James K. Boyce and Léonce Ndikumana
This is part 4 of a five-part series, drawn from Political Economy Research Institute (PERI) working paper No. 361, “Strategies for Addressing Capital Flight,” by James K. Boyce and Léonce Ndikumana, available here. The paper is forthcoming in Capital Flight from Africa: Causes, Effects and Policy Issues, S.I. Ajayi, and Leonce Ndikumana, eds. (Oxford University Press, 2014), accessible here.
Illicitly acquired wealth that has been transferred abroad can be recovered and repatriated via the legal process known as “stolen asset recovery.” In the period from 1995 to 2010, approximately $5 billion was recovered and repatriated in this manner worldwide. Although this is a modest amount compared to the total magnitude of capital flight and illicit wealth, the sums involved are by no means inconsequential for the authorities who have successfully recovered stolen assets. For example, Switzerland has repatriated to Nigeria $700 million of assets held in Swiss bank accounts by former military ruler Sani Abacha and his family.
The importance of stolen asset recovery efforts go beyond the amounts successfully recovered. These efforts can have a demonstration effect, acting as a deterrent against future capital flight. They may encourage voluntary repatriation of some flight capital, and even payment of attendant tax penalties, if this alternative comes to be seen as preferable to the outright seizure and forfeiture of the entire amount of assets in question. Similarly, the “naming and shaming” that accompanies asset recovery can have a deterrent effect on banks and other institutions that collaborate in the illicit transfer and sequestration of stolen funds.
In the past two decades, the international community has taken major steps to build an institutional infrastructure that can assist African countries in efforts to recover stolen assets. The United Nations Convention against Corruption (UNCAC) of 2003, which has been ratified by 165 parties (individual governments and international bodies such as the European Union), includes articles on asset recovery and on bilateral cooperation under the rubric of mutual legal assistance (MLA). The Stolen Asset Recovery Initiative (StAR), launched by the United Nations Office on Drugs and Crime (UNODC) and the World Bank in 2007, provides technical advice and serves as a forum for sharing best practices in the identification and tracing of stolen wealth, asset seizure and confiscation, and procedures for enlisting international cooperation, including MLA. The International Centre for Asset Recovery (ICAR), established at the Basel Institute for Governance in 2008, works with governments to strengthen capacities in financial investigation, asset tracing, and international cooperation related to cases of corruption and money laundering.
Many countries have established Financial Intelligence Units (FIUs) to investigate transactions related to criminal activity. Anti-money laundering legislation in many countries requires banks and other financial institutions to file reports on suspicious transactions and activities with the FIUs in their jurisdictions. National FIUs can share this and other information with each other through the Egmont Group, an international network that takes its name from the Egmont Palace in Brussels, Belgium, where the FIU network was established at a meeting in 1995.
When investigators identify substantial foreign holdings of politically exposed persons (PEPs), and in some cases others suspected of criminal activity, the owners can be required to prove that the assets were acquired legitimately (Brun et al., 2011). Failure to prove this can lead to confiscation and repatriation, and pending the outcome of the legal proceedings, the assets can be restrained (meaning that their nominal owners cannot withdraw or move them) or seized (transferred to state custody).
These significant changes in the international environment have been supported by civil society organizations around the world. Prominent examples of these organizations include Transparency International, a Berlin-based NGO that monitors and publicizes political and corporate corruption in international development; Global Financial Integrity, based in Washington, DC, which promotes national and multilateral policies and agreements aimed at curtailing the cross-border flow of illegal money; the Tax Justice Network, an international advocacy group that works to expose and curtail tax evasion, tax avoidance, and bank secrecy; Sherpa, a Paris-based NGO that seeks to protect victims of financial crimes; Global Witness, a London-based NGO that exposes the misappropriation of extractive resource revenues that denies citizens their rightful share in their countries’ natural wealth; and the U4 Anti-Corruption Resource Centre in Norway, which provides training and resources for development practitioners.
The two-track growth of official commitments and civil society mobilization augurs well for the success of future asset recovery efforts. If $5 billion could be recovered in the past fifteen years, it is readily conceivable—indeed, we think likely—that substantially more will be recovered in the next fifteen.
Sources
Brun, J.-P., Gray, L., Scott, C. and Stephenson, K. M. (2011). Asset Recovery Handbook: A Guide for Practicioners. Washington, DC: Stolen Asset Recovery Initiative, World Bank and UNODC.
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