Jersey: fraud

Recovering assets through the criminal courts can be a tricky business. Stephen Baker reports on how Jersey’s civil courts are about to get busier as new confiscation legislation comes into force

In June 2004, Jersey received a visit from President Obasanjo of Nigeria. His visit was for the purposes of thanking the island authorities for their ongoing criminal investigations into the laundering of hundreds of millions of dollars through Jersey financial institutions and, more particularly, for the return of some $150m (£73.25m) to Nigeria.

The Abacha investigations

Jersey’s attorney general had investigated the flow of funds through several local institutions. This involved, in 2001, analysing the activities of Mohammed Abacha, son of the former Dictator General Sani Abacha, and his colleague Abubakar Bagudu.

Bagudu and Abacha had allegedly laundered millions of dollars abstracted from Nigeria through offshore special purpose vehicles. The investigation involved liaison with jurisdictions including Switzerland, the UK and Nigeria.

The attorney general requested the extradition of Bagudu from Texas, where he was living. Bagudu was arrested and remanded in custody in the US. At the request of the Nigerian authorities, he was returned and the missing $150m repatriated to Nigeria. This was widely perceived as a successful conclusion to a long-running and difficult criminal investigation.

The Bagudu matter has been the most high profile in a series of criminal investigations by the island’s attorney general into the misuse of the services of local financial institutions for the purpose of laundering the proceeds of corruption. The investigations into the laundering of Abacha-related monies are ongoing.

One of the cases before the Royal Court is that of Raj Bhojwani, an Indian businessman charged with three counts of concealing or transferring some $44m (£21.5m) alleged to be the proceeds of criminal conduct. He is currently on bail with a trial expected in May 2008.

Bhojwani is alleged to have moved funds for the purposes of avoiding a prosecution or confiscation order. Should he be convicted, it is anticipated that the Crown will move for substantial confiscation orders.

Civil asset recovery

Criminal confiscation has thus become a central tool for criminal authorities seeking to remove the proceeds of crime from corrupt politicians and, while some jurisdictions take a more theoretical approach, in other jurisdictions it has become a potent and pragmatic form of action. Nevertheless, the criminal investigation of corrupt politicians is fraught with difficulties – some legal, but mostly practical.

The burden of proof is that of criminal cases and therefore high. Obtaining evidence from politically unstable countries with underdeveloped legal systems is notoriously difficult and jurisdictions search for other avenues to ensure recovery of the proceeds of crime.

Civil asset recovery has become the tool of choice. Guernsey has introduced, and Jersey is about to introduce, civil confiscation legislation. In the UK, the assets recovery agency has been perceived as wholly unsuccessful. However, in smaller jurisdictions with a greater ability to focus on matters of strategic importance to their economic wellbeing, it may well be that these legislative tools prove extremely useful in recovering assets abstracted by politicians from developing countries.

There seems to be no good reason why civil asset recovery mechanisms should not be used effectively in this way. The key to the success of such legislation is the employment of skilled, determined and focused lawyers, accountants and support staff.

The US has used civil recovery legislation extremely successfully, most regularly against criminals such as drug traffickers. It has also used it against rich and powerful politicians. The most high profile use of the legislation to date is that involving Pavel Lazarenko, the former premier of the Ukraine. Lazarenko was convicted in California of a variety of offences and a criminal confiscation order was made.

The US has now confiscated assets held both in the US and around the world. These US civil confiscation orders are enforceable both in England and the Crown Dependencies.

As jurisdictions move towards the conclusion that the recovery of assets from corrupt politicians should be a domestic priority, it is likely that applications to enforce foreign confiscation orders will become much more frequent.

The US has also used its broad powers under the Patriot Act to seize the proceeds of crime paid through correspondent accounts held in the US. The economic reality is that every major financial institution is at some risk of the US Department of Justice freezing and confiscating funds which remain in, or have passed through, correspondent accounts.

As is now widely appreciated, the fact that the funds in question have passed through the correspondent account to a third-party jurisdiction is not of particular significance. As long as the correspondent account holds dollars, funds up to an equivalent value can be frozen and confiscated. The use of such legislation is plainly draconian. It also means that the central forum will be the US.

Criminal v civil

The Patriot Act does not appear to have been used to seize assets relating to corrupt politicians. It has, however, been used against assets held in the US correspondent account of a Guernsey financial institution. It is a powerful tool available to a jurisdiction with a long arm.

By using this legislation, the US keeps the involvement of any overseas jurisdictions to a minimum. It will be interesting to see how US policy develops in respect of the use of this legislation to combat corruption.

As well as the ability for domestic and foreign authorities to use specific legislative powers to investigate, prosecute and confiscate, it is also open to developing countries to institute civil proceedings to recover assets in the Crown Dependencies. The most high profile case in Jersey in recent years was that of Paulo Maluf, the former major of Sao Paulo.

At the same time as Brazilian prosecutors were seeking evidence from the Jersey authorities for use in criminal proceedings brought against Maluf in Brazil, the Federal Republic sought Norwich Pharmacal-type orders against Jersey financial institutions for disclosure of banking documents. Their applications were granted. Further developments are awaited.

The inter-relationship between criminal investigations and civil asset recovery can be a challenging area. Usually, jurisdictions take either a criminal route or a civil route rather than both routes simultaneously. There are a number of reasons for this. Costs of a civil action can be very high whereas local investigatory authorities can be expected to bear the cost of a criminal investigation.

Historically, there has been reluctance to permit the use of documents obtained in criminal investigations in civil litigation. Thus, there has to be a careful marshalling of documentation.

The use of documentation obtained in criminal proceedings is an interesting area of law and too big for this article. Yet there is likely to be a relaxation in perceived restrictions, and one will frequently see more civil recovery actions brought alongside criminal investigations.

Stephen Baker is a an advocate at BakerPlatt