U4 Helpdesk Query

U4 helpdesk reply

Enclosed please find the summary of responses to the U4 Helpdesk query on asset recovery and freezing as submitted by and for the attention of Sec. of State Clare Short. The query is subdivided into three subheadings. In addition, there a two longer appendices.

Appendix 1: Brief on Civil forfeiture actions as alternatives to criminal law based proceedings
Appendix 2: List of resources and literature consulted

U4 Helpdesk Team contributions by:
A. Hakobyan, C. Schlippe, J. Pope, Transparency International, London

External experts contributed to the discussion:
Luis Moreno Ocampo and Guillermo Jorge, Transparency International, Argentina
Timothy H Daniel, D J Freeman Solicitors, London, UK
Mwalimu Mati, Transparency International, Kenya
Jeremy P Carver, Clifford Chance LLP, London, UK

Repatriation of assets diverted and stolen by top-level public officials and politicians through corrupt practices has become a pressing issue to many developing countries. However, success in repatriation has been scarce so far. Unfortunately, it is not often that the repatriation of the illegal funds to the country from which they were stolen is marked with success.
Among the more successful recent recovery efforts cited by questioned experts are those of the Switzerland-Peruvian governments in the case against Vladimiro Montesinos (as detailed below). There are other major cases, where partial or conditional recovery was achieved. Examples of these are also summarised below (Abacha and Marcos cases), along with constraints that hindered the recovery process.

I.1. Montesinos case: Background and Current Status
Vladimiro Montesinos, former head of Peruvian National Intelligence Service, fled Peru in September 2000 (later arrested in Venezuela and extradited to Peru where he was imprisoned), right after evidence of his illegal activities became public. Less than two weeks after, the Swiss Magistrate Prosecutor Ms. Cornelia Cova received 5 suspicious transaction reports and immediately started money laundering proceedings in which ordered the freezing of the reported accounts and additional disclosure amounting to around $113.6mln in different accounts. A formal mutual assistance request explaining local charges against Montesinos and showing the link between the charges and the frozen money followed shortly - leading to repatriation. The information about the criminal origin of the frozen funds was obtained on the basis of a special Peruvian statute that allows the prosecutors to bargain information in exchange for impunity of accomplices.
So far, over $75mln have been recovered. The money was transferred in August 2002 to an account belonging to the Peruvian National Bank at Citibank in New York. This was possible mainly because of the establishment, in both jurisdictions, of the criminal origin of the monies. The investigations carried out by the Examining Magistrate's Office in Zurich revealed that the frozen funds belonging to Montesinos originated from corruption-related crimes.
Further assets remain blocked in Switzerland. Peruvian requests for legal assistance aiming at the return of these funds are currently pending in Zurich.

Success Factors in the Montesinos case included:
The "spontaneous information" system, by virtue of which Swiss law enforcement authorities can act on behalf of a country without prior request. This is a legal requirement that is not in place in many offshore centres with strict secrecy laws.

• The media coverage of the case, which increased legal and reputation risks for Swiss financial institutions.
• The sensitiveness of the Swiss banking ambience: an impact of the public discussion held in 2000 regarding the participation of the Swiss financial institutions in the Abacha scandal.
• The Peruvian legislation allowing evidence-gathering by means of bargaining.
• The role of the well-trained public officials (which was fundamental in the Cayman scheme whereby the Peruvian authorities discovered a fake scheme in which funds appeared to be deposited in Cayman Islands. However, before initiating proceedings, the authorities discovered counter-documents that proved that the funds were deposited in a Peruvian Bank and the money was frozen in Peru).
  [source: L. Ocampo]

It has also been noted, that it was crucial to understand the network of corruption and corrupt officials before progress could be made on identifying stolen assets. A major break in the case came when a local Montesinos account was uncovered leading to overseas money transfers. The success in identifying and seizing stolen money overseas was tied to the level of cooperation the Peruvian investigators received from other jurisdictions. Dr. Calderon, Attorney General of Peru has noted that Switzerland and US had been particularly helpful in joint investigation efforts.
[source: N. Calderon]

I.2. Abacha Case: Background and Current Status
The Government of Nigeria has so far succeeded in recovering about $1bln of the estimated $4-5.5bln looted by late dictator Abacha through stealing directly from the Central Bank and taking bribes for inflated public contracts and other privileges. The recovered amounts (transferred to Government's account at the Bank for International Settlements) originated from the diversion of funds from the Central Bank. The Nigerian investigators are sceptical about the likelihood of recovering the bribe monies. Since Obasanjo's government came to power, requests for mutual assistance have been submitted to Liechtenstein, Luxembourg, Switzerland, UK and US. Switzerland has been particularly cooperative. It provided mutual legal assistance based on national law and a declaration of reciprocity. In addition to freezing $660mln, the Swiss judicial authorities handling the case have also indicted Mohammed Abacha, Atiku Bagudu and Ismaila Gwarzo under Swiss law for money-laundering, fraud and taking part in a criminal organisation.
Further $1.3bln is currently held in Switzerland. Judgement is awaited from the Supreme Court relative to a series of proceedings instigated by the Abacha family. It is hoped that once the judgement is taken, it will be possible to move forward with attempts to recover the funds.
[source: T. Daniel]

Constraints identified in the Abacha case include:

• The mutual legal assistance route, although proved effective in some jurisdictions in the Abacha case, has hindered prompt recovery in many others, including UK.
• The choice to favour criminal over civil action led to some backlashes. The case has demonstrated that civil remedies can be used as a powerful weapon to hit directly against the perpetrators of corruption. The English courts are a particularly good place to instigate such civil actions where parts of the proceeds of the corruption have flowed through England (for details of this, please refer to section III.1.). In the Abacha case, the wrongdoers were ordered to give a full account of what had happened to all the monies that had been corruptly taken. The threat of having to comply with this order, together with the other steps that had been taken by the Nigerian Government, put sufficient pressure on the wrongdoers to bring about negotiations which led to a settlement being announced in April 2002.
• Unfortunately, the wrongdoers have reneged on the settlement, preferring, it seems, to take their chances with the litigation or, more likely, the hope that the present government in Nigeria will be replaced by a regime less inimical to their interests.
  [source: T. Daniel]
• Recovery will, in a great many cases, only be possible if Nigeria convicts the Abacha family and their associates for corruption and related crimes and links the funds held overseas to particular crimes committed in Nigeria.

I.3. Marcos Case: Background and Current Status
Nearly 17 years after Ferdinand Marcos left office faced with allegations of misappropriating at least $5bln (and, according to some estimates up to $10bln) of state assets, the case against Marcos family members is still in process. A Presidential Commission of Good Government (PCGG) was formed three days after he fled the country in 1986 to recover Marcos linked assets in the Philippines and abroad. In an unprecedented move in March 1986, the Swiss Federal Council imposed a unilateral freeze order on Marcos's assets in anticipation of the Philippine government's claims, following a request by De Guzman, a Filipino banker who had powers of attorney from Ferdinand and Imelda Marcos, to transfer the assets into an Austrian bank controlled by him. Following the discovery of the so-called 'Malacanang documents', which detailed the financial arrangements between Marcos and Swiss banks, the Philippines requested mutual legal assistance, including the continuation of the freeze order, from the Swiss authorities and pressed criminal charges against Marcos.

Philippines National Bank (PNB) has reported that the controversial escrow account of the Marcos family at the PNB amounted to $676.1mln as of December 31, 2002. When the fund was discovered by the PCGG in 1986, it was only $356mln. For years, the Philippine government has been working to retrieve the Marcos deposits in Switzerland. Following a request by the Philippine government for anticipatory restitution of frozen assets in 1997, the Swiss Federal Supreme Court ordered the funds - then already $567mln - to be transferred to custody of the Sandiganbayan (the anti-graft court). The fund was then placed in an escrow account at the PNB, pending final decision on its ownership. In September 2000 the anti-graft court's first division declared that the escrow fund belongs to the government and should be forfeited in favour of government. However, the five justices of the Sandiganbayan special division reversed that ruling in February 2002 saying that since the ownership issue is still unsettled, there could be no valid presumption that the Marcoses acquired the funds illegally. PCGG was representing the government in the case.

Figures of other funds recovered (if any) remain questioned. According to Jovito Salonga, who served as the first head of the PCGG, as of May 2000, the government had recovered almost $2bln. Salonga alleges that even before taking office in 1998, President Joseph Estrada "had been peddling the myth" that nothing has been recovered "in the desire to convince the nation that it would be better to reach a compromise agreement with the Marcoses than incur more litigation expenses." Haydee Yorac, 11th chair of PCGG, has too reportedly announced that the government has recovered about $2bln of estimated $5-10bln.
[sources: Asia Week, 11/08/2000 and Manila Times, 02/08/2002]

Constraints identified in the Marcos case include:
- Haydee Yorac, 11th Chair of the PCGG had announced in 2002, that when she assumed office, records at the commission, estimated to be about two tons, were in disarray and many documents were missing. She also said she suspected corruption of former lawyers and officials was another reason for the slow pace of recovery.

• In December 1989, the PCGG entered into a finder's fee (10%) contract with an Australian investigator, Reiner Jacobi, to search for suspected accounts held by Marcos in Switzerland that had remained undisclosed. This step was deemed necessary due to the perceived non-cooperation of the Swiss authorities in the tracking of Marcos's assets. It was Jacobi who first exposed that Swiss authorities, particularly former Zurich District Attorney Peter Cosandey, had been conspiring with Swiss banks to hide the Marcos Swiss deposits from the Philippine Government. This cooperation ended with mutual allegations: Jacobi sued the PCGG in 1999 for failing to vigorously act on information supplied in relation to the discovery of Irene Marcos Araneta's account at UBS. The PCGG has accused Jacobi of forgery and various misdeeds. Later in 2001 and 2002 the PCGG failed to act on information supplied by Dr Chaikin, Jacobi's attorney, which identified witness Marie-Gabriel Koller (a former KPMG Zurich employee), who had secretly testified before the French Parliament alleging that Fides, predecessor of KPMG Zurich helped Credit Suisse launder at least 400mln in Marcos deposits in 1986 through an overnight transfer - prior to the Swiss freeze order. The PCGG's was concerned that acting on the information sourced from Jacobi would provide justification for him to press his finder's fee contract.
• Critics of PCGG suggest that it had hidden interest and motives, other than concern with Jacobi's fee, for not acting upon the information.
• Other constraints included issues with criminal conviction and delays caused by judicial loopholes in the system well exploited by Marcos family's legal representatives.

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The success of the outcome of asset recovery in each particular case depends on a variety of factors and circumstances. In this section, an attempt is made to highlight some key factors that can facilitate or hinder asset recovery efforts.

II.1. Political Will and Commitment to Reform

• A strong and committed political will in both applicant and respondent state is essential for the successful outcome of the recovery effort.
• Attempts to prevent the diversion of future funds are essential, such as genuine efforts by applicant governments to tighten their financial controls and strengthen the institutional and legal anti-corruption mechanisms. Reluctance to do this, will not only lead to further looting of assets, but also seriously undermine the credibility of the country when requesting mutual legal assistance.
• The new government may be "recognised" by the international community but this may not automatically mean that it will gain the cooperation of foreign countries. The political standing of the new government and its bilateral relations with other states are important.
  
• Applicant governments may find it difficult to comply with norms of international mutual legal assistance, including the human rights standards, in cases where a dictator has subverted the legal infrastructure of a country. The absence of necessary constitutional framework, of independent and non-corrupt judiciary, prosecution and law enforcement may thwart the recovery process.
  
• A common risk is when a government decides to embark on a recovery effort, but their internal political conditions and pressure from different interest groups do not allow an unrestricted effort. For example, it is alleged that the Philippine authorities have largely ignored and failed to act on information supplied in 2001, that KPMG Zurich predecessor helped Credit Suisse launder at least $400mln in Marcos deposits in 1986 to escape a Swiss freeze order (see section I.3). Reportedly, US SEC and Department of State are now looking into the charges against KPMG Zurich.
• Corruption within the applicant state can hinder the process: as announced by the head of Philippine Government body tracking down the Marcos assets the slow pace of recovery was due to corruption and ineptness of former lawyers and officials.
• Where the government of the respondent country does not have confidence in the funds being returned to a properly regulated fiduciary environment, there can be at least the appearance of a reluctance to become actively involved in a process that could see the funds simply misappropriated once again. This had been one of the problems for the Swiss when they wanted to repatriate funds to the Philippines. In the Nigerian case, Nigeria has endeavoured to avoid this problem by having repayments made to the Bank of International Settlements.

II.2. Financial Resources and Expertise

• Lack of experience and confidence in handling the asset recovery requests can lead to subsequent delays and refusals.
• It is important that the applicant governments have access to assistance in meeting the legal and other technical requirements of respondent states and leading bank centres, such as development of accessible databases, joint seminars, legal help, etc. A number of respondent governments are starting to undertake such initiatives, such as the Swiss.
• Sometimes applicant states concentrate exclusively on the extraterritorial investigations, while neglecting the basic preparatory work at national level, which in turn can delay the international recovery efforts.
• Given the lack of sufficient expertise many applicant governments are outsourcing the important investigatory and legal functions to private lawyers operating out of the respondent countries.
• Suggestions have been voiced for the UN giving home to a structure able to provide guidance and technical expertise to applicant states. One function performed by such a mechanism could be global case management - assisting applicant states on the locus of civil and criminal complaints and other issues. The neutrality of the organisation would make the case management equally acceptable and credible to both sides.
  [source: B. Ige]

II.3. Legal Framework

Domestic Level

• Traditional legal doctrines such as the concept of state sovereignty and immunity doctrines may have the unintended effect of providing "legal cover" so as to assist corrupt political elites in plundering their economies.
• One of the most common obstacles is the need for criminal conviction, evidence and connection between the specific crimes and money, with often difficulties in establishing individual criminal acts (e.g. Indonesia and Sukarno).
• In this context, easing the burden of proof regarding the illicit origin of the proceeds (as it is recommended by art.5 of UN convention of 1988 in the context of drug related cases) is a suggested measure. Some national legal systems already provide such an easement of the burden of proof not only with regard to drug- but also to corruption proceeds. This must be balanced with appropriate human rights guarantees.
  [source: M. Pieth]
• Introducing legislation whereby any unexplained increase in wealth by a public official constitutes prima facie evidence of a criminal offence in the absence of a credible explanation is another measure to consider (examples include Hong Kong and India).

International cooperation level

• Provisions on seizure, forfeiture, confiscation and reallocation of corruption proceeds have to be made more effective. Relevant provisions of the OECD Convention on Combating Bribery in International Business Transactions may not be stringent enough. In this regard the COE Convention 141 might serve as a reservoir of additional ideas. In addition, the draft UN Anti-Corruption Convention contains relevant conditions (the final scope and content of the relevant articles is subject to the 3rd reading later this year).
  [source: M. Pieth]
• When initiating international proceedings, it is important for the applicant state to consider which avenue best suits the particular case in a particular respondent jurisdiction, such as pursuing criminal law based proceedings or civil actions (for comparative analysis of this, see section III). Generally, it is argued that civil action is recommended when prompt recovery as compared to punishment is the primary objection for the applicant state's effort.
• Implementation by national governments of OECD recommendation that foreign corruption be treated as predicate offence for the application of money-laundering laws can facilitate the process.
• Introducing provisions, as already done in certain countries, whereby the courts would no longer interpret the dual criminal liability principle as meaning that the same criminal legislation must be applicable in both the applicant and respondent countries alike: the conduct being prosecuted by the applicant country should simply have to constitute a criminal offence of some description in the respondent country for the latter to be able to respond positively to the request for mutual assistance.
• Sometimes a dictator is deposed and the State brings into play a new constitution and laws, which retrospectively criminalise "acts of spoliation" by the former leader, but many countries will not recognise retrospective criminal provisions.
• Third party claims (non-governmental) on the same assets may complicate the recovery process. Examples of this are cited by experts in documentation of the Marcos case.
  [source: D. Chaikin]
• In countries which continue to equate the dual criminal liability requirement with identical criminal legislation, accused persons still benefit greatly from differences in the definition of offences. Even a small and insignificant difference between the applicable laws can be enough for the respondent jurisdiction to refuse a request for mutual assistance.
• Some respondent country authorities confine themselves to the strict terms of the request for assistance - nec eat judex ultra petita - to such an extent that, if asked to seek out the documents concerning a bank account where the proceeds of crime are hidden, it may merely forward the documents associated with the account even if it discovers that the proceeds have been transferred to another account in the same country. As a result the applicant authority will have to submit a further request and the funds remain at risk of being moved elsewhere.
  
• Some respondent countries and authorities refuse the seizure of the indirect profits and indirect benefits of crimes (such as providing a corrupt official with percentage of share capital of a firm set up to carry out a corruptly won public contract). Such rules create obstacles in corruption related asset recovery cases.
  [source: P. Bernasconi]

II.4. Banking Centres Regulation and Money-Laundering Aspects

• Prompt action and cooperation on behalf of the respondent government and its financial institutions is fundamental for success.
• Major banking centres, such as Switzerland, UK and US, use different procedures. There are no accepted international norms. Common guidelines and procedures for dealing with asset recovery claims are much needed.
• Asset tracing and recovery is obstructed by laundering of funds through offshore banks in jurisdictions imposing bank secrecy. Clear guidelines establishing when government interest in tracing and recovering foreign assets should override privacy claims of bank depositors would help.
• In some cases banks can go even further than bank secrecy provisions and offer use of corporate vehicles to protect the interests of their clients (as cited to have happened in the Marcos case through Liechtenstein Foundations).
• Where applicable, applicant states must consider civil action against intermediaries such as financial institutions.
• Some jurisdictions are setting new trends and are much more willing to assist: in the Abacha case both Switzerland and Jersey have launched money laundering investigations of their own, which has resulted in prosecutions of financial institutions within those countries.
• A regulatory approach in containing money laundering, through preventing abuse of the financial system for the purposes of money laundering and the creation of a paper trail (a precondition for investigative work), should be implemented. These include the "know your customer" rule and "due diligence" provisions with specific measures aimed at increasing compliance with the rules.
  
• A sanction based approach in containing money laundering through making corruption a predicate offence to money laundering (which is not the case in a number of countries) should be enforced.
  [source: M. Pieth]
  
• Many offshore countries' authorities interpret the proportionality principle broadly when they weigh the different interests by giving greater weight to the private interests of the persons concerned, particularly when they are banking or trust professionals, than to those of the foreign authority conducting the investigation (an example includes the Liechtenstein authorities refusal of foreign request for assistance on such basis in a serious corruption case).
  
• Certain offshore countries still interpret the "political offence" exception in such a broad way as to refuse requests for mutual assistance in corruption proceedings against politicians who claim immunity as arising from their official position.
  [source: P. Bernasconi]
  
• The "politically exposed person" should serve as a stricter due diligence standard for "know your customer" purposes (already implemented in Swiss domestic law; agreed within the G7 Financial Supervisors and included in the private initiative of the Wolfsberg Group in both private and corresponding banking).
  [source: L.Ocampo]
  
• A positive development is that the Swiss Federal Banking Commission has imposed tougher regulations on financial institutions, including increased surveillance of "higher-risk business relationships". The Commission has reported that the changes were based on "the experiences" acquired" during handling of money laundering cases linked to Abacha and Montesinos. The rules include, based on consideration of risk posed for wrongdoing, keeping of tabs on "high-risk" clients, undertaking of "additional investigations", such as aimed at determining the origin of funds, as well as stricter identity checks and other measures.

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Amongst the alternatives to more commonly used criminal law based procedures are the i) civil and ii) money-laundering frameworks.

III.1. Civil actions framework
The trend now appears to be fast developing to review laws to provide for civil forfeiture orders, as conviction based forfeiture laws have their limitations. Such laws are dependant for their effectiveness upon securing a conviction against a defendant. Plus, they contain a requirement that there must be an actual or imminent charge against a person whose property is sought to be restrained. Because of the high standard of proof beyond reasonable doubt, it is not often that a prosecution can establish the extent of the link between a rich criminal's lifestyle and how much of it is financed by his or her criminal conduct.
The alternative, civil forfeiture mechanism (with the civil standard of proof on a balance of probabilities) should be designed not for purposes of securing a conviction on a lower standard but rather to target those assets which are identifiable as proceeds of criminal activity. In effect, the criminal standard for conviction in relation to a crime remains, but the civil standard applies for purposes of recovering the proceeds of crime. There are now a rising number of jurisdictions that are enacting legislation permitting civil forfeiture of assets proved on the civil test to be the products of criminal activity. USA has had civil forfeiture laws since 70s (on recent developments in US, see appendix I); others have introduced such mechanisms too (UK, Ireland, Italy, Antigua and Barbuda and others).
Concomitant with civil forfeiture laws is the question of providing in modern legislation the reversing of the onus of proof (as we generally find in laws on drug trafficking).
[source: C. Jallow]

Advantages of civil actions: English Courts in the Abacha Case
The mutual legal assistance route can be very effective, but can also be a long and tortuous process. There are many opportunities for the target of the investigation, who will be armed with the proceeds of his corruption, to use part of those resources to impede and delay by judicial means the mutual assistance process. The Abacha case demonstrated that civil remedies can also be used as a powerful weapon to hit directly against the perpetrators of corruption. The English courts are a particularly good place to instigate such civil actions where parts of the proceeds of the corruption have flowed through England. There are two particular benefits of taking such action in England:

• Procedurally, it is possible, as happened in the Abacha case, to obtain orders directly against banks that have handled the proceeds of the corruption, ordering them to disclose full details of the accounts they have held and not to inform their customers that they are doing so. This enabled a very good picture of Abacha's dealings in the UK to be built up before substantive proceedings against the wrongdoers were launched.
• Substantively, a case against the wrongdoers can be based upon the concept of constructive trust. This means that anyone who has knowingly received or assisted in a transmission of dishonestly acquired funds will be liable to the full extent of the funds he has received or dealt with. In the Abacha case therefore, although no more than $30million or so remained in the UK, the claim that could be launched in England totalled $1.3billion, the full amount that had at any time passed through the country.
• In the Abacha case the English court also ordered the wrongdoers to give a full account of what had happened to all the monies that had been corruptly taken. The threat of having to comply with this order, together with the other steps that had been taken by the Nigerian Government, put sufficient pressure on the wrongdoers to bring about negotiations which led to a settlement being announced in April 2002 (the wrongdoers later reneged on the settlement, see section I.2 above).
  [source: T. Daniel]

'Mareva' Injunctions
Many jurisdictions provide machinery whereby a pre-judgment attachment can be obtained by means of a civil action. In England, and other jurisdictions still close to it, it is known as a 'Mareva' injunction. Such an attachment usually requires likely existence of assets within the jurisdiction (now, even outside), a claim to such assets plus a reasonable fear of dispersal if proceedings were started without an attachment being made. The claimant has to file the intended form of proceedings/claim form, plus, a sworn statement demonstrating the necessary elements. A judge will often consider the application as a paper exercise, and decide accordingly. Once granted, the order is served on the person holding the asset (typically, a bank) requiring them to identify the asset and not part with it pending further notice.
[source: J. Carver]

Once one starts obtaining disclosure of bank statements, the amount of information escalates rapidly as one begins to see other parties to transactions. It is then usual to add these additional parties into the proceedings and to obtain further orders in respect of their bank accounts. Thus, the institution of civil proceedings very often has a "snowball effect" which will lead one rapidly to assets or at least a trail.
[source: T. Daniel]

Advantages of the proceedings include:

• The applicant state is not dependant on invoking the more cumbersome authority of the state where the asset is located.
• The application can be made without any 'tipping off' to the assumed corrupt official. If it fails, there has been no public exposure of the State's interest.
• If the order is made, and in due course judgment in favour of the State is given, the State will be able to recover the full amount from the blocked assets; whereas a State seeking recovery via the authorities of the host State, may in fact receive nothing even if the criminal proceedings were successful because the confiscated assets would remain in the respondent state.

Disadvantages include:

• It is inevitably expensive. Whereas the authorities of the respondent state will normally act at their own expense in pursuing criminal law measures, with the applicant state bearing a proportion of the external cost incurred by the host, the applicant state will bear the entire cost of civil proceedings. This can be very heavy, particularly in hotly defended proceedings. Only if the proceedings conclude successfully for the state can it be expected that a court will order recovery of costs out of the blocked assets.
• The applicant state, like anyone obtaining a 'Mareva' order, will have to give an undertaking to indemnify anyone who can demonstrate loss caused by the unsuccessful attachment of that asset. This is not an insignificant risk, and may create problems as to how, constitutionally, an applicant state can formally indemnify for such losses.
• The proceedings can be very long. Although a 'Mareva' injunction can often be obtained very quickly indeed (i.e. same day), obtaining judgment can take a long and expensive time, including appeals, etc.
• In commencing proceedings, the applicant state submits to the jurisdiction of the respondent state's courts for the purpose of all matters within the scope of the proceedings; and can be counter-sued by the applicant official. These issues will then be resolved before an applicant court, with probably publicity. If the respondent state's criminal law machinery were invoked, the applicant state remains outside the jurisdiction, and cannot be sued.
• One aspect that was stressed is the greater willingness of states to try to recover assets diverted from a state into the hands of corrupt officials has spawned afar from reputable 'industry' of those purporting to assist governments on a 'no-win no-fee' basis. Experience to date suggests that these middle-men, many of whom appear to be linked to US lawyers, should be avoided.

Jeremy Carver, has had experience in representing Pakistan in both the UK and Switzerland in 1998 and will be able to provide additional input upon request.
[source: J. Carver]

In addition, please refer to the attached separate brief on comparative advantages and disadvantages of civil actions (Appendix I), drawing on the promising framework developing in South Africa and USA, as examples. South Africa in particular has adopted dual forfeiture approach allowing both criminal and civil forfeiture as well as leaving the choice open as to which method is best suited for the particular case.

III.2. Money-laundering framework
Although standards of evidence are usually higher than in civil proceedings, the money-laundering framework is, in the view of some experts, the most accurate system to address the issue because:

• A criminal case cannot be stopped by bank secrecy rules.
• Jurisdiction over money laundering schemes is far-reaching (almost all countries recognise that, for jurisdictional purposes, it suffices that a financial transaction pass through its territory).
• There has been much work done in terms of harmonization of domestic rules around the world.
  [source: L. Ocampo]

In this context, suggested reforms include the implementation by national governments of OECD Recommendation that foreign corruption be treated as predicate offence for application of anti-money laundering laws.

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Appendix I

Civil Forfeiture Actions as Alternatives to Criminal Law Based Proceedings

I. Lessons from USA
Civil forfeiture being an in rem action means that it is brought against the property itself. In such action the government must prove, by a preponderance of the evidence, that a crime was committed and that the property it seeks to forfeit was derived from, was used to commit or was otherwise involved in that crime. The ownership of the property and the owner's role in the offence is irrelevant. The owner has an opportunity to contest the forfeiture by establishing what is known as the "innocent owner defence". Due process issues are addressed: the government bears the burden of proving the nexus between the property and the crime.
Advantages of the process include the fact that the government can forfeit property even if the defendant is dead or is a fugitive. Disadvantages include the fact that the forfeiture is limited to the specific assets traceable to the crime; there are no "value-based" civil forfeiture judgments and no possibility of forfeiting substitute assets.

In a criminal forfeiture case, the defendant must be tried and convicted of the criminal offence. Once the conviction is obtained, the government must prove, by a preponderance of the evidence, just as in a civil case, that the property it seeks to forfeit was derived from, was used to commit or was otherwise involved in the crime for which the defendant was convicted. Advantages of the process include the fact that a single proceeding takes care of forfeiture of defendant's interest as part of the criminal trial or guilty plea. Disadvantages include the facts that it is limited to property interests of the defendant only; it requires conviction, it cannot be used to forfeit the property of fugitives and it is limited to the property involved in the particular counts on which the defendant is convicted.
[source: S. Cassella]

USA: making it easier to recover assets of foreign crimes
Civil process
Until recently, with few exceptions, federal law in the USA did not permit the forfeiture of the proceeds of foreign crimes. Except in drug cases and few other exceptions, civil forfeiture could only be used for proceeds of domestic crimes. The Patriot Act 2001 fixed that to a large extent. The civil forfeiture statutes still do not extend to all foreign crimes, but civil action can now be brought to forfeit the proceeds of public corruption offences, crimes of violence, bank fraud and other serious offences that are committed abroad in violation of a foreign law, if the property is found in the USA.

Criminal process
The Civil Asset Forfeiture Reform Act (CAFRA) 2000, allows the attorney general to go to a federal court to register and enforce a foreign judgment - either criminal or civil - against assets in USA. Patriot act allows registering and enforcing a pre-forfeiture restraining order issued by a foreign court to preserve the property while the action in the foreign court is pending. If anyone wants to challenge the restraining order on the merits, they must do so in the foreign court where the forfeiture action is pending. So the defendant does not get two bites at the apple in challenging the forfeiture action.

USA: making it easier to recover proceeds of domestic crime when both the criminal and property are abroad (as example for domestic reforms in applicant states)
A statute enacted in the early 1990s gave the federal courts in the US jurisdiction to enter civil forfeiture judgements against property in foreign countries as long as the crime giving rise to the forfeiture occurred in the USA. A new case from the Court of Appeals in Washington DC says that a federal court does have jurisdiction to issue a forfeiture order against property in another country. The question, the court said, is not whether the US courts can issue such an order but whether the courts in another country will enforce it. It is hoped that the problems encountered in obtaining such cooperation in the case of civil forfeiture judgements will improve as other countries begin to enact civil forfeiture laws.

Assistance needed from foreign governments to facilitate the effort include:

• Bank records: mutual legal assistance treaties providing mechanism to obtain foreign business records. Also, US is thinking of introducing sanctions (such as foreign banks to close down) if their correspondent bank account holding banks in US fail to produce records of transactions that occurred abroad (obey subpoenas). The authority had not been used yet - and will only be used when other avenues fail.
  
• Attorney fees: many foreign governments are able to restrain property to be preserved while a civil or criminal case is pending. The courts though sometimes let the defence counsel draw on restrained funds to cover attorney fee. By the time the forfeiture order is obtained, the money has been dissipated.
  
• Challenges on the merits: where property is restrained in another country, foreign courts not hearing challenges to the restraint on the merits.
  [source: S. Cassella]

II. Lessons from South Africa
The Prevention of Organised Crime Act 1998 took effect in 1999 with two entire chapters establishing a comprehensive asset forfeiture regime:

• it provides for both criminal and civil forfeiture in the same statute;
  
• the criminal forfeiture scheme is based on the UK model (under the criminal justice act and the drugs act). It is conviction based in that forfeiture is dependant on the successful conviction of the suspected criminal. However forfeiture is not limited to tainted assets, i.e. actual proceeds of crime, and even assets that may have been acquired legitimately may be forfeited to the state
  
• the civil forfeiture scheme allows for forfeiture of tainted assets even in the absence of a criminal charge or conviction. As under US law, civil forfeiture may be described as an in rem procedure. It contains provision for innocent owner defence. The owner bears the onus on this.

This is a unique feature - most countries opt for either civil or criminal forfeiture and even if both then not in the same statute. The RSA dual forfeiture approach means that in many cases they are able to use the available provisions creatively so as to best suit the needs of each particular case. Law does not prescribe when civil as opposed to criminal forfeiture proceedings must be instituted. The Asset Forfeiture Unit (AFU) has great flexibility in deciding what type of proceedings should be implemented, and, in many cases both options are available.
All asset forfeiture require the civil standard of proof (balance of probabilities) - this has obvious advantages. This is used to prove that the property is tainted, whereas beyond reasonable doubt proof applies to prove that a person is guilty of particular offence.
For criminal forfeiture it was argued that the proceedings are in essence criminal proceedings and that therefore constitutional criminal justice rights are applicable. This argument has been rejected by the High court in one decision but has not been argued under the constitutional court.
Criminal and civil forfeiture has 2 stages: initial freezing stage (restraint or preservation) and the actual forfeiture stage. Initial stage requires no notice. This has once been struck down by a high court judge on the basis that no notice or ex parte infringing the constitutional right to fair hearing. This had resulted in putting most civil forfeiture work of AFU on hold for months. This was later reversed by a constitutional court decision.

Challenges identified by South Africa:

• asset forfeiture laws can be considered to infringe constitutional rights and create difficulties on the constitutional front (this can be remedied through use of relevant international jurisprudence, as well as explaining how asset forfeiture works as a law enforcement tool and works to combat crime and it is not just a tool to come hard on suspected criminals)
• retrospective application (RSA law covers forfeiture of assets of crimes committed before the Act was implemented - no matter when the criminal activities took place and when the proceeds were acquired; so long as the assets are under SA court's jurisdiction, even if the criminal act was carried out abroad).

Recommendations from South Africa:

• dual forfeiture system has many benefits
• there is need to develop solid jurisprudence (it is best done using smaller rather than "big boys" cases to introduce and build favourable jurisprudence)
• tainted assets can be frozen relatively quickly in RSA on the basis of informal cooperation between the AFU and the authorities investigating the criminal offence in the other state
• if more states were to adopt civil forfeiture mechanisms there would be more opportunity for cooperation - this would speed up and simplify international forfeiture proceedings
• with criminal forfeiture the coopeation is much more cumbersome. Without a prosecution of the offender in RSA it is not possible to obtain a criminal forfeiture order in RSA itself and has to rely on International Cooperation in Mutual Criminal Matters Act of 96 which provides for a mutual legal assistance procedure in terms of which foreign confiscation and restraint orders may be registered in RSA and vice versa (see US progress on this). Inevitable delay in executing the mutual legal assistance request will very often render the order ineffectual. In an attempt to overcome this, RSA has taken steps to include various provisions in their restraint orders to assist the process of repatriating foreign assets without necessity of mutual legal assistance request. Effectiveness of this remains to be tested. There is clear need for speedier, simplified mechanisms for mutual legal assistance request.
  [source: K. Raylene]

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Appendix II

Resources and Literature Consulted

Ananiev, Valery, Research Institute of the General Prosecutor's Office: "Experience of Russian Federation in Combating Corruption and the International Cooperation with Offshore Centres", at International cooperation in the fight against corruption and financial centres: obstacles and solutions Conference, Council of Europe, Cyprus, October 1999

Bernasconi, Paolo, Professor (universities in Switzerland and Italy) and lawyer (Switzerland): "How to Block Investigations: the Conspiracy between Financial Centres and Offshore Companies", at International cooperation in the fight against corruption and financial centres: obstacles and solutions Conference, Council of Europe, Cyprus, October 1999

Burkill, Nicholas and Graham, Toby: "A Review of English Law Principle Governing Liabilities of Those Who Handle Proceeds of Grand Corruption and of Those Involved in Bribery", partners in Taylor Joynson Garett, September 2000

Calderon, Nelly and others: "Recovery of the Proceeds of corruption: Breaking down the Barriers", 10th IACC workshop, Transparency International, Prague, October 2001

Cassella, Stefan, Deputy Chief of Asset Forfeiture and Money Laundering Section of the US Department of Justice: "Asset Forfeiture in the United States of America", at the 2002 Oxford Conference on the Changing Face of International Cooperation in Criminal Matters in 21st Century, Christ Church, Oxford, 27-30 August 2002

Chaikin, David: "Tracking the Proceeds of Organised Crime - the Marcos Case", paper presented at Transnational Crime Conference, Australian Institute of Criminology, Canberra, 9-10 March 2000

Daniel, Timothy: "Recovery of Funds Looted by Heads of State", a note to accompany lecture at the Lauterpacht Research Centre for International Law, Cambridge, 7 January 2003

Graham, Toby: "The Implications for Intermediaries in Handling the Proceeds of Corruption: the Abacha Case Study", at Stop Money Laundering Conference, 26 February 2002, London, UK

Heimann, Fritz: "Asset Recovery Project" (2002 onwards), Project Brief, Transparency International, 5 May 2002
Coordinator: Michael Hershman
Objective: To promote development of more effective procedures to facilitate tracing, freezing, and recovery of funds transferred abroad by corrupt officials.

Ige, Bola: "Abacha and the Bankers: Cracking the Conspiracy", Forum on Crime and Society, UN Office on Drugs and Crime, Vol.2, No.1, December 2002

Jallow, Cherno, Attorney General, British Virgin Islands: "Restraint and Forfeiture of Proceeds of Crimes in International Cases - Lessons Learned and Ways Forward", at the 2002 Oxford Conference on the Changing Face of International Cooperation in Criminal Matters in 21st Century, Christ Church, Oxford, 27-30 August 2002

Jayawickrama, Nihal, Pope, Jeremy and Stolpe, Oliver: "Legal Provisions to Facilitate the Gathering of Evidence in Corruption Cases: Easing the Burden of Proof", Forum on Crime and Society, UN Office on Drugs and Crime, Vol.2, No.1, December 2002

Keightley, Raylene, Deputy Director of Pubic Prosecutions, Asset Forfeiture Unit: "Criminal and Civil Forfeiture as a Means of Pursuing the Proceeds of Crime - Lessons from South Africa", at the 2002 Oxford Conference on the Changing Face of International Cooperation in Criminal Matters in 21st Century, Christ Church, Oxford, 27-30 August 2002

Levi, Michael, Professor of Criminology, University of Cardiff: "Corruption and Regulation of Offshore Finance Centres", at International cooperation in the fight against corruption and financial centres: obstacles and solutions Conference, Council of Europe, Cyprus, October 1999

Pieth, Mark: "Common Standards to Prevent and Control the Laundering of Corruption Proceeds", UN Global Programme Against Corruption, Expert Meeting, 13-14 April 2000

UNODC: "International Judicial Cooperation", in Anti-Corruption Toolkit, UN Office on Drugs and Crime, Version 4, Vienna, last edited 11 November 2002

News Archives

"Other People's Money: a Conspiracy Case in Hong Kong involves Marcos Bank Accounts", by Alejandro Reyes, Asia Week, vol.26. no.31, 11/08/2000

"Yorac Says Corruption behind PCGG Lost Cases", by Jena Balaoro, Reuters, Manila Times, 02/08/2002

"US on the Trail of the Marcos Millions", by Lucy Komisar, Asia Times, 08/01/2003

"US Probes Madame Z report on Marcos Loot", by Donna S. Cueto, Inquirer, 13/01/2003

"Marcos Wealth in Escrow Now $676M", by Jose Clapano, The Philippine Star, 17/01/2003