Asset recovery in corruption cases. Comparative analysis identifies serious flaws in US tracing procedure

Author:Peter Leasure
Position:University of South Carolina, Columbia, South Carolina, USA
Pages:4-20
SUMMARY

Purpose - Asset recovery proceedings increasingly target corrupt foreign officials who acquire lavish assets as a result of capital gained through criminal acts. One extremely difficult issue arising in asset recovery proceedings is whether the capital used to acquire the assets can be traced to a criminal act. The purpose of this paper is to critique US tracing procedure... (see full summary)

 
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Asset recovery in corruption
cases
Comparative analysis identies serious aws
in US tracing procedure
Peter Leasure
University of South Carolina, Columbia, South Carolina, USA
Abstract
Purpose – Asset recovery proceedings increasingly target corrupt foreign ofcials who acquire lavish
assets as a result of capital gained through criminal acts. One extremely difcult issue arising in asset
recovery proceedings is whether the capital used to acquire the assets can be traced to a criminal act.
The purpose of this paper is to critique US tracing procedure through comparative analysis.
Design/methodology/approach – A prominent series of cases brought by the USA and France
against assets owned by Teodoro “Teodorín” Nguema Obiang, second Vice President of the Republic of
Equatorial Guinea, produced mixed results on the tracing element. This paper utilizes a qualitative
comparative case analysis to examine the US and French cases.
Findings – The US results reect serious weaknesses in the US law as compared to more effective
French asset recovery procedure.
Originality/value Though this paper is certainly a comparative case study analysis, nearly
identical facts and two different jurisdictions reaching separate conclusions bring us in the legal
community as close as we can realistically come to quasi-experimental research. Comparative research
in this area is severely lacking and sorely needed. The mechanisms identied in the French system
clearly show aws that are present in the US system.
Keywords Money laundering, Bribery, Corruption, Comparative research, Asset recovery
Paper type Case study
Introduction
Every year, enormous sums of money[1] are transferred illegally (Hansen, 2014). The
current paper focuses on transfers resulting from corruption or money laundering. While
nancial crimes like money laundering and corruption are damaging to all countries (Spahn,
2010;Nichols, 2012;Spahn, 2013), the effects are particularly felt in developing countries
(Ndiva, 2006;Hansen, 2014;Spahn, 2009) because these illegal transfers strip resources from
developing countries that could be used to nance needed public services ranging from
security and justice to basic social services such as health and education (Hansen, 2014).
Further, illegal transfers also weaken the developing country’s nancial system and overall
economic potential because a properly functioning nancial sector depends on a general
reputation of integrity, which money laundering and corruption undermines (Hansen, 2014).
The unfortunate result is that a developing country’s resources are exploited for the benet
of a few corrupt ofcials and are generally used to purchase private items such as luxury
vehicles, personal real estate, art or precious metals (Schott, 2006).
Illegal transfers range from something as simple as an individual transfer of funds
into private accounts abroad without having paid taxes to a highly complex scheme
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1368-5201.htm
JMLC
19,1
4
Journalof Money Laundering
Control
Vol.19 No. 1, 2016
pp.4-20
©Emerald Group Publishing Limited
1368-5201
DOI 10.1108/JMLC-04-2015-0010
involving criminal networks that set up multi-layered, multi-jurisdictional structures to
hide ownership. It is possible for a variety of persons to initiate these transfers; however,
in this paper, particular focus will be paid to corrupt foreign ofcials or kleptocrats[2].
Each kleptocrat, through use of their position of power, has in some way looted their
country using methods such as accepting bribes for resource or defense contracts and
permitting extortion. There are numerous reasons for kleptocrats to move money to
other countries. For example, the funds are less subject to seizure if a new regime takes
power, keeping funds in foreign jurisdictions provides access to luxury goods that may
not be available domestically and assets held outside the country are harder to trace.
These kleptocrats use a variety of methods to try and conceal their illicit activities.
The most common method is to use a legal entity or arrangement known as a “corporate
vehicle (Does de Willebois et al., 2011)”. This term primarily refers to companies,
corporations, foundations and trusts, and other different domestic variations. Of these
types of corporate vehicles, the company was the most frequently used (the study found
that 128 of 150 cases used companies to hide illegal transfers), and, in many cases, a
whole web of vehicles are linked together across several different jurisdictions (Does de
Willebois et al., 2011). Because companies are the most common method used, that entity
will be the focus of this paper[3].
There are many types of companies that are used to hide illegal transfers. The rst of
this kind is a shell company[4]. The OECD (2001, p.17) denes shell companies as:
[…] entities established not to pursue any legitimate business activity but solely to obscure the
identity of their benecial owners and controllers, constitute a substantial proportion of the
corporate vehicles established in some off shore nancial centers.
A shell company in context of this paper can be dened as: “a non-operational company,
meaning a legal entity that has no independent operations, signicant assets, ongoing
business activities, or employees (Does de Willebois et al., 2011)[5]”.
Unlike normal companies, shell companies have no economic activity, which makes
it difcult to acquire any information. A normal company will typically engage in
marketing, join a chamber of commerce, build a Web site, buy space in the phonebook,
sponsor events and purchase supplies and equipment. Importantly here, a normal
company will also have employees who can be interrogated, keep meeting minutes that
may be consulted and produce nancial data that can be compared with normative
industry benchmarks. A shell company is not obligated to do these things (Does de
Willebois et al., 2011).
Another type of company is a shelf company. The term shelf company is typically:
[…] applied to a company that (a) is incorporated with a standard memorandum or articles of
association; (b) has inactive shareholders, directors, and secretary; and (c) is left dormant – that
is, sitting “on a shelf” – for the purpose of later being sold (Does de Willebois et al., 2011).
Law enforcement authorities are concerned about shelf companies because criminals
can easily throw investigators off the trail by purchasing shelf companies and then
never ofcially transferring the ownership. This often leads to a dead-end formation
agent who has long ago sold the company with no records of the purchaser and no
obligation to note the ownership change[6][7].
The nal type of company to be addressed here is a front/operational company[8].
Front/operational companies have incoming and outgoing ows of assets which enable
streams of illegal transfers emanating from bribes, extortion and other acts to
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Asset
recovery in
corruption
cases

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