Thematic Area 4: Law Enforcement: Dealing with illicit proceeds

1. Thematic Area 4: Law Enforcement: Dealing with illicit proceeds Global Forum Against Corruption V Johannesburg 3 April 2007 Willie Hofmeyr Head: Asset Forfeiture Unit, RSA +27 12 845 6696 wahofmeyr@npa.gov.za

2. UN Convention Against Corruption • UNCAC recognises asset recovery recognised as key component in dealing effectively with corruption • To date much of asset recovery has had to be done through private litigation because state to state cooperation was ineffective • Effective asset forfeiture is key to better cooperation • Establishment of expert group to ensure better use of asset forfeiture was a key resolution at meeting of state parties in December 2006 • Will focus on two major types of asset forfeiture available in common law jurisdictions

3. Criminal forfeiture • RSA has UK model of conviction based forfeiture • Requires a conviction, but process is civil • Similar to normal civil judgement • Obtain a confiscation order for the value of the benefit of the crime ‑ eg the $2m that was stolen • As in normal civil litigation: • If not paid voluntarily, execute against property through a realisation order • Can execute against any property – not only tainted property • Can freeze property early - even before charged through a restraint orderto ensure that it is not dissipated

4. Some advantages • Value is gross benefit, ie anything that passed through hands ‑ no deduction for expenses • Applies even if benefit has been “lost”, eg seized by the police. If the perpetrator has other property, the order can be executed against that property • Can also recover gifts made within last 7 yrs • Forced disclosure of all assets on affidavit - with immunity against use in criminal proceedings • As with normal civil litigation, no need to prove that property is proceeds of crime

5. 6) Presumptions re benefit • Presumptions help to deal with lifestyle criminals eg drug dealers • Use when accused benefited from crime • Benefit $0.5m • plus all assets $2.0m • plus all income for last 7 years $1.5m • plus all expenditure in last 7 yrs $1.0m • TOTAL ORDER $5.0m • Ie order for $5m even though assets are only $2m • Defendant must prove what is legitimate • Even if prove $2.5m of legitimate assets, state can still forfeit all $2m assets because of unexplained income

6. 6) Overseas assets • Still a huge and complex challenge • trying various means to deal with assets hidden overseas: • Court orders Defendant to repatriate • or face contempt of court • Court gives power of attorney to receiver to repatriate • But may be heavily contested • MLA requests – depends on jurisdiction

7. Civil forfeiture • Based on US model • Forfeit through a civil action – evidence on a balance of probabilities • Preservation order to freeze property Unlike criminal forfeiture • A criminal conviction is not necessary • But have to prove that the property itself is tainted – proceeds or instrumentalities • Action in rem ‑ directly against property, not against the person

8. Proceeds & instrumentalities • Proceeds: • Direct evidence against specific property– eg the actual stolen car or money • Circumstantial evidence evidence against specific property – cash seizures from drug dealers or couriers • Circumstantial evidence that all assets of a crime boss are proceeds through a full financial investigation • Instrumentalities • are property used to commit crime • Eg clean money used to hide “dirty” money

9. Advantages of civil forfeiture in corruption cases • As in other civil proceedings,it is only necessary to prove facts on the balance of probabilities • useful in corruption where convictions are difficult to obtain • it is possible to act even where the evidence is not strong enough to support a conviction in either state • Perpetrators have often not contested civil forfeiture cases since it involves making statements under oath that may be used against them in a criminal case • As proceedings are civil, the law can be made retrospective to recover “old” proceeds

10. Case study of use of civil forfeiture in corruption • Alamieyeseigha case - state governor in Nigeria • Arrested in UK but escape back to Nigeria where he had immunity from prosecution as state governor • Freeze SA property through civil forfeiture in Dec 2005 • on basis of evidence from UK and Nigeria that property was proceeds of crime • Obtain forfeiture in July 2006 – not contested • Court recognised the Nigerian federal government as the true innocent owner • Assets sold off and being returned

11. Advantages • No conviction or charge was required in Nigeria or RSA • This is important as perpetrators often flee and cannot be tried • Or the victim state may not have forfeiture legislation • Was able to act in RSA even though at time he had immunity in Nigeria (he was later impeached) • No formal MLA request was necessary as RSA used its own law – it only required sufficient evidence to act • Could also have registered UK freezing order in RSA • but the UK freezing order did not include the property

12. Heads of state • Civil forfeiture may be the answer to the most difficult issue in dealing with Politically Exposed Persons (PEP) • What to do when illicit proceeds of a serving head of state PEP is discovered through the new enhanced due diligence duties on financial institutions? • With civil forfeiture, the host state can freeze (and possibly forfeit) property even in cases where there is no request from the victim state because the perpetrator is still head of state or is otherwise influential • Of course, sufficient evidence and diplomatic considerations may still play a role here – finding the correct institutional form to do this is a challenge

13. Some problems • Forfeiture legislation often limited to specific crimes • Some states will not cooperate in fiscal offences • Direct MLA is often not available • Identification of PEPs • Hiding funds in attorneys’ accounts, and trusts

14. How states can best assist each other through inter-governmental cooperation or mutual legal assistance (MLA)

15. Direct MLA • Focus in conventions is now on direct MLA to replace slow diplomatic channel • 2 major methods • Through a system of central authorities that are mutually recognised to make and receive requests for MLA from directly from each other • Requests are then referred to relevant domestic agency • Through domestic legislation that provides that MLA requests can be accepted directly from specified foreign law enforcement bodies (eg Commonwealth)

16. Legal mechanisms to establish direct MLA 3 major mechanisms • bilateral MLA treaties that provides for such cooperation • ratifying multilateral agreements or conventions that requires such mechanisms • either specific states, eg EU or Commonwealth, or • crime specific such as the Vienna Convention relating to drugs offences • domestic legislation that allows it easier for them to provide direct MLA.

17. MLA in asset forfeiture 1) Recognition of foreign freezing and forfeiture orders • This has to be done through domestic legislation • Strong advantage is that the merits is not litigated in 2 jurisdictions 2) A new civil forfeiture can be done in requested state • A state that has civil forfeiture can assist victim states that may not be able to obtain a conviction or do not have their own confiscation legislation

18. MLA in asset forfeiture • A new freezing and forfeiture order has to be obtained in the requested state • Some states do not recognise foreign orders, but can use evidence from the victim state to obtain a new freezing or confiscation order • More cumbersome as it means litigation has to be conducted in two states, one of which is far away from the evidence and witnesses • However, has the advantage that a requested state can assist a victim state that is unable to act because it does not have confiscation legislation

19. MLA in asset forfeiture 4) A recent innovation in the UK allows it to obtain a restraint order on the basis that a confiscation order may later be obtained in the victim state • even though the victim state does not have a restraint order in place • evidence of the crime and benefit is required • Best practice would be for a state to be able: • to recognise foreign orders • to do its own civil or criminal forfeiture independently of the victim state

20. Conclusion • Asset forfeiture is a vital part of the war against corruption ‑ it hits the corrupt where it hurts most ‑ in the pocket • But most importantly, forfeiture is a vital weapon to take the profit out of corruption • This is especially important in economically motivated crime where deterrence is low at the moment • To deal effectively with crime, it must become true that “crime does not pay”