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G7 to propose additional FATF guideline on corruption money

, 30 January 2005

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Officials and bank regulators from some of the world's major financial centres who met in Switzerland this week are to propose additional guidelines to the Financial Action Task Force on returning the proceeds of state corruption to its country of origin. The FATF has already issued 40 recommendations on how to monitor, identify and freeze the ill-gotten gains of corrupt dictators and state officials, but there are no guidelines on what to do with the cash after that, officials said after the meeting in the Swiss city of Lausanne. Vast sums of money thought to have been looted from state coffers by the likes of late Nigerian dictator Sani Abacha have long been frozen and are now languishing in bank accounts in Switzerland, Jersey, Luxembourg and the UK because there is not clear procedure on what do to with it next, how to identify the rightful owners and return it to them. The additional FATF proposal would provide guidelines on ways of solving this problem. Restitution could be done in three ways: on the basis of a court judgement, via the Bank of International Settlements to help service any debts that country may have or as part of International Monetary Fund, World Bank or bilateral aid programmes. Officials said repatriation would not follow automatically to the country of origin just because it requested this back for fear it would fall into the wrong hands again. "We would need a clear link between the money frozen and criminal behaviour. We can't just return the money on the assertion that some money had been stolen," said one official attending the meeting. "One would want to decide case by case. But one would want an international convention which lays down rules for returning the money when it is clearly corruption money that belongs to a foreign state, but with no automatic obligation the money could be misused again by their successors," the official said. The two-day meeting—a Swiss government initiative—brought together 38 government officials from finance, foreign affairs and justice departments as well as bank supervisors from Britain, Canada, France, Germany, Italy, Japan, Jersey, Luxembourg, and the United States. It was the sequel to a meeting in January when officials discussed preventing the proceeds of state corruption from entering banks, on identifying such money and seizing it. Switzerland called that meeting after its embarrassing disclosure that Swiss banks accepted about $700m of an estimated $3bn of funds funnelled out of Nigeria by Abacha and his cronies despite strict due diligence or know your customer rules. Proposals on ways of repatriating funds stolen by corrupt politicians and officials from their states will also be included in a future UN Convention on Corruption. Negotiations start in Buenos Aires next month UN members would not agree on it for another two years and ratification would take even longer. At present, it is only possible to repatriate the proceeds of drug trafficking, financing of terrorism and organised crime under international law, under so-called "asset splitting agreements" in which countries involved in the investigation split the loot. But the official said participants at the Lausanne meeting agreed that a country that freezes assets stolen from another sovereign state had no right to keep them because unlike with the case of drug trafficking, a clear victim and rightful owner could be identified. Countries, like Germany and Japan, said, however, that repatriation of such funds was not permissible under current domestic legislation, which may have to be changed. One official praised Switzerland's efforts to crackdown on corrupt foreign politicians and government functionaries stealing money from their state and the Alpine nation's methods of dealing with this was held up as a model for other countries. Switzerland can freeze funds believed to be of criminal origin on the basis of an investigation at home or abroad. Other countries, such as the UK, can at present only freeze such funds on the basis of a court judgment and by this time an investigation has long been underway and the funds have left the country. "The Swiss have been very aggressive. They basically freeze anything that moves," the official said, adding that the "Swiss model" that could be adopted by other countries. Switzerland has long experience of corrupt dictators and despots depositing their ill-gotten gains in Swiss banks accounts. The first major case to come to light was that of the late Philippines leader Ferdinand Marcos. Swiss authorities seized about SFr330m of his loot in 1986. By the time they transferred this to an escrow account in 1998 to be returned to the Philippines, in part to compensate victims of the former regime, it had nearly doubled with interest. But its release is still pending a Philippines court decision. Switzerland also seized SFr6m linked to dictator Mobutu Sesi Seko in addition to SFr3.5m from selling his villa on the shores of Lake Geneva. Again, this money is blocked pending a court decision in the Republic of Congo to return the money.

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