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From issue: Education (Fall 2010)

AQ Feature

Fast Cash: Recovering Stolen Assets

Caribbean and Latin American dictators were once confident they could stash their corrupt earnings overseas. No longer.

When Haiti’s President-for-Life JeanClaude Duvalier fled to France in 1986, he left a nation plagued by poverty and dependent on aid. Like many dictators, Duvalier had illicitly amassed vast personal wealth—conservatively estimated at $300 million—during his time in power.1 Amid reports that suitcases of gold and currency traveled with him on the C-171 cargo plane taking him into exile, Haiti’s treasury was revealed to be virtually empty.2 For his cash-strapped successors in the Haitian government, recovering the assets that the President-for-Life had squirreled away in various foreign nations became a matter of necessity.

In Europe and the Americas, private investigators and lawyers were hired to chase promising leads on Duvalier’s assets. But despite some initial success in recovering assets held in New York, these efforts came to a grinding halt when Haitian politics shifted and Duvalier allies returned to power. A letter from Haiti’s outside counsel to then-Haitian Prime Minister Prosper Avril in 1989 bluntly described the change:

"The behavior of your ministers leaves us no alternative except to conclude that [they] apparently want our efforts on behalf of Haiti to fail, are not concerned that Haiti will lose the substantial investment it has made in pursuing the Duvaliers, and want the Duvaliers to keep the money they stole."3

For almost two decades, Haiti’s recovery efforts against Duvalier were at an impasse, until President René Préval took a unique step forward in 2007. To complete the recovery of $5.4 million of Duvalier assets still frozen in Switzerland, Haiti formed a link with the Stolen Asset Recovery Initiative (StAR)—launched in September of that year by the World Bank Group and the United Nations Office on Drugs and Crime (UNODC).4

With a mandate to facilitate cooperation on recovering corruptly acquired assets, a StAR team traveled to Haiti to provide technical assistance to Haitian authorities. At the same time, World Bank officials worked with Swiss officials and lawyers to further efforts to bring the Duvalier case to conclusion. Using the combined reputational weight and technical abilities of its founding organizations, StAR helped restart cooperation between the governments of Haiti and Switzerland.

The combined efforts of Swiss, Haitian and StAR officials, including persons from over half a dozen countries, resulted in a February 2009 order by the Swiss authorities to confiscate and transfer the frozen funds to Haiti.5 This victory was threatened, however, when Switzerland’s Supreme Court ordered, on January 9, 2010, the release of Duvalier’s assets on the grounds that the statute of limitations had expired.

Now a force in the global effort to return stolen assets, the Swiss government, citing constitutional powers, took a bold step by refreezing the assets. This provided time for passage of an innovative law on corrupt assets that was scheduled to be voted on by the Swiss Federal Assembly in early October 2010.6 Federal Councillor Eveline Widmer-Schlumpf underscored its importance, stating that Duvalier’s assets are “blocked again…to prevent it from going somewhere that it shouldn’t for political reasons.”7

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Battling Corrupt Leaders Across the Region


Even with the fate of Duvalier’s assets still in limbo, the emergence of StAR and other global tools for combating high-level graft offers a measure of hope for Latin American and Caribbean countries, where corruption not only threatens sustainable economic growth, but is often tightly bound with crime, terrorism and environmental degradation. While all forms of corruption have negative consequences, the corruption of top leaders systemically weakens government institutions by encouraging subordinate officials to engage in similar practices. Perhaps the most insidious damage is that top officials and political leaders not only amass fortunes for personal pleasure, but use their wealth to secure continued political dominance.8

The international financial system compounds the problem by enabling corrupt leaders to hide their assets in foreign countries. By laundering money into offshore financial centers, corrupt officials can protect their assets from prying eyes of their own government and civil society.

Countries such as Panama are frequently identified as tax havens where secrecy laws facilitate the accumulation of illicit assets and hinder asset recovery investigations. But according to Raymond Baker, who studies the flow of illicit capital, at least 60 jurisdictions with high bank and incorporation secrecy facilitate money laundering worldwide.9

Recovering the proceeds of corruption in foreign countries presents a challenge for law enforcement organizations. Obtaining cooperation from other countries can take months, if not years, and successful recoveries often require understanding the intricacies of multi-jurisdictional litigation and foreign legal systems. This knowledge and experience can be found in the private sector, but the costs of outside counsel are often prohibitive for governments.

In the past, efforts to recover stolen assets were stymied by difficulties in securing cooperation from recipient countries, by legal systems incapable of confiscating funds without a concurrent criminal conviction and by the lack of experience and material support for financial investigations and prosecutions. Recognizing the necessity of genuine political will and state-to-state cooperation, StAR was formed to find ways to minimize those difficulties.

While StAR’s efforts to facilitate the recovery of Duvalier’s efforts represent a major step forward for Haiti, it is not the only major asset recovery case in the region. In fact, corruption fighters in the Americas have been busy targeting overseas assets.

In 2002, an investigation of corrupt dealings regarding the construction of Piarco International Airport in Trinidad and Tobago led to the discovery of a 39 percent over-payment to contractors. Three senior government officials were implicated in the fraud.10 Common wisdom in corruption investigations is that rather than focusing on individuals, major construction projects can yield valuable leads.11 The Trinidad and Tobago case proved this wisdom correct.

To trace assets, the country hired a forensic accountant and contacted the U.S. Department of Justice, which began its own money laundering investigation. Prosecutors determined that $24 million in bribes and gifts were exchanged among four companies and 13 people, three of them former government officials. The government then recovered over $6 million in assets from the U.S. and from several individuals. In 2007 a Florida federal district court had found the individuals guilty of conspiracy to commit wire fraud and of transferring money obtained by wire fraud.12

There are other examples of successful asset recovery in the region. Mexican collaboration with Swiss authorities in 2008 led to the confiscation of $74 million in funds of “obvious criminal origin” from Raúl Salinas, the brother of former Mexican President Carlos Salinas [1988–1994].13 Additionally, nearly $12 million recovered from former Nicaraguan President Arnoldo Alemán was returned by the governments of the U.S. and Panama. And in a particularly notorious case, Peru recovered $174 million in assets from former President Alberto Fujimori [1990–2000] and the former head of Peru’s Servicio de Inteligencia Nacional (SIN), Security Chief Vladimiro Montesinos.14

Yet, not all asset recovery operations end in success. Many are delayed or never begin because of political protection. The disruption of efforts to recover Duvalier’s money because of political shifts is one example. Another is constitutional protection from prosecutions. Departing dictators can pass laws or create positions to extend immunity, as the Chilean dictator Augusto Pinochet did when he established himself Senator-for-Life.

Next on the Docket


The next global asset recovery case may also come from the Caribbean. On August 9, 2009, the 23,000-odd residents of the Turks and Caicos Islands, a small offshore tax haven and tourist magnet, were placed under direct rule by the United Kingdom after revelations of self-serving deals by the islands’ elected government officials. This was the second time that Britain had suspended the country’s constitution. The first had followed reports of alleged criminality and corruption by the Turks and Caicos government in 1986.15

At the center of the current suspension is Premier Michael “Iron Mike” Misick. After his ascension from real estate broker to Premier in 2003, Misick started living the high life. He went to Hollywood parties, made investments in start-up ventures, purchased a beachfront mansion now listed at $15.75 million,16 and financed a lavish wedding to American actress LisaRaye McCoy, to whom he reportedly introduced himself by saying that he owned a small Caribbean island.17

Connections to illegal sales of Crown Lands to developers coincided with his transformation from a realtor with $40,000 worth of declared assets to an international jetsetter with a mansion worth $15 million.18 Based on the conclusions of a Royal Commission of Inquiry that “systematic corruption” permeated the Turks and Caicos government, the UK Foreign Office legally removed the islands’ elected government and temporarily transferred power to Governor Gordon Wetherell.19

Routine checks by the UK Foreign Office quickly mushroomed into the Royal Commission of Inquiry under Sir Robin Auld. The final report alleges “swathes of land had allegedly been stolen by Misick in partnership with his ministers, and passed on to tourism developers in exchange for millions of dollars in loans which appear, allegedly, to have no repayment schedules, and sleeping partnerships in billion-dollar developments.”20 While Misick immediately condemned the report, calling the probe into his property dealings on the island “modern-day colonialism,” the Foreign Office implemented the report’s recommendations for direct rule and for appointment of a special prosecutor.21

The UK Foreign Office recruited respected anticorruption activist and former member of the UK Serious Fraud Office Helen Garlick. She has ensured that legal holds are placed on known assets of former ministers—though this amount has not been disclosed.22 However, there is already evidence suggesting that Misick concealed some of his wealth in foreign bank accounts through the use of shell companies.23

Doing Better


Even beyond the Americas, combating corruption is an international priority. In Mérida, Mexico, 94 countries signed in 2003 an anticorruption treaty of unprecedented power and scope to combat corruption, the United Nations Convention against Corruption (UNCAC). If properly implemented, UNCAC can be a powerful tool for recovering corruptly acquired assets. According to a 2009 UNODC report, the Latin America and Caribbean region already boasts one of the highest regional levels of UNCAC ratification, with only Barbados having signed but not ratified.

Yet a large disparity in the depth and breadth of regional compliance exists with the treaty’s 62 mandatory and recommended provisions, with many countries reporting partial or noncompliance with mandatory provisions in self-assessment reports.24

While powerful, UNCAC ratification by itself cannot guarantee asset recovery. To improve the rate and success of asset recovery efforts in the Americas, four additional measures are needed.

1) Identify Measurable Goals


The sad reality is that individuals and civil society must be wary of taking government statements at face value when combating corruption and furthering asset recovery. In many cases, statements may be limited to window dressing and fail to deliver on actual promises for action. In such cases, observers of such efforts should look to their governments’ actions and results, not their rhetoric. Asking questions—How many corruption cases are ongoing? How many convictions have been made? How much money has been recovered?—can help formulate these goals.

2) Incorporate Non-Conviction-Based Forfeiture


One of the UNCAC “optional” provisions, non-conviction-based forfeiture, is a promising way to quickly recover stolen assets. Proving that assets were illicitly obtained “beyond a reasonable doubt” is a serious legal hurdle. To deprive criminal groups of their assets, the U.S. is able to assign guilt to property instead of individuals and confiscate assets based on preponderance of evidence.

Several Latin American countries, including Mexico and Colombia, have adopted Ley de extinción de dominio (Asset Forfeiture Law) confiscation proceedings in response to difficulties linking assets with drug trafficking. Here, an individual’s right to property involved in crime is obviated by evidence demonstrating that it was obtained illicitly, allowing a government to seize it.

3) Adopt New Technologies and Increase Practitioner Trust


In many cases, asset recovery efforts are delayed due to the formal requirements of Mutual Legal Assistance (MLA) requests that do not take into account advances in electronic communication. There is also a lack of communication between officials from the requesting state and the requested state. Fortunately, institutions to facilitate this communication and collaboration already exist.

Increased interaction between asset recovery professionals across the Americas through StAR and other group networks, as well as the increased use of the Organization for American States’ Groove Network and the Asset Recovery Experts Network, would help increase the trust and cooperation necessary to complete asset recovery operations.

4) Create Political Will


Even with sufficient resources and an educated staff, asset recovery can only work if there is political will on the part of both victim and recipient countries. Statements of anticorruption support by top leaders can provide political cover for investigators and prosecutors, but real political will means that investigators and prosecutors feel that their superiors will support and defend their work. An active civil society and informed public can help political leaders link real action on anticorruption objectives to their political survival.

The recent property development scandal in the Turks and Caicos is yet another example of fast cash finding itself in the Caribbean—a region where yachts, villas and private bankers are always looking for high-end sponsors. Luckily, though, international efforts and multilateral institutions are now stepping up their efforts. The StAR Initiative’s work in fostering cooperation between countries is now a blueprint for future advocacy.

A better understanding of the interaction between corruption, transnational threats and development will hopefully keep these issues in the forefront of international discourse. In addition, compliance with UNCAC’s asset recovery provisions, as well as broadening predicate offenses to money laundering, will assist this process. But while policy experts can make recommendations and novel suggestions, genuine political will is the key ingredient.

Footnotes

1.  “Haiti, Still Counting, Says Duvalier Took $300 Million” New York Times (May 13, 1986).

2.  Elizabeth Abbott, Haiti: The Duvaliers & Their Legacy, Touchstone Publishers (1991).

3.  David Margolick, “THE LAW: AT THE BAR; Law firm, in pursuit of Haitian property, finds the chase can be tedious and frustrating.” The New York Times, October 27, 1989, sec. U.S., http://www.nytimes.com/1989/10/27/us/law-bar-law-firm-pursuit-haitian-property-finds-chase-can-be-tedious-frustrating.html?pagewanted=1.

4.  “World Bank Welcomes Swiss Confiscation of Duvalier Assets to Haiti“ Press Release by World Bank Group (Feb 13, 2009), available at http://www.worldbank.org

5.  “World Bank Welcomes Swiss Confiscation of Duvalier Assets to Haiti“ Press Release by World Bank Group (Feb 13, 2009), available at http://www.worldbank.org

6.  The Associated Press, “Swiss Court Reverses Award of Duvalier Millions,” The New York Times, February 4, 2010, sec. International / Americas, http://www.nytimes.com/2010/02/04/world/americas/04duvalier.html.

7.  Deborah Ball, “Switzerland Freezes Freed Duvalier Assets,” wsj.com, February 4, 2010, sec. European Business News, http://online.wsj.com/article/SB10001424052748704259304575042993831412912.html.

8.  Paul Collier “Why Bad Guys Matter” Foreign Policy Magazine (July 2010).

9.  Raymond W. Baker, Capitalism's Achilles Heel: Dirty Money and How to Renew the Free-Market System (Wiley, 2005) p.36. 

10.  “Piarco Commission of Inquiry: Day 65—Quantity Surveyor: Govt overpaid contractors $110M” Trinidad & Tobago News (December 10, 2002) http://www.trinidadandtobagonews.com/forum/webbbs_config.pl/noframes/read/909

11.  Denard Sweeting, “Special Prosecutor Introduced: The Official Turks and Caicos Islands Government Website::” (GOVERNMENT INFORMATION SERVICE, August 27, 2009), http://www.tcgov.tc/info--ID--500.html.

12.  “Salinas assets handed over to Mexico,” Switzerland Federal Office of Justice (June 18, 2008) http://www.ejpd.admin.ch/ejpd/en/home/dokumentation/mi/2008/ref_2008-06-18.html.

13.  “Salinas assets handed over to Mexico,” Switzerland Federal Office of Justice (June 18, 2008) http://www.ejpd.admin.ch/ejpd/en/home/dokumentation/mi/2008/ref_2008-06-18.html.

14.  “Chronology: Efforts to Recover Assets Looted by Vladmiro Montesinos of Peru” International Centre for Asset Recovery (September 2007) http://www.assetrecovery.org/kc/node/18e8e835-a345-11dc-bf1b-335d0754ba85.4

15.  Oscar Ramjet, “Suspension of Turks and Caicos Constitution is not new to the region” Caribbean News Network (March 17, 2009) http://www.caribbeannetnews.com/article.php?news_id=15003

16.  “Turks and Caicos’ Former Premier Offers His Estate For Sale” Luxury Travel Magazine  (February 11, 2010) http://www.luxurytravelmagazine.com/news-articles/turks-and-caicos-former-premier-offers-his-estate-for-sale-14530.php

17.  Harry Underwood, “Michael Misick calls Turks and Caicos corruption probe 'colonialism' | People in the News | People | The First Post,” People: People in the News, July 3, 2009, http://www.thefirstpost.co.uk/50059,people,news,michael-misick-calls-turks-and-caicos-corruption-probe-colonialism-caribbean-lisa-raye-mccoy.

18.  Transparency International “Corruption FAQ #1- How do you define corruption?” http://www.transparency.org/news_room/faq/corruption_faq#faqcorr1

19.  Charles Laurence, “The Turks and Caicos Islands: Trouble in the paradise I call home,” Telegraph.co.uk, June 17, 2009, http://www.telegraph.co.uk/news/5553260/The-Turks-and-Caicos-Islands-Trouble-in-the-paradise-I-call-home.html.

20.  Harry Underwood, “Michael Misick calls Turks and Caicos corruption probe 'colonialism' | People in the News | People | The First Post,” People: People in the News, July 3, 2009, http://www.thefirstpost.co.uk/50059,people,news,michael-misick-calls-turks-and-caicos-corruption-probe-colonialism-caribbean-lisa-raye-mccoy.

21.  “Hold placed on ministers' assets. Turks & Caicos Islands News from the TCI Net News via Caribdaily.com,” n.d., http://www.caribdaily.com/article/260631/hold-placed-on-ministers--assets/.

22.  Fred Abrams, “New Jersey Lawsuit Involving Former Premier Misick Settles” Asset Search Blog (February 6, 2010), http://www.assetsearchblog.com/2010/02/articles/asset-search/new-jersey-lawsuit-involving-former-premier-misick-settles/

23.  “Articles of the United Nations Convention against Corruption on asset recovery: analysis of reported compliance and policy recommendations” (November 3, 2009). Report prepared by UNODC for the third session of the Conference of States Parties to the United Nations Convention against Corruption in Doha, Qatar (November 9-13, 2009).

24.  United Nations Office on Drugs and Crime “Signatories to the United Nations Convention against Corruption” (checked on July 22, 2010) at http://www.unodc.org/unodc/en/treaties/CAC/signatories.html

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