```

[Joint House and Senate Hearing, 115 Congress]
[From the U.S. Government Publishing Office]

115th Congress                                Printed for the use of the
1st Session             Commission on Security and Cooperation in Europe
________________________________________________________________________

 
                       COUNTERING CORRUPTION IN
                      THE OSCE REGION: RETURNING
                         ILL-GOTTEN ASSETS AND
                         CLOSING SAFE HAVENS
                        

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                            JUNE 1, 2017
                            
                            
                   
                   
                              Briefing of the
          Commission on Security and Cooperation in Europe
________________________________________________________________________
                           
                           Washington: 2017
                           
                           
                           
                           
                           
                           

           Commission on Security and Cooperation in Europe
                    234 Ford House Office Building
                         Washington, DC 20515
                              202-225-1901
                          [email protected]
                          http://www.csce.gov
                           @HelsinkiComm

                 Legislative Branch Commissioners

              HOUSE                                SENATE        
CHRISTOPHER H. SMITH, New Jersey          ROGER WICKER, Mississippi,
 Co-Chairman                               Chairman
ALCEE L. HASTINGS, Florida                BENJAMIN L. CARDIN. Maryland     
ROBERT B. ADERHOLT, Alabama               JOHN BOOZMAN, Arkansas 
MICHAEL C. BURGESS, Texas                 CORY GARDNER, Colorado 
STEVE COHEN, Tennessee                    MARCO RUBIO, Florida 
RICHARD HUDSON, North Carolina            JEANNE SHAHEEN, New Hampshire           
RANDY HULTGREN, Illinois                  THOM TILLIS, North Carolina
SHEILA JACKSON LEE, Texas                 TOM UDALL, New Mexico      
GWEN MOORE, Wisconsin                     SHELDON WHITEHOUSE, Rhode Island
    
                     Executive Branch Commissioners

                        DEPARTMENT OF STATE
                       DEPARTMETN OF DEFENSE
                       DEPARTMENT OF COMMERCE
                       
                              (II)
                       
                       
                       

 ABOUT THE ORGANIZATION FOR SECURITY AND COOPERATION IN EUROPE
 

    The Helsinki process, formally titled the Conference on Security 
and Cooperation in Europe, traces its origin to the signing of the 
Helsinki Final Act in Finland on August 1, 1975, by the leaders of 33 
European countries, the United States and Canada. As of January 1, 
1995, the Helsinki process was renamed the Organization for Security 
and Cooperation in Europe [OSCE]. The membership of the OSCE has 
expanded to 56 participating States, reflecting the breakup of the 
Soviet Union, Czechoslovakia, and Yugoslavia.
    The OSCE Secretariat is in Vienna, Austria, where weekly meetings 
of the participating States' permanent representatives are held. In 
addition, specialized seminars and meetings are convened in various 
locations. Periodic consultations are held among Senior Officials, 
Ministers and Heads of State or Government.
    Although the OSCE continues to engage in standard setting in the 
fields of military security, economic and environmental cooperation, 
and human rights and humanitarian concerns, the Organization is 
primarily focused on initiatives designed to prevent, manage and 
resolve conflict within and among the participating States. The 
Organization deploys numerous missions and field activities located in 
Southeastern and Eastern Europe, the Caucasus, and Central Asia. The 
website of the OSCE is: .

 ABOUT THE ORGANIZATION FOR SECURITY AND COOPERATION IN EUROPE

    The Commission on Security and Cooperation in Europe, also known as 
the Helsinki Commission, is a U.S. Government agency created in 1976 to 
monitor and encourage compliance by the participating States with their 
OSCE commitments, with a particular emphasis on human rights.
    The Commission consists of nine members from the United States 
Senate, nine members from the House of Representatives, and one member 
each from the Departments of State, Defense and Commerce. The positions 
of Chair and Co-Chair rotate between the Senate and House every two 
years, when a new Congress convenes. A professional staff assists the 
Commissioners in their work.
    In fulfilling its mandate, the Commission gathers and disseminates 
relevant information to the U.S. Congress and the public by convening 
hearings, issuing reports that reflect the views of Members of the 
Commission and/or its staff, and providing details about the activities 
of the Helsinki process and developments in OSCE participating States.
    The Commission also contributes to the formulation and execution of 
U.S. policy regarding the OSCE, including through Member and staff 
participation on U.S. Delegations to OSCE meetings. Members of the 
Commission have regular contact with parliamentarians, government 
officials, representatives of non-governmental organizations, and 
private individuals from participating States. The website of the 
Commission is: .

                               (III)
                               
                               
                               
                               
                               
                               

                        COUNTERING CORRUPTION IN
                       THE OSCE REGION: RETURNING
                          ILL-GOTTEN ASSETS AND
                           CLOSING SAFE HAVENS
                              ____________

                              June 1, 2017

                                                                                          Page
                              PARTICIPANTS

Paul Massaro, Policy Advisor, Commission on Security and Cooperation in Europe .........   1
Charles Davidson, Executive Director of the Kleptocracy Initiative, Hudson Institute ....  2
Brian Campbell, U.S.-based Attorney .....................................................  4
Ken Hurwitz, Senior Managing Legal Officer on Anticorruption, Open Society Justice 
 Initiative .............................................................................  6

                                 (IV)

  COUNTERING CORRUPTION IN
                       THE OSCE REGION: RETURNING
                          ILL-GOTTEN ASSETS AND
                           CLOSING SAFE HAVENS
                              ____________

                              June 1, 2017

    The briefing was held at 10:30 a.m. in room G11, Dirksen Senate 
Office Building, Paul Massaro, Policy Advisor, Commission on Security 
and Cooperation in Europe, moderating.
    Panelists present: Paul Massaro, Policy Advisor, Commission on 
Security and Cooperation in Europe; Charles Davidson, Executive 
Director of the Kleptocracy Initiative, Hudson Institute; Brian 
Campbell, U.S.-based Attorney; and Ken Hurwitz, Senior Managing Legal 
Officer on Anticorruption, Open Society Justice Initiative.

    Mr. Massaro. Good morning, everyone. Thank you all for coming. 
Welcome to today's briefing on asset recovery in the OSCE region. My 
name is Paul Massaro, and I am the policy advisor responsible for 
economic and environmental issues at the Helsinki Commission.
    Combatting corruption is a critical element of the second dimension 
of the Organization for Security and Cooperation in Europe, the OSCE. 
This vital task involves a huge range of activities, all aimed at 
justice for perpetrators and redress for victims. In many cases, 
prosecuting a crime is more straightforward than recovering and 
returning stolen assets.
    Today we will focus on asset recovery and how to strengthen the 
preventative measures that we rely on to fight impunity worldwide. 
Asset recovery is a challenging, but critical, factor of tackling 
global corruption. Tracing, freezing, and returning frozen assets is a 
tedious and complicated process. Additionally, returning the proceeds 
of corruption to the country of origin often requires the involvement 
of corrupt authorities, which can mean the perpetuation of grand 
corruption.
    Strengthening existing mechanisms of repatriation and ensuring 
accountability in the process should be an integral part of mainstream 
anticorruption work. Successful asset recovery can not only deter 
future corrupt practices, but can also support democratic development 
in countries where corruption remains an endemic source of human rights 
violations.
    We are grateful to have such distinguished panelists with us here 
today. I look forward to hearing your thoughts and views on this 
important issue.
    To my left, we have Charles Davidson, the executive director of the 
Kleptocracy Initiative at the Hudson Institute. The Kleptocracy 
initiative investigates and conducts research on the corrupt financial 
practices of authoritarian governments. In addition to his work with 
the Kleptocracy Initiative, Charles is the publisher and CEO of ``The 
American Interest,'' which he co-founded in 2005. He is also the co-
founder of Global Financial Integrity, a research and advisory 
organization focused on analyses of illicit financial flows.
    Far to my right, we have Brian Campbell, who is a legal advisor to 
the Cotton Campaign, a global coalition of over 25 labor, human rights 
and business organizations committed to ending state-sponsored forced 
labor in Uzbekistan's cotton industry. Brian has experience 
representing victims of human rights abuses in legal and administrative 
proceedings, both in U.S. courts and before the U.S. Congress. He also 
serves as a legal advisor to several grassroots and community-based 
organizations in Africa and Asia.
    Finally, we have Ken Hurwitz, who joins us from the Open Society 
Justice Initiative, where he is the senior managing legal officer on 
anticorruption. The Justice Initiative works to promote the rule of law 
and seek justice for human rights abuses through litigation, advocacy, 
research, and technical assistance. Ken is the head of the 
organization's anticorruption legal work and is an expert on high-level 
corruption. In particular, he focuses on corruption in the national 
resources trade, using the law to challenge those who pay or receive 
bribes in exchange for illegal access to resource wealth, as well as 
those who assist by hiding the proceeds of corrupt dealing.
    We will conclude the briefing with a Q&A session. So please start 
thinking of your questions now.
    I'd like to now give the floor to our first panelist, Charles 
Davidson of the Hudson Institute.
    Thank you.
    Mr. Davidson. Well, thank you, Paul. It's a pleasure being here.
    Our subject today, as advertised, was to start with the historical 
context for asset recovery. So I'm going to go into that a bit. And 
then we have sort of three areas after that; corruption prevention, and 
the U.S. national interest in countering corruption, and then methods 
of ensuring responsible repatriation. So I'm going to sort of leave off 
the last point, the subjects around repatriation, which my colleagues 
are going to cover in detail, and which they're experts on.
    But why are we talking about asset recovery? Well, presumably 
someone has stolen assets that we need to recover. So what's going on 
with that? And in the OSCE region, we know that vast sums have been 
stolen and looted, and are being held in the West. And by the West, I 
mean New York City, Miami, London. So, I mean, concretely, real estate 
in the West, but I also mean the whole network of offshore secrecy 
jurisdictions and ways of secreting away and holding assets in places 
that are controlled by the United States and Europe.
    And those places and those methods are where most of this OSCE loot 
is held, which is really the fundamental context we're operating in. 
And because it's held in places we control, we presumably have some 
leverage to be able to repatriate it. Period.
    That's all I have to say. Are we done? No. [Laughter.] But that's 
the point, right? That's the overall context. And also, we're not 
talking about petty corruption.
    If we look at a lot of these countries, we're talking about--
there's a whole sort of shadow economy where nobody in a lot of these 
countries has a salary they can live off of. So there are all of these 
kind of cash payments and ways in which corruption--one might even call 
it something else--is part of the society. And that's lamented, this, 
that, and the other. But there's no asset recovery in that context. So 
we're talking about the grand corruption, some people call it, or 
kleptocracy or whatever, where assets are taken out of the country and 
safeguarded in places where we may have some leverage to recover them.
    So, in terms of corruption prevention mechanisms--and we're 
supposed to speak briefly and I'm going to rifle through some of this, 
and I gather the richness of this event is going to be in the Q&A--one 
thing we have is a huge corruption services industry. And if we look at 
what precedes potential for repatriation, we find major Western 
financial institutions--law firms and all of that--helping OSCE leaders 
and corrupt regimes to get their money out of the country in the first 
place. So we play a very large role, as societies, in the looting in 
the first place and the problem. And I think that point has to be taken 
into account when we look at repatriation so that we don't end up in a 
vast circular, rather perverse hypocrisy.
    One of the things we can do in terms of corruption prevention--and 
this is a bit of a parenthesis--but there's a lot of talk on the Hill 
right now about transparency and beneficial ownership, and curtailing 
anonymity in terms of how assets are held. That's an area in which a 
lot of progress can be made. There are many bills sort of going around. 
The major banks have actually come out in favor of doing away with 
anonymity, presumably because the compliance costs have gotten so 
great.
    Another corruption prevention mechanism to keep in mind--I'm sort 
of jumping around here, just sort of putting ideas on the table--is 
civil society. If we look at the Maidan, that was essentially a protest 
against corruption, but not really the petty corruption within the 
society. It was against the grand corruption of the leaders and the 
rulers of Ukraine, if one can refer to them that way. We saw protests 
recently in Romania which were targeting grand corruption. So 
Tocquevillian civil society is certainly a corruption prevention 
mechanism. It's not really a mechanism, but it's a very important part 
of this.
    And then I think it's worth throwing in the notion of an 
independent judiciary, because if we look at Brazil right now--which is 
out of our geographic zone--it's kind of interesting the way an 
independent judiciary can affect a corrupt political class. And that's 
an analogy, because I'm not suggesting that there are strong elements 
of grand corruption. But if we look at reform and other elements that 
we can push in addition to asset recovery, that might be one.
    Now, the U.S. national interest in countering corruption--this is 
where we still under-appreciate the dangers of grand corruption and 
kleptocracy. First of all, it's kind of obvious when you think about it 
how corruption is a killer of freedom and democracy. And obviously in a 
corrupt society people aren't getting their fair shake. You can't just 
go out there and create a business without it being stolen from you in 
some cases. This is depressing. You don't get happy, free people in 
these countries.
    And yet, the nice thing is, there are a lot of people who are 
fighting for freedom and democracy in these countries. But it's 
something that we need to encourage. And on the asset recovery front, 
we need to do it in a way that's politically positive so that it 
doesn't seem as Western hypocrisy, which would be a terrible thing, but 
so that it's done in way that is very much supportive of, shall we say, 
progressive forces in those societies. I don't mean progressive in the 
U.S. context, political sense.
    In terms of economic opportunity, just as free markets, we can 
certainly see how corruption perverts all of that. That's all counter 
to U.S. national interests. And perhaps most importantly, these corrupt 
regimes try to corrupt up. And we've seen a lot of recent examples of 
that. But when we accept all of these funds, even encourage them to 
come into our societies in the first place--pre-repatriation--these 
funds and the handlers of these funds and all need to keep a corrupt 
system going here, in terms of how these assets are looted and dealt 
with in the first place.
    So they are not going to be forces for improved governance in our 
own societies. They're going to be corrupting influences. And we see a 
lot of this going on all over the place, here and in Europe. In terms 
of rule of law and the extent to which we want to spread rule of law 
and good governance, obviously this is--grand corruption is a terrible 
thing in terms of that.
    So these are all reasons why we need to look at the asset recovery 
dossier very seriously. But really, as I'm stressing, as part of a much 
broader program opposing kleptocracy, grand corruption, and being sure 
that we're doing these other things and not just asset recovery.
    What we would not want to end up with, I think, is the situation of 
grafting onto the status quo, in which a lot of the financial 
organizations in the U.S. and major law firms are involved in the 
looting, to get them very involved in the repatriation as a business. 
We don't want to end up with a business model where we're helping the 
looting in the first place, and then profiting by the return of the 
loot to those countries. I don't think that will fly well politically 
in the looted countries. And as an example, if we take Ukraine, some 
interesting research that's been done, Ben Judah published an article--
gosh, over two years ago already--of on-the-ground research in Ukraine, 
and about how the average Ukrainian was quite aware of how the West 
facilitated the grand corruption taking place in Ukraine.
    Thank you.
    Mr. Massaro. Excellent. Well, thank you very much, Charles, 
especially for the focus on how corrupt regimes corrupt us, a phrase 
that I have become immediately fond of. [Laughter.] Very good.
    I'd like to turn the floor now to Brian Campbell. Brian, please 
take it away.
    Mr. Campbell. Thank you.
    As you could hear in the introductions, my background really comes 
out of human rights and work with groups on the ground in countries 
around the world on human rights issues. And for 10 years I was working 
in China where the first thing you have to figure out is how the 
corrupt networks were working in those local communities through the 
party system, so you could figure out how to manage the political and 
the economic system as well. And that's just the beginning.
    But what brings me here is, back in the region in Central Asia, I 
think we see pretty much across the board we have very large 
kleptocratic governments that have built within themselves throughout 
their economy different--for lack of a better word--syndicates that 
control different sections of the economy. And one of those syndicates 
suddenly unravels. And that was the Gulnara Karimova telecommunications 
syndicate.
    She was a government employee throughout all of the time that was 
going on and she was also a daughter of the president. She used her 
position to block access--free access, I'll say--to the 
telecommunications market by securing bribes for international, 
multinational companies that wanted to buy into the Uzbek telecom 
market. And this happened over a course of many years. And over time, 
the bank accounts grew and grew. And they were up to $850 million, and 
is what has been discovered. And that's still all just what's been 
discovered.
    And this all came out because of the work of civil society. So, in 
terms of prevention, I'll just throw out that civil society was a huge 
role in this, because it was the media that were doing exposes, working 
with others in civil society to get access to individual people that 
were the enablers of the corruption. And in this case, these are Uzbek 
citizens working in banks around the world, in Dubai. Non-Uzbek 
citizens, Westerners--you know, every single node, as we were talking 
about, enabling.
    And they were located around the world. They were business 
services, financial services, banks--you name it. You had to have 
multiple different layers of companies. And so she built this network. 
But she used her position as the government and used her influence in 
the government, and used the support of the SMB, which is the secret 
service in Uzbekistan, to extract huge amounts of brides from the 
telecommunications sector.
    Practically speaking, it led to quite poor telecommunication 
service in some areas. But more nefarious, what it did--all of that 
money went to support the continuance of the government that was in 
power, right? So each major player within that government has different 
patronage networks--political patronage networks that operate through 
corrupt financial transactions. And in this case, she had the 
participation of the current prime minister, who at that time was the 
head of the telecommunications agency, who was facilitating all of 
these corrupt transactions, by giving out the frequencies to the 
Western companies.
    So all of this came unraveled. And it was a big embarrassment for 
the Uzbek Government. But it also led to investigations in Sweden, 
Switzerland, Brussels--sorry, Belgium, I'll say, because Brussels I 
understand is EU words. But it's all over. And including the United 
States, because U.S. banks were used to facilitate the transfer of the 
assets. The assets aren't in the United States, but we facilitated the 
transfer of those assets through different banks, through the U.S., and 
into banks across Europe.
    So the United States has brought a civil case. And they are trying 
to--because of the jurisdiction provided to them under the FCPA, 
they're trying to go back and seize and get legal right to those assets 
that are sitting in bank accounts in three different countries--and 
then once they do seize those assets--and that's a current case in the 
southern district of New York--the question then becomes, what happens 
to those assets?
    So if you still have the prime minister of the government who was 
one of the people who helped facilitate the corrupt transactions to 
begin with, and you have the president of a government who's been 
running the cotton syndicate--and this is me putting on my legal 
advisor to end forced labor--he's been running the cotton sector that's 
been extracting resources into a missing fund of $650 million--
disappears every year from the cotton sector. This has been run by the 
president. We don't even have investigations into what happens to that 
money yet. We're just focused on telecom on this one.
    And what we're trying to do is figure out, how do you return assets 
to the people of Uzbekistan? Because they belong to the people of 
Uzbekistan. And how do you return that, but in a responsible way? I've 
been working with Uzbeks in exile, and also getting feedback from as 
many as we can in the country through whatever means we can, because 
communications are tightly restricted, to really come up with what 
really could be a good solution for repatriation, so that way if the 
U.S. Government seizes the money--and I'll just flag this as a 
significant problem in U.S. laws--if the U.S. Government seizes the 
money, the law says it has to go to the U.S. Treasury.
    So it creates an international challenge here, because Switzerland 
also has the money, and they want to do something--they don't want it 
to go to the U.S. Government Treasury. They want it to be spent in 
Uzbekistan under Article 57 of the convention, but with modalities, as 
we would say, not conditions. So, with all of that in mind, we have now 
multiple jurisdictions, 22, involved in a case, each of which has a 
different set of laws with a different set of priorities for the 
repatriation of assets. And so, at this point, it becomes a significant 
challenge in order to implement the responsible repatriation of assets.
    To the extent that the governments communicate, they're doing a 
good job. It's our role, as civil society--and me, as the attorney for 
many of these civil society groups--to engage with each of the 
governments. But I think overall, we need to focus on--especially here 
in the U.S. and in the U.S. Congress--is how can we make our laws 
recognize what I think we've all sort of come to understand, which is 
that as we facilitate the use of this money, or the movement of this 
money, when it comes time to return it, how to do that in a responsible 
way, and how to get our laws to enable our government to responsibly 
repatriate it? I think those are the two big questions.
    And in the meantime, we're going to continue to work with the Uzbek 
folks in exile, with the hope of convincing all the governments that 
until the situation in Uzbekistan is changed, they should examine 
creating a trust. Find some other ways, something similar to the BOTA 
Foundation, which was a process in Kazakhstan. But the assets here are 
significantly much larger. So I think we need to be very careful in how 
we repatriate assets in this case.
    With that, I'll wait for your questions. Thank you.
    Mr. Massaro. Well, thank you very much, Brain. It sounds like 
you've got your work cut out for you. And thank you for illuminating 
this web that seems to unravel when something like the syndicate in 
Uzbekistan breaks down. You know, these explosions worldwide in Sweden 
and the USA and Switzerland just--you find out how many actors are 
really involved in enabling this sort of corruption.
    So our final briefer today is Ken Hurwitz. Ken, take it away.
    Mr. Hurwitz. Thank you, Paul. Thank you all. It's a pleasure to be 
here.
    The way Brian ended was a good segue to what I was going to talk 
about, which is what is the U.S. structure for dealing with all of this 
at this point? What does it look like from the U.S. point of view? From 
my point of view, I would divide it into sort of three elements that 
match the three elements that, if you remember, Paul mentioned in 
telling you about my official biography: the bribe payers, the bribe 
receivers, and those who enable the bribery to take place.
    More or less, roughly the Foreign Corrupt Practices Act is, of 
course, designed to catch bribery, especially high-level corporate 
bribery, with regard to developing countries in particular.
    The money laundering regimes that we have are largely designed to 
catch the receipt, returning of money, and can be--although have been 
used less than they should be--used also to target the enablers, the 
bankers and lawyers and accountants who largely facilitate and grease 
the wheels for the movement of monies from the victim countries to the 
financial centers of the world, including, of course, the United 
States.
    Finally, there's an initiative in the Department of Justice called 
the Kleptocracy Asset Recovery Initiative, which was announced by 
Attorney General Eric Holder in July or 2010, speaking appropriately at 
the African Union summit in Kampala, Uganda. And he described this 
program as having the aim to, quote, ``Combatting large-scale official 
corruption and recovering public funds for their intended and proper 
use, for the people.'' Now, when he was saying that, it was clear that 
the intention of the U.S. policy as articulated in that Kleptocracy 
Initiative is to really return money to the people.
    It is a question of how do you fit the tool to the purpose. Just to 
give a sense of the scale of the problem, figures are extremely 
unreliable and difficult to pin down, but the World Bank has made an 
estimate that something like $20 to $40 billion each year leaves 
developing countries because of official corruption. So the strategy 
that is used in the Kleptocracy Initiative is basically what they call 
civil forfeiture, or non-conviction-based forfeiture. That is to say, 
seizing corrupt assets that are laundered into the U.S. system, even 
where a criminal conviction is not practicable.
    But using the fiction, essentially, of a lawsuit against the 
assets--what we call an in rem or against the thing claim--the U.S. 
benefits from a reduced civil burden of proof. So it's more like a 
regular civil lawsuit. The balance of the probability is 51 percent, 
one might say--the probability that the facts as alleged are correct or 
true. A criminal forfeiture would require conviction using the standard 
of proof of beyond a reasonable doubt.
    Now, in launching this program, the Kleptocracy Initiative, the 
U.S. was doing its part in the global effort to recover and return 
stolen assets that were diverted from poor, developing countries, into 
the world's financial centers. And the most important instrument 
probably is the U.S. convention against corruption, which was approved 
by the General Assembly in 2003, and to which the great majority of 
countries, including the United States, are party.
    The origin of these developments goes back to the late 1990s, and 
perhaps even earlier, with a series of very exciting asset return 
exercises in a number of countries, particularly Switzerland and the 
United States, following the toppling of a number of notorious 
dictators, beginning even in 1986, with Ferdinand Marcos in the 
Philippines, whose some $600 million of assets was returned to the 
Philippines by Switzerland and other countries. Fujimori and Montesinos 
in Peru were another example of this early period. And of course, the 
most notorious, Sani Abacha in Nigeria, where almost a billion dollars 
has been returned.
    The lesson from these experiences--or so it was thought--was that 
asset recovery efforts would generally arise from requests of new and 
well intentioned, if weak, governments in post-regime change contexts. 
In other words, the early experiences were you overthrow the dictator, 
you get a new ruler--not a new ruler--a new government that at least is 
aspiring in some sense for the rule of law and democracy, and you will 
work with them as a developed country to find and to return the stolen 
assets to help that country develop itself.
    In the seven years of the Kleptocracy Asset Recovery Initiative, 
the U.S. has seized and returned more than $600 million of corruption 
proceeds. Sounds like a lot, except remember the figure $20 to $40 
billion diverted each year from kleptocracy, essentially. Billions more 
are frozen, in U.S. cases, including of course the Uzbekistan case that 
Brian talked about, other cases relating to Malaysia, Nigeria, Ukraine, 
and so on. Some of them with as much as a billion dollars at stake.
    So what does DOJ do once it has seized the dirty assets? In the 
normal course of civil forfeiture context, the money goes into the U.S. 
Treasury, as Brian said. But the Attorney General has the discretion to 
accept claims asserted by means of petitions for remission submitted by 
innocent owners of the forfeited assets, lienholders, and victims. Now, 
to be sure, when the victimized state itself asserts a claim, it is 
able to satisfy the requirement to obtain return of state. The funds 
were stolen from the state. They are clearly a victim. The assets are 
theirs. They are innocent owners, et cetera. That is the very purpose 
of the Kleptocracy Initiative.
    And the generally reasonable assumption is that in a state ruled by 
law, the returned assets will, indeed, in some fashion, be used to 
benefit the people whose interest the state is supposed to represent. 
But what happens when the victim country is Uzbekistan, or another 
one--or Equatorial Guinea, or even other countries where you have a 
more contested form of kleptocracy, such as Ukraine?
    In the situation where it is the corrupt regime itself, or the 
cliques that control the state that are essentially perpetrators of the 
same or closely related, similar, systematic corruption, one might 
think that at first the proper use--as Eric Holder referred to in 
returning the stolen assets--would be to the people, as was the 
intention, and that that would be able to take place through 
recognition of the third category that I mentioned, victims, in the 
petitions for remission, which is a suitable way for the attorney 
general to return assets.
    The bulk of the populations of kleptocracies, broadly speaking, are 
the real victims of corruption. However, in the U.S. rules, a 
definition of victim for asset forfeiture purposes basically says that 
a victim is someone with a pecuniary loss of a specific amount that has 
been directly caused by the criminal offense or related offense that 
was the underlying basis of the forfeiture, and that the loss is 
supported by invoices and receipts. So it's a very narrow concept of 
victim that we have in the civil forfeiture context.
    When the United States, therefore--the Department of Justice--is 
trying to contend with its mandate under the Kleptocracy Initiative, 
they will be in a tough spot, essentially. The law doesn't help them. 
If the money is forfeited, it is rather difficult to actually return it 
to the people who are the victims, and who are the proper recipients 
under Holder's terms. However, the alternative--where you can catch the 
money before it gets into the Treasury, and therefore the department 
has much more flexibility--requires coming to an agreement with the 
party that claims to own the assets that are forfeited or with the 
government of that party.
    And that may work. And Brian mentioned the Kazakh example with the 
BOTA Foundation, where you had three governments--Switzerland, the 
United States and Kazakhstan--sharing responsibility and oversight, 
along with the World Bank and other entities, to distribute some $115 
million to the people--to basically poor children and mothers in 
Kazakhstan. However, if they negotiate, you have to assume that you 
have a party that's operating in good faith on the other side, and 
who's willing to comply with that agreement. And the parties we're 
talking about, kleptocracies, are precisely the ones that are least 
likely to be in that situation. So that's the rock and the hard place 
that U.S. law now puts the Department of Justice when trying to arrange 
a proper return of the assets for the benefit of the people.
    Now, one point worth considering is that with regard to criminal 
asset forfeiture, they do authorize the acceptance of claims from 
petitions by owners or by lienholders or by victims, but victims 
defined in a similar narrow sense. However, there is also additional 
language in the statute that authorizes the attorney general to take 
any other action to protect the rights of innocent persons, which is in 
the interests of justice. This is a provision that it may be, I think 
it is worth considering, worth including into the statute for civil 
forfeiture, at least with regard to kleptocracy cases, and that might 
well be able to boost the ability of the Department of Justice to 
actually carry out the mandate that it has taken upon itself.
    I'm going to stop right there.
    Thank you.
    Mr. Massaro. Well, thank you very much, Ken, for illuminating the 
very, very deep intricacies, it sounds like, of making sure that these 
assets get back to who they belong to and how often that that's not the 
case, given the current legal situation.
    So we'll move into the Q&A now. And I'll start with a couple of 
questions.
    First of all, you all brought up the role of civil society in your 
talks. And I'm sure that you've all engaged with civil society in the 
work you do. My question would be, what is the best way for civil 
society to engage on asset recovery? What should they be targeting? 
What should they be looking at? And who should they be speaking with in 
order to have maximum effect?
    And I'll start in the same order we spoke in. Thank you.
    Mr. Davidson. Well, my reflex is that perhaps within certain 
countries, civil society could create a political kernel that would be 
legitimate and powerful enough that assets might be returned to them. 
Now, that might involve some kind of Magnitsky-style, subjective 
judgment as to who is legit and who isn't, but we're going to have to 
do that at some point. I mean, we really are if we're talking about 
doing this kind of thing in the first place, so there may be some 
countries where we might have that.
    Mr. Massaro. Brian, you have anything to say about civil society?
    Mr. Campbell. I would say quite a bit. [Laughter.] You know, I 
think civil society plays a role at each stage that was laid out at the 
beginning. I think civil society is such a big word, so I'll flag the 
media as part of civil society, plays a vital role in doing the 
investigations. Attorneys or advocacy organizations, like the ones that 
I work with, they are the eyes and ears on the ground in many of these 
countries. And in the case of Uzbekistan, the government is constantly 
trying to shut the civil society down in order to keep them from 
exposing these crimes, and so it is on the exposure, but it's also on 
service delivery on the other end.
    So some of the recommendations that we've put forward to every 
government and, to answer your question, civil society has to engage 
with every government. And the fact that some governments are more open 
to that than others is a problem. And I think it's something that the 
U.S. Government is very open to engaging with civil society; you find 
that a lot less in some of the European countries because it's an 
uncomfortable space for them. But I think we need to find spaces to 
make that more comfortable.
    And then lastly, just on the service delivery on the other end, 
once there is a way to repatriate the money--so in Uzbekistan we're 
hoping for a trust just to kick decisions down the line to maybe create 
a program like the BOTA Foundation in some ways.
    And the BOTA Foundation used civil society, helped build civil 
society in Kazakhstan to deliver basic services, health services, 
women's services and such. And so I think they play a point in each 
because government, really, and civil society--it's there to fill in 
the gaps of government, but also to keep them accountable.
    Mr. Hurwitz. Yes, I would certainly agree with the points that have 
been raised before. What I might add is a couple of things. One is that 
in our experience, particularly at the Justice Initiative in our 
anticorruption work, our view is very strongly that civil society's 
role actually precedes very much the return of the assets, that 
actually the development of investigations and cases is a process that 
civil society in the country from which the assets come can be an 
enormous benefit.
    Obviously, law enforcement has many tools that civil society does 
not--subpoena power and the ability to wiretap and so on. However, law 
enforcement is also very restricted in many ways, particularly when 
they're trying to investigate in a foreign country that doesn't allow 
them to go there, or even if it did, where it's a very complicated 
world for Department of Justice lawyers who are not experts in Africa 
or in Central Asia or wherever the money is from, to learn.
    Civil society from those countries and international civil society, 
somewhat as a mediator and an interpreter and a link, can really advise 
and lead investigators from the law enforcement in the financial 
centers how to actually track down information in the diaspora or which 
figures are the ones to be tracked down, for example.
    Civil society in partnership with law enforcement can play a hugely 
important role. And we've seen that in a number of cases, 
particularly--I know it's not in the region--but the largest recovery 
that has actually been taken in a case that involved a settlement and a 
forfeiture, which was $30 million that was taken from the son of the 
president of Equatorial Guinea in Africa where civil society, both in 
Equatorial Guinea and outside Equatorial Guinea, played a huge role.
    Now, having done that, civil society, of course, that is a process 
that helps organize civil society as well and helps educate civil 
society about the process. Every situation is different in asset 
recovery when you think about some of the countries--Uzbekistan, 
Equatorial Guinea, Nigeria, Ukraine, they're very different political 
situations. And the states may or may not be capable of some or all of 
the functions that are needed in order to really return the assets in 
an accountable and transparent way.
    Civil society at the very minimum must be involved in a 
consultative basis to at least give input to those who are planning how 
assets should be recovered based on their actual real knowledge of the 
country and the regime that they're dealing with.
    At the same time, civil society must be enabled to be a monitor and 
to really see what is happening and to make sure that even if the 
country's processes and governance are not so transparent, that the 
asset recovery process itself can help strengthen the forces of 
transparency and openness within the country.
    Mr. Massaro. Great. Thank you, Ken.
    Thank you, Brian.
    Thank you, Charles.
    I'll ask one more question and then we'll open it up to the floor.
    Ken, the idea that corruption in all these countries and the former 
Soviet sphere, the idea that the forms of corruption are so different 
from one another, this is really important given that they're all part 
of the same international organization, the OSCE, the Organization for 
Security and Cooperation in Europe, which contains second-dimension 
commitments based on anticorruption and good governance, many of which 
these countries have a lot of trouble upholding.
    So I'd like to ask--this is a Helsinki Commission briefing, after 
all--to what extent does the OSCE factor into your work? And can it 
play a larger role? What role can it play in asset recovery?
    Thanks.
    Mr. Davidson. Well, I'm not sure how to respond to that except that 
actually I think there may be some commonality in terms of grand 
corruption in the OSCE countries, which is quite different from what's 
going on, say, in Africa, because we've mentioned other regions. So 
there kind of is a bit of a corruption model there. These are, for the 
most part, ex-Soviet Union countries, so they have something in common 
in terms of that. And if we look at the current threats, especially 
from a U.S. national security standpoint, these are all countries where 
the current Russian Government is very actively exporting its brand of 
corruption. I mean, it already has, but it's reinforcing the export and 
trying to keep its market share of grand corruption in these countries. 
So I think we do have a lot of commonality there where the disease and 
perhaps some of the remedies have a lot in common.
    Mr. Massaro. Thanks.
    Got anything to say on that, Brian?
    Mr. Campbell. Yes, I'll say on the Uzbek case, the transactions 
went right through the OSCE countries, right? Some of them went through 
Russia into Latvia, which then got disbursed into Western European 
banks. And so I would say the OSCE has to take a stronger role in 
addressing the financial transactions and the transparency of those 
transactions that go through those countries, because they're not just 
going through, say, the United Arab Emirates or Gibraltar or the Cayman 
Islands, they're going through Latvia and Russia. And it undermines the 
security in the region if they continue to extract the resources 
without putting it back into development.
    Mr. Hurwitz. I probably share Charles's reaction. I'm not sure I 
have that much expertise that's relevant, but I would make two points. 
One is that, without being a region expert in the OSCE, my sense is, 
even as between Africa, where I'm more familiar, and OSCE countries, 
while, of course, there are hugely important differences, and I alluded 
specifically to the political differences within the countries, but the 
pattern of corruption tends to veer, I think, toward very similar 
practices. When you launder money, there's a state of the art as to how 
you launder it. How do you use offshores? How do you find the locations 
where secrecy is most effective? How do you cover up so that it looks 
like you're being open, but you're not really? These things are beyond 
region.
    Now, the way the money is stolen may be different. In Russia, 
obviously, the privatization and sort of primitive capital accumulation 
by the oligarchs is not the same process as a country I happen to know 
pretty well, Equatorial Guinea, where basically you have a family that 
runs the oil and the other resources in the country as a private 
business. But once they're there, the way they move the money around is 
actually quite similar because it is a technical question.
    Second, I would say that Russia and China, which is also relevant, 
although, again, not part of OSCE, are being very aggressively self-
advancing in Africa and increasingly even in Latin America and bringing 
their techniques to certain governments that are welcoming exactly that 
kind of behavior. And I would say specifically two of the most 
important corruption cases or corruption examples in Africa, Angola and 
Equatorial Guinea, are in fact countries that were at one point in the 
Soviet sphere where the Russian influence educated a lot of the 
leaders.
    I'll just give you an example. We are--we, the Justice Initiative--
are engaged in a case addressing corruption that grew out of something 
some of you may remember, the Riggs Bank investigation that Senator 
Levin's commission uncovered in 2004, where Equatorial Guinea money was 
being laundered by the president into Spain. Well, it turns out the 
people who are running that laundering enterprise, and it is a large 
one, are all from the OSCE, from Ukraine, from Russia, from Lithuania 
and Hungary and so on. And they have these techniques and the 
Equatorial Guinean Government or the Equatorial Guinean family, 
President Obiang, were very eager to benefit from these techniques.
    So we're finding increasingly that actually this process is not 
only international in the sense of going from, let's say, OSCE to the 
Western centers where they want to spend their money, where they want 
to live and educate their kids, but also in terms of the other economic 
channels. So it is really a transnational problem in almost every 
sense.
    Mr. Massaro. It sounds like, in many ways, the sharing of best 
practices in how to be corrupt has been more advanced than the sharing 
of best practices in how to fight corruption.
    OK, with that we'll open the floor. Who would like to ask the first 
question? Right back there.
    Questioner. Tatiana Hatchin [ph] for Ukrainian Service of Voice of 
America. And just because I'm from Ukraine, I would like to hear more 
about the Ukrainian case and Ukrainian frozen money. We know the 
Yanukovych regime stole around $100 billion, so what is the destiny of 
that money if there is any chance to bring it back again?
    Mr. Massaro. Same order?
    Mr. Davidson. Same order? Oh. [Laughter.]
    Mr. Massaro. Got anything to say to that, Charles?
    Mr. Hurwitz. You're always the expert.
    Mr. Massaro. You can opt out. Reverse order next time?
    Mr. Davidson. No, no, I won't mention any names, but actually 
Ukraine is a classic example of a problem that we've talked about here, 
which is, is the current government of Ukraine equipped to worthily 
process repatriated funds? And is that euphemistic enough? [Laughter.]
    Mr. Massaro. Anybody else like to speak to that?
    Mr. Campbell. I'll just say briefly, not being an expert on the 
Ukrainian case, that in addition to the challenges of repatriating 
assets, I'll say that Ukraine has a very robust civil society engaged 
on these issues. And so to put out a hopeful message, I think that it's 
a good model of how civil society can keep an eye on the government and 
keep pressure on. This case has gone on for more than 10 years, from 
what I understand, in the Ukraine.
    And I will tell you that I recently went to the Ukraine to meet 
with some of these groups to learn lessons from them frankly on how to 
keep the civil society efforts moving forward. So while I can't speak 
to whether or not the money will ever return on any of the cases we're 
working on right now, because they're so complex, I can say that there 
are great organizations in the Ukraine that will keep the pressure on, 
and we should find ways to support them.
    Mr. Hurwitz. Well, I will join my colleagues here in saying I'm not 
an expert at all, but I'll talk anyway.
    Mr. Massaro. Much appreciated, Ken. [Laughter.]
    Mr. Hurwitz. Well, let's not jump the gun. These assets have not 
been seized yet. Some of these assets have been frozen, some of the 
frozen assets have actually been unfrozen. A lot of the difficulty, as 
I understand it, is that the Ukrainian Government has not been able to 
put together a legal regime and a legal capacity to make the proper 
requests and to actually work with Western countries to identify and to 
make demands upon the assets that have been stolen.
    I am sure there's many people to criticize; there's blame that goes 
around quite broadly, I'm sure. But one of the problems really has been 
on the lack of progress in Ukraine to create the legal mechanisms that 
allow this.
    And I might mention also that with regard to U.S. seizures, U.S. 
forfeitures, we have a fairly strict notion of money laundering, and 
money laundering is the main tool that is used here--that is, 
laundering introducing the proceeds or the tools of a crime, committed 
perhaps elsewhere, into the U.S. financial system. So the laundering is 
the crime, but in order to prove the laundering you have to prove that 
the proceeds come from an activity that is unlawful both in the country 
where it took place and in the United States. This is a high burden, 
especially in a country such as Ukraine where the legal code does not 
actually fully reflect or do justice to many of the kinds of crimes, 
particularly what I call primitive accumulation of assets in the hands 
of oligarchs. So this is a very real problem just in terms of setting 
up a legal regime.
    Not all developed countries do have such a strict notion of 
criminality requiring that the crime actually be a crime in the country 
where it took place, but many do. And the United States, of course, 
being such a key player, is one.
    Mr. Massaro. Next question? Right there in front, yes.
    Questioner. Ken Meyercord, a retiree.
    How about using recovered assets to pay off the foreign debt of a 
country? Theoretically, all the people of a country are responsible for 
their country's foreign debt and so this would be a way of returning 
the money to the benefit of the people, albeit indirectly.
    Mr. Massaro. Anyone like to address that?
    Mr. Campbell. I'm happy to take that. You know, it's an interesting 
idea. I think one of the challenges with that is in the Uzbek case. And 
I'll really stick to that case on this one. They are currently seeking 
loans of $750 million for agriculture where the forced labor is being 
used, then you have the corrupt network. And that's being sought by the 
current president and everybody else. So that debt then gets 
transferred back to the people of Uzbekistan who are the forced 
laborers out there harvesting the cotton that then gets sold in the 
international market at $650 million annually, then, which could go to 
paying back the debt or whatever foreign loan, disappears into a 
Selkozfond that's controlled by the president and is off the books.
    I think as a first step what we would need to see is a lot more 
budget transparency in each of these countries. And I think one of our 
challenges there has been that the lending institutions--and in 
particular I'm talking about the big ones like World Bank--they aren't 
taking this issue seriously. They're not taking the budget transparency 
issue seriously in the OSCE countries. They're giving out loans without 
putting budget transparency requirements. And they don't double check 
to see what's happening with the company revenues that are coming out 
of whatever they're trying to loan into.
    So I think that down the road when you have your democratic 
governments and you have more representation, it's something that could 
be on the table. But in this case, what you have is, you have them 
doing corrupt transactions with the World Bank to steal money, frankly. 
And so I wouldn't necessarily think that those international loans are 
not themselves facilitating corruption, because I think in many cases, 
like in Uzbekistan, they are.
    Mr. Massaro. Charles, please go ahead.
    Thanks, Brian.
    Mr. Davidson. Yes, the danger of that notion is that the funds that 
were looted in the first place--we may have facilitated, as this 
question we were talking about earlier--enabled the looting in the 
first place. And so if we then appropriate those funds, it might even 
be the same institutions, banks and whatnot, that have facilitated the 
looting in the first place that then repay the loan via this mechanism. 
That's probably not something with a great political future in terms of 
the promotion of freedom, democracy, and good governance.
    Mr. Massaro. Next question? We're up here. Thank you.
    Questioner. Actually, this is more of a response to your point 
about what the OSCE can do.
    Mr. Massaro. Great.
    Questioner. Here's a very concrete thing the OSCE can do. It can 
tell Latvia to stop laundering the money from Uzbekistan and to stop 
permitting all these wealthy Uzbek leaders' kids to go to school in 
Latvia using the stolen money from the people of Uzbekistan. If the 
rest of the OSCE would bring peer pressure to bear on Latvia to stop 
facilitating the capital flight out of Uzbekistan through Latvian banks 
and allowing the kids to go to school there and the secret police to 
have all sorts of connections through their secret police, that would 
be a great step forward.
    Mr. Hurwitz. Can I make a----
    Mr. Massaro. Got you. Yes, please, Ken.
    Mr. Hurwitz. I would just say that's a great idea, but we could 
expand significantly the number of countries that one might want to 
recommend that to.
    Questioner. Starting small, starting small.
    Mr. Massaro. Yes, yes. Latvia might withhold consensus, but we'll 
see. [Laughter.]
    Yes, please, please.
    Questioner. Thank you very much. From a national security 
perspective, at what point can the U.S. Congress and the Helsinki 
Commission weigh in and come up with complex sanctions, given the fact 
that we're talking about two problems here? One is about turning dirty 
money back, and another one is about actually preventing the new ones 
from coming.
    So if we have sanctions, clear sanctions, if we can have identified 
people from Azerbaijan, Uzbekistan, oil-rich countries, compelling 
articles about identifying [inaudible] if we come up with the list of 
those people and prevent them from entering our country and stealing 
our democracy, then I think half of the problem will be gone, no?
    Mr. Massaro. Would you like to speak to that?
    Mr. Davidson. Good idea.
    Mr. Massaro. Great.
    Mr. Davidson. There is perhaps legislation brewing that would go in 
that direction. I mean, the Global Magnitsky Act actually gives 
considerable discretionary powers to the U.S. Government to do such 
things. But there are initiatives to go further than that. The idea, I 
mean, it involves subjective judgment calls and some people have a 
problem with that. But we're either going to do something about these 
problems or we're not. I think we have to be comfortable with the 
subjectivity. And it's something Global Magnitsky proves, that we can 
be comfortable with that and pass legislation of that nature. So we'll 
see what happens.
    Mr. Massaro. Yes, please, Ken.
    Mr. Hurwitz. Yes, at the risk of being repetitive, I can't 
overestimate the importance of beneficial ownership transparency of 
corporate and other similar vehicles. And this is a question that is 
subject to various proposals for legislation. It is a question that has 
broiled up many of the states that make a fair amount of money from 
basically offering the kinds of services that Mossack Fonseca offered 
in Panama. So requiring beneficial ownership to be disclosed in the 
incorporation and continuing, you may not always get the truth, but you 
do get a cause of action if there's a lie. That's something.
    The second thing is there are many people who do not have a 
requirement under U.S. law to know who their customer is, to know who 
the beneficial owner of their customer, and most notoriously is the 
real estate industry. Real estate brokers, real estate sellers do not 
have to know who is buying their property. It can be an empty company 
from Virgin Islands or Panama or Cayman. Those kinds of inclusion of 
real estate and requirement across the board of beneficial ownership 
disclosure would go a huge way in making progress on the issue.
    Mr. Massaro. Great, thank you.
    I think we can do one more question. OK, this guy got his hand up 
real fast, so let's give it to him.
    Questioner. Thank you. Hi. My name is Lloyd A. Wentz [ph], and I'm 
an intern with Congressman Engel's office.
    Mr. Massaro. All right. He's a good guy.
    Questioner. Thank you. I was wondering if you could speak briefly 
to existing outlays for democracy promotion programs, such as the 
National Endowment for Democracy [NED], the International Republican 
Institute and others, and what the record is for how they've been able 
to foster civil society and the degree to which that has helped with 
corruption?
    Mr. Massaro. Would you like to start?
    Mr. Davidson. Sure. Well, actually, I'm very happy to talk about 
that. On the NED front, NED has gotten extremely interested in this 
specific issue of anti-kleptocracy. And they have actually voted at the 
board level and now have to report to Congress on what they're doing 
about the problem. So they have a little task force that they've put 
together. And my group works with them very closely actually.
    But they have recognized this problem of grand corruption as 
something that really undermines freedom and democracy and what they 
have been trying to promote over the years. So it goes back, their 
interest, a couple of years, but I think it's a positive development, 
and not just in terms of NED's resources, but in terms of legitimizing 
the notion of how important this is in the policy community, because 
they're quite influential as an intellectual force with their ``Journal 
of Democracy.'' Their board is very prestigious and very well-connected 
and influential in policy circles. So NED's interest is, I think, a 
very positive thing.
    Freedom House has also gotten increasingly interested in this 
question. Open Society Foundations, which is a huge organization, has 
gotten interested in this. And I think it's also becoming increasingly 
bipartisan as the national security aspects of this become more and 
more salient. And, of course--well, not of course, but it's not 
surprising, shall we say--that what's going on now with the Russia 
influence investigations has been goosing all of this immeasurably.
    Mr. Massaro. You guys like to say anything to that?
    Mr. Campbell. I'll just say, from a practical perspective, there's 
very little that the NED or institutions like that can do on the ground 
in many of these countries right now. And so I think one place where 
Congress could really help in the sense of getting civil society and 
groups like NED involved is to really highlight the human impact of 
corruption more. I don't think it's really talked about. It is seen 
more as financial transactions and, you know, rich people losing money 
essentially is how the world sees it.
    But in truth, what we're talking about are people who have been 
tortured for not wanting to participate in grand corrupt schemes, 
people who have lost their homes, their lives, people sent into exile. 
And I think, to the extent that NED and the others and Congress in 
their democracy and human rights funding can really help draw those 
policies together, I think we'll have a more comprehensive solution to 
the problem on the ground.
    Mr. Massaro. Anything, Ken?
    All right. Well, thank you all very much for coming. We will 
conclude the briefing there. See you later. [Applause.]
    [Whereupon, at 11:32 a.m., the briefing ended.]
 

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