CREATING HAVENS FOR THE ANTI-CORRUPT: TAX TRANSPARENCY AND FINANCIAL INTEGRITY. Bruce Zagaris

3
Sep

CREATING HAVENS FOR THE ANTI-CORRUPT: TAX TRANSPARENCY AND FINANCIAL INTEGRITY. Bruce Zagaris

I. INTRODUCTION Wildlife trafficking has increasingly become a lucrative business for transnational organized crime groups and gains. The level of poaching of elephants and rhinos has proliferated to such an extent that some of the species in several national parks and countries are in danger of extinction. An important solution is the use of money laundering and asset recovery to crossborder aspects of international wildlife trafficking. A particularly successful mechanism in the United States has been the use of a statute that enables courts to order defendants, after they are found guilty, to pay their fines to the Multinational Species Conservation Fund, which supports international efforts to protect critically endangered species around the world. As some developed countries earn record fines and monetary penalties against multinational corporations which are found guilty of transnational bribery, the international (and especially the development community) are challenged to find mechanisms to provide capacity and motivation to developing countries, where most transnational bribes occur. The first part of this paper looks at ways to improve mechanisms whereby developing countries can share in the enormous fines and penalties paid, gain early access to the evidence, so that they may consider bringing prosecutions, and participate in restitution efforts. The second section discusses some problems in foreign bribery settlements, whereby huge fines and monetary penalties are levied and only 3% of the penalties are shared with the source country of the bribe, which tend to be developing countries. In addition, the source countries receive very little information about the crimes and hence have difficulties holding the persons in their countries who participated in the transnational bribe accountable. The third section discusses the laws of transparency and whistleblowing, particularly using asset disclosure information to identify Politically Exposed Persons and laws to facilitate and encourage whistleblowers. The fourth section discusses the interplay between automatic exchange of information, particularly the Foreign Account Tax Compliance Act (FATCA), and economic sanctions, in the context of the U.S. suspension of negotiations of a FATCA intergovernmental agreement (IGA) as a result of the Russian sanctions. For each of these issues the paper suggests remedies.

II. USING ANTI-MONEY LAUNDERING PROSECUTIONS AND ASSET RECOVERY AGAINST WILDLIFE TRAFFICKING Effectively combatting wildlife crime, especially trafficking in ivory and rhino horns, requires the use of international money laundering laws to prosecute the perpetrators, including the intermediaries, and seize, forfeit, and share with the source countries the instrumentalities and proceeds of the crime. The reasons that money laundering prosecution and asset recovery must be used are to deprive the perpetrators of the instrumentalities and proceeds to continue to perpetrate the criminal activities and to have a means by which to channel some of the ill-gotten gains to the source developing countries. Without receiving some of the assets recovered, the developing countries that are the source of the wildlife will not have the means or the motivation to effectively conduct the prevention and/or prosecution activities. Already, a limitation in sharing is that the international community has decided that so valuable are the ivory and rhino horns that they should be confiscated and destroyed. Hence, in many cases, courts and prosecutors are limited in terms of finding money, assets, and other objects that can be shared with the victim countries. A. Multilateral Mechanisms International conventions provide the mechanisms for sharing proceeds. Article 14 of the Palermo Convention on Transnational Organized Crime has an article with respect to the sharing of assets recovered in a transnational organized crime case. It states as follows: Article 14. Disposal of confiscated proceeds of crime or property 1. Proceeds of crime or property confiscated by a State Party pursuant to articles 12 or 13, paragraph 1, of this Convention shall be disposed of by that State Party in accordance with its domestic law and administrative procedures. 2. When acting on the request made by another State Party in accordance with article 13 of this Convention, States Parties shall, to the extent permitted by domestic law and if so requested, give priority consideration to returning the confiscated proceeds of crime or property to the requesting State Party so that it can give compensation to the victims of the crime or return such proceeds of crime or property to their legitimate owners. 3. When acting on the request made by another State Party in accordance with articles 12 and 13 of this Convention, a State Party may give special consideration to concluding agreements or arrangements on: (a) Contributing the value of such proceeds of crime or property or funds derived from the sale of such proceeds of crime or property or a part thereof to the account designated in accordance with article 30, paragraph 2(c), of this Convention and to intergovernmental bodies specializing in the fight against organized crime; (b) Sharing with other States Parties, on a regular or case-by-case basis, such proceeds of crime or property, or funds derived from the sale of such proceeds of crime or property, in accordance with its domestic law or administrative procedures. 6 Interested persons (i.e. countries) should consider making arrangements between the sources and consuming countries of ivory trafficking, whereby the consuming countries agree to return proceeds either directly to the source countries and/or to a regional mechanism on wildlife trafficking that can be used by regional enforcement groups, such as Eastern Africa Police Chiefs Cooperation Organization (EAPCCO). Many countries that are the source of wildlife crime are members of the Palermo Convention. As of May 16, 2014, the Convention has 147. Parties: 179. 1 The United Nations Convention against Transnational Organized Crime (UNTOC) and the United Nations Convention against Corruption (UNCAC), contain detailed provisions to support international cooperation in criminal matters, such as extradition and mutual legal assistance, and provide for specific and innovative forms of cooperation that can be applied in the field of wildlife and forest crime. Examples include joint investigations and cooperation for the use of special investigative techniques, such as controlled delivery, electronic and other forms of surveillance, and undercover operations. These Conventions further require States parties to adopt appropriate measures aimed at promoting law enforcement cooperation. In April 2011, the CITES Secretariat, Interpol, UNODC, the World Bank, and the WCO formed the International Consortium on Combating Wildlife Crime (ICCWC). International ICCWC is the collaborative effort by five inter-governmental organizations working to bring coordinated support to the national wildlife law enforcement agencies and to the sub-regional and regional networks that, on a daily basis, act in defense of natural resources.2 ICCWC has the mission of developing a regime whereby perpetrators of serious wildlife crimes will face a formidable and coordinated response, rather than the present situation where the risk of detection and punishment is all too low. In this context, ICCWC will mainly work for, and with, the wildlife law enforcement community, since it is frontline officers who eventually bring criminals engaged in wildlife crime to justice. ICCWC seeks to support development of law enforcement that builds on socially and environmentally sustainable natural resource policies, taking into consideration the need to provide livelihood support to poor and marginalized rural communities.

In the mid- to longer-term, ICCWC seeks to develop programs to enhance awareness of wildlife crime; provide institutional analysis and support; build capacity of national institutions, sub-regional, and regional enforcement organizations, taking into consideration the whole range of investigative and prosecutorial techniques; foster coordinated enforcement actions; support analytic reviews, especially through its Wildlife and Forest Crime Analytic Toolkit; mainstream wildlife crime across relevant national agencies; promote natural resource management and development; understand and address drivers of wildlife crime; and address the drivers of wildlife crime to reduce demand. The consortium has developed the Wildlife and Forest Crime Analytic Toolkit, built on the technical expertise of all ICCWC partners, as well as through extensive consultations with experts from across the globe from a variety of related fields. The toolkit is designed to serve as an initial entry point for national governments, international actors, practitioners, and scholars to better understand the complexity of the wildlife and forest crime and serve as a framework around which a prevention and response strategy can be developed. The tool kit consists of five parts: legislation relevant to wildlife and forest offenses and other illicit activities; law enforcement measures pertaining to wildlife and forest offenses; prosecutorial and judicial capacities to respond to wildlife and forest crime; factors that drive wildlife and forest offenses, and the effectiveness of preventive interventions, and the availability, collection, and examination of data and other information relevant to wildlife and forest crime. B. Bilateral Mechanisms: The United States Government as an Example One way to participate in asset recovery is through bilateral arrangements or mechanisms. An example of the bilateral mechanisms is the policy and practice of the U.S. government. The U.S. government encourages international asset sharing and recognizes all foreign assistance that facilitates U.S. forfeitures so far as consistent with U.S. law. Federal statutes, namely 18 U.S.C. § 981(i), 21 U.S.C. § 882(e)(1)(E), and 31 U.S.C. § 9703(h)(2), govern international sharing in the U.S. International sharing by the U.S. is often guided by standing international sharing agreements or the subject of a future case-specific forfeiture sharing arrangement which the U.S. Department of Asset Forfeiture and Money Laundering Section (AFMLS) negotiates and the Department of State approves.3 Standing international sharing agreements or the subject of a future case-specific forfeiture sharing arrangement negotiated by AFMLS and approved by the Department of State often guide international sharing by the U.S. The decision to share assets forfeited to the U.S. with a foreign government is a completely discretionary function of the Attorney General or the Secretary of the Treasury. It requires the concurrence of the Secretary of State, and, in certain circumstances, it is a decision that can be disapproved by Congress.4

Foreign governments do not need to follow a specific process to request sharing of assets with the U.S. They can do so pursuant to a treaty, a sharing agreement, or even via other diplomatic or law enforcement channels. Prosecutors and law enforcement agencies should make spontaneous sharing recommendations whenever they receive foreign assistance that facilitated the forfeiture of an asset in a U.S. case, especially when that asset is located in the U.S. When the U.S. forfeits assets in a judicial forfeiture case with the help of a foreign state and the seizing agency is a Department of Justice component or participant in the Department of Justice forfeiture fund, the federal prosecutor assigned to the case is responsible for sending a formal sharing recommendation to AFMLS.5 In an administrative forfeiture matter, the seizing agency is responsible for the recommendations. In cases that implicate the Treasury forfeiture fund, the seizing agency, e.g., Internal Revenue Service, U.S. Secret Service, or Immigration and Customs Enforcement is responsible to send a sharing recommendation to Treasury Executive Office of Asset Forfeiture (TEOAF). The seizing agency should consult the prosecutor on the case first. For Department of Justice forfeiture fund international sharing recommendations, AFMLS International Programs Unit (IPU) prepares the sharing recommendations for approval for the Deputy Attorney General. For Treasury forfeiture fund international sharing recommendations, the director of TEOAF approves the sharing recommendations. AFMLS and TEOAF must obtain State Department and each other’s concurrence for each proposed transfer to a foreign government after it is approved by their respective designees.6 The interagency process can be lengthy. To avoid delays, the agency or prosecutor should make the international sharing recommendation as soon as is practicable, or immediately after the final order forfeiting the foreign assets is obtained. As soon as possible, the seizing agency should note in any electronic asset tracking system, such as the Calibrated Asset Trafficking System (CATS) or TALONS, that a particular asset might be, is, or will be subject to an international sharing request or recommendation – and definitely before that asset has been liquidated. DOJ policy advises prosecutors and federal law enforcement agencies to be mindful that domestic sharing will occur only after completion of the international sharing process, and will be taken from the federal share, which is the amount of money that the U.S. has available at that time. With increasing frequency, countries are enacting laws to allow them to share domestically forfeited assets with other countries. Hence, if the U.S. prosecutors or investigators assisted in foreign cases that resulted in a foreign forfeiture, they are encouraged to contact an AFMLAS IPU attorney to see whether it would be fruitful to submit a sharing request to that country.7 Pursuant to the provisions of U.S. law, including 18 U.S.C. §981(I), 21 U.S.C. § 881(e)(1)(E), and 31 U.S.C. §9703(h)(2), the Departments of Justice, State, and Treasury have proactively sought to encourage foreign governments to cooperate in joint investigations of narcotics and money laundering as well as other crimes, offering the possibility of sharing in forfeited assets. A parallel goal has been to encourage the spending of these assets to improve narcotics-related law enforcement. The long-term goal of the U.S. government is to encourage governments to improve asset forfeiture laws and procedures so they will be able to conduct investigations and prosecutions of narcotics trafficking and money laundering, which include asset forfeiture. The U.S. and its partners in the G-8 are pursuing a program to strengthen asset forfeiture and sharing regimes. Canada, Cayman Islands, Hong Kong, Jersey, Liechtenstein, Switzerland, and the United Kingdom have shared forfeited assets with the U.S.8 Under 9-118.000 of the U.S. Attorney’s Manual, the United States Attorney General may transfer any forfeited personal property or the proceeds from the sale of any forfeited personal or real property, as authorized by statute, to a foreign country which participated directly or indirectly in any acts which led to the seizure or forfeiture of the property, if such transfer: (1) has been agreed to by the Secretary of State; (2) is authorized in an international agreement between the United States and the foreign country; and (3) is made to a country which, where applicable, has been certified under § 481(h) of the Foreign Assistance Act of 1961. Requests by a foreign agency must be in the form prescribed by the Director, Executive Office for Asset Forfeiture.9 Governments wanting to participate in asset recoveries on wildlife trafficking should join multilateral agreements that provide for sharing and consider concluding additional agreements with the main consuming countries of ivory trafficking. Such countries include the Peoples’ Republic of China, the Philippines, Thailand, Taiwan, and the U.S. Whenever possible, they should also consider negotiating mutual legal assistance in criminal matter agreements. The U.S. and other governments that share assets in wildlife trafficking may want to encourage other consuming countries to participate in pilot projects to be proactive in seizing and sharing proceeds with the source countries. They may want to do so in CITES, Interpol, the UNODC, the G8, and the G20 fora. 1. Seizure and Forfeiture of Wildlife Trafficking The U.S. Department of Justice has brought actions for non-conviction based forfeiture. In one case, it successfully forfeited a Mongolian dinosaur skeleton and returned it to Mongolia.10 Another case involved an in rem action for civil forfeiture against the ivory tusk of an African elephant. The owner killed the elephant during a sport hunt under a license from Zimbabwe Parks and Wildlife Management Authority. The owner obtained permits from Zimbabwe to export the tusk to the U.S. However, U.S. customs concluded that the tusk did not qualify as a sport-hunted trophy and could not be lawfully imported into the U.S. The U.S. government won the case on summary judgment because the defendant imported the tusk into the U.S. in violation of the Endangered Species Act and the African Elephant Conservation Act. The owner imported the tusk into the U.S. without a permit for the export or the import of a species listed on Appendix 1 of CITES, and hence the tusk was found subject to forfeiture.11 To successfully prosecute civil and criminal forfeiture cases often requires evidence from the source country that the importer acted in violation of the source country’s laws. Hence, the foreign government can help by sending to the U.S. evidence of their law and declarations of government and/or law enforcement officials with respect to such laws, regulations, and enforcement policies, as well as any information to support the prosecution of the case involved. When the U.S. DOJ successfully prosecutes a criminal case, it seeks restitution, e.g., pursuant to 18 U.S.C. §§ 3663. 3663A as well as 3563(b)(2) and 3583(d). Sometimes restitution is satisfied by the proceeds seized during the investigation. Restitution may be paid into the Multinational Species Conservation Fund.12 2. Multinational Species Conservation Fund The Multinational Species Conservation Funds (MSCF) save some of the world’s fastest disappearing and most treasured animals in their habitats. In particular, the African elephant Conservation Act (ACEA) (16 U.S.C. §§ 4201-4203, 4211-4214, 4221-4246 and 1538) is used to fund expenses to carry out the AECA.

The funds from the MSCF provide direct support in the form of technical and costsharing grant assistance to a range of countries for on-the-ground protection and conservation of African elephants and other endangered species. A range of activities funded through this program are designed to promote collaboration with key range country decision-makers, furthering the development of sound policy, international cooperation, and goodwill toward the U.S. among citizens of developing countries. The funds strengthen law enforcement activities, build support for conservation among people living in the vicinity of the species’ habitats, and provide vital infrastructure and field equipment needed to conserve habitats. The program strengthens local capacity by providing essential training and collaborative efforts. Without this financial assistance, it is likely that degradation of species and their habitats will continue, which may ultimately result in extinction. The MSCF, which are implemented through International Conservation’s Wildlife without Borders Species Program, provide technical assistance and grant funding to range countries through broad-based partnerships with national governments, local communities, nongovernment organizations, and other private entities for on-the-ground conservation projects. Funding is target to the highest-priority projects impacting the greatest number of species and support is provided for a range of activities including anti-poaching, conservation education, research, monitoring, habitat restoration, community outreach, law enforcement, training, and capacity building. In many cases, the U.S. Fish and Wildlife Service is the sole or leading funder of projects that affect the survival of these endangered wildlife populations. The MSCF are an important mechanism to garner trust and respect for the U.S. internationally, and have engaged nearly 600 domestic and foreign partners working in over 54 countries. From 2007 to 2011, the MSCF provided $56 million in grant funding for on-the-ground conservation, leveraging nearly $87 million in additional matching funds. In 2011, funds for African elephants improved protection of elephants and key habitats in and in and around the Udzungwa Mountains of southern Tanzania by identifying and monitoring corridors between protected areas used by elephants and initiating programs to protect connectivity and dispersal areas for these increasingly isolated elephant populations. Another project conducted aerial surveillance of Gabon’s national parks to detect and respond to signs of poaching targeting forest elephants to prevent future and illegal inclusions, and conducted systematic surveys of the savannah and swamp areas of Batecke, Lope, Loango, and Wonga Wongueparks.

C. Asset Sharing Both bilaterally and multilaterally, perhaps the most important short-term initiative that can help strengthen both the political will to prosecute elephant poaching and ivory trafficking in the source countries, and simultaneously give resources to execute the enforcement strategy, is for governments from consuming countries to share assets. This can be done both bilaterally, as discussed in ‘bilateral mechanisms’ under practices of the U.S. government. FATF best practices call for assets to be returned to victims or prior legitimate owners of assets forfeited. FATF best practices also call for assets to be returned in accordance with the provisions of UNCAC and UNTOC. Informal international cooperation through the Interpol NCB should be highlighted. Already, Interpol ‘s Wildlife Crime Working Group and Interpol’s Project Wisdom have made significant commitments to helping coordinate effective international cooperation to combat wildlife trafficking and especially elephant poaching and ivory trafficking. Pilot projects and political commitments by the consuming countries to participate in asset sharing, especially within international organizations and informal groups, such as the G8 and G20, are important potential steps to develop momentum for asset sharing. D. Potential Additional Mechanisms One mechanism that could be useful is the establishment of a mechanism to investigate and prosecute wildlife trafficking. It would be staffed by law enforcement officials in general, park rangers and environmental officials, and financial officials who are responsible for antimoney laundering. It could be called African Center for Investigation and Prosecution of Environmental Crimes (ACIPEC). If useful, it could be staffed by some external professionals (e.g., professionals experienced in money laundering prosecutions and asset recovery). They could be seconded to a participating country to help with the investigation and prosecution of a specific case. The participants in ACIPEC could meet periodically and have telephone and/or video conferences to share law enforcement issues and practical approaches to resolving problems. In other words, the participants would informally share ideas and know-how with respect to responding to wildlife trafficking and other environmental problems. ACIPEC could be modeled on the Joint International Tax Shelter Information Center (JITSIC). The aims of JITSIC are to supplement the ongoing work of tax administrations in: curbing abusive tax avoidance transactions, arrangements, and schemes (also referred to as abusive tax schemes) as well as enhancing activities against cross-border transactions involving tax compliance risk.

Periodically, the parties will agree on focus areas for JITSIC, based on potential compliance risks. The initial focus areas are: tax administration issues arising from the global economic environment and financial crisis, use of off-shore arrangements to avoid tax, arrangements used by high wealth/income taxpayers to minimize their tax liabilities, and tax administration approaches and activities to improve transfer pricing compliance.13 1. Clinton Global Initiative On September 26, 2013, the Wildlife Conservation Society (WCS) announced the Partnership to Save Africa’s Elephants, a campaign to strengthen and support the Clinton Global Initiative (CGI) commitment made by Hillary Clinton, Clinton Foundation Vice Chair Chelsea Clinton, representatives from African and Asian countries, and a powerful list of several conservative NGOs to save Africa’s elephants and respond to the crisis facing Africa’s elephants.14 The CGI initiative will be part of an $80 million, three-year program directed at ending ivory trafficking, including new park guards at major elephant ranges and sniffer-dog teams at global transit points. The new program will enable an expanded law enforcement presence at 50 major elephant sites that together harbor 285,000 elephants, or roughly two-thirds of the African population. It also will include the hiring of an additional 3,100 park guards, adding sniffer-dog teams at 10 key international transit points and strengthened intelligence networks.15 “96 Elephants” (www.96elephants.org) is named for the number of elephants currently gunned down each day by poachers. The WCS campaign focuses on: securing effective U.S. moratorium laws, strengthening elephant protection with additional funding, and educating the public about the connection between ivory consumption and the elephant poaching crisis. The campaign calls for the Obama Administration to start a moratorium on domestic ivory sales and request other countries to do the same. The U.S. is the second largest importer of ivory. Much of the trade is legal under a confusing set of U.S. regulations that perpetuate black market sales of illegal ivory. For instance, it is legal to sell some types of ivory depending on its age and origin. The laws are confusing and complicated and easy to manipulate. The legal trade provides a front for laundering in ivory from the illegal trade.16

The 96 Elephants campaign will strengthen elephant protection in the wild by increasing support for park guards, intelligence networks, and government operations in the last great protected areas for elephants throughout the Congo Basin and East Africa. WCS recently started elephant protection programs in four new target sites: Ivindo National Park in Gabon; Okapi Faunal Reserve in the Democratic Republic of Congo; Ruaha and Katavi National Parks in Tanzania; and Niassa National Reserve in Mozambique. In these four sites alone, 44,000 elephants are at immediate risk.17 The 96 Elephants campaign will fund high-tech tools in the field ranging from drones and sophisticated remote cameras that track poachers in real-time to specially trained sniffer dogs to find smuggled ivory in ports and trading hubs. The 96 Elephants campaign will engage the public through a series of actions, including online petitions and letter writing campaigns strengthened through social media to support a U.S. moratorium, increase funding, and spread the word about demand and consumption of ivory. WCS will educate public audiences about the link between the purchase of ivory products and the elephant poaching crisis, and support global moratoria and other policies that protect elephants.18 Another partnering organization is the International Fund for Animal Welfare (IFAW) which has more than 10 years’ experience working with INTERPOL, a trusted partner since the start of its wildlife crime program to stop wildlife trafficking.19 As part of the program ten countries, including China, Japan, Vietnam, and other Asian countries that are among the largest consumer markets for ivory, committed to helping reduce the demand among their citizens for the product, including through public education campaigns.20 The campaign illustrates the further development of an environmental enforcement network and subregime, whereby governments, international organizations, such as Interpol, and non-governmental organizations, such as WCS and IFAW, cooperate to use heightened enforcement and education to reduce elephant poaching and ivory trafficking and increase prosecutions of persons that are poaching and trafficking ivory.

III. FOREIGN BRIBERY SETTLEMENTS Throughout the world the major way to enforce foreign bribery laws is through settlements. For instance, a recent study, LEFT OUT OF THE BARGAIN reviews 395 settlement cases that occurred between 1999 and mid-2012. The cases resulted in a total of $6.9 billion in monetary sanctions. Approximately $6 billion of this amount came from monetary sanctions imposed by a country different from the one that employed the bribed or alleged bribed officials. Most of the monetary sanctions were imposed by the countries where the corrupt companies (and related individual defendants) are headquartered or otherwise operate. Of the approximately $6 billion imposed, only about $197 million, or 3.3 percent, has been returned or ordered returned to the countries whose officials were bribed or alleged bribed. 21 The report concludes that significant monetary sanctions have been imposed with almost none of the respective assets being returned to the countries whose officials have allegedly been bribed. The overwhelming majority of the jurisdictions harmed by foreign bribery are in the developing world and the vast majority of the settlements involve state-owned enterprises and public procurement contracts, including projects that range from tens to hundreds of millions of dollars in infrastructure and natural resources sectors.22 Developing countries whose officials were allegedly bribed should increase their own efforts to initiate and maintain effective investigations and prosecutions against the providers and recipients of transnational bribes. Such increased effort to investigate and prosecute would significantly boost their prospects of recovering assets and strengthen deterrence against active and passive corruption. The international community may want to monitor and report on the efforts by countries to investigate and prosecute bribes that occur within. Many countries enter into settlements to resolve foreign bribery charges. The cases include criminal, civil, and administrative enforcement actions. The levels of transparency and judicial review vary significantly among the different jurisdictions and, depending on the form of settlement, within a given jurisdiction. The trend toward the use of settlements to resolve foreign bribery and related cases is likely to continue. A problem is that outside of the home countries of the bribe payers (where many of the cases are settled), those countries whose officials were bribed or allegedly bribed have had difficulties bringing prosecutions against either the public officials in question or the foreign bribe payers. In the vast majority of such cases, these countries have not participated in the settlements concluded in the jurisdictions pursing the bribe payers, nor have they found any other way of obtaining accountability.

https://www.griffith.edu.au/__data/assets/pdf_file/0004/617179/Zagaris,-Bruce-PaperForeignBriberyWhistleblowingSHEdit.pdf