[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
CAPITAL LOSS, CORRUPTION,
AND THE ROLE OF WESTERN
FINANCIAL INSTITUTIONS
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
MAY 19, 2009
__________
Printed for the use of the Committee on Financial Services
Serial No. 111-34
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51-593 WASHINGTON : 2009
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HOUSE COMMITTEE ON FINANCIAL SERVICES
BARNEY FRANK, Massachusetts, Chairman
PAUL E. KANJORSKI, Pennsylvania SPENCER BACHUS, Alabama
MAXINE WATERS, California MICHAEL N. CASTLE, Delaware
CAROLYN B. MALONEY, New York PETER T. KING, New York
LUIS V. GUTIERREZ, Illinois EDWARD R. ROYCE, California
NYDIA M. VELAZQUEZ, New York FRANK D. LUCAS, Oklahoma
MELVIN L. WATT, North Carolina RON PAUL, Texas
GARY L. ACKERMAN, New York DONALD A. MANZULLO, Illinois
BRAD SHERMAN, California WALTER B. JONES, Jr., North
GREGORY W. MEEKS, New York Carolina
DENNIS MOORE, Kansas JUDY BIGGERT, Illinois
MICHAEL E. CAPUANO, Massachusetts GARY G. MILLER, California
RUBEN HINOJOSA, Texas SHELLEY MOORE CAPITO, West
WM. LACY CLAY, Missouri Virginia
CAROLYN McCARTHY, New York JEB HENSARLING, Texas
JOE BACA, California SCOTT GARRETT, New Jersey
STEPHEN F. LYNCH, Massachusetts J. GRESHAM BARRETT, South Carolina
BRAD MILLER, North Carolina JIM GERLACH, Pennsylvania
DAVID SCOTT, Georgia RANDY NEUGEBAUER, Texas
AL GREEN, Texas TOM PRICE, Georgia
EMANUEL CLEAVER, Missouri PATRICK T. McHENRY, North Carolina
MELISSA L. BEAN, Illinois JOHN CAMPBELL, California
GWEN MOORE, Wisconsin ADAM PUTNAM, Florida
PAUL W. HODES, New Hampshire MICHELE BACHMANN, Minnesota
KEITH ELLISON, Minnesota KENNY MARCHANT, Texas
RON KLEIN, Florida THADDEUS G. McCOTTER, Michigan
CHARLES A. WILSON, Ohio KEVIN McCARTHY, California
ED PERLMUTTER, Colorado BILL POSEY, Florida
JOE DONNELLY, Indiana LYNN JENKINS, Kansas
BILL FOSTER, Illinois CHRISTOPHER LEE, New York
ANDRE CARSON, Indiana ERIK PAULSEN, Minnesota
JACKIE SPEIER, California LEONARD LANCE, New Jersey
TRAVIS CHILDERS, Mississippi
WALT MINNICK, Idaho
JOHN ADLER, New Jersey
MARY JO KILROY, Ohio
STEVE DRIEHAUS, Ohio
SUZANNE KOSMAS, Florida
ALAN GRAYSON, Florida
JIM HIMES, Connecticut
GARY PETERS, Michigan
DAN MAFFEI, New York
Jeanne M. Roslanowick, Staff Director and Chief Counsel
C O N T E N T S
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Page
Hearing held on:
May 19, 2009................................................. 1
Appendix:
May 19, 2009................................................. 43
WITNESSES
Tuesday, May 19, 2009
Baker, Raymond W., Director, Global Financial Integrity.......... 5
Blum, Jack A., Esq., Former Head, UN Experts Group on Asset
Recovery....................................................... 12
Lawson, Anthea, Lead Investigator, Global Witness................ 6
Macovei, Monica, Former Minister of Justice, Government of
Romania........................................................ 10
Ribadu, Nuhu, Former Executive Chairman, Economic and Financial
Crimes Commission (EFCC) of Nigeria............................ 8
APPENDIX
Prepared statements:
Baker, Raymond W............................................. 44
Blum, Jack A................................................. 89
Lawson, Anthea............................................... 94
Macovei, Monica.............................................. 112
Ribadu, Nuhu................................................. 115
CAPITAL LOSS, CORRUPTION,
AND THE ROLE OF WESTERN
FINANCIAL INSTITUTIONS
----------
Tuesday, May 19, 2009
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 10:06 a.m., in
room 2128, Rayburn House Office Building, Hon. Barney Frank
[chairman of the committee] presiding.
Members present: Representatives Frank, Waters, Maloney,
Watt, Meeks, Moore of Kansas, Clay, Hinojosa, Baca, Lynch,
Scott, Green, Cleaver, Ellison, Perlmutter, Carson, Kosmas,
Himes, Maffei; Bachus, Castle, Manzullo, Biggert, Miller of
California, Garrett, McCarthy of California, Posey, Jenkins,
Paulsen, and Lance.
The Chairman. The hearing will come to order. The ranking
Republican was required to attend a meeting of the Republican
Conference. I can tell you from personal experience that when
you have one of these jobs, you have to go to those things, as
much as you might not like to, so he had no choice on this, and
that's where he is, but he is on his way. I will begin with a
brief opening statement, then I will call on my colleagues, and
we will have an opening statement from the ranking member as
soon as he arrives.
The question of corruption is a very serious one, and it is
important as we go ahead with the inevitable global interaction
economically that we do that as carefully and with as much
attention to honesty as we would do domestically. And it's also
the case that--I think it's very clear. Corruption
internationally is not simply a matter of dealing with theft.
That's important enough in itself but it clearly has a negative
impact on our ability to accomplish the goal of improving the
lives of people. That is, corruption is not just theft, it is
theft from the poor, it is theft from the neediest.
So we address this not simply from the moral plane, which
is, as I said, important in itself, but it is clear that if we
do not do a better job of diminishing corruption, we hinder our
ability to reduce poverty. Many of the gains that are posited
as a result of the global interaction in the economy are
diminished by the persistence of corruption. So this is a very
important subject. This committee has jurisdiction over the
Bank Secrecy Act and the Foreign Corrupt Practices Act, both of
which are implicated here. And I believe this is an issue on
which we may well be able to get some bipartisan support to
move ahead.
And as I said--I say that because the ranking member years
ago took the lead. I was one of those who joined in the lead
that he and some others took to provide debt relief to the
poorest countries in the world. But the good that you do by
providing debt relief can be eroded if there is then a
corruption with the funds that might be freed up by that. So we
regard this as very much part of our mission to work to improve
economic development to the world from the standpoint of
improving the lives of people.
And I will now recognize the gentleman from Alabama.
Mr. Bachus. I thank the chairman, and I thank you for
convening this important hearing. It calls attention to a
matter that is crucial in breaking the cycle of poverty in
developing nations, and that is the role of corruption.
Corruption is an unfortunate reality in all nations, but the
consequences are particularly tragic in fragile developing
nations, and also in many of those, corruption is widespread.
We have seen its effect in Nigeria where Dictator Abacha
systematically looted the Nigerian treasury of literally
billions of dollars during his tenure, leaving behind a
desperately impoverished populace. We see it today in the
Republic of Congo where the country's president and his family
appear to be engaged in similar behavior, which will likely
leave the same blanket of suffering. Simply put, corruption
robs fragile nations, and more importantly its families, of a
better future.
The humanitarian tolls of corruption cannot be denied.
Chairman Frank mentioned some of them. We see the consequences
in starving populations. We see it in nations ravaged by
disease because they can't get adequate health care because
money is diverted into the pockets of corrupt rulers and
politicians. We see it in nations wholly reliant on the aid of
other nations because of this corruption.
Yet the consequences aren't limited to these fragile
developing nations or broken states, as they often are. Because
fragile and what are referred to as broken states with a
disenfranchised populace present a grave security threat to the
United States. Afghanistan was a country that was a broken
state. Corruption aggravates this situation.
There is also no doubt, as we have learned, if we didn't
know it in the past, we have learned it in the last year or
two, the interconnectivity of our economies. The United States
and other nations who trade with these countries benefit from
their economic expansion and their growth. We all benefit from
economic growth across the globe. And many of these countries
represent a global consumer base for our exports and for
imports. It's a win-win situation when we trade goods and
services. And corruption robs us of this economic growth which
benefits all of us.
So corruption is something that affects all of us, no
matter where it occurs. Corruption in the developing world also
impacts the global banking sector. The global banking system
still can easily be exploited by those seeking to conceal or
laundry the proceeds of political corruption. A concerted
international effort involving close cooperation between
regulators, law enforcement authorities, and financial
institutions is absolutely essential to preventing further
exploitation.
I would like to recognize Chairwoman Waters. She is not
here, but her efforts on that front have been extraordinary.
She has long pointed out that in developing nations, corruption
often isn't limited to the ruler, but involves his or her
family and their associates. And she has fought for years to
make sure that U.S. and international law enforcement focus on
these politically connected people in such regimes, to make
certain that when they do loot these nations, as much money as
possible is recovered and goes back to where it rightfully
belongs.
Mr. Chairman, I appreciate your efforts in this regard. I
would like to close just by saying we have invited Mr. Jack
Blum to appear before the committee. He's a world renowned
expert on issues such as I have spoken about and what policy
steps we can take, and he has worked on them extensively in a
number of different capacities and testified on this matter, I
remember in 2002 on a hearing I chaired about recouping stolen
sovereignty assets. So, I thank you for your efforts.
The Chairman. I thank the gentleman. Let me just say, I
appreciate the fact that he mentioned our colleague, Ms.
Waters. She has played the role, he said, and in fact, it was
on the return of a congressional delegation of this committee
from Africa, a bipartisan delegation, in which having listened
to people, including nongovernmental organizations as well as
officials and members of Parliament in four African countries,
that she said, we have to get into this. We heard that. And it
takes a while, because we have had a fairly busy agenda, as
people know. But this hearing is a direct result of that
congressional delegation. The gentleman from North Carolina was
on it, and we clearly learned then the importance of this for
development efforts. So we're very pleased to be able to do
this.
And now I will recognize the gentleman from Georgia, Mr.
Scott.
Mr. Scott. Thank you, Mr. Chairman, and I certainly
appreciate this hearing. It couldn't be more timely, and I
certainly concur with you and what your words were, because
nowhere is this issue of corruption more prevalent than on the
continent of Africa, and it's most important, vitally important
that this Congress put Africa at the front and center to make
sure that our monies that are going there are going for the
right purposes.
I just returned from Africa about 3 weeks ago, went into
the Congo and saw firsthand what is happening in the Congo. In
Fasio, the same thing, which is the poorest countries in the
world on the continent of Africa, but yet the richest countries
in the world are on the continent of Africa. The dynamic of
this situation is here is a continent and countries that are
full of the natural resources, the minerals, the diamonds, the
gold, the oil, the rubber, all of these, for centuries they
have been exploited by European powers, the colonialization.
The remnants of this exploitation still remains in the presence
of these dictators and heads of these regimes. Now here we come
with our funds. We have to make sure that they are not being
misused in corruption.
When we got back the very next day, Secretary Clinton came
before our Foreign Affairs Committee and I got to ask her that
question as well. She was very passionate about it, and I am so
pleased to see this committee moving forward, and the Foreign
Affairs Committee moving forward, and the Secretary of State
moving forward to say that we do not need our taxpayers'
dollars going to prop up these regimes in Africa that are
bleeding the countries of their natural resources, and with the
wretched conditions of poverty unlike any you have seen on the
face of the Earth.
There's no greater example than what is happening in the
Congo. For example, the president of Congo's son's credit cards
could be traced back to a bank account in Hong Kong that
received the proceeds from Congo's oil revenues. For just 1
month, his credit card bill was $32,000. And that money could
have paid for 80,000 Congolese babies to be vaccinated against
measles, which is a leading cause of child death in that
country.
The question has to be, are our taxpayers' dollars propping
up these banks, and also helping to prop up the ease of
corruption in these developing countries around the world, and
especially in Africa? There are indeed existing international
standards, but the question has to be, are these financial
institutions truly paying attention to them or taking them
seriously at all? And as billions of dollars in developing
countries being transferred to Western financial shelters in a
matter of a year, this is cause for real concern.
So ensuring prudent management of resources, promoting
accountability and openness is of utmost importance, as is
allowing for vital information to be put in the hands of civil
society groups and therefore its citizens. Too often the common
citizen is left out while their country engages in fraudulent
activities with regards to their own natural resources, as I
mentioned. And with many conflicts, the results of a country's
extractive industries, we must also look into the corruption
behind a country's extractive industries, because without a
strong stance on these corrupt officials, this will only lead
to poverty increases, social investments being put by the
wayside, and funds continuously being misappropriated and
misused.
And finally, greater accountability for the large revenues
coming from these industries, working to generate economic
growth from these revenues and reducing poverty are all aspects
we should focus on. However, without reform in transactions
being made between these developing countries and Western
financial institutions, it will be harder and harder to move
forward.
Chairman Frank, I can't thank you enough personally for
your leadership in moving on this vital issue and on behalf of
those suffering millions of people in Africa, I want to say
thank you for providing leadership on this important issue.
The Chairman. I thank the gentleman. Our colleague from
Texas had a statement but he had to go off and make a quorum
somewhere, so we are now going to begin. I will reiterate that
we have the entire legislative jurisdiction in this committee
and it is our intention to move legislation. So I thank the
witnesses. You are helping us with a process that we think is
going to result in better laws. We will begin with Mr. Raymond
Baker, who is the director of Global Financial Integrity, an
impressive title.
STATEMENT OF RAYMOND W. BAKER, DIRECTOR, GLOBAL FINANCIAL
INTEGRITY
Mr. Baker. Thank you, Mr. Chairman, Ranking Member Bachus,
and members of the committee. I appreciate the opportunity to
appear before you today.
There is no evidence that the dollar volume of corrupt
money flowing across borders is declining. On the contrary, it
appears that corruption may be at the highest levels ever,
particularly with very large sums of money shifting out of
China and Russia, while flows likewise continue out of Africa,
Latin America, the Middle East, Asia, and states of the former
Soviet Union, and indeed out of Western countries as well.
How can this be? To answer this, we must place the issue of
corruption into its larger context--the global shadow financial
system and its attendant culture of opacity. Since the 1960's,
we in the Western world have created and expanded an entire
integrated global financial structure to facilitate the
movement of illicit money across borders. This structure now
comprises a number of elements: Tax havens; secrecy
jurisdictions; disguised corporations; anonymous trust
accounts; and fake foundations. Falsified pricing in import and
export transactions is by far the most frequently used element
in this structure. Money laundering techniques are widespread,
and there are holes left in the laws of Western nations which
serve to facilitate the movement of money through the shadow
financial system and into our own economies.
Regarding this last point, for example, in the United
States, it remains legal to bring into this country proceeds
generated abroad from handling stolen property, counterfeiting,
contraband, slave trading, alien smuggling, trafficking in
women, environmental crimes, virtually all forms of tax-evading
money, and more. Having initiated the anti-corruption effort in
1977, we are now far behind our European counterparts in the
range of illicit monies that we bar from entering our country.
This global shadow financial system moves cumulatively
trillions of dollars of illicit money across borders. It
equally facilitates the shift of the proceeds of corruption by
foreign government officials, criminal activities such as drug
trading and racketeering, terrorist financing and tax evasion.
Global Financial Integrity has recently completed an
analysis of illicit financial flows out of developing
countries, utilizing well-accepted economic models. We show
that somewhere between $850 billion to more than $1 trillion a
year of illicit money flows out of developing countries on an
annual basis. This massive shift of illicit money abroad is the
most damaging economic condition hurting the global poor. It
drains hard currency reserves, heightens inflation, reduces tax
collection, worsens income gaps, cancels investment, hurts
competition, and undermines trade. Quite simply, it contributes
in a major way to the environment in which corruption thrives.
Now, how can we address these problems? Three measures can
substantially curtail the cross-border flow of all forms of
illicit money:
First, financial institutions around the world should be
required to know the beneficial owners of entities with which
they do business.
Second, it is time to institute automatic exchange of key
elements of information across borders, including for non-
citizens their earnings on accounts. Such automatic exchange of
information exists today between the United States and Canada
and within the European Union via the EU Savings Tax Directive.
Third, country-by-country reporting of sales, profits, and
taxes paid by multinational corporations would do more to
curtail the shadow financial system and the culture of opacity
than any other step.
To address the flow of corrupt money per se, three
additional steps are recommended:
First, we should harmonize predicate offenses under the
anti-money laundering laws of all countries cooperating with
the Financial Action Task Force.
Second, strengthened know-your-customer regulations as they
apply to foreign account holders should be implemented. Adding
a specific point on suspicious activity reports for corruption
is needed.
Third, lists of politically exposed persons, PEPs, should
be available for all countries receiving development
assistance, and the use of PEP lists should be required by
financial institutions.
The fight against global corruption is not being won. As we
did in our early passage of the Foreign Corrupt Practices Act,
it is time once again for strong U.S. leadership.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Baker can be found on page
44 of the appendix.]
The Chairman. Thank you, Mr. Baker.
Next we have Ms. Anthea Lawson, who is the lead
investigator of financial institutions at Global Witness.
STATEMENT OF ANTHEA LAWSON, LEAD INVESTIGATOR, GLOBAL WITNESS
Ms. Lawson. Mr. Chairman, members of the committee, thank
you. Global Witness is a nongovernmental organization that
investigates the links between natural resource extraction,
conflict, and corruption.
The world's poorest countries would be far less poor if
revenue from natural resources that should be spent on
development had not been looted by their senior government
officials. Banks are not permitted to accept corrupt funds
under existing international standards, but too often they do
not seem to be taking this obligation seriously.
I will present three examples from the latest Global
Witness report, ``Undue Diligence: How banks do business with
corrupt regimes.'' First, we show that the international
regulatory regime governing banks has not put into place
effective procedures to prevent them handling the proceeds of
corruption, as have been used to stop the handling of terrorist
funds.
Dennis Christel Sassou-Nguesso is the son of the president
of Republic of Congo, which earns about $3 billion a year from
its oil, but where a third of the population don't live past
the age of 40. Between 2004 and 2006, he spent hundreds of
thousands of dollars on luxury clothes and shoes with money
that derived from Congo's oil sales, as Representative Scott
has reminded us. Using a Caribbean tax haven, Anguilla, he set
up a shell company, disguised his ownership of it, and opened a
bank account in its name at the bank in Hong Kong. Money
deriving from Congo's oil sales was paid into this account.
When the credit card bills came in each month after the
designer shopping sprees, the Anguillan company services
provider that was fronting for him wrote to the bank
instructing payment of the bills from this account. He is named
on these payment instructions as the owner of the credit card,
and these payment instructions were stamped, presumably by the
bank, ``record of terrorists checked.'' This is a fascinating
insight. The bank ran his name through the terrorist watch list
to make sure that he's not a terrorist, but does not appear to
have checked whether he's a political figure and whether
there's a high risk of corruption.
The U.S.-led campaign to create international controls
against the financing of terrorism has had results. Banks are
now checking that their customers are not terrorists. But there
has been no similar campaign to ensure that banks worldwide do
not accept the proceeds of corruption.
In our second example, the United States took action
against a bank for doing business with a corrupt regime, and
then a bank in Europe continued to do business with a member of
this regime and handle its funds. In 2004 to 2005, Riggs, as
you know, was finished off after holding accounts for President
Obiang of Equatorial Guinea and his corrupt government. More
than 3 years later, the British bank, Barclays, was still
holding an account for Teodorin Obiang, the president's son, at
a branch in Paris. Teodorin reportedly earns a salary of $4,000
a month as a minister in his father's government, yet he owns a
$38 million mansion in Malibu, California, and a fleet of fast
cars.
Global Witness has asked Barclays what due diligence it
could possibly have done to reassure itself that the source of
funds in this account is not corrupt, and they can't tell us.
This case illustrates the need for the United States to take
further action internationally to ensure that all the major
banking centers are operating at the same level.
Without further steps, not only will the fight against
corruption be ineffective, but U.S. banks will not be operating
on a level playing field.
Our final example reviews Citibank's facilitation of
banking activities that allowed Charles Taylor, the ex-
President of Liberia, now on trial for war crimes, corruptly to
divert timber revenues to his personal use during the conflict
there. His regime instructed one of Liberia's main timber
exports to make its payments in lieu of tax directly into a
number of nongovernmental bank accounts, including Taylor's
personal account at a Liberian bank. These dollar payments
could not have taken place without the correspondent
relationship between the Liberian bank and Citibank in New
York, through which the payments were routed, which gave Taylor
the means to receive these corrupt timber revenues into his own
account.
Banks must be forced by regulators to improve their due
diligence practices. Banks must not accept funds unless they
can identify the beneficial owner and they can demonstrate
strong evidence that the funds are not corrupt.
The United States has been a driving force behind the
Financial Action Task Force, or FATF, the intergovernmental
body that sets the global anti-money laundering standards and
measures member states' compliance with them. The United States
should use its influence to ensure that FATF undertakes further
steps to make anti-corruption rules and on money laundering
more stringent, and names and shames countries that are not
compliant with FATF standards or that are not enforcing them,
so that those countries that are ahead of the curve are not
penalized. We would be pleased to see this committee take up
these issues, and I would be happy to answer any questions.
[The prepared statement of Ms. Lawson can be found on page
94 of the appendix.]
The Chairman. We have been joined by our colleague, Ms.
Waters, and I did want to tell her, let me say it publicly,
that both the ranking member and I acknowledge the very
important leading role she has taken in bringing this subject
forward.
Next we have Mr. Nuhu Ribadu, who is the former executive
chairman of the Economic and Financial Crimes Commission of the
Government of Nigeria.
STATEMENT OF NUHU RIBADU, FORMER EXECUTIVE CHAIRMAN, ECONOMIC
AND FINANCIAL CRIMES COMMISSION (EFCC) OF NIGERIA
Mr. Ribadu. Thank you, Mr. Chairman, Ranking Member Bachus,
and members of the committee. Let me thank you for the honor of
this invitation. As you said, my name is Nuhu Ribadu, and I am
the former chairman of the Economic and Financial Crimes
Commission of Nigeria, assigned with the responsibility of
fighting economic crimes in Nigeria that came as a result of
pressure from the international community, FATF, the U.S.
Government, and the U.K.
I have heard a lot, and you have said eloquently on the
issue of how terrible corruption is, the damage it is doing to
us, not just Africa, but the world. But I also want to tell you
from the side, from those who are at the receiving end, and I'm
one, I'm sitting here, an African, a Nigerian, a picture of
really what really happened to us as people who have been
reduced to a level of more or less living on the kindness of
others, our honor, our dignity, our respect, everything has
been destroyed. We are today at the bottom of the ladder in the
world, and that is not fair.
And that is what I want to share with you. You have said
everything, but I want to give you a little bit of statistics
of what really is happening, what has happened to us as people.
AU, for example, the African Union, came up with a figure that
as much as $140 billion is wasted, going to corruption, stolen
from the people of Africa, the poorest people of the world; $20
billion annually goes out of the country, stolen. I want to
talk about money coming from companies that are doing business.
This is stolen money going out of the poorest country. Imagine
what that money can do. This is far, far more than the entire
support that comes from United States to the continent.
The U.K. Commission that was set up by Tony Blair came up
with the figure that as much as $93 billion is out there in the
financial institutions of the West coming from Africa, stolen.
Nigeria is a country, a country that I come from, and as much
as about $440 billion in 3 decades from selling of crude oil,
all wasted, stolen, nothing to show for it. This is money that
is probably 6 times what was needed to change Europe after the
second World War. Today go to Nigeria and see, you will realize
what we are talking about, the crime of corruption. It's very
unfair. It's tragic.
But I'm here to also tell you my own experience. I fought
corruption in Nigeria. I have seen at close range what is
happening to us. I have also, as a person who more or less is
responsible for bringing out the case of Halliburton, the one
where Halliburton gave about $184 million as a bribe to
Nigeria. Where Halliburton today is punished in the United
States by probably as much of a fine of about $600 million. But
Halliburton still is getting away with $6 billion of contracts,
and there are people out there in Nigeria who have received
this money, and they are continuing to continue doing business
as usual. The same thing, for example, with Siemens. The same
thing with all the other companies. Siemens is a company that
was punished by the U.S. Government. Today Siemens is doing the
same business in Nigeria.
Mr. Chairman, this is what is happening to us. I fought
corruption. I know what it has done to us. The problem, for
example, of Nigeria, while we are attempting to address it, I
know it is as a result of corruption that we have this
situation where we found ourselves. I brought one governor who
was in charge of one of the states in the Niger delta. He gave
me $15 million cash in a box to stop me from prosecuting him. I
refused this money. I took him to court and I charged him and I
handed that money also as evidence in Nigerian court. Today,
that gentleman is probably one of the most powerful individuals
in our country. He's one of the most powerful people in charge
of the ruling party.
It is happening. It has done damage to us growing, people
like us, who are desperate for change, who are fed up, who
don't want this type of thing that they have done to us. The
leaders from Angola to Zimbabwe, those who are in charge of our
own affairs, have done this damage to us. That is the reason
why, Mr. Chairman, we think that we need help. While sitting
down out there, before getting into this hall, I read your
Declaration of Independence, the one that you did hundreds of
years ago. I saw where you, the Congress, dreamt and wanted
freedom, liberty, and the pursuit of happiness. We are equally
entitled to that. We want that, and we desperately want the
world to come in and support us.
Those of us who are victims of this corruption are
helpless, are powerless. Today I have been kicked out of
Nigeria. I can't even go there. I survived an assassination
attempt. Because some of us few who had the courage to stand up
and say enough is enough, let's stop this, let's move forward,
today, Mr. Chairman, this is what--it is still coming down to
the fact that we must do it ourselves. Nobody else will do it.
It is we, the Africans, and I can assure you, people are fed
up. People are tired. But we need the good people of this
world. We need you to support, to stand by us and see that it
is possible for us to also have a change, change that is taking
place in the world today. We have seen those who, not
necessarily even one deserved a change, but they are getting
it. But we in Africa are desperate for change.
Thank you very much, Mr. Chairman. I will wait for your
questions.
[The prepared statement of Mr. Ribadu can be found on page
115 of the appendix.]
The Chairman. Thank you.
Ms. Monica Macovei, who was formerly the minister of
justice in the country of Romania.
Ms. Macovei?
STATEMENT OF MONICA MACOVEI, FORMER MINISTER OF JUSTICE,
GOVERNMENT OF ROMANIA
Ms. Macovei. Thank you, Mr. Chairman, ladies and gentlemen.
I was the minister of justice in Romania in 2005-2006. I was
fired in April 2007, 3 months after Romania's accession into
the European Union. It's not about my situation I want to talk,
it's about my experience as a minister of justice fighting
corruption.
At the beginning of my mandate, I had to establish the
strategy and the action plan to fight corruption under a
safeguard closed by the European Union in Brussels, and before
I established the benchmarks and the concrete activities and
measures, each institution within the anti-corruption area had
to do. So there were benchmarks in high-risk corruption areas
such as public procurement, privatization, transparency of
public spending, in particular all the contracts from the state
money, anti-money laundering legislation, independent and
efficient law enforcement agencies, conflict of interest
incompatibilities, funding political parties and campaigns. And
then we started after we made these benchmarks, we started the
implementation.
Now I took it seriously, and the same did the anti-
corruption prosecutors office, which I set up in 2005, and
these prosecutors started to investigate politicians from all
the parties, including the parties in power, and high
officials. This was really a premiere in Romania. I think in
the last 2 or 3 years, this prosecutors office prosecuted, sent
to trial about 20 current and former members of the parliament
and of the government for corruption and fraud and other
officials from all areas, including from the judiciary.
The reaction to this prosecution came in particular with
priority from the political class. And I saw the behavior of my
colleagues in the government when people from the parties in
power started to be investigated and prosecuted. It was
unbelievable. We are in power and we are investigated. So
consequences of this continuous public pressure, I would say
political pressure for those investigated, all claiming that
these are political cases, although they are, as I said, coming
from all the political parties. Then attempts from the
parliament to change the procedural law such as to try to avoid
being investigated.
And I can give you a quick example. We had--and also an
example of the level of bribe, which shows it better. We had in
2007 a minister of agriculture taking a very low-level bribe in
terms of money, about 15,000 euros, and also sausages and other
products for--allegedly for giving contracts about 6 million
euros to some private companies. And also speaking about the
level of bribe, we heard the cases with members of the
judiciary who were prosecuted and convicted for amounts around
100, 200 euros, which shows to me not that their bribe is
small, but it shows a practice.
So coming back to the reaction of the politicians, when
such cases became public, and of course they were damning the
use of surveillance measures, interceptions, and filming. One
measure taken by the parliament without any public debate was
to make this procedure impossible. For instance, one provision
was saying that a person cannot be intercepted before--unless
he's informed that an investigation is going on against the
person, so therefore making all these surveillance measures
useless.
These provisions were not passed, because they were
rejected and they were sent back for examination by the
president of the country, but they showed the attitude of the
politicians when they are, of the majority of the politicians,
when they are under investigation. They try to use any means,
and they have the decision in their hands, and they use it to
fight back.
Another example of political behavior is the decision to
lift immunity when the prosecutors ask for the parliament.
These cases, many of them were rejected, were denied, and then
they were re-heard again. These cases took about between 5
months and over 1 year for each case to be decided in a way yes
or no, and those many MPs said that they have to look at the
evidence, so they basically tried to take the role of the
charge. So all these together shows an opposition to this
investigation. Basically, what they are trying to do is
invoking civil rights in all these changes basically to
establish and practice the right not to be investigated.
I was supported by the president of the country. When I was
a minister, I was independent. I didn't belong to any political
party. This is how it happened. As I said, I had the support of
the president of one party which supported me. After the
accession when all the politicians saw that--achieved the
objective of being into the European Union, the party which
supported me was asked to withdraw the political support for
the minister of justice. It refused and then it was basically
excluded from the government.
There are sustainable things and things which could not be
changed back, as, for instance, this anti-corruption prosecutor
office, which is still there, and which is still investigating,
including politicians and which is still under attack, but I
think the most important thing is that these people are doing
their job. Thank you.
[The prepared statement of Ms. Macovei can be found on page
112 of the appendix.]
The Chairman. And next, Mr. Jack Blum, who was the former
head of the UN Experts Group on Asset Recovery and has a very
extensive background in dealing with this. And I said that this
is going to be a bipartisan issue. We have witnesses, and the
practice is that most witnesses are proposed by the majority.
The minority gets to propose witnesses. I must say here I think
the choices were totally interchangeable. Mr. Blum--sometimes
there are differences on issues, but this is case where I think
just the very selection of witnesses shows that there's a great
degree of consensus.
Mr. Blum?
STATEMENT OF JACK A. BLUM, ESQ., FORMER HEAD, UN EXPERTS GROUP
ON ASSET RECOVERY
Mr. Blum. Mr. Chairman, it's a pleasure to be here this
morning, and I thank you and the ranking member for their kind
remarks. This committee did quite admirable work 7 years ago in
putting together a hearing to discuss these issues.
Unfortunately, the events of the last number of years made it
very difficult to continue down that path.
I am currently involved in the Nigerian Halliburton bribe
case, representing the government of Nigeria, trying to get
mutual legal assistance from the United States. Now that case
and other cases illustrate the complexity of the problems we're
dealing with, and they really are complicated problems.
The screaming frustration of people looking at something
like the family of the Obiangs running Equatorial Guinea where
you have 700,000 people in desperate poverty and a per capita
GDP that makes it 8th highest in the world, is unbelievable.
Yet there's nothing, it seems, anyone can do about the fact the
Obiangs are running the country and stealing it blind, other
than to wait for them to either depart office and try to
prosecute after the fact, or wait for some form of criminal
complaint or conviction to come forward, and then begin a
process of searching for the money.
But failing to have that criminal process undertaken,
either in Equatorial Guinea or against a company that's
actually taking the oil out of Equatorial Guinea, everything is
absolutely okay. And if a bank gets a deposit from the Obiang
family, the simple solution for the bank is to file an SAR,
report to the government that in fact there has been a
suspicious transaction, and then it's really up to the bank as
to what they want to do in terms of handling the money. And, of
course, the situation is, and this is very clear, that if a
U.S. bank doesn't take the money, somebody will take the money
and then funnel it into a U.S. bank through some other shell,
either a trust or a shell company or whatever.
This business of sovereignty protects a lot of sitting
crooks. And I'll give you another example. The government of
Kazakhstan, which is notorious in its corruption, yet because
the same people are running the government, there are no
charges and no basis for anybody going after their assets or
even saying we can't do business with them. This is a very
frustrating problem, and there are no simple solutions to it.
The idea of national prosecution such as we have in the
Foreign Corrupt Practices Act is a very appropriate approach.
It works as far as it goes. So it's a deterrent to U.S.
corporations and paying the bribes, it's a way of keeping
people from doing the outrageous. On the other hand, most of
the enforcement of that law has come out of self-reporting,
which is to say the company or its auditors or its internal
controls have come forward and said, look, we found these bribe
payments and we confess.
It's very difficult to find those cases without the self-
reporting, and then once the cases are prosecuted, there's the
further problem. If a company comes forward and says, we paid
bribes in Nigeria, the U.S. Government is in the terrible
position of not being able to say who the bribes were paid to,
for the simple reason that there's no proof that the person on
the other end received it. What they know is the payments were
made.
And I say in my statement, I have a very vivid memory of
having a witness in a Foreign Relations Committee hearing talk
about Prime Minister Seaga of Jamaica step forward--the witness
said that Ciega had hidden bank accounts in the Cayman Islands.
And I got back to my office and there was Prime Minister Seaga
on the phone saying, wait a minute. How do I get to defend
myself? I can't come as a witness to your hearing. And your guy
who said I had these bank accounts was a convicted drug dealer.
And I sat there and listened to myself being reamed out by the
prime minister for the better part of a half-hour.
This is a very real problem. We will not be in the position
of naming the people involved as a U.S. Government for that
reason. On the other hand, do they have to be named? Do we have
to figure out a way to stop this? You bet we do. And it's a
real dilemma.
The most effective remedies in this area, because the
criminal law is so fraught with these cross-border
difficulties, and I can go into it in question and answer, the
best solutions are in the civil arena, and that's what we
talked about 7 years ago. And I'm pleased to say that in the
intervening time, I have been working with Lord Daniel Brennan,
who is a very distinguished member of the House of Lords, on
putting together a civil asset recovery organization that will
work across borders on behalf of countries that have now
decided to try to recover the money. And this organization, I
think, has the capacity to do what others don't, because it
would be private and nongovernmental, and therefore wouldn't
fall into the thorny messes that come when you have to deal
with sovereign relations among states.
I see that my time has expired. Am I wrong about that?
The Chairman. Take an extra minute, because we only have
one panel.
Mr. Blum. The problem of civil recovery is it requires a
lot of work in a lot of different countries. It requires many
different sets of legal skills, and it requires a degree of
non-interference by political players. And that's a very
important extra piece. We have had too much interference by
political players, even in the areas of criminal prosecution.
And I give you as a couple of examples the Geffin case
involving Kazakhstan, an indictment years ago of a gentleman
who was supposed to be a bag man in some oil contracts. The
case has yet to come to trial. The indictment is pending, and
there's no explanation whatsoever for why this case hasn't come
to trial. There have been delays and arguments that, well,
maybe this man was somehow connected to our intelligence
services, but not a shred of evidence has been put on a public
record about it.
In the case of other countries where criminal prosecutions
have gone forward, let's talk about the Nigerian case, the U.S.
Government is currently delaying the mutual legal assistance
because the investigation is ongoing here in the United States.
Now just understand the bribes in Nigeria took place between
1995 and 2002, 2004 perhaps. We're just going to finish up our
criminal proceedings perhaps in another year or so.
But now the Nigerians get evidence that is 10 to 15 years
old, and then there's the question of all the other countries
that this case touched. So Halliburton had a partner in France.
The partner in France worked with Halliburton to set up a
company in the Portuguese island of Madeira. There's a French
criminal investigation underway, and the assembly of all this
evidence to make any sort of case in a Nigerian forum won't
happen for another 5 years at the minimum. This is a kind of
impossible situation. It's so far after the fact that the money
will be gone and the defendants will be able to do all sorts of
things with respect to statute of limitations and making their
defense.
So I just stress that this is a very difficult and thorny
process. We don't have any simple solutions to it, and I think
a lot of work and discussion will have to go forward. I think
perhaps some of the answers lie in tightening up know-your-
customer rules, but even there we have a real problem.
Thank you.
[The prepared statement of Mr. Blum can be found on page 89
of the appendix.]
The Chairman. Thank you. Let me just begin, Mr. Blum, you
mentioned because Ms. Lawson talked about naming and shaming as
a major tool given some of the legal problems, but you point
out there's a problem with the naming. Could we work out a
procedure in committees where you would not release the name
until the party had some chance at a rebuttal?
Mr. Blum. Well, it's really tough. The first time we hit
that was with the Lockheed case in Japan. We had hard evidence
that the Prime Minister of Japan, Tanaka, had received bushels
of cash money from Lockheed Aircraft to get their planes into
Japan. The State Department was apoplectic. They said you can't
do this. The Japanese are major allies of ours. This will cause
a political earthquake in Japan, which it did do, and they
wanted us not to hold the hearing. It took tremendous effort to
then get the evidence to the Japanese, and to their credit, the
Japanese actually did something about it. They convicted him
and he went to jail. But there were many other countries we had
evidence on, and the State Department didn't go anywhere with
it.
The Chairman. Well, let me ask you, what if we try to work
out a procedure whereby if we said in advance, let us know, and
we would then notify the named individual and offer to release
contemporaneously any rebuttal? Obviously you're not going to
get the prime minister to come sit here. But I'm wondering
whether you think that could--
Mr. Blum. It's a possibility, but I don't really have
confidence that the prime minister would be very happy or that
the State Department would be very happy.
The Chairman. Well, I appreciate that, but State
Departments are often unhappy with Congress and vice versa.
Mr. Blum. I know.
The Chairman. What I'm trying to satisfy is not some
diplomatic rule but our own standard of fairness. And I will
say that we might want to work on something where with--that
there has to be some notice, and there is then a chance to
rebut, and if somebody decides not to rebut, they don't.
Let me now ask the general question, obviously, and Mr.
Castle and I were talking about it, there's a great deal of
support for doing away with the corruption, particularly, and I
appreciate the extent to which we have emphasized, it damages
our ability to alleviate poverty. It is poor children who are
the major victims of the corruption. This is not a victimless
crime.
We will be told, yes, but the problem is you can't put
American businesses at a disadvantage. Ms. Lawson mentioned the
level playing field. I will just make an aside on this. The
level playing field, it's an extraordinary phenomenon, the
unlevel playing field. It is I think the only one I can think
of where it is an unlevel playing field and no one in the
history of economics has ever been at the top of the level
playing field. It is a constantly downward-sloping playing
field, and people are only at the bottom. No one in the history
of congressional testimony has ever acknowledged being at the
top, or even in the middle of the unlevel playing field.
But that's the question which I will ask you to comment on
briefly now. Help us figure out ways to diminish the
disadvantage. Part of it, I think, would have to do where this
committee has the jurisdiction, with the banking system, being
frozen out of the American banking system could be tough. And
Mr. Blum mentioned that people managed to sneak their way in.
But I think you were suggesting with know-your-customer that we
may be able to prefer to do that.
But I would just ask if one of you had any comments now,
and I think we would be very open to what we could do to
diminish the argument that we're putting Americans at a
disadvantage. Mr. Baker?
Mr. Baker. Thank you, Mr. Chairman. The same argument was
made at the time the Foreign Corrupt Practices Act was being
discussed, that it would badly damage U.S. business interests
around the world. It did not. We may have lost the odd aircraft
sale or the odd oil field service contract, but we certainly
did not hurt U.S. business globally. It did take the Europeans
another 20 years to follow suit, but that was an example of
U.S. leadership that led to the rest of the world following as
well.
And I said in my remarks, further U.S. leadership is
needed. In fact, what we need to do now is to catch up with
where the Europeans are. They have gone past us in the range of
what is barred of monies crossing borders. We cannot
successfully fight corruption while at the same time
maintaining our financial system open to so many other forms of
illicit money that go through the same such channels.
Corruption can pass through the same channels as the flows of
other forms of illicit money.
The Chairman. Ms. Lawson?
Ms. Lawson. I would encourage the committee to focus on the
role that the Financial Action Task Force could play in
improving the standards elsewhere. The United States is one of
the driving forces behind the Financial Action Task Force and
has a lot of influence within it. At the moment, the naming and
shaming that I referred to is not about individuals, it's about
jurisdictions who do not have anti-money laundering standards
at the appropriate level, and while FATF is spending some
attention at the moment talking about some of the countries
that are way out of line, most if its own members do not yet
have standards fully in compliance with the levels that it
sets. So that's one way that the United States can use its
influence abroad.
The Chairman. Mr. Ribadu?
Mr. Ribadu. Thank you. Well, just to agree with her, the
FATF did a lot of--
The Chairman. Move the microphone closer to you.
Mr. Ribadu. FATF changed Nigeria, and it has really made it
possible for us to really address the problem, not just of
corruption but so many other things. I think there is a need to
look at the possibility of strengthening and helping it to get
back to what it was a couple of years ago.
On the issue about the American business outside, as a
person, a physical person on the ground in Nigeria, I can
assure you that the Foreign Corrupt Practices Act did a lot of
good to America, far, far more than what you can ever imagine.
I investigated companies in Nigeria from 2003 to 2007. Wherever
I see an American company is involved, doing business, I tend
to be relaxed. I tend to believe that somehow they are far, far
better than the rest of the world, not to talk of the emergence
of the Chinese and the Indians.
The Foreign Corrupt Practices Act helped to build
confidence, show direction, change the world perception, and it
also helped us to raise our own standards. It may be the same
thing that you are faced with today. Please do have the
courage, understand that what you are doing, you are taking the
lead. Whether it is going to be a temporary loss, I can assure
you in the future you will see the benefit of it. Today, most
of the companies from America are taking the benefit. They tend
to be believed. We agree with them because of this oversight
responsibility coming from their home country.
The Chairman. Thank you. Ms. Macovei, on the international
coordination, is there anything we can do?
Ms. Macovei. I didn't understand.
The Chairman. Yes, if you had anything that you wanted to
add on how we can--
Ms. Macovei. I would like to say as the others to insist on
international cooperation. Exchange of information is vital,
and I saw in some cases where information to not leave one
state to go to the other through the law enforcement. And also
I can say that I saw contracts, and without direct evidence of
corruption looking at the terms of the contracts where all the
rights were and all the duties were, it was a clear bad
business for the state and good business for the company. But
my point is probably companies who try to do these, the problem
is the environment where they do the contracts. If a country
provides this poor environment in which corruption is possible
at the government level, then the company will take--
The Chairman. Well, in some cases you can just look at the
terms of the contract and figure out that some money changed
hands because there would be no other logical explanation for
those contract terms.
Ms. Macovei. Right. I made these examples because I saw
contracts where there was no price. The price was going, for
instance, to be decided by the contractor, by the contractor
company.
The Chairman. Oh, very nice. Mr. Blum, any last word on
this?
Mr. Blum. A couple of thoughts. First on the issue of level
playing field in the banking business, I think that if banks
don't take this kind of corrupt money, well, they may be at a
competitive disadvantage, but this is business we don't want
them to touch. Moreover, when things go bad, the advantage is
not to the people who took the bad money. So look at UBS, which
took all this tax cheating money, that now has all of its
customers fleeing because they're going to be exposed, and
they're in terrible trouble. So I don't think that's the issue.
Now this business of the contracts, I think the issue here
is price. If there's public exposure of the price and the
terms, it gets to be very had to pad the contract to hide the
bribe. And that is a very important aspect of keeping this
process honest. So, for example, there was an infamous case in
St. Maarten where a Sicilian contractor went into negotiation
to build a new airport, and the price once they sat down with
the people who were running the government of St. Maarten kept
going up with consulting payments supposed to go to a company
somewhere in Switzerland. Well, you knew what that was all
about. Ultimately, the Dutch government got on top of it and
did something about it.
The Chairman. Okay. Thank you. We will ask all of you,
please feel free, and we'll be in touch about how we deal with
this, because it is a practical matter that is going to be, I
think, one of the issues we will have to deal with.
The gentleman from Florida.
I misread my things. The gentleman from Minnesota was first
on the list.
Mr. Paulsen. I will yield back, Mr. Chairman.
The Chairman. Then, the gentleman from Delaware.
Mr. Castle. Thank you, Mr. Chairman. I want to ask you
something which I think is related to what we have been talking
about, in fact, quite closely related. And that is the new
trends in international terrorist financing, the new
technologies in moving money around. Do we see scam charities
or corporations playing a role in terrorist financing or even
the corruption you have been talking about in foreign
governments and should we be doing more and should the UN be
doing more or is there some other entity out there that should
be doing more? To any of you.
Mr. Baker. Thank you for the question. In my own opinion,
sir, the pursuit of terrorist financing has been a bright spot
in these efforts. There were, shortly after 9/11, some 25 arms
of the U.S. Government that were pursuing terrorist financing
and as a result of that, I think that we have pushed terrorist
financing out of the legitimate financial system. In my
observation, as I study the issue, terrorists are moving their
money through commodities, through drugs, through gold and so
forth, but only to a rare extent using the legitimate financial
system. There is some money passing through the Hawala system
back into the hands of drug dealers in Afghanistan and Pakistan
that end up in Taliban hands. So, there is a linkage there.
But, as far as terrorist financing in the legitimate financial
system, personally, I think that U.S. leadership on this part
of the problem was excellent.
Mr. Castle. Mr. Blum?
Mr. Blum. The critical place to get at that sort of problem
is in identifying shell corporations and in identifying who the
beneficial owners of various trusts are. At the moment, under
the know-your-customer rules, many financial institutions have
been content to receive a copy of a corporate charter of an
off-shore corporation, passport photographs of the local
directors, and say, okay, the beneficial owner of the account
is the corporation. That cannot be. We have to know who is
underneath any shell entity that's coming into the U.S. banking
system. And that is a fairly straightforward proposition, which
will help us with tax collection, will help us ensure that
terrorist money is out of the system.
Mr. Castle. Your answer is somewhat in contrast to Mr.
Baker's answer, to a degree. You're basically indicating that
shell corporations could be set up, you could use some sort of
local director, take a picture, whatever, and accept the
documentation and all of the sudden be able to fund through
that--
Mr. Blum. I don't know whether they would be used to fund,
but I can say they can enter the banking system and their
accounts can be used to move money. You know, where it goes or
who it goes to, or what they do, is another issue. But used to
move money, yes. And in the end, in the end, even the Hawala
system uses the banking system, so you really want to know who
the people are who are opening your accounts. And I think
that's something that we have already talked about a lot in the
area of the Bank Secrecy Act.
The banks and brokerage firms got a pass on identifying old
accounts and then on the issue of identifying corporate
accounts, the identification was left to saying, well, tell us
who the directors are, and when you have a shell and you have
shell directors, it doesn't tell you anything about the
corporation. You have to know the beneficial owner.
Mr. Castle. Mr. Baker, can you respond to that? You
indicated, obviously, in your statement, that we have taken a
lot of steps to address the terrorist financing, etc. Mr. Blum
points out the circumstance of being able to set up a shell
corporation and avoid some of the niceties that might trip that
up if it were to happen. Do we know that is not happening based
on some of the things you have talked about or is it possible,
it's obviously possible, but is it likely that some terrorist
financing is taking place in shell corporations?
Mr. Baker. It certainly can, sir. There is no evidence that
I have seen that it is taking place. If I could make a further
point about beneficial ownership. I strongly agree with my
friend, Jack Blum, that beneficial ownership of entities needs
to be known by every financial institution holding accounts. I
made this point in New York recently and a Wall Street banker
in the room raised his hand and asked, ``Do you have any idea
how much it would cost us to determine the beneficial owners of
all of our accounts?'' And of course, the answer is, it costs
nothing. You put the shoe on the other foot.
It is the responsibility of the account holder to affirm
who is the flesh and blood owner of the account or what is the
listed company that owns the account. But this is a no-cost
exercise and it should be done by all financial institutions.
In this day and age of crime and terrorism, I cannot imagine a
financial institution not wanting to know who are the
beneficial owners of accounts with which they do business.
Mr. Castle. I thank you. My time is up. I would just say,
in closing, that I agree with everything you have said about
the problem. I worry about the solution on a broader basis in
just the United States or just Europe. I think it's going to
take a great deal of international involvement to get this
resolved. I yield back.
The Chairman. The gentlewoman from California.
Ms. Waters. Thank you very much, Mr. Chairman. I am very
appreciative for this hearing that you're holding and very
appreciative for the leadership and support of Mr. Bachus in
dealing with this issue on corruption in the role of western
financial institutions. We have been kind of picking around the
corners of this for a long time. I recognize that we here
cannot, perhaps, stop all of the corruption in the world, but
I'm very, very concerned about our banks and financial
institutions who participate in the support of corruption with
acceptance of stolen money, drug money, on and on and on.
I would like to especially thank Mr. Blum for being here
today. It seems as if he has been around the world with so many
of these issues and I would just like to let him know that Mr.
Ricky Ross, who was at the center of the crack cocaine scandal
that was exposed by the San Jose Mercury is out, back at a
halfway house in San Diego. Of course, as you know, Daniel
Ortega, who was fighting with the Contras is in power now with
the Sandinistas in charge. I don't know. It seems as if things
just continue to rotate and that things don't really change
that much.
But, here we are today again looking at this issue and
whether it is a Halliburton that's involved in a bribery or any
other American firm, or any American financial institution that
knowingly accepts money from people like Abacha, and protect
it, it seems as if we should be able to do something about
that. I spent a lot of time on Citibank because they were
obviously purchasing dope, little banks throughout Central
America and Mexico and one of the brothers of a former
president of Mexico, had a private banker at Citibank, who
bought their homes and boats and all of that.
And that's what I think we can get a handle on. ``Know-
your-customer'' does not accurately describe it. I mean, it has
to be better than that. I don't think that the brother of the
president of Mexico at that time even had a card on file to
talk about where they lived, earned money, but they had a
private banker who facilitated the purchase of all of these
assets. So, what I would like to do is, I would like to find
ways to stop our banks, period, from accepting a corrupt money
and protecting corrupt money.
I would like to find out what the IMF and not only the
International Monetary Fund, but the World Bank, they have a
lot of investigations. And they have a lot of research
information. They know a lot about some of these countries that
are involved in deep, deep corruption and who are putting money
in American banks. I would like us to find ways to get access
to the research they have and, of course, simply close down the
ability for our banks to have this money placed in accounts in
these banks. So, you have been giving us some suggestions. You
have talked a lot about the know-your-customer rules. Is there
anything else you would like to share with us about what we
should be doing to close down the ability of American banks to
accept this cash from these corrupt people? Yes?
Ms. Lawson. In response to your points about the IMF and
the World Bank, they have a very strong role to play in this.
They play a significant part in the mutual evaluations, the
peer reviews, that the financial action task force does of its
members. When they got involved in 2002, it was on the
condition that FATF stop naming and shaming, explicitly, the
countries that did not have appropriate standards in place. So,
if they were to be supportive of that, FATF could be made more
effective in ensuring that there's a better global standard.
The other interesting role that the IMF and the World Bank
can play is that in the analyses of countries' economies, the
Article IV Reports, for example, for the IMF. There is
information about the transparency over natural resource
revenues and payments. Given that in many of these most corrupt
countries, it is natural resources that are providing the money
that can be so easily looted, more information made available
in a very clear form, from the international financial
institutions to the banks to help them in doing their due
diligence to identify where the corruption might be taking
place, would be very useful.
Ms. Waters. Thank you very much. Mr. Chairman, let me wrap
up simply by saying, we don't want to hurt the poor people who
we are trying to support in these countries and I'm just
sitting here thinking about how we cannot get the money to the
governments that are responsible but rather to some NGOs or
other to continue some of that work. And I yield back the
balance of my time.
The Chairman. The gentleman from New Jersey was next on the
list.
Mr. Garrett. I thank the chairman. I thank the members of
the panel, Ms. Macovei, Ms. Lawson, Mr. Ribadu, well, everyone,
everyone on the panel for your work and the sacrifices that you
have made on its behalf. You know, I think of the actions that
Congress has tried to take in this, that I have been involved
with, is trying to help the people. One prior to the Iraqi war
situation, I was down on the Floor on a number of occasions
when the whole issue of the now infamous oil for food scandal
began to explode.
And there is, just as Ms. Waters says, the issue there is,
where is the money supposed to go? It is supposed to go to the
folks over there, the people over there, the poor people over
there for food and medical supplies and other things and it
didn't get there. And of course, we have now learned it went
from, not just to Iraq, but political folks from Russia to
France and in this country, all around the world. The
discouraging part from my aspect was, in Congress we put in a
number of, I put in a number of amendments to say, let's call
for accountability, let's withhold some of our funds to go
there, and quite honestly, they fell on deaf ears in this House
because of the nature of what we were, others were trying to
do.
But I think it was the right thing to do, to try to call
even an entity like the UN, accountable for their actions. Now,
the chairman raises the proverbial issue, I'll go along this
line with regard to the level playing field. Ms. Lawson, I
think you mentioned in your testimony with regard to at least
one bank, Riggs Bank, and what happened there. Now, there is a
case, just to tell you the other side, there is a case where
the United States did have the tougher law.
We had the civil and criminal prosecutions. They had to
basically sell out and what was the outcome of that, the
outcome of that for them, not very good, outcome as far as in
Europe and the rest of the banking world, they just continued
on, right? So, even though we took the leadership position,
what came of that? Ms. Lawson?
Ms. Lawson. Thank you for your comments. I think that
brings up a very interesting issue. It's very concerning that
when the United States takes this very effective action using
some of the powers that it has, that we then see a European
bank continuing to hold an account for one of the characters
involved and I would like to reassure you that in addition to
coming here to seek leadership from the United States, we are
also working, spending a lot of time working, in London, in
Brussels, and in other European capitals to try and get
European governments to look at this, as well.
But another issue that comes out of this is, let's look at
the mansion that Teodorin Obiang owns, which is in the United
States and was purchased in February 2006. Now this is after
Riggs was closed. This money that he used to buy it, $35
million or thereabouts, must have come into the United States
in some form or other. So, while it is very important to ensure
that the European standards also improve by using the
mechanisms that we have internationally, such as FATF, there
may also be issues with money still being able to come into the
United States somehow in order for this guy to purchase his
house.
Mr. Garrett. Well, you know, you raised the issue of the
banks looking at, how do they have this much assets, I was
thinking, I'm from New Jersey. We had a case where we had a
prominent city mayor who made a city salary and he was getting,
he had a large boat, several real estate holdings, and cars and
everything else, so with the idea of looking at, not just the
terrorist list, which you referenced, does that mean that we
have to have a system where banks even within this own country
have to start questioning if we have political figures that are
getting all this aggregating of assets when they're only making
X number of dollars as a city mayor or councilman or something
like that, but that's their responsibility now?
Ms. Lawson. As far as I'm aware, it's the bank's
responsibility to ensure that they don't accept the proceeds of
crime of whatever it is and that applies to their customers
wherever they're coming from. Now, the strong, impressive work
of this committee has led some regulations in the form of the
Patriot Act, section 312, that apply to foreign account owners,
in particular, as a specific means of tackling corruption. But,
the anti-money laundering laws are basically the proceeds of
crime. So, it's a bank's job to work out whether their
customers' funds are legitimate, whoever they are.
Mr. Garrett. Okay. Yes, Mr. Blum?
Mr. Blum. I might add in this discussion, I represent
financial institutions and work with them in compliance. I have
actually sat with committees that look at questionable accounts
and decide whether or not the bank will take them on or whether
or not, after looking at some questionable transactions they
want to get rid of the customer. And, in truth, the better
institutions all recognize something called reputational risk.
The presence of, let's say, the Obiang account is not worth the
trouble that account will bring if we all understand that we're
dealing with a significant crook. The problem comes when that
crook comes into the bank through some kind of disguised means
where the bank can't be certain that it's the crook and can't
really question. Let's talk about a clearing broker who sees
the transaction. The account originated with the introducing
broker, now what do you do? Pick up the phone and say, we're
going to fire you, the introducing broker unless you get rid of
your customer? And that gets to be a lot tricker.
Mr. Garrett. My time is up, thank you.
Ms. Macovei. Can I--
The Chairman. Yes, if the gentlewoman would like to answer,
she may. We only have one panel, so we can be a little loose
with time here.
Ms. Macovei. I think we should also think of the
responsibilities of all the reporting agencies to the anti-
money laundering financial needs. It's first the banks and
they, as we all know, they have to report not only transactions
over a certain value, but any suspect kind of activity or
transaction. And also, there are responsibilities at least in
the laws for notaries and for other categories of sort called
deporting entities. So maybe you should also look at the
framework and the obligations of these many others who know.
Thank you.
Mr. Garrett. Thank you very much. Thank you, Mr. Chairman.
The Chairman. The gentleman from Kansas.
Mr. Moore of Kansas. Thank you, Mr. Chairman, and thanks to
our witnesses for your testimony this morning. As a former
district attorney, and the chairman of this committee's
Oversight and Investigations Subcommittee, exposing corruption,
fraud, and wrongdoing at both the local and Federal levels of
government has been a top priority of my public service and I
hope everybody on this committee's public service.
Today we're focusing on corruption and criminal acts at the
international level. When the stolen funds can mean the
difference between life and death for too many impoverished
people, the need to crack down on these acts could not be
greater. Normally, a government program is set up, funds are
distributed, and we wait for enforcement at the end of the
process and hope to catch any illegal acts that may have
occurred. The Special Inspector General for TARP or SIGTARP has
worked to move enforcement efforts earlier in this process with
respect to the TARP program.
Mr. Barofsky last reported having 20 criminal
investigations ongoing and has made it a priority to work with
Treasury to build into their TARP program stronger
accountability and transparency measures to prevent waste and
fraud before crime happens. Can we implement the same approach
for these international programs? That is, increased
transparency in the program and establish vigilant oversight at
the beginning so we can catch possible illegal acts before the
crime happens and becomes more widespread and I would like to
hear from any of the witnesses who care to comment. Please. No
comments? Mr. Baker?
Mr. Baker. Congressman, what I would like to comment on is
the question of what U.S. banks can take and what they cannot
take.
Mr. Moore of Kansas. Okay.
Mr. Baker. The United States has two different lists. A
very long list of domestic crimes of which we cannot knowingly
accept that kind of money. The foreign list is a very short
list. Basically, we borrow inflows from abroad of the proceeds
of corruption, terrorist financing, and drug trading. Bank
fraud is also part of that. But in my earlier remarks, I
indicated all the other kinds of criminal activities the money
of which can flow legally into the United States.
Now, if the receiving bank has a suspicion that the money
is from a criminal source, it is expected to file a suspicious
activities report. But, the key is, it can accept the money. It
can take the deposit. The United States is one of the last
countries to utilize a two-list system. Most European countries
have gone to the definition of what constitutes laundered
money, illicit money, as being the proceeds of a major crime.
The UK has gone a step beyond that and called it simply the
proceeds of a crime. If you knowingly handle the proceeds of a
crime, you've committed a money laundering offense.
Congresswoman Waters asked for specific suggestions as to
what needs to be done to address this problem. I would assert
that until we close those loopholes by which other kinds of
criminal money can come into the United States, we cannot
effectively fight that component, which is corrupt money.
Mr. Moore of Kansas. Thank you, sir. Are there any other
comments from the witnesses? Yes?
Mr. Blum. I would like to add a thought on this. The
biggest problem that I see is the absolutely antiquated and
impossible situation of information exchange and witnesses
exchange. Let me give you an example. When we met as a working
group at the UN to discuss the problems of prosecution and
going after this kind of corruption, the prosecutors, the
working prosecutors said, you realize we can't compel the
attendance of a witness across international boundaries if the
witness doesn't want to come.
There's no system for bringing them into the country with
immunity to testify. The process of getting evidence across
international borders is basically a bilateral business that
takes months to accomplish. And if you get a lead in one place
and then have to follow up in another country, you can be years
in trying to develop even the simplest criminal case involving
financial flows. So, one of the most important things we can do
is find a global way of modernizing this absolutely antiquated
bilateral system of one off exchange.
Mr. Moore of Kansas. Even with the cooperation or
willingness of the other country, where the resident resides?
They can't compel that person--
Mr. Blum. If the person is willing to come here as a
witness, that's fine.
Mr. Moore of Kansas. But I mean, the government of the
nation where that person lives can't compel that person to go
to our country?
Mr. Blum. No. By and large it will be, the opportunity will
be then given to perhaps have a deposition in the foreign
country if it's a country that wants to cooperate.
Mr. Moore of Kansas. Thank you. I see my time is up. Thank
you to the witnesses.
The Chairman. The gentleman from Minnesota.
Mr. Paulsen. Thank you, Mr. Chairman. Many changes to the
transparency of the financial institutions have been made since
September 11th and we have also seen an increase in efforts
internationally to clamp down on financial crimes. There are
currently some pretty heavy regulations on U.S. financial
institutions and we can certainly debate whether or not those
are sufficient, but I think there's still a heavy burden on
U.S. banks. As I understand it, one of the areas where we are
seeing some increase in fraudulent activities right now is with
the new technologies that are going on. In particular, online
payment systems and banking provide an easy opportunity to
evade regulators in general. Can any of you comment,
specifically, on that, on what might be targeted directly on
that area in particular? Mr. Blum?
Mr. Blum. There are some new technologies which are being
used. Smart cards, cell phones, that offer opportunities, but
in this issue that we're talking about today, grand corruption,
they go the old fashioned way, which is plain old investment
accounts and investment advisors and lawyers in Geneva and
private bankers. They're not using high tech. And in fact, the
problem is, that when they get this corruption money and
they're still in power, there's no reason why anybody can't
deal with it because there's nothing in the system that can
say, don't deal with money you suspect being corrupt other than
your own good nature.
Mr. Paulsen. Mr. Baker?
Mr. Baker. Congressman, the argument is often made that we
cannot stop these kinds of illicit flows and use of cell phones
and Smart cards is given as an example. I have long advocated
that the goal is not to try to stop all corruption and all
illicit financial flows; the goal is to try to curtail it. We
can curtail it very substantially with a handful of measures.
This won't completely end the problem, but the first goal
should be to substantially curtail the literally hundreds of
billions of dollars of illicit money and tens of billions of
dollars of corrupt money that flow across borders. That can be
done as a matter of political will.
Mr. Paulsen. And Mr. Ribadu, I had the privilege of
traveling to Africa also just 3 weeks ago with my colleague
from Georgia, and it was stunning to spend some time in The
Congo and see how aid is potentially not reaching the folks
that it should be targeting, especially children and a lot of
the IDP camps where we had a chance to visit. And I'm just
curious, based on some of the comments you had in your
statement where the African Union is reporting that corruption
really is draining the region of something like $140 billion a
year, 25 percent of the continent's official GDP.
In general, how much money of multilateral bilateral aid is
reaching the citizens of a developing nation, realistically, at
the level that it should be targeted to. Or what percentage of
those extractive revenues is reaching those citizens? I guess,
in other words, does much of the money pouring in from the G-7
or other organizations, is it targeting and doing much good
where it should be getting to or is there another way to aid
development if so much money is getting picked off the top or
being stolen?
Mr. Ribadu. Thank you. Well, that is what the fundamental
issue is. Basically, whatever that goes in, hardly will see the
benefit of it. It's literally probably 20 percent, average, of
what I have seen in terms of credit, it's international aid
that goes in, for the money coming internally, chances are if
you are lucky in some conditions, you could get fairly about 20
percent of the value. And that is really the issue.
And the problem we are talking about here and what I have
heard so far, it seems as if we tend to look at from this
point, we don't seem to understand what is going on, on the
ground, where the corruption is happening. I have heard one
person after another asking, what can the United States do?
What could you do with your own institutions? We have to start
talking about what could you do out there, where it is
happening. You may take your own measures, you may take your
own fantastic beautiful, whatever, it is not making any impact.
But from where the corruption is taking place. I think it is
high time to start looking at what are the possibilities of
reducing whatever is making it possible for this corruption to
continue.
Who are those responsible? What can be done about it? And I
have seen from the experience of what I did in Nigeria, with a
little effort of pushing, for example, the initiative of FATF,
the Financial Action Task Force, that costs nobody nothing it
makes massive impact in us having to change fast, set up a
financial intelligence unit, have a control over all financial
system, ability to also improve and raise our own standard and
then it suddenly change the whole dynamics of corruption
between the developing countries and the developed ones.
I think we need to have this type of thinking and
direction, the United States giving more attention, more time,
and more resources to this issue involving 400-something
million people who are desperately poor. I can imagine if 5
percent for example of the initiative or the effort being given
to some other parts of world, issues to do, for example, I'm
sorry to say, maybe with Israel and the Arab countries. Israel
and Palestine have 10 million people; Africa has close to 500
million people.
Please give us 5 percent of the time you are giving to
Israel and the Palestinians, and you will see the difference it
can make. Unless we start addressing the problem back home on
the ground in Africa, trying hard to confront those who are
responsible for this corruption, chances are you may continue
to improve your own systems here, it is not likely going to be
the solution. This is the direction I think we should start
looking at.
Thank you.
Ms. Lawson. Could I briefly add something to that? We have
an interesting statistic here, which is that in 2007, the value
of exports of oil and minerals from Africa was roughly $260
billion, which was nearly 6 times the value of international
aid to Africa. Now, the fact that we're needing to give that
aid shows that those natural resource revenues are not going
where they need to.
What we see happening time and time again in every one of
these natural resource rich but highly corrupt countries we
investigate, is that aid is propping up the basic functions of
government and providing legitimacy to the regime while they
get on with the larger and more lucrative business of stripping
the state of its assets. Now, if that aid is going to be
undermined until we stop the incredibly damaging illicit flows
that are coming back out into the rich world.
Now, I'm interested that in Congressman Bachus' testimony
in 2002, that committee, he said, it's a concerted
international effort involving close cooperation among
regulators, law enforcement authorities and financial
institutions is absolutely essential for dealing effectively
with future Abachas. Now, here we are 7 years on. Perhaps some
of those future Abachas are being talked about in this room
today.
And as far as we can see, in addition to the international
problem, it's not completely clear from what we have looked at,
that the U.S. regulators have a handle on exactly what it is
that U.S. banks are doing to fulfill their requirement to
identify the beneficial owner of their customer. There's a good
framework in place there, but the specifics of whether it is
working properly do not seem to be clear.
So, we would encourage this committee to inquire of the
Treasury what it is doing to ensure that it and the U.S.'s
regulators fully understand whether the U.S. banks are
fulfilling this requirement in a meaningful way and whether
further explanation is needed in the second deregulation to
make it absolutely explicit and to make these regulations
meaningful so that they're used effectively.
The Chairman. Mr. Scott?
Mr. Scott. Thank you, Mr. Chairman.
In trying to get our hands around this in terms of what can
we really do about this situation, and I think that if we focus
on the banks, we regulate the banks, the banks could be an
area. Let me just ask: Do any of you know any United States
banks who are engaged with accepting corrupt customers? All
right. Perhaps you do and do not want to mention. Let me ask
you this then.
Because if we are not willing to face the truth and say
that U.S. bank are engaged in accepting corrupt customers, then
we all need to just dismiss this panel and go home. What are we
doing here? Our number one function is regulating our banks.
Now, we know one thing, Mr. Baker. You have mentioned that once
a bank receives, so there are banks who are receiving what they
comprise as a suspicious customer, and then you said that that
bank must require that a report be filed and submitted for the
suspicious customer, but they still take the money.
That appears to me like a get-out-of-jail-free card. If
they suspect it's a suspicious, corrupt customer, then why do
we have this loophole here for them to say just file a report,
but go ahead and take the money. And they filed the report just
in case it shows up that they're corrupt. Well, hey, we have a
chair to sit in here when the music stops. I got the report I
filed. It seems to me that we ought to be able to do something
about that. But now, let me ask you this. When they get the
report, they file the report. Where do they send the report?
And then secondly who is overseeing this? Who do they report
the report to? They just file a report and it sits there?
Yes, Mr. Blum?
Mr. Blum. A problem is, yes, they file a report. The report
then goes to the judicial district where the most activity
relating to that report exists, and then there's a committee of
law enforcement agencies that sit and decide whether anybody
wants to pick up on it and make the case.
Let me assure you that with thousands of reports and all
sorts of prosecutorial possibilities, no agency is going to
step forward to go after a foreign leader's corrupt money case
to figure out if there's a violation of U.S. law they can
prosecute; and, as a result, because it's time consuming,
sticky, difficult. They take the easy stuff, and these cases
don't go anywhere.
Mr. Scott. So what can we do about this? We have on the
books two major laws: the Bank Secrecy Act; and the Foreign
Corrupt Practices Act. Is that sufficient? I mean what can you
tell this committee that specifically the Financial Services
Committee needs to do to tighten this?
Mr. Blum. Well, first and foremost, as I said earlier, it's
essential that every bank know the beneficial owner of these
offshore entities they're dealing with, and that doesn't mean
getting passport photographs of a board of directors sitting in
Nevus. It means actually finding out where the heart, the mind,
and the brains of whatever entity it is exists and who it is.
And, that way, they can't shrug their shoulders.
The institutions can't shrug their shoulders and say,
``Well, we really didn't know that was money coming from
Abacha, or it was coming from somebody else who is robbing this
country blind.'' They will then have the specific knowledge;
and, the beauty of that is that then the institution will
confront reputational risk. But I have to give you caution.
I'll give you the case of a wonderful fellow who was the
Mexican ambassador to the United Nations, who suddenly found
Citibank closing his account because of money transfers from
Mexico. And the money transfers, they were his salary.
There is a flip-side to all of this, and that is that the
people who have the accounts and the people who have legitimate
business have to be able to sort of respond and say, wait a
minute, this is legitimate.
Mr. Scott. All right, Mr. Baker, really quick.
Mr. Baker. One of the steps that needs to be taken is
substantially strengthening ``know your customer''
requirements. At the present time, a U.S. bank receiving money
from a foreign depositor is expected to satisfy itself that the
money is not derived from corruption, drug trafficking, or
terrorist financing. That's the extent of the questions that
need to be asked.
If that individual walks in and says, ``I make my money by
smuggling aliens from one part of the world to another part of
the world, but not into the United States,'' a U.S. bank can
take that money. It would be expected to file a suspicious
activity report. I think the last that I recall, there were
some 12 million to 14 million suspicious activities reports
filed a year, so you can imagine how few of them get addressed.
The last time, and we're talking what--1999--when ``know
your customer'' was put on the table in an attempt to
strengthen regulations. At that time, it was made equally
applicable to American and foreign account holders, and it was
not legislated successfully, because it broached privacy
concerns of U.S. account holders.
There is no reason why we can't strengthen ``know-your-
customer'' requirements as applied to foreign account holders
and require, not on a judgmental or voluntary basis, the kinds
of questions that bankers are expected to ask. Put ``know your
customer'' questions, requirements, into a much more regulatory
framework. The following questions have to be asked. Preceding
all of that as I stressed again must be the passage of
legislation that says all those kinds of criminal money are not
acceptable in the U.S. financial system.
Mr. Scott. Thank you.
Mr. Blum. I would like to, if I may, add one.
Mr. Meeks. [presiding] Really quick; the gentleman's time
has expired.
Mr. Blum. The real thing you could do would be to change
commercial banking law so that the bank becomes a constructive
trustee for money that it knows is derived from a fraudulent
source, so that the bank then carries the civil law
responsibility if it forwards the money to somebody other than
the genuine, beneficial owner. So in the case of money stolen
from Nigeria, that would be the Nigerian people. But if it
forwards the money on to buy a mansion in Malibu, let's say,
they would be liable for passing the money on. Make the banks
commercially responsible under civil law and you take a huge
step forward.
Mr. Scott. Thank you very much.
Mr. Meeks. The gentleman from Florida.
Mr. Posey. Thank you, Mr. Chairman, and first I also want
to commend Chairman Frank for bringing forth this issue to the
light of day. Listening to the comments of course, the
consequences are heart-wrenching that are described in your
testimonies; and, to put things in a proper perspective, I mean
we have to realize that there are a lot of legal protections
that we take for granted in this country that aren't really
relevant in another country, I mean, to own and transfer
property to go into business in a timely manner.
I mean, just a whole lot of things, not to mention the
civil and human rights protections we have that so many people
around the world right now are unable to enjoy. And while
reading through the remarks of course those of the first four
speakers, they gave us your testimonies in order and so we look
at them in order. The thought comes to mind that there might
really be a legitimate beneficial place for the UN to do
something as an international crime-fighter until I read about
Mr. Blum's experiences with the Transnational Corporations Act
of 1976 and how that was just blown away and laughed off
apparently.
And given the fact you have to realize this country was
given the heads-up 10 years ago about Bernard Madoff, and,
nonetheless, the people we have to enforce those laws turned a
blind eye or a deaf ear to that and allowed him to plunder $70
billion, which makes your thieves in your countries look like a
bunch of small town crooks.
And, so, you say, wow; you know, can there be any hope? Can
there be any hope? But I think fortunately right now there
still is some focus and everyone seems to agree that these
activities that are used to fund terrorism are not going to be
tolerated anywhere, except of course by the terrorists
themselves. And I think that the inhumane treatment, the human
misery that's caused by this corruption that can maybe, at
least through mutual partners or mutual banks, be tied to
funding of terrorism might be the link, might be the answer
that it's going to take to get some action.
You know, it's not going to be a unilateral action by the
United States taking sanctions just against our banks or our
wrongdoers. It has to be more international and bilateral, and
multilateral, and like your comments on how you think that
might work, because I see that maybe as an open door for you.
Ms. Lawson. And if I might respond to that comment, I think
you're right that the key to this is in what is being done to
focus on terrorist finance in the system, and it's very clear.
And I think there's pretty much agreement on that, that all
forms of dirty money flow through the same system. So if we
don't close the system to the types of dirty money, all of them
are going to come through.
The key to this, I think, the key to illustrating it is
this extraordinary document we have in our report and the
stories I touched on very briefly. I have more detail in the
written testimony about Denis Sassou Nguesso, the son of the
President of Congo, and his extraordinary designer credit card
shopping. We have a map of his shopping route through Paris and
the report.
Mr. Posey. I read all that, but the focus still sounded
drilled down.
Ms. Lawson. This document has been stamped, ``Record of
Terrorists Checked.'' This shows that there has been a focus
from the international community, pretty much led by the United
States, to make sure that a bank in Hong Kong--it's called Bank
of East Asia--I'm not even sure if anyone here would have heard
of it--it's stamping that document, a payment credit card
instruction, ``Record of Terrorist Checked.''
Now, we need to use the same mechanisms that have made that
happen to say, so that that bank is stamping that document,
``Record of Politically-exposed persons checked,'' to make sure
that they have done their due diligence into whether they're
dealing with a politically exposed person. The same mechanism
that is being used to do that can be used to focus on
corruption. This isn't a matter of technical difficulty or of
the huge amount of new regulation that's required. It's a
matter of political will.
Mr. Blum. One of the things that has been left out of the
discussion this morning is some obvious cases where the
corruption is undermining U.S. national security interests in a
major way. So, Afghanistan, there's a huge flood of drug money
back. That drug money isn't walking there. There's a system
that's moving that money. There's a lot of money involved in
that. We have yet to get our arms around it and, likewise, in
Iraq there's massive corruption and we haven't really gotten
our arms around what's happening there; and, in both cases,
it's undermining our national security interests.
Now, this is for a lot of reasons. Most of the heroin in
Afghanistan winds up in Western Europe. The Western European
countries are not dealing with drug money laundering. They're
very good at certain other things, but in this area, the
failure of cooperation among the European countries, has
allowed that money to flow back. Now, this is all part of the
same problem we are talking about. It's part of the corruption
because the drug money is going back to pay corrupt government
officials. It's undermining our most important strategic goal
at the moment. So we really have to find way to tackle these
problems, and as I say, it's not easy, and it's something we
just have to put a lot more work into.
Mr. Meeks. The gentleman from Texas, Mr. Hinojosa.
Mr. Hinojosa. Thank you, Chairman Meeks. Thank you for
giving me the opportunity to ask some questions.
I want to thank all the panelists, because I think that you
all have given us some very interesting information and I too
want to join Chairman Frank and Ranking Member Bachus in
acknowledging the neverending quest of Chairwoman Waters to
combat poverty in Haiti and corruption in foreign governments,
particularly in developing countries.
Congresswoman Waters has helped me considerably in my
congressional district on various issues and I am glad to
participate today. I agree with Chairman Frank's assessment of
what we have heard this morning from the panelists. He
describes the problem of corruption as an unlevel playing field
for have-nots who continue to be disadvantaged on this playing
field.
So my first question is directed to Mr. Ribadu. My question
is in two parts. First, it seems to me that you contend there
is approximately $93 billion currently in the markets
supporting corrupt governments. If $93 billion is the accurate
data, how did you arrive at that number. Second, what
substantive and credible evidence do you have that American
companies, government contractors and our financial
institutions are helping developing countries to loot moneys
and public assets by public officials?
Mr. Ribadu. Thank you. The first question on the $93
billion, it comes from the Europe and United Kingdom Commission
for Africa. They came up with that figure. They said that about
$93 billion stolen from Africa is divided to different
financial institutions across the world. So it came from the
U.K. authorities.
On the issue about the American companies, let me share
with you the fact that American companies probably are the best
in the world today if you compare with the rest of the world. I
have seen it in Nigeria. Partly because of what you are doing,
no other country in the world is doing what you are doing. For
example, Congress calling the whole world to come and share
with you what the experience, and you have most of the
stringent legislations. It is working. It has helped greatly.
It's just not America benefiting from it. We are the first in
terms of benefit, and I would want to encourage you to go that
direction, improve on it.
The challenge is what also can you do on ground where it is
happening. For example, I wanted to suggest about the Foreign
Corrupt Practices Act. If there would be a possibility of
extending the sanctions, not just to the American companies and
individuals from America who do give bribes to foreign
countries and foreign business entities, but what can you do
about those who are the receivers. As long as you continue to
get those who are beneficiaries of this corruption and they
continue to get away with it.
Mr. Hinojosa. Excuse me for interrupting you, Mr. Ribadu.
I don't want you to answer my question with a question.
Mr. Ribadu. Yes, sir.
Mr. Hinojosa. Just give me credible evidence that our
American companies are doing what you said.
Mr. Ribadu. Halliburton, Parnanpena, Zenith, in the last 2
years, the Justice Department cut it out, investigation into
close to about 20 companies doing business in Nigeria and they
also put sanctions to the tune of over a billion dollars. But
nothing is happening to the other side, those who made this
money, and they are still very big, powerful individuals in
Nigeria, and they will be continue to be there. And, as long as
they are there--
Mr. Hinojosa. Thank you. Time is running out and I want to
take advantage of this opportunity to ask another question
directed to Mr. Baker and Ms. Lawson.
I realize that drafting legislative language is not your
specialty, but what language would both of you recommend that
we on this committee, with the support of Chairman Frank, use
to draft and move through regular order?
Mr. Baker. If I could give you what in my opinion is the
first and most important step, and that is to change the range
of predicate offenses under anti-money laundering legislation
to include all forms of criminal money coming from abroad. As I
have explained, we are currently very selective in what we bar
coming from abroad. That needs to be changed. We cannot alter
the reality of corrupt money flowing into the U.S. banking
system, while at the same time being open to so many other
forms of illicit money.
Senator Grassley, who endorsed the back of my book along
with Senator Levin, has in fact in the last legislative session
and in the preceding legislative session, put a bill on the
table that does exactly that.
Mr. Hinojosa. Thank you.
I want to hear from Ms. Lawson. What is your
recommendation?
Ms. Lawson. I would encourage this committee to push for
some more explicit language around Section 3-112 of the Patriot
Act, which is the bit about requiring due diligence on the
beneficial owner of foreign accounts opening accounts here, to
make it explicit that not only should the bank be required to
identify the beneficial owner, but they should have evidence
that the funds are not corrupt, else they should not accept
them.
Mr. Hinojosa. Thank you for those specific responses, and I
yield back, Mr. Chairman.
Mr. Meeks. Mr. Miller.
Mr. Miller of California. About time you recognized me, my
friend.
I have enjoyed the testimony today. We have talked about
laws that we have in the Federal Government and who is
responsible for implementing those laws.
And we talked about United States banks and if a bank, you
know, accepts illicit money, knowing that that's one thing; but
when a bank files a suspicious report, they're saying, ``We're
asking if this is legitimate or not.''
And we talked about liability for such actions and such.
But if a bank does that, they're sending a need to the Federal
Government or to a government agency that has jurisdiction. And
then I think responsibility falls on us at that point in time,
the government agency or the Federal Government, to respond to
that bank.
I want to move very cautiously in the direction of saying
that bank is bad, because they did what they were supposed to
do, and if the money is not only suspicious, it is illicit,
they have done their job.
And I would want to move cautiously in areas where we are
going to say we are going to hold the bank liable for something
that they did that they were supposed to do.
But Mr.--is it ``Ribadu?''
Mr. Ribadu. Exactly.
Mr. Miller of California. I was right, he was wrong. I
thought it was ``Ribadu,'' he said ``Ribadu.''
Mr. Meeks. No, I said ``Ribadu,'' and he said--
Mr. Miller of California. No, you blew it, I'm not buying
it.
You talked about Halliburton--
Mr. Meeks. The gentleman's time has expired.
Mr. Miller of California. Well, don't get personal.
[laughter]
Mr. Miller of California. I tried to get in the Black
Caucus and you wouldn't let me in. That's why he's trying to
get even with me.
[laughter]
Mr. Miller of California. You talked about Halliburton
doing business in a country, and it sounded like the country
was extorting Halliburton if they wanted to do business in that
country. Is that what you were saying? And Halliburton paid
money and went to some illicit group or government agency that
was wrong or improper?
Was that what you were saying?
Mr. Ribadu. Exactly.
Mr. Miller of California. How was that Halliburton's fault?
Mr. Ribadu. The fact that they gave money--
Mr. Miller of California. Well, the fact is that a business
wanted to do business, and they're saying ``Unless you pay us--
we're a corrupt government--we're not going to let you do
business.''
Mr. Ribadu. Yes. That--
Mr. Miller of California. So who are you pointing the
finger at, I guess--
Mr. Ribadu. That is the sad story of the whole thing. And
that is what is really going on. It's not just Halliburton.
Mr. Miller of California. Yes, but whose fault is that?
Mr. Ribadu. Unfortunately, those who are in charge of
foreign affairs--
Mr. Miller of California. Is it not the person who is in
charge of extorting the business?
Mr. Ribadu. But it is the responsibility of the company
doing the business. Also, what they could not do back home,
they are also not entitled to do outside.
If you behave very well in your own jurisdiction, chances
are it is expected that you should also extend the same thing
to wherever you go.
You cannot, for example, do a different--
Mr. Miller of California. I understand. But what do we do,
let's say, if an American business is trying to do what they're
in business to do business in the country, and the country
basically their leadership is extorting that business.
The American business can--they have two choices. They can
say, ``Fine, we're not going to do business, and we're going to
let somebody from France or Germany or Japan or wherever do
business over there, because they're going to play by the
illegal questionnaire rules.''
I mean, I think we need to be getting at what countries are
doing this, and how do we really deal with those? But how can
we ensure that the policies to prevent exploitation from
financial institutions and businesses by these corrupt figures
are really implemented comprehensively? And how do we do that
globally?
I know, Ms. Lawson, you're looking at me with a question.
But the reason I ask you that question--and you get that
look on your face is: When I was a young man, I had a HUD
official do that to me as a business person, as a contractor.
We were doing business in Los Angeles County, my partner and I;
I was in my early 20s and he was in his late 40s.
And we had a HUD director in Los Angeles call my partner
into his office, close the door, and say, ``Unless you give me
a third of your profits in advance, when you issue the
contract, you're not going to get the work any more.''
And my partner came back to me, and I said, ``Well, he
can't do that, because this is a government agency, and we have
a right, we're on a bid list to bid the job.'' And I thought,
you know, I was being extorted, and I said ``No.''
And I'm going to put myself into a position to Halliburton.
Well, every contract we bid on after that, that we were a low
bidder on, they found a problem with the RFP, and when they re-
did the RFP, we were not on the bid list for the second one.
So we were a company--and I was a young guy--who would have
said, ``We're not going to do that, we're not going to fall to
corruption,'' even if it was a director of HUD back in those
days.
Halliburton is in the same situation, and other American
companies are in a situation, where they go and they say,
``Well, we want to bid on your job, and we bid appropriately.
And you're telling me that if I don't pay you off, I don't get
the job, and this is an American company doing business in a
foreign country.''
And my opinion is, the contractor is the innocent guy. He
just had the stupidity or whatever you want to call it,
integrity, to say, ``No, you can't do that because you're a
government agency and I can bid on it.''
But I never got another job. So the American companies are
stuck in the same situation. And my question is: How do we make
sure that we adopt policies that not only apply to the United
States, but apply globally?
Mr. Ribadu. Yes. Well, let me just explain this little
thing: Corruption and bribery is a criminal act.
Mr. Miller of California. Yes.
Mr. Ribadu. It's not different from, for example, murder,
rape, or kidnapping. Do you think just because others are doing
it, it is okay for you to go into it? No.
I think the first step, the first position is to say, ``No,
I'm not a criminal, I'm not going to do it--
Mr. Miller of California. But what country was it you said
Halliburton was having to pay off?
Mr. Ribadu. Excuse me?
Mr. Miller of California. You mentioned a country you said
Halliburton was having to pay off.
Mr. Ribadu. Well, in the case of Nigeria, about--
Mr. Miller of California. What country was that?
Mr. Ribadu. Nigeria.
Mr. Miller of California. Who were they paying off?
Mr. Ribadu. Nigerians.
Mr. Miller of California. And who's in charge of--
Mr. Ribadu. Unfortunately, that is the case, but--
Mr. Miller of California. Prosecuted--
Mr. Ribadu. The desperate poor of Nigeria are the ones who
are at the receiving end, not the very few who are privileged
to be in charge of the affairs in Nigeria. That's why the
issues is: What can you do as a country, as good people of the
world? As leaders. What do you do to help be on the side of the
140 million desperately poor Nigerians?
Or do you think it is okay for profit to stand in
conspiracy with a small group of Nigerians who benefit from
this, and then cheat, short-change, and literally turn--
Mr. Miller of California. I think it's wrong--
Mr. Meeks. Let me let Ms. Lawson--and then we're going to
be out of time.
Ms. Lawson. I hate to employ a cliche, but it's the most
relevant way of doing this. The cliche is, ``It takes two to
tango.'' And that is the best one that we can apply to
corruption.
Of course, there are a small minority of people in Nigeria
and in a number of other countries in the developing world and
indeed sometimes in the developed world, who wish to employ
corrupt means to do what they want do to.
But they cannot do it without the involvement of businesses
to pay bribes and of banks to take the money that either comes
from the bribes or comes from people having their hands in the
till.
Corruption cannot take place on this scale, without the
facilitating services provided by the rich world. And we are
being inconsistent in our policies towards these countries, if
we don't make sure that we and our businesses and those that we
regulate are not complicit in doing that.
The other thing to point out is that there is a set of
international norms and domestic laws in the United States,
which make everything that you're talking about illegal.
Mr. Miller of California. And I agree with everything you
have said--
Mr. Meeks. I'm going to let Mr. Blum go, and then that's
going to be it--
Mr. Blum. I want to just throw in this thought. If I were
representing the company, but had the demand made for payoff, I
would go to the U.S. Embassy, explain what was happening, and
insist that my government step forward to both make
representations to the Nigerians. And then, because I know who
else is bidding, to make representations to the other
governments about, ``Well, these guys are bidding, and we think
they're involved in payoffs, and why don't you ask about it?''
and get at that level immediate cooperation in shutting that
game of payoff down.
Now in the case of Halliburton, what happened was the U.S.
company worked with a French company and they cooperated
together in paying the bribes.
That was not the approach. The approach should have been:
Talk to your governments, use the international agreements, and
then put pressure on the Nigerians to say, ``Cut it out.''
Mr. Meeks. Mr. Baker?
Mr. Baker. Congressman, I have done business all over the
developing world for 35 years before I segue'd into the think
tank community. I lived 15 years in Nigeria, and spent another
20 years doing business all over the rest of the developing
world.
You can do business without indulging in corruption. You
may lose the occasional piece of business, which I have done,
but I have no regrets over the business that I have lost.
We're not going to revisit the question of whether or not
it is illegal to bribe foreign government officials. That is
U.S. law. There is no excuse for any U.S. company doing so.
Mr. Meeks. The gentleman from Colorado, Mr. Perlmutter?
Mr. Perlmutter. Thanks, Mr. Chairman. And this really has
been a fascinating conversation.
Mr. Miller, your questions were good ones, because the way
I see your testimony, everybody, you have a couple things going
on here. One is: You want the banks to be the traffic cops, and
it involves illegal sales or illicit sales, so drugs. It
involves bribery and extortion, and it involves theft--somebody
just stealing from the country's treasury in some fashion or
another.
So you have three things. You would like to expand kind of
the laundry list that banks look at. Ms. Lawson would like to
have another box to check, which would say, ``Is this a
political person? And why does he own the house in Malibu, you
know, when he should only be getting $5,000 a month?''
And so, Mr. Miller's question is, ``Okay, does this only
apply to the United States, or do we have a global banking
system? So, you know, it's Wells Fargo. Are they--Wells Fargo
is the only one that looks at this? Or does the Bank of East
Asia?''
How do we, if we're going to do something, expand the list
of laundered funds, and expand the list of people that you look
at; how do we get this to other countries? That's number one.
And then Mr. Blum, I have a second piece, which is I am
actually working on an amendment to the Foreign Corrupt
Practices Act that tries to bring in more of the civil side of
things, so that if, you know, company X feels like it was hurt
by a French company that did, in fact, bribe somebody, that
company X could go get a lawyer, try to bring a civil lawsuit,
and recover monies under the Foreign Corrupt Practices Act,
that it isn't just the Federal Government's.
So I want to start with you, Mr. Baker. How do we make all
the banks traffic cops? Or do you want to start with U.S.
banks?
Mr. Baker. The first step is for the United States to catch
up with where the European countries are.
Mr. Perlmutter. Okay.
Mr. Baker. Most European countries have passed laws stating
that it is illegal to knowingly receive the proceeds of a major
crime. We are not in that position yet. We need to catch up
with the European--
Mr. Perlmutter. A major crime would be drugs sales,
bribery, extortion, theft?
Mr. Baker. No. It's the same list in almost all European
countries, the list that applies to domestic crimes. And that
is usually any crime that carries the punishment of a year or
more in jail--
Mr. Perlmutter. Okay. A felony.
Mr. Baker. A felony.
Mr. Perlmutter. All right.
Mr. Baker. It's against the law in almost all European
countries to knowingly handle the proceeds of a felony offense,
whether that offense was committed in country or out of
country.
Mr. Perlmutter. All right. Ms. Lawson, do you agree with
that?
Ms. Lawson. Yes. I would agree with that. And I would
reiterate the point that the way that these mechanisms can be
expanded to the rest of the world is the way in which the
United States has already required the rest of the world to
come along with it in the war against drug trafficking and the
war against terrorist finance.
Both of those were led by the United States and it used the
Financial Action Task Force to ensure that other jurisdictions
had similar standards in place.
And while it's a bit clunky at the moment, they're not all
quite there, it's definitely bringing them along. So that is
the mechanism that you use to ensure that the international
community as a whole turns against the proceeds of corruption.
We're dealing with global flows of money. It would be
absolutely pointless for the United States to do it on its own.
Mr. Perlmutter. Okay.
Mr. Blum, what do you think about private rights of action
and getting the civil community into this? If my company has
been hurt because somebody else bribed, I didn't get the job. I
want to sue somebody.
Mr. Blum. We already have unfair methods of competition
rules under the Federal Trade Commission Act, and this is
certainly an unfair method of competition.
The biggest problem is going to be getting the evidence and
the witnesses and the material, especially if this has happened
outside the United States, and then finally getting a U.S.
court to decide, ``Yes, we have jurisdiction and that this is
the right forum to hear it.''
Because until now, a lot of international cases that have
involved questionable activities wind up being thrown out on
the ground of forum non conveniens. The judge just simply looks
at it and says, ``I don't need this horror show in my court
room, this is the wrong place. Go sue somebody in France or in
England.''
Mr. Perlmutter. So then, what you're saying is not only do
we have to change the law, to expand it, but we're going to
have to have some treaties that allow for witnesses to be
obtained--
Mr. Blum. Yes, and this business of exchanging information
and evidence is critical, especially given the timelines.
I mean, my experience in trying to get the Justice
Department to respond now to turn over Halliburton-related
evidence to the Nigerians is an illustration of that. We are
now 10 years out on the case. And they haven't begun to turn
anything over.
Now who knows what will happen to it on the other end?
That's not the issue. The issue is: Can they get started? And
this is a very complicated case involving multiple players,
multiple countries. And you have to produce evidence and you
have to produce evidence beyond a reasonable doubt.
Mr. Perlmutter. Okay. Thank you. My time has expired.
Mr. Meeks. The gentleman from New Jersey, Mr. Lance?
Mr. Lance. Thank you, Chairman Meeks. Good morning to you
all. I have found the testimony compelling. And I think it's
very disturbing, and I hope that we can work together in a
bipartisan capacity on this issue.
Mr. Ribadu, you indicate in your testimony that you would
recommend a proposal on an international proceeds of crime
treaty. Could you flesh that out to a greater extent for me as
to how that would work? And would that require a statutory
change here in Washington? And among others across the world?
Mr. Ribadu. Thank you, sir. First, I wanted to also say
something with respect to what the U.S. authorities have done
so far to bring this international cooperation.
Nigeria is a very good example today. We do have a
financial intelligence unit, that has helped greatly to improve
our own financial system. And it came as a--support from
FINCEN. FINCEN is an American outfit with responsibility of
regulation.
We have Edmund Group. Edmund Group is a group that is
involving financial intelligence units in the world, where we
share information and through that we are able to advance the
work we are doing.
It has all been promoted and supported by the United States
and the U.S. Government.
I also wanted--I may not be, but just understand where I'm
coming from--I'm coming from Nigeria, Africa--maybe not part of
your own system here--but I wanted to see the possibility of
not just America going after those who are giving the bribes,
in the case of corruption; but what can you do also, the
receivers who are out there? Because nothing is happening to
them.
Of all the 60-something cases that have so far been taken
under the Foreign Corrupt Practices Act, not a single case has
been where you have a punishment of the receiver. Unless
something is done, then nothing is going to happen to them.
In Nigeria, the Halliburton people who made money from it,
are still our rulers. If you go to Congo, the same thing. If
you go to almost all the other countries, as long as--
Mr. Lance. What would you recommend to change that
situation?
Mr. Ribadu. Is it possible, for example, to have an
amendment or have a new law that says: If you receive money
from an American company or an American entity, you have
supported an American company in the commission of a criminal
act involving corruption. You are also subject to the American
control and judiciary, and therefore you can be punished.
And America is powerful, I can tell you. America, the
moment it takes the step, the rest of the world comes along. I
have seen it. Almost all the work I have done as a physical
investigator, I have seen what American authorities have done.
The case of Halliburton, I followed it as far back as 2003.
I went and met the magistrate in France, who refused to support
me, who refused to help me, who refused to assist me on this
case. I took the case to UK, I did not get the support. I
brought the matter to the US, here. And the U.S. authorities
took it. And since then, we have seen the difference. In
several other cases, it has always been so. I am very, very
passionate about the steps, the actions America usually takes.
That is why we believe that if there is hope to address
this problem of corruption, it is likely going to be coming
from America.
Please take that and recognize the fact that the world is
having these high hopes and expectations. You can do it by
making the laws. You can do it by expanding your--you control
MasterCard today. You control VISA. All these transactions go
through such companies.
If you want to go after the son of the--he uses a
Mastercard. That alone gives you jurisdiction and control. The
laws in America ought to be expanded to cover these areas.
Thank you.
Mr. Lance. Thank you. Would others on the panel like to
comment on what has just been said regarding the fact that we
seem to be doing something right, but there is this situation
regarding other countries--the countries that were mentioned,
France and Great Britain--because obviously we can't fight this
battle alone.
Mr. Blum. Well, I think that we have signed a variety of
conventions. There is now a Global Convention Against
Corruption. There is an EU Convention Against Corruption.
There's a Latin American Convention Against Corruption.
So the problem isn't that there aren't international
agreements. The problem is that in our legal system, all
criminal matters are matters for the individual state. And one
state can't push another state to prosecute people. We can't
step across borders to prosecute crimes in other countries. And
that issue of sovereignty becomes an enormous barrier to being
able to do what you really want to do.
I mean, in the United States we solved all of this by
having a Federal Bureau of Investigation, that could actually
take on individual corruption in individual States. We had a
Federal system that could step in to deal with cross-border
crime.
In the rest of the world, that doesn't exist.
And when these agreements are negotiated, every country,
including the United States, is terribly careful not to impinge
on the sovereignty of any other country.
So every one of these agreements doesn't say, ``Here is
what the law should be.'' It says, ``You will pass your own
laws in accordance with this general framework.''
Mr. Lance. Thank you. Thank you, Mr. Chairman. I yield back
the balance of my time.
Mr. Meeks. Thank you. And just before we adjourn, I think I
heard in the beginning of this hearing, Ms. Waters make a
statement in regards to concerns, because we want to make sure
that those developing countries don't lose out on funding. We
want to make sure.
And I, along with Mr. Miller, who is my ranking member--I
chair the Subcommittee on International Monetary Policy--we
just had a hearing last week in regards to or following up from
the meeting in London with the G-20, where now we know that
there is going to be a substantial amount of money, close-
bordering on a tree in Dallas, going through the IMF, who is
going to play a significant role in it.
My question to you is: Number one, do you see or have you
seen in the past any dollars as it pertains to IMF or the World
Bank, find its way through the corruption of others, so that it
has not reached the hand that it's supposed to? Is there a
complicity with regards to some American as well as other
banks, especially in Africa and Asia, where some of the IMF
money may flow through, to get to the various countries?
So that's a real concern to some. Let me just throw that
question out really quick.
Mr. Blum. I would say that you should remember what
happened the last time the IMF had a lot of money to give to a
country in trouble, it was Russia. The money wound up in a
bunch of bank accounts offshore on the Island of Jersey. There
was an audit report that talked all about it. The audit report
was posted on the Web, but when the moment came to discuss it,
it mysteriously disappeared, because the Russian government
protested.
The problem with both the IMF and the World Bank is the
same sovereignty problem I have been talking about, which is
they will do nothing to step on the shoes of a sovereign
country that says, ``We won't.''
And it makes following up on anything very, very difficult.
It makes following up on issues of corruption and disappeared
IMF money and disappeared World Bank money very difficult.
The World Bank is still struggling to figure out how to
deal with the obvious cases of corruption, where the money that
it has lent has simply disappeared and the project doesn't
exist.
Ms. Lawson. There's a small practical step that the IMF and
the World Bank can take when they're dispersing funds for any
kind of, say bailout or development projects, which is that
contracts are signed with officials in the government of the
recipient countries. And if these are the people who are
responsible for administering the project, then these are the
people who have the potential, if they're going to be corrupt,
to be accessing these funds for the wrong purposes.
Now, a very practical step that the IMF and the World Bank
could do, would be to make the names of those officials with
whom they sign development contracts available to the companies
that run the politically exposed persons lists. So that when
the banks are doing due diligence on their customers, these
people who are potentially at very risk of diverting funds are
known to the banks, and they can feed that into their
assessments of whether they might be dealing with somebody
corrupt.
Mr. Baker. Overseas development assistance has for the past
several years been running about $100 billion a year from all
sources: World Bank; the United States; the EU countries;
Japan; and so forth. About $100 billion a year.
Contrast that generous distribution of foreign assistance
going into developing countries with our estimate of the amount
of illicit money that comes annually out of developing
countries. As I said to you, we have done a report utilizing
standard economic models, and estimated $1 trillion a year of
illicit money coming out. In other words, for every one dollar
that we are handing out across the top of the table, Western
countries have been receiving back some $10 in illicit money
under the table.
There is no way to make this process work for anyone, the
developing countries or the Western economies themselves.
Mr. Meeks. Mr. Ribadu?
Mr. Ribadu. Thank you. Well, there are changes that have
taken place at the World Bank and the IMF, which has changed
considerably in the last few years. They have been able to
improve their own internal systems and capacity.
What I want to see happen now is let the governance and
integrity packet that they have been able to develop now to be
part of every transaction in their relation with any country
that they are dealing with. Let it be central. Unless you are
ready to do good governance, unless you are ready to open up,
unless you are ready to make transparent every detail of the
work you are doing, we are not going to deal with you.
And I believe it is going to force these countries to
change. The United States could also help by freeing the money
that you can support the World Bank and IMF. Countries in
Africa are in dire need of this support.
America is the biggest of the supporters, and we need you
to free this money and help them. The World Bank has changed
right from Mr. Wolfowitz, the former president, up to Mr.
Zoellick. We have followed what is going on; I can assure you
it has changed considerably. It is already making massive
impact in Africa. Almost all the new sort of relations that
they are having, they put it at the center the need for
openness, transparency, accountability, good governance, abuse
of rights, and generally promotion of democracy. Hopefully
maybe that may be the biggest change that will come to the
developing countries.
Mr. Meeks. Thank you.
And I want to thank all of the witnesses for being here and
for testifying today. Be assured that Chairman Frank has
indicated that we will have a follow-up hearing where this
committee will be looking at possible laws and regulations that
can be put in place to try to stamp out the kind of fraud that
has been taking place.
I also note that some members may have additional questions
for this panel, which they may wish to submit in writing. So
without objection, the hearing record will remain open for 30
days for members to submit written questions to these witnesses
and to place their responses in the record.
Again, we thank you.
And this hearing stands adjourned.
[Whereupon, at 12:25 p.m., the hearing was adjourned.]
A P P E N D I X
May 19, 2009
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