[Joint House and Senate Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
115th Congress Printed for the use of the
1st Session Commission on Security and Cooperation in Europe
________________________________________________________________________
COUNTERING CORRUPTION IN
THE OSCE REGION: RETURNING
ILL-GOTTEN ASSETS AND
CLOSING SAFE HAVENS
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
JUNE 1, 2017
Briefing of the
Commission on Security and Cooperation in Europe
________________________________________________________________________
Washington: 2017
Commission on Security and Cooperation in Europe
234 Ford House Office Building
Washington, DC 20515
202-225-1901
[email protected]
http://www.csce.gov
@HelsinkiComm
Legislative Branch Commissioners
HOUSE SENATE
CHRISTOPHER H. SMITH, New Jersey ROGER WICKER, Mississippi,
Co-Chairman Chairman
ALCEE L. HASTINGS, Florida BENJAMIN L. CARDIN. Maryland
ROBERT B. ADERHOLT, Alabama JOHN BOOZMAN, Arkansas
MICHAEL C. BURGESS, Texas CORY GARDNER, Colorado
STEVE COHEN, Tennessee MARCO RUBIO, Florida
RICHARD HUDSON, North Carolina JEANNE SHAHEEN, New Hampshire
RANDY HULTGREN, Illinois THOM TILLIS, North Carolina
SHEILA JACKSON LEE, Texas TOM UDALL, New Mexico
GWEN MOORE, Wisconsin SHELDON WHITEHOUSE, Rhode Island
Executive Branch Commissioners
DEPARTMENT OF STATE
DEPARTMETN OF DEFENSE
DEPARTMENT OF COMMERCE
(II)
ABOUT THE ORGANIZATION FOR SECURITY AND COOPERATION IN EUROPE
The Helsinki process, formally titled the Conference on Security
and Cooperation in Europe, traces its origin to the signing of the
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ABOUT THE ORGANIZATION FOR SECURITY AND COOPERATION IN EUROPE
The Commission on Security and Cooperation in Europe, also known as
the Helsinki Commission, is a U.S. Government agency created in 1976 to
monitor and encourage compliance by the participating States with their
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private individuals from participating States. The website of the
Commission is: .
(III)
COUNTERING CORRUPTION IN
THE OSCE REGION: RETURNING
ILL-GOTTEN ASSETS AND
CLOSING SAFE HAVENS
____________
June 1, 2017
Page
PARTICIPANTS
Paul Massaro, Policy Advisor, Commission on Security and Cooperation in Europe ......... 1
Charles Davidson, Executive Director of the Kleptocracy Initiative, Hudson Institute .... 2
Brian Campbell, U.S.-based Attorney ..................................................... 4
Ken Hurwitz, Senior Managing Legal Officer on Anticorruption, Open Society Justice
Initiative ............................................................................. 6
(IV)
COUNTERING CORRUPTION IN
THE OSCE REGION: RETURNING
ILL-GOTTEN ASSETS AND
CLOSING SAFE HAVENS
____________
June 1, 2017
The briefing was held at 10:30 a.m. in room G11, Dirksen Senate
Office Building, Paul Massaro, Policy Advisor, Commission on Security
and Cooperation in Europe, moderating.
Panelists present: Paul Massaro, Policy Advisor, Commission on
Security and Cooperation in Europe; Charles Davidson, Executive
Director of the Kleptocracy Initiative, Hudson Institute; Brian
Campbell, U.S.-based Attorney; and Ken Hurwitz, Senior Managing Legal
Officer on Anticorruption, Open Society Justice Initiative.
Mr. Massaro. Good morning, everyone. Thank you all for coming.
Welcome to today's briefing on asset recovery in the OSCE region. My
name is Paul Massaro, and I am the policy advisor responsible for
economic and environmental issues at the Helsinki Commission.
Combatting corruption is a critical element of the second dimension
of the Organization for Security and Cooperation in Europe, the OSCE.
This vital task involves a huge range of activities, all aimed at
justice for perpetrators and redress for victims. In many cases,
prosecuting a crime is more straightforward than recovering and
returning stolen assets.
Today we will focus on asset recovery and how to strengthen the
preventative measures that we rely on to fight impunity worldwide.
Asset recovery is a challenging, but critical, factor of tackling
global corruption. Tracing, freezing, and returning frozen assets is a
tedious and complicated process. Additionally, returning the proceeds
of corruption to the country of origin often requires the involvement
of corrupt authorities, which can mean the perpetuation of grand
corruption.
Strengthening existing mechanisms of repatriation and ensuring
accountability in the process should be an integral part of mainstream
anticorruption work. Successful asset recovery can not only deter
future corrupt practices, but can also support democratic development
in countries where corruption remains an endemic source of human rights
violations.
We are grateful to have such distinguished panelists with us here
today. I look forward to hearing your thoughts and views on this
important issue.
To my left, we have Charles Davidson, the executive director of the
Kleptocracy Initiative at the Hudson Institute. The Kleptocracy
initiative investigates and conducts research on the corrupt financial
practices of authoritarian governments. In addition to his work with
the Kleptocracy Initiative, Charles is the publisher and CEO of ``The
American Interest,'' which he co-founded in 2005. He is also the co-
founder of Global Financial Integrity, a research and advisory
organization focused on analyses of illicit financial flows.
Far to my right, we have Brian Campbell, who is a legal advisor to
the Cotton Campaign, a global coalition of over 25 labor, human rights
and business organizations committed to ending state-sponsored forced
labor in Uzbekistan's cotton industry. Brian has experience
representing victims of human rights abuses in legal and administrative
proceedings, both in U.S. courts and before the U.S. Congress. He also
serves as a legal advisor to several grassroots and community-based
organizations in Africa and Asia.
Finally, we have Ken Hurwitz, who joins us from the Open Society
Justice Initiative, where he is the senior managing legal officer on
anticorruption. The Justice Initiative works to promote the rule of law
and seek justice for human rights abuses through litigation, advocacy,
research, and technical assistance. Ken is the head of the
organization's anticorruption legal work and is an expert on high-level
corruption. In particular, he focuses on corruption in the national
resources trade, using the law to challenge those who pay or receive
bribes in exchange for illegal access to resource wealth, as well as
those who assist by hiding the proceeds of corrupt dealing.
We will conclude the briefing with a Q&A session. So please start
thinking of your questions now.
I'd like to now give the floor to our first panelist, Charles
Davidson of the Hudson Institute.
Thank you.
Mr. Davidson. Well, thank you, Paul. It's a pleasure being here.
Our subject today, as advertised, was to start with the historical
context for asset recovery. So I'm going to go into that a bit. And
then we have sort of three areas after that; corruption prevention, and
the U.S. national interest in countering corruption, and then methods
of ensuring responsible repatriation. So I'm going to sort of leave off
the last point, the subjects around repatriation, which my colleagues
are going to cover in detail, and which they're experts on.
But why are we talking about asset recovery? Well, presumably
someone has stolen assets that we need to recover. So what's going on
with that? And in the OSCE region, we know that vast sums have been
stolen and looted, and are being held in the West. And by the West, I
mean New York City, Miami, London. So, I mean, concretely, real estate
in the West, but I also mean the whole network of offshore secrecy
jurisdictions and ways of secreting away and holding assets in places
that are controlled by the United States and Europe.
And those places and those methods are where most of this OSCE loot
is held, which is really the fundamental context we're operating in.
And because it's held in places we control, we presumably have some
leverage to be able to repatriate it. Period.
That's all I have to say. Are we done? No. [Laughter.] But that's
the point, right? That's the overall context. And also, we're not
talking about petty corruption.
If we look at a lot of these countries, we're talking about--
there's a whole sort of shadow economy where nobody in a lot of these
countries has a salary they can live off of. So there are all of these
kind of cash payments and ways in which corruption--one might even call
it something else--is part of the society. And that's lamented, this,
that, and the other. But there's no asset recovery in that context. So
we're talking about the grand corruption, some people call it, or
kleptocracy or whatever, where assets are taken out of the country and
safeguarded in places where we may have some leverage to recover them.
So, in terms of corruption prevention mechanisms--and we're
supposed to speak briefly and I'm going to rifle through some of this,
and I gather the richness of this event is going to be in the Q&A--one
thing we have is a huge corruption services industry. And if we look at
what precedes potential for repatriation, we find major Western
financial institutions--law firms and all of that--helping OSCE leaders
and corrupt regimes to get their money out of the country in the first
place. So we play a very large role, as societies, in the looting in
the first place and the problem. And I think that point has to be taken
into account when we look at repatriation so that we don't end up in a
vast circular, rather perverse hypocrisy.
One of the things we can do in terms of corruption prevention--and
this is a bit of a parenthesis--but there's a lot of talk on the Hill
right now about transparency and beneficial ownership, and curtailing
anonymity in terms of how assets are held. That's an area in which a
lot of progress can be made. There are many bills sort of going around.
The major banks have actually come out in favor of doing away with
anonymity, presumably because the compliance costs have gotten so
great.
Another corruption prevention mechanism to keep in mind--I'm sort
of jumping around here, just sort of putting ideas on the table--is
civil society. If we look at the Maidan, that was essentially a protest
against corruption, but not really the petty corruption within the
society. It was against the grand corruption of the leaders and the
rulers of Ukraine, if one can refer to them that way. We saw protests
recently in Romania which were targeting grand corruption. So
Tocquevillian civil society is certainly a corruption prevention
mechanism. It's not really a mechanism, but it's a very important part
of this.
And then I think it's worth throwing in the notion of an
independent judiciary, because if we look at Brazil right now--which is
out of our geographic zone--it's kind of interesting the way an
independent judiciary can affect a corrupt political class. And that's
an analogy, because I'm not suggesting that there are strong elements
of grand corruption. But if we look at reform and other elements that
we can push in addition to asset recovery, that might be one.
Now, the U.S. national interest in countering corruption--this is
where we still under-appreciate the dangers of grand corruption and
kleptocracy. First of all, it's kind of obvious when you think about it
how corruption is a killer of freedom and democracy. And obviously in a
corrupt society people aren't getting their fair shake. You can't just
go out there and create a business without it being stolen from you in
some cases. This is depressing. You don't get happy, free people in
these countries.
And yet, the nice thing is, there are a lot of people who are
fighting for freedom and democracy in these countries. But it's
something that we need to encourage. And on the asset recovery front,
we need to do it in a way that's politically positive so that it
doesn't seem as Western hypocrisy, which would be a terrible thing, but
so that it's done in way that is very much supportive of, shall we say,
progressive forces in those societies. I don't mean progressive in the
U.S. context, political sense.
In terms of economic opportunity, just as free markets, we can
certainly see how corruption perverts all of that. That's all counter
to U.S. national interests. And perhaps most importantly, these corrupt
regimes try to corrupt up. And we've seen a lot of recent examples of
that. But when we accept all of these funds, even encourage them to
come into our societies in the first place--pre-repatriation--these
funds and the handlers of these funds and all need to keep a corrupt
system going here, in terms of how these assets are looted and dealt
with in the first place.
So they are not going to be forces for improved governance in our
own societies. They're going to be corrupting influences. And we see a
lot of this going on all over the place, here and in Europe. In terms
of rule of law and the extent to which we want to spread rule of law
and good governance, obviously this is--grand corruption is a terrible
thing in terms of that.
So these are all reasons why we need to look at the asset recovery
dossier very seriously. But really, as I'm stressing, as part of a much
broader program opposing kleptocracy, grand corruption, and being sure
that we're doing these other things and not just asset recovery.
What we would not want to end up with, I think, is the situation of
grafting onto the status quo, in which a lot of the financial
organizations in the U.S. and major law firms are involved in the
looting, to get them very involved in the repatriation as a business.
We don't want to end up with a business model where we're helping the
looting in the first place, and then profiting by the return of the
loot to those countries. I don't think that will fly well politically
in the looted countries. And as an example, if we take Ukraine, some
interesting research that's been done, Ben Judah published an article--
gosh, over two years ago already--of on-the-ground research in Ukraine,
and about how the average Ukrainian was quite aware of how the West
facilitated the grand corruption taking place in Ukraine.
Thank you.
Mr. Massaro. Excellent. Well, thank you very much, Charles,
especially for the focus on how corrupt regimes corrupt us, a phrase
that I have become immediately fond of. [Laughter.] Very good.
I'd like to turn the floor now to Brian Campbell. Brian, please
take it away.
Mr. Campbell. Thank you.
As you could hear in the introductions, my background really comes
out of human rights and work with groups on the ground in countries
around the world on human rights issues. And for 10 years I was working
in China where the first thing you have to figure out is how the
corrupt networks were working in those local communities through the
party system, so you could figure out how to manage the political and
the economic system as well. And that's just the beginning.
But what brings me here is, back in the region in Central Asia, I
think we see pretty much across the board we have very large
kleptocratic governments that have built within themselves throughout
their economy different--for lack of a better word--syndicates that
control different sections of the economy. And one of those syndicates
suddenly unravels. And that was the Gulnara Karimova telecommunications
syndicate.
She was a government employee throughout all of the time that was
going on and she was also a daughter of the president. She used her
position to block access--free access, I'll say--to the
telecommunications market by securing bribes for international,
multinational companies that wanted to buy into the Uzbek telecom
market. And this happened over a course of many years. And over time,
the bank accounts grew and grew. And they were up to $850 million, and
is what has been discovered. And that's still all just what's been
discovered.
And this all came out because of the work of civil society. So, in
terms of prevention, I'll just throw out that civil society was a huge
role in this, because it was the media that were doing exposes, working
with others in civil society to get access to individual people that
were the enablers of the corruption. And in this case, these are Uzbek
citizens working in banks around the world, in Dubai. Non-Uzbek
citizens, Westerners--you know, every single node, as we were talking
about, enabling.
And they were located around the world. They were business
services, financial services, banks--you name it. You had to have
multiple different layers of companies. And so she built this network.
But she used her position as the government and used her influence in
the government, and used the support of the SMB, which is the secret
service in Uzbekistan, to extract huge amounts of brides from the
telecommunications sector.
Practically speaking, it led to quite poor telecommunication
service in some areas. But more nefarious, what it did--all of that
money went to support the continuance of the government that was in
power, right? So each major player within that government has different
patronage networks--political patronage networks that operate through
corrupt financial transactions. And in this case, she had the
participation of the current prime minister, who at that time was the
head of the telecommunications agency, who was facilitating all of
these corrupt transactions, by giving out the frequencies to the
Western companies.
So all of this came unraveled. And it was a big embarrassment for
the Uzbek Government. But it also led to investigations in Sweden,
Switzerland, Brussels--sorry, Belgium, I'll say, because Brussels I
understand is EU words. But it's all over. And including the United
States, because U.S. banks were used to facilitate the transfer of the
assets. The assets aren't in the United States, but we facilitated the
transfer of those assets through different banks, through the U.S., and
into banks across Europe.
So the United States has brought a civil case. And they are trying
to--because of the jurisdiction provided to them under the FCPA,
they're trying to go back and seize and get legal right to those assets
that are sitting in bank accounts in three different countries--and
then once they do seize those assets--and that's a current case in the
southern district of New York--the question then becomes, what happens
to those assets?
So if you still have the prime minister of the government who was
one of the people who helped facilitate the corrupt transactions to
begin with, and you have the president of a government who's been
running the cotton syndicate--and this is me putting on my legal
advisor to end forced labor--he's been running the cotton sector that's
been extracting resources into a missing fund of $650 million--
disappears every year from the cotton sector. This has been run by the
president. We don't even have investigations into what happens to that
money yet. We're just focused on telecom on this one.
And what we're trying to do is figure out, how do you return assets
to the people of Uzbekistan? Because they belong to the people of
Uzbekistan. And how do you return that, but in a responsible way? I've
been working with Uzbeks in exile, and also getting feedback from as
many as we can in the country through whatever means we can, because
communications are tightly restricted, to really come up with what
really could be a good solution for repatriation, so that way if the
U.S. Government seizes the money--and I'll just flag this as a
significant problem in U.S. laws--if the U.S. Government seizes the
money, the law says it has to go to the U.S. Treasury.
So it creates an international challenge here, because Switzerland
also has the money, and they want to do something--they don't want it
to go to the U.S. Government Treasury. They want it to be spent in
Uzbekistan under Article 57 of the convention, but with modalities, as
we would say, not conditions. So, with all of that in mind, we have now
multiple jurisdictions, 22, involved in a case, each of which has a
different set of laws with a different set of priorities for the
repatriation of assets. And so, at this point, it becomes a significant
challenge in order to implement the responsible repatriation of assets.
To the extent that the governments communicate, they're doing a
good job. It's our role, as civil society--and me, as the attorney for
many of these civil society groups--to engage with each of the
governments. But I think overall, we need to focus on--especially here
in the U.S. and in the U.S. Congress--is how can we make our laws
recognize what I think we've all sort of come to understand, which is
that as we facilitate the use of this money, or the movement of this
money, when it comes time to return it, how to do that in a responsible
way, and how to get our laws to enable our government to responsibly
repatriate it? I think those are the two big questions.
And in the meantime, we're going to continue to work with the Uzbek
folks in exile, with the hope of convincing all the governments that
until the situation in Uzbekistan is changed, they should examine
creating a trust. Find some other ways, something similar to the BOTA
Foundation, which was a process in Kazakhstan. But the assets here are
significantly much larger. So I think we need to be very careful in how
we repatriate assets in this case.
With that, I'll wait for your questions. Thank you.
Mr. Massaro. Well, thank you very much, Brain. It sounds like
you've got your work cut out for you. And thank you for illuminating
this web that seems to unravel when something like the syndicate in
Uzbekistan breaks down. You know, these explosions worldwide in Sweden
and the USA and Switzerland just--you find out how many actors are
really involved in enabling this sort of corruption.
So our final briefer today is Ken Hurwitz. Ken, take it away.
Mr. Hurwitz. Thank you, Paul. Thank you all. It's a pleasure to be
here.
The way Brian ended was a good segue to what I was going to talk
about, which is what is the U.S. structure for dealing with all of this
at this point? What does it look like from the U.S. point of view? From
my point of view, I would divide it into sort of three elements that
match the three elements that, if you remember, Paul mentioned in
telling you about my official biography: the bribe payers, the bribe
receivers, and those who enable the bribery to take place.
More or less, roughly the Foreign Corrupt Practices Act is, of
course, designed to catch bribery, especially high-level corporate
bribery, with regard to developing countries in particular.
The money laundering regimes that we have are largely designed to
catch the receipt, returning of money, and can be--although have been
used less than they should be--used also to target the enablers, the
bankers and lawyers and accountants who largely facilitate and grease
the wheels for the movement of monies from the victim countries to the
financial centers of the world, including, of course, the United
States.
Finally, there's an initiative in the Department of Justice called
the Kleptocracy Asset Recovery Initiative, which was announced by
Attorney General Eric Holder in July or 2010, speaking appropriately at
the African Union summit in Kampala, Uganda. And he described this
program as having the aim to, quote, ``Combatting large-scale official
corruption and recovering public funds for their intended and proper
use, for the people.'' Now, when he was saying that, it was clear that
the intention of the U.S. policy as articulated in that Kleptocracy
Initiative is to really return money to the people.
It is a question of how do you fit the tool to the purpose. Just to
give a sense of the scale of the problem, figures are extremely
unreliable and difficult to pin down, but the World Bank has made an
estimate that something like $20 to $40 billion each year leaves
developing countries because of official corruption. So the strategy
that is used in the Kleptocracy Initiative is basically what they call
civil forfeiture, or non-conviction-based forfeiture. That is to say,
seizing corrupt assets that are laundered into the U.S. system, even
where a criminal conviction is not practicable.
But using the fiction, essentially, of a lawsuit against the
assets--what we call an in rem or against the thing claim--the U.S.
benefits from a reduced civil burden of proof. So it's more like a
regular civil lawsuit. The balance of the probability is 51 percent,
one might say--the probability that the facts as alleged are correct or
true. A criminal forfeiture would require conviction using the standard
of proof of beyond a reasonable doubt.
Now, in launching this program, the Kleptocracy Initiative, the
U.S. was doing its part in the global effort to recover and return
stolen assets that were diverted from poor, developing countries, into
the world's financial centers. And the most important instrument
probably is the U.S. convention against corruption, which was approved
by the General Assembly in 2003, and to which the great majority of
countries, including the United States, are party.
The origin of these developments goes back to the late 1990s, and
perhaps even earlier, with a series of very exciting asset return
exercises in a number of countries, particularly Switzerland and the
United States, following the toppling of a number of notorious
dictators, beginning even in 1986, with Ferdinand Marcos in the
Philippines, whose some $600 million of assets was returned to the
Philippines by Switzerland and other countries. Fujimori and Montesinos
in Peru were another example of this early period. And of course, the
most notorious, Sani Abacha in Nigeria, where almost a billion dollars
has been returned.
The lesson from these experiences--or so it was thought--was that
asset recovery efforts would generally arise from requests of new and
well intentioned, if weak, governments in post-regime change contexts.
In other words, the early experiences were you overthrow the dictator,
you get a new ruler--not a new ruler--a new government that at least is
aspiring in some sense for the rule of law and democracy, and you will
work with them as a developed country to find and to return the stolen
assets to help that country develop itself.
In the seven years of the Kleptocracy Asset Recovery Initiative,
the U.S. has seized and returned more than $600 million of corruption
proceeds. Sounds like a lot, except remember the figure $20 to $40
billion diverted each year from kleptocracy, essentially. Billions more
are frozen, in U.S. cases, including of course the Uzbekistan case that
Brian talked about, other cases relating to Malaysia, Nigeria, Ukraine,
and so on. Some of them with as much as a billion dollars at stake.
So what does DOJ do once it has seized the dirty assets? In the
normal course of civil forfeiture context, the money goes into the U.S.
Treasury, as Brian said. But the Attorney General has the discretion to
accept claims asserted by means of petitions for remission submitted by
innocent owners of the forfeited assets, lienholders, and victims. Now,
to be sure, when the victimized state itself asserts a claim, it is
able to satisfy the requirement to obtain return of state. The funds
were stolen from the state. They are clearly a victim. The assets are
theirs. They are innocent owners, et cetera. That is the very purpose
of the Kleptocracy Initiative.
And the generally reasonable assumption is that in a state ruled by
law, the returned assets will, indeed, in some fashion, be used to
benefit the people whose interest the state is supposed to represent.
But what happens when the victim country is Uzbekistan, or another
one--or Equatorial Guinea, or even other countries where you have a
more contested form of kleptocracy, such as Ukraine?
In the situation where it is the corrupt regime itself, or the
cliques that control the state that are essentially perpetrators of the
same or closely related, similar, systematic corruption, one might
think that at first the proper use--as Eric Holder referred to in
returning the stolen assets--would be to the people, as was the
intention, and that that would be able to take place through
recognition of the third category that I mentioned, victims, in the
petitions for remission, which is a suitable way for the attorney
general to return assets.
The bulk of the populations of kleptocracies, broadly speaking, are
the real victims of corruption. However, in the U.S. rules, a
definition of victim for asset forfeiture purposes basically says that
a victim is someone with a pecuniary loss of a specific amount that has
been directly caused by the criminal offense or related offense that
was the underlying basis of the forfeiture, and that the loss is
supported by invoices and receipts. So it's a very narrow concept of
victim that we have in the civil forfeiture context.
When the United States, therefore--the Department of Justice--is
trying to contend with its mandate under the Kleptocracy Initiative,
they will be in a tough spot, essentially. The law doesn't help them.
If the money is forfeited, it is rather difficult to actually return it
to the people who are the victims, and who are the proper recipients
under Holder's terms. However, the alternative--where you can catch the
money before it gets into the Treasury, and therefore the department
has much more flexibility--requires coming to an agreement with the
party that claims to own the assets that are forfeited or with the
government of that party.
And that may work. And Brian mentioned the Kazakh example with the
BOTA Foundation, where you had three governments--Switzerland, the
United States and Kazakhstan--sharing responsibility and oversight,
along with the World Bank and other entities, to distribute some $115
million to the people--to basically poor children and mothers in
Kazakhstan. However, if they negotiate, you have to assume that you
have a party that's operating in good faith on the other side, and
who's willing to comply with that agreement. And the parties we're
talking about, kleptocracies, are precisely the ones that are least
likely to be in that situation. So that's the rock and the hard place
that U.S. law now puts the Department of Justice when trying to arrange
a proper return of the assets for the benefit of the people.
Now, one point worth considering is that with regard to criminal
asset forfeiture, they do authorize the acceptance of claims from
petitions by owners or by lienholders or by victims, but victims
defined in a similar narrow sense. However, there is also additional
language in the statute that authorizes the attorney general to take
any other action to protect the rights of innocent persons, which is in
the interests of justice. This is a provision that it may be, I think
it is worth considering, worth including into the statute for civil
forfeiture, at least with regard to kleptocracy cases, and that might
well be able to boost the ability of the Department of Justice to
actually carry out the mandate that it has taken upon itself.
I'm going to stop right there.
Thank you.
Mr. Massaro. Well, thank you very much, Ken, for illuminating the
very, very deep intricacies, it sounds like, of making sure that these
assets get back to who they belong to and how often that that's not the
case, given the current legal situation.
So we'll move into the Q&A now. And I'll start with a couple of
questions.
First of all, you all brought up the role of civil society in your
talks. And I'm sure that you've all engaged with civil society in the
work you do. My question would be, what is the best way for civil
society to engage on asset recovery? What should they be targeting?
What should they be looking at? And who should they be speaking with in
order to have maximum effect?
And I'll start in the same order we spoke in. Thank you.
Mr. Davidson. Well, my reflex is that perhaps within certain
countries, civil society could create a political kernel that would be
legitimate and powerful enough that assets might be returned to them.
Now, that might involve some kind of Magnitsky-style, subjective
judgment as to who is legit and who isn't, but we're going to have to
do that at some point. I mean, we really are if we're talking about
doing this kind of thing in the first place, so there may be some
countries where we might have that.
Mr. Massaro. Brian, you have anything to say about civil society?
Mr. Campbell. I would say quite a bit. [Laughter.] You know, I
think civil society plays a role at each stage that was laid out at the
beginning. I think civil society is such a big word, so I'll flag the
media as part of civil society, plays a vital role in doing the
investigations. Attorneys or advocacy organizations, like the ones that
I work with, they are the eyes and ears on the ground in many of these
countries. And in the case of Uzbekistan, the government is constantly
trying to shut the civil society down in order to keep them from
exposing these crimes, and so it is on the exposure, but it's also on
service delivery on the other end.
So some of the recommendations that we've put forward to every
government and, to answer your question, civil society has to engage
with every government. And the fact that some governments are more open
to that than others is a problem. And I think it's something that the
U.S. Government is very open to engaging with civil society; you find
that a lot less in some of the European countries because it's an
uncomfortable space for them. But I think we need to find spaces to
make that more comfortable.
And then lastly, just on the service delivery on the other end,
once there is a way to repatriate the money--so in Uzbekistan we're
hoping for a trust just to kick decisions down the line to maybe create
a program like the BOTA Foundation in some ways.
And the BOTA Foundation used civil society, helped build civil
society in Kazakhstan to deliver basic services, health services,
women's services and such. And so I think they play a point in each
because government, really, and civil society--it's there to fill in
the gaps of government, but also to keep them accountable.
Mr. Hurwitz. Yes, I would certainly agree with the points that have
been raised before. What I might add is a couple of things. One is that
in our experience, particularly at the Justice Initiative in our
anticorruption work, our view is very strongly that civil society's
role actually precedes very much the return of the assets, that
actually the development of investigations and cases is a process that
civil society in the country from which the assets come can be an
enormous benefit.
Obviously, law enforcement has many tools that civil society does
not--subpoena power and the ability to wiretap and so on. However, law
enforcement is also very restricted in many ways, particularly when
they're trying to investigate in a foreign country that doesn't allow
them to go there, or even if it did, where it's a very complicated
world for Department of Justice lawyers who are not experts in Africa
or in Central Asia or wherever the money is from, to learn.
Civil society from those countries and international civil society,
somewhat as a mediator and an interpreter and a link, can really advise
and lead investigators from the law enforcement in the financial
centers how to actually track down information in the diaspora or which
figures are the ones to be tracked down, for example.
Civil society in partnership with law enforcement can play a hugely
important role. And we've seen that in a number of cases,
particularly--I know it's not in the region--but the largest recovery
that has actually been taken in a case that involved a settlement and a
forfeiture, which was $30 million that was taken from the son of the
president of Equatorial Guinea in Africa where civil society, both in
Equatorial Guinea and outside Equatorial Guinea, played a huge role.
Now, having done that, civil society, of course, that is a process
that helps organize civil society as well and helps educate civil
society about the process. Every situation is different in asset
recovery when you think about some of the countries--Uzbekistan,
Equatorial Guinea, Nigeria, Ukraine, they're very different political
situations. And the states may or may not be capable of some or all of
the functions that are needed in order to really return the assets in
an accountable and transparent way.
Civil society at the very minimum must be involved in a
consultative basis to at least give input to those who are planning how
assets should be recovered based on their actual real knowledge of the
country and the regime that they're dealing with.
At the same time, civil society must be enabled to be a monitor and
to really see what is happening and to make sure that even if the
country's processes and governance are not so transparent, that the
asset recovery process itself can help strengthen the forces of
transparency and openness within the country.
Mr. Massaro. Great. Thank you, Ken.
Thank you, Brian.
Thank you, Charles.
I'll ask one more question and then we'll open it up to the floor.
Ken, the idea that corruption in all these countries and the former
Soviet sphere, the idea that the forms of corruption are so different
from one another, this is really important given that they're all part
of the same international organization, the OSCE, the Organization for
Security and Cooperation in Europe, which contains second-dimension
commitments based on anticorruption and good governance, many of which
these countries have a lot of trouble upholding.
So I'd like to ask--this is a Helsinki Commission briefing, after
all--to what extent does the OSCE factor into your work? And can it
play a larger role? What role can it play in asset recovery?
Thanks.
Mr. Davidson. Well, I'm not sure how to respond to that except that
actually I think there may be some commonality in terms of grand
corruption in the OSCE countries, which is quite different from what's
going on, say, in Africa, because we've mentioned other regions. So
there kind of is a bit of a corruption model there. These are, for the
most part, ex-Soviet Union countries, so they have something in common
in terms of that. And if we look at the current threats, especially
from a U.S. national security standpoint, these are all countries where
the current Russian Government is very actively exporting its brand of
corruption. I mean, it already has, but it's reinforcing the export and
trying to keep its market share of grand corruption in these countries.
So I think we do have a lot of commonality there where the disease and
perhaps some of the remedies have a lot in common.
Mr. Massaro. Thanks.
Got anything to say on that, Brian?
Mr. Campbell. Yes, I'll say on the Uzbek case, the transactions
went right through the OSCE countries, right? Some of them went through
Russia into Latvia, which then got disbursed into Western European
banks. And so I would say the OSCE has to take a stronger role in
addressing the financial transactions and the transparency of those
transactions that go through those countries, because they're not just
going through, say, the United Arab Emirates or Gibraltar or the Cayman
Islands, they're going through Latvia and Russia. And it undermines the
security in the region if they continue to extract the resources
without putting it back into development.
Mr. Hurwitz. I probably share Charles's reaction. I'm not sure I
have that much expertise that's relevant, but I would make two points.
One is that, without being a region expert in the OSCE, my sense is,
even as between Africa, where I'm more familiar, and OSCE countries,
while, of course, there are hugely important differences, and I alluded
specifically to the political differences within the countries, but the
pattern of corruption tends to veer, I think, toward very similar
practices. When you launder money, there's a state of the art as to how
you launder it. How do you use offshores? How do you find the locations
where secrecy is most effective? How do you cover up so that it looks
like you're being open, but you're not really? These things are beyond
region.
Now, the way the money is stolen may be different. In Russia,
obviously, the privatization and sort of primitive capital accumulation
by the oligarchs is not the same process as a country I happen to know
pretty well, Equatorial Guinea, where basically you have a family that
runs the oil and the other resources in the country as a private
business. But once they're there, the way they move the money around is
actually quite similar because it is a technical question.
Second, I would say that Russia and China, which is also relevant,
although, again, not part of OSCE, are being very aggressively self-
advancing in Africa and increasingly even in Latin America and bringing
their techniques to certain governments that are welcoming exactly that
kind of behavior. And I would say specifically two of the most
important corruption cases or corruption examples in Africa, Angola and
Equatorial Guinea, are in fact countries that were at one point in the
Soviet sphere where the Russian influence educated a lot of the
leaders.
I'll just give you an example. We are--we, the Justice Initiative--
are engaged in a case addressing corruption that grew out of something
some of you may remember, the Riggs Bank investigation that Senator
Levin's commission uncovered in 2004, where Equatorial Guinea money was
being laundered by the president into Spain. Well, it turns out the
people who are running that laundering enterprise, and it is a large
one, are all from the OSCE, from Ukraine, from Russia, from Lithuania
and Hungary and so on. And they have these techniques and the
Equatorial Guinean Government or the Equatorial Guinean family,
President Obiang, were very eager to benefit from these techniques.
So we're finding increasingly that actually this process is not
only international in the sense of going from, let's say, OSCE to the
Western centers where they want to spend their money, where they want
to live and educate their kids, but also in terms of the other economic
channels. So it is really a transnational problem in almost every
sense.
Mr. Massaro. It sounds like, in many ways, the sharing of best
practices in how to be corrupt has been more advanced than the sharing
of best practices in how to fight corruption.
OK, with that we'll open the floor. Who would like to ask the first
question? Right back there.
Questioner. Tatiana Hatchin [ph] for Ukrainian Service of Voice of
America. And just because I'm from Ukraine, I would like to hear more
about the Ukrainian case and Ukrainian frozen money. We know the
Yanukovych regime stole around $100 billion, so what is the destiny of
that money if there is any chance to bring it back again?
Mr. Massaro. Same order?
Mr. Davidson. Same order? Oh. [Laughter.]
Mr. Massaro. Got anything to say to that, Charles?
Mr. Hurwitz. You're always the expert.
Mr. Massaro. You can opt out. Reverse order next time?
Mr. Davidson. No, no, I won't mention any names, but actually
Ukraine is a classic example of a problem that we've talked about here,
which is, is the current government of Ukraine equipped to worthily
process repatriated funds? And is that euphemistic enough? [Laughter.]
Mr. Massaro. Anybody else like to speak to that?
Mr. Campbell. I'll just say briefly, not being an expert on the
Ukrainian case, that in addition to the challenges of repatriating
assets, I'll say that Ukraine has a very robust civil society engaged
on these issues. And so to put out a hopeful message, I think that it's
a good model of how civil society can keep an eye on the government and
keep pressure on. This case has gone on for more than 10 years, from
what I understand, in the Ukraine.
And I will tell you that I recently went to the Ukraine to meet
with some of these groups to learn lessons from them frankly on how to
keep the civil society efforts moving forward. So while I can't speak
to whether or not the money will ever return on any of the cases we're
working on right now, because they're so complex, I can say that there
are great organizations in the Ukraine that will keep the pressure on,
and we should find ways to support them.
Mr. Hurwitz. Well, I will join my colleagues here in saying I'm not
an expert at all, but I'll talk anyway.
Mr. Massaro. Much appreciated, Ken. [Laughter.]
Mr. Hurwitz. Well, let's not jump the gun. These assets have not
been seized yet. Some of these assets have been frozen, some of the
frozen assets have actually been unfrozen. A lot of the difficulty, as
I understand it, is that the Ukrainian Government has not been able to
put together a legal regime and a legal capacity to make the proper
requests and to actually work with Western countries to identify and to
make demands upon the assets that have been stolen.
I am sure there's many people to criticize; there's blame that goes
around quite broadly, I'm sure. But one of the problems really has been
on the lack of progress in Ukraine to create the legal mechanisms that
allow this.
And I might mention also that with regard to U.S. seizures, U.S.
forfeitures, we have a fairly strict notion of money laundering, and
money laundering is the main tool that is used here--that is,
laundering introducing the proceeds or the tools of a crime, committed
perhaps elsewhere, into the U.S. financial system. So the laundering is
the crime, but in order to prove the laundering you have to prove that
the proceeds come from an activity that is unlawful both in the country
where it took place and in the United States. This is a high burden,
especially in a country such as Ukraine where the legal code does not
actually fully reflect or do justice to many of the kinds of crimes,
particularly what I call primitive accumulation of assets in the hands
of oligarchs. So this is a very real problem just in terms of setting
up a legal regime.
Not all developed countries do have such a strict notion of
criminality requiring that the crime actually be a crime in the country
where it took place, but many do. And the United States, of course,
being such a key player, is one.
Mr. Massaro. Next question? Right there in front, yes.
Questioner. Ken Meyercord, a retiree.
How about using recovered assets to pay off the foreign debt of a
country? Theoretically, all the people of a country are responsible for
their country's foreign debt and so this would be a way of returning
the money to the benefit of the people, albeit indirectly.
Mr. Massaro. Anyone like to address that?
Mr. Campbell. I'm happy to take that. You know, it's an interesting
idea. I think one of the challenges with that is in the Uzbek case. And
I'll really stick to that case on this one. They are currently seeking
loans of $750 million for agriculture where the forced labor is being
used, then you have the corrupt network. And that's being sought by the
current president and everybody else. So that debt then gets
transferred back to the people of Uzbekistan who are the forced
laborers out there harvesting the cotton that then gets sold in the
international market at $650 million annually, then, which could go to
paying back the debt or whatever foreign loan, disappears into a
Selkozfond that's controlled by the president and is off the books.
I think as a first step what we would need to see is a lot more
budget transparency in each of these countries. And I think one of our
challenges there has been that the lending institutions--and in
particular I'm talking about the big ones like World Bank--they aren't
taking this issue seriously. They're not taking the budget transparency
issue seriously in the OSCE countries. They're giving out loans without
putting budget transparency requirements. And they don't double check
to see what's happening with the company revenues that are coming out
of whatever they're trying to loan into.
So I think that down the road when you have your democratic
governments and you have more representation, it's something that could
be on the table. But in this case, what you have is, you have them
doing corrupt transactions with the World Bank to steal money, frankly.
And so I wouldn't necessarily think that those international loans are
not themselves facilitating corruption, because I think in many cases,
like in Uzbekistan, they are.
Mr. Massaro. Charles, please go ahead.
Thanks, Brian.
Mr. Davidson. Yes, the danger of that notion is that the funds that
were looted in the first place--we may have facilitated, as this
question we were talking about earlier--enabled the looting in the
first place. And so if we then appropriate those funds, it might even
be the same institutions, banks and whatnot, that have facilitated the
looting in the first place that then repay the loan via this mechanism.
That's probably not something with a great political future in terms of
the promotion of freedom, democracy, and good governance.
Mr. Massaro. Next question? We're up here. Thank you.
Questioner. Actually, this is more of a response to your point
about what the OSCE can do.
Mr. Massaro. Great.
Questioner. Here's a very concrete thing the OSCE can do. It can
tell Latvia to stop laundering the money from Uzbekistan and to stop
permitting all these wealthy Uzbek leaders' kids to go to school in
Latvia using the stolen money from the people of Uzbekistan. If the
rest of the OSCE would bring peer pressure to bear on Latvia to stop
facilitating the capital flight out of Uzbekistan through Latvian banks
and allowing the kids to go to school there and the secret police to
have all sorts of connections through their secret police, that would
be a great step forward.
Mr. Hurwitz. Can I make a----
Mr. Massaro. Got you. Yes, please, Ken.
Mr. Hurwitz. I would just say that's a great idea, but we could
expand significantly the number of countries that one might want to
recommend that to.
Questioner. Starting small, starting small.
Mr. Massaro. Yes, yes. Latvia might withhold consensus, but we'll
see. [Laughter.]
Yes, please, please.
Questioner. Thank you very much. From a national security
perspective, at what point can the U.S. Congress and the Helsinki
Commission weigh in and come up with complex sanctions, given the fact
that we're talking about two problems here? One is about turning dirty
money back, and another one is about actually preventing the new ones
from coming.
So if we have sanctions, clear sanctions, if we can have identified
people from Azerbaijan, Uzbekistan, oil-rich countries, compelling
articles about identifying [inaudible] if we come up with the list of
those people and prevent them from entering our country and stealing
our democracy, then I think half of the problem will be gone, no?
Mr. Massaro. Would you like to speak to that?
Mr. Davidson. Good idea.
Mr. Massaro. Great.
Mr. Davidson. There is perhaps legislation brewing that would go in
that direction. I mean, the Global Magnitsky Act actually gives
considerable discretionary powers to the U.S. Government to do such
things. But there are initiatives to go further than that. The idea, I
mean, it involves subjective judgment calls and some people have a
problem with that. But we're either going to do something about these
problems or we're not. I think we have to be comfortable with the
subjectivity. And it's something Global Magnitsky proves, that we can
be comfortable with that and pass legislation of that nature. So we'll
see what happens.
Mr. Massaro. Yes, please, Ken.
Mr. Hurwitz. Yes, at the risk of being repetitive, I can't
overestimate the importance of beneficial ownership transparency of
corporate and other similar vehicles. And this is a question that is
subject to various proposals for legislation. It is a question that has
broiled up many of the states that make a fair amount of money from
basically offering the kinds of services that Mossack Fonseca offered
in Panama. So requiring beneficial ownership to be disclosed in the
incorporation and continuing, you may not always get the truth, but you
do get a cause of action if there's a lie. That's something.
The second thing is there are many people who do not have a
requirement under U.S. law to know who their customer is, to know who
the beneficial owner of their customer, and most notoriously is the
real estate industry. Real estate brokers, real estate sellers do not
have to know who is buying their property. It can be an empty company
from Virgin Islands or Panama or Cayman. Those kinds of inclusion of
real estate and requirement across the board of beneficial ownership
disclosure would go a huge way in making progress on the issue.
Mr. Massaro. Great, thank you.
I think we can do one more question. OK, this guy got his hand up
real fast, so let's give it to him.
Questioner. Thank you. Hi. My name is Lloyd A. Wentz [ph], and I'm
an intern with Congressman Engel's office.
Mr. Massaro. All right. He's a good guy.
Questioner. Thank you. I was wondering if you could speak briefly
to existing outlays for democracy promotion programs, such as the
National Endowment for Democracy [NED], the International Republican
Institute and others, and what the record is for how they've been able
to foster civil society and the degree to which that has helped with
corruption?
Mr. Massaro. Would you like to start?
Mr. Davidson. Sure. Well, actually, I'm very happy to talk about
that. On the NED front, NED has gotten extremely interested in this
specific issue of anti-kleptocracy. And they have actually voted at the
board level and now have to report to Congress on what they're doing
about the problem. So they have a little task force that they've put
together. And my group works with them very closely actually.
But they have recognized this problem of grand corruption as
something that really undermines freedom and democracy and what they
have been trying to promote over the years. So it goes back, their
interest, a couple of years, but I think it's a positive development,
and not just in terms of NED's resources, but in terms of legitimizing
the notion of how important this is in the policy community, because
they're quite influential as an intellectual force with their ``Journal
of Democracy.'' Their board is very prestigious and very well-connected
and influential in policy circles. So NED's interest is, I think, a
very positive thing.
Freedom House has also gotten increasingly interested in this
question. Open Society Foundations, which is a huge organization, has
gotten interested in this. And I think it's also becoming increasingly
bipartisan as the national security aspects of this become more and
more salient. And, of course--well, not of course, but it's not
surprising, shall we say--that what's going on now with the Russia
influence investigations has been goosing all of this immeasurably.
Mr. Massaro. You guys like to say anything to that?
Mr. Campbell. I'll just say, from a practical perspective, there's
very little that the NED or institutions like that can do on the ground
in many of these countries right now. And so I think one place where
Congress could really help in the sense of getting civil society and
groups like NED involved is to really highlight the human impact of
corruption more. I don't think it's really talked about. It is seen
more as financial transactions and, you know, rich people losing money
essentially is how the world sees it.
But in truth, what we're talking about are people who have been
tortured for not wanting to participate in grand corrupt schemes,
people who have lost their homes, their lives, people sent into exile.
And I think, to the extent that NED and the others and Congress in
their democracy and human rights funding can really help draw those
policies together, I think we'll have a more comprehensive solution to
the problem on the ground.
Mr. Massaro. Anything, Ken?
All right. Well, thank you all very much for coming. We will
conclude the briefing there. See you later. [Applause.]
[Whereupon, at 11:32 a.m., the briefing ended.]
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