IN THE early days of the Arab Spring of 2010-11, there was bright-eyed talk of moving quickly to locate and grab back the vast sums believed to have been plundered by the region’s toppled regimes and their cronies, and using the recovered funds to support economic reconstruction. It didn’t take long for the optimism to subside. So it is likely to prove in Ukraine, where investigators are still trying to get their arms around the scale of the kleptocracy of the Yanukovych era. Asset recovery is a slog, studded with obstacles that range from the deviousness of those hiding the money to the clunkiness of the international legal framework for identifying, freezing and repatriating looted wealth.
Ukraine’s investigators have already had a lucky break. Some 200 folders of documents, dumped in a lake (pictured) behind the former residence of Viktor Yanukovych, the deposed president, by his entourage as they fled, stubbornly refused to sink and have been fished out and dried (with help from the presidential sauna). Many can be viewed online. Among the papers are receipts for payment of $115,000 for a shooting range and $2.3m for a tea room.
These documents and others discovered elsewhere suggest that members of the former regime were avid users of foreign shell companies, trusts and foundations, the time-honoured tools of corrupt politicians, tax evaders, money-laundering drug barons and sanctions-busters. These were sometimes used in combination, a process known as “layering”, to conceal better the ownership of assets and their movement across borders.
Work by the Ukrainian Anti-Corruption Action Centre and other investigative journalists has revealed that Mr Yanukovych’s former private residence, known as Mezhyhirya, was bought some years ago without any competitive tendering process, then immediately re-sold to a Ukrainian company called Tantalit. This firm is owned by an Austrian company, which in turn is 35% owned by a British shell company, Blythe (Europe) Ltd, and 65% owned by an Austrian bank. Blythe, which is owned by an impenetrable Liechtenstein trust, is also understood to be the owner or part-owner of the former president’s hunting lodge and the firm that owns the presidential planes and helicopters.
Tantalit is believed to have been sold last September to Sergey Kluyev, a MP from Mr Yanukovych’s party. The director of one of Tantalit’s corporate shareholders is a lawyer who is known to have worked for the former president and his family. The sole director of Blythe, an Austrian called Reinhard Proksch, told the Reuters news agency “I am not a crook” and said he was co-operating with international authorities. He had previously claimed the firm had no links to Mr Yanukovych. In a press conference last week, held in Russia, Mr Yanukovych said he owns 2.7 hectares of land and the main building at Mezhyhirya, which he bought for $3m. He said the rest of the land on the estate does not belong to him or his family.
Some of the assets suspected of having been stolen are thought to be in Alpine havens. (Austria, in particular, seems to have become a popular way-station for Ukrainian assets.) Others were apparently diverted to, or at least passed through, limited-liability partnerships (LLPs) incorporated in Britain. These, in turn, were held by corporate partners in small offshore secrecy jurisdictions. One LLP, which is suspected of having been used in a $150m gas-rig fraud, was owned by two British Virgin Islands (BVI) entities; control subsequently switched to a pair of firms in Belize. Ownership of another partnership, which was allegedly part of a conspiracy to corner the market in Ukrainian wheat, was moved from the BVI to the Seychelles. Corporate secrecy is strong in the BVI but more water-tight in Belize and the Seychelles. LLPs are popular with money-launderers because they are opaque and—whether by design or accident—can easily slip under the radar of tax authorities.
These corporate webs give a sense of the challenge facing investigators. Their task is less daunting in cases where suspicious assets have already been frozen. Switzerland, Austria and Liechtenstein moved quickly last week to draw up lists of Ukrainians suspected of corruption or human-rights abuses—including Mr Yanukovych, his son Oleksandr, Mr Kluyev and more than a dozen others—and to block any accounts linked to them. Geneva’s chief prosecutor raided a business owned by Oleksandr Yanukovych as part of an investigation into “aggravated money laundering”. Other European countries, meanwhile, said they were waiting for European Union ministers to agree on sanctions (which they were also slow to do during the Arab Spring, providing ample time for dirty money to be moved elsewhere). EU diplomats reportedly agreed on March 4th to freeze assets linked to Mr Yanukovych and 17 relatives and associates, though this won’t take effect until later this week.
Swiss banks say they are confident that, this time, they don’t hold much of the loot. A high-level Swiss source says he suspects that “a good deal of it is now in banks in Russia and Central Asia”, which “will be less vigilant for obvious reasons”. Switzerland, long a byword for obstruction on tax secrecy, has been more helpful in tracking down and returning stolen public funds. It was the first country to freeze Egyptian assets, an hour after Hosni Mubarak resigned. New Swiss laws allow assets to be recovered and returned even if the government of the country from which they were stolen has not asked for them back, if that country’s institutions are non-functioning (as was the case in Haiti after the fall of Jean-Claude “Baby Doc” Duvalier).
Even so, the value of assets identified and frozen by foreign governments since the Arab Spring is disappointingly small: somewhere between $1 billion and $2 billion (with far less actually returned), when the amount nicked from Egypt alone was probably somewhere in the tens of billions (estimates run as high as $70 billion). Experts, alas, see no reason why Ukraine’s experience will be much different.
Cross-border asset recovery is such hard work because it requires hacking through thickets of international law, and because it cuts across criminal, civil and administrative justice. Moreover, it relies on co-operation between countries (and between agencies within countries) that are often unable or unwilling to share information. The asset-recovery provisions in the UN’s Convention against Corruption form a basic framework, but the process is still littered with obstacles: in a report in 2011, the World Bank and UN counted 29 hurdles. Sometimes officials in the very countries that have been robbed are reluctant to move cases forward. One reason may be fear of retribution from people linked to the former regimes who retain influence even when out of power. This has been particularly problematic in Egypt and Libya.
Another problem is linking a specific asset with corruption. How to prove that $20m in an account held by a Yanukovych crony was stolen rather than honestly earned if he also had some legitimate business interests? This was a sticking point in attempts to build a case against Mr Mubarak’s son, Gamal, who made a lot of money perfectly legally as an investment banker. Asset seizure is even more complicated when accounts or investments are held jointly with third parties.
