ptp how-to booklet no. 1 how to apply ptp stolen or

PPt

How to Apply PtP to

STOLEN or STRANDEDASSETSAaron BornsteinLester M. Salamon

Philanthropication thru PrivatizationBuilding permanent endowments for the common good

PtP How-To Booklet no. 1

A product of the PtP Project , East-West Management Institute, 2017 | Lester M. Salamon, Director

p-t-p.org

© The PtP Project, East-West Management Institute, New York, 2017

Bornstein and Salamon • How to Apply PtP to Stolen or Stranded Assets

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Acknowledgements

Suggested Citation:Aaron Bornstein and Lester M. Salamon, “How To Apply PtP to Stolen or Stranded Assets” (Philanthropication thru Privatization, How-To Booklet no. 1, New York and Baltimore: East-West Management Institute, 2017).


This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License. Cover puzzle image created by Freepik.

The PtP initiative has received support from the Charles Stewart Mott, Volkswagen, King Baudouin, and Ford foundations, as well as from a collection of eight Italian foundations of banking origin operating through ACRI, the association of such foundations. The project is directed by Dr. Lester M. Salamon of Johns Hopkins University and is housed administratively in the East-West Management Institute, an independent nonprofit organization that has played an instrumental role in building sustainable civil society institutions worldwide.

We are grateful to Ken Hurwitz of the Open Society Foundations for enormously helpful comments and advice on an earlier draft of this How-to Booklet.

None of these organizations or individuals is responsible for any errors of fact or interpretation in the material presented here, however. That responsibility rests with us alone.

Aaron BornsteinLester M. Salamon



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Table of Contents


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This is one in a series of “How-To Booklets” intended to explain a new route to the formation of charitable foundations around the world. This route involves a range of transactions in which some share of the own-ership or proceeds of the sale or other transforma-tion of essentially public, quasi-public, or govern-ment-controlled assets are transferred in whole or in part to charitable endowments. We have called this mechanism Philanthropication thru Privatization, or PtP for short.

The objective of PtP is to use a portion of the proceeds from privatizations to cre-ate, endow, and/or support new or existing charitable foundations, allowing these foundations to better pursue socially beneficial missions. This process thus trans-forms assets from public or quasi-public ownership or control to private charitable ownership or control, while still preserving something of the general public nature of the asset’s function.

Recent research undertaken through the PtP Project directed by one of the present authors has identified well over 560 foundations resulting from such transactions. Included here are some of the world’s largest charitable institutions—such as the Volkswagen Foundation in Germany, the huge foundations of banking origin in Italy and Spain, the Nippon Foundation in Japan, and many more.1

The PtP Project has so far identified six different classes of assets that have been involved in such PtP transactions:(i) government-owned enterprises; (ii) other transfers of government property; (iii) enterprises required to pay royalties or fees to governments in return for access to government-regulated activities (e.g., running lotteries or extracting minerals); (iv) debt swaps in which creditors relieve debt-

What is Philanthropication through Privatization?

Introduction

EIGHT TYPES OF ASSETS AVAILABLE FOR PtP TRANSACTIONSi. State-owned enterprises

ii. Other state property

iii. Royalties from state-controlled businesses

iv. Debt swaps

v. De-mutualization

vi. Stolen assets

vii. Penalty-based assets

viii. Stranded assets



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or nations of financial obligations in return for debtor governments’ paying an equivalent amount in local currency into charitable endowments; (v) the sale or conversion of quasi-public, nonprofit, or mutual institutions to private owners; (vi) stolen assets resulting from bribes or corruption; (vii) legal penalties levied by governments for corporate malfeasance; and (viii) assets stranded in accounts without legitimate claimants.

Having identified this new route to the creation of charitable endowments, the PtP Project is seeking to encourage its more widespread use, particularly in regions where charitable institutions and charitable resources are in short sup-ply. It does so in the belief that the assets involved in such transactions are ultimately not the government’s assets, but the people’s assets—often their only such assets—created by the sweat and toil of a country’s workers or belonging to the people as part of their birth-right of resources. While the proceeds of such transactions can be used for a variety of purposes, the creation of charitable endowments has surfaced in numerous cases as a highly valuable one, creating permanent assets dedicated to the common good and establishing an alterna-tive private channel for addressing priority issues that may not yet have attract-ed governmental attention.

This booklet, like the others in this series, is designed to acquaint citizens with how the PtP concept can be effectively and usefully applied to one particularly huge asset class—stolen or stranded assets or assets resulting from cases of corporate negligence or misdeeds. To do so, the booklet first explains how such assets come into existence, what their known scale is at present and what it is likely to be in the foreseeable future, why their restitution becomes a matter for government decision, and what difficulties have arisen in the restitution pro-cess. It then looks at how PtP can overcome the obstacles and dilemmas that restitution of such assets often encounters and the win-win outcomes that can result for governments, businesses, and the citizens from whom such assets are often taken or who are often the victims of the crimes for which the penalties are imposed.

Endnotes

1 For further detail on these PtP foundations, see: Lester M. Salamon, (2014), Philanthropication thru Privatization: Building Permanent Assets for the Common Good. (Bologna: il Mulino). Also available at: bit.ly/PtP_FinalReport.

http://bit.ly/PtP_FinalReport


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Four Major Sources of Stolen, Stranded, or Penalty-based Assets Stolen or stranded assets can arise from four different sources: (a) embezzled funds, i.e., funds that so-called Politically Exposed Persons (PEPs), typically senior govern-mental officials, steal from their governments; (b) bribes received by PEPs; (c) fines or penalties imposed on individuals or companies for violations of laws in countries in which they are located or operate; and (d) dormant assets, i.e. funds left unclaimed in bank, retirement, investment or insurance accounts due to death or absence of owners. As will become clear below, the legal status of these different types of assets and the question of what can legally be done with them differs markedly among the four types of assets, among the different legal proceedings through which access to them is se-cured, and among different countries where they may be situated or by which they may be claimed.

Bribes or embezzlementPast or current senior government officials who are in positions of power and have the potential to use this for corrupt purposes are known as “Politically Exposed Persons” (PEPs). These PEPs could be presidents, prime ministers, senior cabinet or judicial officials, legislators, officials of state enterprises, or the families and close business associates of these individuals. PEPs can take advantage of their positions in at least two different ways: first, they can embezzle or divert for their personal gain resources in, or meant for, the public treasury of their countries; and second, they can accept bribes for using their positions to do favors for others.1 PEP assets amassed through bribes or embezzlement, are referred to as stolen, or disputed assets.

As will become clear below, however, these two types of assets are treated differently under the United Nations Convention Against Corruption (UNCAC)—the international agreement governing the handling of stolen or disputed assets. UNCAC specifies fair-ly clearly that embezzled assets, once they have been identified, should be returned

Sources of Stolen or Stranded Assetsj Funds embezzled from governments

k Bribes received by government officials

l Penalties for corporate crimes

m Unclaimed assets left in financial institutions or accounts

What are Stolen, Dormant, and Penalty-based Assets and How Significant Are They?

PART I



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to the government of the country from which they were stolen, provided that that country can clearly demonstrate that the assets in question were embezzled from it and there is good reason to believe that the assets will not again find their way into the corruption stream. In the case of bribes, however, whether bribe payments should be treated as assets that ever “belonged to” the country where the bribe took place and therefore subject to repatriation, is not clearly dealt with in UNCAC. As a consequence, nations differ in whether they consider bribe proceeds to be stolen assets subject to the repatriation obligations of this international agreement.2

While in many cases the issue of stolen assets comes to light once a malevolent PEP leaves power (e.g., Qadaffi in Libya), in other cases the PEP is still in power (e.g., Nazerbayev in Kazakhstan). Either way, as Section III of this booklet shows, the process to recover these assets often involves a complex international legal processes to investigate, trace, freeze, seize, and return the assets to the countries where the corruption took place.


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As Table 1 reveals, the sums involved in such bribes are often enormous, though this is likely just the tip of a very much larger iceberg.

The World Bank’s Stolen Assets Recovery Watch database lists literally hundreds of other such cases, which are completed or still in dispute, and which are cumu-latively valued in the billions of dollars,3 and various news accounts provide further detail on many more.4

Corporate malfeasance Politically exposed persons are not alone in their corrupt practices. They are the bribees, but the other side of these transactions are the bribers. All too typically the bribers are companies and their representatives responding to pressures to offer bribes to public officials to gain profit, or involved in laundering PEP funds, or caught up in other illegal actions—such as flouting sanctions for doing business with blacklisted countries or violating environmental restrictions. A number of countries have laws against such activities and companies that are found to have violated such laws can be prosecuted by authorities and required to pay penal-ties and settlement costs that are themselves in the millions and even billions of dollars. Such laws and regulations are in place in the U.S., the UK, the European Union, and Switzerland among other advanced economies. They tend to have two complimentary purposes: (a) to discourage companies registered in their coun-tries from gaining an unfair business advantage by engaging in bribes and other corrupt practices overseas; and (b) to induce other countries to criminalize foreign bribery in order to level the playing field for domestic companies which do busi-ness overseas.

Examples of well-known anti-corruption legislation of advanced economies include:

• The U.S. Foreign Corrupt Practices Act (FCPA): Enacted in 1977, the FCPA outlaws payments to officials of foreign governments to assist in obtaining or retaining business. The FCPA prohibits offering cash or anything of value to foreign officials to induce them to take actions

Examples of National Legislation Criminalizing Corporate Corruption

u The U.S. Foreign Corrupt Practices Act of 1977 (FCPA)u The UK Bribery Act 2010u The French SAPIN II Law on Anti-Bribery (2016)

The scale of penalties arising from corporate misdeeds is also enormous.



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that violate their legal responsibilities or otherwise give unfair advantage to these firms over their over competitors. The act also restricts foreign entities operating in the U.S. from making illegal payments to secure unfair advan-tage, and requires companies whose securities are listed in the U.S. to meet national accounting requirements, including keeping books that accurately reflect their transactions and maintaining an adequate system of internal controls.5

• The UK Bribery Act (2010): Considered one the strictest corporate an-ti-corruption legislations in the world, the Act establishes company liability for corrupt acts committed by anyone acting on behalf of the company. The Act prohibits bribery of public officials and company-to-company bribery. Firms can be held liable in the UK for acts of corruption committed by em-ployees, agents, or subsidiaries anywhere in the world. Corporate offence in the Bribery Act extends to UK as well as non-UK organizations that conduct business in the UK (e.g., an Italian company that exports to the UK can be in breach of the Act for bribery occurring in Italy or a third country, even though that bribery does not involve any UK legal entities). Unlike the U.S. FCPA, the Bribery Act does not distinguish between small and large bribery payments, meaning small payments to facilitate transactions are prohibited.6


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A recent scrutiny of U.S. life insurance companies disclosed at least $7.4 billion in unpaid claims.

• The French Sapin II Anti-Bribery Law (2016): This new law goes fur-ther than the U.S. and UK anti-bribery laws by requiring all companies or groups of companies with a registered office in France (including French overseas territories) and with more than 500 employees and a turnover exceeding €100 million to implement an anti-bribery compliance pro-gram adhering to a number of very strict requirements. Further, the Act imposes serious financial sanctions on companies not adhering to these requirements and established a new authority, the National Agency for Prevention and Detection of Bribery, with the power to issue injunctions and require payment of fines in order to enforce the law.7

The 2014 settlement against BNP Paribas Bank for doing business with Cuba, Iran, and Sudan, in contravention of U.S. sanctions, shows that the scale of corporate penalties arising from corrupt practices can be considerable. As Table 2 shows, this settlement generated a whopping US$8.9 billion in penalty pay-ments.8 Other Department of Justice settlements in recent years alone added another two billion dollars in fines and penalties against corporations for illegal behavior.9

Such penalties are not confined to cases of bribery or money-laundering, how-ever. The oil giant BP was forced to pay a US$20 billion penalty for the damages caused by its disastrous Deepwater Horizon oil rig explosion and resulting oil spill in the U.S., and the Volkswagen Company was fined US$14.7 billion for its use of “defeat devices” to evade emission testing rules.10

Dormant assetsA final type of asset that falls into this asset class involves assets that are in some sense “stranded,” or “dormant.”11 When people die intestate (without a will) and heirs are not found to claim the deceased’s assets, or when living individu-als do not keep financial institutions informed of address changes or otherwise have no activity on their accounts for years on end, these assets are consid-ered dormant or unclaimed. Unclaimed assets include money in bank accounts, stocks and bonds in investment accounts, and savings in retirement or insur-ance accounts. The value of these assets differs from country to country, as do rules governing how they are used and how long the assets sit idle before being branded as dormant.

In the U.S., unclaimed dormant assets were estimated to be worth about $42 billion in 2015, according to the National Association of Unclaimed Property Administrators, with larger states like California holding more than $8 billion in unclaimed assets.12 Analysis of the make-up of these abandoned assets in the U.S. reveals that most are tied up in accounts worth less than $100, or stuck in lost private retirement accounts, taxable investment accounts and other assets, such as life insurance benefits and even uncashed traveler’s checks.13 A recent scrutiny of U.S. life insurance companies disclosed at least $7.4 billion in unpaid claims.14



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This is not an exclusively developed country phenomenon, however. An organi-zation called Unclaimed Benefits in South Africa estimates that 3 million South Africans are owed upwards of R45 billion in unpaid benefits due them from retire-ment accounts into which they contributed but never got their benefits.15 And this does not include the billions more paid by migrant workers in the South African mining industry who have returned to their home countries without collecting the benefits owed them. Although such abandoned assets are supposed to be claimed by governments, the procedures for doing so are imperfect and the funds remain in the accounts of insurance companies or holders of retirement accounts and used to bolster their investment returns.

Are Stolen or Dormant Assets a Thing of the Past?As suggested above, the amount of money lost each year due to corruption, theft of state resources, criminal activities, tax evasion, and unclaimed assets is mind-boggling. The World Bank estimates that the cross-border flow of the global proceeds from criminal activities, corruption, and tax evasion is between US$1-$1.6 trillion per year and that the money associated with bribes received by public officials from developing and transition countries reaches US$20-$40 billion per year—a figure equivalent to 20 to 40%t of flows of official development assistance (ODA) to these countries.16 The United Nations, in a 2015 document17 cites an even higher figure: “every year $1 trillion is paid in bribes while an estimated $2.6 trillion are stolen annually through corruption—a sum equivalent to more than 5 percent of the global GDP.”18 Clearly these numbers are best-guess estimates, as those involved in corruption do not maintain publically accessible records, but the bottom line is that the trillions lost to corruption, defined as “abuse of entrusted power for financial gain,”19 are staggering, and result in tremendous opportunity costs in terms of human capital investment and confidence in governments, corpo-rate entities, and the rule of law. This constitutes, as former Secretary General of the UN Kofi Annan put it: “an insidious plague…that hurts the poor disproportion-ately” and serves as “a major obstacle to poverty alleviation and development.”20

Fortunately, the international community has taken a variety of steps in recent decades to counter this plague. In addition to the national laws cited earlier, sev-eral multi-lateral conventions have been forged. Thus, in 1996 the members of the Organization of American States adopted an Inter-American Convention Against Corruption (ICAC) that elevated the visibility of corruption and took measures to strengthen cooperation among members in areas such as mutual legal assistance, technical cooperation, extradition, asset recovery (i.e., tracing, freezing, seizing and forfeiting the proceeds of acts of corruption).21 A year later, member countries

3 million South Africans are owed upwards of R45 billion in unpaid benefits from retirement accounts.

The bottom line is that the trillions lost to corruption are staggering, and result in tremendous opportunity costs in terms of human capital investment.


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Recent Multilateral Anti-Corruption AgreementsuInter-American Convention Against

Corruption (ICAC)

uThe OECD Convention on Combating Bribery of Foreign Public Officials

uAfrican Union 2003 Convention on Prevention and Combating Corruption

uUN Convention Against Corruption (UNCAC)

of the Organization for Economic Cooperation and Development adopted the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Convention). This Convention prohibits bribery of foreign public officials by companies. Its goal is to create a level playing field among OECD coun-tries by subjecting countries to the same criminal standards and encouraging cooperation between law enforcement officials in investigating bribery.22 Pursuant to obligations they accepted in approving this convention, most significant global economic players have now adopted such anti-corruption legislation. In 2003, members of the African Union took a similar step, forging a Convention on Prevention and Combating Corruption calling on countries to prohibit domestic and foreign bribery, diversion of property by public officials, trading in influence, illic-it enrichment, money laundering, and concealment of property.23 Finally, in 2005, 178 members of the United Nations adopted a UN Convention Against Corruption (UNCAC), a legally-binding instrument that outlaws corrupt practices and requires cooperation between all signatories, including poorer nations and rich Western states. UNCAC mandates that countries that ratify it (known as State Parties) implement anti-corruption measures against domestic and foreign bribery, embezzlement, trading in influence, and money laundering.24 In addition, it establishes a variety of agreed principles governing the identification, freezing, litigating, and ultimately disposing of funds resulting from such corruption.

Despite these measures, there is little evidence that bribery and corruption have abated. Bribes are given to public officials by individuals or companies seeking to secure contracts, to get favorable conditions in public procurements, to avert required taxes or other payments, to acquire mineral/air/or other type of rights or operating licenses, to avoid competition, to avoid criminal prosecutions (or get lenient treatment if a case is filed), to obtain public loans on non-commercial terms, to obtain “insider” information that can be used to improve competitive positions, especially in privatization deals or public tenders, and more.25 While illicit cash payments worth thousands or millions of dollars are the normal currency of such

“grand corruption” bribes, often this is supplemented by elaborate tangible gifts, including real estate holdings, luxury automobiles, tuition payments for private schools or universities for children of public officials, and much more.26

What is more, like many criminal enterprises, ex-politicians and private businesses

Despite a spate of national and international laws and agreements, there is little evidence that

bribery and corruption have abated.



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have developed sophisticated new methods of hiding their assets, distributing them through multiple financial channels and legal jurisdictions. Sometimes stolen assets are left in cash, while other times they are invested in legitimate businesses, or used to purchase real estate, precious metals, art, or other arti-facts. For example, in the $30 million 2014 U.S. Department of Justice settlement with the Vice President of Equatorial Guinea, Teodoro Obiang, investigators found among the “corruption-fueled spending spree” such items as a mansion in Malibu, a Ferrari, and Michael Jackson memorabilia.27 Expensive Manhattan condos, works of art, and investments in Hollywood films have also surfaced in such investigations.28

Nor is the international community nearing the end of this phenomenon as the millions of records published in the so-called Panama Papers make clear. This cache of legal materials documents the lengths to which PEPs, wealthy busi-nessmen, and criminals have recently gone to hide assets in order to conceal ownership and escape taxation. More than 130 politicians and public officials—including the King of Saudi Arabia, the nephew of South Africa’s president, the children of the president of Azerbaijan, and Ukraine’s former president—paid the Panamanian legal firm Mossack Fonseca to set up hard-to-trace shell compa-nies in tax havens such as the British Virgin Islands and the Channel Islands.29 To be sure, there is nothing inherently illegal about finding ways to escape tax-ation. While the jury is still out on which of the more 200,000 offshore entities that Mossack Fonseca created are connected to illegal activity, it seems likely that billions of dollars in stolen assets are among those now sloshing around the international banking system in heavily dispersed, hard-to-trace accounts or tied up in high-end real estate or other assets.30

Billions of dollars in stolen assets are now sloshing around the international banking system in heavily disguised, untraceable bank accounts.


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Endnotes

1 See: Financial Action Task Force, (June 2013), FAFT Guidance: Politically Exposed Persons.2 Many Western nations, such as the U.S., do not consider the actual bribe a company official may make to a PEP subject to repatriation to the country where the bribe took place under the terms of UNCAC, whereas countries such as Nigeria, Brazil, and China do consider bribery proceeds subject to repatriation. For a fuller discussion of UNCAC see the section entitled “Are Stolen or Dormant Assets a Thing of the Past?”3 See: World Bank Stolen Asset Recovery Program, StAR Asset Recovery Watch.4 A recent Economist Magazine thus draws attention to the billions in stolen assets by PEPs in Tunisia (ex-President Ben Ali, with up to US$5 billion stolen), the Democratic Republic of the Congo (ex-President Mobuto, with up to US$5 billion stolen), and Indonesia (ex-President Suharto, with up to US$35 billion stolen). Economist (May 11, 2013), “Making a Hash of Finding the Cash,” The Economist.5 See: U.S. Department of Justice, justice.gov/criminal-fraud/foreign-corrupt-practices-act.6 Squire Patton Boggs, (2015), “Five Minutes On…Anti-bribery and Corruption Laws in Europe.”7 Osborne Clarke, (February 14, 2017), “Has the new French Anti-Bribery law become the most stringent regulation in the world?”.8 Nate Raymond, (May 1, 2015), “BNP Paribas sentenced in $8.9 billion accord over sanctions violations,” Reuters.9 See for example, U.S. Department of Justice Press Release, (March 12, 2015), “Commerzbank AG Admits to Sanctions and Bank Secrecy Violations, Agrees to Forfeit $563 Million and Pay $79 Million Fine.”10 Robert Mclean and Irene Chapple, (October 6, 2015), “BP settles final Gulf oil spill claims for $20 billion,” CNN Money; Tatiana Schlossberg and Hiroko Tabuchi, (June 10, 2017), “Settlements for Company Sins Can No Longer Aid Other Projects,” New York Times.11 The term “stranded assets” has come to have a special economic meaning as a consequence of recent declines in commodity prices, which have left many mineral deposits “stranded” and unproductive because of the lack of demand at prices sufficient to cover the costs of recovery. To avoid confusion, we will refer to the assets of concern to us here as “dormant” assets or “unclaimed” assets.12 Jeff Brown, (March 29, 2016), “Hungry for revenue, states hanker for unclaimed assets,” CNBC.13 Ibid.14 Barbara Marquand, NerdWallet, (June 11, 2016), “Unclaimed billions: Are you owed a life insurance pay-out?” USA Today.15 For more information, see: unclaimedbenefits.co.za.16 World Bank, (2007), Stolen Asset Recovery Initiative: Challenges, Opportunities, and Action Plan, (2007), p. 9.17 United Nations Office on Drugs and Crime, (2015), Corruption and Development Fact Sheet.18 An interesting discussion about the origin of these corruption figures can be found here: globalanticorrup-tionblog.com/2015/12/22/where-does-the-2-6-trillion-corruption-cost-estimate-come-from.19 Definition from Transparency International, “FAQ’s on Corruption.”20 From the foreword to the 2004 UN Convention Against Corruption.21 Organization of American States, Inter-American Convention Against Corruption.22 GAN Business Anti-Corruption Portal, “Anti-corruption Legislation.”23 African Union, Convention on Combating and Preventing Corruption. 24 United Nations Office on Drugs and Crime, (2003), UN Convention Against Corruption.25 United Nations Global Programme Against Corruption, (2004), UN Anti-Corruption Toolkit.26 Grand corruption at the executive level is often contrasted with “petty corruption,” where the public is expected to give smaller payments to low and mid-level officials that are abusing their power in the context of existing laws, rules, and regulations (e.g., obtaining business licenses, avoiding police fines, etc.). See: U4 Anti-Corruption Centre, “The Basics of Anti-Corruption.”27 Fatema Merchant, (November 6, 2014), “Take the Mansion, But Leave the Thriller Jacket: DOJ Settles with Equatorial Guinea Veep for $30 Million in Assets Bought with Corrupt Proceeds,” Global Trade Law Blog.28 Louise Story, (July 21, 2016), “U.S. Targets $1 Billion in Malaysian Embezzlement Case,” New York Times.29 International Consortium of Investigative Journalists, (April 3, 2016), “Giant Leak of Offshore Financial Records Exposes Global Array of Crime and Corruption,” The Panama Papers.30 One BBC account reports that in the central London borough of Westminster, almost one in ten properties is owned by an anonymous offshore company and cannot be directly associated with a specific owner. See: Olga Smirnova, (March 21, 2016), “Just Who Owns What in Central London,” BBC World Service.

http://www.fatf-gafi.org/documents/documents/peps-r12-r22.html

http://star.worldbank.org/corruption-cases/arwcases/

http://www.economist.com/node/21577368/

https://www.justice.gov/criminal-fraud/foreign-corrupt-practices-act

http://www.squirepattonboggs.com/~/media/files/insights/publications/2015/07/five-minutes-on-antibribery-and-corruption-laws-in-europe/17890five-minutes-on-briberythought-leadership.pdf

http://www.osborneclarke.com/insights/has-the-new-french-anti-bribery-law-become-the-most-stringent-regulation-in-the-world/

http://www.osborneclarke.com/insights/has-the-new-french-anti-bribery-law-become-the-most-stringent-regulation-in-the-world/

http://www.reuters.com/article/2015/05/01/us-bnp-paribas-settlement-sentencing-idUSKBN0NM41K20150501

http://www.justice.gov/opa/pr/commerzbank-ag-admits-sanctions-and-bank-secrecy-violations-agrees-forfeit-563-million-and

http://www.justice.gov/opa/pr/commerzbank-ag-admits-sanctions-and-bank-secrecy-violations-agrees-forfeit-563-million-and

http://money.cnn.com/2015/10/06/news/companies/deepwater-horizon-bp-settlement/index.html

https://www.nytimes.com/2017/06/09/us/politics/settlements-sessions-attorney-general.html

https://www.nytimes.com/2017/06/09/us/politics/settlements-sessions-attorney-general.html

http://www.cnbc.com/2016/03/29/hungry-for-revenue-states-hanker-for-unclaimed-assets.html

https://www.usatoday.com/story/money/personalfinance/2016/06/11/unclaimed-life-insurance-money-payout/85718732/

https://www.usatoday.com/story/money/personalfinance/2016/06/11/unclaimed-life-insurance-money-payout/85718732/

http://unclaimedbenefits.co.za/

https://siteresources.worldbank.org/NEWS/Resources/Star-rep-full.pdf

http://www.anticorruptionday.org/documents/actagainstcorruption/print/materials2014/corr14_fs_DEVELOPMENT_EN_PRINT.pdf

https://globalanticorruptionblog.com/2015/12/22/where-does-the-2-6-trillion-corruption-cost-estimate-come-from/

https://globalanticorruptionblog.com/2015/12/22/where-does-the-2-6-trillion-corruption-cost-estimate-come-from/

http://www.transparency.org/whoweare/organisation/faqs_on_corruption

https://www.unodc.org/ropan/en/AntiCorruptionARAC/unodc-and-corruption.html

http://www.oas.org/juridico/english/treaties/b-58.htm

http://www.business-anti-corruption.com/anti-corruption-legislation/the-oecd-convention-on-combating-bribery-of-foreign-public-officials-in-international-business-transactions

http://www.au.int/en/treaties/african-union-convention-preventing-and-combating-corruption

http://www.unodc.org/unodc/en/treaties/CAC/index.html

http://www.unep.org/training/programmes/Instructor%20Version/Part_2/Activities/Interest_Groups/Decision-Making/Supplemental/UN_Anti_Corruption_Toolkit_pages_10to16.pdf

http://www.u4.no/articles/the-basics-of-anti-corruption/

http://www.globaltradelawblog.com/2014/11/06/take-the-mansion-but-leave-the-thriller-jacket-doj-settles-with-equatorial-guinea-veep-for-30-million-in-assets-bought-with-corrupt-proceeds/

http://www.globaltradelawblog.com/2014/11/06/take-the-mansion-but-leave-the-thriller-jacket-doj-settles-with-equatorial-guinea-veep-for-30-million-in-assets-bought-with-corrupt-proceeds/

http://www.nytimes.com/2016/07/21/world/asia/1mdb-malaysia-us-assets-seized.html

https://panamapapers.icij.org/20160403-panama-papers-global-overview.html

https://panamapapers.icij.org/20160403-panama-papers-global-overview.html

http://www.bbc.com/news/business-35757265


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As the international community embraces a challenging new set of Sustainable Development Goals that will require trillions of dollars of increased investment, the need to apply a tourniquet to the billions of resources flowing into official corruption, and to capture the stolen, stranded, and penalty-based assets already in play, has grown more urgent than ever. As the World Bank pointed out in 2007, every US$100 million of stolen assets recovered could fund:

• Full immunizations for 4 million children;

• First-line treatment for over 600,000 people with HIV/AIDS for a full year;

• 50–100 million does of drugs for the treatment of malaria; or

• Some 250,000 water connections for households.1

But what is the justification for the proposition that PtP can contribute significantly to this process? Three lines of argument can be advanced in support of such a proposition.

The Questionable Record of Past RestitutionsIn the first place, prevailing procedures for the restitution of stolen assets remain, at best, highly imperfect. This is crucial because, as virtually every study on the subject has shown, and as will become clear below, the effort to identify, freeze, and recover stolen or stranded assets is “a long, protracted and hazardous endeavor,” normally taking anywhere from five to 20 years and consuming considerable resources.2 Without some degree of assurance that any assets recovered will be put to produc-tive use and will not simply “flow back into the pool of criminal financial capital,”3 it becomes difficult to persuade legislators to finance expensive asset recovery ef-forts, to incentivize citizens to risk reporting criminality, or to persuade officials in the so-called “Requested Countries” in which the assets are initially housed to support repatriation of the funds to the countries from which they were stolen as opposed to simply putting them in their domestic Treasuries.

Why does PtP make Sense for the Restitution or Settlement of Stolen, Dormant, or Penalty-based Assets?

PART II

The record to date of recovering stolen assets is hardly encouraging.


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But the record to date of past restitutions is hardly encouraging. Although the formation of the UN Convention Against Corruption (UNCAC) established some useful international guidelines on the entire discovery and restitution process, it was inevitably a compromise document pitting developing country demands for automatic return of stolen assets into victim government (the “Requesting Country”) budgets and demands from countries harboring stolen assets (the “Requested Countries”) in their banking systems for tangible assurances that returned assets will be put transparently to use for productive purposes and not simply re-stolen by corrupt officials. As a consequence, despite the adoption of UNCAC, one study declares the “global practice regarding the disposal of re-patriated assets,” as, at best, “unclear.”4 Indeed, it might just as well be termed downright discouraging.

That, at any rate, is the conclusion that emerges from a 2012 summary by the International Center for Asset Recovery of the restitution process in three rela-tively recent instances involving Nigeria, the Philippines, and Peru.5 In particular:

• In the case of the US$500 million in resources returned by Switzerland to Nigeria from the assets stolen by the former President Sani Abacha, even the watchful eye of the World Bank and a coalition of local NGOs could not determine what happened to most of this money once it en-tered the Nigerian government’s budgets and became co-mingled with other government funds. In several instances, these funds were used to pay for projects that had been completed, and possibly paid for, prior to return of the repatriated money.6

• In Peru, in a US$185 million asset return case connected to the former secret service head, Vladimiro Montesino, a special fund with strict procurement procedures was established to regulate use of the repatri-ated funds, but these guidelines were not followed, and the monies were tapped to pay for items like police vacations that had occurred many years before.

• The return of US$624 million of assets stolen by Ferdinand Marcos to the Philippines in 2004 paid for millions in questionable government expen-ditures, and could not fully be accounted for, leading to a 2006 press release by the Senate President alluding to massive corruption in con-nection with the use of the returned funds.

Inevitably, this discouraging record has deterred the speedy return of resources to desperately needy people. The case of Haiti is especially telling in this re-gard. Haiti was ruled for 15 years by a corrupt dictator, Jean-Claude “Baby Doc” Duvalier. Following his ouster in 1986, an accounting revealed that over US$500 million had been misappropriated from the nation’s treasury and hidden in foreign accounts, much of it in Switzerland and France. Neither France nor Switzerland seemed inclined to respond to the Haiti government’s requests to return these funds to Haiti, the latter’s reluctance backed up by laws stipulating strict confi-dentiality on funds held within its banks’ accounts. Even after passage in 2010 of Switzerland’s Restitution of Illegal Assets Act (RIAA) establishing a formal proce-dure for declaring such assets illegal and therefore suitable to be frozen and ulti-mately returned to benefit the people of the country from which they were stolen, and even after Switzerland’s Administrative Court ruled that the Duvalier funds



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met this standard, no negotiation between Swiss and Haitian authorities to formulate a restitution plan took place. In seeking an answer to the question of “why…the RIAA has failed to return any money to the suffering people of Haiti” thirty years after they were discovered, one 2016 article points to a single explanation: “Swiss au-thorities fear that the funds will be returned into a cycle of corruption.”7

Along with the skill that recipients of bribes have shown in hiding their ill-gotten gains and the limited resources long devoted to tracking these funds, these experiences help explain why asset recovery has so far yielded rather disappointing results. “A number of successful high-profile cases with creative international cooperation have demonstrated that asset recovery is possible,” two prominent anti-corruption advo-cates thus noted in a 2011 report. As of 2011, however, they had to concede that “to date, only US$5 billion in stolen assets have been recovered.”8

Nor has the recent record of settlements in many legal cases involving corporate misdeeds been more encouraging. In one recent case involving an enormous $17 billion settlement the U.S. Department of Justice negotiated with Bank of America in 2014 to settle a suit over the bank’s deceptive mortgage practices, $7 billion was allotted to assist hundreds of thousands of consumers harmed by the financial crisis. But these funds were essentially awarded to the com-pany itself to manage, causing critics to question whether the outcome would reproduce the disappointing results of a prior settlement concerning the Bank of America. This earlier settlement was supposed to provide relief to nearly 200,000 homeowners facing potential foreclosure as a consequence of unlawful conduct by Countrywide Financial, which Bank of America acquired in 2007.9 Instead, that settlement ultimately led to a stinging critique from The Nation Magazine, which pointed out that two years after the settlement “it has kept, at best, about 134,000 families in their homes, and most of these only temporarily,” and left Bank of America with “the right to foreclose on the victims of Countrywide’s predation whenever its analysts determine—using an undisclosed formula—that it can recoup more money through foreclosure than by modifying the loan.”10 Rather than the kind of public-purpose goal that a charitable foundation would produce, this settlement was judged to function “more as loss mitigation for the BofA and investors…than as recompense for victims of predatory lending….”11

How Can PtP Aid in the Restitution of Stolen Assets?

H Overcome an asset recovery Catch-22 obstacle

H Reassure asset recovery practitioners

H Engage civil society in asset recovery

H Help governments attract direct foreign investment


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The Special Contributions PtP Can Bring to the Restitution ProcessFortunately, PtP provides a mechanism for overcoming some of the more trou-blesome barriers to successful restitution of stolen assets. In the process, more-over, it offers benefits and advantages that direct government-to-government processes often fail to provide. This assumes, of course, that the PtP options are carefully designed, with suitable transparency and accountability protections, safeguards against the recycling of returned resources into corrupt practices, and clear objectives. As will become clear below, numerous PtP foundations that meet these standards have already been established, at least one in precisely the stolen asset recovery field and several in the closely related area of corpo-rate penalties. With this experience in view, it is possible to identify several tan-gible benefits that the PtP option can bring to the entire stolen asset restitution process. Four of these deserve special mention here.

PtP Benefit 1: Overcoming a “Catch-22” obstacle to successful recovery of stolen assets In the first place, PtP can be enormously helpful in overcoming a “Catch-22” dilemma built into the process of asset recovery as sanctioned by the important 2005 United Nations Convention Against Corruption (UNCAC).12 The heart of this Catch-22 is that UNCAC requires that, once suitably identified and connected to a crime, stolen assets must be returned to the country of origin, the so-called “Requesting Country.” But this does not mean that the funds must be returned to the Requesting Country’s government. As U.S. Justice Department attorney Daniel Claman, one of the participants in the drafting of UNCAC, has written: “One of the common misconceptions of asset recovery under the UNCAC is that Article 57 (the article that addresses the return of stolen assets) by itself will result in the repatriation of misappropriated assets. That is not the case.”13 As Claman notes, this Article stipulates return to governments only with respect to the “narrow issue” of assets that arise from embezzlement of government moneys—and only if the Requesting governments can establish that the funds in question really belonged to them. And even then, the parties to the UNCAC “chose to defer the determination of how such funds would be repatriated to case specific circumstances of additional arrangements between specific states.”14 Conceivably, this could easily include placement in a PtP foundation.

For other stolen assets arising from bribes or money-laundering, where Requesting State parties can hardly establish prior ownership, a range of options is left open to Requested States, involving, in addition to depositing the funds in their own treasuries, returning the assets, as two other close observers of the agreement have written, not only to the Requesting State party, but “to its prior legitimate owners or to compensating the victims of the crime.”15 In short, the rules stop well short of requiring the return of stolen assets to the governments of the countries in which the crimes took place. To the contrary, they also require some deference to the political realities and expectations in place in states that are harboring the assets, the so-called “Requested States.” The problem is that



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these realities and expectations in the Requested Countries frequently require that their authorities make certain that the authorities in the Requesting States are “worthy of confidence, according to the criteria applicable in the Requested State.” This means, notes Swiss federal criminal judge Bernard Bertossa, that “The authorities of the Requested State will…have to refuse return of property recovered on its territory where the regime in place in the Requesting State is notoriously corrupt.”16 “Return of any kind will have to be refused,” Bertossa con-tinues, “where the public officials implicated in the criminal activities uncovered are still in position and act under the orders of a Requesting State in which they control all the institutions, including the courts and the prosecution services.” But since it is precisely countries in which patterns of corruption are deeply ingrained that give rise to the more significant cases of stolen assets, this poses a dilemma that, as one anti-corruption practitioner put it, was “not …resolved by UNCAC.”

PtP offers a solution to this dilemma. It does so by creating an alternative mech-anism through which safe return can be accomplished—an independent, private charitable foundation. To be sure, as noted, such foundations must be carefully designed and effectively protected through governance structures, operating pro-cedures, and external controls against the corrosive effects of re-corruption. But such protections have been fashioned in numerous prior PtP cases—including at least one involving the return of stolen assets—and these can serve as important precedents upon which to build.17

PtP Benefit 2: Special attributes of foundationsPtP foundations are not just any alternative mechanism, however. As founda-tions, they have other distinctive advantages as well. For one thing, they are highly flexible—their governance arrangements can be designed to meet the cir-cumstances of their creation, accommodating various stakeholders and financing arrangements. Thus, Requested governments can be given a limited number of seats on PtP foundation boards along with civil society leaders, thereby providing assurances that the returned assets do not fall into the wrong hands. Similarly, the foundation missions can be tailored to meet objectives consistent with the sources of the assets that were originally stolen. Funds resulting from bribes for cell phone frequencies can thus be directed to providing internet access to rural schools; and bribes paid to secure rights for mineral extraction can be directed to addressing social, economic, and environmental problems created for people in the vicinity of the mines. In addition to their flexibility, foundations also offer a level of permanence and stability to the support of priority objectives. This is so because foundations develop permanent endowments that can generate support for key programmatic activities, such as scientific research, environmental pro-tection, early childhood education, and low-income housing that often get starved for funds in government budgets.


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PtP Benefit 3: Stimulating continued asset recovery activity by reassuring practitionersAs detailed more fully below, a small community of asset-recovery practitioners has surfaced around the world embracing officials in several bi-lateral develop-ment agencies; the United Nations Office on Drugs and Crime; justice ministries in the U.S., the UK, Switzerland, and other countries; bank regulatory authori-ties of many countries; the World Bank; and a number of international nonprofit organizations such as the International Center for Asset Recovery, Transparency International, Association Sherpa, and the Open Society Justice Initiative. These entities often need the assistance as well of individuals and authorities in the countries from which assets have been stolen in order to identify such assets and to assemble evidence that can help show that such assets really were stolen and by whom. What is more, while countries in which stolen assets have been deposited can initiate discovery and seizure proceedings on their own authority, under the UNCAC cooperation with authorities in victim states is strongly en-couraged. Among those who can be helpful in assembling such evidence can be law enforcement officials, investigating magistrates, prosecutors, officials in anti-corruption agencies where these exist, and affected citizens. As top officials in the World Bank and the United Nations Office on Drugs and Crime pointed out in their Preface to a recent World Bank Asset Recovery Handbook, however, “recovering proceeds of corruption is complex. The process can be overwhelm-ing for even the most experienced of practitioners” and is even more “difficult for those working in the context of failed states, widespread corruption, or with limited resources.” Under these circumstances, such officials need outside “support.”18

For this small band of practitioners and activists to remain committed, and to suc-ceed in getting government officials and other political leaders in the Requesting Countries to assist with the complex and costly process of locating, tracing, freezing, and returning such assets, they must have some reasonable assur-ances that their efforts will not be in vain, that the assets so laboriously discov-ered and reclaimed, often at considerable personal risk, will not flow right back into the stream of corruption and turn up again in foreign banks or property. The same is true of the legal and other staffs working on stolen asset litigation in the states where stolen funds have been deposited. Legislative support for the bud-gets needed to sustain lengthy and complicated stolen asset recovery cases is far from certain in the financial center countries and difficult to justify if the funds end up flowing right back into the corruption stream.

Here, again, PtP offers a solution by providing for the creation of a carefully structured and professionally staffed third-party mechanism outside of both the Requesting and the Requested governments that can manage the returned as-sets and turn them into tangible benefits for a country’s people. Having a realistic prospect of such a mechanism can thus help stimulate continued serious atten-tion to asset-recovery efforts, particularly if this becomes a more frequent prac-tice in the asset recovery field.



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PtP Benefit 4: Mobilizing citizens and civil societyWhile asset recovery is a heavily legal process, that legal process is inevitably embedded in a political context since, as noted above, it is governments that must initiate the process and it is therefore political will that determines whether the process is pursued. It is for this reason that one seasoned practitioner has noted that “[t]he main difficulties [in asset recovery] linked to the situation of the Requesting States…pertain to the political situation in those States rather than to simple legal questions.”19

While there are many factors shaping that political situation, one of the most significant is the scope and engagement of the civil society sector. As one recent analysis pointed out, “civil society can play a determinative role… in the asset recovery process,” taking part in initial advocacy, awareness-raising, investiga-tion, and even litigation.20 Civil society groups were thus active in creating the political climate that led the government of Nigeria to go after Sani Obacha’s stolen funds.21 And civil society groups plus the media helped nudge President Nazarbayev of Kazakhstan toward going after assets he had received as a bribe and ultimately accepting a solution that placed them in a charitable foundation firmly insulated from the government he ran.22

But like the asset-recovery practitioners and the legal officials who must bring the requests for return of stolen assets to the countries harboring them, civil society groups are not apt to rally energetically in support of stolen asset recovery in the absence of some reasonable assurance that the assets will be used for the ben-efit of citizens and not returned to the corruption stream. Opponents of corruption report that popular support for anti-corruption efforts withers when assets are returned to governments under a cloud of suspicion, dashing people’s hope and trust.23

PtP foundations provide a far better basis for such hope. A recent analysis of legal developments in Europe promoting the concept of “social reuse” of assets arising from corrupt or other inappropriate behavior, a concept of which PtP is a particularly powerful form, articulates this case persuasively:

“Social reuse is the only form of disposal [of stolen assets] that guar-antees citizens the visibility of confiscated assets because what comes from crime clearly returns to the society. [Social reuse]…shows that justice has defeated injustice, offenders are not intangible, they are not role models and crime is not an option for achieving social success. Turning [an asset derived from crime]... into a centre for the assistance of vulnerable groups or crime victims maintains this symbol and creates social trust. Social justice is done through the confiscated asset.” 24

Reflecting this sentiment, civil society advocates in the Ukraine, in Kazakhstan, and recently in Uzbekistan have thus endorsed mechanisms of this sort as

Social reuse of stolen assets creates social trust. Social justice is done through the confiscated asset.


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How Can PtP Help Governments?uBy providing evidence that proceeds of past

corruption are put to good use

uBy demonstrating commitment to anti-corruption efforts

uBy improving investment risk ratings

uBy boosting access to FDI

optimal solutions capable not only of providing direct assistance to citizens, but also stimulants to mount the pro-recovery, anti-corruption po-litical campaigns often needed to bring stolen assets to light and to mount pressures for efforts to restore them to the people from whom they were stolen.25

PtP Benefit 5: Help Requesting Countries attract foreign investmentFinally, and by no means inconsequentially, the PtP option for asset recovery can deliver important benefits to the governments of coun-tries from which assets are stolen. As the au-thors of the recent World Bank Asset Recovery Handbook note, in addition to weakening confi-dence in public institutions and ruining delivery mechanisms for poverty alleviation programs, “corruption damages the private investment climate” of the countries in which it occurs. This is not simply an abstract conception, moreover. A variety of rating systems are in existence to help alert potential investors to credit risks



20

in various countries. Investors use these systems to determine how much to discount potential profits from various foreign direct investments. The higher the risk, the greater the projected profit needed to make an investment seem viable. Countries with high risk scores thus lose out on potential in-vestments not because the investments are unprofitable, but because the risk factors offset the potential return.26

Of special relevance to our discussion here, most of the major investment risk rating systems used widely by international in-vestors now build into their risk profiles of countries factors related to the perceived extent of corruption. Thus, for example, the Control Risks Company treats “exposure to corruption” as one of eight factors that make up a country’s political risk score; the Economist Magazine Intelligence Unit

includes “Corruption,” and “Corruption in the banks sector” as two of the ten factors it includes in computing Country Risk scores; Trace International treats Anti-bribery Laws and Enforcement as one of five bellwethers in compiling its “global business bribery risk index” on countries; Standard and Poor’s Sovereign Credit Analysis treats “the perceived level of corruption in a country” as a critical indicator of the accountability and transparency of the country’s institutions; and the Millennium Challenge Corporation’s Country Scorecard treats a country’s “control of corruption” as one of only five categories of indicators used to compile its “country scorecards.”27

Reducing the extent of corruption and dealing creatively with past cases of corruption are two of the ways countries can improve their ratings on these risk rating systems. And, as shown in Figure 1, PtP can contribute to both. First, by making clear that the proceeds and penalties resulting from corruption are put to reliable use through protected, transparent, and accountable charitable foundations, PtP can provide highly visible evidence of a country’s commitment to ridding itself of the blight of corruption. Second, by demonstrating that it will energetically work to recover stolen assets and seek penalties for corrupt behav-ior, countries will discourage further corruption by showing that crime does not pay. And, along with other steps to ensure the rule of law, PtP can visibly “move the needle” on perceptions of institutionalized corruption, win plaudits from civil society groups, and improve country investment risk ratings, thereby making it far easier to attract foreign direct investment.

FDI Risk Rating Systems Emphasizing Corruption as Major Risk FactoruControl Risks Company

uEconomist Intelligence Unit “country risk scores”

uTrace International “global business bribery risk index”

uStandard & Poor’s Sovereign Credit Analysis

u Millennium Challenge Corporation Country Scorecard

The PtP option has already been applied to stolen, stranded, and penalty-based assets, with considerable success.


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The BOTA Foundation provides a powerful illustration of the ability of the PtP model to return stolen, stranded, or penalty-based assets to the victims of corruption in a

transparent, accountable, and effective way.

Evidence that PtP Works in the Context of Stolen, Stranded, or Penalty-based AssetsFinally, in addition to the questionable record of past efforts to recover and return stolen assets through traditional channels and the special advantages PtP can theoretically bring to the restitution process, a third argument for the PtP option in the context of stolen, stranded, or penalty-based assets is the fact that this option has already been applied to this asset class with considerable success, as shown in Figure 2.

Stolen assets. In the area of stolen assets, unquestionably the best known and most fully developed example is that of the BOTA Foundation in Kazakhstan.28 Created in 2009, the BOTA Foundation grew out of a case involving an American citizen who was convicted of paying bribes to a senior government official in Kazakhstan on behalf of several U.S. oil companies seeking oil drilling rights in the Caspian Sea. A Swiss bank account, controlled by the President of Kazakhstan, with close to US$85 million in bribes was frozen by the Swiss gov-ernment pending a decision on their ultimate restitution.



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Because the bribes, which earned another US$30 million in interest by the time they were released, were paid to the sitting president of the country in which the bribe occurred, the U.S. government was reluctant to return the funds to the gov-ernment of Kazakhstan for fear it would simply re-enter the corruption stream.

Thanks in important part to pressures from the Kazakhstan media and civil society groups and the intervention of the World Bank, Kazakhstan agreed to a creative solution under which the proceeds were put under the control of a new charitable foundation to be managed by an international development organization under the watchful eye of the World Bank, the governments of the U.S. and Switzerland, and a Board comprised of local and international Trustees. To ensure their protection from government interference, the foundation’s funds were left in the Swiss bank and drawn down by the foundation in 6-month tranches triggered by specific pro-grammatic specifications as to their use. In quick order, BOTA became the largest and most effective child and youth welfare foundation in all of Central Asia, with over 200,000 unique beneficiaries served through its three programs and the vast majority of its available funds disbursed directly to poor children, youth, and their families with complete transparency and accountability.

Despite the somewhat cumbersome governance structure put in place to insulate it from local political control and the unwillingness of the three supervisory gov-ernments—the U.S., Switzerland, and Kazakhstan—to extend its life, the BOTA Foundation provides a powerful illustration of the ability of the PtP model to return stolen, stranded, or penalty-based assets to the victims of corruption in a transpar-ent, accountable, and effective way.

This model of capturing the proceeds of crime and corruption for social reuse through the medium of social-purpose organizations also finds manifestation in Italy’s so-called “Mafia law,” Law n. 109/96, though here the organizational struc-ture is somewhat more diffuse. Law n. 109/96 provides for the granting to third parties—private organizations; cooperatives; municipal, provincial, and regional administrations—of all property acquired through illegal activities. The third par-ties then return them to the community by converting the properties to socially beneficial uses. During the 13 years since its passage, the law has converted to use for the community more than 4500 real estate properties (apartments, villas, and lands). The confiscated lands in Sicily, Calabria, Campania, Puglia, and Lazio have been taken over by social cooperatives of students and have produced oil, wine, pasta, taralli, legumes, preserves, and other organic goods.29

This concept of “social reuse” of the proceeds of criminal activity has since gener-ated broader interest at the European level, leading in April 2014 to the issuance by the European Parliament and the Council of the European Union of a Directive “on the freezing and confiscation of instrumentalities and proceeds of crime in the European Union” that endorsed the concept of social reuse embodied in the Italian law and in the PtP concept. This Directive provided, among other things, that: “Member States should consider taking measures allowing confiscated property to be used for public interest or social purposes;” and further cautioned that: “When managing frozen property and when taking measures concerning the use of confiscated property, Member States should take appropriate action to prevent criminal or illegal infiltration.”30 Clearly, PtP offers one of the best forms of such “appropriate action.”


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Assets arising from legal cases against companies. PtP has also been effectively used to make social reuse of assets arising from legal cases involving corporate misdeeds, especially in cases which result in out-of-court settlements between justice officials and companies accused of breaking environmental, con-sumer safety, or finance laws or arising from tort violations related to corporate “negligence” or other improper activity. U.S. environmental law treats such reme-diation activity as a matter of policy and has coined a special term for the prac-tice, “Supplemental Environmental Projects (SEP).” As the U.S. Environmental Protection Agency website explains:

“Most federal actions against businesses or individuals for failure to comply with the environmental laws are resolved through settlement agreements. As part of a settlement, an alleged violator may volun-tarily agree to undertake an environmentally beneficial project related to the violation in exchange for mitigation of the penalty to be paid. A Supplement Environmental Project (SEP) furthers EPA’s goal of pro-tecting and enhancing the public health and the environment. It does not include the activities a violator must take to return to compliance with the law.”31

Many of the resulting SEP agreements channel funds into state or local govern-ments. But, as Table 3 below shows, in a number of cases third-party entities—typically nonprofit or other charitable institutions—are designated as the bene-ficiaries with explicit environmental improvement activities specified. Thus, for example, when the Deepwater Horizon oil drilling platform exploded in the U.S. Gulf of Mexico, MOEXX Offshore LLC, its partial owner, agreed to provide $20 million for remediation and other environmental initiatives to unspecified nonprofit organizations in Texas, Louisiana, Mississippi, and Florida. In several of these cases, however, charitable foundations have been designated as the beneficia-ries empowered to use the resulting assets for environmental improvement activ-ities. Though several of these, such the Illinois Conservation Foundation and the Louisiana Wildlife and Fisheries Foundation, retain close ties with their respec-tive state conservation or fish and wildlife departments, in other cases fully inde-pendent foundations have been the beneficiaries of settlement payments. Thus, the Hudson River Foundation emerged in 1980 from a $12 million court settle-ment of a case brought by New York environmental groups against a Con Edison effort to embed the world’s largest pumped storage hydroelectric plant into Storm King Mountain along the Hudson River. Since then, the Fund has tripled in size and has yielded $47 million in grants to promote environmental protection in the Hudson River watershed.32 The Virginia Environmental Foundation (VEF) is a similar institution created out of the proceeds of a legal settlement, in this case a suit brought against Allied Chemical Corporation for polluting the James River with the insecticide, Kepone. VEF has so far managed to parlay the resulting $8 million asset into $78 million in grants in support of environmental improvements in Virginia.33

In addition to this placement of resources from individual settlement cases into particular nonprofit or foundation beneficiaries, the U.S. Congress in 1984 cre-ated the National Fish and Wildlife Foundation (NFWF), an independent 501(c)(3) nonprofit foundation that serves as a general beneficiary and host for a


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variety of settlement-case assets in the environmental arena. In fact, NFWF has emerged as the nation’s largest conservation grant-maker that, through its Impact-Directed Environmental Account (IDEA) program, manages a nationwide portfolio of accounts arising from legal and regulatory actions involving natural resources and the environment. In 2016 alone, the foundation awarded $127.4 million in IDEA program funds. Through its lifetime, NFWF has distributed $3.8 billion in support for conservation and environmental activities.34 And all of this from a source that we would term a series of PtP transactions.

The environmental arena is not the only one in which substantial legal settle-ments have channeled significant resources into social purpose activities, but elsewhere the process has been more ad hoc and less effective in seeding sustainable foundations—perhaps because no one has thought of it. When the PNB Paribas Bank was found guilty of violating sanctions against Cuba, Iran, and Sudan and required to pay US$8.9 billion in penalties and related settle-ment payments, for example, $7 billion was set aside by the U.S. Department of Justice to compensate the victims of their violation of sanctions.35 But identifying such victims was difficult and Congress ultimately used these funds to assist victims of the 9/11 disaster instead. Beyond this, another $800 million from this settlement that was set aside to improve law enforcement ended up being given to the Manhattan district attorney for distribution as he saw fit rather than being put into a charitable foundation equipped to handle such grants. The New York Times quickly saw the irony in this situation, noting wryly that: “These days, the programs being announced by the Manhattan district attorney sound more like the projects of a major philanthropic foundation than those of a local prosecutor’s office.”36 Under PtP they would be.

Finally, while more common in the U.S.,37 such uses of something approaching a PtP mechanism to handle the reuse of assets resulting from crimes or accidents committed by companies are not unheard of internationally as well. For example, Switzerland ordered Alstom SA to make a reparation payment to an international charity for the charity’s programs in three countries in which Alstom had secured public contracts through bribery. Similarly, Siemens was obliged as part of a 2009 settlement with the World Bank to put US$100 million into a Siemens Integrity Fund to support anti-corruption efforts around the world.38

And in one of the largest such settlements, courts in Brazil reached an agree-ment between the Samarco mining company; its shareholders, Vale and BHP Billiton; and Brazil’s Federal Government, two state governments, and a number of public and private environmental organizations under which Samarco commit-ted upwards of US$7-8 billion to support a new foundation, called Renova, estab-lished to work with public authorities, environmental organizations, businesses and the community to renovate a vast area of two states in northern Brazil that were devastated by the collapse of a huge dam in which the Samarco company had negligently deposited 32 million cubic meters of iron ore tailings. In what might well be a record for such PtP transactions, the agreement leading to the founding of this new PtP foundation was signed by the company and the other parties on March 2, 2016, and approved by the Brazilian Court of Justice on May 6, 2016—barely six months after the November 5, 2015, dam collapse that led to the need for this foundation. By August 2, the foundation was up and running. This could be a promising harbinger of how PtP can change the course of such



26

settlements. Indeed, in signing the agreement, Roberto Carvalho, Samarco’s CEO, referred to it as representing “a breakthrough in the way of dealing with major issues involving the public power and the private sector in defense of the interests of society and of populations affected by accidents like this.”39

Assets arising from the capture of dormant or stranded assets. The PtP concept has also been applied to the asset class of dormant or stranded assets. The most prominent case here is the Big Society Trust in the UK, and its offshoot, Big Society Capital. Concerned that large banks were using such assets on their balance sheets to pad their profits, the UK Labor Government in 2005 established the Commission on Unclaimed Assets to explore how money left unclaimed in dormant bank accounts for over 15 years could be used to benefit society. At this Commission’s recommendation, legislation was passed in 2008 that mandated that money from such dormant accounts be used to create a “Social Investment Wholesaler.” Three years later the “Big Society Trust” was inaugurated and mandated to receive upwards of £400 million in such assets. These funds, along with matching funds of £50 million each from four major UK banks, were then used to seed a social-purpose bank set up to help grow the so-cial investment market in the country.40 The current Dormant Assets Commission is expected to unlock billions more in dormant assets from unclaimed pension schemes and channel these into other charitable causes.41 This development has also spawned similar efforts elsewhere. For example, a Japanese Law passed in December 2016 similarly enables the government to utilize money held in dormant bank accounts to provide financial support to nonprofit organizations promoting welfare and community revitalization.42

Endnotes

1 World Bank Stolen Assets Recovery Initiative, (2007), p. 11.2 Kudio Attisso and Gretta Fenner Zinkernagel, (2013), “Past Experience with agreements for the disposal of confiscated assets,” in Gretta Fenner Zinkernagel, Chares Monteith, and Pedro Gomez Pereira, Emerging Trends in Asset Recovery, (Bern: Peter Lang), pp. 329-45. 3 Ibid., p. 344.4 Ibid., p. 331.5 Ignasio Jimu, (2013), “Asset recovery and the civil society in perspective: Nigeria, Peru, the Philippines and Kazakhstan cases considered” in Gretta Fenner Zinkernagel, Chares Monteith, and Pedro Gomez Pereira, Emerging Trends in Asset Recovery, (Bern: Peter Lang). 6 David Ugolor, Apollos Nwafor, and John H. Nardine, (2006), “Shadow Report on the PEMFAR Monitoring Exercise,” (Benin City: Nigerian Network on Stolen Assets).7 Rogendy Toussaint, (March 2, 2016), “The Failure of Illicit Asset Recovery: A Haitian Case Study,” Jurist.8 Ngozi Okonjo-Iweala and Yury Fedotov, (2011), “Preface,” in Jean-Pierre Brun, Larissa Gray, Clive Scott, and Kevin M. Stephanson, Asset Recovery Handbook: A Guide for Practitioners, (Washington, D.C.: The Interna-tional Bank for Reconstruction and Development/The World Bank).9 Richard Cassin, (Aug. 21, 2014), “Where’s BofA’s $17 billion going?” FCPA Blog.10 Alex Ulam, (October 13, 2010), “The Bank of America Mortgage Settlement Fiasco,” The Nation.11 Ibid.12 For those not familiar with this term, a “Catch-22” is a situation in which competing rules make an obviously desirable objective impossible to achieve. The term was coined by Joseph Heller, who used it in his 1961 novel Catch-22.13 Daniel Claman, (2008), “The Promise and limitations of asset recovery under the UNCAC,” in Marc Plieth, (ed.), Recovering Stolen Assets, (Bern: Peter Lang), p. 347. 14 Ibid., p. 348.15 Dmitri Vlassis and Dorothee Gottwald, (2008), “Implementing the asset recovery provisions of the UNCAC,” in Marc Plieth, (ed.), Recovering Stolen Assets, (Bern: Peter Lang), p. 366.

https://siteresources.worldbank.org/NEWS/Resources/Star-rep-full.pdf

https://www.ladb.ch/fileadmin/files/documents/Potentatengelder/Nigerian_Network_on_Stolen_Assets_Shadow_repo%20rt_on_the_Pemfar_Monitoring_Exercise.pdf

https://www.ladb.ch/fileadmin/files/documents/Potentatengelder/Nigerian_Network_on_Stolen_Assets_Shadow_repo%20rt_on_the_Pemfar_Monitoring_Exercise.pdf

http://www.jurist.org/dateline/2016/03/rogeny-toussaint-illicit-asset-recovery.php

https://star.worldbank.org/star/sites/star/files/asset_recovery_handbook_0.pdf

http://www.fcpablog.com/blog/2014/8/21/wheres-bofas-17-billion-going.html

https://www.thenation.com/article/bank-america-mortgage-settlement-fiasco/


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Bornstein and Salamon • How to Apply PtP to Stolen or Stranded Assets16 Bernard Bertossa, (2007), “What makes asset recovery so difficult in practice? A practitioner’s perspec-tive,”in Marc Plieth, (ed.), Recovering Stolen Assets, (Bern: Peter Lang), p. 25.17 See: Salamon (2014); Aaron Bornstein with Lester M. Salamon, (2016), “The BOTA Foundation: A Model for the Safe Return of Stolen Assets?” (New York: East-West Management Institute).18 Okonjo-Iweala and Fedotov (2011).19 Bertossa (2007).20 Arab Forum on Asset Recovery, (2013), Guide to the Role of Civil Society Organisations in Asset Recovery, (Bern: International Center for Asset Recovery).21 Jimu (2013), p. 327.22 On the story of the resulting BOTA Foundation, see below and Bornstein with Salamon (2016).23 Daria Kaleniuk, Director, Anti-corruption Action Centre, Ukraine. Presentation, Open Society Foundations Seminar, March 10, 2016.24 Radu Nicolae, Emanuel Răuţă, and Vadim Chiriac, (2015), Reuse of confiscated assets for social uses, (Bucharest: The Center of Legal Resources), p. 8.25 Bornstein with Salamon (2016), p. 16. See, for example, the letter written to Swiss authorities in connection with a bribery case in Uzbekistan: uzbekgermanforum.org/a-letter-of-human-rights-organisations-regard-ing-money-laundering-by-gulnara-karimova-to-swiss-authorities.26 Personal Interview, Dr. Gordon Bodnar, Johns Hopkins School of Advanced International Studies, Washing-ton, D.C., February 23, 2016.27 See: Control Risk Political Risk Factors; Economist Intelligence Unit, Country Risk Model; Trace International Global Business Bribery Risk Index; Thompson Reuters Country Risk Ranking, ; Millennium Challenge Corpo-ration Country Scorecard.28 See: Bornstein with Salamon, (2016).29 For further information, see: libera.it.30 The European Parliament and the Council of the European Union, (2014), “Directive 2014/42/EU of the European Parliament and the Council of the European Union of 3 April 2014 on the freezing and confiscation of instrumentalities and proceeds of crime in the European Union,” para. 35. For a broader discussion of Euro-pean laws on the social re-reuse of the proceeds of crime, see: Nicolae, Rauta, and Chiriac, (2015). 31 U.S. Environmental Protection Agency, “Supplemental Environmental Projects”.32 Hudson River Foundation for Science & Environmental Research, “About HRF”.33 Virginia Environmental Endowment, “History”.34 National Fish and Wildlife Foundation, (2016), Annual Report.35 U.S. Department of Justice Press Release, (May 1, 2015), “BNP Paribas Sentenced for Conspiring to Violate the International Emergency Economic Powers Act and the Trading with the Enemy Act”. 36 James C. McKinley, Jr., (November 6, 2015), “Cyrus Vance Has $808 Million to Give Away,” New York Times.37 Whether this practice will continue in the United States has recently been called into question by criticisms of certain environmental settlements by a number of conservative organizations and a resulting policy mem-orandum issued by Trump Administration Attorney General Jeff Sessions in 2017 forbidding U.S. Department of Justice personnel from agreeing to such settlements in a wide range of corporate-misdeed cases. See: Schlossberg and Tabushi (June 9, 2017). For a copy of the Sessions memo, see: U.S. Department of Justice, (June 7, 2017), “Attorney General Jeff Sessions Ends Third Party Settlement Practice”.38 Dmitri Vlassis, Dorothee Gottwald, and Ji Won Park, (2013), “Chapter V of UNCAC: Five years on experi-ences, obstacles and reforms on asset recovery,” in Gretta Fenner Zinkernagel, Chares Monteith, and Pedro Gomez Pereira, Emerging Trends in Asset Recovery, (Bern: Peter Lang), p. 171.39 Vale, (May 6, 2016), “Samarco’s Agreement with the Federal and State Governments is homologated by Court of Justice”; Vale, (August 3, 2016), “Renova Foundation, created in the March Agreement, begins work-ing”.40 Investments made by Big Society Capital fall into four broad categories: a) specialized theme funds for specific outcomes in areas such as health or social care; b) general funds to increase the supply of capital to social organizations working on the “frontlines”; c) social impact bonds for financing payments to organi-zations that achieve desired results in different social areas, and; d) support to intermediary organizations that help other non-profit organizations in areas such as performance measurement and fundraising. See: Big Society Capital, “Frequently Asked Questions” and “Governance.”41 See UK Independent Dormant Assets Commission.42 Japan Times Editorial, (January 28, 2017), “Making Use of Dormant Accounts,” The Japan Times.

http://bit.ly/PtPBOTA

http://bit.ly/PtPBOTA

https://cso.assetrecovery.org/sites/collective.localhost/files/documents/cso_guide_e.pdf.

http://www.crj.ro/wp-content/uploads/2015/10/Reutilizarea-bunurilor-confiscate-EN.pdf

http://uzbekgermanforum.org/a-letter-of-human-rights-organisations-regarding-money-laundering-by-gulnara-karimova-to-swiss-authorities/

http://uzbekgermanforum.org/a-letter-of-human-rights-organisations-regarding-money-laundering-by-gulnara-karimova-to-swiss-authorities/

http://www.riskmap.controlrisks.com/wp-content/uploads/2016/12/RiskMap-2017.pdf

http://eiu.com/handlers/PublicDownload.ashx?mode=m&fi=risk-section/country-risk-model.pdf

https://www.traceinternational.org/trace-matrix

https://www.traceinternational.org/trace-matrix

https://risk.thomsonreuters.com/content/dam/openweb/documents/pdf/risk/brochures/thomson-reuters-country-risk-ranking-brochure.pdf

https://www.mcc.gov/resources/doc/guide-to-the-indicators-and-the-selection-process-fy-2012

https://www.mcc.gov/resources/doc/guide-to-the-indicators-and-the-selection-process-fy-2012

http://www.libera.it/

http://eur-lex.europa.eu/eli/dir/2014/42/oj



https://www.epa.gov/enforcement/supplemental-environmental-projects-seps

http://www.hudsonriver.org/?x=about

http://www.vee.org/about/history/

http://www.nfwf.org/whoweare/mediacenter/Documents/2016_annual_report.pdf

http://www.justice.gov/opa/pr/bnp-paribas-sentenced-conspiring-violate-international-emergency-economic-powers-act-and

http://www.justice.gov/opa/pr/bnp-paribas-sentenced-conspiring-violate-international-emergency-economic-powers-act-and

http://www.nytimes.com/2015/11/08/nyregion/cyrus-vance-has-dollar-808-million-to-give-away.html

https://www.justice.gov/opa/pr/attorney-general-jeff-sessions-ends-third-party-settlement-practice

http://www.vale.com/samarco/EN/Pages/samarcos-agreement-federal-state-governments-homologated-court-justice.aspx

http://www.vale.com/samarco/EN/Pages/samarcos-agreement-federal-state-governments-homologated-court-justice.aspx

http://www.vale.com/samarco/en/Pages/fundacao-prevista-acordo-comeca-a-funcionar.aspx

http://www.vale.com/samarco/en/Pages/fundacao-prevista-acordo-comeca-a-funcionar.aspx

https://www.bigsocietycapital.com/faqs

https://www.bigsocietycapital.com/about-us/governance

https://www.gov.uk/government/organisations/dormant-assets-commission

https://www.japantimes.co.jp/opinion/2017/01/28/editorials/making-use-dormant-accounts/


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Important differences separate the mechanics of capturing and converting to social reuse the assets arising from bribes, unclaimed assets, and corporate penalties. Thus, for example, the process of recovering stolen assets involves investigating, tracking, and seizing assets that politically exposed persons and their associates do their best to hide, freezing these assets in place, and eventually repatriating the assets (or their monetized value in the case of physical assets) to the countries from which they have been stolen. Dormant or stranded assets, however, are easier to find and not going anywhere so presumably do not have to be “frozen.” And the legal processes for securing the proceeds of penalties levied against corporate violators of national laws are quite different from those involved in rescuing proceeds of bribes.

Despite important differences, however, fundamentally all three of these types of these assets involve three basic steps: (1) discovery; (2) litigation or other legal action to free the assets for recovery and potential social reuse; and (3) implemen-tation and monitoring of the resulting settlement.

For ease of explication, we will focus here first on how this process typically pro-ceeds in cases involving bribes or stolen assets and then will highlight more briefly how the processes for the two other types of assets under consideration here—dormant assets and settlements of cases involving corporate misdeeds—might differ.

PART IIIHow does the Recovery of Stolen, Dormant, or Penalty-based Assets Take Place? The Basic Steps

Three Broad Steps in Stolen Asset Recovery

j Discoveryk Freeing assets for recovery or social reusel Implementing the resulting settlement


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The initial step in recovering stolen assets involves three sub-steps.

The Stolen Asset Recovery Process

Step 1: Identifying stolen assetsThe first step in an asset recovery process in cases of stolen assets is to identify that such a crime exists. This, in turn, involves three sub-steps:

1. Gaining knowledge that such a crime potentially exists; 2. Locating the assets in question; and 3. Assembling evidence that the assets in question were truly “stolen,” i.e.,

acquired extra-legally by an identified perpetrator.

Sub-step 1-1: Gaining knowledge of a potential crime. The first of these sub-steps involves starting an investigation. This could be based on information from whistleblowers, CSO suspicions, media exposés, discovery processes in other litigation, suspicious activities reports, meta analysis of bank movements, congres-sional/parliamentary investigations, requests or tips from foreign law enforcement, and regime changes that open important documents to scrutiny.1

Sub-step 1-2: Locating the assets. The second sub-step involves launching a more formal investigation to locate the assets in question. This requires the deployment of an investigator who can conduct the investigation. In the best of circumstances, this will be an official prosecutor empowered by law to investigate wrong-doing, or an anti-corruption commission or office if such exists. Where po-litical or other considerations deter potential official prosecutors from undertaking such investigations, civil society groups and media outlets may be able to un-dertake, or at least participate in, this task, with a view of informing the public and increasing the demand for authorities to commence official inquiries.

Almost every country in the world has laws against the theft of public monies and regulations prohibiting public officials from taking bribes or being involved in other corrupt acts. While such laws and regulations are ubiquitous, the degree to which they are followed varies widely. The behavior of the national leadership in regard to corruption often sets the stage for public officials down the bureaucratic ladder. Where leaders collect modest public salaries, but have accumulated immense per-sonal wealth which cannot be explained except through corruption (known as illicit enrichment), then lower-level bureaucrats are also likely to be on the take. This is especially true in developing countries that are “blessed” by abundant national resource deposits, which often engender what is known as the “resource curse”—widespread poverty, conflict, and corruption linked to the quest to capture a slice of the profits from the exploitation of petroleum and mineral deposits.2

In an effort to boost foreign investment and clean up negative images associated with bribery and graft, many nations pass anti-corruption laws that feature inde-pendent commissions with investigative and prosecuting authority. However, the degree to which these commissions are truly independent and effective, and not just used as window-dressing or channels to harass opposition figures, varies widely. Cambodia’s Anti-Corruption Unit, for example, is headed by someone who has deep ties to the ruling party, and regularly clears ministers of serious corruption charges while focusing the Unit’s attention on the opposition leader’s extramarital affairs.3 In the current scandal in Malaysia, where at least US$3 billion from the country’s sovereign wealth fund has gone missing, the anti-corruption commission has already cleared the Prime Minister and his close associates of



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any wrong-doing.4 A senior Colombian anti-corruption official was recently ar-rested in Miami for allegedly seeking a bribe from a former Colombian governor in exchange for favorable treatment in a criminal trial.5 In 2014, anti-corruption bodies in Indonesia, Mauritius, and Ghana, on the other hand, were reported to be adhering to best practices, and were considered relatively effective.6

Because the proceeds of such crimes can often be laundered through foreign banks, this investigation must often unfold not only in the country where the assets were taken (common following a regime change) but also in foreign financial centers where the assets may have been laundered. The key questions at issue here are: Were assets illegally taken? If so, how much? What form are they in (e.g., cash, securities, property)? and Where are they located?

Sub-step 1-3: Gathering the evidence. The third sub-step in identifying stolen assets is to generate sufficient evidence linking the stolen assets to a perpetrator and verifying that they were, in fact, “stolen” or misappropriated. For this step, official legal investigators are probably necessary since access will likely be needed to various internal documents, electronic data, informants, accounting records, and information from banks and governments. Some information may be available locally or via open sources, but much will require help from overseas governments that have jurisdiction over where the assets have been laundered. The latter can be pursued through informal contact with relevant international contacts or through the more formal mechanism of a mutual legal assistance (MLA) request—a process legally mandated by the United Nations Convention Against Corruption and further elaborated in national laws and practices.7 However, MLAs are often complicated to complete, requiring the country that files it to provide a complex body of information that may or may not be available. MLA recipient countries then choose to act on MLAs, or not, and even when there is goodwill to follow up on an MLA request, there may not be sufficient resources to do so efficiently.

In addition, different legal and political systems, languages, bureaucratic require-ments, and resource priorities greatly impact the efficiency of this cooperation. One analysis of the barriers to cooperation in documenting stolen assets lists 29 obstacles, grouped into three broad categories: general barriers and institutional issues (including lack of trust and lack of appropriate policies); communication issues (including lack of focal points and lack of information on requests for as-sistance or responses to those requests); and legal issues.8

Fortunately, some assistance with this basic identification step is also available from a number of sources. Including the following:

a) International Center for Asset Recover (ICAR). Created in 2006, the International Center for Asset Recovery (ICAR) of the Basel Institute for Governance is a non-governmental organization that is a leading player in asset recovery efforts.9 ICAR strengthens and supports the capacities of developing and transition partner countries to recover stolen assets through offering training on topics such as asset tracing techniques, providing assistance to countries in developing and carrying out investi-gations, devising prosecution strategies, filing requests for Mutual Legal Assistance, reviewing laws and policies related to asset recovery and anti-corruption, as well as country compliance with relevant international conventions and standards. ICAR also assists in developing integrated IT tools (to support financial investigations and asset recovery efforts) and con-tributing actively to the global policy dialogue on asset recovery and international standard setting (in partnership with the Swiss Government, European Parliament, the World Bank, and the UN).

b) World Bank Stolen Asset Recovery Initiative (StAR). The StAR Initiative is a partnership between the World Bank Group and the United Nations Office on Drugs and Crime (UNODC) that works with developing


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countries and financial centers to prevent the laundering of the proceeds of corruption and to facilitate more systematic and timely return of stolen assets.10 Founded in 2007, StAR has a similar profile and mission to ICAR, with which it cooperates closely, in areas such as policy analysis and knowledge building. StAR provides training and capacity building on asset recovery topics to practitioners and stakeholders, and at the re-quest of countries drafts legislation to strengthen the legal framework to support asset recovery, develops institutional frameworks, and improves country capacity to successfully conduct their asset recovery efforts. StAR also provides technical assistance in asset recovery cases to coun-tries and maintains a database of on-going asset recovery cases—in-cluding the Asset Recovery Watch,11 which CSOs, the media, and govern-ments can use to identify potential targets for recovery efforts.

c) Governments of leading financial centers. The integrity of financial centers such as New York, London, Zurich, and similar Western cities is threatened when criminal assets find a haven in their banking institutions and real estate markets. To protect this integrity, the U.S., the UK, and Switzerland are all very active in prevention of money laundering and are increasingly involved in asset recovery efforts, especially in connection with politically exposed persons (PEPs). These countries also have dedi-cated legal teams enforcing their own corrupt practices acts, which often leads to the discovery of bribes that have been paid by corporate actors or those acting on their behalf, and this can assist countries in their own identification of such assets.

In the United States, this role is performed by several U.S. government agencies, including the Securites and Exchange Commission (SEC), and different investigative and prosecutorial offices of the Department of Justice (DoJ), including the Kleptocracy Asset Recovery Initiative, which was initiated in 2011 to seize and (where possible) repatriate corruption assets stolen by PEPs. DOJ prosecutors from the Asset Forfeiture and Money Laundering Section work with the FBI, State Department, and Department of the Treasury to freeze and seize illegally acquired assets held in the U.S. by PEPs and to litigate cases involving the proceeds of corrupt practices.12

In the UK, efforts to tackle money laundering and recovery of stolen assets have been spearheaded by the country’s foreign assis-tance agency, the Department for International Development (DFID). Recognizing the threat that corruption poses to its international devel-opment objectives, since 2006 DFID has used its own budget to support law enforcement offices, such as London’s Overseas Anti-Corruption Unit, and to finance global anti-corruption efforts, such as the Engaged Citizens Pillar in Nigeria, in order to strengthen host government institu-tions, citizens, and local CSOs in the battle against corruption.13

Despite the country’s bank secrecy laws, Switzerland’s law enforcement, judiciary, and Federal Department of Foreign Affairs (FDFA) all have played active roles in the government’s efforts to prevent tainted funds from being banked in the country, and confiscating, freezing, and repatri-ating stolen assets that have unlawfully entered the country. Switzerland has taken a coherent pro-active approach to dealing with stolen funds that enter its banking system and makes a special effort to cooperate with MLA requests coming from other countries. In addition, its Agency for Development and Cooperation, working under the Federal Department of Foreign Affairs, has taken an active role in monitoring restitution pro-cesses to ensure against re-entry of returned assets to the stolen asset stream.14



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Step 2: Freezing assetsOnce potentially stolen assets have been identified and enough evidence as-sembled to create a putative case of a crime, the next step in the process is to “freeze” assets to ensure that they are not moved or utilized while legal pro-ceedings go forward to determine their rightful ownership and resolve their dispo-sition. This step requires a legal order, which—depending on the jurisdiction and rules it is governed by—could be issued by prosecutors, magistrates, or judges. Confidentiality and speed is important, so that the assets are not further trans-ferred to other countries and shelters.

Close cooperation between governments can generally be critical, requiring further elaboration of MLA agreements. The UNCAC contains elaborate rules for the freezing of assets and these are further refined by national laws and regu-lations on the findings needed to trigger a freezing order. For example, under UNCAC the Requesting Country must formally ask the Requested Country to impose a freeze on the assets. UNCAC also requires that the request for MLA include: “(i) a description of the property to be confiscated including the location if possible, the estimated value of the property, and a statement of the facts relied upon by the Requesting State Party sufficient to enable the Requested State Party to seek the order under its domestic law; and (ii) if the request is based on a confiscation order, the Requesting party must include a copy of the order, a statement of facts and information, a statement specifying the measures taken by the Requesting party to provide adequate notification to bona fide third parties, and, to ensure due process, a statement that the confiscation order is final.”15 In addition, each Requested country has its own stipulations and require-ments. For example, Switzerland typically seeks assurances that the returned asset will not be re-stolen.

Reflecting these detailed requirements, the freezing of assets can be a long and difficult process. This is evidenced by fact that so little of the money looted by Arab Spring PEPs—such as Muammar Gaddafi—has been recovered, de-spite the high-level attention, organization and political will it attracted.16 Cases can sometimes drag on for decades. Thus, for example, it took 16 years for the Philippines to recover a portion of the funds stolen by Ferdinand Marcos, and, as already noted, the Duvalier case from Haiti, which started in 1986, is still open in Switzerland.17

Step 3: Litigating the disposition of assetsOnce assets have been frozen in a Requested country, a legal proceeding must take place. Such proceedings can take two quite different forms depending on whether a criminal or civil forfeiture is contemplated. In criminal cases, two major issues must be addressed: (i) to verify, according to the laws of the Requested country, that a crime has taken place, that the assets in question were the by-product of that crime, and that the identified perpetrator was responsible for the crime; and (ii) to determine the appropriate remedy or remedies. The first set of issues falls squarely within the laws of the Requested countries, which typically have rules and standards of proof that must be met before property can pass from the state of being “frozen” to the state of being eligible to be “confiscated.” The second issue involves not only the laws of the Requested country but also the UNCAC provisions that give some standing to the Requesting Country in fashioning the resulting remedy. Civil forfeiture proceedings involve many of the same two sets of issues, but with one important difference: in civil cases there is no need to identify who committed the crime, only that a crime was committed and that the funds or property in question were the proceeds of that crime. Therefore, there is no need to have jurisdiction over the alleged perpetrator, who may be dead or have internationally recognized immunities.

Close cooperation between governments can be critical.


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Given the complexity of these legal provisions, it is useful to examine them a bit more closely.

Sub-step 3-1: Justifying confiscation. The legal process required to justify confiscation of a frozen asset, especially in Western jurisdictions, can take many years, as collecting evidence and witness testimony that can meet the pre-vailing legal standards and withstand defense challenges, requests for delays, and claims by other parties (who may have a legitimate stake in the contested assets) can be extremely time-consuming. In addition, other legal considerations can be at work. For example: the legal process can run up against (a) statute of limitation restrictions since many corruption cases date back for years, if not decades; (b) banking rules in some countries that may require customer permis-sions to divulge bank records; (c) high ranking officials who may have immunity from prosecution; (d) standards of proof that can be very difficult to meet; (e) assets that can be conveniently hidden in shell companies that are beyond legal reach; and (f) plea agreements that may positively or negatively impact ultimate asset recovery.

These barriers aside, three major legal processes are available for the settlement of stolen property cases: (a) criminal prosecution; (b) private civil action; and (c) non-conviction-based forfeitures.18 In addition, a fourth option also exists that can short-circuit the formal legal processes—(d) out-of-court settlements. The dis-cussion below briefly reviews each of these options:

a) Criminal prosecution. In criminal prosecution, legal action is taken against the accused perpetrator of the theft and the property in question is available to be confiscated while the perpetrator is subject to impris-onment, fines, or other obligations in order to deter future offenders. In addition, criminal investigations often have the most robust discovery possibilities, including access to information from law enforcement officials and financial intelligence offices and use of grand juries and other means of compelling witness testimony. At the same time, criminal prosecutions have the most demanding standards of proof.

b) Civil actions. In more and more cases, civil litigation is used to attempt to recover stolen assets instead of criminal law. Civil law allows for the asset confiscation and recovery based on “the preponderance of evi-dence,” rather than the much higher criminal law standards. The prin-cipal advantages of civil claims include less demanding requirements for linking the assets to the corrupt activities, the ability to claim damages generally rather than in relation to a particular asset, and a wider choice of parties to sue. Civil lawsuits may be brought to claim ownership of a specific asset, or compensation for damages. To accomplish the goals of asset recovery and compensation for victims, private or ‘civil’ actions are often a necessary and useful complement to criminal proceedings. These civil actions can continue when criminal actions cannot proceed for lack of witnesses (including PEPs that are still in power), or oth-erwise grind to a halt.19 Civil recovery also opens at least limited options for victims of corruption to be represented in restoration proceedings, including, in some cases, by CSOs. Other advantages of civil recovery is that it can be pursued in several jurisdictions at once, although courts try to limit this via venue rules, and can lead to moral and punitive damages in addition to return of assets.20 Though rare, civil cases can also be pursued independently of States—an important consideration when there is little or no political will in governments to pursue criminal investigations.21 However, unlike criminal prosecutions, civil actions are limited in terms of access to information and investigative powers. Moreover, civil cases against stolen assets can be controversial since, while perpetrators can lose some or all of their ill-gotten gains, they are not ultimately subjected to criminal penalties such as imprisonment, for their actions.



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c) Non-conviction based confiscation.22 Increasingly popular in the asset recovery process is a hybrid form of legal action referred to as Non-conviction-based (NCB) confiscation. In this special type of civil action the government, as opposed to a private person, acts as the plaintiff and the action is taken against the asset instead of the perpe-trator of the crime. This makes asset confiscation available without a criminal conviction. Other terms for this action include civil forfeiture, in rem forfeiture and objective forfeiture. It requires proof that the property is tainted (that is, the property is the product of a crime). In general, the criminal conduct is established on a less demanding “balance of probabilities” standard of proof, which means that it may be possible to obtain confiscation even when there is insufficient evidence to support a criminal conviction. NCB asset confiscation can be particularly effective in divesting PEPs of stolen assets and restoring those assets to citizens, particularly where the influence of corrupt officials and other practical realities may prevent criminal investigations entirely, or until after the official has died or absconded. It is not uncommon for a corrupt official who robs a country to also attempt to obtain immunity from prosecution. Because an NCB asset confiscation is an action taken against the asset involved in the crime rather than the perpetrator, it is not dependent on a criminal conviction and can proceed regardless of the death, flight, or immunity the corrupt official might enjoy.

d) Out-of-court settlement. Before even getting to the judicial phase, or at some point during the judicial phase, in both civil and criminal cases, it is possible that a settlement can be reached where a PEP (or his/her heirs) agrees to forfeit all or part of the stolen (or disputed) assets.23 In the case of the BOTA Foundation in Kazakhstan, the U.S. Department of Justice brought a civil forfeiture action against a Swiss bank account controlled by the Government of Kazakhstan (GoK). The civil complaint alleged that the funds in the account were traceable to bribes from U.S. oil companies to senior Kazakhstani officials, including the president of the country. Rather than go through a potentially politically damaging trial, the GoK agreed to forfeit the funds in the Swiss account to start up the BOTA Foundation. Settlements in civil forfeiture cases can be very controversial because, in the eyes of CSOs, the public, and the media, PEPs that have engaged in theft of state assets are not punished, and even get to keep a significant portion of stolen assets. This was the case with the deal between the Sani Abacha heirs and the Swiss Government regarding the 2015 return of US$321 million of Abacha loot to Nigeria.24

Sub-step 3.2: Return and social reuse of confiscated asset. Once a confiscation case is settled, important issues must still be resolved relating to the recovery and potential social reuse of the assets in question. This important sub-step is addressed in Article 57 of UNCAC, but only partially. As noted pre-viously, Article 57 of the UNCAC dealing with the return and disposal of assets addresses directly only the return of embezzlement proceeds, specifying that such return be to Requesting Country governments, but only after taking into account legitimate ownership claims established by third parties, the legitimate costs spent on recovery, and other factors that may be considered by Requested Countries on a case-by-case basis.

In the case of other proceeds of corruption, where Requesting Countries cannot establish their prior ownership, a range of options is left open to Requested Countries involving return not only to the Requesting Country, but also to the assets’ prior legitimate owner or owners or to the victims of the crime.25 As clause 5 of Article 5 of the UNCAC puts it: “Where appropriate, States Parties may also give special consideration to concluding agreements or mutually acceptable arrangements, on a case-by-case basis, for the final disposal of confiscated property.” This last clause, which has been the subject of discussions between


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Unclaimed assets in Nigeria are valued in the hundreds of millions of dollars.

States Parties involved in UNCAC for several years,26 opens the possibility for PtP foundations to be established as a mechanism for the return of stolen assets.

Step 4: Fashioning a procedure for monitoring implementation of the settlementIn stolen asset restitutions, it is rarely the case that the implementation of the agreed-upon settlement will happen automatically. Money is simply too fungible and government budgetary systems too cumbersome and porous to allow for such optimistic assumptions. Rather, Requested Countries may insist on elab-orate monitoring to ensure that what actually happens is in even reasonable accord with the agreed outcome. This was the case of the BOTA Foundation in Kazakhstan, where the World Bank brokered negotiations among the U.S, Swiss and Kazakhstan governments, developed a framework for BOTA’s op-erations, and then actively monitored BOTA’s technical and financial perfor-mance, including monitoring all meetings of the BOTA Board.27 Prior to BOTA, the World Bank, as well as CSO members of the Nigerian Network on Stolen Assets, actively monitored the 2005 return from Switzerland to Nigeria of more than $500 million stolen by Sani Abacha from 1993 to 1998.28 More recently, in 2016 an agreement was signed between Nigeria and Switzerland to return another $321 million of Abacha loot, with the stipulation that the World Bank will monitor the use of these funds.29 The Swiss themselves also have a track record of using their foreign assistance agency to monitor returns from Switzerland. Representatives of the Swiss Agency for Development and Cooperation (SDC) monitored BOTA’s work, and two other returns valued at $64 million from Swiss banks. As in the case of BOTA, the latter funds were held in a Swiss bank ac-count and drawn down as needed, with SDC monitoring that the funds were being used for valid development projects.30

The Recovery Process for Dormant Assets The same basic three steps that apply to stolen assets—(1) discovery; (2) gaining legal access to; and (3) capturing for social reuse—also apply to dormant assets, though with important twists.

Step 1: DiscoveryAs noted above, banks, investment firms, insurance companies, and government agencies often find themselves in possession of valuable assets that belong to another company, government or person who has never received or claimed them. Such dormant, or abandoned assets, take many forms, including:

a) Bank accounts of individuals who have died intestate, i.e., without a will;

b) Unemployment benefits paid but never claimed by individuals working in a country other than their home country, making application and access difficult, particularly if the claimants have returned to their home coun-tries and are unable to travel back to go through often-cumbersome application procedures;

c) Unclaimed stocks, bonds and other investments left in investment ac-counts by living or dead persons;



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d) Unclaimed retirement benefits left to individuals and forgotten, or to widows or children of deceased retirees without their knowledge;

e) Bankruptcy claim settlements; and

f) Unclaimed dividends, interest on bank accounts, or tax refunds.

A first step in the discovery process for abandoned assets is an internet search to get available information on the laws, rules, and regulations (if any) in the country of interest, and any details on the value of such assets on a category by category basis (e.g., abandoned bank accounts, pensions, etc.). Some countries, such as the U.S. and various English Commonwealth jurisdictions, have unclaimed property laws that require the holders of these unclaimed or dormant financial assets to file annual reports that include the name and last known address of the rightful owners of these funds and to remit such funds to a designated government agency after a specified period. Countries such as Australia, New Zealand, Canada, the United Kingdom, the Cayman Islands, and the Bahamas have new or mature unclaimed property laws that impact individuals and corporations that operate or transact in these jurisdictions. In the U.S., the use of abandoned assets is determined on a state-by-state basis.

More and more countries are expected to regulate such assets as governments seek to control and use the significant funds available from dormant accounts as a new source of revenue in lieu of introducing new taxes. Governments are often viewed as a preferred custodian of information on these funds operating in the interests of their citizens and taxpayers.31

However, many countries still lack such laws and these funds remain invisible within the businesses or agencies that hold them, falsely boosting the apparent asset bases of these institutions and permitting the institutions to earn interest or other revenue from them. If there are no applicable laws or readily available infor-mation, discovery could entail making inquiries to the media, or engaging NGOs or research agencies that can solicit information directly from banks and other financial institutions or from official bodies with responsibility for bank regulation, such as the ministry of finance or specialized bank of insurance company regu-latory agencies. Information on unclaimed unemployment insurance payments may be available from government unemployment insurance agencies or Labor Departments; unclaimed retirement benefit information may be available from government retirement benefit agencies or from comparable private companies or nonprofits that manage retirement benefits. In some countries specialized non-profit organizations or legal firms have emerged to assist individuals in identifying such assets. For example, UnclaimedBenefits.co.za is a free service dedicated to enabling former contributors to South African retirement funds to receive their share of the US$4.5 billion in unclaimed benefits or unpaid surplus monies due to them.

Where it is not possible to reunite dormant assets with their rightful owners, there is a strong argument that the assets should be used for good causes and public benefit.

~ UK Dormant Asset Commission, 2017

https://unclaimedbenefits.co.za/


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Step 2: Freeing the assets for social reuse Since dormant assets are legally still owned by the absent depositor or recipient, legal action is normally necessary to retrieve them for social reuse purposes. As noted earlier, a number of countries—but by no means all—have established legal procedures for claiming such assets and moving them from the private financial and other companies currently in control of them into some alternative structure.

• In the U.S., for example, these laws are typically at the state level and states have considerable discretion in deciding at what point the assets become available for social reuse.

• In Israel, a special office of Custodian General has been established. By law, the Custodian-General may transfer property to state ownership after 15 years if owners cannot be found. In the past two years, NIS 10 million worth of dormant accounts has gone to the Treasury, while an undisclosed amount has gone to the Israel Lands Administration.

• In the UK, a group of foundations established an Unclaimed Assets Commission in 2005 that solicited assistance from banks and building societies to report on unclaimed assets they were holding. This ultimately led to a determination by the Ministry of the Treasury to set a target of fifteen years as the period of time beyond which assets could be declared “dormant.” At the end of such a period, banks and building societies were encouraged to turn such funds over “voluntarily” to an independent “re-claim fund” to be managed and directed to social reuse. This was ultimately captured in a government consultative document issued by the Ministry of Treasury in 200732 and ultimately in a Bank and Building Societies Law in 2008.33 Under the law banks were to make energetic efforts to locate the rightful owners of the funds before transferring these funds to the reclaim fund. This, in turn, sparked the emergence of a number of consultancies offering to help citizens locate such funds.

A second Independent Dormant Assets Commission was subsequently created in 2016 to repeat this process with regard to investment, insurance, and retirement funds. This Commission identified an additional £2 billion of dormant funds, including £715 million from investments and wealth management, £550 million from the pensions and insurance sectors, £150 million from securities, and an additional £140 million from banks and building societies.34 A final report of the Commission described how these funds were identified and how the existing asset administration scheme should be modified to incorporate the additional types of assets.

• Unclaimed assets in Nigeria are valued in the hundreds of millions of dollars. Part of these unclaimed funds are attributable to the 2014 regu-lation requiring that all bank accounts have a Bank Verification Number as a way of checking for suspicious ownership and fraud.35 About US$250 million, according to Nigeria’s Securities and Exchange Commission, are from unclaimed dividends from securities.36 In 2015, Nigeria’s Central Bank developed guidelines for treatment of dormant bank accounts, which at this point do not require that the funds be forfeited to the state or used for any social purpose.37

• In Kenya, dormant assets are transferred to the Government’s Unclaimed Financial Assets Authority, which is mandated to obtain unclaimed financial assets from holders of such assets on behalf of the Government, safeguard and return the assets to their rightful owners.38

Where such laws, regulations and government bodies do not exist to capture and administer dormant and abandoned assets, NGOs can develop education and advocacy campaigns to inform the public and decision makers about: the potential



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value of dormant assets in banks, insurance companies, pensions, etc.; the way that other countries have promoted the social reuse of dormant and abandoned assets; and examples of uses for such assets that are specific to the problems of that country, including establishing a PtP-type foundation to address these problems.

Step 3: Establishing appropriate social reuseThe rationale for social reuse of stranded assets is well-articulated in the 2017 Report of the UK Dormant Asset Commission: “Where it is not possible to reunite dormant assets with their rightful owners, there is a strong argument that the assets should be used for good causes and public benefit.”39 While many country laws place these assets into government hands, governments have considerable discretion as to what becomes of them. In a number of cases, however, countries have been persuaded to use these assets in more creative and powerful ways than dumping them into general government budgets, and in a number of cases charitable foundations or other similar instrumentalities have been the chosen instrument. For example:

• 47 states in the U.S. have created Housing Trust Funds that are dedi-cated to providing funding for the construction, acquisition, and preser-vation of affordable housing and related services to meet the housing needs of low-income households.40 In addition to revenue from various real estate taxes and fees, many states use assets from unclaimed accounts to capitalize these funds. Arizona, for example, uses unclaimed assets to add $2 million a year to its housing trust fund, which has almost doubled in size over the last few years.41

• In North Carolina, a portion of unclaimed assets and interest earned from them is transferred from the Unclaimed Property Fund (also called the Escheat Fund) to the North Carolina State Education Assistance Authority (SEAA).42 This body provides loans and grants to North Carolina students attending state-supported colleges and universities. In 2016, $5 million from interest earned and $32.2 million from the principal of the Escheat Fund was sent to SEAA, resulting in educational grants to more than 75,000 students. Additionally, in 2015, the North Carolina government mandated that $16.3 million of additional principal from the Escheat Fund go to the State Board of Community Colleges, and $6.5 million to the Department of Military and Veterans Affairs to provide educational assis-tance for needy and worthy students.43

• With the passage of the special Bank and Building Societies Law, the UK in 2008 mandated that money from dormant bank and building society dormant accounts should be voluntarily transmitted by banks and building companies to a “Social Investment Wholesaler.” Three years later, a sizable PtP foundation was created, called “Big Society Capital,” and mandated to receive upwards of £400 million in such assets, with an ad-ditional £50 million each contributed by four major UK banking networks. Big Society Capital is dedicated to supporting innovative, market-ori-ented solutions to social and environment problems by providing capital to social investment finance intermediaries (such as fund managers or specialist banks) that in turn provide finance and support to charities and social enterprises. Since it started in 2012, Big Society Capital has invested more than £250 million in specialist organizations which, in

In countries such as Kenya and Nigeria, where there are structures to administer dormant assets but no provisions for their social reuse, education and advocacy campaigns could be developed.


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turn, lend to charities and social enterprises. Over five years Big Society Capital will be capitalized with approximately £600 million from a combi-nation of English dormant bank accounts and the four main UK banks.44

• In countries such as Kenya and Nigeria, where there are regulations and structures to administer dormant assets, but there are no provisions for their social reuse, education and advocacy campaigns could be de-veloped to convince the public and lawmakers about the need for moving towards a “UK approach” towards the collection and distribution of such assets for social reuse purposes.

The Recovery of Assets from Corporate Penalties The recovery of assets that arise from settlements of cases of corporate neg-ligence, accidents, or violation of laws follows a similar pattern of discovery, freeing for use, and determination of social reuse as the types discussed previ-ously, but, again, with their own distinctive forms.

Step 1: DiscoveryCases involving corporate violations of civil or criminal laws can arise in a va-riety of areas including those related to corruption, environmental protection, workplace health and safety, discrimination, money laundering, restraint of trade, or negligence. In each of these, courts may impose financial fines to be paid to the government and/or negotiate settlements in which the companies can be required to pay penalties to affected parties or engage in other ameliorative activities.

As noted above, the fines and settlements resulting from such cases can be in the hundreds, or even billions, of dollars. Oftentimes settlements are reached prior to conclusion of a case as companies and governments mutually agree not to go through the time and effort required to litigate a case to conclusion with the attendant risk of larger fines and possible prison terms for corporate officials. Impressive settlements can also result from decisions of regulatory authorities against companies for illicit behavior where settlements have not yet been reached. The 2016 fine against two Brazilian companies, Odebrecht and Braskem, of at least US$3.5 billion for bribing public officials worldwide in exchange for contracts, is a recent example of the potential magnitude of capital often involved in such settlements.45 Especially important for our pur-poses here, such fines or settlement payments have, in the past, been used on occasion to seed sizable charitable foundations. The recently-established Renova Foundation in Brazil and the Foundazione Ambiente in Italy are just two examples of this possibility. By calling attention to this possibility, the PtP concept can help make this outcome more widespread.

The discovery process in cases of corporate misdeeds normally begins with the regulatory officials responsible for the relevant area of corporate activity. This could be a bank regulatory agency in the case of money-laundering, an environ-mental agency in the case of environmental harms, and agencies responsible for worker’s rights, food safety, antidiscrimination, consumer protection, and other areas where such regulatory authorities exist. Citizens can also bring cases against companies under so-called tort law, which requires that they demonstrate that the companies have acted negligently.

Fines or settlement payments arising from corporate misdeeds have on occasion also been

used to seed sizable charitable foundations.



40

In many countries, of course, no such regulatory bodies exist. Even where they exist, moreover, the relevant officials may not be diligent in pursuit of their duties. In such situations, the discovery of misdeeds becomes the responsibility of the media, civil society groups, or activist lawyers. In the case of the latter, the mo-bilization of legal attention often depends on the existence of provisions allowing so-called “class action” or “group cases,” in which groups of individuals bring legal suits. This is so because the harms caused by many such environmental or consumer fraud infractions are spread widely across populations, with no single consumer or environmental victim affected substantially enough to warrant going to the cost of bringing a legal case on his or her own. By assembling and suing on behalf of an entire “class” or “group” of affected persons, lawyers can ensure that the resulting settlements will be large enough to cover the costs of bringing a case in the first place.46

Step 2: Freeing assets for potential social reuseAs with stolen assets, penalties for corporate misdeeds must be formally liti-gated. Such litigation follows normal legal procedures in the jurisdiction in which the initial harm occurred or where those affected may reside. Typically, this can frequently be handled through a variety of legal mechanisms—such as medi-ation, arbitration, or actual legal trial, either civil or criminal. All of the three broad categories of legal action require some very basic preconditions:

• First, there must be evidence of some “harm,” for which a remedy is being be sought, and those bringing the case—whether it be an admin-istrative agency or a private interest—must provide sufficient evidence to convince either the arbitrators or a jury or a judge that the harm was substantial.

• Second, the person or entity initiating the case must have “standing” to do so. This requires that the entity must have the legal authority to prosecute the case or must be a person or persons who actually experi-enced the harm claimed.

• Third, there must be a showing that the defendant was responsible for the harm.

• Finally, there must be proof that the harm was caused by the negli-gence of the defendant and not by any other cause, such as a simple accident, an act of nature, or some contributory action of the litigant (e.g. a smoking habit of the accuser who knowingly smoked too heavily and became a victim of cancer).

All of these points must be proved either in the arbitration or the legal case. Settlements can also be reached before a case goes all the way to a decision by a judge of jury. Indeed, it may never reach the point of an actual trial but can be suspended in mid-course either because the judge decides that the evidence is too circumstantial to warrant going to trial, or because the defendant decides that there is a strong enough probability that it could lose at trial and is therefore willing to reach a settlement that can avoid the cost and adverse publicity of a trial. At this point, a negotiation can ensue between those bringing the charges and the defendant over an appropriate resolution. These dynamics make clear why advocates of PtP solutions need to raise this option early in the process.


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Step 3: Fines, settlements, and settlement monitoringDepending on the nature of the topic, and the law under which these cases are brought, cases involving corporate misdeeds can lead to any of a combination of fines, settlements, and even imprisonment. Defendants typically prefer set-tlements to fines since the fines generally go to governments whereas the set-tlements can sometimes bring the defending companies positive publicity. This was the case, for example, in the $20 billion settlement of the case against BP for its disastrous Deepwater Horizon oil rig explosion off the U.S. Gulf Coast. BP was required to engage in significant expenditures for environmental restoration and heavily publicized its environmental commitments without being required to mention that it was cleaning up a mess that its negligence had produced.

Corporate misdeed cases do not end with the announcement of a legal set-tlement, however. Experience has shown that important changes can occur in the actual implementation of such settlements, and often not in directions of benefit to advocates of effective social reuse of the assets. Indeed, this is one of the major reasons why establishing independent foundations to handle the settlements makes sense. Companies that have engaged in misdeeds are often not the best stewards of the resources the settlements generate. Accordingly, continuous monitoring of the implementation steps on the part of advocates will continue to be needed.

Illustrative of this need is the case of the settlement in the 2013 Rana Plaza building collapse disaster in Bangladesh’s capital city of Dhaka, which killed more than 1,100 people and seriously injured thousands more.47 Several global companies, such as Walmart and J.C. Penny, that had garments made at that facility agreed to fund safety upgrades and international-standard inspections at other textile factories over a five-year period that ends in 2018. A recent report indicates that while many facilities have been improved with new sprinkler systems and fire escapes, there is still much to be done, and responsibility for future safety inspections after 2018 will default to an inspectorate in the Bangladeshi government—the same inspectorate that was responsible for safety checks before the Rana building collapse—giving rise to fears that the same pattern of corrupt payoffs to evade penalties for safety violations will recur.48 If the settlement funds had been used instead to establish an endowed PtP-type foundation that operated programs and activities dedicated to worker safety, then an enduring worker safety improvement solution would more likely have been in place today.

Endnotes

1 In the case of the BOTA Foundation, for example, the stolen assets were discovered in the course of legal proceedings under the U.S. Corrupt Practices Act against an individual who served as the agent for three oil companies was accused of bribing officials in a variety of countries abroad to secure oil drilling rights. See: Bornstein with Salamon, (2016).2 Melissa Mittleman, (September 12, 2014), “The Resource Curse,” Bloomberg.3 Courtney Work, (May 28, 2016), “Putting Cambodian Corruption into Context,” East Asia Forum.4 See: Leslie Schaffer, (September 1, 2016), “What’s a few missing billions among friends: Why Malaysia 1MDB scandal might not dent US ties,” CNBC.5 Frances Robles, (June 28, 2017), “Colombian Anticorruption Official is Arrested in Bribe Case,” New York Times.6 Neil Fowler, (May 13, 2014), “How to Fight Corruption,” The Guardian. 7 The UN Convention Against Corruption, Articles 54 and 55, lays out the procedures for international coopera-tion in the freezing, seizure and confiscation of assets suspected of being derived from corruption. 8 Larissa Gray, et. al., (2014), Few and Far: The Hard Facts on Stolen Asset Recovery (Washington, DC: World Bank and OECD).

https://www.bloomberg.com/quicktake/resource-curse

http://www.eastasiaforum.org/2016/05/28/putting-cambodian-corruption-into-context/

http://www.cnbc.com/2016/09/01/whats-a-few-missing-billions-among-friends-why-malaysia-1mdb-scandal-might-not-dent-us-ties.html

http://www.cnbc.com/2016/09/01/whats-a-few-missing-billions-among-friends-why-malaysia-1mdb-scandal-might-not-dent-us-ties.html

https://www.nytimes.com/2017/06/27/world/americas/colombia-anticorruption-official-is-arrested-in-bribery-case.html

https://www.theguardian.com/global-development-professionals-network/2014/may/13/anti-corrutpion-agencies-transparency-tactics

https://star.worldbank.org/star/publication/few-and-far-hard-facts-stolen-asset-recovery



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9 See: Basil Institute on Governance, International Centre for Asset Recovery.10 See: Stolen Asset Recovery Program, “About Us.”11 See: Stolen Asset Recovery Program, “StAR Corruption Cases Search Center.”12 Joe Palazzolo, (February 7, 2011), “DOJ’s Kleptocracy Unit Unveiled,” Wall Street Journal Corruption Cur-rents Blog. 13 Gretta Fenner Zinkernagel, Pedro Gomes Pereira, and Francesco De Simone, (2014), “The Role of Donors in Recovered Assets,” International Center for Asset Recovery Working Paper No. 17; Parliament of the UK International Development Committee, (2012), “Supplementary written evidence submitted by The Department for International Development (DFID).”14 Sandrine Giroud, (2011), “Swiss Government Freezing of Egyptian Assets: The Swiss Practice Regarding Assets of Politically Exposed People of Presumed Illicit Origin,” International Enforcement Law Reporter 27(4); Rita Adam, (December 2012), “Innovation in Asset Recovery - The Swiss Perspective,” The World Bank Legal Review; Open Society Justice Initiative, (July 2015), “Repatriating Stolen Assets: Potential Funding for Sustain-able Development.”15 See: UN Convention Against Corruption, Article 55, p. 45.16 Economist (May 11, 2013).17 Toussaint (March 2, 2016).18 Jean-Pierre Brun, Larissa Gray, Clive Scott, and Kevin M. Stephanson, (eds.), Asset Recovery Handbook: A Guide for Practitioners, (Washington, D.C.: The International Bank for Reconstruction and Development/The World Bank), p. 9.19 Jean-Pierre Brun, et. al., (2015), Public Wrongs, Private Actions: Civil Lawsuits to Recover Stolen Assets, (Washington, DC: World Bank StAR Initiative).20 Andrew Marshall, (2013), What’s Yours is Mine: New Actors and New Approaches to Asset Recovery, (Lon-don and Washington, DC: Center for Global Development).21 Gerry Ferguson, (2017), Global Corruption: Law, Theory, and Practice, (United Nations Office on Drugs and Crime). 22 Summary here based on Transparency International, Illegal Asset Confiscation FAQs.23 Such settlements in criminal cases are called “plea bargains,” and can include financial arrangements, particularly in corporate cases. Also possible are “deferred prosecutions,” which are not based on judgments but are settlements that allow a company to avoid a conviction, usually by paying money and undergoing a radical reform that is monitored by a reputable law firm.24 See, for example: Aneej Nigeria, (June 8, 2015), “Restitution of Abacha Loot, Who Benefits from the Crime?”, Africa Network for Environment & Economic Justice.25 Vlassis and Gottwald (2008), p. 366.26 Most recently, in February 2017, the UNODC-organized “International Expert Meeting on the Management and Disposal of Recovered and Returned Stolen Assets” took up this issue and entertained a presentation on the BOTA case to the 80 international participants.27 Bornstein with Salamon (2016).28 As mentioned above, the findings of the monitoring were not encouraging: a portion of funds could not be accounted for, and construction projects funded with the return were of questionable quality. 29 Some NGOs in Nigeria find this requirement of World Bank monitoring highly insulting to the dignity of the country, and allege that the original amount the Swiss were responsible for returning was US$400m, but the Swiss stipulated that $79m of this amount be given to the World Bank for monitoring the return. See, for exam-ple: Nigerian Insider News, (December 10, 2016), “$400M ABACHA LOOT: Buhari agrees to pay Swiss GOVT $79 million,” The Nigerian Insider News.30 Open Society Justice Initiative (July 2015).31 Independent Advisory, a South African firm specializing in recovery of dormant assets. 32 UK Ministry of the Treasury, (March 2007), “A UK Unclaimed Assets Scheme: A Consultation.”33 The Guardian, (April 15, 2009), “Factsheet: Reclaiming money in a dormant account,” The Guardian.34 UK Government press release, (March 3, 2017), “£2 billion boost set to transform charity and voluntary sector funding.”35 Samuel Ogundipe, (November 2, 2016), “Billions left in Nigerian Banks,” Premium Times. 36 Premium Times, (January 12, 2016), “90 Billion Naira Dividends Unclaimed by Investors,” Premium Times.37 Central Bank of Nigeria, (October 7, 2015), “Circular to All Banks and Other Financial Institutions: Guidelines on the Management of Dormant Accounts and Other Unclaimed Funds by Banks and Other Financial Institu-tions in Nigeria.” 38 See: Unclaimed Financial Assets Authority of Kenya.39 Commission on Dormant Assets, (March 2017), “Tackling Dormant Assets: Recommendations to benefit investors and society.”

https://www.baselgovernance.org/theme/icar

http://star.worldbank.org/star/about-us/our-vision

http://star.worldbank.org/corruption-cases/?db=All

http://blogs.wsj.com/corruption-currents/2011/02/07/dojs-kleptocracy-unit-unveiled

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https://www.baselgovernance.org/sites/collective.localhost/files/publications/wp_17_the_role_of_donors_in_ar.pdf

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http://www.publications.parliament.uk/pa/cm201213/cmselect/cmintdev/130/130we14.htm

http://www.lalive.ch/data/publications/2011-SGI-IELR-Swiss_Government_Freezing_of_Egyptian_Assets_The_Swiss_Practice_Regarding_Assets_of_PEP.pdf

http://www.lalive.ch/data/publications/2011-SGI-IELR-Swiss_Government_Freezing_of_Egyptian_Assets_The_Swiss_Practice_Regarding_Assets_of_PEP.pdf

https://www.eda.admin.ch/content/dam/eda/en/documents/aussenpolitik/finanzplatz-wirtschaft/Rita-Adam-Legal-Innovation-and-Empowerment-for-Development-World-Bank-Legal-Review.pdf

https://www.opensocietyfoundations.org/briefing-papers/repatriating-stolen-assets-potential-funding-sustainable-development

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https://star.worldbank.org/star/publication/public-wrongs-private-actions

http://www.cgdev.org/publication/what%E2%80%99s-yours-mine-new-actors-and-new-approaches-asset-recovery-global-corruption-cases

https://track.unodc.org/Academia/Documents/GlobalCorruptionBook-FullVersion.pdf

http://www.confiscation.eu/faq

http://www.aneej.org/restitution-of-abacha-loot-who-benefits-from-the-crime/

http://www.aneej.org/restitution-of-abacha-loot-who-benefits-from-the-crime/

https://www.unodc.org/unodc/en/corruption/addis-egm-2017.html

https://www.unodc.org/unodc/en/corruption/addis-egm-2017.html

http://www.thenigerianinsidernews.com/400m-abacha-loot-buhari-agrees-to-pay-swiss-govt-79-million

http://www.thenigerianinsidernews.com/400m-abacha-loot-buhari-agrees-to-pay-swiss-govt-79-million

http://www.corprecover.co.za/

,http://webarchive.nationalarchives.gov.uk/20100407185203/http://www.hm-treasury.gov.uk/d/consult_unclaimedasset200307.pdf

https://www.theguardian.com/money/2008/jul/30/banks.savings

https://www.gov.uk/government/news/2-billion-boost-set-to-transform-charity-and-voluntary-sector-funding

https://www.gov.uk/government/news/2-billion-boost-set-to-transform-charity-and-voluntary-sector-funding

http://www.premiumtimesng.com/news/top-news/214350-bvn-billions-left-unclaimed-nigerian-banks.html

http://www.premiumtimesng.com/business/business-news/196647-n90-billion-dividends-unclaimed-by-nigerian-investors-securities-commission.html

https://www.cbn.gov.ng/out/2015/fprd/qdar-circular%20on%20aormant%20account.pdf



https://www.ufaa.go.ke/

http://www.gov.uk/government/uploads/system/uploads/attachment_data/file/596228/Tackling_dormant_assets_-_recommendations_to_benefit_investors_and_society__1_.pdf

http://www.gov.uk/government/uploads/system/uploads/attachment_data/file/596228/Tackling_dormant_assets_-_recommendations_to_benefit_investors_and_society__1_.pdf


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Bornstein and Salamon • How to Apply PtP to Stolen or Stranded Assets40 Mary E. Brooks, “State and Local Housing Trust Funds,” National Low-Income Housing Coalition.41 Mary E. Brooks, (2014), “Housing Funds to the Rescue,” (Housing Trust Fund Project of the Center for Com-munity Change).42 See: North Carolina Department of State Treasurer, “About the NC Cash Program.”43 North Carolina Department of State Treasurer, (2016), “Annual Report FY 2015-2016.”44 Investments made by Big Society Capital fall into four broad categories: a) specialized theme funds for specific outcomes in areas such as health or social care; b) general funds to increase the supply of capital to social organizations working on the “frontlines”; c) social impact bonds for financing payments to orga-nizations that achieve desired results in different social areas; and d) support to intermediary organizations that help other non-profit organizations in areas such as performance measurement and fundraising. See Big Society Capital, “Frequently Asked Questions.”45 The fine was arranged via a plea bargain accepted by authorities in Brazil, Switzerland, and the U.S., and was the biggest ever international foreign bribery resolution. See: Jake Plenderleith, (January 6, 2017), “Brazil-ian firms receive largest ever foreign bribery fines,” International Compliance Association Insights Blog.46 On the use of class action in consumer and environmental cases, and the law of “tort” under which many consumer cases are brought in common law countries, see: Peter Shuck, (2002), “Tort Law,” in Lester M. Sal-amon, (ed.), The Tools of Government: A Handbook on the Tools of Government, (New York: Oxford University Press). 47 Julhas Alam and Farid Hossain, (May 13, 2013), “Bangladesh collapse search over; death toll 1,127,” Asso-ciated Press.48 Gillian White, (May 3, 2017), “What’s Changed Since More Than 1,110 People Died in Bangladesh’s Factory Collapse?”, The Atlantic; Associated Press, (May 23, 2013), “Bangladesh factory collapse blamed on swampy ground and heavy machinery,” The Guardian.

http://nlihc.org/sites/default/files/2014AG-277.pdf

http://www.housingfinance.com/finance/housing-trust-funds-to-the-rescue

https://www.nctreasurer.com/Claim-Your-Cash/about_the_nc_cash_program/Pages/default.aspx

https://www.nctreasurer.com/inside-the-department/Reports/NCDST_Annual_Report_FY2015-2016.pdf

https://www.bigsocietycapital.com/faqs

https://www.int-comp.org/insight/2017/brazilian-firms-receive-largest-ever-foreign-bribery-fines/

https://www.int-comp.org/insight/2017/brazilian-firms-receive-largest-ever-foreign-bribery-fines/

http://www.yahoo.com/news/bangladesh-collapse-search-over-death-toll-1-127-122554495.html

https://www.theatlantic.com/business/archive/2017/05/rana-plaza-four-years-later/525252/

https://www.theatlantic.com/business/archive/2017/05/rana-plaza-four-years-later/525252/

https://www.theguardian.com/world/2013/may/23/bangladesh-factory-collapse-rana-plaza

https://www.theguardian.com/world/2013/may/23/bangladesh-factory-collapse-rana-plaza


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While the logic of PtP applications to the cases of stolen, dormant, or penalty-based assets is often compelling, and numerous cases of such applications have now been documented, it is only very recently that PtP has been articulated as a concept that can be promoted pro-actively. A significant dissemination challenge consequently faces those who would seek to encourage adoption of this concept to on-going or future cases of stolen, stranded, or penalty-based assets. How can this best be done? Based on prior experience, a number of key lessons have emerged.

Lesson 1: Introduce the PtP Option EarlyAlthough PtP has a long history stretching back to at least 1960 when the privatiza-tion of the Volkswagen Company in Germany led to the creation of the Volkswagen Foundation, it remains a new concept. Even those inclined to embrace the con-cept may therefore need time to become accustomed to it. This argues for early introduction of the concept to potential stakeholders in the arenas where the three types of assets discussed here—stolen assets, dormant assets, and penalty-based assets—can be found. This can usually include officials in national or local minis-tries or departments of justice, litigation personnel in areas as disparate as money laundering and environment protection, civil society groups active in these spheres, and media figures.

Lesson 2: Shape the PtP Promotion Effort to the Specific Asset ClassWhile the three types of stranded assets discussed here involve similar processes, there are also some important differences that affect the steps that advocates must take to boost the chances for successful PtP outcomes.

How Can PtP be Applied to the Restitution of Stolen, Dormant, or Penalty-based Assets?

PART IV

A common approach to how stolen assets should be returned has yet to emerge.


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The UN Convention Against Corruption was deliberately vague about what entity or entities

should receive returned stolen assets.

PtP and stolen assetsAs noted above, the 2005 UN Convention Against Corruption (UNCAC) estab-lishing a set of international principles for asset confiscation and ultimate re-covery articulated an important guiding “obligation to return” confiscated assets to the countries from which they were taken.1 Governments often try to interpret this provision to mean “return to the government.” In fact, however, as noted ear-lier, Article 57 of the UNCAC was deliberately vague about what entity or entities in the Requesting Countries should become the recipient of such returned as-sets. With respect to only one class of such assets—those resulting from embez-zlement of state-owned property—did Article 57 mandate that the return should be “to the State victimized by the embezzlement.” But even here, the Convention stipulated that the return should be determined on a “case-by-case” basis that takes account of “case-specific circumstances or additional arrangements be-tween specific states.”2 More generally, as one group of experts has observed, “a common approach to how [stolen assets] should be returned has yet to emerge.” Rather, Article 57, para. 5, opens the door for negotiated agreements on restitu-tion rather than forcing unconditional return to the Requesting government.3

Given this circumstance, it seems evident that the way is legally clear for advo-cates to bring the PtP option into the case-by-case deliberations that are likely to occur in almost every stolen or stranded asset repatriation episode—and indeed to bring it into the discussion as soon as such assets are identified. Many such cases can be expected to be settled prior to concluding judgments, and this is true regardless of whether the case has been brought under a criminal, civil, or NCB Forfeiture proceeding. Such settlements create far more openings for the PtP option, though it also makes it all the more urgent to introduce this option early in the process.

While this option can prove relevant in any of a number of situations, there are certain circumstances where it can be particularly opportune. Such circum-stances are most likely to occur where the following features are present:

• Where “the capacity for the transparent and effective management of the returned funds may be limited in the Requesting Country;”4

• Where “corruption levels remain high and governance is weak;”5

• Where budgetary transparency is limited;

• Where political leaders want to attract foreign direct investment and need to improve the country’s anti-corruption reputation;

• Where long-term, concentrated attention is needed on major social, envi-ronmental, scientific, or educational problems;

• Where current government leaders have close ties to the individuals or



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political forces responsible for the corruption and may see in the PtP op-tion a win-win way to turn a public relations disaster into a positive devel-opment for their governments, their citizens, and their long-term political prospects;

• Where civil society groups have been particularly active and helpful in calling attention to the stolen assets and in pushing for their restitution and return, but are not favorably disposed to having them returned to the state;

• Where citizen confidence in government is strained; and/or

• Where governments in the countries in which the stolen assets are housed have, or can be convinced to have, laws or political circum-stances that make them wary of returning the assets into the hands of existing authorities.

The biggest barrier to such outcomes may therefore not be the legalities of the UNCAC agreement but the lack of awareness on the part of key civil society and other groups in the countries where the corruption has taken place that such litigation is under way, or that the PtP option is available. This is understandable enough since such legal cases often stretch out over years. This suggests the need to increase awareness of the PtP option among litigators of these cases and to provide a capacity for ongoing monitoring of the pending cases among civil society groups.

PtP and penalty-based assetsSimilarly, cases brought against companies for violations of the corrupt practices acts that many countries have now adopted, or for violations of environmental, consumer protection, anti-money laundering, and other laws offer ripe cases for the application of PtP solutions. As noted earlier, such cases frequently end in fines paid to the governments whose laws have been violated, and sizable finan-cial settlements that go for efforts to help solve the kinds of problems to which the corporate misdeeds might have contributed. PtP foundations can be much more reliable stewards for such settlement resources and advocates can usefully make the case for this option early in the litigation process—preferably before settlement discussions begin, and certainly as such discussions begin.

Because these cases arise in a wide variety of different fields, neither official government litigants nor civil society activists involved in generating the cases are often aware of the PtP option. As a consequence, this option is frequently not raised early enough in the litigation process to affect the results. Waiting until set-tlement discussions begin may be too late. This argues again for more focused attention to such cases on the part of civil society organizations committed to building indigenous charitable institutions, and greater dissemination of the PtP concept to legal authorities and civil society groups likely to be involved in such litigations.

To help facilitate this, case studies of some of the existing foundations that have


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emerged from such PtP transactions, such as the Hudson River Foundation and the Virginia Environmental Foundation in the U.S., or the Renova and Fundazione Ambiente foundations in Brazil and Italy, respectively, are being pur-sued by the PtP Project.

PtP and dormant assetsIn the case of dormant assets, the application of the PtP option will depend on the status of the dormant asset issue in the country. Where laws on the disposi-tion of stolen assets exist, advocates of the PtP option can usefully assess how fully the existing laws are being enforced, how broad the coverage of these laws are (e.g. do they cover only banks but not retirement, unemployment, or invest-ment funds), and what is being done with the resulting assets. To the extent that the proceeds are hard to trace or that they are not being put to the highest or best use, or that the coverage of the legislation is too limited, efforts should be made to publicize this result and engage the authorities in charge of the imple-mentation of these laws to consider a PtP option. This can be done either by establishing a new private PtP foundation—perhaps one dedicated to improving financial literacy on the part of all citizens—or establishing a dormant asset fund in an existing community foundation.

Where no laws on dormant assets exist, civil society groups may need to un-dertake research on the scope of such assets in various financial institutions, retirement funds, or investment funds. In the UK, foundations provided resources to support such inquiries. With these data, advocates can launch media cam-paigns and seek political support for laws to handle such assets—with the option of creating a foundation to serve as the steward of the resulting funds prominent among the options proposed and considered. As part of the process, procedures would need to be put in place for verifying that rightful claimants have been given an opportunity to claim such assets but have not come forward within a specified time period.

Lesson 3: Design the PtP foundation to maximize transparency, ensure independence, and avoid conflicts of interestEven where the circumstances favoring adoption of a PtP approach to recovering stolen, dormant, or penalty-based assets are present, however, great care must still be taken to structure the resulting PtP foundation in ways that ensure trans-parency, avoid conflicts of interest, and serve the public interest. This suggests several imperatives in the design and operation of such foundations:

• Priority 1: Safeguarding the funds. The number one priority that must guide the structure and operations of foundations created out of stolen or stranded assets is to safeguard the funds. As noted above, one of the great disappointments in direct return of stolen funds to



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governments has been the difficulty of finding out what happened to the funds. The case for using a foundation mechanism to return stolen or stranded assets is that all monies will be used accountably and trans-parently. A number of critical structural and procedural features will be necessary to achieve this.

g Existing or new foundation? Foundations resulting from the capture of stolen assets are likely to be quite sizeable. The likelihood that a local independent foundation with sufficient financial management capacity to handle such funds will be present in many of the locales where corruption is widespread does not seem great. In the case of the BOTA Foundation in Kazakhstan, a tender was consequently let by the World Bank to identify a reputable international development organization with experience in grant-making to organize and staff a brand-new foundation. The tender evaluated offerors on whether they had both proven systems in place to minimize and mitigate financial loss risk, as well as programmatic expertise to maximize the poten-tial that the funds would be used effectively in the realm of child and youth welfare—BOTA’s area of focus.

gGovernance structure? Foundations are traditionally governed by local Boards of Directors. While care should be given to selecting respected local individuals as well as civil society leaders for the governing board of a PtP foundation, it will likely be necessary—at least in cases of stolen asset recovery—to involve some significant external structure to serve as a check on Board decisions at least for an initial period of time while internal procedures are established and skilled personnel can be trained and tested. In the case of the BOTA Foundation, for example, the governments of the U.S. and Switzerland had seats on the Board and vetoes over its decisions, and the World Bank served as a supervisory body approving expendi-tures and reviewing budgets on a regular basis.

gLocus of the funds? Where the assets of a PtP foundation are housed and how it is doled out are critical issues to determine upfront in the case of PtP foundations, particularly those capitalized with corruption funds. BOTA’s experience proved that housing the assets in a “holding vat” outside the country where the corruption occurred is a workable way to protect these assets from coming under the control of undesirable elements. Similar arrangements to BOTA’s with even more effective asset management could also be imagined—such as housing the assets in another foundation with a history of effective asset management or outsourcing fiduciary responsibility to one of the large international accounting or investment firms that would report to the Board and be responsible for regular financial checks before funds are released. Doling out the funds on an “as needed” basis rather than transferring the whole amount to BOTA was a fun-damental component of the control strategy put in place by the three governments to ensure that all funds were spent for their intended purpose, and could be easily tracked, audited, and halted at any time if any of the conditions in the agreements underpinning BOTA were not followed.


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gAirtight transparency and conflict of interest provisions. PtP founda-tions must develop strong transparency and conflict of interest provisions and procedures as a central part of their operations from the outset. Such provisions need to be included in the foundation’s constitutional and gover-nance documents, and backed up by regular staff and board training and by regular internal and external audits. Such foundations must establish “zero tolerance” policies on corruption applicable to both staff and board members. Grant procedures and decisions must be fully transparent, with decisions made by respected, independent selection committees, and re-sults reported regularly to the press and through social media. The BOTA Foundation had a full-time internal audit specialist on its finance team who was dedicated to examining the integrity of the financial operations of the Foundation’s three programs as well as that of the implementing partners. BOTA’s NGO grants program hired its own financial specialists to conduct due diligence on all prospective grantees; to give them training in budget management, grant accounting and reporting; and to monitor them regu-larly. This monitoring was supplemented by an annual internal audit con-ducted by international professionals from IREX’s Washington office. All of this helped the Foundation prepare for an annual external audit conducted by a World Bank-approved auditing firm, and a semi-annual financial check by the World Bank itself.

More generally, transparency considerations will require that PtP foun-dations make extensive use of a website, social media, corporate maga-zines, press conferences, and other direct interactions with media, as well as annual reports to disseminate information about their activities, values, grantees, beneficiaries, problems being addressed, Board actions, staff salaries, and future plans.

gLimited life vs. perpetuity? Especially useful to establish at the outset is whether the foundation plans to exist in perpetuity or to spend down its endowment over a defined period. If the latter, the foundation should give thought to creating entities and resources that can continue its work over the long run. This will importantly shape the foundation’s programming strategy. This decision will be importantly shaped by the size of the ini-tial endowment, but a number of PtP foundations have demonstrated an ability to attract additional funds from individuals or corporations once they have established a positive reputation and track record. Indeed, this is one of the unique advantages of the PtP option.

• Priority 2: Independence from the host government. Since the cre-ation of PtP foundations as the solution to the restitution of stolen assets to the people of a country is most likely to occur in situations where some serious concerns exist about the transparency and corruptibility of government, finding ways to insulate PtP foundations from government control are likely to rank high in the minds of Requested Countries as they contemplate the design of such foundations. Keeping the endowments of these foundations out of the country as suggested above provides one tier of such assurance. But more direct prohibitions may also be needed. In the case of the BOTA Foundation, the Memorandum of Understanding creating the foundation strictly prohibited “providing the property of the Foundation or funds provided under its programs



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directly or indirectly to or for the benefit of the Government of the Republic of Kazakhstan, its officials, or their personal or business associates.” BOTA was required to get pre-clearance from the Foundation’s governing bodies (the World Bank and the Swiss and U.S. governments) before interacting with gov-ernment structures and officials. Whether such sharp barriers to cooperation will be necessary to maintain in subsequent PtP foundations may well depend on case-by-case circumstances, but some degree of separation is likely to be necessary if only to reassure local citizens and Requested countries.

• Priority 3: Contextually relevant mission and programming. Given the attention likely to be paid to them by both domestic and international observers, PtP foundations need to focus on missions that “make objec-tive sense” in relation to the needs of the Receiving Country and its people. Having an easily understandable mission and vision, well-articulated, and widely recognized as critical to the country and its people can be key to the successful adoption of the PtP option. At the same time, reaching widespread agreement on a mission can be difficult. In some past PtP cases, the choice of a PtP option occurred because of the support of an influential advocate. This was the case, for example, with the formation of the German National Environmental Foundation out of the privatization of a large state-owned German chemical company—an outcome that resulted from pressure brought by an influential Minister of Environment who had been frustrated by the limited resources being made available for environmental protection by the German government. Care should also be taken not to spread the mission too broadly in order to appeal to the broadest array of possible stakeholders. One clever way to avoid this might be to follow the procedure adopted in the creation of the Italian foundations of banking origin, which were established under a law that identified 21 specific possible areas of focus for the 88 such foundations created but required each foundation to identify only a few of these purposes to work on for a period of five years and then to reconsider alternatives at the end of this period.

In the case of assets resulting from the settlement of cases involving corpo-rate misdeeds, it is likely that the objectives of the foundations will need to be related to the source of assets, so that, for example, environmental mishaps would lead to environmental improvements. In stolen asset cases, Requesting governments might prefer to mute somewhat any explicit focus on the origin of the assets that gave rise to the foundation and focus instead on positive outcomes for a country’s citizens achieved through easily-understandable program activities that touch substantial numbers of clearly deserving pop-ulations. Either way, PtP foundations should adopt a “results framework” and a procedure for measuring and evaluating the foundations’ results and performance.

Endnotes

1 Claman, (2008), p. 345.2 Ibid., pp. 349-50. 3 Attisso and Zinkernagel, (2013), pp. 329, 331. 4 Ibid., 331.5 bid., 331


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As noted above, asset recovery must typically follow a rather torturous, and legally constrained, path, whether in the case of stolen or dormant assets or assets arising from settlements of legal cases arising from other corporate misdeeds. For example, in the case of stolen assets or bribes, the assets must first be identified, located, con-vincingly linked to a crime and a perpetrator of that crime, actively pursued by authorities in the country where the crime or bribe occurred, frozen (often in a foreign jurisdiction), brought to trial or pur-sued through a non-con-viction-based forfeiture, and, in many cases, ultimately subjected to a negotiated settlement between the Requesting and Requested governments over the arrangements for any return of the assets to the Requesting Country. Often these cases are settled prior to the conclusion of a trial. In cases where firms choose not to settle, trials of corporations accused of violating national anti-corruption or other laws can be long and involved. Advocates of PtP can access these processes at a number of different points—though the earlier they begin to access the process the better. More specifi-cally, citizen groups or other stakeholders interested in promoting the PtP option in the context of stolen, dormant, or penalty-based assets can usefully pursue the following steps.

PART VWhat Steps can PtP Advocates Take to Encourage PtP Outcomes for the Restitution and Social Reuse of Stolen, Dormant, or Penalty-based Assets?



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Step 1: DiscoveryDetermine if there are significant dormant assets, stolen assets, or assets poten-tially resulting from legal action against companies and/or PEPs or their family members or associates in your country. If so, determine the status of the investiga-tion, the type of offense (e.g., embezzlement of state resources, bribery, violation of criminal or civil laws by companies either in your country or of anti-corruption laws of other countries that might lead to potential penalties and settlements). Also explore possible cases of dormant assets—in banks, insurance company accounts, or retirement and investment accounts.

Possible sources to contact or examine include the following:

a) Any government agency in your country dedicated to anti-corruption activity. This could be a free-standing entity, a part of the Justice or Finance Ministry, or a prosecutor’s office. If so, make contact and determine whether there are any cases being developed, what their status is, and what amounts are involved. Also check with any agency with responsibility for financial disclo-sure laws or bank and insurance matters regarding dormant assets;

b) The World Bank’s StAR asset recovery website;

c) Media accounts of corruption;

d) Nonprofit organizations focusing on rule of law, anti-corruption; and/or

e) Environmental, worker safety, consumer safety agencies or nonprofit groups.

STEP 2: Select optimal candidate case or casesIf there is such activity, decide which of the affected assets might make the best candidate(s) for a PtP solution and find out as much as you can about the actors and assets involved. Key considerations to bear in mind are the following:

a) Is the asset sizable enough to form a reasonable endowment for a founda-tion? As a rule of thumb, an endowment of US$50 million is probably the minimum required—although smaller sums can provide a base to build on.

b) Is there an obvious use for these assets that could attract both popular and governmental support?

c) Is the perpetrator of the corruption still in office or a known close associate or family member of whoever is in power? Would the person in power there-fore have reason to favor an outcome like a PtP foundation that might bring praise to the government and to him or her personally?

d) Is there a pressing crisis or need in the country that requires long-term fi-nancial support that the government does not have the will or the resources to address—e.g., high infant mortality, an environmental disaster, a drug abuse crisis, or a grossly inadequate educational system?

http://star.worldbank.or/corruptioncases/awareness


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e) Is ownership of the target asset in some sense “contested”—between the Requesting and the Requested Countries? Among various claimants to prior ownership of the asset? Between the family of the presumed perpetrator and the Requesting Country government? Among senior political leaders or fac-tions? Between the prosecutors and central government leaders? Between the national government and political leaders of particular regions? Among racial, ethnic, or religious factions? Between political leaders and military or para-mil-itary ones?

STEP 3: Examine prevailing laws and procedures involving foundations and the type of asset involved in the selected caseFamiliarize yourself with the laws on foundations, and on the type of asset you have chosen to focus on (stolen assets, dormant assets, or assets resulting from penalties for corporate misdeeds). In the case of stolen assets, consult the following in addition:

a) The TRACK (Tools and Resources for Anti-Corruption Knowledge) database maintained by the United Nations Office on Drugs and Crime;

b) The major legal provisions governing the recovery of stolen assets in your country and in the country or countries harboring the assets in question;

c) Chapter 5 of the UNCAC;

d) Officials at ICAR and StAR for tips on key features of the asset recovery process;

e) Legal practitioners in your country who focus on anti-corruption matters;

f) The UK reports on the handling of dormant assets cited earlier in the case of dormant assets; and

g) The PtP Project website and PtP personnel at [email protected].

STEP 4: Investigate all facets of the chosen case Familiarize yourself with the status of the recovery efforts in connection with the asset or assets you have decided to focus on.

a) What is currently happening in terms of recovering these assets? Is the inves-tigation starting, in progress, or near conclusion? In the case of stolen assets, has a Mutual Legal Assistance (MLA) request been made to the governments harboring the assets? Have the assets been “frozen?” Is there an active court case under way in your country and/or another country? Are there negotia-tions on-going to return the stolen assets between another country and yours? Have a portion, or all of the assets, already been returned?

http://www.track.unodc.org/

https://www.unodc.org/documents/brussels/UN_Convention_Against_Corruption.pdf

https://www.baselgovernance.org/theme/icar/

http://star.worldbank.org/

http://p-t-p.org/

mailto:[email protected]



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b) Who are the actors involved in trying to recover the money and do they have the resources, technical capabilities, and will to pursue these assets? If not, what can be done to assist them? Explore with respect to: (i) your country’s government; (ii) the governments of countries in which the assets are be-lieved to be harbored; (iii) local civil society groups; (iv) international CSOs interested in anti-corruption efforts (e.g., Transparency International, Open Society, Global Witness, or similar international CSOs); and (v) other interna-tional actors.

c) If there are no current efforts to recover the assets: Why not? Is the case “too new,” and recovery efforts will be begin in the near future? Or is your govern-ment unaware of the loss of assets or not interested in pursuing the case for political reasons? If the latter, develop a strategy for publicizing the situation and generating pressure for attention to the asset and to the PtP option as a key part of the recovery strategy.

STEP 5: Prepare a PtP foundation case statementFormulate a case statement for a PtP foundation in this case—general rationale, pos-sible specific uses for the resources, and basic governance structure. Draft a short, 3-5 page Concept Note indicating how PtP can be fruitfully applied to the asset being targeted and how it can produce win-win outcomes both for communities, the govern-ment, the business community, and civil society organizations.

• Be sure to include arguments that can be persuasive to government (e.g., the fact that PtP solutions to cases of corruption can significantly improve coun-try ratings in political risk rating systems that affect access to foreign direct investments);

• Show how a PtP outcome can be helpful to businesses (e.g., PtP outcomes can help discourage corruption by demonstrating that crime does not pay);

• Emphasize that PtP is not a new concept, that close to 600 cases of charita-ble foundations that have resulted from privatization transactions have been documented, and a number of these have resulted from either stolen assets or assets generated by settlements of cases involving corporate misdeeds.

You can also contact the PtP project via email at [email protected] to secure the Project’s help in developing a strong case statement.

mailto:[email protected]


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STEP 6: Raise awareness within civil society, the media, the business community, government, and the general publicCivil society organizations may already be working on asset return in your country, but they may not be aware of the PtP option. A thoroughgoing awareness campaign will therefore be required to bring them and other stakeholders up to speed.

Governments. In the past, Requesting Countries have pointed to Chapter V, Article 51, of the United Nations Convention Against Corruption (UNCAC), which mandates that the governments of countries where embezzlement has taken place have the fundamental right to receive the assets back and that countries where any embezzled assets have been hidden must cooperate with nations that are seeking the assets’ re-turn (Chapter V, Article 43).1 At the same time, as already noted, this obligation is far from total and UNCAC makes specific provision in article 57 for case-by-case consid-eration of alternative recipients of such funds where circumstances require it. What is more, in other cases of corruption, as already noted, while Requested Countries are strongly encouraged to return corruption proceeds to the Requesting Countries, they are not obliged to return them to the governments. Rather, the two sets of coun-tries are urged to negotiate appropriate return approaches on a case-by-case basis. Through a raft of policy meetings, workshops, and ad-hoc discussions between Requesting and Requested Countries over the last several years a consensus has emerged that “all stakeholders have a considerable interest in ensuring that returned assets are not at risk of being stolen again.”2

These discussions highlight the fact that the UNCAC places equal emphasis not just on the final destination of recovered assets, but that they are used accountably and transparently for productive development purposes. Article 57(5) of the Convention supports the idea that special “mutually accepted arrangements” can be concluded on a case-by-case basis between Requesting and Requested Countries for the final disposition of recovered assets.3 This suggests that Requested countries have considerable leeway in encouraging PtP outcomes as a win-win solution to what are often return dilemmas. PtP advocates can thus usefully be in contact with both their own governments and those of the Requested Countries to articulate the advantages of PtP outcomes and encourage support from their own and foreign governments for the PtP option.

For their own countries, they can:• Call attention to the nearly 600 other cases of successful PtP foundations,

including a number that have secured assets arising from cases of corruption or corporate misdeeds;

• Emphasize how PtP can speed the return of assets for positive development purposes;

• Emphasize the ways in which PtP can make their countries more attractive to foreign direct investment by improving their rankings on political risk rating systems, which give higher risk scores to countries with significant corruption problems; and



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• Seek ideas from government officials about possible desirable program foci for a PtP foundation if one were created using recovered assets.

For Requested Countries, they can:• Emphasize the greater likelihood that returned assets will be used for valid

developmental purposes;

• Note the contribution PtP can provide to future asset recovery efforts by winning civil society and citizen trust in the asset recovery process; and

• Convince counterparts in the Requesting Countries that their own political legitimacy and access to foreign direct investment will be enhanced by working closely with civil society to use part, if not all, of the returned assets to establish PtP foundations.

Media. Broad public awareness of recovered asset efforts that might be under way, and of the PtP option for handling them, can significantly augment the pros-pects for such an outcome. PtP advocates can usefully nurture a couple of media contacts through whom to reach the broader public on stolen asset developments.

STEP 7: Seek outside adviceAdvocates of PtP can usefully reach out to civil society groups in other countries for tips on how to monitor stolen asset and corporate misdeed cases, and how to engage the public in the process. For assistance in monitoring stolen asset cases and promoting the PtP outcome, PtP advocates can usefully make contact with several international organizations active in this field, as well as with several coun-try-specific networks that exist. Not only may these groups be able to offer insights into monitoring processes and ways to engage citizens, but they may also offer leads about sources of funding for such monitoring and citizen awareness activ-ities. Table 4 provides examples of some of these more prominent organizations and their websites. An Appendix at the end of this booklet provides a list of addi-tional useful materials that can be of assistance.

STEP 8: Monitor the stolen asset recovery or corporate misdeeds casesOnce decisions are made about the stolen asset or corporate misdeed cases on which to focus, PtP advocates will need to monitor the progress of these cases carefully and bring the PtP option to the fore on a regular basis. Key issues to watch for are the following:

a) Whether a Mutual Legal Assistance request has been submit-ted to the country harboring the assets or pursuing the misdeed case. While MLA requests are rarely made public, it may be possible to know about these if there are leaks to the media, or if their existence is divulged


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in related legal proceedings. If no MLA request has been issued, advocates should contact government officials to learn why;

b) Whether the assets have been “frozen” in the banks of the Requested Country, and if not, why not;

c) Whether legal proceedings have been started and, if so, through what legal process—criminal conviction, civil action, or non-conviction based forfeiture. Criminal actions are obviously more powerful in conveying the message that “crime does not pay,” but they also face the most severe legal hurdles, which can cause delay. Both civil actions and NCB actions can proceed more expeditiously and are more likely to end in negotiated settlements between Requested and Requesting Countries during which the PtP option can be promoted. Settlements often proceed in private, however, making it more difficult to monitor the proceedings and influence the results. Advocates must therefore be alert to the onset of settlement negotiations under any of these options; and

d) Whether the PtP idea has been broached in the legal proceedings. PtP advocates should not wait until the end of the process to raise the PtP option. This option should be on the table from the very beginning and should continuously be raised as the process unfolds.

STEP 9: Develop and present key design features of the proposed PtP foundationFor the PtP option to gain real traction, PtP proponents must have some concrete ideas about the structure and operation of the foundation or foundations targeted to receive the PtP proceeds, as well as some specific and well-articulated objectives for the programmatic thrust to be advanced with the resources made available.

A useful starting point for developing such design features can be found in the “Principles of Good Practice” for foundations formulated by the European Foundation Centre, as discussed earlier.4 While acknowledging the diversity of foundations and of foundation laws, the EFC nevertheless recommended adherence by all founda-tions to four major principles:

a) Independent governance. PtP foundations must be structured in a way that guarantees an arm’s-length relationship between them and governmen-tal authorities in the host country. This can be achieved by forbidding, or significantly limiting, board involvement by government officials and guaran-teeing, through nomination procedures and by-laws, that board members, however chosen, understand that their primary orientation must be to the care and protection of the foundations and not to the care or support of any organization that may have nominated them. Several examples of how ex-isting PtP foundations have striven to achieve such autonomy can be found in Philanthropication thru Privatization: Building Permanent Assets for the Common Good by Lester M. Salamon.




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b) Professional management. PtP founda-tions must develop the systems and personnel to operate in a professional fashion. This will require the articulation of clear strategic objec-tives and the development of programs and operations in line with these objectives; re-cruitment of personnel with relevant expertise and experience both for the programmatic and investment components of the foundation’s op-erations; and clear engagement of the Board in setting strategic directions and monitoring progress toward achieving them. Experience with the BOTA Foundation suggests that man-agement of the foundation by an international development agency instead of host country nationals may be needed to avoid undue influ-ence from local government officials or other elites.

c) Transparency. To retain public trust, PtP foundations must operate with complete transparency, making their statutes, by-laws, guidelines for funding activities, information on grant programs, application procedures, as well as board and staff lists, annual reports, grant lists, and finances publicly and readily avail-able and accessible. “Sunlight,” it has been said, “is the ultimate disinfectant,” and PtP foundations need to be seen as “squeaky clean.” Also required will be strict conflict-of-interest provisions written into foundation by-laws and op-erating rules to ensure that members of governing boards and staffs do not use these positions to further their personal interests.

d) Accountability. As a corollary to their commitment to transparency, PtP foundations are wise to be proactive in assessing what they are accomplish-ing on a regular basis and reporting on this to their various stakeholders. Regular review of activities and reassessment of strategies should be an on-going function to offer regular feedback to those who stand to benefit from foundation activities.

In addition to these principles articulated by the European Foundation Center, two additional principles can usefully be applied to PtP foundations given their particular origins:

e) Representativeness. The governance structures of PtP foundations not only need to be meaningfully autonomous vis-à-vis government; they also need to be meaningfully representative of the constituencies they are de-signed to serve. As the case studies examined in the PtP report showed, this can be achieved by giving particular constituencies, including civil society bodies, the privilege of nominating candidate representatives to the boards or simply by establishing by-law provisions requiring the inclusion of rep-resentatives of key constituencies or competencies on governing bodies. Also important will be strict terms of office for governing body members and

Key Principles of Good PtP Foundation Practice

1. Independent governance2. Professional management3. Transparency4. Accountability5. Representativeness6. Grantmaking



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regular turnover. These steps will help protect these foundations from being perceived as closed shops controlled by narrow bands of insiders.

f) Grantmaking. Finally, one rationale for channeling all or part of the re-sources from privatization transactions into charitable foundations instead of into government budgets is the impact this can potentially have on strength-ening the civil society sector by providing indigenous sources of support for local not-for-profit organizations. Such organizations have been found to contribute to democratic governance and—because of their contribution to “social capital”—to building the climate of trust that successful market sys-tems require. The experience of several PtP foundations suggests that such foundations can play an important role in fostering effective civil society orga-nizations and sectors—which in turn can boost charitable giving, promote volunteering, and strengthen bonds of trust among people. For this to be possible, however, PtP foundations must operate at least in substantial part through grant programs and other similar support activities open to nonprofit organizations.

Given these overarching guidelines, designers of PtP foundations created out of the proceeds of stolen or penalty-based assets need to address how the foundations they are creating will deal with the following topics:

• Governance arrangements that promote meaningful autonomy from gov-ernment authorities and ensure meaningful community engagement after the transaction is completed.

• Mission statements and programmatic objectives that are coherent and responsive to citizen needs.

• Transparent reporting and grantmaking requirements and strict con-flict-of-interest provisions to provide reassurance that the assets will be protected from corruption and used for valid charitable purposes.

• Recruitment of professional staff and establishment of effective proce-dures for grant management and evaluation.

• Establishment of reliable methods for handling foundation assets and investments. In certain circumstances where corruption is rife, the assets can be housed in one or more banks or investment management firms out-side the country that is home to the foundation and called down in tranches as needed for valid program purposes. As noted previously, this was the procedure utilized successfully in the case of the BOTA Foundation in Kazakhstan,5 and is similar to the Foundation Investment Fund established in the Czech Republic to manage the assets resulting from the government’s commitment of 1% of all major sales of Czech Republic state-owned enter-prises to establish endowments for a number of Czech foundations following the collapse of the Soviet empire.

The PtP Project has secured the cooperation of a number of existing PtP founda-tions to provide the pro-bono assistance of professional foundation managers to help set up the procedures for various facets of new PtP foundation operations.


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STEP 10: Monitor implementation of the resulting agreementStolen asset and corporate misdeed cases do not end with the announcement of a legal settlement. Rather, experience has shown that important changes can occur in the actual implementation of such settlements, and often not in directions of benefit to advocates of effective social reuse of the assets. Accordingly, continuous monitor-ing of the implementation steps on the part of advocates will continue to be needed.

Endnotes

1 United Nations Office on Drugs and Crime, “United Nations Convention against Corruption: Conven-tion Highlights.”2 See, for example, International Centre for Asset Recovery, (2014), “Returning of Stolen Assets: Emerging findings from the Küsnacht Workshop,” (Basel Institute on Governance).3 UNCAC, p. 48.4 Another useful set of principles to guide PtP foundations can be found in Volkswagen Foundation, (2008), “20 Principles of Good Practice.” See also: “Best Practices in PtP Foundation Design and Operation” by Nigel Seiderer at p-t-p.org (forthcoming, 2018).5 See: Bornstein with Salamon (2017).

http://schd.ws/hosted_files/16iacc/68/Policy%20paper%20Kusnacht-final%20DRAFT.pdf

http://schd.ws/hosted_files/16iacc/68/Policy%20paper%20Kusnacht-final%20DRAFT.pdf

http://www.volkswagenstiftung.de/fileadmin/downloads/20_principles.pdf


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Enormous assets are at stake in the struggles to reclaim the proceeds of bribery, corruption, dormant assets, and corporate misdeeds or negligence around the world. These assets could be helping to solve the tragic consequences of poverty, ill-health, malnutrition, infant mortality, economic sluggishness, and environmental degradation in some of the poorest nations in the world. Instead, they are sustaining the often-obscene life-styles of corrupt officials and their families.

Fortunately, efforts are under way to locate these assets, freeze them, and convert them to effective social and environmental reuse. Unfortunately, so much effort has had to be put into the basic discovery process that attention to the mechanisms for getting these assets reliably returned to positive, people-oriented uses has lagged behind. The one thing that is clear, however, is that direct return to the govern-ments of the countries in which the corruption or misdeeds have occurred has so far yielded unsatisfactory results.

The alternative concept advanced here—to use these assets to create care-fully structured charitable endowments—offers a possible win-win solution to this problem. Nearly 600 such “PtP foundations” are already in existence around the world, demonstrating the potential of this concept. These foundations have captured assets often created by the sweat and toil of a country’s people or belonging to them as part of their birthright of resources and have made good and effective uses of them to promote environmental improvement, scientific advancement, low-income housing, improved health, and dozens of other objectives.

The PtP Initiative, founded and directed by one of the present authors of this booklet, provides an abundance of information on PtP, including 22 detailed case studies, a report summarizing the results of its initial inquiry into the scale and char-acter of well over 500 PtP foundations, a series of “How-to-booklets” like this one on different asset classes, actionable advice on its website, and a team of potential advisors who can assist advocates in framing the case for PtP and helping to design future PtP foundations. Further information on the asset recovery process can be found in the Appendix to this booklet.

Those working on the retrieval and return of stolen assets or assets tied up in cases of corporate misdeeds would be well-advised to examine this option carefully and seriously consider adopting it as a preferred option for achieving the real goal of stolen asset recovery—to provide substantial and sustained benefits to the people from whom the assets were taken or who paid the price for the misdeeds.

ConclusionPart VI


http://p-t-p.org/


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APPENDIXThe following additional resources are available to learn more about the asset recovery process and the prospects for applying the PtP concept to it. Two of the key players in the asset recovery process—the In-ternational Center for Asset Recovery (ICAR) at the Basel Institute on Governance and the World Bank’s Stolen Asset Recovery Initiative (StAR)—have developed a wide array of resources on the topic which can be easily accessed. A good starting point is their websites:

• International Centre of Asset Recovery (ICAR): baselgovernance.org/theme/icar• Stolen Asset Recovery Initiative (StAR): star.worldbank.org

ICAR RESOURCESAsset Recovery Forum (forum.assetrecovery.org). A public information platform for practitioners and non-practitioners to access and share information on asset recovery and related matters. The forum makes it possible to identify and contact asset re-covery practitioners, take online education courses, create, and respond to asset recovery blogs and share and react to news and trends on asset recovery.

Publications (baselgovernance.org/publications). ICAR also creates and publishes working papers, books, and commissioned studies on asset recov-ery and related topics. Some particularly useful ICAR reference materials include:

• Tracing Stolen Assets: A Practitioners Handbook (2009)• Guide to the Role of CSOs in the Asset Recovery (2013)• The Role of Donors in Recovering Stolen Assets (2013)• Emerging Trends in Asset Recovery (2013)

StAR RESOURCESCorruption Case Database (star.worldbank.org/corruption-cases). The StAR website has three searchable databases of corruption cases and related information.

Asset Recovery Blog (star.worldbank.org/star). StAR also has a blog on asset recovery.

Publications (star.worldbank.org/star/publications). StAR’s searchable publications databased includes a variety of resources. Some of the more useful publications there include:

• Asset Recovery Handbook (2011)• Private Wrongs, Civil Actions (2014)• Few and Far: The Hard Facts on Stolen Asset Recovery (2014)• Identification and Quantification of the Proceeds of Bribery (2011)

International NGOs involved in promoting accountability and transparency in asset recovery and return include:

• Transparency International• Global Witness• UN Convention Against Corruption Civil Society Coalition• Civil Forum for Asset Recovery• Open Society Justice Initiative

https://www.baselgovernance.org/theme/icar/

http://star.worldbank.org

https://forum.assetrecovery.org/

https://www.baselgovernance.org/publications

http://www.baselgovernance.org/publications/421

http://cso.assetrecovery.org/sites/collective.localhost/files/documents/cso_guide_e.pdf



http://star.worldbank.org/corruption-cases/

https://star.worldbank.org/star/

https://star.worldbank.org/star/publications

http://star.worldbank.org/star/publication/asset-recovery-handbook

https://star.worldbank.org/star/publication/public-wrongs-private-actions

https://star.worldbank.org/star/publication/few-and-far-hard-facts-stolen-asset-recovery

https://star.worldbank.org/star/publication/identification-and-quantification-proceeds-bribery

http://www.transparency.org/

http://www.globalwitness.org/

http://uncaccoalition.org/

http://cifar.eu/

https://www.opensocietyfoundations.org/about/programs/open-society-justice-initiative

“…a needed and important publication that de-mystifies an important option for the return and social re-use of stolen and stranded assets.”

~ Ken Hurwitz, Senor Legal Officer, Open Society Justice Initiative

PPtA product of the PtP Project , East-West Management Institute, 2017 | Lester M. Salamon, Director

How to Apply PtP to

STOLEN OR STRANDED ASSETS

PtP How-To Booklet no. 1

About the AuthorsAaron Bornstein | [email protected] Bornstein is an anti-corruption expert with expertise in creating and leading the first foundation in the worldestablished with funds from a U.S. Foreign Corrupt Practice Act settlement—the BOTA Foundation. From 2011through the end of 2014, Aaron was the Executive Director of BOTA Foundation, the largest child and youth welfaresupport institution in Central Asia, where he was in charge of government and board relations, strategic visioning and execution, operations oversight including budget control, and representation to a diverse set of stakeholders. He has managed technical assistance and grants programs around the world dealing with diverse topics such as improvinggovernance, child and youth welfare, and higher education strengthening. Aaron has also been a consultant to the Stolen Assets Recovery Initiative of the World Bank and other nonprofit organizations.

Lester M. Salamon | [email protected]. Lester Salamon is a Professor at The Johns Hopkins University and Director of the Johns Hopkins Center for Civil Society Studies. He previously served as Director of the Center for Governance and Management Research at the Urban Institute in Washington, D.C. and as Deputy Associate Director of the U.S. Office of Management and Budget in the Executive Office of the President. Dr. Salamon pioneered the empirical study of the nonprofit sector in the United States and has extended this work to other parts of the world. Author or editor of more than 20 books, his recent books include: Explaining Civil Society Development: A Social Origins Approach (2017); The Resilient Sector Revisited: The New Chal-lenge to Nonprofit America (2015); America’s Nonprofit Sector: A Primer, 3rd Ed. (2012); The State of Nonprofit America, Vol. 2 (2012); The New Frontiers of Philanthropy: A Guide to the New Tools and Actors Reshaping Global Philanthropy and Social Investing (2014), and Philanthropication thru Privatization: Building Permanent Endowments for the Common Good (2014) . Dr. Salamon directs the Philanthropication thru Privatization Project.

About the PtP Project

The Philanthropication thru Privatization (PtP) Project seeks to promote an option for the creation of independentcha ritable foundations around the world by capturing all or a portion of an assortment of "privatization" transactionsinvolving the transformation of publicly-owned or -controlled assets into private wealth. The Project has thus far identi-fied over 550 foundations with assets over US$155 billion that have emerged from such transactions, includingsome of the largest foundations in the world, such as the Volkswagen Foundation, the King Baudouin Foundation, theNippon Foundation, the 200 U.S. health conversion foundations, and the enormous Italian foundations of bankingorigin. The PtP Project is directed by Dr. Lester M. Salamon. Administrative and technical support for the Project is provided by the East-West Management Institute (EWMI). For more informat ion about the PtP Project, visit p-t-p.org.