[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
RECOVERING DICTATORS' PLUNDER
=======================================================================
HEARINGS
BEFORE THE
SUBCOMMITTEE ON
FINANCIAL INSTITUTIONS AND CONSUMER CREDIT
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
MAY 9, 2002
__________
Printed for the use of the Committee on Financial Services
Serial No. 107-69
U. S. GOVERNMENT PRINTING OFFICE
79-943 WASHINGTON : 2002
___________________________________________________________________________
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa JOHN J. LaFALCE, New York
MARGE ROUKEMA, New Jersey, Vice BARNEY FRANK, Massachusetts
Chair PAUL E. KANJORSKI, Pennsylvania
DOUG BEREUTER, Nebraska MAXINE WATERS, California
RICHARD H. BAKER, Louisiana CAROLYN B. MALONEY, New York
SPENCER BACHUS, Alabama LUIS V. GUTIERREZ, Illinois
MICHAEL N. CASTLE, Delaware NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York MELVIN L. WATT, North Carolina
EDWARD R. ROYCE, California GARY L. ACKERMAN, New York
FRANK D. LUCAS, Oklahoma KEN BENTSEN, Texas
ROBERT W. NEY, Ohio JAMES H. MALONEY, Connecticut
BOB BARR, Georgia DARLENE HOOLEY, Oregon
SUE W. KELLY, New York JULIA CARSON, Indiana
RON PAUL, Texas BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio MAX SANDLIN, Texas
CHRISTOPHER COX, California GREGORY W. MEEKS, New York
DAVE WELDON, Florida BARBARA LEE, California
JIM RYUN, Kansas FRANK MASCARA, Pennsylvania
BOB RILEY, Alabama JAY INSLEE, Washington
STEVEN C. LaTOURETTE, Ohio JANICE D. SCHAKOWSKY, Illinois
DONALD A. MANZULLO, Illinois DENNIS MOORE, Kansas
WALTER B. JONES, North Carolina CHARLES A. GONZALEZ, Texas
DOUG OSE, California STEPHANIE TUBBS JONES, Ohio
JUDY BIGGERT, Illinois MICHAEL E. CAPUANO, Massachusetts
MARK GREEN, Wisconsin HAROLD E. FORD Jr., Tennessee
PATRICK J. TOOMEY, Pennsylvania RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut KEN LUCAS, Kentucky
JOHN B. SHADEGG, Arizona RONNIE SHOWS, Mississippi
VITO FOSSELLA, New York JOSEPH CROWLEY, New York
GARY G. MILLER, California WILLIAM LACY CLAY, Missouri
ERIC CANTOR, Virginia STEVE ISRAEL, New York
FELIX J. GRUCCI, Jr., New York MIKE ROSS, Arizona
MELISSA A. HART, Pennsylvania
SHELLEY MOORE CAPITO, West Virginia BERNARD SANDERS, Vermont
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
PATRICK J. TIBERI, Ohio
Terry Haines, Chief Counsel and Staff Director
Subcommittee on Financial Institutions and Consumer Credit
SPENCER BACHUS, Alabama, Chairman
DAVE WELDON, Florida, Vice Chairman MAXINE WATERS, California
MARGE ROUKEMA, New Jersey CAROLYN B. MALONEY, New York
DOUG BEREUTER, Nebraska MELVIN L. WATT, North Carolina
RICHARD H. BAKER, Louisiana GARY L. ACKERMAN, New York
MICHAEL N. CASTLE, Delaware KEN BENTSEN, Texas
EDWARD R. ROYCE, California BRAD SHERMAN, California
FRANK D. LUCAS, Oklahoma MAX SANDLIN, Texas
BOB BARR, Georgia GREGORY W. MEEKS, New York
SUE W. KELLY, New York LUIS V. GUTIERREZ, Illinois
PAUL E. GILLMOR, Ohio FRANK MASCARA, Pennsylvania
JIM RYUN, Kansas DENNIS MOORE, Kansas
BOB RILEY, Alabama CHARLES A. GONZALEZ, Texas
STEVEN C. LaTOURETTE, Ohio PAUL E. KANJORSKI, Pennsylvania
DONALD A. MANZULLO, Illinois JAMES H. MALONEY, Connecticut
WALTER B. JONES, North Carolina DARLENE HOOLEY, Oregon
JUDY BIGGERT, Illinois JULIA CARSON, Indiana
PATRICK J. TOOMEY, Pennsylvania BARBARA LEE, California
ERIC CANTOR, Virginia HAROLD E. FORD, Jr., Tennessee
FELIX J. GRUCCI, Jr, New York RUBEN HINOJOSA, Texas
MELISSA A. HART, Pennsylvania KEN LUCAS, Kentucky
SHELLEY MOORE CAPITO, West Virginia RONNIE SHOWS, Mississippi
MIKE FERGUSON, New Jersey JOSEPH CROWLEY, New York
MIKE ROGERS, Michigan
PATRICK J. TIBERI, Ohio
C O N T E N T S
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Page
Hearings held on:
May 9, 2002.................................................. 1
Appendix:
May 9, 2002.................................................. 39
WITNESSES
Thursday, May 9, 2002
Blum, Jack A., Partner, Lobel, Nevins & Lamont................... 14
Chege, Michael, Director of the Center for African Studies,
University of Florida.......................................... 6
Conyngham, John, Director, International Investigations, Control
Risk Groups LTD., U.K.......................................... 10
APPENDIX
Prepared statements:
Bachus, Hon. Spencer......................................... 42
Oxley, Hon. Michael G........................................ 40
Royce, Hon. Ed............................................... 45
Blum, Jack A................................................. 61
Chege, Michael............................................... 46
Conyngham, John.............................................. 51
Additional Material Submitted for the Record
CRS Report, ``Abacha Case Chronology''........................... 70
RECOVERING DICTATORS' PLUNDER
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THURSDAY, MAY 9, 2002
U.S. House of Representatives,
Subcommittee on Financial Institutions
and Consumer Credit,
Committee on Financial Services,
Washington, DC.
The subcommittee met, pursuant to call, at 10:02 a.m. in
room 2128, Rayburn House Office Building, Hon. Spencer Bachus,
[chairman of the subcommittee], presiding.
Present: Chairman Bachus; Representatives Royce, Kelly,
Gillmor, Hart, Tiberi, Waters, Sherman, Maloney of New York,
Moore, and Lucas of Kentucky.
Chairman Bachus. Good morning. Today we will hear from a
group of distinguished panelists on what the international
community is doing---- and what more can be done---- to address
the causes and consequences of political corruption that is so
widespread throughout the developing world. The subcommittee's
particular focus will be on efforts to recover stolen assets
and other proceeds of corruption and return them to the
rightful owners in the countries that have been plundered.
In the last Congress, Ms. Waters and I held hearings in the
Domestic and International Monetary Policy Subcommittee on the
transition taking place in Nigeria from a military regime
plagued by rampant corruption to a functioning democracy marked
by impressive economic and social reform.
Nigeria is, of course, something of a poster child for what
can happen to a country when it is hijacked by corrupt public
officials who enrich themselves at the expense of those they
are sworn to serve. The notorious military dictator, Abacha,
aided and abetted by a host of cronies and family members,
systematically looted the Nigerian treasury of literally
billions of dollars over the course of his brief, 5-year rule,
leaving behind a desperate, impoverished country when he died
in 1998.
Efforts to identify and repatriate Abacha's ill gotten
gains have spanned the globe, following money trails to private
banking departments in New York and London money center banks,
as well as to more obscure locations such as the bank secrecy
havens of Luxembourg and Liechtenstein.
The bulk of Abacha's stolen treasure ended up in various
Swiss bank accounts. To their credit, Swiss authorities
launched an intensive investigation of Abacha's accounts in
1999. Just last month, a landmark settlement was reached among
Switzerland, Nigeria, Abacha's survivors and four other
countries where Abacha funds were deposited, that will result
in the return of $1 billion to the Nigerian government. We will
hear more about this settlement from our witnesses at today's
hearing.
For countries already struggling with deep--seated poverty,
hunger and disease, the human toll exacted when corrupt
government officials divert public resources for private gain
is devastating. So long as corruption thrives in so many places
around the globe, efforts to improve the living standards and
the conditions of people living in poverty, whether through
debt relief, foreign assistance or capital investment, can
never fully succeed.
What can the United States and other developing countries
do, and why should they do it? First, we can require as a
condition of U.S. and international financial assistance that
recipient countries implement meaningful anti-corruption
measures to prevent such aid from being misappropriated or used
for anything other than its intended purposes.
Second, we can work with our G-7 partners and other
governments to deny safe haven to funds that have been spirited
out of the country by corrupt political regimes. As the Abacha
case demonstrates, the global banking system can easily be
exploited by those seeking to conceal or launder the proceeds
of political corruption. A concerted international effort
involving close cooperation among regulators, law enforcement
authorities and financial institutions is absolutely essential
for dealing effectively with future Abachas.
In this regard, two key provisions of the U.S.A. Patriot
Act developed by this committee last fall will reduce the
attractiveness of the U.S. as a destination point for ill-
gotten gains of corrupt foreign officials. First, the new law
expands the list of foreign predicate offenses on which the
U.S. Government can base a money laundering prosecution to
include the misappropriation, theft or embezzlement of public
funds by or for the benefit of a public official.
Second, the Patriot Act requires U.S. financial
institutions to apply enhanced security to private bank
accounts maintained by or on behalf of senior political figures
and their immediate family members or close associates to
facilitate the detection and reporting of transactions that may
involve the proceeds of foreign corruption.
At today's hearing, we will hear testimony from seasoned
investigators and asset recovery specialists who are uniquely
qualified to provide the subcommittee with a report from the
front lines of the battle against global corruption.
Second, and I am going to depart from my written statement
at this time. I think the question is why is it in the United
States' best interest? Why is it critical that we help fashion
a solution to getting these assets back? The short answer is
that the world is becoming a chaotic, dangerous place for all
of us because of this very corruption.
You take a look around the globe at all those problem
areas, areas that we are being drawn into, areas that could
cause us to be involved in military action, and without
exception part of the problem has been and continues to be
corruption of government officials.
We will hear some testimony today about the PLO, the fact
that the PLO has corrupt officials in it that are diverting
money that is not going to the Palestinian people. As a result,
a lot of what we see on TV about the unrest in the Middle East
corruption, is a contributor to that, the fact that the
corruption actually prevents and retards any ability to bring
peace in the Middle East.
Slobodan Milosevic looted his government. Argentina, one of
our biggest economic problems in the western hemisphere, fell
victim to corruption and looting of its national treasury.
Afghanistan, we are trying to support and establish a stable
government there. The Taliban looted the national treasury of
Afghanistan recently. That compounds our problems there.
In a number of small and not so small countries throughout
the developing world, there are cases where the government, the
present government, is struggling because the national wealth
was looted, and when they came to power the resources were
simply not there for infrastructure or for addressing the needs
of the people.
Finally, I say that the World Bank and the IMF,
international agencies, could do much more. A lot of the
assistance they are giving is being skimmed off, diverted and
ends up in the pockets and the bank accounts of corrupt
government officials, not for the purpose it was intended,
which in some cases creates a worse situation or does create a
worse situation than you had to begin with, because the
assistance not only is not given, but the country to which it
was supposed to have been given has got to pay that money back,
which creates even more debt.
[The prepared statement of Hon. Spencer T. Bachus III can
be found on page 42 in the appendix.]
In order to have any successful debt relief, in order to
have any successful efforts to help impoverished countries, we
have to, number one, put an end to the corruption. To do that,
it is going to take a comprehensive program. Therefore, that is
why we have brought together this distinguished panel.
At this time I will recognize the Ranking Member, Ms.
Waters.
Ms. Waters. I would like to thank you, Chairman Bachus, for
organizing this hearing on Recovering Dictators' Plunder. I
especially appreciate your continuing interest in justice for
the people of Nigeria and other countries that have been
plundered by dictators.
I first became interested in this issue when I learned that
the family of Sani Abacha had laundered millions of Nigeria's
stolen assets and accounts at Citibank, an American financial
institution. General Abacha's sons, Muhammad and Ibrahim, first
became clients of Citibank Private Bank in 1988. They began by
opening accounts in London and later opened accounts in New
York.
Citibank provided the Abacha sons with a number of secrecy
measures. According to a November, 1999, hearing by the Senate
Permanent Subcommittee on Investigations, Citibank provided
Abacha family members with three special name accounts and
accounts in the name of a shell corporation, Morgan
Procurement. The London account held as much as $60 million at
one time. The New York accounts usually held about $2 million,
but in one 6 month period saw deposits and withdrawals of
almost $47 million.
The Domestic and International Monetary Policy Subcommittee
of the Banking and Financial Services Committee held a hearing
on May 25, 2000, on Nigeria in Transition under the leadership
of Chairman Bachus and myself. Extensive evidence was presented
at this hearing regarding the laundering of Nigeria's stolen
assets in American financial institutions. However, no action
has been taken by the United States Government to identify
these stolen assets and facilitate their return to the people
of Nigeria.
On April 17, 2002, we understand the government of Nigeria
reached a settlement with Sani Abacha's family. Under this
agreement, the Abacha family will return more than $1 billion
in assets to Nigeria. The family will be permitted to keep
about $100 million. The assets that will be returned will come
from banks in Switzerland, Britain, Luxembourg, Liechtenstein
and the English Channel Islands.
Unfortunately, none of the funds laundered in Citibank or
other American banks were included in the settlement.
Nevertheless, the Abacha settlement does provide an
illustration of methods to identify stolen assets and
facilitate their return to the country from which they were
stolen.
It may be possible to apply these methods to assets stolen
by other dictators such as Marcos of the Philippines, Mobutu of
Zaire, Baby Doc Duvalier of Haiti, Slobodan Milosevic of
Yugoslavia, Suharto of Indonesia and the Taliban of
Afghanistan. However, future efforts to identify stolen assets
should include assets laundered in American financial
institutions.
Today I will introduce the Stolen Assets Recovery Act of
2002. This bill will require the Secretary of the Treasury to
submit a report to the Congress on the possibility that stolen
assets may be laundered in financial institutions in the United
States.
The report would include an explanation of U.S. Government
efforts to identify stolen assets, mechanisms available to the
U.S. Government to identify stolen assets and legislation that
could be enacted to facilitate the return of stolen assets to
the people of the countries from which they were stolen.
The legislation would also require the Secretary of the
Treasury to urge the International Monetary Fund and the World
Bank to provide the U.S. copies of all audits and other
information possessed by these institutions regarding the use
of funds loaned to dictatorial governments and other
governments where corruption has been a serious problem.
It is essential that the United States of America support
efforts to identify assets stolen by dictators and their
families and facilitate the return of those assets to the
people from whom they were stolen. I look forward to the
testimony of the witnesses on the recovery of assets stolen by
Sani Abacha and other dictators.
Mr. Chairman, let me just say that there are any number of
instances where we have learned that our banks have been in
receipt of money that has been stolen from citizens in other
countries. Mexico is one of them. We discovered that Citibank
used concentration accounts where they wire transferred money
offshore. In many of these places where dictators have stolen
the money from people and the money ends up in our banks, we
are giving financial aid or foreign aid or assistance to them
in one way or the other. I think it is outrageous and
ridiculous.
I guess we are going to hear about the settlement that took
place with Nigeria and the Abacha family, and I guess there is
some justice in that, but even that is ridiculous, and still
again it does not account for those dollars that found their
way into American banks. There are a lot of other instances of
that.
I just hope that we can move forward in some way beyond
this Nigeria settlement and not just see this Nigeria
settlement as the way to go, but dig a little bit deeper and
find out how we can discourage our banks from being part of the
raping of these countries by these dictators. Sheltering these
assets in our institutions is outrageous and ridiculous.
I thank you so very much for paying attention to this
issue.
Chairman Bachus. Thank you. I would simply like to respond
to the Ranking Member by saying I think she and I both
recognize the incredible cost not only to the people of these
countries, but to the United States and to the taxpayers here,
of corruption.
It has a direct impact on our military budget, on our
defense budget, in that we are required to have a presence in
countries or have military in countries where otherwise we may
not need a military presence.
It constitutes a tremendous security threat to our country,
as we found out on September 11, because in some of these
countries, and I think Professor Chege can comment, money from
these countries actually found its way to Al-Qaida and was used
to finance the terrorist attacks of September 11, a direct
result of corruption in these countries where the G-7
countries, the world organizations, apparently looked the other
way and took no actions.
We will continue to pay a tremendous price as a country if
we and other countries do not move against this and clean up
our own house. I for one believe the United States as a result
of the Patriot Act is leading the way. I believe a lot of what
happened in the United States could not happen today because of
laws which we have already enacted.
We will either as a country lead an effort or participate
in an effort to clean this up, or we as a people will suffer.
Whether we suffer by oil embargoes, whether we suffer by
becoming involved in a war in the Middle East, whether it is
another embassy bombing, we will pay the price if we ignore
this.
With this I will introduce the panelists. Professor Michael
Chege is director of the Center for African Studies at the
University of Florida-Gainesville where his principal teaching
focus is the comparative politics of African states.
Professor Chege, a native of Kenya who previously taught at
the University of Nairobi in Kenya, the Graduate Institute of
International Studies in Geneva and was a fellow at Harvard
Center for International Affairs, currently is conducting
research on the role of the military in the transition to more
democratic governance in Africa.
I believe he brings a personal perspective in that his home
country has fallen victim to this very corruption that we are
talking about, and his fellow countrymen are facing poverty and
disease as a result of that very corruption, so he has seen it
happen on a firsthand basis to his fellow Kenyans.
John Conyngham is founder and director of the 150 member
international corporation investigations team at the London
based Control Risks Group, Ltd. The team, operating out of 12
offices worldwide including three in the U.S., does
investigations ranging from pre-employment screening through
fraud investigation and prevention, investigative due diligence
and asset searches for both government and corporate clients.
A former prosecutor of tax evasion and drug related charges
in England, he also is Deputy Principal Crown Counselor in Hong
Kong specializing in fraud prosecutions and formerly was head
of fraud prosecution for Crowe Associates U.K., Ltd.
Jack Blum, an expert on money laundering and offshore tax
haven issues, is a partner in the Washington law firm Lobel,
Novins and Lamont where he represents individuals, governments
and corporations on international business transactions,
corporate fraud, recovery of losses for victims of
international, tax and antitrust matters.
He served as associate counsel for the Senate Committee on
Foreign Relations and the Committee on Judiciary and was later
special counsel to the Committee on Foreign Relations. He was
involved in a number of well-known investigations, including
BCCI, General Noriega's drug trafficking and Lockheed
Aircraft's overseas bribes, which gave rise to the Foreign
Corrupt Practices Act.
He has been a consultant to the United Nations Center on
Transnational Corporations and to its Office of Drug Control
and Crime Prevention. In fact, he presently chairs an experts
group on international asset recovery of the U.N. Center for
Transnational Corporations and its Office for Drug Control and
Crime Prevention. The panel which he chairs has actually been
charged by the U.N. with looking at the very subject we are
testifying about today.
I welcome you, gentlemen, and we will go from left to right
starting with Professor Chege. We welcome you to the hearing
and look forward to your testimony.
STATEMENT OF PROFESSOR MICHAEL CHEGE, DIRECTOR, CENTER FOR
AFRICAN STUDIES, UNIVERSITY OF FLORIDA-GAINESVILLE
Mr. Chege. Thank you very much, Mr. Chairman, Congresswoman
Waters. I am so pleased to be here and appear before you this
morning. I feel honored to have been asked to come and speak to
you this morning.
My main qualification for appearing before you, as was
stated by the Chairman, is that I grew up amidst a lot of
poverty in colonial Kenya when it was still a British colony. I
did not wear my first pair of shoes until I went to high school
at age 15.
I have now a position as Professor of Political Science and
Director of African Studies at the University of Florida. I
have seen it all from a theoretical perspective. I have seen it
all in practice, and it pains me that dictators in Africa and
in other parts of the developing world continue to impoverish
the poor people.
My principal qualification for appearing before you is that
I grew up amidst poverty in colonial Kenya. I know it from a
practical point of view.
It pains me, as somebody that studies Africa and studies
the developing world, to see that dictators take resources and
bank them abroad when children go hungry, when children that
need vaccinations do not get them, when AIDS in some African
countries affects a third of the population and nothing is
being done about it.
Mr. Chairman, everybody who studies the developing world
knows by now that bad governance is the root source of all the
problems that afflict these countries from political
instability to poverty to inability to provide schools and
health services.
Most of the developing world has a population growth rate
that is much, much higher than the rich developed countries of
the west; a 2.6 percent population growth rate in Africa, 2.2
in the Middle East, two percent in South Asia.
Mr. Chairman, a growing population is a young population.
Fifty percent of Africa's population is under 25 years old.
When I appear on a street in Johannesburg or Nairobi I look
old, Mr. Chairman, because everybody else is so much younger.
A young population requires vaccinations when they are
children. They require health. They require education in grade
school, in high school, in college. They require jobs. In an
age where electronic transformation of information across the
globe is so fast, they watch the wealthy countries on
television, on video, on cable television, and they want it. We
may not like what we see on those channels, but, believe me,
they would love to have some of it.
A government that does not provide those services risks
provoking a chain reaction of instability leading onto
terrorism and into political instability, thuggery, drug
trafficking and arms trafficking that affect us here in the
United States as well.
I cite the case of Sierra Leone, Mr. Chairman. The
dictators who misruled and abused the wealth of that country,
which is based in diamonds and steel and iron and coffee and
cocoa, between 1965 and 1992 produced a young and angry
population that had nowhere to go, that had no jobs and that
had lost any sense of hope.
In came Charles Taylor, the incumbent dictator of Liberia,
a country that you know was founded by the United States as a
colony after the end of the Civil War for freed American
slaves. Charles Taylor, who is a drug kingpin and a war lord,
sponsored the RUF, the Revolution United Front, in Sierra
Leone.
While these young people were taught to collect diamonds,
those diamonds eventually found their way to Charles Taylor
and, as we now know, into and through his intermediary, Mr.
Sanjivan Ruprah, who is now being detained by the government of
Belgium; the pockets of Mr. Victor Bout, ex-KGB, who runs the
largest arms bazaar underground in the whole world, the
official supplier to Al-Qaida; Abu Sayyaf in the Philippines;
and sundry terrorist groups in the Middle East.
Diamonds are the terrorists' best friend, Mr. Chairman, and
now we are learning. Although Sierra Leone looked like a
country that is way, way far away that we do not care about, we
learned that through the linkages manufactured by Charles
Taylor that we, too, became victims of this little, nasty war.
I will say something about President Mobutu of Zaire, who
passed away in 1997 and had secreted $4 billion of that poor
country into Swiss accounts, chalets on the French Riviera,
chateaus in Switzerland, buildings in Europe, vineyards in
Portugal, to leave the country poorer than he found it in 1964.
The people of that country have not recovered.
There is no infrastructure to speak of, nor roads, nor
telecommunications, nor schools, nor hospitals. In the midst of
that, they are caught up in one of the largest and most
barbaric wars on the African continent.
The saga of Sani Abacha has already been mentioned. The
Honorable Waters referred to it. It is already a well known
story in the press. I could go on to my own country, Kenya.
Kenya, Mr. Chairman, was a showcase of African economic
prosperity and development, the land of the safari, of
hollywood movies, yes, of Lion King even. Today, Kenya is a sad
situation. It is a sad situation because of the dictatorship of
Daniel arap Moi, whose leader, Mr. Moi, is reputed to have $3
billion abroad, has systematically ruined the economic
prosperity of that country; he, his family and his cronies.
Goldenberg, which we mentioned a little bit about earlier,
is a case in point. Between 1991 and 1994, the government of
Kenya, which is to say the dictator and his minions, decided to
pass a law to give anybody who exported gold out of Kenya a 35
percent rebate of the value of that gold. That was by way of
diversifying the export commodities of Kenya, which the World
Bank and IMF had urged.
Some $3 billion, $4 billion, $5 billion dollars was paid
out to cronies of the president through this way, but there was
one problem, Mr. Chairman. Kenya has no gold. When the press
and the courageous people of that country went over to Dubai
and Switzerland to inspect the dummy corporations that
supposedly received this gold, they found none of them.
Mr. Moi and his cronies have wealth secreted abroad that is
equal to the total national debt of Kenya, which is rated at $8
billion. In the meantime, poverty has come to Kenya. It is no
longer the golden land of the safari makers that it used to be.
Aid coming into Kenya has been squandered systematically. HIV
rates go up to 30 percent in some parts of the country; no
support from the government that is worth talking about.
Schools are falling apart.
Crime is rampant; so rampant that it has completely
destroyed the prospect of tourism that used to earn that
country a lot of money. I could go on, Mr. Chairman. We
concentrate on Africa because Africa now has got the worst
cases in these matters. It is also a region where the poor are
growing poorer.
We could talk about the family dictatorships in our
neighboring Middle East, which are also experts in this, the
Duvalier dynasty in Haiti, the Marcos, the Samozas in
Nicaragua, Suharto in Indonesia, Saddam Hussein--yes, he is an
expert in this, too--the Russian ``oligarchs'' in the 1990s,
all players in this macabre and tragic drama of Robin Hood in
reverse, stealing from the poor in your own country to bank it
to your rich self and your cronies abroad. Robin Hood in
reverse ought to be stopped, Mr. Chairman.
What can your subcommittee do? A lot. I thank you for the
work that you have done already. It gives me, my colleagues, my
countrymen, a lot of poor people out there, a lot of heart that
this great country has people in its own legislature that care.
Number one, let us never forget the courageous people who
work in these countries to fight these dictatorships. Please,
let us support democracy, transparency, accountability, civil
rights, human rights. The most effective firewall against
dictators who steal from their own people is democracy.
Democracy, Mr. Chairman, is good for your pocket. It is good
for mine. It is good for the poor people in those countries.
Democracy empowers people to fight so that their taxes are
not stolen. It empowers them so that they can write stories
when the dictators steal money. It encourages them to shame
their leaders when they fail to act.
Remember South Africa. We never gave up on Nelson Mandela
and his colleagues. We applaud them because they have brought
stability to that country and good governance, and the banking
system works sufficiently. Another example is Aung San Suu Kyi
in Burma. The list goes on. The United States Government should
identify itself with those who fight for the rule of law, for
transparency and for democracy.
Number two, Mr. Chairman. My suggestion. The era of
unquestioned support for the U.S. Government for dictators
abroad has come to an end. The IMF and the World Bank have
unwittingly become the principal instruments in the
multilateral international organization system to help in
financing of development to promote government. They have
succeeded in one respect, and that is to give Third World
countries information technology, as well as technical support,
to realize the market is the single, most important tool for
lifting the poor out of poverty.
Poor people in Africa, Mr. Chairman, know how to work the
market. If you give them a chance, they will do wonders. I have
seen that in Africa. Many illiterate market women in West
Africa are millionaires as I speak. It is their governments
that impoverish Africans.
The IMF and the World Bank, insofar as national governance
and cooperative governance are concerned, however, are a
spectacular failure. In some cases they have utterly been
complacent in the theft and depravity that these countries have
suffered. The IMF and the World Bank continued giving money to
Mobutu even as they knew that that money was going to
Switzerland into secret bank accounts and to impoverishing the
people of Zaire.
Right now, Mr. Chairman, the World Bank's president is on a
first name basis with Mr. Moi. Can you believe that? Also,
because the World Bank is providing its own employees and
technical support to the Kenyan government they think that they
can outsmart him.
Mr. Chairman, it is very difficult to outsmart these crooks
and dictators. They did not get to where they are from nothing.
From Saddam Hussein to the Duvaliers to Mobutu, they are
smarter than we think. We may not admire what they do, but you
cannot fault them for playing it well.
The Alan Meltzer report that was submitted to Congress in
the year 2000 had some very interesting ways about how to
reform this institution so that it --and the IMF--become
accountable to us in the United States and also to the poor
people that they serve. Please, let us use it as a way of
getting reform.
Mr. Chairman, I want to stop there, but I want to conclude
by saying that I know that I speak on behalf of a lot of poor
people in Africa who I see and speak to every time I travel
there. They look up to this country because it is a beacon of
freedom, and no institution is a greater sign of that freedom
than this legislature.
Mr. Chairman, please do not fail them.
[The prepared statement of Prof. Michael Chege can be found
on page 46 in the appendix.]
Chairman Bachus. Thank you. I appreciate your testimony
very much.
Mr. Conyngham.
STATEMENT OF JOHN CONYNGHAM, ESQ., GLOBAL DIRECTOR OF
INVESTIGATIONS, CONTROL RISKS GROUP, LTD., LONDON, ENGLAND
Mr. Conyngham. Mr. Chairman, Members of Congress, good
morning. As you rightly stated, I am the Global Director of
Investigations from an English company headquartered in London,
Control Risks Group.
May I begin my comments this morning by thanking the
subcommittee very much indeed for the kind invitation to appear
before you. It is indeed an honor to be here, and in the last
few moments it has been a privilege to hear your opening
addresses and indeed the moving address of Mr. Chege.
I have, Mr. Chairman, submitted some written testimony, and
I would ask if that could be made part of the record of the
hearing today.
Chairman Bachus. That will be made a part of the record
without objection.
Mr. Conyngham. Thank you.
Mr. Chairman, what competence, if any, I have to appear
before you today is from my past 12 years as an international
investigator. During that period of time, companies that have
employed me have been retained on a very significant number of
asset tracing assignments. Some of those assignments have
involved assets stolen from their countries by very highly
placed government officials, if not heads of state.
I have mentioned in my written testimony some of the trials
and tribulations of conducting that type of work where one
comes across the secrecy of individuals, of companies, of
financial institutions, and the complexities of offshore
jurisdictions, of laws and of politics.
If I might present some brief personal thoughts at the
outset of my comments, I think probably the most important
thing that I may have said in my written testimony was the
final words that I wrote, that with these monies they can build
a far better future; they being the citizens of countries who
have had their assets stolen by their former rulers.
Mr. Chairman, as citizens of our respective countries, we
regularly witness the appearance of individuals who through
honest endeavors and great skills accumulate great personal
wealth, and we applaud them. As an international investigator,
I have had the misfortune to witness on occasion the grotesque
extravagances of those who have accumulated wealth through the
practice of grand corruption, the diversional theft of huge
sums of state monies for the personal enjoyments of those who
have held the highest positions of trust in those countries and
who the evidence has shown have abused such positions of trust
from day one of that position in office.
The private palaces? I have been in some of them. The vast
automobile collections and multi-story carports running into
hundreds and hundreds of vehicles? I have seen them. The gold-
plated everythings? I have on occasion had to touch them. When
set beside the poverty of the countries that these individuals
were elected to govern, in my experience, these objects become
objects of very great distaste.
Mr. Chairman, may I thank the subcommittee for taking on
this subject today. May I say that in a small piece of research
that I conducted before I came here that you are not alone in
the interest that you are showing. A year ago in January, 2001,
the International Development Committee of the House of Commons
held a series of hearings on corruption, corruption both
internal and external to the United Kingdom. I have extracts
from those hearings which I might pass up at a later stage that
may be of some interest to you.
Can I just quote that a primary finding of the committee
was that their investigation into corruption had revealed a
lack of coherence, focus and determination across Whitehall,
the area in London where our great Ministries of State are
located, in tackling this subject. They went on to say, ``This
lack of focus and coordination is hampering efforts to tackle
corruption and money laundering in the United Kingdom.'' I
wonder if those comments could possibly be echoed elsewhere.
Moving from the domestic United Kingdom scenario to the
world stage, it is my belief that major success in recovering
the assets of corrupt former leaders will only truly succeed
when there is focus, commitment, coordination, determination
and coherence on an international basis.
If I could briefly address you on three issues that I
touched upon in my written testimony which gets us maybe down
to the mechanics of this exercise. First, the advantages of
civil procedures over criminal procedures in asset recovery
matters; second, the difficulties that can be caused by
inappropriately presented evidence; and, lastly, and I do not
wish to avoid this, the cost of worldwide asset recovery
investigations.
In terms of the advantages of civil procedures or criminal
procedures in these matters, sir, the traditional approach in
cases of grand corruption is that the perpetrators of the acts
must be publicly prosecuted. As a former prosecutor, I can
readily identify and sympathize with that sentiment.
As an investigator, I have come to learn over the last 12
years that solely pursuing the criminal route does not
necessarily bring the best results for the actual physical
recovery of assets, and in the event of criminal action failing
it may not return any assets at all.
For the provisions of mutual legal assistance treaties to
come into play, in many instances charges must be in place.
Charges must have been laid in the originating country, and for
all sorts of reasons for an incoming administration to lay
charges swiftly and with competence is in many instances very
difficult indeed.
Have we seen President Suharto being charged with criminal
offenses? I believe we have not. In the Abacha matter, the
matter was further complicated by the fact that the gentleman
concerned had died by the time recovery actions were being
commenced. That has proved to be a major hurdle at least in the
United Kingdom when it came to the implementation of assistance
under the Mutual Legal Assistance Treaty that was there.
The government departments that actually deal with mutual
legal assistance requests are under resourced. The latest
figures I have in the United Kingdom, there were 1,500 requests
for mutual legal assistance in the United Kingdom, and there
were eight members of the department that were meant to handle
that and respond adequately to them.
The alternative or parallel approach to the civil law route
has in fact many attractions. In the United Kingdom, the civil
law approach provides the recovery team with powerful and
speedy weapons. Freezing orders and civil search warrants can
be secured from High Court Judges on ex parte, single party
proceedings with worldwide applicability.
This means that identified assets can be frozen prior to
the defendant being aware that they have been located, and
authorized search teams can enter the defendant's property and
seize documents that may further assist in the tracing of
assets before the defendant knew that anyone was coming.
The tests that the plaintiff must satisfy is that there is
a strong prima facie case, a good, arguable case. The financial
penalty for getting it wrong is heavy, but these are potent
weapons that can be readied and activated at short notice. I
commend this thought to you as the equivalent powers I am told
do not exist in the United States.
Finally, as it regards civil proceedings, the standard of
proof, that of the balance of probabilities, is far more
achievable in many cases than the rigorous criminal standard in
common law jurisdictions of proof beyond a reasonable doubt.
Moving on to inappropriately presented evidence, in my
written testimony, as I said, I have tried to present a flavor
of the complexities and hurdles of the investigative trail. If
the investigative team confronts these complexities and jumps
these hurdles, all will still be to no avail if on presenting
the evidence in overseas jurisdictions it is found to have been
prepared in a manner that is inappropriate for the procedures
of that particular tribunal.
Why do I pick up on such a seemingly small matter? I do so
because time and time again I have seen proceedings delayed or
even abandoned because of unnecessary flaws in the evidential
bundle. This type of detailed requirement puts a heavy
responsibility on the domestic investigative team in a
developing country that has just gone through a period of major
political upheaval.
It is not a question of competence. It is simply a question
of experience. The investigator may be dealing with the same
small government teams overseas that I referred to a minute
ago, or he will be dealing with external lawyers in multiple
jurisdictions, many of whom will have had very little
experience of these types of proceedings.
What is needed are the tools to collate the substantial
volume of evidence that has been collected, the knowledge that
insures that rules of evidence have been adhered to and the
experience of having been there and done that before.
That, I suggest, leads to the need for a form of public/
private sector initiative that combines the real experience of
government anti-corruption specialists, the private sector
probe and experience of relevant professional advisors, be they
lawyers, accountants or investigators, coupled with the civil
society demand, and I believe right, for better results in this
area.
It would be seen in my view to be proof positive that the
developed countries were prepared not merely to mouth good
intentions, not simply to demand high standards of governance,
but were prepared to provide practical assistance that produces
tangible results.
Finally, sir, on costs I would touch on that matter very
briefly, because I do not wish to avoid it. The costs of such
work are high. Why is that? It is because these investigations
are complex, they are time consuming, and they are multi-
jurisdictional.
For real success to be achieved, they need seasoned, multi-
disciplinary professionals with the armory of experience. Such
individuals are entitled, in my view, to a fair market rate for
their services.
This is a real concern for victim countries I have no
doubt. I have personally heard that concern expressed in Abuja,
Nigeria, I have personally heard it expressed in Islamabad,
Pakistan, and I have personally heard it expressed in Jakarta,
Indonesia.
For my company and many others in the field of operation,
this field of operation's contingency fees are not an option.
We have costs to bear today, as well as tomorrow, and the
operational costs of investigation are very high, from travel
to accommodation to the cost of documentation, translation, the
collation of the evidence together using sophisticated software
and increasing the costs of forensic examination of computers.
These things, Mr. Chairman, cost significant sums of money,
and it is my belief that any international public/private
partnership must contain within it the facility that will
assist at least on an interim basis the costs of the asset
recovery exorcist.
In conclusion, Mr. Chairman, I have no doubt whatsoever
that this subcommittee can seek to influence in the right
places and put in train a series of actions that could vastly
improve the rates and amounts of recovery of dictators'
plunder.
To speed you on your way, may I briefly return to the House
of Commons' International Development Committee deliberations
of January of last year. That committee discovered that the
United Kingdom had ratified the OECD 1997 Convention on
Corruption in 1998, but it had managed to do so, the United
Kingdom, without enacting any new legislation stating that the
legislation of 1889 and 1906 sufficiently covered the wording
of the OECD Convention.
The International Development Committee was horrified when
it heard that. Within a matter of months, the Secretary of
State had put out a statement saying that it would be reviewed,
and in November last year after the very sad and tragic events
of September 11 when we were putting through our Anti-Terrorism
Crime and Security Act the necessary amendments to cover the
need to have extra territorial provisions against corruption
was also enacted at that time so they had, sir, a real success.
I wish this subcommittee a similar success.
Thank you.
[The prepared statement of John Conyngham Esq. can be found
on page 51 in the appendix.]
Chairman Bachus. Thank you.
Mr. Blum.
STATEMENT OF JACK A. BLUM, ESQ., PARTNER, LOBEL, NOVINS &
LAMONT, WASHINGTON, DC
Mr. Blum. Thank you, Mr. Chairman. I very much appreciate
the opportunity to be here this morning, and I want to thank
the subcommittee for its continuing attention to and interest
in a subject which I think is one of the most important issues
you could be dealing with.
I have a prepared statement. I ask that it be put in the
record. Rather than reiterate what is in the prepared
statement, I would like to focus on a couple of key points.
Some of them pick up on the testimony you have just heard.
When a new government comes in after a country has been
looted, they do not have very much to work with. I remember
being in Guyana shortly after a new government came in, and the
old crowd had taken everything--the chairs, the tables, the
light bulbs, even the toilet paper. They did not know where to
begin, much less how to go about trying to find where money had
been taken, and where it had disappeared to.
The chaos that they have to deal with is such that they
cannot do what has to immediately be done if you are to make a
proper case to go recover money, which is immediately seize the
relevant records, immediately get at the witnesses and get
focused on how you are going to make your case.
The first thing a country needs in a change of government
is immediate expert help in doing a proper investigation of
what happened to the money and what are the problems. This
means things like auditing what happened at para-statal
companies like the Nigerian National Oil Company or one of the
national mining companies.
Now, the second thing that the country needs is help in
structuring the international piece of the investigation. We
now have in place a whole series of mutual legal assistance
treaties which a country can use to reach out and say please
help us get this information, but the knowledge of how to meet
the technical requirements of those treaties is very
specialized.
Every country has technical requirements for mutual legal
assistance requests. If you get it wrong, they bounce it back.
They say get more stuff. Fill in the blanks. Give us more
paper. Sometimes these treaties can only be triggered if you
bring certain kinds of charges in the country that has been
victimized, so there is a question of how to coordinate the
criminal case in your own country with your efforts to gather
information abroad.
Then there is the question of coordinating that with an
effort to get the money, so in the Abacha case the problem was
that everything that was done was done through the criminal
process. In Europe, continental Europe, that makes a degree of
sense because in the criminal process in the continental
countries criminal and civil complaints are combined. It is
very different than it is here, and most Americans cannot even
conceive of this situation.
The victim of a crime is considered what is called a party
civile. He can be a party to the criminal investigation. He
sits with the examining magistrate as the examining magistrate
interviews witnesses. He has access to all of the documents
that have been gathered by search warrants and investigative
orders of the examining magistrate, and he can use those in
ongoing civil actions.
In the United States, it is a crime to reveal whatever a
Grand Jury has found, so the prosecutors cannot share any of
the material they get in the course of a criminal investigation
with civil lawyers who are involved in the same process. It is
an utterly different track.
In the case of Nigeria, what they did was they brought
criminal complaints and then asked for mutual legal assistance
and had subsequent criminal complaints of their own in the
European countries, and that enabled them to get data and
information through the criminal process in Europe.
Now, the problem that then ensued was that the countries
that seized the money subject to these mutual legal assistance
treaties and the criminal investigation said OK, we have the
money, but we will not turn it over until you get a conviction.
Of course, the criminal process in Nigeria is hopelessly
broken. Ten years is a minimum time line for a criminal case.
How do you get a conviction and then get the money if you have
to wait 10 years? Maybe there will be a different government;
and the money--who knows what will have happened.
That was a real problem for the Nigerians, and finally
there was a problem that the principal perpetrator had died.
Now, I visited Liechtenstein where some of this Nigerian money
was, and I talked to all of the Liechtenstein officials who
were dealing with it. They, in the wake of various laws that
had been passed and the pressure from the international
community, turned over a lot of information, and they froze a
lot of money, but they were not going to turn it over to the
Nigerians because Abacha's family had filed 24 different
lawsuits in Liechtenstein to prevent the Liechtenstein
government from releasing the money.
You can see that it became a huge legal tangle, and there
were huge legal bills for the Nigerians to try and sort out
what was going on in these different countries. In the United
States and the U.K. the problem was that the Nigerians were not
meeting either the standards of charging or the standards of
proof required to do the freezing and carry forward with the
case, and in the U.K. and the United States the Nigerians could
not afford to hire proper counsel to do the job.
What do we need to solve this kind of problem? Well, we
assembled, and John Conyngham was part of the group, a group of
experts from around the world who participated in a variety of
legal systems and recovery efforts, and they talked through a
number of things that could be done to speed this process.
For example, in cases of grand international corruption why
not allow evidence, Grand Jury evidence, to be used in a civil
case? Why not allow the government access to some of that
information that has been gathered so that they can go forward
with a civil proceeding and freeze the money and maybe under
Court supervision with proper protective Orders and use that
machinery to get around existing bank secrecy?
There was also the idea put forward that every banking
institution, when it takes money in from someone who is
potentially a person who is corrupt, should know that it takes
that money in as a constructive trust for the victim of a
crime. This is a concept that the Courts in the U.K. have
adopted.
What they say is you, the bank, have taken this money and,
therefore, if you give it out and let it out of your hands you,
the bank, will be liable for the money because you have it in
trust for the people of the country that was victimized, so
perhaps an expansion of that concept of constructive trust
would be useful.
Finally, what we need is some sort of driving engine to
make this happen, the problem being that who has this
expertise, where does a country go, who is going to give them
the money and how will they get their feet on the ground to
make things work, and how will they know as the many lawyers
come in and have deals set up of I will do it on a contingent
fee or the investigator says this is what it is going to cost.
How do they know they are dealing with people who they can
trust, and how do they fund the operation?
I put forward a proposal which is strictly my own which is
an idea of creating an international revolving fund perhaps
funded by donor countries, the World Bank, which would act as a
funding mechanism for a country in this kind of mess to be
replenished out of the recovery money. If you put enough money
in to start with, you will get plenty of money back. That is
our experience.
The revolving fund would enable also the country to either
hire or perhaps through some sort of international agency, let
us call it a public interest law firm or a foundation or
perhaps some entity created under the U.N., to provide case
management for the country.
Country X has a problem. You pick up the phone. You call
this group, and you say look, we have a problem. Will you help
us sort through what it is that we need, what we have to do,
who we have to call and what are the likely jurisdictions we
have to go to? Then the case management entity helps begin to
help a country hire on the lawyers, the accountants, the
investigators, the forensic experts who put the case together
and get the money back.
Now, another alternative idea which has some appeal to me
is the idea of setting up a foundation for recovering these
assets and getting the country that has been victimized to
assign the right to recover to the foundation. If you do that,
you take away the political pressure to kill the investigation.
In a couple of countries, what we have seen is they start
off hell for leather, and about 6 months out, the old corrupt
folks pull things together and say ``Wait a minute. We do not
like what is going on.'' The investigation suddenly dies. All
of the zeal that was shown initially to recover Suharto's
assets suddenly sinks into nothing, and you do not hear about
it anymore. If you assign it to another entity and it becomes a
political problem to stop the investigation, it is a different
matter, and that is another way of going at it.
I will give you one more thought, and that will be the
concluding one, which is that we have to deal with the problem
of the international lending institutions. The international
lending institutions commendably have been talking about the
corruption issue. They have also hired auditors, and lots of
them, to investigate the disappearance of funds that they have
lent. We all understand that a very substantial portion of the
money has in fact disappeared.
The problem is under the existing system in the
international lending institutions none of this is made public.
They did an audit of Haitian loans. The upshot of the audit,
everyone who knows about it has heard, is all the money
disappeared, but they have refused absolutely and resolutely to
make those loan documents and that record public.
My view is the problem is that all of the people who are
the perpetrators are also sitting there as executive directors,
or at least representatives of many perpetrator countries, and
that really if you put together the question of do we go out
and sue the folks who stole the money with guys who either are
in the same situation or potentially stole it themselves, of
course they are going to vote no.
We have to put into the international lending institutions
a mechanism which says if you find that money has been stolen,
you are going to assign the recovery to this international
institution, and there is no going back, and there is no voting
no, and there is no walking away from it. You will take every
effort to find the money and really get it back for the country
involved because the alternative is to lend them more money and
then to take it out of the hides of the poorest people in the
victim country by saying well, we have to send the IMF in to
restructure.
If I look at some of the IMF proposed remedies for
Argentina and I think of all the money that has been looted
from that country, I think what an unfair thing. Go in and
punish the victim for the fact that the money has been stolen
when what you should be doing is chasing the crook. That to me
is the direction we have to move in.
I really advocate the creation of an entity that can take
on this effort and one that comes in under a kind of neutral
international civil service status, but also that has the
flexibility and the capability of what I would call an elite
law firm that can move quickly and knows what it is about and
is a little more nimble than perhaps the usual bureaucracy of
the United Nations.
I have been searching for the way to create this and to get
a debate going on the need for it because I think the need is
obvious and essential. There have been efforts by the banks, by
the way, to clean up what has gone on. They have assembled the
Wolfsburg Group. They have come up with lists of people who
should not have bank accounts. All of this is well and good,
but I should remind you Europe has not yet passed key
provisions of the Patriot Act.
I was in Brussels a couple of weeks ago talking to key
officials of the European Union. They still have shell banks.
They still have a whole series of arrangements that this
Congress has quite commendably outlawed. I think that we have
to talk to the Europeans, and we have to say look, this is the
new international standard.
I think that this subcommittee has done an incredible job
of closing a lot of loopholes and doors. What we now have to do
is move it out, get it into the international arena and find
the machinery to implement what has been done here and find the
ways of helping the countries that need the help.
Thank you for giving me the opportunity to testify.
[The prepared statement of Jack A. Blum Esq. can be found
on page 61 in the appendix.]
Chairman Bachus. Thank you, Mr. Blum.
Mr. Tiberi.
Mr. Tiberi. Mr. Blum, you mention in your testimony asset
recovery and the World Bank. Do you think that the World Bank
has a serious problem when it comes to this type of fraud?
Mr. Blum. I think there is a real problem in terms of loan
money that does not wind up going for the purpose intended or
loan money that goes into projects and the projects are three
times what they cost, three times what they ought to, or the
bids are rigged, or there is something wrong, and somebody is
taking a piece off the top.
I have seen it personally. I was in Kenya a number of years
ago, and I was called later by a Kenyan who said help me. We
are bidding on a contract to supply the material for a new
hospital. They have asked us to put all of the equipment in the
hospital, and we want to prepare a bid.
What we have discovered is they have specified certain
brand names for certain equipment, and there is only one
supplier who offers those brand names. They are telling us we
cannot offer alternatives and that if we do not bid the whole
package we cannot be accepted as a bidder. That is corruption.
I wrote on behalf of this company to Mr. Wolfensohn, and I
got what I would consider a snotty letter back from the World
Bank manager in Kenya who said it is none of our business it is
a problem for the Kenyan government. Well, indeed it was a
problem for the Kenyan government. It was probably the Kenyan
government that was doing it. You are in a perfect Catch-22.
There is no way to recover the money.
Mr. Tiberi. Why do you believe this problem exists that has
not been rectified?
Mr. Blum. The problem is that the people who have to vote
on the issue of asset recovery and pursue it are the executive
directors of the bank, and that includes a large block of
people from countries where this problem is pandemic. You
cannot get the people who are the heart of the problem to vote
for the solution.
Mr. Tiberi. What type of language would be appropriate to
require the bank to recover these funds?
Mr. Blum. I think it is necessary to say as a condition of
the loan you must, if there is an audit finding of some sort of
fraud or irregularity, turn the matter over to a team separate
and apart from the bank that will then engage in the civil
effort to recover the money.
That should be irrespective of the wishes of the borrowing
country and irrespective of the wishes of the bank itself. If
there is evidence of fraud, the politics are out. It is not a
matter to be voted on. It is a matter to move forward on.
Mr. Tiberi. Are you aware of any fraud involving U.S.
export assistance?
Mr. Blum. I cannot say that I have had that experience
directly, but I would guess, knowing what I know, that one
could find it if one looked.
Mr. Tiberi. Should we be concerned about fraud with the IMF
as it applies to the IMF?
Mr. Blum. I think the IMF has had some brushes with serious
fraud. There was that marvelous case of the money that was
given to Russia turning up in the Channel Islands. There was an
audit report that was put out on that money disappearing. The
next thing we knew was the audit report had been on the website
for the IMF, and it suddenly disappeared. It went from being a
public document to being a private document, and I thought that
was kind of astonishing. I know although the report was public,
I do not know what happened in terms of recovering the money.
I was in St. Petersburg about a year ago and talked to a
number of Russian officials who are extremely interested in the
problem of asset recovery because they understand that an
enormous amount of the Russian national wealth disappeared over
the last couple of years, and it has been floating around in
Swiss banks and Austrian banks, and they have not got the
expertise or the capability of going back and getting it.
Mr. Tiberi. There are some on Capitol Hill who would argue
that because of problems both at the World Bank and IMF we
should pull back as a set of policy. Would you concur, or do
you believe reform is preferable?
Mr. Blum. I think that if you travel the world and you look
at the need, if you visit, as I have recently, places like
Lagos, places like Kingston, Jamaica, you can see levels of
poverty, despair and need that are just so overwhelming it is a
folly for the United States to think that you can just walk
away from it.
There is a basic premise that I have, which is that foreign
problems become domestic problems. Whether it is the terrorists
on 9-11, whether it is a disease that starts in a country where
there is terrible poverty and then gets imported on a flight
into the United States, whether it is a pollution problem that
blows across an ocean.
Where there are huge economic and social problems, they
will come to the United States. If they do not come in the form
of a problem, they will come in the form of illegal immigrants.
We have to face the fact that the problems of the world are
ours, and we have to fund the international lending
institution.
Mr. Tiberi. Based on past history, how do we begin down the
path of insuring that there is some accountability on the other
end?
Mr. Blum. The accountability I think is in this prospect of
civil recovery. You say to people look, you are borrowing the
money. What we are going to tell you is if this money is stolen
we are going to hound you to the end of the earth.
There will be no bank, no investment player who will be
immune. We are also going to hound the lawyers, the accountants
and the business people who will try to help you hide the money
and help you steal the money because we are going to hold them
accountable, too.
Mr. Tiberi. Thank you. One last question. We heard this
morning about the role of the Swiss government and the Swiss
banking industry in efforts to identify and return the assets
stolen from Nigeria.
Give us your assessment and track record of our government
and the U.S. financial services industry in relation to
assisting an international corruption.
Mr. Blum. We have been quite proper in the way we have gone
about responding to requests for mutual legal assistance. The
problem has been we have very high legal standards, and we are
approaching it from a point of view have they met our
requirements for giving them the information? Have they given
us exactly what we need? Have they charged the case in exactly
the right way in the country where the request originated? That
is one problem.
The second problem is resources. Just as in the U.K., we
have a very small number of people who handle these requests.
They are farmed out to Assistant U.S. Attorneys, and typically
it goes to the junior U.S. Attorney in the office who has a
significant other case load.
I, in fact, worked with a Swiss examining magistrate in a
case, in fact a corruption case, where I helped him make an
appointment directly with the Assistant U.S. Attorney so he
could explain the requirements of Swiss law because the problem
was that the U.S. Attorney had gathered the material, packed it
up and sent it to Switzerland, but he met none of the
evidentiary requirements of the Swiss court.
The Justice Department tries, but what we need are training
programs for people which tells them what the evidentiary
requirements are in foreign courts. We need more manpower. We
need speedier responses.
Just to give you a sense of that, in a mutual legal
assistance request the process goes from the police to the
Justice Department to the State Department or foreign office of
a foreign country, then over to the counterpart foreign office,
then to the Justice Department, then down to the police. My
rule of thumb is 2 weeks for every time a piece of paper moves
from one desk to another minimum, usually a month. You can see
that in a rapidly moving case that is disaster.
Mr. Tiberi. Thank you. I yield back the balance of my time.
Chairman Bachus. Ms. Waters.
Ms. Waters. Well, I would like to first thank our witnesses
here today. Your testimony has been riveting.
I guess much of what I have heard I have discovered some of
that in the past, and I am always very, very pained as I hear
the graphic descriptions of the corruption and the plundering
on the continent of Africa as I have heard today, but I also
get very, very angry about our own financial institutions who
accept the money from the dictators and help to shelter it with
private bankers, and so forth.
I have put a little time in on one such case with the
Salinas brother out of Mexico who had I think something in the
neighborhood of $80 to $100 million in Citibank, and we are
supposed to be the country that is strongest on ``know your
customer.'' As I recall, the Salinas brother did not even have
a card on file, had no visible employment and was a drug dealer
who eventually ended up in prison for the murder of someone.
For the life of me, I do not understand why that money was
accepted in the first place at Citibank and how and what
private bankers do in helping to purchase assets for many of
these crooks in forming these concentration accounts where they
lose identity and money is wire transferred offshore.
I do not like our domestic banks playing a role in this
kind of money laundering or plundering or protection of money
that is plundered from other countries, so I have concentrated
a little bit on trying to figure out what we could do to make
sure that we do not continue to play that kind of role.
While we talked today about Abacha and I am alluding a
little bit to Salinas, there are other countries, particularly
in Africa, who still have assets in our American banks. For
one, I would like to see that money not only returned to the
country where it was stolen under the right circumstances, and
I do not know what you do about returning money to the same
government that stole it in the first place. But I would also
like to see some way by which a percentage of that money could
be used to help establish organizations that would be involved
in recovery so that it is not an additional cost to the United
States or the countries, but it would be self-supporting,
number one. Number two, that this money would be substituted
for foreign assistance that we may be giving in some of these
cases.
This is very complicated, as you have mentioned, but let me
just try and ask this question. I guess someone alluded to some
of these funds as supporting the Al-Qaida organization and
supporting terrorism. I have heard that Al-Qaida was very
involved in the export of a gem called tanzanite, and then I
read recently that one of the well known jewelry chains in
America, Zales, had stopped at one time selling tanzanite, but
they are back as of a few days ago selling tanzanite again.
I understand this is a number one gem that somehow the
Taliban and the Al-Qaida forces have access to in working with
some of the leaders in Africa. I want to know what do you know
about that, and if that is still going on what should we do
about it?
Mr. Chege. Thank you very much, Congresswoman Waters. The
case of tanzanite, again, is typical of the problem I was
referring to in my testimony. And that is, terrorist
organizations using African resources. When I say diamonds are
the terrorists' best friend, I mean these terrorist groups just
do not specialize in terror. They are also into regular
business making money that finances these operations. We know
here in the United States after 9-11 there was money coming in
to fund the people that were living here and getting ready for
those horrible, horrible deeds that day.
In the case of tanzanite, this is what we know. It is a
precious stone that is mined in Tanzania and hence the name
tanzanite. What the people in Al-Qaida and the terrorist
movement did was they have dummy companies. These dummy
companies are set up primarily in the Gulf Region, the United
Arab Emirates, Dubai, that sponsor people to come into Tanzania
and exploit these minerals.
They do not do it legally. They--the frontmen and dummy
companies--do it under the shadow and through the instruments
of bribery into government so that they more or less secure
mines of their own, they get the minerals and then ship it out
of the country. Corruption within the Tanzanian government, and
neighboring states, must be seen as a fast principal avenue to
which these sort of operations are allowed to happen.
Second, because the terrorists and their front corporations
do not want any of this stuff to appear in public, they would
not want to go and be documented through customs of Tanzania,
so it is brought out of the country through jet planes and
through small planes, just like in the drug industry in South
America and the United States that fly out undetected without
logging in when they have come or left the country.
I would like to say that I am very, very pleased that you
have been following the case of tanzanite, because it is
another case, once again, that shows that illegalities taking
place in faraway countries that we do not often think that
affect rich countries do come back to haunt us. That applies as
well to the case of diamonds in Sierra Leone in West Africa
that I spoke about.
Ms. Waters. Thank you very much. Thank you. I intend to
continue to follow the tanzanite to see what we can do with
that. I would like to talk with you a little bit more about
that.
Thank you, Madam Chairwoman.
Ms. Kelly. [Presiding] I thank you. Your question is a very
good one. I think it is very interesting. My colleague brought
up the fact that Zales had stopped selling tanzanite. I suspect
that had every jeweler in the United States of America joined
Zales that would have been able to put an enormous amount of
pressure, and perhaps we would have had a better resolution
than having Zales wait it out for a bit and then come back in.
I am only sorry that there was not more unanimity on that,
but perhaps that is one of the problems that we need to address
with regard to the U.S. Patriot Act. The Patriot Act may need
some tweaking. We tried to do some things with it.
Actually, Mr. Blum, that is really the question that I have
for you. I was talking the night before last with the
Ambassador of the European Union, and he, in presenting to this
group, raised issues himself of transparency and questions of
regulation. There are great problems because they are dealing
with so many different governmental structures, but these
governmental structures, if I understand your testimony
correctly, created the context for the opportunity for theft.
It seems that perhaps we need to work through the IMF,
through the World Bank, through our Patriot Act and through the
EU to try to get everyone on the same line in terms of some of
these, and it does not need to be large changes in our
governmental laws in each country, but perhaps there is a way
of our drawing up some kind of legislation that would help
remove that context because the context in and of itself also
creates a chill factor for U.S. investment in other countries
to invest in a country where they know they are going to get
involved in corruption.
I wonder, Mr. Blum, if you would elaborate on that a little
bit. Do we need more teeth? Do we need more funding? Can we
tweak that a little bit? How can we encourage nations to join
us?
Mr. Blum. We need some very expert thinking and a lot of
mutual conversation. Let me try to explain that a little bit.
It is awfully hard to go to France and say gentlemen, you
have to change a structure of your criminal law. That does not
get you very far. Likewise, if you come to the United States
and they say well, why do you not amend your criminal law to
make it look like ours, that does not get you very far.
What we need are ways of getting people to agree to common
themes and agree to accept each other's work in their own
court. We need a working concept. NATO has a concept called
interoperability where weapons of all NATO countries are
similar so that NATO units can work together as a combined
army.
The same kind of thing needs to go on in law enforcement.
We need concepts of cross designation so a police officer in
one country can be designated temporarily as working with the
police force in another country and have police powers. We need
the ability to move information from the criminal side to the
civil side.
Now, there is a real opportunity here. There is a
negotiation of a global anti-corruption convention that is
about to begin. Those negotiations will begin this summer, and
it is possible I think to use that as a way of figuring out how
do we create better international machinery for cooperation not
just in terms of facilitating the most formal kind of mutual
legal assistance, but how to take a look at all of the
different pieces of the puzzle, how to put the civil case in,
how to find a machine for moving forward with asset recovery,
what kind of mechanism will we use and again to set some
standards. I think that is the place and the time that we can
really come up with something.
Ms. Kelly. Thank you.
Mr. Conyngham, I would like to know if you have anything to
add to that. I am going to ask you to try to condense what you
say. Perhaps you could think about this because I need to go to
the floor and vote, so I am going to ask that the subcommittee
recess for a short recess. Either the Chairman or myself will
be right back, but we have a vote on the floor, and it is a
double vote, so I am going to have to go.
If you would think about what you would like to add to Mr.
Blum's answer, and I would really like both of you to do that.
I think this is a point of focus where we need to be, and we
need to be thinking about it so we can send the people into
this convention perhaps in a way with some fairly clear
guidelines that might help us all.
With that, I am going to recess the hearing for a short
recess. Thank you.
[Recess.]
Chairman Bachus. [Presiding] Thank you. Mr. Conyngham, if
you would like to respond to the question?
Mr. Conyngham. Just to follow up, I think in terms of the
opportunity that comes up this summer with the beginning of
negotiations on the Global Anti-Corruption Treaty, then I
think, sir, I would urge the United States to build on the huge
work you have done with the Patriot Act and try and convince
the European Union and other states to come in line with that.
We still have the position where shell banks cannot be
forced to disclose their ownership. You have taken steps to
change that in the United States, so that would be one very
positive move. I think we need clarity as to the nature of
offenses that adequately capture the nature of criminality that
is encompassed within the concept of grand corruption.
I think, sir, we need to begin to think of ways as to how
can we get banking institutions to really begin the change in
the culture to say that a culture of secrecy in the world of
2002 is not as important as it was. That cultural change can
only come from the very top, and I do not think we have total
buy in to that. I do not think we have total buy in with banks
that it matters that it ultimately affects their overall
worldwide reputation as to who they bank with and why they bank
with them and where that money is coming from.
If that message could begin to get around in stronger terms
around the world, I think we would be in a better position. It
is a culture that is there, the mode of secrecy, and it has to
be changed.
Chairman Bachus. Thank you.
Mr. Blum, you have said that the Palestinian authority is
riddled with corruption. Would you comment on that? I know that
they have received hundreds of millions of dollars in aid from
Arab countries, and the Palestinian people have little to show
for it.
Mr. Blum. A number of years ago I was approached by people
who were involved in trying to set up as part of the peace
process industry and housing development in the West Bank and
Gaza, and their complaint was that every time that they tried
to get something going they were up against corruption.
I have heard it from people all over the Arab world that
there is a real personal corruption problem among officials of
the Palestinian authority. Now, I do not view that as terribly
different than corruption in other places except when you think
of the implications of it and the consequences for the United
States and for peace in the region.
What you have is a situation where corruption is protected
by ongoing conflict, and, therefore, the incentives to make
peace and build are limited because then you have to actually
use the money for the purpose you are talking about.
I really think that one of the unintended consequences--
unintended is the wrong word. One of the other consequences of
corruption is that it hides and masks violence, war and terror,
and I think we have to address that. That is why I am so intent
on trying to figure out what can be done to prevent corruption.
Chairman Bachus. The war and the violence cover the
corruption. As you understand the PLO, and, Mr. Conyngham, if
you or, Mr. Chege, if you have any personal knowledge of this
or what you have heard, there seems to be no accountability
within the PLO, no transparency.
Mr. Blum. It has that in common with dozens of other
governments, but in this particular case the continued flow of
money in is utterly dependent on continued difficulty and
continued strife.
My point is that if you cut the strife, to cut the strife
you have to cut the incentives, the business incentives, to
keep the strife going. If you cannot steal the money and you
have to use it, maybe you will begin to focus on how to use it
properly and forget about worrying about how to get more of it.
Chairman Bachus. Should we as a country in our dealings
with the Palestinian authorities as, you know, we have
designated them as the voice of the Palestinian people, should
we or should other countries which are working toward peace
demand some accountability on the part of the----
Mr. Blum. I think it is part of the conversation. I think
it is part of the overall conversation that we have to have,
and it is part of what has to go on in the peace arrangement.
I see the solution not as particularly targeting them, but
as setting in place the global machinery because I think there
are so many examples of it around the world that to look at any
particular situation really does not get you very far.
What we have to do is talk about what are the global
answers, and what we also have to focus on is the fact that the
money invariably winds up in the markets of the OECD countries.
Almost none of that money is kept on the ground on the spot, so
really the issue will turn on how well we change our culture in
the wealthy countries of the world and how we change the
culture of the banking system and the legal culture.
What I would like to see is perhaps the prosecution of that
infamous lawyer in Geneva who when you are elected head of
state you go check in with him, and he will work out the plan
for hiding the money. I would love to see that guy prosecuted.
I would love to see him sued by some of the countries that were
victimized. The day you get that lawsuit or that prosecution is
the day every lawyer in the world goes out of that business.
Chairman Bachus. Mr. Conyngham.
Mr. Conyngham. Mr. Chairman, yes. I think there is a danger
in going to these countries and saying you will have these
standards of governance, this is what we require, this is the
way we operate, when we have not in many parts of the developed
world got our act together yet either.
I think in relation going back to the Abacha matter, when
it was discovered that there were some 42 accounts linked to a
batch of families in 23 banks in the United Kingdom, 15 of
those banks had controls that fell beyond what was required
under the anti-money laundering legislation and seven had
serious discrepancies, and yet the regulator did not even name
who those banks were, then I think we have a lot to get right
on our own back door before we go perhaps preaching elsewhere.
I think it is the developed world that has got to take the
lead in this and has to have the commitment to say we will take
steps, we will stop these practices, and we will do it with
legislation or conventions that have with them real teeth.
Chairman Bachus. Several countries, including the United
States, and I think we mentioned this, have outlawed the
payment of bribes. It is my understanding that there are
actually countries that allow you to take a bribe as a
deduction on income tax.
Do you have any comment? Is it true that there are such
countries?
Mr. Blum. Mr. Chairman, there were until recently, but the
OECD convention has now put that to rest. Germany was one
country that was notorious for that very proposition. The
delightful term that the Germans had for that kind of payment
was Schmear Geld. It speaks for itself.
That has now changed because of the regional conventions,
and virtually all of the developed countries in the OECD group
and certainly everybody in the OAS has outlawed the paying of
bribes. Now we have a convention coming that will be a global
convention that will probably codify for every other signatory
the same proposition.
The warning I would give you is while that is very positive
and very good, the problem is that it is not just the payment
of bribes. This is not just an issue of big companies wanting
to sell an airplane, wanting to sell a weapons system, each one
bribing and, therefore, that is the source of corruption.
It is a matter of skimming on the export of natural
resources. It is a matter of stealing wealth internally in the
country and taking it out, so it goes way beyond the bribery
issue. I think it is a mistake to focus on it as a commercial
bribery problem. It is much broader than that, and we have to
look at it in a broader frame.
Chairman Bachus. I see.
Mr. Sherman.
Mr. Sherman. Thank you. I would like to go to this OECD
convention and the idea that it will prevent bribery. I am told
that the usual business practice is you find a local person,
perhaps a cousin of the dictator, you make that person your
sales agent, you pay that sales agent five to 25 percent, and
what that sales agent does for the money or with the money is
beyond the understanding of anyone in the OECD countries,
whether it be those examining tax collection or otherwise.
Is there anything in this convention that prevents the tax
deduction or prohibits the payment of a Schmear Gell channel
through a sales agent?
Mr. Blum. In theory, yes. Your question about----
Mr. Sherman. So what particular law in say, Germany, would
make it illegal for a German firm to pay a commission of up to
25 percent?
Mr. Blum. The question I think in the end is really
enforcement. It is can they do it.
Mr. Sherman. No. Is it even illegal? The German company can
claim that it knows nothing. It pays the commission only if a
sale is made, so it is hardly a risk. It builds its profit in
the contract large enough so that a 25 percent sales commission
or even a more modest sales commission.
Is there anything in all this window dressing and
international kum-ba-yah singing that gets at this problem at
all, or does it simply provide a little bit of work for the
cousins of dictators?
Mr. Blum. I would like to answer the question in the
context of U.S. law. The way we deal with it is saying know or
should have known. I think that there is a standard of that
variety in the OECD convention.
Mr. Sherman. Has any company been prosecuted in the United
States on the theory that having paid a sales commission they
should know whether the sales agent is being paid for charm and
persuasive articulateness or whether that articulation takes
the form of playing poker with the dictator and losing?
Mr. Blum. I think the answer is yes, there have been, but I
cannot cite that chapter and verse.
I think the essential point here is not just the
criminalization of paying the bribe. It is finding a mechanism
so that when the bribe has been paid and now a new government
comes in giving you the machinery to----
Mr. Sherman. Yes. I realize the focus of this hearing----
Mr. Blum. Let us sue that company. Sue them for corrupting
the country involved and make them pay back. Let them be
subject to a RICO action let us say here for their----
Mr. Sherman. Again, the most innocent of companies and the
most guilty of companies doing business in the Third World are
told you need a local partner or you need a local sales agent.
An examination of exactly how many minutes of work this sales
agent does or exactly what gratuities and entertainment they
engage in--should have known is an interesting phrase, but it
is the usual practice of American companies and especially
European countries not to inquire.
I want to shift to another line here, and this may be more
of a statement than a question. I think that these hearings are
a subset of a whole bank secrecy/asset secrecy. I do not think
that turning to a particular lawyer in Switzerland and
prosecuting them as long as there is an avenue, a huge avenue
or several, many huge avenues. The idea that the world will
lack for road maps and guides available to dictators or others
I think is absurd. The road is there.
If democracy means anything, it is the rule of law. If the
rule of law means anything, it is that the laws not give just
the appearance of creating a particular result, but that we
actually plug the loopholes in them. We as a developed world or
a world system have embraced this idea that dictators should
not have secret accounts, that petty thugs should not be able
to launder their money, that socially acceptable people should
not engage in tax fraud, and yet the reality is the exact
opposite. We believe in the rule of law, and yet we maintain
huge loopholes in that law.
The result is that people in Europe and the United States
who play by the rules pay taxes, and yet we have opened wider
and wider highways, loopholes, tunnels for everyone engaged in
entrepreneurship, whether it be honest entrepreneurship by
someone who then cheats on their taxes or whether it be the
entrepreneurship of stealing from the government of a Third
World country.
We have these huge tunnels or openings or loopholes where
it is entirely acceptable for Switzerland and the Cayman
Islands to be in the business of laundering money, and then we
give Switzerland maybe a few kudos because at the very highest
profile criminals after they leave power and when they become
incredibly unpopular in the world happen to have their money in
a Swiss bank they might have wished that they put it in a
Cayman Islands bank.
As long as the United States, and there is substantial
support in this country and in this Congress for allowing tax
fraud. There is hostility toward actually making the upper
classes in this country pay their taxes. If the United States
were serious about this, we would be realizing that doing
business with countries that have these bank secrecy laws is
nothing more than an invitation to all the types of crimes I
have mentioned.
I do not know if the panel has any comment. I know I am out
of time, so the Chairman will have to decide whether the
comment will be allowed.
Chairman Bachus. You can respond to Mr. Sherman's question.
I would be curious also to know what is your assessment of the
Swiss and their willingness to cooperate and comply?
Mr. Blum. We have as part of our experts group a Swiss
examining magistrate who had actually worked on the Abacha
case. He was getting complaints from the citizens of his
canton, the Canton of Geneva, that Geneva was being asked to be
policeman to the world.
His job is an elected job, so you can understand that this
is a very complicated problem. He was trying to do that job in
a very straightforward way and actually made considerable
headway. I daresay it was the Swiss effort-- his effort, Mr.
Zucehin's effort and then his successor, Mr. Bertosa--who put
enough pressure to get the money returned.
They have also brought under Swiss law cases against
Russian gangsters, against a number of other malingerers, and
they have opened up others. The Swiss require the
identification through a Form A in the opening of any account
of who the beneficial owner is. If you were to talk to the
Swiss, and I am not here to defend the Swiss, they would say if
you guys did the same things for Delaware corporations, we
would be in a lot better shape.
They complain about our lack of speed in responding to
mutual legal assistance. It is a very interesting thing to hear
this coming from the other side. I think what we have to
appreciate is not the problem of how we point fingers at each
other and who has a loophole here or a loophole there; it is
the fact that we are all fixated on our own legal systems,
quite properly, and we tend not to see things from the
perspective of other people. We tend then not to talk about how
we are going to bridge those gaps. That is really the kind of
conversation that has to occur.
I would say we have come a very long way on issues of
offshore secrecy and tax evasion, but we have a ways to go. The
way to go now is how to implement, how to enforce and how to
make it work. The Patriot Act did some amazing things in that
category. Now we have to get the Europeans to follow suit. We
have to see if we cannot get people to do what has to be done
on the ground.
Mr. Conyngham. Mr. Chairman, I think, too, I am no
apologist for the Swiss, but I do think they get very bad press
in this kind of area. I think actually like many other
jurisdictions, if the rules are followed and you know the
procedures then you will get the result.
I can personally recall some now 12 or 13 years ago when I
was still a prosecutor in Hong Kong getting assets in a fraud
matter frozen temporarily by way of a phone call to the Swiss
authorities, so I do believe that in the right circumstances
that they comply well.
Chairman Bachus. Thank you.
Mr. Chege. I just wanted to comment on the question of
transparency in the developing countries and to stress once
again that you have to attack this problem from two ends.
We focus a lot on what ought to be done in the OECD
countries, but in countries of Africa, Middle East, Asia and
Latin America there are people in the legal system, in civic
groups, in church groups, in anti-poverty groups, that lay down
their lives every day because they want to reverse this trend
publicly and in the press. Let us think about it and write
about it.
What we ought to do is give more support to those people so
that they can make this fight a success. It is their own fight,
but they need an extended hand of support from people that are
working on the program from the other side. They have a lot of
information. They are willing to do a lot, and it is important
that we open up avenues of communication with them.
Chairman Bachus. Mr. Royce.
Mr. Royce. Thank you, Mr. Chairman. I want to thank you for
this hearing today.
I think that our witness who just made the point that we
need to be giving our support to those people laying down their
lives fighting for transparency rather than spending our time
trying to focus on excusing those who are in the business of
money laundering is a good point.
I think we should, frankly, be more into the business of
naming and shaming, of going after first those who are stealing
from their people and, second, those who provide the
wherewithal for them to hide the funds.
You know, when we look at what General Abacha did to
Nigeria, when we look at currently what Charles Taylor, Inc.,
as he is called, what Charles Taylor is doing to Liberia and to
Sierra Leone in terms of diamond smuggling and clear cutting of
forests and so forth, when we look at the same issue in terms
of what Robert Mugabe is doing in Zimbabwe to the people there
and Mugabe's cronies taking money out of that country, we are
faced with the same reality, which is if we did a better job of
removing the safe havens and exposing those who helped the
Salinas take $100 million out of Mexico and then hide that
money as the Congresswoman mentioned earlier. We are basically
empowering people to rip off their countrymen.
One of the things that I think we ought to look at is
changing the way in which business is done perhaps. You know,
there comes a time where it is no longer sustainable for a
foreign company to do business with corrupt regimes and then
see the revenues plundered by certain people in government and
then turn their heads.
A few weeks ago, the Africa Subcommittee that I chair held
a hearing on the Chad-Cameroon pipeline, which is a new
approach. I would just like to get your opinion on this. This
project is the largest private sector investment in Africa. I
think it is an innovative approach that is an unprecedented
partnership between energy companies and NGOs and the World
Bank and the governments of Chad and Cameroon, and it aims to
maximize the development benefits of Chadian oil while avoiding
the pitfalls that have plagued other such projects in the past,
including the pitfall of corruption.
Specifically what happens here is at the World Bank's
urging the Chadian government instituted a legal framework
whereby 72 percent of the project revenue is devoted to
education, is devoted to health and other social services and
to infrastructure, and then ten percent is set aside for future
generations.
There is an oversight committee including Chadian civil
society members that monitor the project revenue. The World
Bank will play a role in auditing oil accounts, which is a
striking departure from the norm for the developing world, and
that is to be made public. This is all to be totally
transparent.
For these reasons, the World Bank has described the project
as an unprecedented framework to transform oil wealth into
direct benefits for the poor, the vulnerable and direct
benefits to the environment.
I would like to know if our witnesses are familiar with the
project at all and what they think of it in concept.
Thank you, Mr. Chairman.
Mr. Chege. I am familiar with the Chad-Cameroon project,
and I agree with Congressman Royce that in fact when the World
Bank says that it is an innovative project it really is because
we are witnessing for the first time an element of
accountability in the use of incoming money to a very weak
government and a government that has a terrible record in human
rights and democracy, being held accountable in how it uses its
oil money.
There are two things to note about how the project came
about. First, there was a huge outcry from international human
rights groups and from global environmental organizations.
Second, there was a huge outcry, especially from environmental
groups in Africa, there was a huge outcry from Africans, from
individual poor people, communities in the region who were
going to be transplanted as this all was taking place that said
please, for heaven's sake; you cannot trust the governments in
these two countries with our money, with our resources, with
our forests, with our game reserves that this pipeline is going
through.
The elements of open discussion and debate weighs in, and
that is what made this decision possible. Otherwise the World
Bank was going to fund it like they had done elsewhere before
and could have cared less about that accountability element.
Second, Mr. Chairman, the point I want to stress is that
has this worked? Yes, up to a point. A few years ago the
Chadian government went and bought arms with complete impunity
and complete contravention of the allocations of the oil
revenues. What could World Bank do about it? World Bank does
not have an army. They cannot very well arrest the leaders of
that country. There is a limit to how much and how far they can
go. It is a test case, and we should see about it.
I should perhaps add as a footnote that the United States
Government right now is very concerned with what is going on in
the Sudan. We all know the tragic, tragic conditions there. Oil
is a key player there because the Canadian company, Talisman
and the Chinese and the Malaysians have put money into there.
Former Senator Danforth of the United States has been
commissioned by the Bush Administration to be the key
intermediary in that process, and they are also thinking about
the same Chad model in that country. I would not place a dime
on the government of the Sudan honoring it. I am sure they will
sign, but I cannot trust them to honor it.
Mr. Royce. Myself and Tom Sheehy, who is the staff director
of the Africa Subcommittee, had a chance to talk to Senator
Danforth on this subject, and it seems to me that I agree with
you in concept about the likelihood that we are going to have
trouble with the Khartoum government, but if the Khartoum
government is going to go forward anyway in terms of developing
the oil resources in the south is it perhaps not wiser, just
like with Chad-Cameroon, to use what leverage we have if the
Khartoum government is saying we are going to set aside 30
percent, or I think it is one-third of the oil revenue, for the
people of southern Sudan, and we can pull into that NGOs and
the World Bank and the international community?
Is it not wiser to try to leverage out of that an
arrangement that commits that for infrastructure building and
for health and education in the south? I mean, it is a bit of a
Hobson's choice because, as you say, the corruption that we
have seen in the north and certainly the hostility and the
murder of 1.9 million people to date would lead you to believe
it could be next to hopeless, but, on the other hand, if we
have an opportunity here to try afresh if the government in
Khartoum perhaps is saying, you know, this has been a lose-lose
all the way around.
In Sudan, the standard of living is not increasing. Here is
an opportunity for the south and the north to be prosperous,
for the entire nation to be prosperous. If we can get an
allocation that ends the civil insurrection, then perhaps it is
worth us all doing all we can do and then trying to create as
much transparency as possible in order to at least see if this
could help the problem.
Mr. Chege. Mr. Chairman, I agree entirely with the
Honorable Congressman, but it is better for the United States
and U.S. corporations to be involved because it gives the
United States much more leverage.
I do not agree with those who say cut out and leave because
this government is so horrible, because if we do that then who
is going to get in there? It is going to be the Malaysians and
the government of China, and those countries are not--or the
governments there--are not accountable to anybody, and they
will physically get away with murder.
It is so much better to have U.S. companies, to have
Canadian corporations involved in that project over there,
because I think the leverage we have of getting something much
better done than otherwise is always there. It is important
that we support that.
Mr. Royce. I thank you. I thank the panel. My time has
expired.
Thank you, Mr. Chairman.
Chairman Bachus. Of course, we are financing the Malaysians
and the Chinese in their oil exploration, so we are involved.
I relate the Sudanese government to Hitler. They both
practice genocide on a grand scale. I am very uneasy as a
matter of values for the American Government to do anything to
share revenues with such a government that practices slavery
today. The price of a slave in Sudan is $33 today.
Ms. Waters.
Ms. Waters. I wanted to ask a question of Jack Blum, first
of all, to thank you for your years of work. We have had the
opportunity to work together on some other issues.
This may be taking us a little bit off of the beaten track
here, but since we have worked on the problem of drugs,
particularly as it related to Nicaragua and the crack cocaine
explosion and all of that, I am just as worried about what is
happening in Afghanistan.
Why is it we do not hear about what is happening with the
poppy fields? If in fact those fields are being cultivated, why
are we not saying something about it? Are we just turning a
blind eye in the interest of the economy of Afghanistan?
Mr. Blum. This is possibly one of the most complicated,
atrocious problems that anyone could ever imagine. The gross
national product of Afghanistan is heroin. In fact, that is
their major export.
Now, for one year it ceased, but the Taliban government was
built on the export of heroin to Europe and the money laundered
by that export. That was the money that flowed back to support
the Taliban.
The governments of Europe by and large paid no attention to
what was going on or limited attention because for the most
part the users of that heroin in western Europe were illegal
immigrants in western Europe, so you had North Africans and
other people in Paris who were there who were the prime users.
The French say ``Oh, we do not have a heroin problem.'' They
just do not look at the whole population of France.
The problem we now have is that the revenue from this poppy
is an essential element of the ability of the war lords who are
supporting us and going after the Taliban, and we are in the
dilemma of what do you do? Do you try to wipe out their crop
and leave them broke and then pay them money, or do you let
them grow the poppy and export the poppy?
That is the kind of stuff that is being debated and worried
by various people in government positions. I daresay, it is a
terrible, terrible dilemma because it is the only source of
revenue these folks have. I think you are going to have to ask
the State Department, and that is a set of questions where the
people in INL and Narcotics Control should be put to the test.
You know, what are you doing about it, and how are you going to
handle it? It is a very thorny problem.
Ms. Waters. Are they exporting through Pakistan, our ally
in the fight against terrorism?
Mr. Blum. That has been the route. In fact, one of the
elements of the civil war leading up to the events after
September 11, one of the elements was a lot of that civil war
was based on a war over which way the heroin would flow. Would
it go north through Uzbekistan, through the Northern Alliance
country, or would it go south through Pakistan?
An awful lot of the insanity that was going on in Kashmir
was financed out of that heroin flow because the Pakistani
Secret Service was involved in helping support the flow. There
were seizures of heroin coming down from Afghanistan along the
Macran coast and then later in shipments to western Europe that
were so large they could account for almost the entire world's
heroin supply.
Ms. Waters. And I understand we have an agreement that we
will not chase anybody into Pakistan. We stop at the
Afghanistan border.
Mr. Blum. The problem of the corruption surrounding drugs
on that route is absolutely astonishing. I have no faith at all
that any agreement to chase or not to chase would make any
difference.
Ms. Waters. Thank you. I yield back.
Chairman Bachus. Thank you.
Mr. Conyngham, you mentioned the Bermuda Triangle in your
testimony, which is formed by offshore jurisdictions that
refuse cooperation with investigators from other countries
seeking to trace dirty money.
Mr. Royce mentioned the ``name and shame''. I think there
was an initiative taken by the G-7's Financial Action Task
Force to name and shame those jurisdictions.
Do you know the status of that? Has that been done, and has
it had any effect on the fight against money laundering?
Mr. Conyngham. I do not know the exact status of it. I
believe Singapore has done something similar and so I do
believe it is a way forward.
To tackle the idea of corruption, my own company about 3
years ago published a report called ``Corruption Integrity,
Best Business Practice in an Imperfect World.'' We put out
fliers saying this book was coming out, and we got a lot of
advance orders for it so it seemed to be very successful.
We said we will hold a seminar, and we will launch it
properly. We put out the invitations to the seminars, and we
got very few responses. We even got one fax that just had big
letters on it. No. No. What seemed to be happening was that we
had the companies that wanted to understand the issue, but they
were not going to stand up in public and say we are actually
dealing with it ourselves as well in Indonesia or in Malaysia
or wherever it is around the world.
I think what we have to do now, and the name and shame is
part of that, is to say the developed world is saying very
firmly this is an issue. If you do not begin to deal with it,
then maybe we cannot come and do business in your country, and
maybe we cannot let you do business in our country.
I think there is obviously a balancing act through all of
that, but I would be in favor. If you are not FATF compliant,
then the money has had some effect, and can we do it with the
corruption as well.
Chairman Bachus. All right. Mr. Blum.
Mr. Blum. I think that we have made some headway with that,
and the countries that have been put on the list, many of them
have said OK, we will cooperate.
The test now is can they cooperate, do they have the
infrastructure for cooperation and have they done anything more
than put up some window dressing in the front of well, we
passed the laws you asked us to pass, and we have a guy you can
call if you want information, but truth be tell he is working
from 2:00 to 4:00 in the afternoon on alternate Tuesdays, and
if we get 8,000 requests maybe in a year or two we will get to
you.
That kind of thing is the problem that I see next, so the
next step will be to force some kind of real compliance and
then tell some jurisdictions they have no business doing it.
The smallest republic in the world is the Republic of
Nauru. They have 10,800 people. The ratio of banks to people in
Nauru is still outrageous. They are in non-compliance, and they
have not given any interest in compliance.
Now, many of those banks are cutoff, and many will be
cutoff in the next number of months because of the OECD
initiative, but I do not believe Nauru could ever be compliant
no matter what it did, not with 10,800 people. You cannot run a
center.
Chairman Bachus. What do we do to those notorious offshore
banking centers?
Mr. Blum. I think you treat them as hopeless cases instead
of acting like a country with 10,800 people is a sovereign
state on a par with Russia or a place that has let us say a
billion people or 500 million people. We should make it very
plain. You are out there in the middle of the ocean by yourself
if you do not play by the rules we will cut you off. I do not
think that is that hard to do.
I think what it is hard to do is get the attention of the
people focused on the need to do it because everybody says if I
am dealing with the Middle East why the hell should I deal with
Nauru.
Chairman Bachus. Mr. Conyngham, do you agree?
Mr. Conyngham. I agree with that. I think you just have to
say this is not the way we can do business. Therefore, we
cannot allow people to do business with you, and we will not do
it ourselves.
Chairman Bachus. Could the three of you identify some of
the countries you think are the worst actors? I am not talking
about in testimony, but just in a written response and what you
think this subcommittee ought to suggest the policy of this
country be.
My final question is this. In your testimony, Mr.
Conyngham, you pointed out the role, and I think, Mr. Blum,
actually Mr. Conyngham in his written testimony and you
referred to it, the role played by professionals--lawyers,
accountants, private bankers--who actually are in the business
of helping rich and powerful clients, including corrupt
dictators or government officials conceal and profitably invest
their assets.
You know, these are the people who are actually making the
arrangements with Nauru or whatever, with these offshore
banking centers. In your view, how widespread is that? I mean,
is there a whole industry out there in the business of serving
these people? What are governments or professional
organizations doing to discourage these attorneys and other
professionals from offering these types of services?
Mr. Blum offered the idea of a lawsuit, a civil lawsuit.
What is your suggestion?
Mr. Conyngham. Well, I believe I actually brought it onto
the table. I think I said in my written testimony I attended
the International Bar Association meeting in Cancun, Mexico,
last October, and there was a session on how they should
respond to issues of banking secrecy and what advice they
should be giving. It appeared to me they had not even begun to
understand the issue outside of what their immediate
relationship with their particular clients might be.
The National Criminal Intelligence Service gets the report
of suspicious transactions, and our money laundering
legislation refers to lawyers and accountants as having a
responsibility under that legislation. I think 2 or 3 years ago
it had 15,000 suspicious transaction reports. One hundred and
seventy only came from lawyers, and that I do not believe
reflects the number of situations that lawyers in the United
Kingdom might have been involved in in that particular year and
might have thought this does not sound or this does not look or
I am being asked to do something that I am not too comfortable
here, and maybe I ought to say no.
I am afraid maybe I am the worst kind of animal. I am a
retired lawyer, but I do believe that the professions have to
take their responsibilities in this area far, far more
seriously than they have been to date. They cannot sit at
conferences and talk about a professional privilege and issues
of that nature without at least trying to understand why it is
that there is concern as to where probably a very small
minority of their brothers are behaving.
Chairman Bachus. Mr. Blum.
Mr. Blum. I think there is a bit of a crisis in all of the
professions these days. I mean, the Enron case alone should
tell you that it is not limited to dictators who want to
launder money.
What we have is this fundamental problem of people who have
forgotten that the purpose of being a lawyer is to teach people
how to obey the law and to help them keep their transactions
within the scope of the law. Somewhere in my professional
career that message got lost, and an awful lot of people now
believe the job of a lawyer is to help people break the law.
I have tried at various ethical meetings and discussions on
ethics to raise the point that the minute you do that you cease
being a lawyer, and you become a co-conspirator and that you
have to go back and remember what the professional's job is
supposed to be and hold that standard. When a client says but I
will go down the street, you have your colleagues down the
street who will say the same thing. They have to say ``You
cannot do it. It is illegal.''
We have a real ethical crisis here. I think that leadership
is needed in the bar, and public discussion of that ethical
crisis is needed. Every major accounting firm has had an entity
that incorporates people offshore, that sets up offshore
arrangements, that helps people. Whether those skirt the law in
one place or another is something that is very hard to tell.
Chairman Bachus. Mr. Chege.
Mr. Chege. Mr. Chairman, you asked for some of the
countries and some of the actors in this and what initiative we
should have toward this.
Closer to the region I specialize in, I am very concerned
with what is going on in the United Arab Emirates. Some of the
evidence just in the open sources coming out of 9-11 is that it
is a haven of financial activities for terrorist groups, and
also I just mentioned to Congresswoman Waters some of the
activities of tanzanite and illegal diamonds and that sort of
activity over there and, of course, the strategic position that
country is in with the Middle East, Africa, Asia, as a trading
hub.
Malaysia. I do not have the full details, but again going
by the press you see an awful lot of activity between agents of
that government with some of the nastiest dictators in Africa--
Robert Mugabe, the government of the Sudan, even Charles Taylor
in Liberia. I do not know what that again is about. I think
they want to corral some of the funding and use it for their
own internal development.
Mr. Blum mentioned Enron and Anderson. It might have
skipped the notice of some people that in this rather seemly
deal some of the Enron money, an account was secreted in
African countries, including Mauritius.
It now seems to me that some of the illegalities are done
in places where we least expect to look--the Arab Emirates, off
the East African coast, a whole lot of other places.
I think it is important, as my colleague Jack Blum said, to
have an international initiative that looks into all these
activities to see what legislation can be brought to bear with
us here in the United States taking the lead and other
countries that are concerned with this problem, especially in
the OECD countries.
Chairman Bachus. Thank you.
Finally, I would like you---- if you all have any comments
you would like to reduce to writing to tell us any suggestions
you have about how to move against lawyers, accountants and
other professionals who are facilitating this asset seizure.
Actually not asset seizure, but stealing of the assets.
Finally, I will close with this. Mr. Blum, Argentina. There
have been charges of widespread corruption there. Could you
give us, and, Mr. Conyngham or Mr. Chege, if you have comments
on that, but we will close with that.
Mr. Blum. There were indications that there had been
widespread trading in Argentine foreign debt where people would
buy the debt at 20 cents on the dollar or 30 cents on the
dollar and then make some sort of arrangement inside the
government to have the debt redeemed at 100 cents on the dollar
either in the form of hard assets or in the form of payment,
and all of that would be in exchange for a payoff of a rather
substantial amount.
Some of this surfaced in the hearings of the Permanent
Investigation Subcommittee, but there have been many other
elements of corruption, especially under the Manem government,
which have helped lead to the current collapse.
To put money into Argentina at the moment without fixing
some of that, without trying to go after some of the people who
perpetrated it, seems to me to threaten to be putting money in
a leaky boat or putting water in a sieve. You are not going to
get very far. It is not going to help you.
Mr. Conyngham. Mr. Chairman, I do not have any specific
comments on Argentina, but as it is the last moment perhaps I
could just say this. There are things that we can see coming up
on the near horizon in addition to Argentina.
What is going on in Zimbabwe and Mr. Mugabe there; at some
point we will need to look almost certainly at maybe his
assets. Things going on in Angola, in Equatorial Guinea and
possibly even again in Iraq. In many ways, this is where to a
degree some of this started.
If you remember going back to the Gulf War and Saddam
Hussein at that time, there was a major asset search conducted
in related to Mr. Saddam Hussein so that the Kuwaitis, when
peace was restored, could also go after that country and after
that gentleman for reparation because it was believed that he
had in fact stolen funds that belonged to the country. Maybe
his time will come again.
What I would urge on this subcommittee is that there is
some urgency in putting together something along the nature of
what Mr. Blum is suggesting so that when these countries have
the opportunity to address this issue when they can go after
the assets of these despots there is a mechanism that makes it
a lot easier for them to do so than was the case for the
Nigerian government who literally to a degree had to go around
the world not cup in hand, but with great difficulty saying
could you help us and, by the way, we have not got too much
money to pay for it.
I would ask that there is urgency about it. Thank you.
Chairman Bachus. Thank you.
Mr. Chege, any final comments?
Mr. Chege. My final comment has to do with the role I think
that the IMF and the World Bank should play into this. I
mentioned in my written testimony, Mr. Chairman, the Meltzer
Report that was commissioned by the U.S. Congress which, in my
view, is the best and most thorough report on the activities of
those institutions and what ought to be done to reform them.
We basically have two international institutions that deal
with international finances in the developing world that were
thought of immediately after the Second World War. The world
has changed a heck of a lot since, and we need to restructure
them with the United States taking the lead so that they can
address some of these issues.
Everywhere we have international finance meetings with
these institutions playing a role, you have young people coming
out in droves to demonstrate. You have seen the national
capitol of the United States having been shut down sometimes
because there are so many angry young people, not so much at
these institutions and the information about what they do, but
over the anger about poverty out there in the developing world
and what ought to be done to address it.
I believe that it is time to revisit the functions of those
institutions in addressing the other issues of poverty, but
also the issue that this subcommittee is dealing with this
morning, and that is the stolen and plundered loot that the
dictators have secreted abroad.
Chairman Bachus. We thank you, gentlemen, very much for
your testimony.
At this time the hearing is concluded.
[Whereupon, at 12:23 p.m. the hearing was adjourned.]
A P P E N D I X
May 9, 2002
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