LAYERING

MUNICIPAL MANAGER

3. LAYERING

◊ Involves distancing the money from its criminal source: movement of money to different accounts; movement of money to different countries

◊ Increasingly difficult to detect 4. INTEGRATION

◊ Last stage in the laundering process

◊ Occurs when the laundered proceeds are distributed back to the criminal

◊ Creates appearance of legitimate wealth

148

M. Montesh

parties in private civil actions. In addition to gathering publicly available information and intelligence from law enforcement or other government agency databases, law enforcement can employ special investigative techniques. Some techniques may require authorization by a prosecutor or judge (for example, electronic surveillance, search and seizure orders, production orders, or account monitoring orders), but others may not (for example, physical surveillance, information from public sources, and witness interviews (International Centre for Asset Recovery, 2009:168). Private investigators do not have the powers granted to law enforcement;

however; they will be able to use publicly available sources and apply to the court for some civil orders such as production orders, on-site review of records, expert testimony, or expert reports.

Securing the assets

During the investigation process, proceeds and instrumentalities subject to confiscation must be secured to avoid dissipation, movement, or destruction. In certain civil law jurisdictions, the power to order the restraint or seizure of assets subject to confiscation may be granted to prosecutors, investigating magistrates, or law enforcement agencies. In other civil law jurisdictions, judicial authorization is required. In common law jurisdictions, an order to restrain or seize assets generally requires judicial authorization, with some exceptions in seizure cases (United Nations, 2004:131).

International cooperation

International cooperation is essential for the successful recovery of assets that have been transferred to or hidden in foreign jurisdictions. It will be required for the gathering of evidence, the implementation of provisional measures, and the eventual confiscation of the proceeds and instrumentalities of corruption. And when the assets are confiscated, cooperation is critical for their return (Word Bank/StAR/UNODC/OECD, 2011:152). International cooperation includes “informal assistance,” mutual legal assistance (MLA) requests, and extradition. Informal assistance is oft en used among counterpart agencies to gather information and intelligence to assist in the investigation and to align strategies and forthcoming procedures for recovery of assets. An MLA request is normally a written request used to gather evidence (involving coercive measures that include investigative techniques), obtain provisional measures, and seek enforcement of domestic orders in a foreign jurisdiction.

Court proceedings

Court proceedings may involve criminal or NCB confiscation or private civil actions (each described below and in subsequent chapters); and will achieve the recovery of assets through orders of confiscation, compensation, damages, or fines. Confiscation may be property based or value based. Property-based systems (also referred to as “tainted property” systems) allow the confiscation of assets found to be the proceeds or instrumentalities of crime - requiring a link between the asset and the offense (a requirement that is frequently difficult to prove when assets have been laundered, converted, or transferred to conceal or disguise their illegal origin). Value-based systems (also referred to as “benefit” systems) allow the determination of the value of the benefits derived from crime and the confiscation of an equivalent value of assets that may be untainted (World Bank/ UNODC, 2007:147). Some jurisdictions use enhanced confiscation techniques, such as substitute asset provisions or legislative presumptions to assist in meeting the standard of proof.

149

M. Montesh Enforcement of orders

When a court has ordered the restraint, seizure, or confiscation of assets, steps must be taken to enforce the order. If assets are located in a foreign jurisdiction, an MLA request must be submitted. The order may then be enforced by authorities in the foreign jurisdiction through either (1) directly registering and enforcing the order of the requesting jurisdiction in a domestic court (direct enforcement) or (2) obtaining a domestic order based on the facts (or order) provided by the requesting jurisdiction (indirect enforcement) (World Bank/StAR/UNODC/OECD, 2011:167). This will be accomplished through the mutual legal assistance process.

Similarly, private civil judgments for damages or compensation will need to be enforced using the same procedures as for other civil judgments.

Returning assets to the rightful owner

The enforcement of the confiscation order in the requested jurisdiction often results in the confiscated assets being transferred to the general treasury or confiscation fund of the requested jurisdiction (not directly returned to the requesting jurisdiction). As a result, another mechanism will be needed to arrange for the return of the assets. If UNCAC is applicable, the requested party will be obliged under Article 57 to return the confiscated assets to the requesting party in cases of embezzlement of public funds or laundering of such funds, or when the requesting party reasonably establishes prior ownership. If UNCAC is not applicable, the return or sharing of confiscated assets will depend on domestic legislation, other international conventions, MLA treaties, or special agreements (for example, asset sharing agreements) (United Nations, 2004:136). In all cases, total recovery may be reduced to compensate the requested jurisdiction for its expenses in restraining, maintaining, and disposing of the confiscated assets and the legal and living expenses of the claimant.

Assets may also be returned directly to victims, including a foreign jurisdiction, through the order of a court (referred to as “direct recovery”). A court may order compensation or damages directly to a foreign jurisdiction in a private civil action. A court may also order compensation or restitution directly to a foreign jurisdiction in a criminal or NCB case. Finally, when deciding on confiscation, some courts have the authority to recognize a foreign jurisdiction‟s claim as the legitimate owner of the assets. If the perpetrator of the criminal action is bankrupt (or companies used by the perpetrator are insolvent), formal insolvency procedures may assist in the recovery process (World Bank/StAR/UNODC/OECD, 2011:156). A number of policy issues are likely to arise during any efforts to recover assets in corruption cases.

Requested jurisdictions may be concerned that the funds will be siphoned off again through continued or renewed corruption in the requesting jurisdictions, especially if the corrupt official is still in power or holds significant influence (Redpath, 2003:45). Moreover, requesting jurisdictions may object to a requested country‟s attempts to impose conditions and other views on how the confiscated assets should be used. In some cases, international organizations such as the World Bank and civil society organizations have been used to facilitate the return and monitoring of recovered funds.

150

M. Montesh ASSET RECOVERY LEGAL FRAMEWORK

The legal framework for asset recovery is itself complex, ranging in scale form state, regional to the global institutions.

United Nations Convention Against Corruption of 2003

The United Nations Convention Against Corruption (UNCAC) came into force on 14 December 2005 and has been signed by 140 countries, of which 137 are parties to the convention. The convention calls for the prevention and detection of transfers of the proceeds of crime. This is of special relevance for prosecutors and investigators, as it provides the tools necessary for efficient financial investigations. Article 52 should be read in accordance with the Financial Actions Task Force‟s (FATF‟s) 40 Recommendations and 9 Special Recommendations (International Centre for Asset Recovery, 2009:167). When applied, these rules allow States to audit transactions even when the assets are transferred overseas. Prevention and control are essential when dealing with asset recovery. Traditionally, corruption offences have been perceived as victimless crimes. The average person does not feel affected by the funneling of public monies into the pockets of dishonest public officials, when in reality corruption hampers development (Brun, et al, 2011:173). Article 53 was designed to ensure that State Parties have in place a wide range of legal remedies to recognize other State Parties as having legal standing to initiate civil actions and other direct means to recover illegally obtained and exported property.

Furthermore Article 55 deals with international cooperation for purposes of confiscation.

African Union Convention on preventing and Combating Corruption of 2003

African Union Convention on preventing and Combating Corruption was adopted by the 2nd Ordinary Session of the Assembly of the Union Maputo, Mozambique on 11 July 2003. The objectives of this Convention are to promote and strengthen the development in Africa by each State Party, of mechanisms required to prevent, detect, punish and eradicate corruption and related offences in the public and private sectors. Article 16 of the Convention states that “Each State Party shall adopt such legislative measures as may be necessary to enable; (a) its competent authorities to search, identify, trace, administer and freeze or seize the instrumentalities and proceeds of corruption pending a final judgment, (b) confiscation of proceeds or property, the value of which corresponds to that of such proceeds, derived, from offences established in accordance with this convention, (c) repatriation of proceeds of corruption”.

Southern African Development Community (SADC) Protocol Against Corruption

All 14 SADC Heads of State and Government signed the SADC Protocol Against Corruption in Malawi on 14 August 2001. Article 17 of the SADC Protocol provides that the Protocol shall be ratified by the Signatory States in accordance with their constitutional or other procedures. Article 2 of the Protocol provides for the following objectives to promote and strengthen the development, by each of the State Parties, of mechanisms needed to prevent, detect, punish and eradicate corruption in the public and private sector, to promote, facilitate and regulate co-operation among the State Parties to ensure the effectiveness of measures and actions to prevent, detect, punish and eradicate corruption in the public and private sector and to foster the

151

M. Montesh

development and harmonization of policies and domestic legislation of the State Parties relating to the prevention, detection, punishment and eradication of corruption in the public and private sectors.

Furthermore, Article 8 of the Protocol requires that each State Party shall adopt such measures as may be necessary to enable confiscation of proceeds derived from offences established in accordance with this Protocol, or property the value of which corresponds to that of such proceeds and its competent authorities to identify, trace and freeze or seize proceeds, property or instrumentalities for the purpose of eventual confiscation. In order to carry out measures referred to in this Article, each State Party shall empower its courts or other competent authorities to order that bank, financial or commercial records be made available or be seized and shall not invoke bank secrecy as a basis for refusal to provide assistance (World Bank/StAR/UNODC/OECD, 2011:128).

South Africa’s Fight Against Corruption

There are several measures and instruments that South Africa has established for the fight against corruption.

The Special Investigating Units and Special Tribunals Act 74 of 1996

The SIU may investigate any matter set out in section 2 of the Special Investigating Units and Special Tribunals Act 74 of 1996 including the following matters:

 serious maladministration in connection with the affairs of any state institution; improper or unlawful conduct by employees of any state institution; unlawful appropriation or expenditure of public money or property; any unlawful, irregular or unapproved acquisitive act, transaction, measure or practice that has a bearing on state property; intentional or negligent loss of public money or damage to public property; corruption in connection with the affairs of any state institution; and

 unlawful or improper conduct by any person who has caused or may cause serious harm to the interest of the public, or any category thereof.

The SIU institutes the civil recovery of state assets and public money, supports disciplinary processes arising out of investigations, including the preparation of charges, and provides advice on strategy as well as expert evidence at disciplinary inquiries. The SIU focuses mainly on corruption in Government departments, small and medium-sized entities where it is an endemic problem and impacts on service delivery, such as pensions, local government and housing.

The Prevention of Organized Crime Act 121 of 1998

Chapter 5 and 6 of the Prevention of Organized Crime Act 121 of 1998 empowers the Asset Forfeiture Unit to investigate and seize property tainted by criminal activity to be forfeited to the state by way of a civil action. The Unit does not prosecute, but works closely and in conjunction with the prosecution and the police‟s investigating officials. The AFU conducts criminal and financial investigations regarding those individuals and property against which forfeiture proceedings are anticipated. It locates and identifies proceeds, substituted proceeds and instrumentalities of crimes, and prepares and presents applications for forfeiture.

152

M. Montesh Prevention and Combating of Corrupt Activities Act 12 of 2004

The objectives this Act is to provide for the strengthening of measures to prevent and combat corruption and corrupt activities; to provide for the offence of corruption and offences relating to corrupt activities; to provide for investigative measures in respect of corruption and related corrupt activities; to provide for the establishment and endorsement of a Register in order to place certain restrictions on persons and enterprises convicted of corrupt activities relating to tenders and contracts; to place a duty on certain persons holding a position of authority to report certain corrupt transactions; to provide for extraterritorial jurisdiction in respect of the offence of corruption and offences relating to corrupt activities; and to provide for matters connected therewith. Chapter 2 of the Act outline the offences in respect of corrupt activities and Chapter 3 deals with the investigations regarding possession of property relating to corrupt activities including seizure of such property.

South African Police Service Amendment Act 10 of 2012

The objectives are to amend the South African Police Service Act, 1995, in order to align the provisions relating to the Directorate for Priority Crime Investigation with a judgment of the Constitutional Court; to amend those provisions in order to ensure that the Directorate has the necessary operational independence to fulfill its mandate without undue interference; and, to provide for matters connected therewith.

Section 4 of the Act relates to the establishment of a Directorate as a Division of in the Service to prevent, combat and investigate national priority offences, in particular serious organized crime, serious commercial crime and serious corruption. Section 7 of the Act empowers the Directorate to investigate corrupt activities as contemplated in Chapter 2 and section 34 of the Prevention and Combating of Corrupt Activities Ac 12 of 2004, which in the opinion of the Head of the Directorate need to be addressed by the Directorate, subject to any policy guidelines issued by the Minister and approved by Parliament. These arrangements also including liaison with the Asset Forfeiture Unit with regards to seizure of property obtained by means of corruption.

OBJECTIVES OF ASSET RECOVERY

There are two fundamental objectives that underwrite corruption-related asset recovery, which target profit and property.

Removing the profit out of crime

The main aim of asset recovery is to take the profit out of crime, in other words, to ensure that crime does not pay. It is clear that one of the main incentives to commit crime is due to the substantial financial benefit derived from it. If the benefit is removed, so is the reason to do crime (Redpath, 2003:46). Asset forfeiture targets the proceeds of crime, including corruption. Studies in the United States have shown that criminals are prepared to go to prison for a time to pay for their crimes or that they are prepared to pay a fine, but touching their asset base seriously affects them.

Removing property which is an instrumentality of an offence(s)

153

M. Montesh

Asset recovery is not only aimed at removing assets that are the proceeds of crimes, but also to remove property used to commit crimes. Property that is instrumental in an offence can also be forfeited, for example, a vehicle that was used as a getaway car in an armed robbery case, or a house that is used as a laboratory to manufacture drugs (Kempen, & Willman, 2006:16). The aim behind that is clear: no person should use or allow his/her property to be used to commit crimes. In a Supreme Court of Appeal judgment in NDPP v Cook Properties; NDPP v 37 Gillespie Street Durban; NDPP v Seevnarayan 2004 (8) BCLR 844 SCA, the court said that the owner of property cannot be subpoenaed. The matter concerned was, inter alia the forfeiture of property on the basis of it being an instrumentality. The court warned owners that they needed to be vigilant in how their property is being used by them and others.

BENEFITS OF ASSET RECOVERY

Asset recovery is beneficial for at least three reasons. First, it is intended to reduce criminal activity by denying offenders the profits from their crimes. Second, a byproduct of asset forfeiture is more drug arrests.

Third, yet perhaps most controversially, asset forfeiture helps cash-strapped law enforcement agencies augment their discretionary budgets to further target criminal activity. Much of the language surrounding asset recovery is couched in terms of removing the profit from criminal activity, but at its core, forfeiture‟s objective is crime deterrence (Redpath, 2003:44). Because incarceration (or the threat of such) does not deter all offenders, forfeiture is intended to pick up where traditional punishments leave off. It has been said that “[t]he criminal views the prospect of a jail sentence as a calculated cost of generating revenue…” and that [r]ecidivism is encouraged because the subject has learned that crime does not pay. Unfortunately, not a single published study has linked forfeiture activities to the prevalence of criminal activity.

A team of economists recently offered up a theoretical argument concerning the possible deterrent effect of forfeiture, but they also argued that a mix of sanctions, not just forfeiture, would be most ideal: “by employing a mix of sanctions, with harm-based fines (or other punishment) plus confiscation of illegal gain [i.e., forfeiture], courts will be able to get closer to efficient deterrence than they can when constrained to use punishments in isolation” (Kempen & Willman, 2006:14). Despite the lack of evidence that forfeiture can reduce a variety of crimes, there is some evidence that forfeiture can effectively address a number of specific problems.

EXAMPLES OF CORRUPTION AND ASSET RECOVERY CASES REPORTED IN SOUTH AFRICA One of the cases that made headlines for the most of 2005 was the Shabir Shaik case, and at the same time the AFU‟s role in asset forfeiture also came under the spotlight. In June the State indicated that it wished to apply to court to have more than R30 Million of Shaik‟s assets confiscated as “proceeds of crime”. These assets followed from Shaik‟s use of (former deputy president) Jacob Zuma‟s name to obtain contracts, as well as Zuma‟s intervention to get Shaik to profit from the Government arms deal (Kempen & Willman, 2006:14). In another case the assets of an alleged American-Israeli drug dealer and money-laundering kingpin were seized by the AFU in March 2006. The AFU had obtained an order from the Johannesburg High Court to seize the assets which included a R12 million game farm in Limpopo, a R2.5 million mansion in Umhlanga, a Mercedes-Benz and various bank accounts. The man had been living in South Africa since 2002. The seizure came after the US Department of Homeland Security had tracked him to South Africa and notified local authorities of his links to