Fledgling Kleptocracy Initiative Faces Challenges, Expectations
By Christopher M. Matthews | September 19, 2022 11:36 am

As the U.S. Justice Department ratchets up an ambitious effort to target the assets of corrupt officials of foreign governments, Jennifer Shasky, who is overseeing the initiative, is keenly aware of the difficulties ahead but remains nonetheless hopeful.

“You’re taking on powerful people with a lot of money, and potentially a lot of third parties who are owed money,” Shasky said in an interview with Just Anti-Corruption. “It’s hard fought civil litigation that takes years not months. But we’re committed.”

Attorney General Eric Holder announced the Kleptocracy Asset Recovery Initiative with great fanfare during a speech in Doha, Qatar in November 2009, but other than fleeting public remarks in the months that followed, few details about the initiative were released.

Anticipation was amplified once again when Assistant Attorney General Lanny Breuer announced the initiative’s first cases in May, targeting the U.S.-based assets of a  former Nigerian official. But Shasky, the chief of the Criminal Division’s Asset Forfeiture and Money Laundering Section (AFMLS), said in an interview with Just Anti-Corruption that expectations should be tempered.

To be sure, there are a myriad of challenges facing the initiative, which uses civil forfeiture laws to seize the ill-gotten gains of foreign leaders who are beyond the reach of the U.S. criminal system. Prosecutors must navigate the complex web of international legal systems; locate monies that are often converted into movable assets, and can be hidden in a maze of offshore accounts and shell companies; gather evidence from witnesses and governments who may not be forthcoming, or even honest; to name a few.

Then there’s the issue of how to get the money back to the victims.

There is actually no obligation for the U.S. to repatriate the seized assets to the victim, according to Shasky. Once the assets are forfeited, they belong to the U.S. government.

“In fact, there is no legal requirement to return the funds at all,” Shasky said. “Nonetheless, we are committed to working to finds ways to repatriate or otherwise use the funds for benefit the people of a victim country.”

Shasky highlighted two cases that illustrate different approaches to repatriation. In civil forfeiture actions related to the government’s prosecution of the merchant bank Mercator Corporation and its chairman, James Giffen, $84 million on deposit in Switzerland allegedly traceable to bribes to senior Kazakh officials was given to a non-governmental organization in Kazakhstan, independent of the Kazakh government, to benefit underprivileged Kazakh children.

Giffen, once accused of funneling $84 million in bribes to Kazakhstan’s President Nursultan Nazarbayev and other Kazakh officials, received no jail time or probation in November after pleading guilty to giving inaccurate information about his foreign bank accounts. Giffen argued he’d been an asset of the CIA and any business he’d done in Kazakhstan had been done with the agency’s knowledge.

In the other case Shasky cited, the U.S. shared with the government of Panama some $40 million worth of gold, silver and other jewelry seized in an investigation into money laundering of drug money in Panama. The sharing agreement directed the funds to enhance law enforcement in Panama.

“We have to be flexible and nimble in finding ways to responsibly repatriate,” Shasky said. “We don’t want to give funds back to a potentially corrupt government, or to the very people who stole the money in the first place.”

Yet another dilemma has opened a perhaps unlikely front: how to deal with private asset recovery specialists, a group increasingly focused on public corruption.

The burgeoning field has pushed hard for a public-private partnership in which private lawyers representing the victims of corruption could collaborate with prosecutors to recover stolen assets.

Ed Davis, a recovery specialist at Astigarraga Davis,  a boutique Miami firm focused on commercial litigation, arbitration and other business disputes, said that while initiative is laudable, the government would benefit from the partnership because it simply does not have the resources to pursue every case.

“There are countless cases that don’t go to forfeiture because the government doesn’t have the resources or the desire to do the case,” Davis said. “We can do the case and bring it to them with a little blue ribbon on it.”

At the moment, there five attorneys who are exclusively assigned to the Kleptocracy Initiative. In addition, other AFMLS staff attorneys, contract investigators and financial analysts also provide support.

Beyond staffing issues, Davis believes that the initiative’s primary tool, civil asset forfeiture, is not suited for massive public corruption cases. Forfeiture developed as a criminal tool in the war on drugs and organized crime, and is very effective in cases where there is a clear victim, but in situations where there are lots of victims, or no clear victim, it’s not as efficient, Davis said.

“They tried to take a standard wrench and use it on metric nuts and bolts, and it doesn’t quite work, and it slips a lot because it’s not designed for that,” Davis said.

Davis said that private lawyers representing the victims have tools at their disposal that the government does not. For example, they can “sue the bank that helped the company that was owned by the bad guy that funneled the bribes.”

But so far, the Justice Department has rejected the overtures. Shasky said that while the government was open to obtaining information from private asset recovery specialists and other sources, it could not reciprocate.  The Justice Department is limited by the law, ethics and physical security of individuals in sharing information obtained in an investigations with private third parties, she said.

To a certain extent all of this is uncharted waters and Shasky and her team are feeling their way as they go. She said she and her team will continue to be nimble and innovative moving forward.

“There are no black and white answers here,” Shasky said.

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Mary B. Jacoby

Mary Jacoby is the founder of Main Justice.

Christopher M. Matthews

Chris covers corruption and the Foreign Corrupt Practices Act.