Untangling Corruption: The Politics of Returning Corruption Assets

In 2010, 69-year-old American James Giffen pleaded guilty to a misdemeanor tax charge –  failing to report a foreign bank account in his 1996 tax returns – and walked free.

It was a meek ending to a seven-year legal battle in which prosecutors alleged that Giffin had violated the U.S. Foreign Corrupt Practices Act (FCPA) and facilitated more than $78 million in bribes to Kazakh President Nursultan Nazarbayev and other officials while managing oil deals between U.S. companies working with Giffen's Mercator Corporation – Mobil, Amoco, Texaco and Phillips Petroleum – and the Kazakh government. The indictment accused Giffin of various forms of fraud and corruption, funneling oil money into Swiss bank accounts for personal use by Kazakh government officials, including Nazarbayev.

Giffin’s bribes were never proven in court, an outcome that more closely reflects the politics of the moment – namely the post-Cold War scramble for influence and the unyielding pressure of the U.S. War on Terror – than the lack of evidence of financial crimes.

Nevertheless, the money frozen in Swiss bank accounts – eventually amounting to over $115 million – was real. Swiss and American authorities had a conundrum on their hands: How to responsibly return the confiscated assets to their country of origin, Kazakhstan, when that country’s top government officials had participated in the very corruption that accrued the assets?

The initial solution – through which those millions were returned and used to benefit the Kazakh people – involved an independent foundation (the BOTA Kazakh Child and Youth Development Foundation), which received the funds and disbursed them for projects benefiting the Kazakh youth through two internationally recognized NGOs, IREX and Save the Children between 2008 and 2014. Notably, the funds were barred from being used to fund government activities, ministries, or national public institutions.

While the BOTA foundation concept has been lauded for managing the responsible return of corruption proceeds, the Swiss discarded the model in 2012  – claiming it was administratively expensive  – when considering how to return $48.8 million seized in a 2011 prosecution involving an unnamed Kazakh official.

Kristian Lasslett and Thomas Mayne analyze the return of the $48.8 million  – in what the Swiss unimaginatively term Kazakhstan II (with the BOTA case being Kazakhstan I)  – in a recent report for the Corruption and Human Rights Initiative (CHRI). In ditching the BOTA model, they note, what are technically “restituted assets” have been labeled as grants by the Kazakh government, washing them of their origin and obscuring responsibility to use the funds appropriately.

The Swiss directed the frozen millions to the Swiss Agency for Development and Cooperation, which transferred them to the World Bank through a grant. The grant was re-granted to Kazakhstan through two projects, the Energy Efficiency Program and the Youth Corps Program. The Kazakh Ministry of Education and Science and the “Institute of Electricity Development and Energy Saving” Joint Stock Company (JSC) were to implement the projects, which the Kazakh government have advertised as funded by World Bank grants, not restituted assets from a Kazakh government official’s secret Swiss bank account.

Lasslett and Mayne note that, because of the secrecy surrounding the repatriation of the funds, “there is no way to determine whether [they] will directly or indirectly benefit those implicated in the original Swiss prosecution.”

As the report outlines, the UN Convention Against Corruption (UNCAC)’s Civil Society Working Group on Accountable Asset Return has issued guiding principles for asset return. The principles put forth five standards to be met: That stolen assets are returned to their country of origin (1), in a transparent way (2), with both returning and receiving countries committed to accountability in their management (3); furthermore, returned stolen assets should “be used to remedy the harm their theft caused” (4). If the receiving country lacks adequate accountability or transparency mechanisms, the fund should be returned and managed by alternate means to prevent abuse (5).

The BOTA foundation was designed to address the fifth standard, guarding against abuse of the return process, and ensuring the other standards were met. The memorandum of understanding establishing the foundation specifically stated that it would be “independent of the Government of the Republic of Kazakhstan, its officials, and their personal or business associates” and that “neither the funds nor any property of the BOTA Foundation shall be used for payments or other benefits, directly or indirectly… to the Government of the Republic of Kazakhstan, its officials, or their personal or business associates.”

In returning the $48.8 million, Kazakhstan II, the Swiss decided to not use the same process, claiming it was too expensive. Instead of an independent foundation, the World Bank bore complete responsibility for oversight of the return. Bank experts labeled the projects “high risk.”

Lasslett and Mayne’s investigation followed the funds that were granted to the Youth Corps Program, or Zhas in Kazakh. IREX failed to the win the Ministry of Education and Science’s tender to coordinate the project, losing to a consortium of Kazakh government-organized non-governmental organizations (GONGOs) which were closely affiliated with the ruling party, Nur Otan. The consortium leader  – the Congress of Youth  – was created on the initiative of President Nursultan Nazarbayev and his eldest daughter, Dariga, is the congress’ chair in addition to her role as Nur Otan politician.

The report notes, that “from the limited available procurement data, examples have been uncovered of lavish spending on promotional material, awards to the ruling party’s youth wing, expenditure on materials that have a propagandistic function, and the selection of ‘host organizations’ that are predominantly GONGOs, some of which are run directly by public officials and politicians espousing strong commitment to the President’s national ideology.”

It’s telling that in six and a half years, the BOTA Foundation was able to disburse 100 percent of the $115.8 million it was made steward of. In that same amount of time  – six and half years  – Kazakhstan II’s Youth Corps Program has disbursed just 29 percent of $21.76 million.

Beyond the argument that a BOTA-style return would be “administratively cumbersome,” it’s unclear why the Swiss would opt for a less transparent, less accountable, easier to abuse format for returning the proceeds of corruption first frozen in Swiss bank accounts. The Swiss had reached a settlement with the unnamed owner of the frozen accounts to return the funds. The details of that deal are secret. If the individual Kazakh official is connected to the Nur Otan party (which would be likely given that Kazakhstan is effectively a one-party state) the Swiss have simply funneled stolen assets back to the thieves.

Next month, I’ll explain the Giffen case in depth and dive into the impact international politics has facilitating corruption and stymying anti-corruption efforts.