[Joint House and Senate Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
116th Congress } Printed for the use of the
1st Session } Commission on Security and Cooperation in Europe
======================================================================
Asset Recovery in Eurasia:
Repatriation or Repay the Patron?
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
February 13, 2019
Briefing of the
Commission on Security and Cooperation in Europe
------------------------------------------------------------------------
Washington: 2019
Commission on Security and Cooperation in Europe
234 Ford House Office Building
Washington, DC 20515
202-225-1901
[email protected]
http://www.csce.gov
@HelsinkiComm
Legislative Branch Commissioners
HOUSE SENATE
ALCEE L.HASTINGS, Florida ROGER WICKER, Mississippi,
Chairman Co-Chairman
JOE WILSON, South Carolina BENJAMIN L. CARDIN. Maryland
ROBERT B. ADERHOLT, Alabama JOHN BOOZMAN, Arkansas
EMANUEL CLEAVER II, Missouri CORY GARDNER, Colorado
STEVE COHEN, Tennessee MARCO RUBIO, Florida
BRIAN FITZPATRICK, Pennsylvania JEANNE SHAHEEN, New Hampshire
RICHARD HUDSON, North Carolina THOM TILLIS, North Carolina
GWEN MOORE, Wisconsin TOM UDALL, New Mexico
MARC VEASEY, Texas SHELDON WHITEHOUSE, Rhode Island
Executive Branch Commissioners
DEPARTMENT OF STATE
DEPARTMENT OF DEFENSE
DEPARTMENT OF COMMERCE
[II]
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Asset Recovery in Eurasia: Repatriation or Pay the Patron?
February 13, 2019
Page
PARTICIPANTS
Paul Massaro, Policy Advisor, Commission on Security and
Cooperation in Europe 1
Bryan Earl, Retired Supervisory Special Agent/Assistant General
Counsel, Federal Bureau of Investigation 2
Kristian Lasslett, Professor of Criminology and Head of School,
Ulster University 5
Sona Ayvazyan, Executive Director, Transparency International
Armenia 8
Karen Greenaway, Retired Supervisory Special Agent, Federal Bureau
of Investigation 10
Stacy L. Hope, Director of Communications, Commission on Security
and Cooperation in Europe 22
Asset Recovery in Eurasia: Repatriation or Pay the Patron?
----------
February 13, 2019
The briefing was held at 10:00 a.m. in Room 562, Dirksen Senate
Office Building, Washington, DC, Paul Massaro, Policy Advisor,
Commission on Security and Cooperation in Europe, presiding.
Panelists present: Paul Massaro, Policy Advisor, Commission on
Security and Cooperation in Europe; Bryan Earl, Retired Supervisory
Special Agent/Assistant General Counsel, Federal Bureau of
Investigation; Kristian Lasslett, Professor of Criminology and Head of
School, Ulster University; Sona Ayvazyan, Executive Director,
Transparency International Armenia; Karen Greenaway, Retired
Supervisory Special Agent, Federal Bureau of Investigation; and Stacy
L. Hope, Director of Communications, Commission on Security and
Cooperation in Europe.
Mr. Massaro. Thank you all so much for being here. Good morning,
and welcome to this briefing of the U.S. Helsinki Commission. The
commission is mandated to monitor compliance with international rules
and standards across Europe, which include military affairs, economic
and environmental issues, and human rights and democracy. My name is
Paul Massaro and I am a policy advisor for economic and environmental
issues, including asset recovery.
I would like to welcome you today on behalf of our bipartisan and
bicameral leadership to discuss this topic so central to international
anticorruption efforts. Asset recovery, or the process of repatriating
funds previously stolen by corrupt officials, is one of the major
facets of anticorruption work. Ideally, we would have a system through
which assets recovered were directly returned to the people from whom
they were stolen. These people would then directly benefit from the
funds that were denied them by their corrupt leaders, and there would
be a greater understanding of the benefits of the rule of law
internationally.
Unfortunately, there are big question marks around this process.
Rather than the funds going back to benefit the people from whom they
were stolen, these assets may re-enter the cycle of corruption, to be
stolen once again by corrupt leaders. Instead of providing inspiration
and impetus for the rule of law globally, this cycle of steal/recover,
steal/recover undermines the rules of law and gives the impression that
the whole system is a charade. It is imperative that this be avoided.
But that is easier said than done with the anonymous financial
architecture that currently exists in the West and enablers who assist
transnational kleptocrats in their creative accounting.
Clearly, there's more that must be done. There is an opening here
for a foreign policy breakthrough if Western jurisdictions can, instead
of hiding money, recover those funds and see them used in visible and
constructive ways in the jurisdictions from which they were stolen.
Rather than being viewed as a black hole for ill-gotten gains, the rule
of law states of the West have the opportunity to be seen as defenders
of the victims of corruption globally if they can develop creative
methods to make those funds work for the people, not the autocrat.
Finally, it should be noted that though asset recovery is a vitally
important topic, only a small amount of funds is ever recovered. That
is, in large part, due to how easy money laundering has become in the
globalized world. Only through plugging the gaps that exist in the
Western financial architecture--though policies such as beneficial
ownership transparency--can we raise this amount of recovered funds and
begin in earnest the long process of responsible repatriation.
We're thrilled to have four brilliant panelists with us here today
to explore this topic. First, we have Bryan Earl, to my left, formerly
with the FBI. Bryan worked the Pavlo Lazarenko case, one of the
earliest cases of the investigation and indictment of a transnational
kleptocrat from Eurasia and, arguably, asset recovery case zero for the
region. We'll then hear from Kris Lasslett of Ulster University.
Professor Lasslett will speak to asset recovery efforts as concerns
Kazakhstan, with an emphasis on how to approach asset recovery to an
autocratic regime. Sona Ayvazyan will be the next speaker. She is the
executive director of Transparency International Armenia and will speak
to asset recovery efforts in her country. Finally, we will hear from
Karen Greenaway, who just recently retired from the FBI. She will speak
to asset recovery efforts in Ukraine.
Thank you all very much for being here. And, Bryan, the floor is
yours.
Mr. Earl. Thank you very much, Paul. I'd like to first thank Paul
and the commission for inviting me and us to come here today and talk
about this subject that's been part of my life for over 20 years. As
was indicated, I think I've been invited here to be a bit of a
historical relic, talk about some work I did 20 years ago, which was
sort of case zero. It laid the foundation for the effort to stop
Eurasian public corruption and kleptocracy, and certainly stop it from
infiltrating the United States financial system and the Western
financial system. So in a number of ways, I'm here to sort of lay the
groundwork for a lot of good work that's happened since.
I can't possibly discuss the entire investigation in the 10 minutes
I have. So what I'm going to do is talk about a couple of ways in which
this investigation was the first. And I'll assume that a lot of you
know a bit about it. It was the investigation that led to the
prosecution of Mr. Pavlo Lazarenko out in San Francisco federal court
in 2004, which was a long time ago. But it was a longer time ago the
investigation began, in 1997. One of the ways it was a first, it was my
first investigation. It was the first investigation I ever did.
I joined the FBI in 1996 and was put on a Eurasian organized crime
public corruption squad. And the big issue at the time was the capital
flight that we saw coming out of the former Soviet Union, sort of an
unexpected development of the fall of the Soviet Union. We saw lots of
money and lots of people with lots of money, and no discernable ways of
making that money legitimately come into places like San Francisco, and
New York, and Miami, and London, and other places. And our job was to
find out what was going on. And if anything illegal was going on, to
stop it.
And so I got handed, in December 1997, when I was a relatively new
agent, one of the first MLAT [mutual legal assistance treaty]
requests--in fact, it was the first one to come out of Ukraine. Another
first. Dealing with Ukraine was new for us. It was a new nation. It
hadn't existed as an independent nation before that. We had entered
into mutual legal assistance treaty, and we received in the Lazarenko
case the very first iteration of that--of a request under that treaty.
To back up a little bit, when I joined the FBI in 1996, it just so
happened that Mr. Lazarenko became prime minister of Ukraine. That was
sort of a parallel thing going on with our careers. He became prime
minister and was prime minister from 1996 to 1997. I received this MLAT
request in 1997 because at that time he had been let go by President
Kuchma as prime minister, and an investigation had started in Ukraine
into his financial activities.
And so the mutual legal assistance treaty request that I received
was one of many that were sent out by the Ukrainians at that time, and
it was the general prosecutor's office I worked with, all over the
world to trace Mr. Lazarenko's assets and the financial activity that
he was accused of engaging in, and that they had yet to investigate.
And part of it was in San Francisco, so I started doing that. At the
time, he became a member of Parliament, and continued his political
activities.
So another first for this, is I think it was the first time
Ukrainians had access to a color printer, because this was a 35-page
document that was in about seven different colors. I'm not sure why. I
never really figured out why. I'm convinced that this particular
translator had translated something Ukrainian into English, because it
was very hard to understand. It was very hard to read. So I spent weeks
and weeks just reading this document, coming in every day and reading
it, and trying to figure it out.
But in essence, I figured out that they described several fraud
schemes in Ukraine, schemes in which money was generated. It wasn't
stolen as much as it was generated by Ukrainian assets and Ukrainian
labor, and then it was monetized by selling silicon, manganese, cattle,
whatever it was that Ukraine produced. And then that money didn't go
back to Ukraine. It didn't go back where it belonged. It stayed in
Switzerland in accounts that they suspected were controlled by Mr.
Lazarenko.
And then my part of the case was, we had an associate of Mr.
Lazarenko living in San Francisco who also had a tremendous amount of
access to unexplained income--tens of millions of dollars of his own,
hundreds of millions of dollars otherwise. And so I started
investigating where that income came from. I did what every good
investigator does. I followed the money back to where it came from. The
Ukrainians were investigating it from the Ukraine side, and sort of
following it forward. And in the middle there was Switzerland. Just--
not to put too fine a point on it, but there was Switzerland in the
middle.
And so we were conducting the investigation. The Ukrainians were
working. We had received them as guests a couple of times, and then it
was our time in December 1998 to go over to Ukraine and sit down with
the Ukrainians, look at their documents, talk to their witnesses, and
really verify whether what they were describing in this MLAT request
was true. So a prosecutor and I got on a plane. And we were going over
to Ukraine, December of 1998, the first time--another first--I'd ever
been to the former Soviet Union. The first time the FBI had engaged in
this kind of cooperation with the Ukrainians.
And it was all very hush-hush, because back in 1998 things were
new, and it was still very Sovietized. We land in Ukraine, in December
1998, and there's all these people out in the airport with ``Free
Lazarenko'' signs, chanting: Free Lazarenko. And we were quite
surprised by that, because we thought we were on the QT, going in under
the cover of night. But what had happened while we were in the air is,
Mr. Lazarenko in one of his many foreign trips had entered Switzerland
to do some business there, to move some money, to engage in political--
or, financial activity. Not political. And he had been picked up by the
Swiss authorities because the Ukrainians had also sent an MLAT request
to Switzerland.
And there was a magistrate--investigating magistrate there in
Switzerland that had received this request, was doing an investigation.
And when Mr. Lazarenko came into Switzerland over land, they picked him
up, put him in jail, and the investigation all of a sudden took off
because once you have someone in custody, even in Switzerland, all of a
sudden things become urgent. So that was why there were all these
people in front of the airport chanting, ``Release Lazarenko.'' It
wasn't us.
But the good thing about it was--and the reason I tell this story--
was the investigating magistrate rushed to Ukraine to do what we were
doing, to talk to the Ukrainians, to look at the documents, to
interview the witnesses, to find out what the basis was of this
request, to see if he could proceed with his investigation at the same
time we were there. So in December of 1998, the Swiss, and the
Ukrainians, and the Americans were all there at the same time. And we
spent a week doing what I said--talking to witnesses, talking to
investigators, reviewing documents, and sitting down together, during
the day, at dinner, and creating the kind of relationships that ended
up lasting for 5 or 6 years.
We got to a conviction of Mr. Lazarenko in 2004. So that was 6
years later. We worked with this Swiss magistrate and with those
Ukrainian investigators and prosecutors for those entire 6 years. But
it all started out with that meeting in Ukraine in 1998, in December.
And my point in telling this story is that's what has to happen for
these cases to be investigated--that kind of investigative liberty,
resources, and just hard work needs to happen in order to identify the
criminal activity that generates the income, to identify the assets,
find out where they are, and then to, you know, land charges in court,
pursue those charges, and get a conviction.
I'm not going to tell blow-by-blow for 6 years, but I thought it
would be important for you to know how the whole thing began. We then
did what we had to do. We went all over the world. We talked to
witnesses. We talked to investigators. We established basically that
Mr. Lazarenko, after 6 or 8 years as a politician--locally and then
nationally in Ukraine--ended up with $7[00] or $800 million in his
various accounts.
There was one particular bank that he had--he and some partners had
sort of purchased down in Antigua. It was called Eurofed--European
Federal Credit Bank, at the time. This is going back for me a ways. And
we traced money back to him. And that was the basis of our U.S.
account, because that money had come through the United States. He had
violated U.S. law by moving money--the corresponding accounts of that
particular bank were in San Francisco. And that's where we were. No
money ever makes it to Antigua. It was just debits or credits on a
ledger down there. But the money actually ended up in corresponding
accounts in Antigua. And those were the basis of our charges.
So we ended up with a conviction in 2004 of Mr. Lazarenko based on
the fact that he had been involved in a number of schemes to generate
income that had occurred in Ukraine during the time he was in power.
Largely people that he had influence over were involved in those
schemes. And then he siphoned off about 50 percent of the profits and
put them in his bank account, so that he could push through his
political aspirations. That was the basis of the case. That was the
conviction.
And then while that investigation was going on, another parallel
asset recovery case was begun out here in Washington, DC. by a good
friend of mine, FBI agent Debra LaPrevotte, who is now retired as well.
And she doggedly pursued that case for much longer than my 6 years, for
decades it seems, in order to not only go after Mr. Lazarenko
criminally but also go after the assets and recover the assets, and get
them back to Ukraine, where they belonged.
So that's an overview of the investigation that I was involved in.
It gives you a flavor for the kind of hopes and dreams we had back
then. We thought at the time that this was the next big thing. In 1996,
there was nothing sexier than asset recovery--capital flight out of the
former Soviet Union and going after corrupt Russian and Ukrainian
officials. We thought we were going to do this our whole career.
The reason it didn't go like that, I think, was September 11th,
2001. We were hit with a terrorist attack and all the resources--there
are limited resources in the government, as everyone knows here, and
resources got dedicated to antiterrorism--as they should have been. And
when there's finite resources and you get some siphoned off to bigger
priorities, the lower priorities get fewer.
And so by 2004, very frankly speaking, when we took this to trial
and got our conviction, I was frankly being asked by a number of people
in my organization: Why are you still working this violation? Who cares
about Ukrainians and Russians anymore? We've got people knocking down
buildings. We've got people blowing up London. And you're worrying
about politicians? And so at that time I decamped and went to Kyiv,
Ukraine and Moscow, Russia, and represented the FBI over there for 6
years. And then I, very frankly, shifted over to the cyberthreats
coming out of Ukraine and Russia, because that became the big thing
that everyone cared about.
But now the issue's back. I've since retired from the FBI, but
historically, that's the way it went. We had a lot of resources. We had
a lot of support. And we, I think, did a good work in the
investigation, the prosecution of Mr. Lazarenko. And I would have done
that for 25 years, if I could have. But the resources went away, and I
was unable to continue that process. So it sort of ended with that. The
asset recovery element was pursued by my partner, Debra LaPrevotte, in
the Washington field office.
So that's a background. And I'm happy to answer questions later.
Mr. Massaro. Thank you so much, Bryan. And it may have taken 20
years, but I definitely think we are back to it, and in the biggest way
possible. Certainly in the last few years I think a lot of people have
recognized the fundamental national security importance of this sort of
work. So thank you so much for walking us through that incredibly
important, essential case to understanding the efforts today. So now,
coming into today, we'll move on to Kris.
Thank you.
Mr. Lasslett. Thanks very much, Paul, for convening this event. So
I'm just going to talk a little bit about the other side of asset
recovery, where we get to the stage of asset return. My colleagues
would probably speak here about the many challenges that we face in
actually freezing and seizing the assets. But when returning it, the
challenges don't end because we often face a situation where
significant volumes of stolen assets are seized by a returning nation,
and they're aiming to return it to injured parties in another nation.
But intervening between them is a state that is still deeply impacted
by corruption and may even indeed be a kleptocracy.
So how, in that situation, can you assure that the hundreds of
millions of dollars of stolen assets actually makes it back into the
hands of the injured parties, and not back into the pockets of the
people who stole it in the first place? And this is where and why we
need a robust system for facilitating asset return. And the dangers of
not having a robust system for facilitating asset return is brought to
the fore by cases I've been researching with my colleague Tom Mayne
on--known as Kazakhstan two. Kazakhstan two is not to be confused with
Kazakhstan one. Kazakhstan one, in the asset recovery community, is a
very famous case of asset return where $117 million of frozen assets
was returned by the Swiss and U.S. Governments to Kazakhstan.
And it was done very publicly, though a third-party mechanism known
as a BOTA fund. A BOTA fund was a completely independent fund, a
foundation. It had independent governance. It was arm's length from the
Kazakh Government. And it was arm's length because they wanted to avoid
the money being potentially abused a second time around. And they
brought in some international not-for-profit organizations--I think it
was IREX and Save the Children--who were there to do the work on the
ground in applying the money. And it was seen as one of the most
successful asset return cases in a very difficult environment.
I'm dealing with Kazakhstan two, which is a different asset return
case. It involves the sum of $48.8 million. And it has a very different
history. It begins with silence. No one knew about this money--that it
had been frozen or that it had, indeed, been returned. I was given a
tip-off by a colleague in Switzerland who said: Have you heard about
this asset return? And we hadn't. No one had. So we proceeded--we were
told that this money was returned through two programs--an energy
efficiency program and a Youth Corps program.
So the first thing that we did was, we went out and we were told
that the World Bank acted as the mediator. So we went to the World Bank
website, where we found the Youth Corps program and the energy
efficiency program. However, when we found it they said that this was
money--it added up almost to $48 million--that was provided by the
Swiss development agency. It was aid money that was being used to fund
these projects. So from the World Bank's side, it was aid money, not
stolen asset.
We then got the contract numbers and found the original trust
agreements between the Swiss Development Agency and the World Bank and
the grant--the sub-granting from the World Bank to the Kazakh
Government. Not one mention that this money was frozen asset or was
being returned to the victims of corruption in Kazakhstan. It was all
presented as aid money. So the mystery continued. Then we found one
obscure reference, published on the Swiss Government website on the
21st of December 2012, as people were jetting off for Christmas,
stating that money had been frozen in 2011--48.8 million [dollars].
It was being returned to Kazakhstan through an energy efficiency
and Youth Corps program project. And that it emanated from a money
laundering case. The details of who was involved in this money
laundering case weren't made clear. All we know is that they
voluntarily consented to the return of this $48.8 million. We weren't
made aware of whether they were given anonymity, whether they were
given a non-prosecution agreement. We assume they were, in order to
consent to this money. But subsequent inquiries to the Swiss Government
has not produced any answers to date.
So the first danger was that no one knew this was an asset return
case. No one was watching how the money was being used. And we know
that having the scrutiny of the media and civil society is absolutely
essential to responsible asset return. Then, to compound the danger,
the money was not returned through a third-party mechanism. It was
returned--we followed the case of the Youth Corps program, which was 21
million [dollars]. In that case, it was returned directly to the
implementing agency, which was the Kazakh Ministry for Education and
Science.
So they had the money and were now responsible for applying the
money, procurement, financial management. And this is a country where
the public service is decimated by corruption and mismanagement. The
groundwork, the day-to-day work of the Youth Corps program would then
be done by a coordinating agency who would be appointed through public
tender. And the World Bank would provide oversight of this process.
So, we were concerned by that--two layers of concern. The third
layer of concern came when we looked at the tender for the implementing
agency. IREX, who had successfully executed the BOTA fund, had bid it,
and had lost. Who had won? Three NGOs in Kazakhstan that were the
initiative--created at the initiative of President Nazarbayev, were
funded by the government, and the head of the consortium was the
president's daughter. So we had restituted assets being returned to the
victims of corruption, and it was going first to a coordinating agency
who was run--headed by the president's daughter. So you can imagine all
our hair on all our arms, and legs, and every other place, was now
standing up.
So then we thought, well, the biggest danger in a place like
Kazakhstan, where we're going to see this significant volume of money
get lost, is during the procurement and during sub-granting. Because
that was how the money was going to get spread out. Unfortunately, the
World Bank did not publish the tender information that it had promised
to publish. We could not get the information that it had undertaken to
release. It didn't do it. It still hasn't done it. The Kazakh
Government has released some tender information. It was very selective.
It wasn't full information. And it was only some of the contracts. But
we took that information and we began to conduct some groundwork. And
we came across a number of key themes.
First, we came across evidence of potential fraud. Some of the
money was being sub-granted out to host institutions who had run these
Youth Corp programs. And we had a source who said that they were told
that if they were to run one of these programs it was meant to be
tendered through a competitive, independent process. The coordinating
agency would be hand-picking host organizations, and that if his
organization was picked could he please supply two fake bids, so it
could look competitive. So that was the first evidence we had of
potential fraud going on.
Then we found out that money through procurement and sub-granting
was actually going to Zhas Otan, the youth wing of Nur Otan, the
president's ruling party. So they were getting money directly from
these restituted assets. We then came across also procurement--
contracts going to organizations to engage in PR for the Youth Corps
program. And they were quite sizable, indeed. For one tender, you could
get paid $1,800 U.S. to write a favorable article about the Youth Corps
projects--$1,800 U.S. When we asked the BOTA people about how much they
paid for similar promotional articles, they said $90. So we saw quite a
significant inflated contracting.
We came across one award of $300,000 of restituted assets belonging
to the people of Kazakhstan that was spent on 60 videos. And these
videos--the ones that we saw--were nothing short of propaganda for the
government--pictures of President Nazarbayev going across the world
meeting ministers, with rousing music, celebrating the greatness of the
motherland. So this was restituted assets being spent on propaganda.
And also when we began to release some of our preliminary results, we
found that the World Bank eventually published a procurement plan,
very, very late, several years after we'd expected it.
And we straightway saw something very odd. Forty percent of the
contracts from their procurement plan went to one company. And all
those contacts were for one service, divided up into, I think, 14
different contracts, adding up to 750,000 [dollars]. Now, when you see
one company getting 40 percent of contracts and they're divided up into
small amounts but come to a cumulative total that would require
international bidding--competitive bidding, you start to raise
questions.
So just to conclude, I think what this case really raised for us
was, at best--at worst, should I say--the restituted money returned by
Switzerland through the World Bank to Kazakhstan has been the subject
of fraud and corruption. That's at worst. At best, it's been used for
some noble purposes, but also it has definitely been used to further
the aims of Nur Otan Party in its autocratic control of the country.
And it's been to further their ideological ingraining of their rule in
young people in Kazakhstan. And this is extremely important that we
develop mechanisms to ensure this doesn't happen again.
And this is a problem that's going to face the United States in
particular, as they look to return nearly a billion dollars U.S. of
money belonging to the people of Uzbekistan, where they're going to
face the same very complex environment, the very same levels of
corruption. And hopefully the U.S. Government will learn from the
mistakes of the Swiss and do something much better and successful this
time around.
Thank you.
Mr. Massaro. Thank you so much, Kris, for that alarming example.
One thing you said in there really stuck out to me, and that is the
role of the media in highlighting this and keeping the lights on and
everyone's attention on these sorts of things. I think that that cannot
be emphasized enough. And I hope we see more of that in the future. And
I think that there's been some really excellent reporting from groups
like OCCRP [Organized Crime and Corruption Reporting Project] or others
recently. And I think we'd all love to see that grow. So thanks very
much, and let's move on to Sona.
Ms. Ayvazyan. Thank you for this opportunity to speak.
For about two decades, Armenia was ruled by a kleptocratic regime,
where an accepted way of governance was the embezzlement of funds,
while the exploitation of natural resources, monopolies, kickbacks, law
and policymaking for personal gains of certain individuals and clients.
Though since 2003 Armenia and the government declared the fight against
corruption and joined a number of international conventions and
initiatives, there has not been any significant change. And the
corruption perception index was fluctuating during recent years, and is
in fluctuation still, around 35, indicating systemic corruption.
Most of the so-called fight against corruption was of imitative
nature, mainly in order to convince the international donors to provide
more financial assistance to the country. Meanwhile, there was no true
political will to eradicate something which was the source of power for
the leadership of the country. In 2018, the Armenian people mobilized
against the corruption and injustice in the country, and through
peaceful demonstrations managed to remove the kleptocrats. Now for the
first time, we have a government--or, better to say, we have a leader
who is genuinely interested in eradication of corruption and has
intention to take bold steps toward this end. Such interest and such
intention were demonstrated by putting an end to corruption pyramidal
schemes and activated detection of corruption crime with engagement of
former hiring officials and their relatives.
With the new government, there came much hope for justice, but also
an extreme raise of expectations that need to be met. One of the
expectations is the recovery of assets stolen from the Armenian people.
Many high-ranking officials of the corrupt regime managed to accumulate
wealth both inside and outside of the country, including the U.S. and
EU countries. According to global financial integrity, the illicit flow
from Armenia during 2004-2013 was $9.8 billion. And it showed growing
dynamics over years. Currently, the asset recovery is the priority for
the anticorruption agenda of the new government. In its 5-year program,
which is being discussed on these days in the Parliament of Armenia,
the government proposes revision of the legal framework for the asset
recovery and strengthening international cooperation as part of its
fight against corruption agenda.
In addition, the government puts a particular emphasis on the
transparency of beneficial ownership, and also intends to continue its
fight against the organized crime and money laundering. Nevertheless,
aside from just willing to recover the stolen assets, there are a
number of problems that need to be addressed by the new government
related to the policy, legal framework, institutional framework, human
resources and the justice system. There is no policy with regard to
asset recovery. Obviously the previous government didn't need that. And
there is nothing at the moment. How is it going to be performed? What
will be the principles to be followed? What will be the criteria,
thresholds, procedures, et cetera? And lack of clear and transparent
mechanism will pose risks for discretionary approaches that might put
at risk the integrity of process, as we heard just now in the case from
Kazakhstan.
In terms of the legal framework, there are certain limitations that
need to be addressed, particularly the constitution prescribes that the
laws and other legal acts deteriorating the condition of a person
should not have retracted effect. So there is a need to elaborate and
come up with some methodology which will allow to pursue stolen asset
cases. Armenian legislation prescribes for conviction-based asset
recovery. There is no civil procedure to confiscate property for the
state. And hence, it's worth to consider the adoption of the so-called
civil forfeiture. There is no prescribed responsibility for the legal
entities for criminal acts. And meanwhile we know that money generated
through corruption are used for money laundering through companies.
The institutional framework is underdeveloped. There are a number
of law enforcement bodies with overlapping and missing authorities and
lack of independent, specialized law enforcement entity which could
deal with corruption-related cases. There is a need to establish a
specialized entity as soon as possible in order to deal with such
cases. This entity should also have a dedicated unit for the search of
the property, both inside and outside the country. There shall be a
decision of how and who will be managing the confiscated assets. The
investigative authorities shall possess all the tools for adequate
examination of cases, and have access to respective databases, property
declarations, and bank information.
As there has never been a practice of asset recovery in the
country, there is a serious lack of capacities and skills for search of
assets, for understanding of corruption schemes and money laundering
schemes. The problem of capacity shall be resolved through
specialization of institutions as well as series of capacity-building
efforts that will involve officials of those institutions. In order to
have a more holistic approach, we should mention that there is a need
to address also justice-related issues. According to the constitution,
it says that nobody can be deprived of its property without judicial
procedure, which brings us to address the issues of the judiciary.
Currently in Armenia, we have a pretty discredited judicial system.
And now, though we have this legitimate legislative and legitimate
executive, the judiciary is considered to be corrupt, unprofessional,
and it is considered one of the five most corrupt institutions in the
country. Justice reforms should take place with a special focus on
increasing the public trust. In parallel with working in these
directions to improve the system on a short-term basis, the authorities
should prove that there is--that the political reason is not merely a
wish. But they should also show operative reaction to the articles of
investigative journalists, which were plenty, and now so they continue,
and launch their own investigations. They shall reopen the cases that
have been closed or suspended during the previous regime.
As of today, we have two major cases of stolen assets that have
been revealed through Panama Papers and Paradise Papers. In one case,
which was before the revolution, it was Panama Papers mentioned the
name if Mihran Poghosyan, the head of the Compulsory Enforcement Unit
of Judicial Acts, who the case was opened against him. However, not
much efforts have been taken apparently for investigation, and the case
was closed. And soon after that, he was elected as a member of
Parliament, via very controversial elections. This case needs to be
reopened during this new government.
And another case revealed by Paradise Papers is related to Gagik
Khachatryan, who for many years held high positions in the government.
He was the minister of finance, head of the Committee of State
Revenues. And though the case has been published after the revolution,
there hasn't been any concrete progress. There hasn't been any progress
and investigation by the law enforcement bodies to pursue this case of
stolen assets. The government needs to show as soon as possible to take
concrete and practical steps to indicate that it has a political will
to restore the assets and return the assets to the country.
Thank you.
Mr. Massaro. Thank you so much, Sona, for speaking to Armenia's
current opportunity. We're all rooting for you.
So with that, we'll move on to Ukraine. Karen, please take it away.
Ms. Greenaway. Good morning. Thank you all for coming today. So how
do you talk about asset recovery in our world today? The focus here
obviously is repatriation, but what you're hearing also is the
frustrations not just in repatriation but even getting to the point
where you get the asset in the first place. And so, summing that up and
moving forward as to where we are what we can do better, I think is
most important.
On the good side, the United States has been at the forefront of
trying to do a repatriation of assets. But I have to tell you, being
the investigator who was brought in--Bryan set the stage for asset
recovery after the change in government in Ukraine back in 2014. And I
followed him in to a position in the FBI where we were working with a
number of investigators and analysts to try to help the Ukrainians
recover the assets that had been stolen by the Yanukovych regime.
And in talking about what's Sona's bringing, there were all kinds
of challenges within the government of Ukraine. They didn't have an
investigative body. The investigations were left with individuals who
were the same people who were supposedly investigating corruption
before the government changed. Not having the laws in place to support,
never mind the investigations, the repatriation of assets, having an
asset management agency.
We here in the United States have the U.S. Marshal Service is
responsible for asset management once we seize assets under criminal
forfeiture. But having an agency that is responsible--in my career in
investigating transnational organized crime from the former Soviet
Union, we seized a number of assets--including very valuable assets.
The problem was is that somebody's got to take care of those assets. If
it's an ongoing business, you've got to have people run the business.
If it's bank accounts--like in the particular case that Bryan was
talking about with Lazarenko--which, by the way, is not settled yet;
that money is still outstanding, and the bank in the interim that he
had purchased nearly collapsed under the weight of the money that was
frozen in it--you have had people who have been involved in the
receivership and the maintenance of that bank. So, all of these things
go to not just the capacity of the country to regain the assets that
had been stolen from them, which we can't--as the FBI or the Department
of Justice--do without their assistance.
To the point of, let's say we get the assets back, now we are
dealing potentially with a country who may have changed its leadership
or not. For example, in Nigeria the leadership has changed and is very
engaged in recovering assets that we are still trying to forfeit from
the Sani Abacha regime. They have their own say in the way that they
want this to work. And so you come into these countries--like Ukraine,
like Bryan first did and then I did--and you say, Okay, tell us what
happened. And you have these people who look at you like a deer in the
headlights. And they go, Well, our assets were stolen. And we go,
Great. Can you give more help than that? Just telling me that is not
enough.
Some investigative journalists, and some civil society had done
some really good work, and they had some good leads out there. But
unfortunately, some of those leads were old. And the biggest problem,
frankly, with asset recovery, as Paul mentioned in the beginning here,
is--I'll use the analogy of a drug trafficker who makes cash. I've done
searches in homes of drug traffickers. And what happens is they have
all of this disposable cash, they have to spend it on stuff. And so one
home that I did many, many years ago--because some of you probably have
never even seen these--the guy decided he was going to buy some
alligator shoes and a belt, which were very stylish in the 1990s but
don't have a great resale value.
And so the biggest problem with asset recovery, is that assuming
you can get to the point that you can get the asset, a lot of times the
money has been spent on stuff that no longer has a resale value out in
the community. So in one of the recent cases the FBI did, where we
seized quite a bit of property related to a theft from the government
of Malaysia and the people of Malaysia, a significant portion of the
money is never going to be recoverable because it was spent on non-
recoverable items--like tickets to the Olympics or gambling in Las
Vegas.
So now we are working with the government of Ukraine trying to get
back money. They're telling us these exorbitant amounts of money that
had been stolen. But we still have to have an idea as to how this
person actually stole the money. So one particular lead that we
followed up on--which was already old--we were looking for $400
million. At the time that I left, we had not found a significant pot of
money of that $400 million because it had been moved through 10,000 or
more transactions, some of which had taken it from $10 million down to
$1,500 that was spent on furniture in Spain. And that's not
recoverable.
So first you have the challenge that you have a country now, like
Armenia, that has significant amounts of money that have been taken
from it. They don't have the legal structures to put into place. You're
trying to work with a host country, like we were working with the
Ukrainians. And they are trying to, with civil society and NGOs, put
the legal structure in place to get people up to speed to be able to
help in order to do this. But then you've got all of those people who
were there before this happened and were working in the government when
it happened. And they might have the desire to get the money back, but
they don't have the capacity.
So you're working with all of these structures. But we did a lot of
things that we have learned lessons from what we did do in Ukraine for
potentially the next country like Armenia, Venezuela, that we have put
into place, like trying to build capacity very quickly within the
organization, trying to put mentorship in there to help them really sit
down with these organizations to get the investigations going, to get
us what we need in order to be able to freeze the money and forfeit it
under our civil statute.
For those of you who don't know, we do have a civil procedure
called non-conviction-based forfeiture, where we can forfeit money for
countries. And that's what we're talking about here. Not criminal
statutes. That's a separate authority, where we'd have to charge
somebody with a crime--the United States--the asset would have to be
linked to the crime, or the person. I wish there was some of that in
Lazarenko.
So now you get to the point where you get enough information to
work with a country or get somebody to work with. And let's say the
best-case scenario, you get the asset. And then you have the question,
what's going to happen? Who should get the asset back? Depending on the
capacity of the country, because, again, we're going back to that
discussion about asset management.
So, for example, in the example of Malaysia, we seized a yacht,
which we immediately turned over to the Malaysians. And now the
Malaysians have to try to resell that yacht. And so it becomes very
difficult for asset repatriation when you're talking about things like
real estate, boats, et cetera. So let's focus then on repatriation of
assets sitting in a bank account--the best-case scenario from us.
We have a number of countries who will honor our civil forfeiture
orders. So the money is sitting out in these accounts. And then
eventually we get the order to forfeit, which we have gotten order to
forfeit and repatriated money to a number of countries, like
Kazakhstan. Now we've got to decide how to do that. Well, there's a
whole separate part of the Department of Justice, that all they do is
negotiate how to return this. But the country gets a say in how that
money gets repatriated. Of course they should. They're the sovereign.
The money was stolen from them and their people.
But the challenge is, is that often the people who are sitting at
the table talking about the repatriation still are, you know, in some
ways, connected to the corrupt environment. And so what I have talked
about before I retired from the FBI and since then, is that I believe
that civil society and NGOs should take a bigger role in inserting
themselves in these negotiations. I understand that there is some
concern that NGOs and civil society, that might, you know, taint the
work that they are doing, in that it looks like they're self-interested
by potentially getting some of this money. But on the other hand, I
think that you can put it in the BOTA trust for their benefit.
And I'm saying in a large amount that it has to be the entire $300
million, or whatever it might be. Maybe $10 million to do something to
further a group of civil society organizations. Because the government
will is obviously important, but the people's will has been the most
important part of furthering asset recovery around the world--the
people being on top of what's going on with the government corruption.
So I would use, for example, Odebrecht--a construction company out
of Brazil. Once it came out that Odebrecht had been a massive violator
of anti-bribery statutes, a number of demonstrations were held in
countries where Odebrecht worked that really put the pressure on their
own governments to get engaged, to get involved in asset recovery.
So what about our friends back here in Ukraine? Well, the bad news
is, is that we have not been able to return a single dollar to Ukraine.
Why is that? Well, part of that is because, thanks to Mr.
Lazarenko, a pittance amount of money actually came into the United
States. It was moved in U.S. dollars. That's pretty much out in the
open now. But it was moved through what we call correspondent banking
accounts, which allows us to get those transactions, but it doesn't
give us necessarily the ultimate destination of the money. It also
doesn't tell us how the money was generated in the first place, or
necessarily who even put it in the account that it was transferred out
of or into.
And so what we found is that while a significant amount of money
was moved in U.S. dollars, using the existing systems that I think
Latvia's now seriously trying to rectify, some other countries are not
trying to rectify, which is this connection of shell companies--
beneficial owners who were paid $5 to sign their signature to a
corporate incorporation document, and who had no control over the
corporation once it was created. Hundreds of millions of dollars moved
very, very quickly. And, through company, after company, after company,
and then ultimately in many cases dissipating sometimes back into
Ukraine.
Part of our frustration, and the Ukrainians have worked to rectify
that, was even if we had gotten an order and we could show that money
had gone back into Ukraine to a house or something like that, we
couldn't get the Ukrainians to honor our civil forfeiture order. But
they have changed those laws, thanks to civil society working with the
government to say, Hey, look, we need to have our own asset management
and our own asset forfeiture program.
When you hear the stories initially from Ukraine--the $4 billion,
$9 billion, $10 billion that was out there--it becomes very hard then,
with the country to tease down what we're actually talking about in
terms of money that we can find and money that we can forfeit. So kind
of going forward and the lessons learned from Ukraine is, No. 1 is,
these structures that are out there that Paul was talking about in the
beginning make it very easy to dissipate lots of money very quickly.
And when you have a lot of time lag--2, 3, 4 years--the farther you get
out from it the easier it is to move the money from account, to
account, to account, and make it much more difficult for us to sit and
actually get what we need.
No. 2 is, this system that getting those records through the mutual
legal assistance treaty process is very painfully slow, as Bryan can
tell you from his investigation. That work is not prioritized--getting
somebody to be able to write the information correctly, and then
getting somebody to honor it. And I can tell you in the one case that
we looked at, a country that should be our very good friends took 2
years to honor one of our MLATs--two years. And by that time, of
course, the bad guy had been able to move the $50 million we thought we
had many, many times.
So, like I said, let's say you can get all of those things, and the
stars align, and you put the money in the account to get ready to
return it. We as the investigators--or, in my old position--don't have
a lot of say in what happens to the money afterwards. And that's why I
think civil society can and should take a bigger role in monitoring
what happens to the money, and making their own voices heard as to how
they would like to see it repatriated.
But finally, I think, there has to be a recognition here that when
this money is seized and frozen, it is the property of the sovereign.
And so for the government official who's going to be in the
negotiation--what is his role in terms of all of this? And I can tell
you that that--in particular in these countries like Kazakhstan and
Uzbekistan--the sovereign is asserting their right, as they should. You
do question whether that is on behalf of the people or on behalf of
themselves. But there has to be a methodology to monitor that, which
has been typically through the World Bank, which has its good sides and
its downsides.
And how that gets done through the World Bank, and some of the
projects that they do, also has some limitations, including the fact
that the project managers in some of these projects sit here in
Washington, and aren't in these countries when they get these projects,
as well as the fact that the documents that World Bank generates are,
for me as an investigator, unavailable because they are privileged
documents. So even if they identify a crime in these repatriated
assets, they can't turn around and tell the FBI that there's a crime
there. They have their own internal process of review, which has its
limitations. And they have tried to refer some to criminal cases. But
that's stuff that's written into the structure of the World Bank. And
those are other considerations that may be out there to change.
But believe me when I tell you, as Bryan can tell you from his
work, is it's not a lack of interest or desire on the part of
investigators or prosecutors in the U.S. to do that. And we have a few
more than we did a few years ago. We have about 45 to 50 people that
now do this work in the FBI and DOJ--not as much as there could be, but
more than we had. But the mechanisms that frustrate you in getting this
done are some of the things that I think that we could be much more
proactive as a government in working.
So with that, I will turn it back over to Paul.
Mr. Massaro. Great. And thank you so much, Karen, for that
comprehensive and important account of your recent work. And I know a
lot of that is said from experience. And I know you were in the field.
And it's really important to have you here today.
So we're going to go ahead and move to the Q&A now. I'm going to
ask a couple questions, and then we'll call on the audience. If you'd
like to ask a question please just raise your hand, name, affiliation,
and who your question is for. So I'll give an example right now. I'm
Paul Massaro, U.S. Helsinki Commission, and my question is for Bryan.
And I'd like to start from kind of the 30,000-foot level, and
thinking about kind of the U.S. national security strategy and how this
has changed, and where things are going. And, Bryan, I know you've
lived through many transformations of this, having worked at the FBI
during a very turbulent period. I think many people in this room
recognize the national security threat posed by having large amounts of
autocratic wealth in the country. This gives these guys access to elite
circles; it gives them levers of power to push. Last I read 30 percent
of Manhattan was just piggybanks. That's a problem. That's a problem
for the United States, not just a problem for the people that it's
stolen from.
And if we see kind of the 21st-century foreign policy as an
interlocking ideological conflict between, on the one side, democracy,
human rights, and the rule of law, and on the other side
authoritarianism, transnational organized crime, and globalized
corruption, then we're in a really tough position right now, just given
the way that money's moving, and the anonymous way it's moving, and
anonymous goods.
So my question is, what does it take to get the resources? What
does it take to get the prioritization? What does it take to see the
national security strategy say: Transnational organized crime and its
new relationship with the nation-state is a humongous threat to the
United States? And, how can Congress be a part of that, and how can
civil society be a part of that? And how can we move toward that
recognition?
Mr. Earl. Well, the good news on what it takes is it's happening
more than it did, say, 10 years ago. Like Karen mentioned, in 2014 the
FBI established what's now three private corruption squads--one in New
York, one in DC, and one in L.A., that devote their entire time and
efforts to these sorts of issues. That didn't happen in 2005-2006. It
happened in 2014. So we're going in the other direction. The pendulum's
coming. So it takes resources. It takes certainly the people that are
working in this area are interested and motivated, and they're doing
good work. And I know DOJ's very supportive of all that. And I know
that the money laundering/asset recovery section has a bunch of very
good, very professional people.
So the mechanism is there from the law enforcement, prosecution,
and investigative side. It needs more resources, of course, but
everything does, right? And nobody has everything that they need. But I
think it's gotten the attention certainly of policymakers and people
within the executive branch. I guess what Congress can do is provide
more resources. [Laughter.] That's always what they can do.
But the problem, of course, is being recognized. And I think it's
recognized more now than it used to be. There's two problems with this
piggybank that Manhattan represents. No. 1, the wealth is in the wrong
place. Money that's been generated through either the natural resources
or the labor of the people in Kazakhstan, or Ukraine, or Russia,
whatever, is sitting in Manhattan in townhomes--in $50 million
townhomes, or whatever it is. That's just fundamentally immoral and
unfair. And so the wealth is a problem by itself. It should be back
where that wealth was generated doing good, growing infrastructure,
producing wealth for the people that actually deserve it--the people
where the wealth came from.
And No. 2, the people who own this wealth, the oligarchs--and I can
give you a list--we don't want them either. [Laughs.] We don't want
their money, and we don't want them, because they're the kind of people
who do not respect the rule of law. They'll corrupt our system. They'll
bribe our people. They'll take advantage of our financial system. I
have always said that these oligarchs coming out of the former Soviet
Union, and the rest of the world, couldn't move the money they move,
they couldn't get away with what they've done, without our system.
Now, our system was made to promote legitimate business. And it
does that very well. And 95 percent of the business that it promotes is
legitimate. But if you put 5 percent of poison in the soup, you don't
want to eat the soup, right? It's that 5 percent of illegitimate
business that can corrupt and is, I think, corrupting our system--both
through the wealth being in the wrong place and also having the people
that just simply don't respect rule of law. They don't respect decency.
And they don't respect ownership. All they respect is power and money.
And I'm being a little dramatic, but there's no other reason to amass
$800 million. You don't need that to live. You don't need that to live
well. You need that to maintain power and influence and outdo your
buddy, who has $900 million.
And I think we're recognizing that more and more, especially with
all the turbulence that's happening in the world. It's gotten a lot
better since 2014. But it took the ouster of Yanukovych and the
annexation of Crimea and all those very dramatic events for it to get
people's attention. If it's not in the newspaper, sometimes the
government doesn't pay attention to it. And that needs to change.
Mr. Massaro. Oh, yes, please, Karen.
Ms. Greenaway. So I also want to add, I'm not sure people do
understand how damaging taking dirty money really is to the United
States. I like to use the analogy of--if you've ever lived out in the
far west--a dry streambed. Dirty money is like a rainstorm coming into
a dry streambed. It comes very quickly, and a lot of it comes very
fast, and the stream fills up, and then it gets dry again. So what if
you are a company that's purchased by dirty money? That dirty money is
not going to be a steady flow into and out of the account so that you
can run that company the way--or the business the way it's supposed to.
So what happens? Well, maybe you don't pay the electric bill the
way you're supposed to this month, or you own real estate and you're
not paying the FedEx bill on time, or the tax bill comes due. Because
it's dirty money, and because you sunk 23 million [dollars] or 48
million [dollars] of it into the purchase of that property, now you got
to go find some other money to pay all of the bills that go with it.
And so what does that do if that's now a business that has U.S. workers
employed in it? And their operating incomes are constantly being
drained so that the oligarch can pay for his next yacht bill, or
whatever it might be?
What happens is, of course, is that the safety standard goes down.
But people don't want to say anything because they want that job, and
they need that job, and they need that business in their community. And
I've asked a number of people to look at this. Look at our communities
where it turns out, oh, by the way, we have a Russian oligarch that
owns a business there. And look at how that business is functioning.
And what you're going to find out is that after 2008, when the
financial institutions collapsed, essentially, in the United States--
was there was a fire sale for a lot of our properties.
And as a result, what we have is people who don't live in the
United States, who don't have any intention of really investing in the
United States, but they needed a place to put their money. And that
business down the road was a perfect place to put it. And so now what
we're seeing is, of course, that those businesses, some of their assets
that they were used to purchase in the first place have gone dry. For
example, banks out of Ukraine. Now the money is drying up. And now
those businesses are going into default. And maybe that's the only
business in that community that's employing people.
So I think it's hurting small-town America. I just don't think that
we've come to that realization yet, because so much money flows into
our country that that kind of looks like a one-off. When you really
look at it, there really is a pattern out there. It doesn't just hurt
the country it comes from. It hurts our country as well. And it hurts
the financial institutions as well that end up relying on that money in
order to keep themselves going.
Mr. Massaro. Thanks so much, Karen.
Could we take some questions from the audience? Yes, please. So,
again, if you could say name, affiliation.
Questioner. My name is Bob Homans. I'm with Aperio Associates. And
I'm a part-time resident of Ukraine.
Karen, you've just gotten on the board of an organization called
AntAC, which is doing some incredible work. One of the things that
they're doing, as I understand it, is working with Kyiv-Mohyla Academy
to start training people, like forensic accountants, investigators,
lawyers, and so forth. I was wondering if you could elaborate on that
work a little bit further. And I also think the audience would like to
know a little bit more about AntAC itself, and the people who run AntAC
who have been incredibly courageous.
Ms. Greenaway. Yes. So AntAC is a civil society organization in
Ukraine. And it's founded by some very intelligent, hardworking young
people, some of whom have been trained in the United States. But they
were there at the Maidan and they have been committed ever since to
trying to work with the Ukrainian Government to do exactly what I've
been talking about: investigative reform, judicial reform, legislative
reform. They are very thoughtful about what they are looking for in
terms of trying to change what's going on in Ukraine.
They are accredited with really being the organization that was
leading civil society and pushing changes like developing an
independent investigative unit, the National Anti-Corruption Bureau,
the special prosecutor's office. They are working very closely for the
creation of an anticorruption court. And they are very vocal about
getting on Twitter and Facebook about immediate action that needs to
happen as it relates to supporting those institutions.
I think they are really a model for civil society. And their next
step is, in talking with one of the leaders of the organization, is
that now they're trying to look to themselves to be a more sustainable,
long-term development type of institution. As I like to tell them,
after the Maidan happened, they were in a kind of the hair-on-fire
moment where they're trying to get the assets back, and they're trying
to do all of these things. And they realized that that was exhausting
their personnel, and also putting themselves at some security risk.
I will say that they have been attacked a number of times by the
law enforcement institutions in Ukraine, particularly the intelligence
services. But what they realized is that they see themselves as an
honest broker of trying to make sure that the Ukrainian Government
lives up to its commitments. So they're currently meeting with the
government official--or the presidential candidates. Ukraine will be
electing a new president the end of March to talk about what their
anticorruption platform is going to be.
And then the other thing that they have really worked with--and I
have told them that it's extremely important--is having some sort of
board and connection with all the other civil society and NGO
organizations in the country so that if somebody has a specialty, let
that person run with the specialty, and let them do what they do best.
And then you put your resources to doing something else, so that it's a
holistic approach to government development. But they also realized
too, you can't just punish people in government. You have to build good
leaders.
So one of the things that they're also working to do with their
other civil society and NGOs in the country is work to build good
leadership for the next generation of leaders in Ukraine, so that we
get away from the model of the expectation that a particular
individual's son or close friend is going to be the one who's going to
be the next person in the party to run the country. So they have done
some really great work in Ukraine and continue to do great work.
But I should also say too the important point of the supervisory
board, which I might not actually assume my duties for a few months, is
to make sure that they're also transparent and that they have
independent individuals overlooking the decisions that they make and
review the decisions that they make. So we see ourselves on the
supervisory board as to make sure that there's no question that what
they're doing is transparent and open to the public. And if anybody has
any questions of how the money's spent or the decisions are made, that
there's another board that's overlooking what they're doing.
Mr. Massaro. Thanks so much, Karen.
Okay, yes, right here up front.
Questioner. Thank you. Everybody said very interesting things, but
I'll limit my question to Professor Lasslett. I'm Robert Thomason. I'm
a reporter for MLex. My question relates to some recent changes in
asset recovery, and what your critique is of it, relating not only to
Kazakhstan two but in general.
Switzerland adopted a new law in 2016 where it outlines what it
will do in asset recovery following the London summit. There was a
global asset recovery forum. And here in the United States, we have the
Global Magnitsky Act, which can sanction PEPs [politically exposed
persons] for acts of significant corruption. So--and the story you told
about Kazakhstan two started in 2011, before some of these new
initiatives came to bear--so I'd just like to ask your critique of
recent changes.
Mr. Lasslett. Yes, well I think it's not necessarily so much a
critique. I think there's very positive things happening. We have the
GFAR [Global Forum on Asset Recovery] principles that have been
developed. And they're looking at developing a standardized
international framework for responsible asset return. At the moment
they're, however, articulated at a very broad aspirational level. But
they contain things, like there should be full right to transparency
with respect to returned assets, and take that as an example. A very
noble and important ideal, but actually delivering it is very difficult
because you need the administrative processes to be put in place to
ensure that from the moment where things can become transparent and
made public, they are made transparent and public. And so at the
moment, what we see is the birth of a new policy framework that's
emerging at an international level and at a national level about how we
do responsible asset recovery.
The work that needs to be done is to develop an international
administrative framework that we can develop to implement policy,
because policy's a dime a dozen if you don't have good administrative
processes to put it in place. So if we're to have transparent asset
return, if we're to have accountable asset return, if we're to have
asset return that, as Karen would say, incorporates civil society, you
can't just have that in a noble policy statement. You need to have
concrete administrative processes that all states sign up to
implementing that will allow that to happen. So they need to say from
day one, the second that we've frozen those assets, seized them, that
we're going to engage civil society in that conversation. And here are
the forms through which we're going to do it. And those are the sort of
things that need to take place.
I mean, the United States at the moment, they're having to work
with Uzbekistan money of nearly a billion. They're consulting with
civil society, they're supportive, but there's no established
framework. We're all doing it kind of ad hoc, working on positive
interpersonal relationships. But there's no clear fulcrum to which we
can point to. So I think we've got some broad policy statements at the
moment. They need to be put into international law in ways that are
enforceable. We need to have that replicated in national laws. And then
we need to, crucially, have public administration that can make the
principles of responsibility practical.
And if I could, just 2 seconds, say something, just an issue [Paul]
raised there. You raise a question about the national security. And I
mean, we've got to remember, on the one hand we have these very
important initiatives going on. But on the other hand, the United
States, the United Kingdom where I'm based, are actively creating
frameworks that attract the illicit flows. I mean, they call London
Londongrad, because we've set up everything you want over there to
launder your money straight from Scottish LLPs, where you can set up a
limited liability partnership and no one need to know whoever set it
up--it's a Seychelles company that's behind it--through to having
service providers who will set it up for you and get a bank account,
and you'll be able to begin your laundering needs. You'll have lawyers
there to protect, you'll have real estate investment brokers there to
help you.
The United States faces the same problem. It's not the BVI--the
British Virgin Islands--you need to come in there and show
identification. There's actually regulation with setting up a company
there, though it's odious that they have a zero percent tax rate for
corporations. However, you can come to Delaware and set up a company in
about 10 minutes.
Mr. Massaro. Or do it online.
Mr. Lasslett. You can do it online. And set it up in 10 minutes. So
our jurisdictions are providing do-it-yourself money laundering kits.
And also, we have a cadre of high-price lawyers, high-price
accountants, high-price executives who are providing privacy services,
asset protection services, and tax minimization services--everything
kleptocrats want. And so you've seen colleagues here, we're working
around on very limited resources trying to stop this. And the people
that are fighting against us have billions behind them. That's the
challenge.
Mr. Massaro. Thank you very much, Kris.
Let's get back there, please.
Questioner. Rick Messick from the Global Anticorruption Blog.
And I have a question for those who have been fortunate enough to
paw through the documents of a correspondent bank transactions. Tell
me, can't you see from the records of the U.S. correspondent bank where
large chunks of money come in? And don't we impose--or, shouldn't we
impose if we don't--some sort of AML [Anti-Money Laundering]
requirements on U.S. correspondent banks? The example I'm thinking
about is where $700 million of Jho Low's money moved out of Malaysia
into some private Swiss bank, right after one of the first 1MDB
transactions. And of course, it moved through a U.S. correspondent bank
because it was all in dollars. So I would think somewhere we would have
a record that $700 million from the government of Malaysia went through
this U.S. correspondent bank on the way back to Jho Low's account in
the private Swiss bank. And therefore, wouldn't the U.S. correspondent
bank have said, Gee, $700 million going to from the government of
Malaysia to the account of some young private citizen? Is there that
kind of evidence? And shouldn't we be imposing some sort of AML due
diligence to sort of catch that kind of thing?
Mr. Massaro. Sounds like maybe a Karen question.
Ms. Greenaway. So the answer is, is that, yes, you can see the
transfer. You may not always see what the account is attached to based
on the transfer. But my experience is, depending on the bank, because a
few of them have gotten some challenges thanks to the U.S. Department
of Justice. You know, they will now try to impose AML standards on the
people who are using their correspondent accounts. Some of the
bankers--and I've presented with bankers before and talked to
compliance officers before--will tell you they're limited as to how far
they can go, depending on what the bank that is doing the transaction
maintains in terms of its own standards. So there is potential to see
some of that, depending on how detailed the information is.
And remember, though, that the messaging that was what the, you
know, transaction is for goes separate from the actual movement of the
money. So what I mean by that is, is that in a correspondent
relationship you don't always see--other than it goes from account A to
account B, and then potentially the name of the account, more
information about what that money is for. That also being said, just to
give you some idea, a few years ago I talked to our financial crimes
enforcement network because I was talking to them about the problem of
some cases we'd done on the organized crime side, where U.S. citizens'
or foreign citizens' ATM cards were stolen, and then they would be re-
encoded in the United States, and then the bad guys would cash out.
And I would say for the court cases we needed to find the victims,
and we would talk to banks. And banks would say, Look, we just pay out
here, and it's $1,000. Once they find out in Switzerland it's been
stolen from their account, the Swiss bank just reimburses them. And I
said, Well, how does this whole settlement work? And I couldn't find a
banker who could answer my question. And so I asked FinCEN [Financial
Crimes Enforcement Network]. I said, Can you tell me, is there a way to
tell how much happens in terms of settlement? And FinCEN said: We try
to just do 1 week of settlement--and what I mean by settlement is how
much money moves between banks in the United States and outside of the
United States through our correspondent accounts, and where they are
going. And they said it was in the trillions of dollars, and there was
no way we could keep a handle on that.
So, yes. There is a record. Yes, you can look at it. Should you put
an AML requirement? Most banks now, because they have gotten in trouble
for it, do try to put that on the people that use their correspondent
accounts. But it is limited as to what they can ask, depending on the
country. And then also, for example, if it's a private bank in
Switzerland, there's still some differences in rules there. But the
settlement between banks in the United States and their correspondent
account is just incalculable. So to see one $700 million transaction,
unless you're looking for it--is just $700 million of potentially a
trillion or $20 trillion that went through some of these correspondent
accounts in a week.
Mr. Massaro. Thanks so much, Karen.
We have a question right here.
Questioner. Thank you. I'm Oksana Bedratenko from Voice of America.
Karen, you described in detail how difficult it is to track money
after some time passes. Could you comment, is it realistic for
Ukrainians to expect any asset recovery from the Yanukovych's regime
cases at this point in time?
Ms. Greenaway. That's a really hard question to answer. I can tell
you that I did everything--and my team did everything we could--to try
to help the Ukrainian people to get back their money. I'm still hopeful
that there's money out there to get. And so I'm not going to say it's
completely out of the question. There is still stuff ongoing that I
cannot comment on, and I can no longer be a part of, because I have
retired. So I'm not saying it's out of the question, but we're not
going to find $9 billion. And it breaks my heart, because, you know,
there are a lot of people who really, really worked really, really hard
to try to do that. But, like it was said already, the financial system
is just set up to benefit the people who have the money and not the
people who are trying to get it back.
Mr. Earl. And let me just make a quick comment, just to give some
context. The money that generated Mr. Lazarenko's wealth, or the
activity that generated his wealth, occurred back in the mid-1990s. And
as we heard today, asset recovery has happened yet to Ukraine. It's
over 20 years later. So it's a complicated, difficult, and sometimes
impossible task.
Mr. Massaro. Thank you, guys.
Yes, right over there, please.
Questioner. Hi. Valeria Jegisman, also with Voice of America.
I was wondering whether you could touch on Russian dirty money? I
know it's not directly the topic of this panel, but still Russian dirty
money is a big topic now in the United States. And we can see that the
political will of the United States is growing to--in general--just to
tackle money laundering and corruption. So, yes, I just appreciate your
comment on Russian dirty money.
Thank you.
Ms. Greenaway. So my history in doing this work is really--I lived
in Russia and I worked in Russia before I came in the FBI. And I first
encountered money stolen from Russian citizens when I was a private
citizen in St. Petersburg in 1991--how shall I say--the thief in chief
is now the thief in chief of the country. And everybody knew what was
going on. The problem with recovery of Russian money, as we have seen
in the theft that was involving Mr. Browder's company, Hermitage
Capital, about capacity and building capacity in the places where the
money is coming from, is I have to have a partner to work with. I have
to have somebody in Russia who ultimately is going to give me bank
accounts.
I did a number of cases in my career where I really did try to work
with Russian investigators. I think in the 1990s it was a lot easier.
One of the first cases I had involved a Russian who I will not
identify, who is still out there, who was basically using his
position--and the accounts attached to his position--to write himself
checks and buy property in the United States. And we had a very
draconian process of trying to get cooperation. We'd write essentially
a letter. So I dutifully wrote my letter, and got a Russian
investigator engaged. And they went to get the records. The records
were in the hinterland. And on the way back from the hinterland, the
truck with the records, and the person driving the truck, were blown
up. And there went my records.
But, being persistent, I did keep trying. But really, the point
that really killed our cooperation related to organized crime and money
laundering was when the previous president--interim president, whatever
you want to call him--got rid of the organized crime investigative
unit. Said, we're done. We tackled organized crime. It's all good. So
all of that experience of people who really were trying to do the right
thing and did some actually great cases. In San Francisco early on
there was a massive corruption case in San Francisco where the
government of Russia was shipping diamonds into San Francisco, trying
to create their own diamond exchange, and using the Russian consulate
out there. And they arrested a number of people. The investigator from
Russia did a fabulous job. And he was not only demoted, he was beaten
up and thrown out of the force.
So on that happy note, my answer is I would be happy to try to get
money back for the people of Russia and hold for as long as it's needed
till they would be ready to take it back in a way that it was going to
actually benefit the people of Russia. But I can't get the most basic
financial record out of the Russians to be able to do that. And I
don't, frankly, trust when the Russians send us a request that what
they're giving to me is legitimate records, because I know the way it
works there. And I don't trust that the people who are making the
request aren't making it for a political reason. And so our work that
we try to do on organized crime, basically, essentially ended in 2009.
And I would be very reluctant to try to start that that relationship
again.
Mr. Massaro. Thanks so much, Karen. Okay, we have a quick final
external question.
Ms. Hope. Thank you. We have a question online from Lester Salamon
from Johns Hopkins University.
He says: Praise for Kristian's comment about the success of the
BOTA asset return process. How can we make this a more general
approach?
Mr. Lasslett. Well, I think that it's to look at what were the
ingredients behind what made BOTA successful. And I think there it was
the fact that it was arm's length from government. It had an
independent board overseeing it. It engaged civil society in that
board. And it also had a very tight financial management system. BOTA
worked at a certain place, in a certain time. It's not necessarily that
you'd want to take that exact same framework and do it the exact same
way in other regions. But you can take the principles that worked and
apply that.
And so that goes back to my previous comment. It's about beginning
to have a more rigorous international framework, where we go beyond
just having notional guiding principles that are signed up for after a
conference, which is what we have not, into something that's more
enforceable in international law. And then we sit down together with
governments, civil society, and experts, and try and define more
concrete public administrative approaches that can be used to make
those principles work in different regions, and in different ways. So I
think that's the key thing.
I think the other key thing is to really have a strategy. One of
the things we see with asset return is that it's seeing that if you
just return the asset and spend it on broadly charitable services, that
that's somehow an appropriate use. I mean, of course, it's good to
spend money on books for underprivileged kids, or whatever it might be,
but, I mean, there's got to be a strategy behind it. And that's a
strategy that's got to be developed between policymakers and civil
society. That is, can we use this money as a long-term tool to try and
counter corruption in the country? So, you know, and that's a standard
framework.
If you go to other areas, like transitional justice which deals
with post-conflict environments, if we do a reparations and restitution
in other areas, it's a basic principle that when you're doing
reparations, when you're doing restitution, when you're doing post-
conflict justice, you need to have a strategy to use your resources in
order to tackle the underlying sources of the problem. And asset
recovery gives us a chance to use money, to not simply return it to a
population but to also to use that money to prevent the problem
happening again, to tackle the problem at its source. And that's what I
think is a real strength in future asset return.
Mr. Massaro. Thank you so much to our panel. We're going to close
there. I encourage you to come talk to our panelists after we're
finished.
Thanks so much.
[Whereupon, at 11:33 a.m., the briefing ended.]
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