Chasing black money, with UN help

T.P. Sreenivasan  

The promise made by the Bharatiya Janata Party-led National Democratic Alliance in the run-up to the general election in 2014, that if it won it would bring back all Indian black money, estimated in billions of dollars and stashed in foreign banks, has remained unfulfilled. The explanation is that the matter is complicated and embroiled in the domestic laws of several countries.

After the party and the coalition won, the move to create a special investigative team of former judges and current regulators to find the concealed assets, estimated to be as much as $2 trillion, and the revelation of some names of Indian offenders have not led to much. Neither the details of the efforts made nor the responses of the countries concerned are in the public domain. The names, which have been revealed in bits and pieces, are mostly of relatively unknown people, who in turn have denied that their money is black. The reason for this impasse is that the holding countries are extremely reluctant to part with black money and they have used every conceivable argument to block its release. Even the countries requesting for information should share a part of the blame because they have not been transparent in their efforts for political reasons.

A convention of value

All this reminds me of the tough negotiations on the subject in Vienna, Austria, in 2003 as a vital part of the United Nations Convention Against Corruption (UNCAC), and which were very revealing. The outcome was not very satisfactory from the point of view of the countries, mostly the developing ones, which had sought a framework to locate and return these assets to their legitimate owners. But there exists a body of provisions in the convention, extracted through hard negotiations, which can be applied to recover black money. If implemented in good faith, the convention should be of immense value to countries where corrupt high officials have plundered natural wealth, and where new governments badly need these resources to reconstruct and rehabilitate their societies. The then Secretary General of the UN, Kofi A. Annan, expressed the hope that “it makes a major breakthrough by requiring Member States to return assets obtained through corruption to the country from which they were stolen.”

The rich countries hit upon the idea of UNCAC to castigate the developing countries for misusing aid money through corrupt practices. [UNCAC complements another instrument, the United Nations Convention against Transnational Organized Crime, and introduces a comprehensive set of standards, measures and rules that all countries can apply in order to strengthen their legal and regulatory regimes to fight corruption.] They wanted to introduce conditionalities of good governance to block aid to certain countries and to limit aid to others. In a strong reaction, the issue of black money being held by certain developed countries was brought in to show that the keepers of black money were as guilty as those who had deposited it abroad. When a debate on the issue became inevitable, Austria, for instance, sought to chair the related working group on assets held abroad and this was conceded. But the working group made no progress as Austria and Switzerland stuck to the position that their internal laws were supreme. Finally, India, as the Chairman of the Preparatory Committee, was asked to chair the group and a breakthrough was achieved after days of tough negotiations.

Principle of asset recovery

As the chairman of the working group, I was confronted with the issue of reconciling the legitimate interests of the countries (which demanded the return of their assets illegally amassed abroad by their citizens) with the legal and procedural safeguards of the countries that had a vested interest in retaining the assets in their banks. While the first group of countries clearly argued that the assets should be returned as soon as their ownership was established, the second group of countries had concerns about protecting the rights of the depositors and the assurances of secrecy given.

The first breakthrough came when the group established asset recovery as a “fundamental principle” of the convention. Then it was only a matter of laying a framework, in both civil and criminal law, for tracing, freezing, forfeiting and returning funds obtained through corrupt activities. The provisions finally accepted were for supporting the efforts of the countries to recover the assets and for sending out a message to corrupt officials that they would not have a safe haven where they could stash away the fruits of their corrupt practices.

What the convention accomplished — and the credit for this goes to both sides — was that legal obstacles should be tackled with international cooperation rather than by domestic laws. Though the two sides took extreme positions initially, the need for compromise and cooperation became clear in the spirit of the whole convention, which was designed to end corruption around the globe. Both sides realised, as we plodded on, that without the clauses on assets recovery, the entire convention would fall.

An important sticking point was the insistence of the assets holding countries that it was not enough for the countries making claims to establish that the assets belonged to them. They had to establish also that the assets were illegally obtained before they were transferred to a foreign country. These countries said that it would be difficult to obtain ironclad evidence to prove this because of the very nature of the accretion of assets by people in power. For instance, most of them were dictators who did not leave any trace of evidence of the methods they had used. The eventual compromise was that the assets could be transferred back if the receiving country was the legitimate owner of property acquired through or involved in the commission of offences established in accordance with the convention.

Some of the relevant provisions of the convention are crucial to the question of recovery of assets. It provides that each state party shall take such measures as may be necessary to permit its competent authorities to give effect to an order of confiscation issued by a court of another state party. It also provides for the provisional freezing or seizing of property where there are sufficient grounds for taking such actions in advance of a formal request being received.

The countries that hold assets have been given special responsibilities such as enhanced scrutiny of accounts deposited by those entrusted with prominent public functions to detect suspicious transactions. They are also required to share information with the competent authorities of another state, when necessary, to investigate, claim and recover proceeds of offences.

The UN, through its Office on Drugs and Crime, which leads the fight against illicit drugs and international crime, has been given the responsibility to implement the convention, particularly its assets recovery provisions. But how effective UN assistance is in legal battles in which the holding countries have a vested interest is uncertain. The negotiations showed that they would not part with these assets easily and that they would fight tooth and nail legally before any assets were returned.

Many legal treatises have been written on the provisions of the convention, but the convention was made possible by a political compromise wherein the developed countries obtained a strong convention against corruption in return for conceding that illegally obtained wealth deposited abroad would be returned to its legal owners. In fact, many developing countries signed and ratified UNCAC because of its assets recovery provisions.

Refining India’s approach

In the case of India, difficulties may have arisen not in establishing that the sums amassed abroad belong to India, but in proving that the assets were illegally obtained. Our authorities may do well to use the records of the debate in Vienna to prove the strength of the argument by many countries that proof of illegality of acquisition should not be insisted upon. Strictly speaking, this had no relevance to the issue of the return of assets as long as it was evident that they belonged to the countries claiming them. This condition was accepted only because of the insistence that banking regulations in many countries would not permit the return of assets without this.

The actual recovery since the adoption of the convention has fallen far short of expectations. Only $276.3 million of assets were recovered in 2006-2009 and $147.2 million in 2010-2012 as against the estimated $20 billion to $40 billion stolen every year. In view of this, the parties to the convention have set up a working group to assist in the implementation of the assets recovery provisions of the convention. A working paper prepared for its next meeting in early September this year has listed a large number of legal issues, which need to be addressed. These include the domestic management and disposal of seized and confiscated assets and the management of the return and disposal of assets recovered in the context of international corruption cases. These are the same issues which remained ambivalent at the time of the negotiations.

But the unspoken truth is that the countries making the requests are not inclined to expose the depositors by revealing the modalities of corrupt practices and the countries that have been requested have a vested interest in not returning the assets to their rightful owners. A disconnect persists between national commitments and the actual behaviour of countries at the international level.

(T.P. Sreenivasan, as Permanent Representative of India to the UN, Vienna, chaired the Preparatory Committee for the UN Convention Against Corruption.)

In India’s case, difficulties in recovering black money are in proving that the assets were illegally obtained. The focus here must be on the UNCAC debate that reveals the strength

of the argument against insistence on proof of illegality

Provisions in the UN Convention Against Corruption can help immensely in the recovery of black money. The convention should be of great value to countries where natural wealth has been plundered and whose governments need these resources to reconstruct their societies