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79–943 PDF 2002

RECOVERING DICTATORS’ PLUNDER

HEARINGS

BEFORE THE

SUBCOMMITTEE ON

FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

MAY 9, 2002

Printed for the use of the Committee on Financial Services

Serial No. 107–69

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa

MARGE ROUKEMA, New Jersey, Vice Chair

DOUG BEREUTER, Nebraska

RICHARD H. BAKER, Louisiana

SPENCER BACHUS, Alabama

MICHAEL N. CASTLE, Delaware

PETER T. KING, New York

EDWARD R. ROYCE, California

FRANK D. LUCAS, Oklahoma

ROBERT W. NEY, Ohio

BOB BARR, Georgia

SUE W. KELLY, New York

RON PAUL, Texas

PAUL E. GILLMOR, Ohio

CHRISTOPHER COX, California

DAVE WELDON, Florida

JIM RYUN, Kansas

BOB RILEY, Alabama

STEVEN C. LATOURETTE, Ohio

DONALD A. MANZULLO, Illinois

WALTER B. JONES, North Carolina

DOUG OSE, California

JUDY BIGGERT, Illinois

MARK GREEN, Wisconsin

PATRICK J. TOOMEY, Pennsylvania

CHRISTOPHER SHAYS, Connecticut

JOHN B. SHADEGG, Arizona

VITO FOSSELLA, New York

GARY G. MILLER, California

ERIC CANTOR, Virginia

FELIX J. GRUCCI, JR., New York

MELISSA A. HART, Pennsylvania

SHELLEY MOORE CAPITO, West Virginia

MIKE FERGUSON, New Jersey

MIKE ROGERS, Michigan

PATRICK J. TIBERI, Ohio

JOHN J. LAFALCE, New York

BARNEY FRANK, Massachusetts

PAUL E. KANJORSKI, Pennsylvania

MAXINE WATERS, California

CAROLYN B. MALONEY, New York

LUIS V. GUTIERREZ, Illinois

NYDIA M. VELA ́ ZQUEZ, New York

MELVIN L. WATT, North Carolina

GARY L. ACKERMAN, New York

KEN BENTSEN, Texas

JAMES H. MALONEY, Connecticut

DARLENE HOOLEY, Oregon

JULIA CARSON, Indiana

BRAD SHERMAN, California

MAX SANDLIN, Texas

GREGORY W. MEEKS, New York

BARBARA LEE, California

FRANK MASCARA, Pennsylvania

JAY INSLEE, Washington

JANICE D. SCHAKOWSKY, Illinois

DENNIS MOORE, Kansas

CHARLES A. GONZALEZ, Texas

STEPHANIE TUBBS JONES, Ohio

MICHAEL E. CAPUANO, Massachusetts

HAROLD E. FORD JR., Tennessee

RUBE ́ N HINOJOSA, Texas

KEN LUCAS, Kentucky

RONNIE SHOWS, Mississippi

JOSEPH CROWLEY, New York

WILLIAM LACY CLAY, Missouri

STEVE ISRAEL, New York

MIKE ROSS, Arizona

BERNARD SANDERS, Vermont

Terry Haines, Chief Counsel and Staff Director

(III)

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

SPENCER BACHUS, Alabama, Chairman

DAVE WELDON, Florida, Vice Chairman

MARGE ROUKEMA, New Jersey

DOUG BEREUTER, Nebraska

RICHARD H. BAKER, Louisiana

MICHAEL N. CASTLE, Delaware

EDWARD R. ROYCE, California

FRANK D. LUCAS, Oklahoma

BOB BARR, Georgia

SUE W. KELLY, New York

PAUL E. GILLMOR, Ohio

JIM RYUN, Kansas

BOB RILEY, Alabama

STEVEN C. LATOURETTE, Ohio

DONALD A. MANZULLO, Illinois

WALTER B. JONES, North Carolina

JUDY BIGGERT, Illinois

PATRICK J. TOOMEY, Pennsylvania

ERIC CANTOR, Virginia

FELIX J. GRUCCI, JR, New York

MELISSA A. HART, Pennsylvania

SHELLEY MOORE CAPITO, West Virginia

MIKE FERGUSON, New Jersey

MIKE ROGERS, Michigan

PATRICK J. TIBERI, Ohio

MAXINE WATERS, California

CAROLYN B. MALONEY, New York

MELVIN L. WATT, North Carolina

GARY L. ACKERMAN, New York

KEN BENTSEN, Texas

BRAD SHERMAN, California

MAX SANDLIN, Texas

GREGORY W. MEEKS, New York

LUIS V. GUTIERREZ, Illinois

FRANK MASCARA, Pennsylvania

DENNIS MOORE, Kansas

CHARLES A. GONZALEZ, Texas

PAUL E. KANJORSKI, Pennsylvania

JAMES H. MALONEY, Connecticut

DARLENE HOOLEY, Oregon

JULIA CARSON, Indiana

BARBARA LEE, California

HAROLD E. FORD, JR., Tennessee

RUBE ́ N HINOJOSA, Texas

KEN LUCAS, Kentucky

RONNIE SHOWS, Mississippi

JOSEPH CROWLEY, New York

(V)

C O N T E N T S

Page

Hearings held on:

May 9, 2002 ....................................................................................................... 1

Appendix:

May 9, 2002 ....................................................................................................... 39

WITNESSES

THURSDAY, MAY 9, 2002

Blum, Jack A., Partner, Lobel, Nevins & Lamont ................................................ 14

Chege, Michael, Director of the Center for African Studies, University of

Florida ................................................................................................................... 6

Conyngham, John, Director, International Investigations, Control Risk

Groups LTD., U.K. ............................................................................................... 10

APPENDIX

Prepared statements:

Bachus, Hon. Spencer ...................................................................................... 42

Oxley, Hon. Michael G. .................................................................................... 40

Royce, Hon. Ed .................................................................................................. 45

Blum, Jack A. ................................................................................................... 61

Chege, Michael .................................................................................................. 46

Conyngham, John ............................................................................................. 51

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

CRS Report, ‘‘Abacha Case Chronology’’ ................................................................ 70

(1)

RECOVERING DICTATORS’ PLUNDER

THURSDAY, MAY 9, 2002

U.S. HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

AND CONSUMER CREDIT,

COMMITTEE ON FINANCIAL SERVICES,

Washington, DC.

The subcommittee met, pursuant to call, at 10:02 a.m. in room

2128, Rayburn House Office Building, Hon. Spencer Bachus, [chairman of the subcommittee], presiding.

Present: Chairman Bachus; Representatives Royce, Kelly,

Gillmor, Hart, Tiberi, Waters, Sherman, Maloney of New York,

Moore, and Lucas of Kentucky.

Chairman BACHUS. Good morning. Today we will hear from a

group of distinguished panelists on what the international community is doing—— and what more can be done—— to address the

causes and consequences of political corruption that is so widespread throughout the developing world. The subcommittee’s particular focus will be on efforts to recover stolen assets and other

proceeds of corruption and return them to the rightful owners in

the countries that have been plundered.

In the last Congress, Ms. Waters and I held hearings in the Domestic and International Monetary Policy Subcommittee on the

transition taking place in Nigeria from a military regime plagued

by rampant corruption to a functioning democracy marked by impressive economic and social reform.

Nigeria is, of course, something of a poster child for what can

happen to a country when it is hijacked by corrupt public officials

who enrich themselves at the expense of those they are sworn to

serve. The notorious military dictator, Abacha, aided and abetted

by a host of cronies and family members, systematically looted the

Nigerian treasury of literally billions of dollars over the course of

his brief, 5-year rule, leaving behind a desperate, impoverished

country when he died in 1998.

Efforts to identify and repatriate Abacha’s ill gotten gains have

spanned the globe, following money trails to private banking departments in New York and London money center banks, as well

as to more obscure locations such as the bank secrecy havens of

Luxembourg and Liechtenstein.

The bulk of Abacha’s stolen treasure ended up in various Swiss

bank accounts. To their credit, Swiss authorities launched an intensive investigation of Abacha’s accounts in 1999. Just last month,

a landmark settlement was reached among Switzerland, Nigeria,

Abacha’s survivors and four other countries where Abacha funds

2

were deposited, that will result in the return of $1 billion to the

Nigerian government. We will hear more about this settlement

from our witnesses at today’s hearing.

For countries already struggling with deep—seated poverty, hunger and disease, the human toll exacted when corrupt government

officials divert public resources for private gain is devastating. So

long as corruption thrives in so many places around the globe, efforts to improve the living standards and the conditions of people

living in poverty, whether through debt relief, foreign assistance or

capital investment, can never fully succeed.

What can the United States and other developing countries do,

and why should they do it? First, we can require as a condition of

U.S. and international financial assistance that recipient countries

implement meaningful anti-corruption measures to prevent such

aid from being misappropriated or used for anything other than its

intended purposes.

Second, we can work with our G–7 partners and other governments to deny safe haven to funds that have been spirited out of

the country by corrupt political regimes. As the Abacha case demonstrates, the global banking system can easily be exploited by

those seeking to conceal or launder the proceeds of political corruption. A concerted international effort involving close cooperation

among regulators, law enforcement authorities and financial institutions is absolutely essential for dealing effectively with future

Abachas.

In this regard, two key provisions of the U.S.A. Patriot Act developed by this committee last fall will reduce the attractiveness of

the U.S. as a destination point for ill-gotten gains of corrupt foreign

officials. First, the new law expands the list of foreign predicate offenses on which the U.S. Government can base a money laundering

prosecution to include the misappropriation, theft or embezzlement

of public funds by or for the benefit of a public official.

Second, the Patriot Act requires U.S. financial institutions to

apply enhanced security to private bank accounts maintained by or

on behalf of senior political figures and their immediate family

members or close associates to facilitate the detection and reporting

of transactions that may involve the proceeds of foreign corruption.

At today’s hearing, we will hear testimony from seasoned investigators and asset recovery specialists who are uniquely qualified

to provide the subcommittee with a report from the front lines of

the battle against global corruption.

Second, and I am going to depart from my written statement at

this time. I think the question is why is it in the United States’

best interest? Why is it critical that we help fashion a solution to

getting these assets back? The short answer is that the world is becoming a chaotic, dangerous place for all of us because of this very

corruption.

You take a look around the globe at all those problem areas,

areas that we are being drawn into, areas that could cause us to

be involved in military action, and without exception part of the

problem has been and continues to be corruption of government officials.

We will hear some testimony today about the PLO, the fact that

the PLO has corrupt officials in it that are diverting money that

3

is not going to the Palestinian people. As a result, a lot of what we

see on TV about the unrest in the Middle East corruption, is a contributor to that, the fact that the corruption actually prevents and

retards any ability to bring peace in the Middle East.

Slobodan Milosevic looted his government. Argentina, one of our

biggest economic problems in the western hemisphere, fell victim

to corruption and looting of its national treasury. Afghanistan, we

are trying to support and establish a stable government there. The

Taliban looted the national treasury of Afghanistan recently. That

compounds our problems there.

In a number of small and not so small countries throughout the

developing world, there are cases where the government, the

present government, is struggling because the national wealth was

looted, and when they came to power the resources were simply not

there for infrastructure or for addressing the needs of the people.

Finally, I say that the World Bank and the IMF, international

agencies, could do much more. A lot of the assistance they are giving is being skimmed off, diverted and ends up in the pockets and

the bank accounts of corrupt government officials, not for the purpose it was intended, which in some cases creates a worse situation

or does create a worse situation than you had to begin with, because the assistance not only is not given, but the country to which

it was supposed to have been given has got to pay that money

back, which creates even more debt.

[The prepared statement of Hon. Spencer T. Bachus III can be

found on page 42 in the appendix.]

In order to have any successful debt relief, in order to have any

successful efforts to help impoverished countries, we have to, number one, put an end to the corruption. To do that, it is going to take

a comprehensive program. Therefore, that is why we have brought

together this distinguished panel.

At this time I will recognize the Ranking Member, Ms. Waters.

Ms. WATERS. I would like to thank you, Chairman Bachus, for organizing this hearing on Recovering Dictators’ Plunder. I especially

appreciate your continuing interest in justice for the people of Nigeria and other countries that have been plundered by dictators.

I first became interested in this issue when I learned that the

family of Sani Abacha had laundered millions of Nigeria’s stolen

assets and accounts at Citibank, an American financial institution.

General Abacha’s sons, Muhammad and Ibrahim, first became clients of Citibank Private Bank in 1988. They began by opening accounts in London and later opened accounts in New York.

Citibank provided the Abacha sons with a number of secrecy

measures. According to a November, 1999, hearing by the Senate

Permanent Subcommittee on Investigations, Citibank provided

Abacha family members with three special name accounts and accounts in the name of a shell corporation, Morgan Procurement.

The London account held as much as $60 million at one time. The

New York accounts usually held about $2 million, but in one 6

month period saw deposits and withdrawals of almost $47 million.

The Domestic and International Monetary Policy Subcommittee

of the Banking and Financial Services Committee held a hearing

on May 25, 2000, on Nigeria in Transition under the leadership of

Chairman Bachus and myself. Extensive evidence was presented at

4

this hearing regarding the laundering of Nigeria’s stolen assets in

American financial institutions. However, no action has been taken

by the United States Government to identify these stolen assets

and facilitate their return to the people of Nigeria.

On April 17, 2002, we understand the government of Nigeria

reached a settlement with Sani Abacha’s family. Under this agreement, the Abacha family will return more than $1 billion in assets

to Nigeria. The family will be permitted to keep about $100 million.

The assets that will be returned will come from banks in Switzerland, Britain, Luxembourg, Liechtenstein and the English Channel

Islands.

Unfortunately, none of the funds laundered in Citibank or other

American banks were included in the settlement. Nevertheless, the

Abacha settlement does provide an illustration of methods to identify stolen assets and facilitate their return to the country from

which they were stolen.

It may be possible to apply these methods to assets stolen by

other dictators such as Marcos of the Philippines, Mobutu of Zaire,

Baby Doc Duvalier of Haiti, Slobodan Milosevic of Yugoslavia,

Suharto of Indonesia and the Taliban of Afghanistan. However, future efforts to identify stolen assets should include assets

laundered in American financial institutions.

Today I will introduce the Stolen Assets Recovery Act of 2002.

This bill will require the Secretary of the Treasury to submit a report to the Congress on the possibility that stolen assets may be

laundered in financial institutions in the United States.

The report would include an explanation of U.S. Government efforts to identify stolen assets, mechanisms available to the U.S.

Government to identify stolen assets and legislation that could be

enacted to facilitate the return of stolen assets to the people of the

countries from which they were stolen.

The legislation would also require the Secretary of the Treasury

to urge the International Monetary Fund and the World Bank to

provide the U.S. copies of all audits and other information possessed by these institutions regarding the use of funds loaned to

dictatorial governments and other governments where corruption

has been a serious problem.

It is essential that the United States of America support efforts

to identify assets stolen by dictators and their families and facilitate the return of those assets to the people from whom they were

stolen. I look forward to the testimony of the witnesses on the recovery of assets stolen by Sani Abacha and other dictators.

Mr. Chairman, let me just say that there are any number of instances where we have learned that our banks have been in receipt

of money that has been stolen from citizens in other countries.

Mexico is one of them. We discovered that Citibank used concentration accounts where they wire transferred money offshore. In many

of these places where dictators have stolen the money from people

and the money ends up in our banks, we are giving financial aid

or foreign aid or assistance to them in one way or the other. I think

it is outrageous and ridiculous.

I guess we are going to hear about the settlement that took place

with Nigeria and the Abacha family, and I guess there is some justice in that, but even that is ridiculous, and still again it does not

5

account for those dollars that found their way into American

banks. There are a lot of other instances of that.

I just hope that we can move forward in some way beyond this

Nigeria settlement and not just see this Nigeria settlement as the

way to go, but dig a little bit deeper and find out how we can discourage our banks from being part of the raping of these countries

by these dictators. Sheltering these assets in our institutions is

outrageous and ridiculous.

I thank you so very much for paying attention to this issue.

Chairman BACHUS. Thank you. I would simply like to respond to

the Ranking Member by saying I think she and I both recognize

the incredible cost not only to the people of these countries, but to

the United States and to the taxpayers here, of corruption.

It has a direct impact on our military budget, on our defense

budget, in that we are required to have a presence in countries or

have military in countries where otherwise we may not need a military presence.

It constitutes a tremendous security threat to our country, as we

found out on September 11, because in some of these countries, and

I think Professor Chege can comment, money from these countries

actually found its way to Al-Qaida and was used to finance the terrorist attacks of September 11, a direct result of corruption in these

countries where the G–7 countries, the world organizations, apparently looked the other way and took no actions.

We will continue to pay a tremendous price as a country if we

and other countries do not move against this and clean up our own

house. I for one believe the United States as a result of the Patriot

Act is leading the way. I believe a lot of what happened in the

United States could not happen today because of laws which we

have already enacted.

We will either as a country lead an effort or participate in an effort to clean this up, or we as a people will suffer. Whether we suffer by oil embargoes, whether we suffer by becoming involved in a

war in the Middle East, whether it is another embassy bombing,

we will pay the price if we ignore this.

With this I will introduce the panelists. Professor Michael Chege

is director of the Center for African Studies at the University of

Florida-Gainesville where his principal teaching focus is the comparative politics of African states.

Professor Chege, a native of Kenya who previously taught at the

University of Nairobi in Kenya, the Graduate Institute of International Studies in Geneva and was a fellow at Harvard Center for

International Affairs, currently is conducting research on the role

of the military in the transition to more democratic governance in

Africa.

I believe he brings a personal perspective in that his home country has fallen victim to this very corruption that we are talking

about, and his fellow countrymen are facing poverty and disease as

a result of that very corruption, so he has seen it happen on a firsthand basis to his fellow Kenyans.

John Conyngham is founder and director of the 150 member

international corporation investigations team at the London based

Control Risks Group, Ltd. The team, operating out of 12 offices

worldwide including three in the U.S., does investigations ranging

6

from pre-employment screening through fraud investigation and

prevention, investigative due diligence and asset searches for both

government and corporate clients.

A former prosecutor of tax evasion and drug related charges in

England, he also is Deputy Principal Crown Counselor in Hong

Kong specializing in fraud prosecutions and formerly was head of

fraud prosecution for Crowe Associates U.K., Ltd.

Jack Blum, an expert on money laundering and offshore tax

haven issues, is a partner in the Washington law firm Lobel,

Novins and Lamont where he represents individuals, governments

and corporations on international business transactions, corporate

fraud, recovery of losses for victims of international, tax and antitrust matters.

He served as associate counsel for the Senate Committee on Foreign Relations and the Committee on Judiciary and was later special counsel to the Committee on Foreign Relations. He was involved in a number of well-known investigations, including BCCI,

General Noriega’s drug trafficking and Lockheed Aircraft’s overseas

bribes, which gave rise to the Foreign Corrupt Practices Act.

He has been a consultant to the United Nations Center on

Transnational Corporations and to its Office of Drug Control and

Crime Prevention. In fact, he presently chairs an experts group on

international asset recovery of the U.N. Center for Transnational

Corporations and its Office for Drug Control and Crime Prevention.

The panel which he chairs has actually been charged by the U.N.

with looking at the very subject we are testifying about today.

I welcome you, gentlemen, and we will go from left to right starting with Professor Chege. We welcome you to the hearing and look

forward to your testimony.

STATEMENT OF PROFESSOR MICHAEL CHEGE, DIRECTOR,

CENTER FOR AFRICAN STUDIES, UNIVERSITY OF FLORIDAGAINESVILLE

Mr. CHEGE. Thank you very much, Mr. Chairman, Congresswoman Waters. I am so pleased to be here and appear before you

this morning. I feel honored to have been asked to come and speak

to you this morning.

My main qualification for appearing before you, as was stated by

the Chairman, is that I grew up amidst a lot of poverty in colonial

Kenya when it was still a British colony. I did not wear my first

pair of shoes until I went to high school at age 15.

I have now a position as Professor of Political Science and Director of African Studies at the University of Florida. I have seen it

all from a theoretical perspective. I have seen it all in practice, and

it pains me that dictators in Africa and in other parts of the developing world continue to impoverish the poor people.

My principal qualification for appearing before you is that I grew

up amidst poverty in colonial Kenya. I know it from a practical

point of view.

It pains me, as somebody that studies Africa and studies the developing world, to see that dictators take resources and bank them

abroad when children go hungry, when children that need vaccinations do not get them, when AIDS in some African countries affects

a third of the population and nothing is being done about it.

7

Mr. Chairman, everybody who studies the developing world

knows by now that bad governance is the root source of all the

problems that afflict these countries from political instability to

poverty to inability to provide schools and health services.

Most of the developing world has a population growth rate that

is much, much higher than the rich developed countries of the

west; a 2.6 percent population growth rate in Africa, 2.2 in the

Middle East, two percent in South Asia.

Mr. Chairman, a growing population is a young population. Fifty

percent of Africa’s population is under 25 years old. When I appear

on a street in Johannesburg or Nairobi I look old, Mr. Chairman,

because everybody else is so much younger.

A young population requires vaccinations when they are children. They require health. They require education in grade school,

in high school, in college. They require jobs. In an age where electronic transformation of information across the globe is so fast,

they watch the wealthy countries on television, on video, on cable

television, and they want it. We may not like what we see on those

channels, but, believe me, they would love to have some of it.

A government that does not provide those services risks provoking a chain reaction of instability leading onto terrorism and

into political instability, thuggery, drug trafficking and arms trafficking that affect us here in the United States as well.

I cite the case of Sierra Leone, Mr. Chairman. The dictators who

misruled and abused the wealth of that country, which is based in

diamonds and steel and iron and coffee and cocoa, between 1965

and 1992 produced a young and angry population that had nowhere to go, that had no jobs and that had lost any sense of hope.

In came Charles Taylor, the incumbent dictator of Liberia, a

country that you know was founded by the United States as a colony after the end of the Civil War for freed American slaves.

Charles Taylor, who is a drug kingpin and a war lord, sponsored

the RUF, the Revolution United Front, in Sierra Leone.

While these young people were taught to collect diamonds, those

diamonds eventually found their way to Charles Taylor and, as we

now know, into and through his intermediary, Mr. Sanjivan

Ruprah, who is now being detained by the government of Belgium;

the pockets of Mr. Victor Bout, ex-KGB, who runs the largest arms

bazaar underground in the whole world, the official supplier to AlQaida; Abu Sayyaf in the Philippines; and sundry terrorist groups

in the Middle East.

Diamonds are the terrorists’ best friend, Mr. Chairman, and now

we are learning. Although Sierra Leone looked like a country that

is way, way far away that we do not care about, we learned that

through the linkages manufactured by Charles Taylor that we, too,

became victims of this little, nasty war.

I will say something about President Mobutu of Zaire, who

passed away in 1997 and had secreted $4 billion of that poor country into Swiss accounts, chalets on the French Riviera, chateaus in

Switzerland, buildings in Europe, vineyards in Portugal, to leave

the country poorer than he found it in 1964. The people of that

country have not recovered.

There is no infrastructure to speak of, nor roads, nor telecommunications, nor schools, nor hospitals. In the midst of that,

8

they are caught up in one of the largest and most barbaric wars

on the African continent.

The saga of Sani Abacha has already been mentioned. The Honorable Waters referred to it. It is already a well known story in the

press. I could go on to my own country, Kenya.

Kenya, Mr. Chairman, was a showcase of African economic prosperity and development, the land of the safari, of hollywood movies,

yes, of Lion King even. Today, Kenya is a sad situation. It is a sad

situation because of the dictatorship of Daniel arap Moi, whose

leader, Mr. Moi, is reputed to have $3 billion abroad, has systematically ruined the economic prosperity of that country; he, his family and his cronies.

Goldenberg, which we mentioned a little bit about earlier, is a

case in point. Between 1991 and 1994, the government of Kenya,

which is to say the dictator and his minions, decided to pass a law

to give anybody who exported gold out of Kenya a 35 percent rebate of the value of that gold. That was by way of diversifying the

export commodities of Kenya, which the World Bank and IMF had

urged. Some $3 billion, $4 billion, $5 billion dollars was paid out to cronies of the president through this way, but there was one problem,

Mr. Chairman. Kenya has no gold. When the press and the courageous people of that country went over to Dubai and Switzerland

to inspect the dummy corporations that supposedly received this

gold, they found none of them.

Mr. Moi and his cronies have wealth secreted abroad that is

equal to the total national debt of Kenya, which is rated at $8 billion. In the meantime, poverty has come to Kenya. It is no longer

the golden land of the safari makers that it used to be. Aid coming

into Kenya has been squandered systematically. HIV rates go up

to 30 percent in some parts of the country; no support from the

government that is worth talking about. Schools are falling apart.

Crime is rampant; so rampant that it has completely destroyed

the prospect of tourism that used to earn that country a lot of

money. I could go on, Mr. Chairman. We concentrate on Africa because Africa now has got the worst cases in these matters. It is

also a region where the poor are growing poorer.

We could talk about the family dictatorships in our neighboring

Middle East, which are also experts in this, the Duvalier dynasty

in Haiti, the Marcos, the Samozas in Nicaragua, Suharto in Indonesia, Saddam Hussein—yes, he is an expert in this, too—the Russian ‘‘oligarchs’’ in the 1990s, all players in this macabre and tragic

drama of Robin Hood in reverse, stealing from the poor in your own

country to bank it to your rich self and your cronies abroad. Robin

Hood in reverse ought to be stopped, Mr. Chairman.

What can your subcommittee do? A lot. I thank you for the work

that you have done already. It gives me, my colleagues, my countrymen, a lot of poor people out there, a lot of heart that this great

country has people in its own legislature that care.

Number one, let us never forget the courageous people who work

in these countries to fight these dictatorships. Please, let us support democracy, transparency, accountability, civil rights, human

rights. The most effective firewall against dictators who steal from

their own people is democracy. Democracy, Mr. Chairman, is good

9

for your pocket. It is good for mine. It is good for the poor people

in those countries.

Democracy empowers people to fight so that their taxes are not

stolen. It empowers them so that they can write stories when the

dictators steal money. It encourages them to shame their leaders

when they fail to act.

Remember South Africa. We never gave up on Nelson Mandela

and his colleagues. We applaud them because they have brought

stability to that country and good governance, and the banking system works sufficiently. Another example is Aung San Suu Kyi in

Burma. The list goes on. The United States Government should

identify itself with those who fight for the rule of law, for transparency and for democracy.

Number two, Mr. Chairman. My suggestion. The era of unquestioned support for the U.S. Government for dictators abroad has

come to an end. The IMF and the World Bank have unwittingly become the principal instruments in the multilateral international organization system to help in financing of development to promote

government. They have succeeded in one respect, and that is to

give Third World countries information technology, as well as technical support, to realize the market is the single, most important

tool for lifting the poor out of poverty.

Poor people in Africa, Mr. Chairman, know how to work the market. If you give them a chance, they will do wonders. I have seen

that in Africa. Many illiterate market women in West Africa are

millionaires as I speak. It is their governments that impoverish Africans.

The IMF and the World Bank, insofar as national governance

and cooperative governance are concerned, however, are a spectacular failure. In some cases they have utterly been complacent in

the theft and depravity that these countries have suffered. The

IMF and the World Bank continued giving money to Mobutu even

as they knew that that money was going to Switzerland into secret

bank accounts and to impoverishing the people of Zaire.

Right now, Mr. Chairman, the World Bank’s president is on a

first name basis with Mr. Moi. Can you believe that? Also, because

the World Bank is providing its own employees and technical support to the Kenyan government they think that they can outsmart

him.

Mr. Chairman, it is very difficult to outsmart these crooks and

dictators. They did not get to where they are from nothing. From

Saddam Hussein to the Duvaliers to Mobutu, they are smarter

than we think. We may not admire what they do, but you cannot

fault them for playing it well.

The Alan Meltzer report that was submitted to Congress in the

year 2000 had some very interesting ways about how to reform this

institution so that it —and the IMF—become accountable to us in

the United States and also to the poor people that they serve.

Please, let us use it as a way of getting reform.

Mr. Chairman, I want to stop there, but I want to conclude by

saying that I know that I speak on behalf of a lot of poor people

in Africa who I see and speak to every time I travel there. They

look up to this country because it is a beacon of freedom, and no

institution is a greater sign of that freedom than this legislature.

10

Mr. Chairman, please do not fail them.

[The prepared statement of Prof. Michael Chege can be found on

page 46 in the appendix.]

Chairman BACHUS. Thank you. I appreciate your testimony very

much.

Mr. Conyngham.

STATEMENT OF JOHN CONYNGHAM, ESQ., GLOBAL DIRECTOR

OF INVESTIGATIONS, CONTROL RISKS GROUP, LTD., LONDON, ENGLAND

Mr. CONYNGHAM. Mr. Chairman, Members of Congress, good

morning. As you rightly stated, I am the Global Director of Investigations from an English company headquartered in London, Control Risks Group.

May I begin my comments this morning by thanking the subcommittee very much indeed for the kind invitation to appear before you. It is indeed an honor to be here, and in the last few moments it has been a privilege to hear your opening addresses and

indeed the moving address of Mr. Chege.

I have, Mr. Chairman, submitted some written testimony, and I

would ask if that could be made part of the record of the hearing

today.

Chairman BACHUS. That will be made a part of the record without objection.

Mr. CONYNGHAM. Thank you.

Mr. Chairman, what competence, if any, I have to appear before

you today is from my past 12 years as an international investigator. During that period of time, companies that have employed

me have been retained on a very significant number of asset tracing assignments. Some of those assignments have involved assets

stolen from their countries by very highly placed government officials, if not heads of state.

I have mentioned in my written testimony some of the trials and

tribulations of conducting that type of work where one comes

across the secrecy of individuals, of companies, of financial institutions, and the complexities of offshore jurisdictions, of laws and of

politics.

If I might present some brief personal thoughts at the outset of

my comments, I think probably the most important thing that I

may have said in my written testimony was the final words that

I wrote, that with these monies they can build a far better future;

they being the citizens of countries who have had their assets stolen by their former rulers.

Mr. Chairman, as citizens of our respective countries, we regularly witness the appearance of individuals who through honest endeavors and great skills accumulate great personal wealth, and we

applaud them. As an international investigator, I have had the

misfortune to witness on occasion the grotesque extravagances of

those who have accumulated wealth through the practice of grand

corruption, the diversional theft of huge sums of state monies for

the personal enjoyments of those who have held the highest positions of trust in those countries and who the evidence has shown

have abused such positions of trust from day one of that position

in office.

11

The private palaces? I have been in some of them. The vast automobile collections and multi-story carports running into hundreds

and hundreds of vehicles? I have seen them. The gold-plated everythings? I have on occasion had to touch them. When set beside the

poverty of the countries that these individuals were elected to govern, in my experience, these objects become objects of very great

distaste.

Mr. Chairman, may I thank the subcommittee for taking on this

subject today. May I say that in a small piece of research that I

conducted before I came here that you are not alone in the interest

that you are showing. A year ago in January, 2001, the International Development Committee of the House of Commons held a

series of hearings on corruption, corruption both internal and external to the United Kingdom. I have extracts from those hearings

which I might pass up at a later stage that may be of some interest

to you.

Can I just quote that a primary finding of the committee was

that their investigation into corruption had revealed a lack of coherence, focus and determination across Whitehall, the area in

London where our great Ministries of State are located, in tackling

this subject. They went on to say, ‘‘This lack of focus and coordination is hampering efforts to tackle corruption and money laundering in the United Kingdom.’’ I wonder if those comments could

possibly be echoed elsewhere.

Moving from the domestic United Kingdom scenario to the world

stage, it is my belief that major success in recovering the assets of

corrupt former leaders will only truly succeed when there is focus,

commitment, coordination, determination and coherence on an

international basis.

If I could briefly address you on three issues that I touched upon

in my written testimony which gets us maybe down to the mechanics of this exercise. First, the advantages of civil procedures over

criminal procedures in asset recovery matters; second, the difficulties that can be caused by inappropriately presented evidence; and,

lastly, and I do not wish to avoid this, the cost of worldwide asset

recovery investigations.

In terms of the advantages of civil procedures or criminal procedures in these matters, sir, the traditional approach in cases of

grand corruption is that the perpetrators of the acts must be publicly prosecuted. As a former prosecutor, I can readily identify and

sympathize with that sentiment.

As an investigator, I have come to learn over the last 12 years

that solely pursuing the criminal route does not necessarily bring

the best results for the actual physical recovery of assets, and in

the event of criminal action failing it may not return any assets at

all.

For the provisions of mutual legal assistance treaties to come

into play, in many instances charges must be in place. Charges

must have been laid in the originating country, and for all sorts of

reasons for an incoming administration to lay charges swiftly and

with competence is in many instances very difficult indeed.

Have we seen President Suharto being charged with criminal offenses? I believe we have not. In the Abacha matter, the matter

was further complicated by the fact that the gentleman concerned

12

had died by the time recovery actions were being commenced. That

has proved to be a major hurdle at least in the United Kingdom

when it came to the implementation of assistance under the Mutual Legal Assistance Treaty that was there.

The government departments that actually deal with mutual

legal assistance requests are under resourced. The latest figures I

have in the United Kingdom, there were 1,500 requests for mutual

legal assistance in the United Kingdom, and there were eight members of the department that were meant to handle that and respond adequately to them.

The alternative or parallel approach to the civil law route has in

fact many attractions. In the United Kingdom, the civil law approach provides the recovery team with powerful and speedy weapons. Freezing orders and civil search warrants can be secured from

High Court Judges on ex parte, single party proceedings with

worldwide applicability.

This means that identified assets can be frozen prior to the defendant being aware that they have been located, and authorized

search teams can enter the defendant’s property and seize documents that may further assist in the tracing of assets before the

defendant knew that anyone was coming.

The tests that the plaintiff must satisfy is that there is a strong

prima facie case, a good, arguable case. The financial penalty for

getting it wrong is heavy, but these are potent weapons that can

be readied and activated at short notice. I commend this thought

to you as the equivalent powers I am told do not exist in the

United States.

Finally, as it regards civil proceedings, the standard of proof,

that of the balance of probabilities, is far more achievable in many

cases than the rigorous criminal standard in common law jurisdictions of proof beyond a reasonable doubt.

Moving on to inappropriately presented evidence, in my written

testimony, as I said, I have tried to present a flavor of the complexities and hurdles of the investigative trail. If the investigative team

confronts these complexities and jumps these hurdles, all will still

be to no avail if on presenting the evidence in overseas jurisdictions

it is found to have been prepared in a manner that is inappropriate

for the procedures of that particular tribunal.

Why do I pick up on such a seemingly small matter? I do so because time and time again I have seen proceedings delayed or even

abandoned because of unnecessary flaws in the evidential bundle.

This type of detailed requirement puts a heavy responsibility on

the domestic investigative team in a developing country that has

just gone through a period of major political upheaval.

It is not a question of competence. It is simply a question of experience. The investigator may be dealing with the same small government teams overseas that I referred to a minute ago, or he will

be dealing with external lawyers in multiple jurisdictions, many of

whom will have had very little experience of these types of proceedings.

What is needed are the tools to collate the substantial volume of

evidence that has been collected, the knowledge that insures that

rules of evidence have been adhered to and the experience of having been there and done that before.

13

That, I suggest, leads to the need for a form of public/private sector initiative that combines the real experience of government anticorruption specialists, the private sector probe and experience of

relevant professional advisors, be they lawyers, accountants or investigators, coupled with the civil society demand, and I believe

right, for better results in this area.

It would be seen in my view to be proof positive that the developed countries were prepared not merely to mouth good intentions,

not simply to demand high standards of governance, but were prepared to provide practical assistance that produces tangible results.

Finally, sir, on costs I would touch on that matter very briefly,

because I do not wish to avoid it. The costs of such work are high.

Why is that? It is because these investigations are complex, they

are time consuming, and they are multi-jurisdictional.

For real success to be achieved, they need seasoned, multi-disciplinary professionals with the armory of experience. Such individuals are entitled, in my view, to a fair market rate for their services.

This is a real concern for victim countries I have no doubt. I have

personally heard that concern expressed in Abuja, Nigeria, I have

personally heard it expressed in Islamabad, Pakistan, and I have

personally heard it expressed in Jakarta, Indonesia.

For my company and many others in the field of operation, this

field of operation’s contingency fees are not an option. We have

costs to bear today, as well as tomorrow, and the operational costs

of investigation are very high, from travel to accommodation to the

cost of documentation, translation, the collation of the evidence together using sophisticated software and increasing the costs of forensic examination of computers.

These things, Mr. Chairman, cost significant sums of money, and

it is my belief that any international public/private partnership

must contain within it the facility that will assist at least on an

interim basis the costs of the asset recovery exorcist.

In conclusion, Mr. Chairman, I have no doubt whatsoever that

this subcommittee can seek to influence in the right places and put

in train a series of actions that could vastly improve the rates and

amounts of recovery of dictators’ plunder.

To speed you on your way, may I briefly return to the House of

Commons’ International Development Committee deliberations of

January of last year. That committee discovered that the United

Kingdom had ratified the OECD 1997 Convention on Corruption in

1998, but it had managed to do so, the United Kingdom, without

enacting any new legislation stating that the legislation of 1889

and 1906 sufficiently covered the wording of the OECD Convention.

The International Development Committee was horrified when it

heard that. Within a matter of months, the Secretary of State had

put out a statement saying that it would be reviewed, and in November last year after the very sad and tragic events of September

11 when we were putting through our Anti-Terrorism Crime and

Security Act the necessary amendments to cover the need to have

extra territorial provisions against corruption was also enacted at

that time so they had, sir, a real success. I wish this subcommittee

a similar success.

Thank you.

14

[The prepared statement of John Conyngham Esq. can be found

on page 51 in the appendix.]

Chairman BACHUS. Thank you.

Mr. Blum.

STATEMENT OF JACK A. BLUM, ESQ., PARTNER, LOBEL,

NOVINS & LAMONT, WASHINGTON, DC

Mr. BLUM. Thank you, Mr. Chairman. I very much appreciate

the opportunity to be here this morning, and I want to thank the

subcommittee for its continuing attention to and interest in a subject which I think is one of the most important issues you could be

dealing with.

I have a prepared statement. I ask that it be put in the record.

Rather than reiterate what is in the prepared statement, I would

like to focus on a couple of key points. Some of them pick up on

the testimony you have just heard.

When a new government comes in after a country has been

looted, they do not have very much to work with. I remember being

in Guyana shortly after a new government came in, and the old

crowd had taken everything—the chairs, the tables, the light bulbs,

even the toilet paper. They did not know where to begin, much less

how to go about trying to find where money had been taken, and

where it had disappeared to.

The chaos that they have to deal with is such that they cannot

do what has to immediately be done if you are to make a proper

case to go recover money, which is immediately seize the relevant

records, immediately get at the witnesses and get focused on how

you are going to make your case.

The first thing a country needs in a change of government is immediate expert help in doing a proper investigation of what happened to the money and what are the problems. This means things

like auditing what happened at para-statal companies like the Nigerian National Oil Company or one of the national mining companies.

Now, the second thing that the country needs is help in structuring the international piece of the investigation. We now have in

place a whole series of mutual legal assistance treaties which a

country can use to reach out and say please help us get this information, but the knowledge of how to meet the technical requirements of those treaties is very specialized.

Every country has technical requirements for mutual legal assistance requests. If you get it wrong, they bounce it back. They

say get more stuff. Fill in the blanks. Give us more paper. Sometimes these treaties can only be triggered if you bring certain kinds

of charges in the country that has been victimized, so there is a

question of how to coordinate the criminal case in your own country with your efforts to gather information abroad.

Then there is the question of coordinating that with an effort to

get the money, so in the Abacha case the problem was that everything that was done was done through the criminal process. In Europe, continental Europe, that makes a degree of sense because in

the criminal process in the continental countries criminal and civil

complaints are combined. It is very different than it is here, and

most Americans cannot even conceive of this situation.

15

The victim of a crime is considered what is called a party civile.

He can be a party to the criminal investigation. He sits with the

examining magistrate as the examining magistrate interviews witnesses. He has access to all of the documents that have been gathered by search warrants and investigative orders of the examining

magistrate, and he can use those in ongoing civil actions.

In the United States, it is a crime to reveal whatever a Grand

Jury has found, so the prosecutors cannot share any of the material

they get in the course of a criminal investigation with civil lawyers

who are involved in the same process. It is an utterly different

track.

In the case of Nigeria, what they did was they brought criminal

complaints and then asked for mutual legal assistance and had

subsequent criminal complaints of their own in the European countries, and that enabled them to get data and information through

the criminal process in Europe.

Now, the problem that then ensued was that the countries that

seized the money subject to these mutual legal assistance treaties

and the criminal investigation said OK, we have the money, but we

will not turn it over until you get a conviction. Of course, the criminal process in Nigeria is hopelessly broken. Ten years is a minimum time line for a criminal case. How do you get a conviction

and then get the money if you have to wait 10 years? Maybe there

will be a different government; and the money—who knows what

will have happened.

That was a real problem for the Nigerians, and finally there was

a problem that the principal perpetrator had died. Now, I visited

Liechtenstein where some of this Nigerian money was, and I talked

to all of the Liechtenstein officials who were dealing with it. They,

in the wake of various laws that had been passed and the pressure

from the international community, turned over a lot of information,

and they froze a lot of money, but they were not going to turn it

over to the Nigerians because Abacha’s family had filed 24 different

lawsuits in Liechtenstein to prevent the Liechtenstein government

from releasing the money.

You can see that it became a huge legal tangle, and there were

huge legal bills for the Nigerians to try and sort out what was

going on in these different countries. In the United States and the

U.K. the problem was that the Nigerians were not meeting either

the standards of charging or the standards of proof required to do

the freezing and carry forward with the case, and in the U.K. and

the United States the Nigerians could not afford to hire proper

counsel to do the job.

What do we need to solve this kind of problem? Well, we assembled, and John Conyngham was part of the group, a group of experts from around the world who participated in a variety of legal

systems and recovery efforts, and they talked through a number of

things that could be done to speed this process.

For example, in cases of grand international corruption why not

allow evidence, Grand Jury evidence, to be used in a civil case?

Why not allow the government access to some of that information

that has been gathered so that they can go forward with a civil proceeding and freeze the money and maybe under Court supervision

16

with proper protective Orders and use that machinery to get

around existing bank secrecy?

There was also the idea put forward that every banking institution, when it takes money in from someone who is potentially a

person who is corrupt, should know that it takes that money in as

a constructive trust for the victim of a crime. This is a concept that

the Courts in the U.K. have adopted.

What they say is you, the bank, have taken this money and,

therefore, if you give it out and let it out of your hands you, the

bank, will be liable for the money because you have it in trust for

the people of the country that was victimized, so perhaps an expansion of that concept of constructive trust would be useful.

Finally, what we need is some sort of driving engine to make this

happen, the problem being that who has this expertise, where does

a country go, who is going to give them the money and how will

they get their feet on the ground to make things work, and how

will they know as the many lawyers come in and have deals set

up of I will do it on a contingent fee or the investigator says this

is what it is going to cost. How do they know they are dealing with

people who they can trust, and how do they fund the operation?

I put forward a proposal which is strictly my own which is an

idea of creating an international revolving fund perhaps funded by

donor countries, the World Bank, which would act as a funding

mechanism for a country in this kind of mess to be replenished out

of the recovery money. If you put enough money in to start with,

you will get plenty of money back. That is our experience.

The revolving fund would enable also the country to either hire

or perhaps through some sort of international agency, let us call it

a public interest law firm or a foundation or perhaps some entity

created under the U.N., to provide case management for the country.

Country X has a problem. You pick up the phone. You call this

group, and you say look, we have a problem. Will you help us sort

through what it is that we need, what we have to do, who we have

to call and what are the likely jurisdictions we have to go to? Then

the case management entity helps begin to help a country hire on

the lawyers, the accountants, the investigators, the forensic experts

who put the case together and get the money back.

Now, another alternative idea which has some appeal to me is

the idea of setting up a foundation for recovering these assets and

getting the country that has been victimized to assign the right to

recover to the foundation. If you do that, you take away the political pressure to kill the investigation.

In a couple of countries, what we have seen is they start off hell

for leather, and about 6 months out, the old corrupt folks pull

things together and say ‘‘Wait a minute. We do not like what is

going on.’’ The investigation suddenly dies. All of the zeal that was

shown initially to recover Suharto’s assets suddenly sinks into

nothing, and you do not hear about it anymore. If you assign it to

another entity and it becomes a political problem to stop the investigation, it is a different matter, and that is another way of going

at it.

I will give you one more thought, and that will be the concluding

one, which is that we have to deal with the problem of the interVerDate 11-MAY-2000 08:51 Sep 13, 2002 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 C:\DOCS\79943.TXT HBANK1 PsN: HBANK1
17

national lending institutions. The international lending institutions

commendably have been talking about the corruption issue. They

have also hired auditors, and lots of them, to investigate the disappearance of funds that they have lent. We all understand that

a very substantial portion of the money has in fact disappeared.

The problem is under the existing system in the international

lending institutions none of this is made public. They did an audit

of Haitian loans. The upshot of the audit, everyone who knows

about it has heard, is all the money disappeared, but they have refused absolutely and resolutely to make those loan documents and

that record public.

My view is the problem is that all of the people who are the perpetrators are also sitting there as executive directors, or at least

representatives of many perpetrator countries, and that really if

you put together the question of do we go out and sue the folks who

stole the money with guys who either are in the same situation or

potentially stole it themselves, of course they are going to vote no.

We have to put into the international lending institutions a

mechanism which says if you find that money has been stolen, you

are going to assign the recovery to this international institution,

and there is no going back, and there is no voting no, and there

is no walking away from it. You will take every effort to find the

money and really get it back for the country involved because the

alternative is to lend them more money and then to take it out of

the hides of the poorest people in the victim country by saying well,

we have to send the IMF in to restructure.

If I look at some of the IMF proposed remedies for Argentina and

I think of all the money that has been looted from that country,

I think what an unfair thing. Go in and punish the victim for the

fact that the money has been stolen when what you should be

doing is chasing the crook. That to me is the direction we have to

move in.

I really advocate the creation of an entity that can take on this

effort and one that comes in under a kind of neutral international

civil service status, but also that has the flexibility and the capability of what I would call an elite law firm that can move quickly

and knows what it is about and is a little more nimble than perhaps the usual bureaucracy of the United Nations.

I have been searching for the way to create this and to get a debate going on the need for it because I think the need is obvious

and essential. There have been efforts by the banks, by the way,

to clean up what has gone on. They have assembled the Wolfsburg

Group. They have come up with lists of people who should not have

bank accounts. All of this is well and good, but I should remind you

Europe has not yet passed key provisions of the Patriot Act.

I was in Brussels a couple of weeks ago talking to key officials

of the European Union. They still have shell banks. They still have

a whole series of arrangements that this Congress has quite commendably outlawed. I think that we have to talk to the Europeans,

and we have to say look, this is the new international standard.

I think that this subcommittee has done an incredible job of closing a lot of loopholes and doors. What we now have to do is move

it out, get it into the international arena and find the machinery

18

to implement what has been done here and find the ways of helping the countries that need the help.

Thank you for giving me the opportunity to testify.

[The prepared statement of Jack A. Blum Esq. can be found on

page 61 in the appendix.]

Chairman BACHUS. Thank you, Mr. Blum.

Mr. Tiberi.

Mr. TIBERI. Mr. Blum, you mention in your testimony asset recovery and the World Bank. Do you think that the World Bank has

a serious problem when it comes to this type of fraud?

Mr. BLUM. I think there is a real problem in terms of loan money

that does not wind up going for the purpose intended or loan

money that goes into projects and the projects are three times what

they cost, three times what they ought to, or the bids are rigged,

or there is something wrong, and somebody is taking a piece off the

top.

I have seen it personally. I was in Kenya a number of years ago,

and I was called later by a Kenyan who said help me. We are bidding on a contract to supply the material for a new hospital. They

have asked us to put all of the equipment in the hospital, and we

want to prepare a bid.

What we have discovered is they have specified certain brand

names for certain equipment, and there is only one supplier who

offers those brand names. They are telling us we cannot offer alternatives and that if we do not bid the whole package we cannot be

accepted as a bidder. That is corruption.

I wrote on behalf of this company to Mr. Wolfensohn, and I got

what I would consider a snotty letter back from the World Bank

manager in Kenya who said it is none of our business it is a problem for the Kenyan government. Well, indeed it was a problem for

the Kenyan government. It was probably the Kenyan government

that was doing it. You are in a perfect Catch–22. There is no way

to recover the money.

Mr. TIBERI. Why do you believe this problem exists that has not

been rectified?

Mr. BLUM. The problem is that the people who have to vote on

the issue of asset recovery and pursue it are the executive directors

of the bank, and that includes a large block of people from countries where this problem is pandemic. You cannot get the people

who are the heart of the problem to vote for the solution.

Mr. TIBERI. What type of language would be appropriate to require the bank to recover these funds?

Mr. BLUM. I think it is necessary to say as a condition of the loan

you must, if there is an audit finding of some sort of fraud or irregularity, turn the matter over to a team separate and apart from the

bank that will then engage in the civil effort to recover the money.

That should be irrespective of the wishes of the borrowing country and irrespective of the wishes of the bank itself. If there is evidence of fraud, the politics are out. It is not a matter to be voted

on. It is a matter to move forward on.

Mr. TIBERI. Are you aware of any fraud involving U.S. export assistance?

19

Mr. BLUM. I cannot say that I have had that experience directly,

but I would guess, knowing what I know, that one could find it if

one looked.

Mr. TIBERI. Should we be concerned about fraud with the IMF

as it applies to the IMF?

Mr. BLUM. I think the IMF has had some brushes with serious

fraud. There was that marvelous case of the money that was given

to Russia turning up in the Channel Islands. There was an audit

report that was put out on that money disappearing. The next

thing we knew was the audit report had been on the website for

the IMF, and it suddenly disappeared. It went from being a public

document to being a private document, and I thought that was

kind of astonishing. I know although the report was public, I do not

know what happened in terms of recovering the money.

I was in St. Petersburg about a year ago and talked to a number

of Russian officials who are extremely interested in the problem of

asset recovery because they understand that an enormous amount

of the Russian national wealth disappeared over the last couple of

years, and it has been floating around in Swiss banks and Austrian

banks, and they have not got the expertise or the capability of

going back and getting it.

Mr. TIBERI. There are some on Capitol Hill who would argue that

because of problems both at the World Bank and IMF we should

pull back as a set of policy. Would you concur, or do you believe

reform is preferable?

Mr. BLUM. I think that if you travel the world and you look at

the need, if you visit, as I have recently, places like Lagos, places

like Kingston, Jamaica, you can see levels of poverty, despair and

need that are just so overwhelming it is a folly for the United

States to think that you can just walk away from it.

There is a basic premise that I have, which is that foreign problems become domestic problems. Whether it is the terrorists on 9–

11, whether it is a disease that starts in a country where there is

terrible poverty and then gets imported on a flight into the United

States, whether it is a pollution problem that blows across an

ocean.

Where there are huge economic and social problems, they will

come to the United States. If they do not come in the form of a

problem, they will come in the form of illegal immigrants. We have

to face the fact that the problems of the world are ours, and we

have to fund the international lending institution.

Mr. TIBERI. Based on past history, how do we begin down the

path of insuring that there is some accountability on the other end?

Mr. BLUM. The accountability I think is in this prospect of civil

recovery. You say to people look, you are borrowing the money.

What we are going to tell you is if this money is stolen we are

going to hound you to the end of the earth.

There will be no bank, no investment player who will be immune. We are also going to hound the lawyers, the accountants

and the business people who will try to help you hide the money

and help you steal the money because we are going to hold them

accountable, too.

Mr. TIBERI. Thank you. One last question. We heard this morning about the role of the Swiss government and the Swiss banking

20

industry in efforts to identify and return the assets stolen from Nigeria.

Give us your assessment and track record of our government and

the U.S. financial services industry in relation to assisting an international corruption.

Mr. BLUM. We have been quite proper in the way we have gone

about responding to requests for mutual legal assistance. The problem has been we have very high legal standards, and we are approaching it from a point of view have they met our requirements

for giving them the information? Have they given us exactly what

we need? Have they charged the case in exactly the right way in

the country where the request originated? That is one problem.

The second problem is resources. Just as in the U.K., we have

a very small number of people who handle these requests. They are

farmed out to Assistant U.S. Attorneys, and typically it goes to the

junior U.S. Attorney in the office who has a significant other case

load.

I, in fact, worked with a Swiss examining magistrate in a case,

in fact a corruption case, where I helped him make an appointment

directly with the Assistant U.S. Attorney so he could explain the

requirements of Swiss law because the problem was that the U.S.

Attorney had gathered the material, packed it up and sent it to

Switzerland, but he met none of the evidentiary requirements of

the Swiss court.

The Justice Department tries, but what we need are training

programs for people which tells them what the evidentiary requirements are in foreign courts. We need more manpower. We need

speedier responses.

Just to give you a sense of that, in a mutual legal assistance request the process goes from the police to the Justice Department

to the State Department or foreign office of a foreign country, then

over to the counterpart foreign office, then to the Justice Department, then down to the police. My rule of thumb is 2 weeks for

every time a piece of paper moves from one desk to another minimum, usually a month. You can see that in a rapidly moving case

that is disaster.

Mr. TIBERI. Thank you. I yield back the balance of my time.

Chairman BACHUS. Ms. Waters.

Ms. WATERS. Well, I would like to first thank our witnesses here

today. Your testimony has been riveting.

I guess much of what I have heard I have discovered some of

that in the past, and I am always very, very pained as I hear the

graphic descriptions of the corruption and the plundering on the

continent of Africa as I have heard today, but I also get very, very

angry about our own financial institutions who accept the money

from the dictators and help to shelter it with private bankers, and

so forth.

I have put a little time in on one such case with the Salinas

brother out of Mexico who had I think something in the neighborhood of $80 to $100 million in Citibank, and we are supposed to

be the country that is strongest on ‘‘know your customer.’’ As I recall, the Salinas brother did not even have a card on file, had no

visible employment and was a drug dealer who eventually ended

up in prison for the murder of someone.

21

For the life of me, I do not understand why that money was accepted in the first place at Citibank and how and what private

bankers do in helping to purchase assets for many of these crooks

in forming these concentration accounts where they lose identity

and money is wire transferred offshore.

I do not like our domestic banks playing a role in this kind of

money laundering or plundering or protection of money that is

plundered from other countries, so I have concentrated a little bit

on trying to figure out what we could do to make sure that we do

not continue to play that kind of role.

While we talked today about Abacha and I am alluding a little

bit to Salinas, there are other countries, particularly in Africa, who

still have assets in our American banks. For one, I would like to

see that money not only returned to the country where it was stolen under the right circumstances, and I do not know what you do

about returning money to the same government that stole it in the

first place. But I would also like to see some way by which a percentage of that money could be used to help establish organizations

that would be involved in recovery so that it is not an additional

cost to the United States or the countries, but it would be self-supporting, number one. Number two, that this money would be substituted for foreign assistance that we may be giving in some of

these cases.

This is very complicated, as you have mentioned, but let me just

try and ask this question. I guess someone alluded to some of these

funds as supporting the Al-Qaida organization and supporting terrorism. I have heard that Al-Qaida was very involved in the export

of a gem called tanzanite, and then I read recently that one of the

well known jewelry chains in America, Zales, had stopped at one

time selling tanzanite, but they are back as of a few days ago selling tanzanite again.

I understand this is a number one gem that somehow the

Taliban and the Al-Qaida forces have access to in working with

some of the leaders in Africa. I want to know what do you know

about that, and if that is still going on what should we do about

it?

Mr. CHEGE. Thank you very much, Congresswoman Waters. The

case of tanzanite, again, is typical of the problem I was referring

to in my testimony. And that is, terrorist organizations using African resources. When I say diamonds are the terrorists’ best friend,

I mean these terrorist groups just do not specialize in terror. They

are also into regular business making money that finances these

operations. We know here in the United States after 9–11 there

was money coming in to fund the people that were living here and

getting ready for those horrible, horrible deeds that day.

In the case of tanzanite, this is what we know. It is a precious

stone that is mined in Tanzania and hence the name tanzanite.

What the people in Al-Qaida and the terrorist movement did was

they have dummy companies. These dummy companies are set up

primarily in the Gulf Region, the United Arab Emirates, Dubai,

that sponsor people to come into Tanzania and exploit these minerals.

They do not do it legally. They—the frontmen and dummy companies—do it under the shadow and through the instruments of

22

bribery into government so that they more or less secure mines of

their own, they get the minerals and then ship it out of the country. Corruption within the Tanzanian government, and neighboring

states, must be seen as a fast principal avenue to which these sort

of operations are allowed to happen.

Second, because the terrorists and their front corporations do not

want any of this stuff to appear in public, they would not want to

go and be documented through customs of Tanzania, so it is

brought out of the country through jet planes and through small

planes, just like in the drug industry in South America and the

United States that fly out undetected without logging in when they

have come or left the country.

I would like to say that I am very, very pleased that you have

been following the case of tanzanite, because it is another case,

once again, that shows that illegalities taking place in faraway

countries that we do not often think that affect rich countries do

come back to haunt us. That applies as well to the case of diamonds in Sierra Leone in West Africa that I spoke about.

Ms. WATERS. Thank you very much. Thank you. I intend to continue to follow the tanzanite to see what we can do with that. I

would like to talk with you a little bit more about that.

Thank you, Madam Chairwoman.

Ms. KELLY. [Presiding] I thank you. Your question is a very good

one. I think it is very interesting. My colleague brought up the fact

that Zales had stopped selling tanzanite. I suspect that had every

jeweler in the United States of America joined Zales that would

have been able to put an enormous amount of pressure, and perhaps we would have had a better resolution than having Zales wait

it out for a bit and then come back in.

I am only sorry that there was not more unanimity on that, but

perhaps that is one of the problems that we need to address with

regard to the U.S. Patriot Act. The Patriot Act may need some

tweaking. We tried to do some things with it.

Actually, Mr. Blum, that is really the question that I have for

you. I was talking the night before last with the Ambassador of the

European Union, and he, in presenting to this group, raised issues

himself of transparency and questions of regulation. There are

great problems because they are dealing with so many different

governmental structures, but these governmental structures, if I

understand your testimony correctly, created the context for the opportunity for theft.

It seems that perhaps we need to work through the IMF, through

the World Bank, through our Patriot Act and through the EU to

try to get everyone on the same line in terms of some of these, and

it does not need to be large changes in our governmental laws in

each country, but perhaps there is a way of our drawing up some

kind of legislation that would help remove that context because the

context in and of itself also creates a chill factor for U.S. investment in other countries to invest in a country where they know

they are going to get involved in corruption.

I wonder, Mr. Blum, if you would elaborate on that a little bit.

Do we need more teeth? Do we need more funding? Can we tweak

that a little bit? How can we encourage nations to join us?

23

Mr. BLUM. We need some very expert thinking and a lot of mutual conversation. Let me try to explain that a little bit.

It is awfully hard to go to France and say gentlemen, you have

to change a structure of your criminal law. That does not get you

very far. Likewise, if you come to the United States and they say

well, why do you not amend your criminal law to make it look like

ours, that does not get you very far.

What we need are ways of getting people to agree to common

themes and agree to accept each other’s work in their own court.

We need a working concept. NATO has a concept called interoperability where weapons of all NATO countries are similar so that

NATO units can work together as a combined army.

The same kind of thing needs to go on in law enforcement. We

need concepts of cross designation so a police officer in one country

can be designated temporarily as working with the police force in

another country and have police powers. We need the ability to

move information from the criminal side to the civil side.

Now, there is a real opportunity here. There is a negotiation of

a global anti-corruption convention that is about to begin. Those

negotiations will begin this summer, and it is possible I think to

use that as a way of figuring out how do we create better international machinery for cooperation not just in terms of facilitating

the most formal kind of mutual legal assistance, but how to take

a look at all of the different pieces of the puzzle, how to put the

civil case in, how to find a machine for moving forward with asset

recovery, what kind of mechanism will we use and again to set

some standards. I think that is the place and the time that we can

really come up with something.

Ms. KELLY. Thank you.

Mr. Conyngham, I would like to know if you have anything to

add to that. I am going to ask you to try to condense what you say.

Perhaps you could think about this because I need to go to the floor

and vote, so I am going to ask that the subcommittee recess for a

short recess. Either the Chairman or myself will be right back, but

we have a vote on the floor, and it is a double vote, so I am going

to have to go.

If you would think about what you would like to add to Mr.

Blum’s answer, and I would really like both of you to do that. I

think this is a point of focus where we need to be, and we need

to be thinking about it so we can send the people into this convention perhaps in a way with some fairly clear guidelines that might

help us all.

With that, I am going to recess the hearing for a short recess.

Thank you.

[Recess.]

Chairman BACHUS. [Presiding] Thank you. Mr. Conyngham, if

you would like to respond to the question?

Mr. CONYNGHAM. Just to follow up, I think in terms of the opportunity that comes up this summer with the beginning of negotiations on the Global Anti-Corruption Treaty, then I think, sir, I

would urge the United States to build on the huge work you have

done with the Patriot Act and try and convince the European

Union and other states to come in line with that.

24

We still have the position where shell banks cannot be forced to

disclose their ownership. You have taken steps to change that in

the United States, so that would be one very positive move. I think

we need clarity as to the nature of offenses that adequately capture

the nature of criminality that is encompassed within the concept of

grand corruption.

I think, sir, we need to begin to think of ways as to how can we

get banking institutions to really begin the change in the culture

to say that a culture of secrecy in the world of 2002 is not as important as it was. That cultural change can only come from the

very top, and I do not think we have total buy in to that. I do not

think we have total buy in with banks that it matters that it ultimately affects their overall worldwide reputation as to who they

bank with and why they bank with them and where that money

is coming from.

If that message could begin to get around in stronger terms

around the world, I think we would be in a better position. It is

a culture that is there, the mode of secrecy, and it has to be

changed.

Chairman BACHUS. Thank you.

Mr. Blum, you have said that the Palestinian authority is riddled

with corruption. Would you comment on that? I know that they

have received hundreds of millions of dollars in aid from Arab

countries, and the Palestinian people have little to show for it.

Mr. BLUM. A number of years ago I was approached by people

who were involved in trying to set up as part of the peace process

industry and housing development in the West Bank and Gaza,

and their complaint was that every time that they tried to get

something going they were up against corruption.

I have heard it from people all over the Arab world that there

is a real personal corruption problem among officials of the Palestinian authority. Now, I do not view that as terribly different than

corruption in other places except when you think of the implications of it and the consequences for the United States and for peace

in the region.

What you have is a situation where corruption is protected by ongoing conflict, and, therefore, the incentives to make peace and

build are limited because then you have to actually use the money

for the purpose you are talking about.

I really think that one of the unintended consequences—unintended is the wrong word. One of the other consequences of corruption is that it hides and masks violence, war and terror, and I

think we have to address that. That is why I am so intent on trying

to figure out what can be done to prevent corruption.

Chairman BACHUS. The war and the violence cover the corruption. As you understand the PLO, and, Mr. Conyngham, if you or,

Mr. Chege, if you have any personal knowledge of this or what you

have heard, there seems to be no accountability within the PLO,

no transparency.

Mr. BLUM. It has that in common with dozens of other governments, but in this particular case the continued flow of money in

is utterly dependent on continued difficulty and continued strife.

My point is that if you cut the strife, to cut the strife you have

to cut the incentives, the business incentives, to keep the strife

25

going. If you cannot steal the money and you have to use it, maybe

you will begin to focus on how to use it properly and forget about

worrying about how to get more of it.

Chairman BACHUS. Should we as a country in our dealings with

the Palestinian authorities as, you know, we have designated them

as the voice of the Palestinian people, should we or should other

countries which are working toward peace demand some accountability on the part of the——

Mr. BLUM. I think it is part of the conversation. I think it is part

of the overall conversation that we have to have, and it is part of

what has to go on in the peace arrangement.

I see the solution not as particularly targeting them, but as setting in place the global machinery because I think there are so

many examples of it around the world that to look at any particular situation really does not get you very far.

What we have to do is talk about what are the global answers,

and what we also have to focus on is the fact that the money invariably winds up in the markets of the OECD countries. Almost

none of that money is kept on the ground on the spot, so really the

issue will turn on how well we change our culture in the wealthy

countries of the world and how we change the culture of the banking system and the legal culture.

What I would like to see is perhaps the prosecution of that infamous lawyer in Geneva who when you are elected head of state you

go check in with him, and he will work out the plan for hiding the

money. I would love to see that guy prosecuted. I would love to see

him sued by some of the countries that were victimized. The day

you get that lawsuit or that prosecution is the day every lawyer in

the world goes out of that business.

Chairman BACHUS. Mr. Conyngham.

Mr. CONYNGHAM. Mr. Chairman, yes. I think there is a danger

in going to these countries and saying you will have these standards of governance, this is what we require, this is the way we operate, when we have not in many parts of the developed world got

our act together yet either.

I think in relation going back to the Abacha matter, when it was

discovered that there were some 42 accounts linked to a batch of

families in 23 banks in the United Kingdom, 15 of those banks had

controls that fell beyond what was required under the anti-money

laundering legislation and seven had serious discrepancies, and yet

the regulator did not even name who those banks were, then I

think we have a lot to get right on our own back door before we

go perhaps preaching elsewhere.

I think it is the developed world that has got to take the lead

in this and has to have the commitment to say we will take steps,

we will stop these practices, and we will do it with legislation or

conventions that have with them real teeth.

Chairman BACHUS. Several countries, including the United

States, and I think we mentioned this, have outlawed the payment

of bribes. It is my understanding that there are actually countries

that allow you to take a bribe as a deduction on income tax.

Do you have any comment? Is it true that there are such countries?

26

Mr. BLUM. Mr. Chairman, there were until recently, but the

OECD convention has now put that to rest. Germany was one

country that was notorious for that very proposition. The delightful

term that the Germans had for that kind of payment was Schmear

Geld. It speaks for itself.

That has now changed because of the regional conventions, and

virtually all of the developed countries in the OECD group and certainly everybody in the OAS has outlawed the paying of bribes.

Now we have a convention coming that will be a global convention

that will probably codify for every other signatory the same proposition.

The warning I would give you is while that is very positive and

very good, the problem is that it is not just the payment of bribes.

This is not just an issue of big companies wanting to sell an airplane, wanting to sell a weapons system, each one bribing and,

therefore, that is the source of corruption.

It is a matter of skimming on the export of natural resources. It

is a matter of stealing wealth internally in the country and taking

it out, so it goes way beyond the bribery issue. I think it is a mistake to focus on it as a commercial bribery problem. It is much

broader than that, and we have to look at it in a broader frame.

Chairman BACHUS. I see.

Mr. Sherman.

Mr. SHERMAN. Thank you. I would like to go to this OECD convention and the idea that it will prevent bribery. I am told that the

usual business practice is you find a local person, perhaps a cousin

of the dictator, you make that person your sales agent, you pay

that sales agent five to 25 percent, and what that sales agent does

for the money or with the money is beyond the understanding of

anyone in the OECD countries, whether it be those examining tax

collection or otherwise.

Is there anything in this convention that prevents the tax deduction or prohibits the payment of a Schmear Gell channel through

a sales agent?

Mr. BLUM. In theory, yes. Your question about——

Mr. SHERMAN. So what particular law in say, Germany, would

make it illegal for a German firm to pay a commission of up to 25

percent?

Mr. BLUM. The question I think in the end is really enforcement.

It is can they do it.

Mr. SHERMAN. No. Is it even illegal? The German company can

claim that it knows nothing. It pays the commission only if a sale

is made, so it is hardly a risk. It builds its profit in the contract

large enough so that a 25 percent sales commission or even a more

modest sales commission.

Is there anything in all this window dressing and international

kum-ba-yah singing that gets at this problem at all, or does it simply provide a little bit of work for the cousins of dictators?

Mr. BLUM. I would like to answer the question in the context of

U.S. law. The way we deal with it is saying know or should have

known. I think that there is a standard of that variety in the

OECD convention.

Mr. SHERMAN. Has any company been prosecuted in the United

States on the theory that having paid a sales commission they

27

should know whether the sales agent is being paid for charm and

persuasive articulateness or whether that articulation takes the

form of playing poker with the dictator and losing?

Mr. BLUM. I think the answer is yes, there have been, but I cannot cite that chapter and verse.

I think the essential point here is not just the criminalization of

paying the bribe. It is finding a mechanism so that when the bribe

has been paid and now a new government comes in giving you the

machinery to——

Mr. SHERMAN. Yes. I realize the focus of this hearing——

Mr. BLUM. Let us sue that company. Sue them for corrupting the

country involved and make them pay back. Let them be subject to

a RICO action let us say here for their——

Mr. SHERMAN. Again, the most innocent of companies and the

most guilty of companies doing business in the Third World are

told you need a local partner or you need a local sales agent. An

examination of exactly how many minutes of work this sales agent

does or exactly what gratuities and entertainment they engage in—

should have known is an interesting phrase, but it is the usual

practice of American companies and especially European countries

not to inquire.

I want to shift to another line here, and this may be more of a

statement than a question. I think that these hearings are a subset

of a whole bank secrecy/asset secrecy. I do not think that turning

to a particular lawyer in Switzerland and prosecuting them as long

as there is an avenue, a huge avenue or several, many huge avenues. The idea that the world will lack for road maps and guides

available to dictators or others I think is absurd. The road is there.

If democracy means anything, it is the rule of law. If the rule of

law means anything, it is that the laws not give just the appearance of creating a particular result, but that we actually plug the

loopholes in them. We as a developed world or a world system have

embraced this idea that dictators should not have secret accounts,

that petty thugs should not be able to launder their money, that

socially acceptable people should not engage in tax fraud, and yet

the reality is the exact opposite. We believe in the rule of law, and

yet we maintain huge loopholes in that law.

The result is that people in Europe and the United States who

play by the rules pay taxes, and yet we have opened wider and

wider highways, loopholes, tunnels for everyone engaged in entrepreneurship, whether it be honest entrepreneurship by someone

who then cheats on their taxes or whether it be the entrepreneurship of stealing from the government of a Third World country.

We have these huge tunnels or openings or loopholes where it is

entirely acceptable for Switzerland and the Cayman Islands to be

in the business of laundering money, and then we give Switzerland

maybe a few kudos because at the very highest profile criminals

after they leave power and when they become incredibly unpopular

in the world happen to have their money in a Swiss bank they

might have wished that they put it in a Cayman Islands bank.

As long as the United States, and there is substantial support in

this country and in this Congress for allowing tax fraud. There is

hostility toward actually making the upper classes in this country

pay their taxes. If the United States were serious about this, we

28

would be realizing that doing business with countries that have

these bank secrecy laws is nothing more than an invitation to all

the types of crimes I have mentioned.

I do not know if the panel has any comment. I know I am out

of time, so the Chairman will have to decide whether the comment

will be allowed.

Chairman BACHUS. You can respond to Mr. Sherman’s question.

I would be curious also to know what is your assessment of the

Swiss and their willingness to cooperate and comply?

Mr. BLUM. We have as part of our experts group a Swiss examining magistrate who had actually worked on the Abacha case. He

was getting complaints from the citizens of his canton, the Canton

of Geneva, that Geneva was being asked to be policeman to the

world.

His job is an elected job, so you can understand that this is a

very complicated problem. He was trying to do that job in a very

straightforward way and actually made considerable headway. I

daresay it was the Swiss effort— his effort, Mr. Zucehin’s effort

and then his successor, Mr. Bertosa—who put enough pressure to

get the money returned.

They have also brought under Swiss law cases against Russian

gangsters, against a number of other malingerers, and they have

opened up others. The Swiss require the identification through a

Form A in the opening of any account of who the beneficial owner

is. If you were to talk to the Swiss, and I am not here to defend

the Swiss, they would say if you guys did the same things for Delaware corporations, we would be in a lot better shape.

They complain about our lack of speed in responding to mutual

legal assistance. It is a very interesting thing to hear this coming

from the other side. I think what we have to appreciate is not the

problem of how we point fingers at each other and who has a loophole here or a loophole there; it is the fact that we are all fixated

on our own legal systems, quite properly, and we tend not to see

things from the perspective of other people. We tend then not to

talk about how we are going to bridge those gaps. That is really

the kind of conversation that has to occur.

I would say we have come a very long way on issues of offshore

secrecy and tax evasion, but we have a ways to go. The way to go

now is how to implement, how to enforce and how to make it work.

The Patriot Act did some amazing things in that category. Now we

have to get the Europeans to follow suit. We have to see if we cannot get people to do what has to be done on the ground.

Mr. CONYNGHAM. Mr. Chairman, I think, too, I am no apologist

for the Swiss, but I do think they get very bad press in this kind

of area. I think actually like many other jurisdictions, if the rules

are followed and you know the procedures then you will get the result.

I can personally recall some now 12 or 13 years ago when I was

still a prosecutor in Hong Kong getting assets in a fraud matter

frozen temporarily by way of a phone call to the Swiss authorities,

so I do believe that in the right circumstances that they comply

well.

Chairman BACHUS. Thank you.

29

Mr. CHEGE. I just wanted to comment on the question of transparency in the developing countries and to stress once again that

you have to attack this problem from two ends.

We focus a lot on what ought to be done in the OECD countries,

but in countries of Africa, Middle East, Asia and Latin America

there are people in the legal system, in civic groups, in church

groups, in anti-poverty groups, that lay down their lives every day

because they want to reverse this trend publicly and in the press.

Let us think about it and write about it.

What we ought to do is give more support to those people so that

they can make this fight a success. It is their own fight, but they

need an extended hand of support from people that are working on

the program from the other side. They have a lot of information.

They are willing to do a lot, and it is important that we open up

avenues of communication with them.

Chairman BACHUS. Mr. Royce.

Mr. ROYCE. Thank you, Mr. Chairman. I want to thank you for

this hearing today.

I think that our witness who just made the point that we need

to be giving our support to those people laying down their lives

fighting for transparency rather than spending our time trying to

focus on excusing those who are in the business of money laundering is a good point.

I think we should, frankly, be more into the business of naming

and shaming, of going after first those who are stealing from their

people and, second, those who provide the wherewithal for them to

hide the funds.

You know, when we look at what General Abacha did to Nigeria,

when we look at currently what Charles Taylor, Inc., as he is

called, what Charles Taylor is doing to Liberia and to Sierra Leone

in terms of diamond smuggling and clear cutting of forests and so

forth, when we look at the same issue in terms of what Robert

Mugabe is doing in Zimbabwe to the people there and Mugabe’s

cronies taking money out of that country, we are faced with the

same reality, which is if we did a better job of removing the safe

havens and exposing those who helped the Salinas take $100 million out of Mexico and then hide that money as the Congresswoman mentioned earlier. We are basically empowering people to

rip off their countrymen.

One of the things that I think we ought to look at is changing

the way in which business is done perhaps. You know, there comes

a time where it is no longer sustainable for a foreign company to

do business with corrupt regimes and then see the revenues plundered by certain people in government and then turn their heads.

A few weeks ago, the Africa Subcommittee that I chair held a

hearing on the Chad-Cameroon pipeline, which is a new approach.

I would just like to get your opinion on this. This project is the

largest private sector investment in Africa. I think it is an innovative approach that is an unprecedented partnership between energy

companies and NGOs and the World Bank and the governments of

Chad and Cameroon, and it aims to maximize the development

benefits of Chadian oil while avoiding the pitfalls that have

plagued other such projects in the past, including the pitfall of corruption.

30

Specifically what happens here is at the World Bank’s urging the

Chadian government instituted a legal framework whereby 72 percent of the project revenue is devoted to education, is devoted to

health and other social services and to infrastructure, and then ten

percent is set aside for future generations.

There is an oversight committee including Chadian civil society

members that monitor the project revenue. The World Bank will

play a role in auditing oil accounts, which is a striking departure

from the norm for the developing world, and that is to be made

public. This is all to be totally transparent.

For these reasons, the World Bank has described the project as

an unprecedented framework to transform oil wealth into direct

benefits for the poor, the vulnerable and direct benefits to the environment.

I would like to know if our witnesses are familiar with the

project at all and what they think of it in concept.

Thank you, Mr. Chairman.

Mr. CHEGE. I am familiar with the Chad-Cameroon project, and

I agree with Congressman Royce that in fact when the World Bank

says that it is an innovative project it really is because we are witnessing for the first time an element of accountability in the use

of incoming money to a very weak government and a government

that has a terrible record in human rights and democracy, being

held accountable in how it uses its oil money.

There are two things to note about how the project came about.

First, there was a huge outcry from international human rights

groups and from global environmental organizations. Second, there

was a huge outcry, especially from environmental groups in Africa,

there was a huge outcry from Africans, from individual poor people,

communities in the region who were going to be transplanted as

this all was taking place that said please, for heaven’s sake; you

cannot trust the governments in these two countries with our

money, with our resources, with our forests, with our game reserves that this pipeline is going through.

The elements of open discussion and debate weighs in, and that

is what made this decision possible. Otherwise the World Bank was

going to fund it like they had done elsewhere before and could have

cared less about that accountability element.

Second, Mr. Chairman, the point I want to stress is that has this

worked? Yes, up to a point. A few years ago the Chadian government went and bought arms with complete impunity and complete

contravention of the allocations of the oil revenues. What could

World Bank do about it? World Bank does not have an army. They

cannot very well arrest the leaders of that country. There is a limit

to how much and how far they can go. It is a test case, and we

should see about it.

I should perhaps add as a footnote that the United States Government right now is very concerned with what is going on in the

Sudan. We all know the tragic, tragic conditions there. Oil is a key

player there because the Canadian company, Talisman and the

Chinese and the Malaysians have put money into there.

Former Senator Danforth of the United States has been commissioned by the Bush Administration to be the key intermediary in

that process, and they are also thinking about the same Chad

31

model in that country. I would not place a dime on the government

of the Sudan honoring it. I am sure they will sign, but I cannot

trust them to honor it.

Mr. ROYCE. Myself and Tom Sheehy, who is the staff director of

the Africa Subcommittee, had a chance to talk to Senator Danforth

on this subject, and it seems to me that I agree with you in concept

about the likelihood that we are going to have trouble with the

Khartoum government, but if the Khartoum government is going

to go forward anyway in terms of developing the oil resources in

the south is it perhaps not wiser, just like with Chad-Cameroon,

to use what leverage we have if the Khartoum government is saying we are going to set aside 30 percent, or I think it is one-third

of the oil revenue, for the people of southern Sudan, and we can

pull into that NGOs and the World Bank and the international

community?

Is it not wiser to try to leverage out of that an arrangement that

commits that for infrastructure building and for health and education in the south? I mean, it is a bit of a Hobson’s choice because,

as you say, the corruption that we have seen in the north and certainly the hostility and the murder of 1.9 million people to date

would lead you to believe it could be next to hopeless, but, on the

other hand, if we have an opportunity here to try afresh if the government in Khartoum perhaps is saying, you know, this has been

a lose-lose all the way around.

In Sudan, the standard of living is not increasing. Here is an opportunity for the south and the north to be prosperous, for the entire nation to be prosperous. If we can get an allocation that ends

the civil insurrection, then perhaps it is worth us all doing all we

can do and then trying to create as much transparency as possible

in order to at least see if this could help the problem.

Mr. CHEGE. Mr. Chairman, I agree entirely with the Honorable

Congressman, but it is better for the United States and U.S. corporations to be involved because it gives the United States much

more leverage.

I do not agree with those who say cut out and leave because this

government is so horrible, because if we do that then who is going

to get in there? It is going to be the Malaysians and the government of China, and those countries are not—or the governments

there—are not accountable to anybody, and they will physically get

away with murder.

It is so much better to have U.S. companies, to have Canadian

corporations involved in that project over there, because I think the

leverage we have of getting something much better done than otherwise is always there. It is important that we support that.

Mr. ROYCE. I thank you. I thank the panel. My time has expired.

Thank you, Mr. Chairman.

Chairman BACHUS. Of course, we are financing the Malaysians

and the Chinese in their oil exploration, so we are involved.

I relate the Sudanese government to Hitler. They both practice

genocide on a grand scale. I am very uneasy as a matter of values

for the American Government to do anything to share revenues

with such a government that practices slavery today. The price of

a slave in Sudan is $33 today.

Ms. Waters.

32

Ms. WATERS. I wanted to ask a question of Jack Blum, first of

all, to thank you for your years of work. We have had the opportunity to work together on some other issues.

This may be taking us a little bit off of the beaten track here,

but since we have worked on the problem of drugs, particularly as

it related to Nicaragua and the crack cocaine explosion and all of

that, I am just as worried about what is happening in Afghanistan.

Why is it we do not hear about what is happening with the

poppy fields? If in fact those fields are being cultivated, why are

we not saying something about it? Are we just turning a blind eye

in the interest of the economy of Afghanistan?

Mr. BLUM. This is possibly one of the most complicated, atrocious

problems that anyone could ever imagine. The gross national product of Afghanistan is heroin. In fact, that is their major export.

Now, for one year it ceased, but the Taliban government was

built on the export of heroin to Europe and the money laundered

by that export. That was the money that flowed back to support

the Taliban.

The governments of Europe by and large paid no attention to

what was going on or limited attention because for the most part

the users of that heroin in western Europe were illegal immigrants

in western Europe, so you had North Africans and other people in

Paris who were there who were the prime users. The French say

‘‘Oh, we do not have a heroin problem.’’ They just do not look at

the whole population of France.

The problem we now have is that the revenue from this poppy

is an essential element of the ability of the war lords who are supporting us and going after the Taliban, and we are in the dilemma

of what do you do? Do you try to wipe out their crop and leave

them broke and then pay them money, or do you let them grow the

poppy and export the poppy?

That is the kind of stuff that is being debated and worried by

various people in government positions. I daresay, it is a terrible,

terrible dilemma because it is the only source of revenue these

folks have. I think you are going to have to ask the State Department, and that is a set of questions where the people in INL and

Narcotics Control should be put to the test. You know, what are

you doing about it, and how are you going to handle it? It is a very

thorny problem.

Ms. WATERS. Are they exporting through Pakistan, our ally in

the fight against terrorism?

Mr. BLUM. That has been the route. In fact, one of the elements

of the civil war leading up to the events after September 11, one

of the elements was a lot of that civil war was based on a war over

which way the heroin would flow. Would it go north through

Uzbekistan, through the Northern Alliance country, or would it go

south through Pakistan?

An awful lot of the insanity that was going on in Kashmir was

financed out of that heroin flow because the Pakistani Secret Service was involved in helping support the flow. There were seizures

of heroin coming down from Afghanistan along the Macran coast

and then later in shipments to western Europe that were so large

they could account for almost the entire world’s heroin supply.

33

Ms. WATERS. And I understand we have an agreement that we

will not chase anybody into Pakistan. We stop at the Afghanistan

border.

Mr. BLUM. The problem of the corruption surrounding drugs on

that route is absolutely astonishing. I have no faith at all that any

agreement to chase or not to chase would make any difference.

Ms. WATERS. Thank you. I yield back.

Chairman BACHUS. Thank you.

Mr. Conyngham, you mentioned the Bermuda Triangle in your

testimony, which is formed by offshore jurisdictions that refuse cooperation with investigators from other countries seeking to trace

dirty money.

Mr. Royce mentioned the ‘‘name and shame’’. I think there was

an initiative taken by the G–7’s Financial Action Task Force to

name and shame those jurisdictions.

Do you know the status of that? Has that been done, and has it

had any effect on the fight against money laundering?

Mr. CONYNGHAM. I do not know the exact status of it. I believe

Singapore has done something similar and so I do believe it is a

way forward.

To tackle the idea of corruption, my own company about 3 years

ago published a report called ‘‘Corruption Integrity, Best Business

Practice in an Imperfect World.’’ We put out fliers saying this book

was coming out, and we got a lot of advance orders for it so it

seemed to be very successful.

We said we will hold a seminar, and we will launch it properly.

We put out the invitations to the seminars, and we got very few

responses. We even got one fax that just had big letters on it. No.

No. What seemed to be happening was that we had the companies

that wanted to understand the issue, but they were not going to

stand up in public and say we are actually dealing with it ourselves as well in Indonesia or in Malaysia or wherever it is around

the world.

I think what we have to do now, and the name and shame is part

of that, is to say the developed world is saying very firmly this is

an issue. If you do not begin to deal with it, then maybe we cannot

come and do business in your country, and maybe we cannot let

you do business in our country.

I think there is obviously a balancing act through all of that, but

I would be in favor. If you are not FATF compliant, then the money

has had some effect, and can we do it with the corruption as well.

Chairman BACHUS. All right. Mr. Blum.

Mr. BLUM. I think that we have made some headway with that,

and the countries that have been put on the list, many of them

have said OK, we will cooperate.

The test now is can they cooperate, do they have the infrastructure for cooperation and have they done anything more than put

up some window dressing in the front of well, we passed the laws

you asked us to pass, and we have a guy you can call if you want

information, but truth be tell he is working from 2:00 to 4:00 in the

afternoon on alternate Tuesdays, and if we get 8,000 requests

maybe in a year or two we will get to you.

34

That kind of thing is the problem that I see next, so the next

step will be to force some kind of real compliance and then tell

some jurisdictions they have no business doing it.

The smallest republic in the world is the Republic of Nauru.

They have 10,800 people. The ratio of banks to people in Nauru is

still outrageous. They are in non-compliance, and they have not

given any interest in compliance.

Now, many of those banks are cutoff, and many will be cutoff in

the next number of months because of the OECD initiative, but I

do not believe Nauru could ever be compliant no matter what it

did, not with 10,800 people. You cannot run a center.

Chairman BACHUS. What do we do to those notorious offshore

banking centers?

Mr. BLUM. I think you treat them as hopeless cases instead of

acting like a country with 10,800 people is a sovereign state on a

par with Russia or a place that has let us say a billion people or

500 million people. We should make it very plain. You are out

there in the middle of the ocean by yourself if you do not play by

the rules we will cut you off. I do not think that is that hard to

do.

I think what it is hard to do is get the attention of the people

focused on the need to do it because everybody says if I am dealing

with the Middle East why the hell should I deal with Nauru.

Chairman BACHUS. Mr. Conyngham, do you agree?

Mr. CONYNGHAM. I agree with that. I think you just have to say

this is not the way we can do business. Therefore, we cannot allow

people to do business with you, and we will not do it ourselves.

Chairman BACHUS. Could the three of you identify some of the

countries you think are the worst actors? I am not talking about

in testimony, but just in a written response and what you think

this subcommittee ought to suggest the policy of this country be.

My final question is this. In your testimony, Mr. Conyngham,

you pointed out the role, and I think, Mr. Blum, actually Mr.

Conyngham in his written testimony and you referred to it, the role

played by professionals—lawyers, accountants, private bankers—

who actually are in the business of helping rich and powerful clients, including corrupt dictators or government officials conceal

and profitably invest their assets.

You know, these are the people who are actually making the arrangements with Nauru or whatever, with these offshore banking

centers. In your view, how widespread is that? I mean, is there a

whole industry out there in the business of serving these people?

What are governments or professional organizations doing to discourage these attorneys and other professionals from offering these

types of services?

Mr. Blum offered the idea of a lawsuit, a civil lawsuit. What is

your suggestion?

Mr. CONYNGHAM. Well, I believe I actually brought it onto the

table. I think I said in my written testimony I attended the International Bar Association meeting in Cancun, Mexico, last October,

and there was a session on how they should respond to issues of

banking secrecy and what advice they should be giving. It appeared

to me they had not even begun to understand the issue outside of

35

what their immediate relationship with their particular clients

might be.

The National Criminal Intelligence Service gets the report of suspicious transactions, and our money laundering legislation refers to

lawyers and accountants as having a responsibility under that legislation. I think 2 or 3 years ago it had 15,000 suspicious transaction reports. One hundred and seventy only came from lawyers,

and that I do not believe reflects the number of situations that lawyers in the United Kingdom might have been involved in in that

particular year and might have thought this does not sound or this

does not look or I am being asked to do something that I am not

too comfortable here, and maybe I ought to say no.

I am afraid maybe I am the worst kind of animal. I am a retired

lawyer, but I do believe that the professions have to take their responsibilities in this area far, far more seriously than they have

been to date. They cannot sit at conferences and talk about a professional privilege and issues of that nature without at least trying

to understand why it is that there is concern as to where probably

a very small minority of their brothers are behaving.

Chairman BACHUS. Mr. Blum.

Mr. BLUM. I think there is a bit of a crisis in all of the professions these days. I mean, the Enron case alone should tell you that

it is not limited to dictators who want to launder money.

What we have is this fundamental problem of people who have

forgotten that the purpose of being a lawyer is to teach people how

to obey the law and to help them keep their transactions within the

scope of the law. Somewhere in my professional career that message got lost, and an awful lot of people now believe the job of a

lawyer is to help people break the law.

I have tried at various ethical meetings and discussions on ethics

to raise the point that the minute you do that you cease being a

lawyer, and you become a co-conspirator and that you have to go

back and remember what the professional’s job is supposed to be

and hold that standard. When a client says but I will go down the

street, you have your colleagues down the street who will say the

same thing. They have to say ‘‘You cannot do it. It is illegal.’’

We have a real ethical crisis here. I think that leadership is

needed in the bar, and public discussion of that ethical crisis is

needed. Every major accounting firm has had an entity that incorporates people offshore, that sets up offshore arrangements, that

helps people. Whether those skirt the law in one place or another

is something that is very hard to tell.

Chairman BACHUS. Mr. Chege.

Mr. CHEGE. Mr. Chairman, you asked for some of the countries

and some of the actors in this and what initiative we should have

toward this.

Closer to the region I specialize in, I am very concerned with

what is going on in the United Arab Emirates. Some of the evidence just in the open sources coming out of 9-11 is that it is a

haven of financial activities for terrorist groups, and also I just

mentioned to Congresswoman Waters some of the activities of

tanzanite and illegal diamonds and that sort of activity over there

and, of course, the strategic position that country is in with the

Middle East, Africa, Asia, as a trading hub.

36

Malaysia. I do not have the full details, but again going by the

press you see an awful lot of activity between agents of that government with some of the nastiest dictators in Africa—Robert

Mugabe, the government of the Sudan, even Charles Taylor in Liberia. I do not know what that again is about. I think they want

to corral some of the funding and use it for their own internal development.

Mr. Blum mentioned Enron and Anderson. It might have skipped

the notice of some people that in this rather seemly deal some of

the Enron money, an account was secreted in African countries, including Mauritius.

It now seems to me that some of the illegalities are done in

places where we least expect to look—the Arab Emirates, off the

East African coast, a whole lot of other places.

I think it is important, as my colleague Jack Blum said, to have

an international initiative that looks into all these activities to see

what legislation can be brought to bear with us here in the United

States taking the lead and other countries that are concerned with

this problem, especially in the OECD countries.

Chairman BACHUS. Thank you.

Finally, I would like you—— if you all have any comments you

would like to reduce to writing to tell us any suggestions you have

about how to move against lawyers, accountants and other professionals who are facilitating this asset seizure. Actually not asset

seizure, but stealing of the assets.

Finally, I will close with this. Mr. Blum, Argentina. There have

been charges of widespread corruption there. Could you give us,

and, Mr. Conyngham or Mr. Chege, if you have comments on that,

but we will close with that.

Mr. BLUM. There were indications that there had been widespread trading in Argentine foreign debt where people would buy

the debt at 20 cents on the dollar or 30 cents on the dollar and

then make some sort of arrangement inside the government to

have the debt redeemed at 100 cents on the dollar either in the

form of hard assets or in the form of payment, and all of that

would be in exchange for a payoff of a rather substantial amount.

Some of this surfaced in the hearings of the Permanent Investigation Subcommittee, but there have been many other elements

of corruption, especially under the Manem government, which have

helped lead to the current collapse.

To put money into Argentina at the moment without fixing some

of that, without trying to go after some of the people who perpetrated it, seems to me to threaten to be putting money in a leaky

boat or putting water in a sieve. You are not going to get very far.

It is not going to help you.

Mr. CONYNGHAM. Mr. Chairman, I do not have any specific comments on Argentina, but as it is the last moment perhaps I could

just say this. There are things that we can see coming up on the

near horizon in addition to Argentina.

What is going on in Zimbabwe and Mr. Mugabe there; at some

point we will need to look almost certainly at maybe his assets.

Things going on in Angola, in Equatorial Guinea and possibly even

again in Iraq. In many ways, this is where to a degree some of this

started.

37

If you remember going back to the Gulf War and Saddam Hussein at that time, there was a major asset search conducted in related to Mr. Saddam Hussein so that the Kuwaitis, when peace

was restored, could also go after that country and after that gentleman for reparation because it was believed that he had in fact

stolen funds that belonged to the country. Maybe his time will

come again.

What I would urge on this subcommittee is that there is some

urgency in putting together something along the nature of what

Mr. Blum is suggesting so that when these countries have the opportunity to address this issue when they can go after the assets

of these despots there is a mechanism that makes it a lot easier

for them to do so than was the case for the Nigerian government

who literally to a degree had to go around the world not cup in

hand, but with great difficulty saying could you help us and, by the

way, we have not got too much money to pay for it.

I would ask that there is urgency about it. Thank you.

Chairman BACHUS. Thank you.

Mr. Chege, any final comments?

Mr. CHEGE. My final comment has to do with the role I think

that the IMF and the World Bank should play into this. I mentioned in my written testimony, Mr. Chairman, the Meltzer Report

that was commissioned by the U.S. Congress which, in my view, is

the best and most thorough report on the activities of those institutions and what ought to be done to reform them.

We basically have two international institutions that deal with

international finances in the developing world that were thought of

immediately after the Second World War. The world has changed

a heck of a lot since, and we need to restructure them with the

United States taking the lead so that they can address some of

these issues.

Everywhere we have international finance meetings with these

institutions playing a role, you have young people coming out in

droves to demonstrate. You have seen the national capitol of the

United States having been shut down sometimes because there are

so many angry young people, not so much at these institutions and

the information about what they do, but over the anger about poverty out there in the developing world and what ought to be done

to address it.

I believe that it is time to revisit the functions of those institutions in addressing the other issues of poverty, but also the issue

that this subcommittee is dealing with this morning, and that is

the stolen and plundered loot that the dictators have secreted

abroad.

Chairman BACHUS. We thank you, gentlemen, very much for

your testimony.

At this time the hearing is concluded.

[Whereupon, at 12:23 p.m. the hearing was adjourned.]

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May 9, 2002

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