November 3 2014

By Jean Pierre Brun

In 2009, Saif Gaddafi, the son of the then Libyan leader bought an eight bedroom neo-Georgian mansion (see image above) complete with indoor swimming pool and private cinema in a leafy suburb of North London. The property was purchased through a British Virgin Island (BVI) company, in what the estate agent described as a  “quicker than normal” viewing.

After Muammar Gaddafi was ousted, the mansion became – briefly- an outpost of the Arab Spring, as squatters took it over, seeking to reclaim it – they said – “for the people of Libya”. In December 2011, the newly installed authorities in Libya went to court to recover the property, which had been acquired with funds coming from the state’s coffers.

But instead of seeking its confiscation through a lengthy and challenging criminal investigation, they found it was easier to directly claim ownership of the property through a civil action they brought before the High Court of London. The Judge ruled in their favor and they were awarded the property.

This was notable and- from the perspective of asset recovery - a promising outcome. When former Presidents Ben Ali and Mubarak stepped down, in 2011, over accusations of abuse of power and corruption, the Egyptian and Tunisian authorities immediately sought to recover stolen assets by pursuing criminal cases. Similarly and more recently, in 2014, the Ukrainian authorities launched criminal investigations against former President Yanukovitch, accusing him of corruption and embezzlement of state funds.

These efforts to track down alleged offenders and recover stolen assets in grand corruption cases have become increasingly common in the past decade, as they are crucial to ensure that public funds promote economic development instead of the lifestyle of dishonest officials.  But the London case shows that criminal proceedings aren’t the only – or necessarily - the best path to proceed. They come with limitations which can hinder their objective, including a high standard of proof for criminal convictions, and often very slow mutual legal assistance processes. As a result, the amounts of money recovered to date in the context of criminal cases have been very modest when compared to the scale of the thefts.

Jurisdictions need therefore to consider other options. A new study by the Stolen Asset Recovery Initiative (StAR), ‘Public wrongs, Private actions’ shows how states can use private civil lawsuits to recover stolen assets.

Such lawsuits are civil actions by which a plaintiff claims to have incurred loss as a result of a defendant's corruption, and seeks compensation based on torts, breach of contract, illicit enrichment or other legal justifications. While civil remedies are not always as straightforward as in the Libyan case, they are worthy of consideration for at least two main reasons.

Firstly, in a civil trial, the standards of proof are often lower than in criminal proceedings. As a result, where establishing a direct link between the corruption and the asset is impossible, a civil claim may still have chances of success.

Secondly, in some jurisdictions, private lawsuits and civil remedies mean “deeper pockets” to sue and more of them. For example, someone who has suffered a financial loss may seek to bring a civil action claiming damages from third parties. These third parties could include any person who knowingly assisted the main actor, such as family members and associates, lawyers, banks, and corporations. Importantly, in the context of civil lawsuits, officials or former officials and their assets may not enjoy the same kind of immunity as in criminal prosecutions.

Critical to the effective use of civil action is the need for countries to have a coordinated and strategic approach to their asset recovery efforts – where all potential tools and avenues are considered and coordinated. As the Arab Forum on Asset Recovery meets, the publication of this report is also a welcome reminder of the importance of such domestic strategic and operational coordination.

The study provides countries interested by civil action in foreign courts with a step by step approach, highlighting the various issues to consider. It provides answers to the various strategic, tactical, technical and practical questions: how or where to file a case, how to select lawyers, and how to estimate amounts to recover. The case studies mentioned in each chapter illustrate how challenges were overcome in past cases, leading to successful asset recovery.

 StAR hopes that “Public Wrongs, Private Actions” will encourage more creative and innovative approaches which combine the more standard criminal prosecutions with civil lawsuits and result in returning  stolen assets to their rightful owners.

Jean Pierre Brun is a Senior Financial Specialist with the Stolen Asset Recovery Initiative and the lead author of ‘Public Wrongs, Private Actions’.

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