“Stop
Money Laundering!” Conference - 26th February 2002, London
“Stop Money Laundering!” Conference - 26th February 2002, London
I apologise for covering ground that others have already covered. I want to emphasise the importance of private, civil remedies, which I think have been ignored in corruption cases. I apologise for putting banks in the dock as I'm going to take the victim's perspective on the problem. We've all read newspaper reports about Politically Exposed Personalities who have amassed fortunes whilst in office. Duvalier, Marcos, Shuarto, Bhutto, Matuto, Milosovich and General Abacha are all examples. There's a pattern with all these cases : they all appear to have transferred corruptly acquired wealth abroad. In these cases the sums transferred are enormous. Abacha is said to have acquired $4 billion. Most has left Nigeria. To do this they need help from bankers, lawyers and accountants. Intermediaries such as this that launder money for corrupt leaders expose themselves to both criminal and civil liability which is another way of describing private remedies available to the victims of corruption. I'm going to look at issues of corruption from the point of view of the victim, and start with a few points on criminal liability, consider the criteria for deciding whether to take civil or criminal action and end up looking at the liability of banks involved in the Abacha case.I just want to make three brief points on criminal liability for money laundering, which I'm sure is familiar to you all. First, the size of the transfers is so enormous and out of proportion with the Head of State's legitimate earnings. It's hard to believe that banks thought they were legitimate. Second, there can be no doubt after the so called Wolfsberg principles agreed by 11 leading banks that corruption is a predicate offence for money laundering purposes. Third, the focus of anti money action generally has been directed at the underlying offence. I sense this is beginning to change and attention is being paid to intermediaries. Some criminal action against intermediaries may come out of the Abacha case; I read a while ago that the serious fraud office was investigating.I have two points on the action taken hitherto by victims of corruption; countries such as Nigeria and Pakistan. First, these countries have concentrated on the corrupt leader and ignored action against intermediaries. Second, they have largely focussed on criminal action ignoring civil claims which I believe could be more promising. The elements of the two liabilities are very similar. I'm going to consider civil in more detail in a moment. My point is that it's very important for victims of corruption to have a strategy before deciding to embark on criminal or civil action in this country. Here are some of the criteria that should be used in deciding this strategy.Speed: Victims (whether of corruption or other crimes) complain about how slow our courts can be. Civil is quicker. Nigeria's case in the High Court illustrates this. The action started in June 1999 and many of the issues were dealt with at a hearing just over a year later in December 2000;Jurisdiction: As a rule, our police and criminal courts don’t have jurisdiction to investigate and prosecute offences that took place to abroad. As the Nigeria case illustrates, civil courts have power to hear cases involving events that took place abroad.Freezing orders: If there are any doubts that a defendant will dissipate assets and so be unable to satisfy a judgment, you'll need a freezing order. Freezing orders are readily available from civil courts; In criminal cases it's less straightforward. The Nigerian Government asked UK to freeze accounts connected with General Abacha. We managed to do so, but 3 or so years after the request was made. UK can only freeze accounts when charges have been laid.The burden of proof in civil actions is the balance of probabilities. In criminal cases it’s beyond reasonable doubt. It is therefore theoretically easier to win a civil case.Cost. A victim doesn't have to pay to bring a criminal case. But the victim normally has to pay lawyers and perhaps accountants to bring a civil case. Conditional Fee Agreements and After Event Insurance can help victims to meet the cost of civil action.Recovery/punishment. Broadly civil action will result in a monetary judgment against the wrongdoers. Criminal action will result in the wrongdoers being punished in some way, but not in a monetary recovery. If you talk to the victim states, they say they want recovery first and foremost. So why do they pursue criminal action? Civil action is the one real option for a victim that wishes to recover rather than punish.Thus, providing the victim can come to some arrangement on costs, it seems like a no brainer with civil action being the obvious choice. The next question is who to sue. There are two groups of defendants. First, the corrupt head of state. Second the intermediaries who handled those funds. A head of state is a bit like a company director. Both have control over someone else's assets. If they misuse their position to enrich themselves, they are in breach of their duties and hold the benefit on trust for the State or, in the case of a director, for the company.
Such claims would be based on constructive trust principles of dishonest assistance. To succeed with such a claim, the victim would have to prove four things:
The first and second requirements can be taken as read. In AG for Hong Kong v Reid the Defendant admitted that he owed fiduciary duties. He had been the acting director of public prosecutions in Hong Kong and was responsible for prosecutions on behalf of the state. He took bribes in return for obstructing prosecutions. Reid didn't seek to suggest that accepting bribes wasn't a breach of his fiduciary duties. As an aside, I met a barrister who'd been involved in defending those being prosecuted by Reid. He was very proud of his track record of securing acquittals until he discovered what Reid had been up to.
The third requirement is that the intermediary assisted in the wrongdoing. It doesn't have to have received corrupt funds beneficially. Agip Africa v Jackson illustrates what is required for this purpose. In this case the defendant accountants were instructed by a lawyer based in Paris to form off the shelf companies incorporated in England. The proceeds of a fraud were paid into the companies' accounts. They were then transferred and the shelf companies were then liquidated. The accountants didn't receive the funds for their own benefit but nevertheless provided assistance for the purpose of this liability.
The forth requirement is that the intermediary did not act as an honest person would in the circumstances. What I want to concentrate on today is the fourth element, namely the knowledge that triggers liability of the intermediary that handles corruptly acquired funds. This is different to knowledge or suspicion for criminal liability which you've heard about. The seminal case on civil liability is the recent privy council decision in Royal Brunei Airlines v Tan where it was decided that civil liability is dependent on proof of dishonesty or with a lack of probity. This doesn't mean dishonesty in the criminal context. It means simply not acting as an honest person would in the circumstances. The court will have regard to the experience and intelligence of the banker in question. It's an objective standard but will be assessed in the light of what the person knew at the time and not in the light of what a reasonable person would have known or appreciated. Carelessness is not dishonesty. But said the Privy Council, individuals are not free to set their own standards of honesty. Honesty is not an optional scale with higher or lower values according to the moral standards of the each individual. Interestingly, the English criminal law looks set to follow this by introducing a subjective standard. So if a banker handles corruptly acquired money he will not escape liability simply because he didn't see anything wrong with this. The privy council said "Unless there is a very good and compelling reason, an honest person does not participate in a transaction if he knows it involves a misapplication of trust assets to the detriment of beneficiaries. Nor does an honest person in such a case deliberately close his eyes and ears, or deliberately not ask questions, lest he learn something he would rather not know, and then proceed regardless."
Therefore the state of knowledge of Abacha’s bankers will be critical. In the next part of this talk, I am going to outline the indicia of knowledge which suggests that the banks in question have the requisite knowledge. I am helped in this by a report published by the US Senate sub-committee in November 1999 entitled “Private Banking and Money Laundering, a case study of opportunities and vulnerabilities”. This can be obtained in the internet and makes fascinating reading. I do not have time to do justice to the US Senate Committee’s report.
The starting point is to check whether the bank's conduct is up the general industry standard which in part reflect the money laundering regulations (and the FSA's money laundering rules). At the risk of oversimplification, the Regulations and new rules require banks to know their customer and know their customers business. This means understanding what business their customers are doing and what the customer is worth. If you know this, you'll have a better idea of the transactions you'll be involved with. Anything out of the ordinary, incompatible with the customer's profile, could be suspicious in which case the bank ought to consider making a disclosure to the authorities.
The Senate report says the bank's customers were three of Abacha’s sons. We're told that they opened accounts with the bank in London in 1988. We are told that due diligence was carried out before the accounts were opened but we do not know what this entailed and what it revealed. The bank don't seem to have realised General Abacha was the father of their customers until 1996. This suggests the bank's due diligence was not very effective.
We are told by a report published by the UK's Financial Services Authority that the total turnover of Abacha accounts in UK alone between 1996 and 2000 was $1.3 billion. This money was handled by a number of banks and there is some double counting as it includes transfers between banks. Nevertheless, this is a staggering sum. Where did the bank think their customers got such their wealth from? They believed the sons got their funds came from the father. By 1996 they knew the father was President of Nigeria and a General in the Army. The bank could have found this out how much these offices pay but would have known it was not enough to support the levels of activity in the sons' account. The know your customer checks referred to various business activities. But these couldn't explain the level of activity. For instance, one business was an airline operating flights between Lagos and New York. However, Lagos airport was publicly declared unsafe and flights were discontinued after 1993. The Senate report singles out 3 substantial transactions which I don't have time to go into. The key point is that they were out of line with the customer's legitimate wealth profile and with the account history.
We know from a report published by the Swiss Banking Commission that other banks (in Switzerland) who had accounts for the Abacha family closed those accounts. Others didn't close the accounts until after General Abacha’s death. A court might ask why they didn’t do this earlier.
In conclusion, Nigeria and other victims of corruption need to have a strategic plan. They should consider civil action against intermediaries based on the principles I've outlined. The elements of civil liability are very similar to criminal liability. Civil claims are likely to produce recoveries for the victims. I don't understand why Nigeria hasn't pursued such claims. I suspect there's a lack of political will and they are not unhappy that Britain has put the Mutual Assistance request into the too difficult tray.
Toby Graham
Taylor Joynson Garrett