The Intersection of Bribery, Kleptocracy and Money Laundering

Scott Moritz, Managing Director Protiviti Forensic
International Anti-Corruption Day is this Friday, December 9.

At last week’s ACI FCPA Conference, Paul Abbate, Assistant Director in charge of the FBI’s Washington, DC field office, delivered a keynote address describing the mission of the FBI’s International Corruption Squads. Their mission includes the investigation of international corruption in violation of the Foreign Corrupt Practices Act (FCPA); acts of kleptocracy, in which heads of state steal large sums of money from their country; and money laundering, in which financial transactions are undertaken either in the furtherance of criminal activity – such as the payment of bribes – or to conceal the true origins of money obtained illegally. There is an elegance to the FBI’s international corruption squads’ mission, in that corruption, kleptocracy and money laundering intersect frequently, and the tracing of illicit money will often be the key to proving bribery and kleptocracy cases.

Before we get into how bribery, corruption and money laundering are interrelated, it helps to clarify what each of those terms means.

  • Bribery is the offering or giving of something of value in order to induce the recipient to abuse his or her position in some way for the benefit of the bribe payer or the person or entity on whose behalf the bribe is being offered or paid.
  • Corruption is the abuse of one’s official position for personal gain. Most often, corruption is the act of receiving a bribe.
  • Kleptocracy is corruption on the grandest scale possible. It is when a head of state or someone acting on that person’s behalf steals large sums of money from their country’s treasury for their own personal gain.
  • Money laundering is undertaking financial transactions with either the proceeds of unlawful activity or in an effort to conceal the origins of ill-gotten money. There are three stages of money laundering: placement, layering and integration. Placement is the introduction of money earned through criminal activity into the financial system. Layering, typically, is a series of transactions undertaken solely for the purpose of obscuring the origins of the illicit money. Integration is the point at which the layering has had the effect of making the illicit money seem as if it was obtained through legitimate means.

Of the four crimes above, the one that is discussed and enforced most often, through FCPA action, is bribery. We have discussed it here, here, and here. However, the FCPA only criminalizes the supply side of bribery, i.e., when companies offer or pay bribes to foreign officials in exchange for an unfair business advantage. What’s interesting is that in recent months the FBI has begun to give voice to the less-understood “demand” side of bribery – corruption and kleptocracy – an aspect that has traditionally been left to the home countries from where corrupt officials operate.

Specifically, the FBI and the Department of Justice’s (DOJ) Asset Forfeiture and Money Laundering Section have been focusing on kleptocracy through the Kleptocracy Asset Recovery Initiative. Most notably, in July of this year (2016), the DOJ initiated the largest ever kleptocracy-related asset forfeiture action, in which allegations of the looting of billions of dollars from Malaysia’s sovereign wealth fund led to the seizing of $1 billion of assets in the U.S., the UK and Switzerland. The seized assets included luxury hotels in New York City and Beverly Hills, penthouse apartments, a private jet, and an ownership interest in the production company that produced the movie “The Wolf of Wall Street.”

The 1MDB kleptocracy civil asset forfeiture action was brought under the civil money-laundering statute in that the assets were involved in or represented the proceeds of money misappropriated from Malaysia’s sovereign wealth fund. While this is the largest civil forfeiture action to date brought under the Kleptocracy Asset Recovery Initiative, the nexus between corruption, kleptocracy and money laundering is nothing new. In fact, the whole concept of “politically exposed persons,” or PEPs, and their designation as high-risk banking customers, came about as a result of multiple scandals in which heads of state looted their government treasuries and then laundered the money through the traditional banking system. Ferdinand Marcos, Baby Doc Duvalier, Raul Salinas, Suharto, Manuel Noriega, Saddam Hussein – the list seems endless. These corrupt leaders, who famously looted the treasuries of their countries, also set the tone for corruption across their governments. In many instances, their corruption doesn’t just set the tone, but is sanctioned by them, and the bulk of the proceeds of the corrupt payments received benefit the corrupt presidents and their families.

Perhaps no case better illustrates the government’s rationale behind combining its FCPA investigative efforts with the DOJ’s ongoing anti-kleptocracy initiative than the VimpelCom case. In February this year, Dutch telecom company VimpelCom settled a DOJ and SEC investigation by agreeing to pay a combined $795 million to U.S. and Dutch authorities in connection with $114 million in bribes paid to a relative of an Uzbek government official in order for the company to enter and remain in the Uzbek telecommunications market. While the government official in this case is unnamed, the money is traced to Uzbek president Islam Karimov’s eldest daughter, Gulnara Karimova. Karimova, who at the time held control over the country’s telecom assets and the issuance of mobile phone system operating licenses, has been under house arrest for the past two years in connection with corruption allegations that she pocketed more than a $1 billion in bribe payments, including shares in the telecom companies she licensed. In addition to securing the guilty plea and deferred prosecution agreement with VimpelCom and its Uzbek subsidiary, the DOJ has filed civil actions against multiple offshore bank accounts that are alleged to belong to the unnamed Uzbek official and hold a total of $850 million. This was the largest civil forfeiture action in the history of the DOJ’s kleptocracy initiative before the 1MDB suit was filed in July.

The recent integrated approach by the FBI to FCPA, kleptocracy and money-laundering enforcement should be viewed as more than a source of shocking stories about fabulous riches obtained by power-hungry autocratic rulers in far-away countries. It should serve as an important reminder to compliance professionals and corporate executives that greed is a byproduct of human nature, enabled by the right conditions of opportunity, lack of ethics and lack of oversight. Compliance, therefore, should be more than a list of “must do” checkboxes – it should be about the moral obligation of the organization, and each individual within it, to operate ethically and to consider any unethical action holistically, from all sides and all possible consequences, in order to prevent, deter and set a tone against corruption and not contribute to the human suffering that corruption and kleptocracy cause.

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