KINIGUIDE On Wednesday, the US Department of Justice (DOJ) launched what it touts to be its largest action ever brought under its Kleptocracy Asset Recovery Initiative (Kari).
Through a series of civil forfeiture suits, it seeks to seize over US$1 billion worth of assets that were supposedly the result of criminal proceeds from the embezzlement of over US$3.5 billion from 1MDB.
In this instalment of KiniGuide, we have a look at the Kleptocracy Asset Recovery Initiative, and see how it has fared in the past.
What is the Kleptocracy Asset Recovery Initiative?
The initiative was announced by the then US attorney-general Eric Holder in 2010, during his address at the African Union summit in Uganda at the time.
The purpose of the initiative, he said, is to “(combat) large-scale foreign official corruption and recovering public funds for their intended - and proper - use...”
This entailed creating a dedicated team of prosecutors and Federal Bureau of Investigation (FBI) agents, which work together with other law enforcement agencies to trace suspected proceeds of foreign corruption laundered through the US financial system.
Having a dedicated team is important for the initiative to work because corruption at such a scale is often masked by layers and layers of shell companies. This makes for a tedious and time-consuming task to link graft suspects to allegedly corrupt purchases.
What are the lawsuits about?
The lawsuit comprises 12 separate but almost identically worded court filings seeking the civil forfeiture of 17 pieces of property (including paintings, a private jet, intellectual property and investments) amounting to over US$1 billion.
The money used for purchasing these properties are allegedly traced to the embezzlement of 1MDB funds, which amounted to about US$3.5 billion siphoned out of the Malaysian sovereign wealth fund in three phasesfrom 2009 to 2013.
The proceeds were allegedly laundered through bank accounts in Singapore, Switzerland, Luxembourg, and the US, in a complex series of transactions.
The US is named as the plaintiff of all 12 lawsuits, while the properties being sought are named as defendants.
The filings also named several persons as ‘relevant individuals’ to the case.
These include Prime Minister Najib Abdul Razak’s stepson, Riza Aziz, Penang-born tycoon Low Taek Jho (also known by his moniker ‘Jho Low’), and an unnamed ‘Malaysian Official 1’.
Each complaint was filed at the US District Court for the Central District of California on July 20. They are 136 pages each, except for one filing that is 137 pages long.
You can find copies of the court documents here, along with a list summarising some of the properties being seized and its estimated value.
You can also watch a video of the Department of Justice's press conference on Wednesday announcing the civil forfeiture suits here.
If US$3.5 billion was misappropriated from 1MDB, why is the US government seeking only US$1 billion?
According to US attorney-general Loretta Lynch, the sum represents the money trail that went through the US financial system that they had been able to trace.
So is this the biggest ever action under the kleptocracy initiative?
At US$1 billion, yes, although how much can actually be recovered remains to be seen.
The previous record claim was US$850 million, and was brought against the Amsterdam-based telecommunications company VimpelCom Limited and its subsidiaries, for allegedly conspiring to pay bribes to an Uzbek official in order to enter the Uzbekistan market.
The suit was brought against the company in two parts on June 29, 2015 and Feb 18, 2016.
Prior to that, the highest sum was a 2013 claim for over US$625 million linked to the late Nigerian dictator Sani Abacha.
The US court ultimately allowed the forfeiture of US$480 million in its judgment the following year, while an additional US$148 million was still pending in court when the judgment was announced.
Why is the US government suing assets instead of individuals?
To sue a piece of property instead of a person is known by the Latin term ‘in rem’. Historically, this is practised to seize property when the property is known, but not the owner.
It may also be the case when the court in question has jurisdiction over the property (for example, because of where the property is located), but not the person owning it (for example, if the alleged crime was committed overseas, or the person is located overseas).
In any case, US civil forfeiture suits are typically in rem actions, in contrast to criminal forfeiture proceedings that are of the more conventional in personam actions.
As a side note, the use of in rem civil forfeiture suits can sometimes give rise to interesting names for the court cases. In one instance, the US government sought to seize a set of dinosaur bones that were allegedly stolen from the Mongolian government and smuggled into the US.
The 2012 case was styled in official filings as ‘United States of America v one Tyrannosaurus bataar skeleton’. The United States won the battle against the dinosaur skeleton.
What is a civil forfeiture suit?
A civil forfeiture suit allows the US government to seize properties and proceeds linked to certain criminal activities, especially drug trafficking and money laundering.
Once filed, US enforcement officers would seize, freeze, or seal the properties in question - whichever is applicable.
A notice would be sent to the owners or posted in public within 60 days, after which, interested parties have 35 days to file a claim.
If a civil forfeiture suit is contested, parties may opt to settle the suit, or argue the case in court to allow the judge the decide.
Otherwise, the US government takes possession of the property by default.
The proceeds of the forfeiture are usually distributed among the law enforcement agencies involved for their own use, or auctioned off to fund further law enforcement action.
In the context of the Kleptocracy Asset Recovery Initiative, however, the money is supposed to be returned to those aggrieved by the allegedly corrupt act.
If a civil forfeiture suit is contested in court, the plaintiff would have to draw a direct link from a crime that can be subjected to criminal forfeiture, to the property.
The parties challenging this would have to prove that he is an innocent owner of the property (for example, that he is unaware of the crime and did not consent to it), or that the forfeiture would be disproportionate to the alleged crime.
Civil forfeitures are controversial in the US, because it allows the state to deprive a person of his property without securing a criminal conviction against him, or even filing a criminal charge.
In fact, it can take place whether or not there are any criminal proceedings.
The burden of proof is also lower. In criminal cases, including criminal forfeitures, the state has to prove beyond reasonable doubt that the accused is guilty of a crime. A criminal conviction is required for a criminal forfeiture to take place.
In contrast, civil forfeiture cases are decided based on a balance of probabilities of the available evidence.
There are also complaints that the process had been abused to enrich cash-strapped police departments.
Why use a civil forfeiture suit if it is so controversial? What about criminal proceedings?
Lynch, the US attorney-general, was asked a similar question during the press conference where she announced the suit. She replied:
“With respect to forfeiture, when we have the evidence that we can, in fact, seek the restraint of assets (from moving) in order to avoid them being further dissipated, sold to someone else, or transferred to someone else that would make it harder for us to actually restrain those assets.
“As with all cases - even with civil forfeiture - we bring the action when the facts and the evidence come together, and when we feel that we have sufficient cause to get a judicial order to allow for seizure and restraining of assets, and that’s where we are here.”
There is 1MDB Officer 1, 2, and 3 named in the suit, and then there is Malaysian Official 1. What’s with all these code names?
Malaysiakini has examined similar filings for other cases of high-profile corruption, implicating people ranging from ambassadors to former heads of state.
Such degree of anonymisation in an action brought under the Kleptocracy Asset Recovery Initiative does appear to be unusual, if not unprecedented.
Lynch defended this, saying it is their usual practice in civil forfeitures to only name those they need to name in order to secure a judicial order for the forfeitures.
Asked whether there is an agreement with the Malaysia government not to name Malaysian Official 1, she replied:
“Our agreement is only to draft the complaint as we always do in civil forfeiture matters. You’ll see that this is a complaint against the actual property or assets as opposed to against an individual.
“We don't have announcements on anyone who is not named so far.”
She evaded a question on whether diplomatic considerations had been taken into account, since the 1MDB scandal involved a serving prime minister of a US ally.
What do those implicated in the filings have to say?
Red Granite, a film production company that supposedly received US$238 million from Aabar BVI that supposedly originated from 1MDB, said it did not knowingly use stolen funds.
Its CEO, Riza, said the US$94 million that he received was a personal gift from Aabar BVI.
Meanwhile, Najib is widely said to be Malaysian Official 1 based on the US court filings’ description of the official’s biography and involvement in the 1MDB scandal.
Malaysian attorney-general Mohamed Apandi Ali expressed concern over this, and stressed that Najib was not named nor implicated in the court filings.
Contradicting the US Department of Justice's claims, he also said there is no evidence from any investigation that money had been misappropriated from 1MDB, although an investigation by the police is still pending.
As for Najib himself, he urged the public not to make any conclusions until the DOJ’s legal processes have been completed.
How do legal actions under the Kleptocracy Asset Recovery Initiative usually turn out?
According to a New York Times (NYT) article published on Feb 16: not great. It said the initiative had brought 25 cases against 20 officials, totalling US$1.5 billion at the time.
Out of the sum, the department was only able to recover US$120 million, mostly from a single case in Kazakhstan. Much of the rest of the money is still tied up in court proceedings.
Another obstacle is that US prosecutors have to prove what foreign officials had done is also wrong in their own country, and they can’t count on receiving any help while corrupt leaders are still in power.
The article, which focuses on a corruption case involving Teodoro Nguema Obiang Mangue from Equatorial Guinea’s ruling family, added that Obiang was also able to bring home some of the seized property, which is in violation of a court order.
The report added that a similar global effort by the World Bank and the UN yielded similarly dismal results, with only US$5 billion repatriated over the past 15 years, out of US$20 billion to US$40 billion estimated to be lost annually through corruption from developing countries.
Despite this, the NYT said the DOJ views being able to tie up corrupt money in courts as a victory, since it limits corrupt officials’ ability to use their assets.
What happens to the money they recover?
It depends. In a corruption case involving Taiwan’s former President Chen Shui-Bian, the two forfeited properties were auctioned off, and the US$1.5 million proceeds were returned to Taiwan.
For former South Korean President Chun Doo Hwan, the parties reached a settlement of $1,126,951, which was returned to the South Korean government.
However, the repatriations sometimes come with strings attached.
In the Kazakhstan case, a new charitable foundation was set up in the country that will receive the US$115 million in instalments (US$84 million seized, plus interest).
The foundation is managed by international NGOs with assistance from the World Bank to provide assistance for families with disabled children, and grants for those seeking higher education.
In a settlement for the Obiang case, US$30 million that came from the sale of his assets would go to charities selected by the US government and the Obiang family for the benefit of the people in Equatorial Guinea.
The money was less than half of the US$70 million that prosecutors sought.
This instalment of KiniGuide was compiled by Koh Jun Lin. -Mkini
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