Abacha's Thieving Spree Honoured by The Economists of London

IN THE months after the “Arab spring”, rumours swirled in Egypt, Libya and Tunisia that every household would gain a slice of looted public funds prised from the grasp of their former leaders and the cronies who surrounded them. Hossam Issa, a prominent academic and at the time deputy head of the Nasserist Party, said the deposed President Hosni Mubarak’s ill-gotten gains had been “a daily insult for 30 years…now I have hope.” International anti-corruption campaigners looked forward to a promising new front opening in the global war on graft.

Estimates of the loot range widely, reflecting the murkiness of offshore finance, but the talk is of tens of billions of dollars. Sani Abacha of Nigeria, often taken to epitomise venality, pilfered between $5 billion and $8 billion. But sometimes optimism overtakes reality: the upper, $70 billion, estimate of the amount siphoned off by Egypt’s Mubarak clan may just be on the high side.

What is clear is that the value of assets identified and frozen by foreign governments is disappointingly small: two years after the Arab spring, they are worth a little over $1 billion, more than three-quarters of it in Switzerland. Assets actually repatriated are even paltrier: to Egypt, nothing; to Libya, a London house linked to Muammar Qaddafi’s son, Saadi; to Tunisia, some planes and, earlier this month, $29m from a Lebanese bank account belonging to the wife of Zine el-Abidine Ben Ali, the ousted dictator (his family and cronies are thought to have plundered $3 billion).

Even modest recoveries are welcome for cash-strapped governments. But amid legal blockages, investigative dead-ends and recriminations, early hopes gave way to despair. Now some signs suggest the tide is turning.

Easy to steal, easier to keep

Asset recovery is a slog. It requires hacking through thickets of international law. It cuts across criminal, civil and administrative justice. It relies on co-operation between countries (and between agencies within countries) that are often unable or unwilling to share information. The asset-recovery provisions in the UN’s Convention against Corruption form a basic framework, but the process is still littered with obstacles: in a report in 2011, the World Bank and UN counted 29 hurdles.

Persuading courts to freeze and return assets is especially tricky when they have been hidden inside complex corporate structures in jurisdictions that offer secrecy to investors, and when their owners can afford the best lawyers. Forfeiture cases are almost always “complex legally, complex forensically and expensive,” says Bruce Zagaris of Berliner Corcoran, a law firm. They are also protracted. Funds pilfered by Ferdinand Marcos that were frozen in 1986 were not released to the Philippines government until 2002. Legal action over the $200m that the UN estimates Pavlo Lazarenko, a former prime minister, pinched from Ukraine in the 1990s still rumbles on, with a dozen parties chasing assets in eastern Europe, America and Antigua.

Hordes of Western lawyers, accountants and gumshoes have rushed to offer new Arab governments their help but with a mostly poor harvest. Egypt’s main legal counsel, Stephenson Harwood, has drawn fire for reportedly taking a large upfront fee but producing few tangible results. The firm, based in London, says it does not comment on specific assignments. Mohamed Shaban of MS Legal, who helped recover Libya’s London mansion, says he works on a no-win, no-fee basis: “it’s what my people [Libyans] understand.” Libya has been plagued by investigative bounty-hunters hawking “evidence” for cash—and for its part the post-Qaddafi government failed to co-ordinate its response, allowing its agencies to sign a bevy of overlapping contracts.

Foreign officials say Arab prosecutors lack knowledge of international law and the intricacies of offshore structures. In the early post-revolutionary days (things have improved a bit since) they would fire off mutual legal assistance (MLA) requests without first doing the necessary investigative work to support them. (MLA requests are made when a country needs help in another jurisdiction to support an investigation.) The countries grew irritated when they did not receive a quick, positive response. Some requests were botched: in one case, Egyptian prosecutors misunderstood the principle of “double criminality”, which means a suspect can usually be extradited for breaking the requesting country’s laws only if a similar law exists in the extraditing country. “It’s hard for me to berate the West when my client isn’t doing all it should,” says Mr Shaban.

Western governments have indeed been criticised for their handling of MLA applications. Arab prosecutors complain that their requests are often held up or rejected on technicalities, fuelling suspicion that countries with large financial centres are shielding those who trade in dirty money. Mr Shaban says it is “disingenuous” for countries to respond to requests by saying, “Here’s our procedure. Follow it.” Poor record keeping, weak administration and inexperience mean countries such as Libya “need hand-holding”.

But, for all these disappointments, the mood is brightening a little. Switzerland, long a byword for obstruction on tax secrecy, has been markedly more helpful in tracking down and returning stolen public funds. It was the first country to freeze Egyptian assets, less than an hour after Mr Mubarak resigned. New Swiss laws facilitate asset recovery, most notably the “Lex Duvalier” of 2011, named after Haiti’s former strongman. This allows the federal authorities to return funds unilaterally to failed states that lack the resources to build watertight cases. (Arab spring countries do not—yet—qualify for such treatment.)

Under Swiss law, corrupt former regimes can sometimes be classified as organised criminal groups, allowing the burden of proof to be reversed. A law expected to be passed in 2015 would streamline the repatriation process further. Valentin Zellweger, a Swiss foreign-ministry official who oversees asset recovery, has won plaudits for his efforts to build trust with Arab counterparts. “If there’s a problem, we talk. We have each other’s cell-phone numbers,” he says.

A cynic might say that the Swiss have been busy only because they accepted so much dirty money in the first place. Swiss bankers have long viewed politically exposed persons (PEPs in the jargon of anti-money-laundering efforts) as “strategic clients”. Bank accounts may not be the most important target: the dodgiest clients favour harder-to-trace gold or bearer securities. And Swiss co-operation only goes so far. In January a federal court in effect put asset repatriation on hold when it blocked Egyptian officials’ access to Swiss case files, citing political turmoil and the potential misuse of confidential data.

urning the tables

Egypt has been the most forceful at pushing back against unhelpful foreign governments. Last year it sued the British government in an English court, seeking a judicial review of its efforts. Britain, a popular haunt for Arab elites, has frozen Egyptian property and bank accounts worth just £85m ($130m). It waited more than a month after the revolution before moving against assets linked to Mr Mubarak and 18 associates: ample time to move money elsewhere. British officials argue they had to wait for a European Union sanctions order to take effect. Egypt says that as of February, Britain had refused 15 of 25 requests for assistance. British officials say they merely asked for more information.

A BBC investigation last year found that two companies and a £10m property in Knightsbridge, a prime bit of central London, appeared not to have been frozen despite compelling links to the Mubarak clan, some of it easily garnered through public-records searches. One firm had been set up by a former minister’s wife seven months after she was put on the sanctions list.

But Britain has now formed a “task-force” to speed up its work with Egypt and has put a prosecutor in the region to provide technical assistance. “We recognise the moral imperative to return assets as quickly as possible,” says Jeremy Browne, the minister in charge.

America and Switzerland, too, have experts in the field to help with evidence-gathering and the drafting of MLA requests. America’s Department of Justice even has a “kleptocracy” unit. Public and private international bodies run training workshops for Arab lawyers and sleuths. Experienced former prosecutors from the Basel-based International Centre for Asset Recovery run courses that draw on real cases and groom the best students to train others when they return home.

The Stolen Asset Recovery Initiative (StAR), a UN-World Bank project, also provides training and technical assistance. But its most important role is to foster ties between the countries seeking looted money and those sitting on it. That may simply be fixing meetings between their police, prosecutors and financial-intelligence experts. Informal communication means that “by the time you formally request assistance you know it will be accepted,” says Jean Pesme, StAR’s coordinator.

The Gulf state of Qatar is acting as a different sort of intermediary. Its attorney-general, Ali bin Fetais al-Marri, helped the return of $29m from Lebanon to Tunisia and is trying to broker similar deals for Egypt. But this has fostered suspicion: that the Qataris are helping mainly in order to learn more about stolen assets and be better positioned to buy them on the cheap.

Such insinuations may be cynical, but bargains are likely. Some of the construction and industrial projects used by the Mubarak regime to siphon off public funds are likely to collapse. The banks that backed them are now distressed sellers. An early look at the books could help a prospective buyer. Qatari officials deny all such notions. But the country makes no secret of its interest in the Egyptian economy. It has invested in several large firms, though it recently failed in its bid to buy the largest investment bank, EFG Hermes.

Whatever the Qataris’ motives, they could prove useful in efforts to recover looted funds concealed in the Arab world. Large sums are thought to be in Saudi Arabia and Dubai, probably in property and other assets with murky ownership. French police hint that more than €70m ($93m) in gold was moved to Dubai and Istanbul via French airports by Mr Ben Ali’s staff during Tunisia’s revolution. (French customs officials apparently reported the transfers to superiors but no action was taken.) Arab financial centres have a poor record in money-laundering cases.

But impatient governments are now cutting deals. Under Egypt’s new reconciliation law, sentences may be overturned or prosecutions dropped if former regime cronies hand back a wad of money.

In March Rachid Mohamed Rachid, a former trade and industry minister convicted in absentia of squandering public funds, was taken off the to-be-arrested list after he paid back 15m Egyptian pounds (about $2.2m). Prosecutors are negotiating through intermediaries with Hussein Salem, a longtime Mubarak confidant who grew rich buying industrial assets at derisory prices. Mr Salem is in Spain, which has so far refused to extradite him. He is believed to have offered to give up half of his wealth. Next in line to cut a deal could be the former ruling family: for instance, Suzanne Mubarak, the ex-president’s wife, is believed to be open to negotiations over the return of an unknown sum parked in a Swiss foundation that she controls.

What to tell the voters

The new government of Muhammad Morsi is trying to find a way to make such deals acceptable to the Egyptian public. They could be seen as cop-outs if they allow the ex-cronies to avoid prison in exchange for handing over a small portion of their loot. Their disclosed or discovered wealth is likely to fall far short of their total holdings. Osama Diab of the Egyptian Initiative for Personal Rights, an NGO, worries that the settlements could undermine efforts in Switzerland and Britain to link frozen assets to crimes so that courts can sanction their return.

However, economic necessity means that securing something now may look better than waiting years in the hope of recovering more. Cherif Bassiouni, a world-renowned expert in international criminal law (and an Egyptian), thinks the government may try to make the settlements more palatable to the public by presenting them as a revenue-generating requirement of any loan deal struck with the IMF.

In the meantime, prosecutors will continue to pursue illicit gains through the courts. Criminal cases will continue to be hard to build, but other options include civil cases known as non-conviction forfeitures. American prosecutors have used them over the years to chase the assets of various bigwigs, including most recently Teodorin Obiang, the Lamborghini-loving son of Equatorial Guinea’s president. In some jurisdictions, the burden is on the asset’s owner to show he had sufficient legitimate funds to acquire it. This can be tricky for someone who has spent his entire career ostensibly in the public sector.

With such tools available, and with co-operation now improving slightly, asset-recovery specialists are hopeful that something meaningful can be achieved before October, when officials from Arab countries, the G8 and Switzerland will gather to review progress. NGOs are doing their bit to identify suspicious assets. In March, for instance, the Corner House, a British anti-corruption organisation, dug up evidence of the involvement of the former Egyptian leader’s son, Gamal Mubarak, in a private-equity affiliate of EFG-Hermes. The bank later said that to the best of its knowledge he still owns an 18% stake in the firm.

Law lessons

To have a fighting chance, asset recovery needs strong political support. This is in short supply, woefully so in Egypt. To be fair, ministers there have other worries too. But they could have done more. Responsibility for asset recovery is splintered between justice ministries, prosecutors-general and special committees. Mutual suspicion abounds. Staff turnover is high, mirroring the coming and going of ministers in the post-revolution tumult. Asset-recovery officials are sometimes oddly reluctant to move cases forward. One reason may be fear of retribution from people linked to the former regimes who retain influence even when out of power.

Egypt has also been slow to appreciate the time due process takes in advanced legal systems. Cases must take human-rights laws into account. Linking assets to specific crimes is not easy. Gamal Mubarak worked for years as a financier in London. How to prove that his property there was bought with the proceeds of corruption rather than legitimate earnings? Many of his investments are owned jointly with third parties, complicating asset seizure further.

The absence of convictions at home slows things, too. Thanks to a pliant legislature, the Mubarak regime was able to make dodgy transactions look legal. Mr Mubarak and his sons were acquitted of corruption last year, though they are being retried. Not all convictions will count abroad. Mr Bassiouni doubts that the numerous Egyptian judgments rendered in absentia against fugitive Mubarakites would pass muster if challenged in the European Court of Human Rights.

Late last year he was asked by Mr Morsi to draft a national asset-recovery strategy. the president followed his recommendation to set up an inter-agency committee to co-ordinate government efforts. But the president could not resist establishing a separate committee, headed by the vice-president; other suggestions were rejected for unclear reasons. Helping Egypt in this area can feel like “an almost impossible mission,” says Mr Bassiouni.

Mr Shaban expects to bring more claims this year. He says cases are being bolstered by information supplied by former regime figures under interrogation. Meanwhile, the Qaddafi mansion in London that he helped recover for Libya remains a fitting symbol of the ups and downs of asset-recovery efforts. Nestled in a quiet cul-de-sac in the lush suburb of Hampstead, the property is “a bit dilapidated” and hasn’t been put up for sale because “no one can make a decision about what to do with it,” says Mr Shaban. “But at least the Libyan people have it back. It’s going nowhere.”

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