Topic: White Collar Crime
It is well known that corrupt politically exposed persons can conceal their illicit assets in money laundering circuits. My recent comments regarding politically exposed persons are included at MoneyLaundering.com’s August 9th article:
International Groups Say Corrupt PEPs Can Often Loot With Impunity*
August 9, 2011
By Colby Adams and Brian Monroe
Three intergovernmental groups are questioning the effectiveness of
anti-money laundering controls meant to curb abuses of corrupt political
figures who steal from their countries.
The World Bank and United Nations said in a joint June 21 report that
at least 74 of 124 jurisdictions examined have not complied with
anti-money laundering (AML) recommendations to quash kleptocracy by
political figures. The record indicates that financial institutions and
the agencies that regulate them may be “deficient” in enforcing the
controls, the report said.
In a separate report published July 29, the Paris-based Financial
Action Task Force (FATF) warned banks and other companies that
government officials, also known as politically exposed persons (PEPs),
can exploit the “natural advantages” of their positions to launder
ill-gotten funds through institutions, and then stymie investigations
into the crimes.
The three organizations recommended requiring financial institutions
to review their PEP accounts annually, sharing suspicious activity
reports on the accounts of foreign politically-tied figures with their
home country and eliminating the distinction between foreign and
“More specific guidance may be needed because there are specific
challenges related to the persistent problem of PEPs that we don’t see
with drug trafficking and organized crime,” said Vincent Schmoll,
principal administrator with the FATF secretariat, in an interview. FATF
plans to publish guidance in the next six months on how to identify
such funds, he said.
Looting by the former Nigerian dictator Sani Abacha, who siphoned
assets out of his country into banks in Switzerland, the United States
and the United Kingdom, illustrates how difficult it can be to stop
powerful figures from abusing their positions, said Schmoll.
“Even if all the receiving countries of Abacha’s funds had all their
PEP laws up to par, and were able to identify the beneficial owners, his
control of the country meant that there was no way for Swiss, U.K. and
U.S. banks to return the money to his victims,” said Schmoll.
In cases when corrupt foreign officials exercise direct power over a
bank, “the hardest part of money laundering, introducing the funds into
the financial system, is already done,” said Fred Abrams, a New
York-based attorney specializing in asset recovery. Pavlo Lazarenko of
Ukraine and Zine El Abidene Ben Ali of Tunisia both used such means to
launder funds they stole from state coffers, he said.
The reports come as FATF considers tweaks to its 49 AML and
counterterrorism financing standards, including a potential proposal
that financial institutions take “reasonable measures,” including
enhanced due diligence, to better monitor accounts held by domestic
The intergovernmental group, which sets the evaluation standards
used by other organizations and governments, is set to disclose changes
to its recommendations in February.
In their report, which was issued as part of the joint Stolen Asset
Recovery Initiative (STAR), the U.N. and World Bank recommended that
FATF adopt the broader definition of “politically exposed persons”
under the United Nations Convention Against Corruption (UNCAC).
Unlike the PEP definition currently used by FATF, UNCAC explicitly
specifies that politically-tied figures includes both foreign and
domestic figures and any individuals or companies “clearly related” to
them. Under UNCAC, a PEP can be a middle- or junior-ranking official.
That multiple PEP meanings have been adopted by organizations and
jurisdictions has proved frustrating for law enforcement agents, said
Abrams. “Everyone can’t agree on the same thing,” he said.
One recommendation made by the intergovernmental groups—to require
companies to identify their owners—is under consideration as part of a
bill introduced Aug. 2 by Sens. Carl Levin (D-MI) and Charles Grassley
(R-IA). The measure, which would require company formation agents to
collect beneficial ownership data, is at least the third U.S. lawmakers
have tried to pass since 2007.
The vulnerabilities exploited by corrupt officials have contributed
to a paltry record on fighting kleptocracy. Of the $20 billion to $40
billion stolen from developing countries by corrupt officials annually,
only $5 billion has been seized and repatriated over the last 15
years, according to the STAR report.
A May 2 report by My Private Banking, a research and networking Web
site for wealth managers, found that of the $140 billion thought to be
held by the 25 most well-known dictators, only five percent of the
assets have been frozen with less than three percent ever returned to
the governments the funds were allegedly looted from.
For some jurisdictions, the allure of cash inflows has led them to
either turn a blind eye to corrupt funds from foreign sources or openly
welcome the funds, as was the case with a 1996 law passed by the
Republic of Seychelles that guaranteed immunity from prosecution and
asset forfeitures provided individuals invested at least $10 million
“Even though they quickly removed the law from the books, the spirit
and the intent were still there,” according to an individual who has
worked on national AML assessments for an intergovernmental
But while the changes recommended by the STAR report “make sense,”
banks may be reluctant to assume a greater regulatory burden in
monitoring PEP accounts, said Steffen Binder, co-founder of My Private
Banking and the author of the May 2 report.
The reports follow a series of disclosures by governments about U.S.
and foreign accounts held for Ben Ali, Libyan leader Muammar Gadhafi
and former Egyptian President Hosni Mubarak, among other leaders
accused of corruption by the international community.
In June, the U.K.’s chief financial regulator said that the AML
compliance departments at three out of every four U.K. banks
inadequately scrutinized accounts maintained for risky clients,
including PEPs, a situation that hasn’t improved since the publication
of a 2001 report that noted similar problems.
“This has been a very public issue—and one that has been officially
noted—for the last 10 years, meaning banks here have given FATF and the
FSA the middle finger for that long,” Robert Palmer, a campaigner for
Global Witness, a London-based anti-corruption advocacy group cited in
*"International Groups Say Corrupt PEPs Can Often Loot With Impunity",
Copyright 2011 Alert Global Media, reprinted with permission.
Copyright 2011 Fred L. Abrams
This post discusses some high-ranking government officials, (i.e. "politically exposed persons"), who have been accused of concealing illicit assets through money laundering.