord with their legal system. Parties are obliged to establish corporate liability (the liability of “legal persons”) for foreign bribery, and where a Party’s legal system does not provide criminal liability for companies, the Party must apply effective, proportionate and dissuasive non-criminal sanctions to them. Furthermore, countries must facilitate mutual legal assistance and cannot invoke "bank secrecy" to deny mutual legal assistance.

United Nations Convention against Transnational Organized Crime (2003) The United Nations Convention against Transnational Organized came into force on September 29th 2003 and has been ratified by 147 countries. The purpose of this Convention is to promote cooperation to prevent and combat transnational organized crime more effectively. It is the main international instrument in the fight against transnational organized crime.

Inter-American Convention Against Corruption (1997)

The Inter-American Convention Against Corruption (IACAC) was adopted by the member countries of the Organization of American States on 29 March 1996; it came into force on 6 March 1997. The IACAC is distinctive in that it was the first international convention to address the problem of corruption.

Currently, the IACAC is ratified by 20 countries.

African Union Convention on Preventing and Combating Corruption and Related Offences (2003)

In the spirit of complementing UNCAC, 35 African Heads of State and Government met in Maputo, Mozambique in July 2003. According to Honorable. Dauda Kamara, Member of the Pan-African Parliament, a specific regional convention was "considered necessary because Africa, given its currently low-level economic development, needed to adopt specific and well defined measures that will protect its vast resources from any further exploitation by more powerful and developed nations of the world through corrupt practices." However, none of the 35 signatories to the convention have ratified it through their national parliaments, limiting the Convention's effectiveness.

International Asset Recovery Initiatives

Currently there are a variety of networks, institutes, and organizations that have focused on addressing the political, material, and technical challenges posed by states considering international asset recovery. These organizations include but are not limited to:

• United Nations Office on Drugs and Crime (UNODC)
• Stolen Asset Recovery Initiative (World Bank) (StAR)
• International Centre for Asset Recovery (ICAR)
• Transparency International (TI)
• Financial Action Task Force (FATF)
• Organization for Security and Co-operation in Europe (OSCE)
• Camden Asset Recovery Inter-Agency Network (CARIN)
• U4 Anti-Corruption Resource Center (U4)
• UNCAC Conference of States Parties (UNCAC COSP)

Capacity Building and Training

Asset Recovery can be a highly complex field of work, requiring advanced expertise, funding resources and persistence. Many countries are in need of assistance and training to purse asset recovery cases, particularly those lacking in the capacity and institutional frameworks required to initiate investigations of corruption cases involving stolen assets with an international angle.

Several international and inter-governmental organizations with assistance from development agencies and donor countries have begun addressing this challenge. Organizations such as the United Nations Office on Drugs and Crime (UNODC), the World Bank's StAR Initiative] and the non-profit International Centre for Asset Recovery at the Basel Institute on Governance have been offering training and capacity building assistance for investigating and prosecuting corruption cases in developing countries that are most often victims of looted assets.

Additionally, many international organizations now provide some form of online assistance. The ICAR hosts an online Asset Recovery Knowledge Center that includes technical publications, news articles, case studies, and individual country laws relating to asset recovery. Given that MLA requests need to be "right the first time" when submitting to a foreign country, the UNODC offers a free MLA Request Writer Tool For hands on technical assistance, the U4 Help Desk gives practitioners ability to ask experts any question related to corruption/anti-corruption and expect to receive a tailor made response within 10 working days (or assistance within 48 hours in case of urgency).

Case Studies

• Ferdinand Marcos
• Jean-Claude "Baby Doc" Duvalier
• Sani Abacha
• Joshua Dariye
• Dieprieye Alamieyeseigha
• Hendra Rahardja
• Ao Man Long
• Pavlo Lazarenko
• Vladmiro Montesinos

Challenges

Despite improved international awareness, increased national capacities, and the beginnings of a network of asset recovery practitioners, many legal, political, and material challenges remain. These include lack of political will, continued debate over non-conviction based forfeiture, and issues concerning repatriation of stolen assets to their original country.

Lack of Political Will to Enforce Recoveries While 149 countries have ratified UNCAC, there still needs to be greater increase in cooperation and awareness. Non-ratification of UNCAC (twenty countries have signed but not ratified) Dual criminality problem. Political Lack of political will. Requests not being honored, but then money is forfeited from the bank (theft) Material - Lack of funding, slow procedure, lacking in technical capacity. There are several cases for asset recovery that are possible, including monies frozen that belonged to the former Zaire President Mobutu Sese Seko and against former Kenyan President Daniel arap Moi.

Non-Conviction Based Forfeiture - NCBF is a new term to cover situations where criminal convictions are too difficult or costly to obtain, but money is obviously the proceeds of crime. This includes a variety of systems, including common law in rem forfeitures as well as civil lawsuits stemming from a prosecutors investigation in a civil law country.

Repatriation of Assets - The exact terms of repatriation are still unclear and without specific mutual legal assistance agreements are done on a case by case basis. For instance, Switzerland confiscated US 600 million of former Nigerian President Abacha's loot, but worked out an agreement to use the money for development purposes, monitored by the World Bank. Other potential agreements are not so generous. When Indonesia originally approached Hong Kong to repatriate Indonesian banker Hendra Rahardja's assets, the Hong Kong authorities offered to assist for a 20% commission, and then splitting the remaining money evenly.