U.S. Program to seize Assets Stolen by Corrupt Foreign Leaders May be undermined by Trump’s Global Business Interests

Sunday, January 01, 2017
(graphic: FBI)








By Leslie Wayne, New York Times


One would think that an iconic Michael Jackson “Bad Tour” glove, covered in Swarovski crystals and worn on his first solo tour, would rest in a place of honor, perhaps at the Rock & Roll Hall of Fame in Cleveland.


Hardly. The bejeweled glove is thousands of miles away in the oil-rich, deeply impoverished country of Equatorial Guinea. And the people of the West African nation, most of whom live on less than $2 a day, have paid dearly for it.


The glove, and its odd stewardship, embody the profound difficulties surrounding the Kleptocracy Asset Recovery Initiative, a six-year effort by the United States to seize assets owned by kleptocrats — government officials who use their countries’ wealth to enrich themselves. In the most recent headline-grabbing case, the Justice Department is seeking to recover $1 billion that it says was stolen from Malaysia’s sovereign wealth fund and used, among other things, to buy high-end real estate in the United States and finance the movie “The Wolf of Wall Street.”


This is something that few other nations attempt. Now comes the hard part: returning the seized money to the people of the countries affected without enriching a kleptocrat all over again.


“We don’t want to see the funds disappear and go back to those who caused the harm,” said Leslie R. Caldwell, assistant attorney general for the Justice Department’s criminal division.


Some $3 billion in assets, involving nations worldwide, have been frozen by the program — including a Malibu, California, mansion and a $500,000 Ferrari (but not the white glove) owned by a member of Equatorial Guinea’s ruling family, the Obiangs. The family’s patriarch is so wealthy that he tops Queen Elizabeth II on lists of the global rich.


This repatriation effort is getting started just as Donald Trump’s election as president threatens to complicate the message of the kleptocracy initiative. Trump, a Republican, has promised to avoid potential conflicts of interest between his business empire and his duties as commander in chief and has indicated he will come up with a plan before the inauguration.


Trump’s actions will have special resonance for a program that goes after foreign leaders whose business and government positions are porous. There are worries that if Trump does not sufficiently distance his business and his family from politics, it will be tougher for the Justice Department to criticize foreign leaders who have become wealthy based on their government ties.


“The election of Donald Trump might impede the commitment of the United States to fight kleptocracy,” said Matthew C. Stephenson, a professor who teaches anti-corruption law at Harvard Law School. “The political consequences are that it reduces U.S. leverage because of the perceived hypocrisy. The moral case is drastically undermined.”


Tutu Alicante, executive director of EG Justice, a Washington nonprofit that monitors corruption in Africa, said: “It’s a perfect scenario for kleptocrats in Africa to point to someone in the White House. They will compare themselves to Donald Trump.”


Representatives of both the Justice Department and Trump did not respond to requests for comment.


The Obiang case is the biggest to date and, for that reason, is being closely watched. It is also the rare time that the kleptocracy initiative has gone after such a senior officeholder. A member of the Obiang family bought many of his assets as part of a “corruption fueled spending spree,” according to the Justice Department.


Under an agreement with the department, Teodoro Nguema Obiang Mangue, the son of Equatorial Guinea’s president, Teodoro Obiang Nguema Mbasogo, has promised to give up valuables he amassed in the United States, ending years of litigation. His title is second vice president, with an official salary of around $100,000. His father came to power in a coup in 1979 and is the longest-serving African leader and president in the world, ruling with “almost total control,” according to a recent report from the CIA. The son is seen as a possible heir apparent.


“Touching the Untouchables”


The Justice Department hailed its agreement with the younger Obiang as a significant step forward for its program. The idea is to create a charity in Equatorial Guinea funded by $30 million from the sale of his 15,000-square-foot Malibu oceanfront mansion, the Ferrari 599 and other assets, including additional Jackson memorabilia.


“We are touching the untouchables,” Caldwell said. “We are saying that the U.S. financial system is not a safe haven for corruption.”


The department has both a desire and an obligation to repatriate assets flowing through the U.S. banking system. The United States, along with 140 other countries, is a signatory to the U.N. Convention Against Corruption, an agreement requiring countries to hunt down the offshore money of corrupt officials and return it to the victimized countries. The World Bank estimates that from $20 billion to $40 billion is stolen annually by corrupt public officials, mostly in poor and developing countries.


So far only a small number of nations are actively pursuing kleptocracy cases — mainly the United States, Britain, Canada, Luxembourg and Switzerland. This is in part because few countries have the resources to take on the complicated cases.


Ownership of the assets is often hidden by a web of shell companies. Offshore accounts created by sharp lawyers and accountants can be hard to trace. A court must determine whether other interested parties have valid claims to ownership and if the assets were bought with illicitly obtained money. Only then can the assets be seized and the money repatriated.


The corrupt assets that the Justice Department has tracked down have come from a laundry list of countries — Nigeria, Ukraine and Uzbekistan among them. In the case of Malaysia, money was also used to buy a $35 million jet, pay for gambling in Las Vegas and buy art by Van Gogh and Monet. Actor Leonardo DiCaprio, whose movie “The Wolf of Wall Street” was produced by the company tied to the Malaysian case, has said he would return any funds that his charity or the movie received that turned out to have been stolen.


The kleptocracy initiative comes as efforts to combat the flow of illicit money of all sorts into the United States are expanding. The publicity surrounding the Panama Papers heightened global awareness of the secret offshore accounts held by public officials and the wealthy and put more officials on notice.


In the largest case against a person, the Justice Department is seeking $850 million from Gulnara Karimova, the socialite daughter of the late president of Uzbekistan who goes by the nickname Googoosha. The Harvard-educated former model and pop singer is accused by the United States of accepting bribes to allow a Dutch telecom company to enter the Uzbek market. A leaked U.S. diplomatic cable said she was the “the single most hated person” in Uzbekistan and a “greedy power hungry individual.” After a falling out with her father in 2014, Karimova was placed under house arrest, where she remains today.


Three lawyers representing Uzbekistan in the Justice Department matter did not respond to requests for comment, nor did officials at the Uzbekistan Embassy in Washington. In court filings, lawyers representing Uzbekistan argue that the United States has “at best a minimal interest in the bribery and money-laundering scheme” involving Karimova because “the corruption alleged in the complaint is fundamentally an Uzbek matter.”


Another big-ticket case involves Gen. Sani Abacha of Nigeria, who died nearly two decades ago. His case has wended through the courts since then. In play is $630 million from his estate that the United States says he and his cronies laundered through the U.S. financial system. The United States has gained access to $480 million and is in litigation over the rest.


Close behind is some $250 million caught in a legal battle between the United States and Pavlo Lazarenko, the former Ukrainian prime minister who fled his country in 1999 amid corruption charges and has sought political asylum in the United States ever since. Now living in California in modest circumstances, he was forced by the United States to give up his nearby 18,000-square-foot, 20-room mansion after a 2004 conviction for money laundering. He left federal prison in 2012 and is out of work.


Daniel Horowitz, Lazarenko’s lawyer, said that there had been “zero evidence of wrongdoing” by Lazarenko and that “the case is about the U.S. government wanting to keep the money.” He described Ukraine as “a place with no rules” and added that “80 percent of the world outside the United States and Europe has no rules.”


“It’s hard to determine what is right and wrong,” Horowitz said.


Limited Success


The World Bank is tracking the offshore money of leaders toppled during the Arab Spring, including those of Egypt, Libya and Tunisia. Some money has been repatriated to the Tunisian treasury to help stabilize the country. In the cases of Libya and Egypt, the countries are so unstable and dangerous, though, that repatriation is impossible. An estimated $200 million in offshore assets of the Assad family of Syria and their associates were frozen by Switzerland, the European Union and the United States


It is not just the United States that finds repatriation difficult. The global success rate is slim. The World Bank reports that of $2.623 billion in assets frozen by Organization for Economic Cooperation and Development countries between 2006 and 2012, the most current statistics available, it was able to return only $423.5 million to victim countries, or just around a sixth of the money seized.


“Asset recovery is highly contentious and difficult to negotiate,” said Emile van der Does de Willebois, global lead for financial market integrity at the World Bank.


“The victim country can say that this is our money, we need it and we want it back.” But, he said, “We can’t just give back a blank check.”


Equatorial Guinea shows why. Under an agreement with the Justice Department, $20 million from the sale of Teodoro Obiang’s assets will be given to a charitable organization selected by the agency and Obiang. Another $10 million will be administered solely by the United States.


But the big question is whether the department can structure a charity so that the money is not controlled by the Obiangs or used to enhance their image and power. That is a tall order for Justice Department lawyers who are more accustomed to hunting down bad characters than to setting up offshore charities.


“This is a challenge and very different than what prosecutors are trained to do,” said Stephenson, the Harvard professor.


Complicating matters in Equatorial Guinea is that there are almost no existing charities. That is largely because the Obiang family has clamped down on any organization that promotes democracy or challenges its rule.


“This won’t be an easy process,” said Alicante of EG Justice, which promotes human rights in that country. “Unless the U.S. government stays alert, the money will disappear through corruption and we’ll be back at square one.”


The $30 million from the sale of Obiang’s Malibu mansion, his Ferrari and assorted Jackson statues is in an escrow account controlled by the Justice Department. The Equatorial Guinean Embassy and Obiang’s U.S. lawyers did not respond to several requests for comment. Caldwell, of the Justice Department, said plans for the repatriation of the Obiang money were still being made final under the terms of the court agreement.


While the Justice Department heralded the Equatorial Guinea settlement, it was only a partial victory. It claimed that Obiang amassed more than $300 million in assets around the globe “through corruption and money laundering.”


Of that amount, the Justice Department had targeted $70 million in Obiang’s U.S. assets and was outfoxed, ending up with only about half that amount. Obiang kept his $38 million Gulfstream jet flying around the world, only in locations where the United States lacked jurisdiction to seize it. That meant, though, that he was unable to have regular servicing performed on the aircraft, which has depressed its value — and made it less attractive to potential passengers.


As for the Jackson glove, it was spirited out of the United States in defiance of a U.S. court order, according to prosecutors.


French authorities have helped by seizing a multimillion-dollar fleet of Obiang’s exotic cars, including a $2 million Bugatti Veyron and two $600,000 Rolls-Royce Drophead Coupes, a $380,000 Lamborghini Murciélago and a $424,000 Bentley Azure. Obiang is scheduled to go on trial in Paris next week on corruption and money laundering charges after losing a bid in early December before the International Court of Justice to halt the proceedings.


On Dec. 2, at the request of the Swiss, Dutch authorities seized Obiang’s 250-foot, $100 million yacht, “Ebony Shine,” as it was about to sail to Equatorial Guinea, according to the Swiss publication L’Hebdo. Obiang denied ownership of the yacht, saying that it belonged to his country’s government. He has another yacht based in Tangier.


As the Justice Department tries to figure out a repatriation strategy, there are examples of plans that have gone awry. In Angola, $64 million frozen by Swiss authorities was repatriated and earmarked for mine clearance and agricultural development. While some of the money went for hospitals and other local projects, an Open Society Justice Initiative report found that there was little public accounting for a portion of the money, which never entered the Angolan economy and instead went to cover payments to a Swiss mine-removal company.


Andreas Ledergerber, a spokesman for the Swiss Embassy in Washington, said that, despite criticism, the repatriated money “contributed to the mine-removal process” at the end of the Angola civil war, where anti-personnel mines remain a “major danger to the population.”


Switzerland also repatriated more than $500 million of seized Abacha money to Nigeria to be used for health, education, water and roads. Instead, the money disappeared into the country’s general budget with no oversight, according to a World Bank report. And in Egypt, the tumultuous political situation caused many repatriation cases to be dropped.


On the brighter side is Kazakhstan, where the BOTA Foundation was created with $115 million in seized money under an agreement among the United States, Switzerland and Kazakhstan. The foundation established in 2009 to help the country’s poor is now held up as a model to emulate.


The foundation was able to operate without interference from the country’s ruling elite and to fulfill its mandate successfully. A total of $79 million went for social service and education programs that helped an estimated 200,000 people. Even so, BOTA drew some criticism for administrative and startup costs that took about a third of the money and because it did not continue operating after the original money was spent.


Challenge of Uzbekistan


Some countries are so corrupt that repatriation may not even be possible, experts say. Uzbekistan may be one of them.


A recent CIA report described Uzbekistan as being plagued by “pervasive corruption.” Its citizens, including children, are subject to “government-compelled forced labor” in the country’s cotton fields, according to the report. It also found “official complicity in human trafficking.”


Yet Uzbekistan occupies a strategic location in Central Asia and on an important logistics supply route for troops in Afghanistan. That limits the extent to which the United States can challenge the country’s ruling family.


The Justice Department’s case focuses on Karimova, who was once seen as her father’s successor until their falling out. She did not attend his funeral in September.


While in favor, though, she was riding high. The former model, who is nearly 6 feet tall, was once quoted in The New Yorker publicly praising God for “my height, my face, my features.” She appeared in music videos, including one in which she is transported on a sports car that floats through the air to a secluded castle on a magical island. In others, she sings duets with Gérard Depardieu and Julio Iglesias.


She designed a line of jewelry, perfume and clothing, although her 2011 show at New York’s Fashion Week was canceled amid protests over Uzbekistan’s human rights violations. She served as the country’s ambassador to Spain and representative to the United Nations in Geneva.


Karimova also faced investigations in Sweden, Switzerland and the United States over accusations of bribery and money laundering. Within her own country, she is considered a “robber baron” who would “crush business people or anyone else who stands in her way,” according to a leaked U.S. diplomatic cable. The United States was able to file charges because the $850 million in suspected bribes passed through the U.S. financial system on the way to accounts in Britain, Hong Kong, Latvia, Luxembourg and other places.


Sunshine Uzbekistan, a group of Uzbek human rights activists living in exile, has asked the Justice Department not to repatriate the money but to put it into a trust for use when conditions improve. Repatriating the money before that would mean it “would disappear,” the group said in a letter to the department. The group argues that a trust fund would provide an incentive for the country to improve its human rights record as a condition of getting the money.


“The Justice Department is the last hope for the Uzbek people,” Sanjar G. Umarov, founder of the coalition, said in an interview.


A different set of issues complicates the efforts to return the Abacha money to Nigeria, a case that has dragged on for decades as various people have asserted claims on the money. As the courts have steadily dismissed those claims, the Justice Department has drawn closer to repatriating the money.


A group called SERAP, which stands for the Socio-Economic Rights Accountability Project, has asked that the money to be given to a “reliable U.S. or Nigerian charitable organization” and not returned to the government.


“There is the hope that if the money is placed in the right hands it will be used more efficiently,” said Alexander Sierck, a Washington lawyer and counsel to SERAP.


Many Nigerians say statements like that, however well intended, smack of colonialism. Instead, they say that the money was theirs in the first place and that the country’s leaders — and not an outside person or group — should decide how it is spent. The Nigerian government agrees.


This line of argument has become stronger as falling oil prices have hurt the country’s economy and a new president has pledged to eradicate corruption.


In May last year at an anti-corruption conference in London, Nigeria’s newly elected president, Muhammadu Buhari, said, “What I am demanding is the return of the assets.”


To Learn More:

The Clause in the U.S. Constitution that Trump as President Would Violate with His Foreign Businesses (by Richard Tofel, ProPublica)

Constitutional Violations of Trump’s Foreign Business Dealings May Never Be Known Due to Limited Disclosure Rules (by Derek Kravitz, ProPublica)

Justice Dept. Takes Aim at $1.5 Billion in Assets Stashed in U.S. by Dictators and Other Foreign Politicians (by Leslie Wayne, New York Times)

U.S. “Kleptocracy Initiative” Swoops Down on African Official Living in Malibu (by Ken Broder, AllGov California)

Justice Dept. Set to Seize Assets of African Dictator’s Son (by Noel Brinkerhoff, AllGov)


Mike H 7 years ago
Let me sift through the hogwash, you are reporting that the Obama Admin gave billions of dollars away to crooked people in foreign countries for bogus projects that had no bearing on American necessity and your blaming President Trump.

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