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Stolen State Money: Trillions Lost Annually, Only Billions Have Been Recovered

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The uprisings of the Arab spring have brought renewed attention to long-standing accusations that kleptocratic regimes throughout the Middle East have plundered their nations' assets. But recovering those assets -- though crucial to the future of these impoverished nations -- remains a daunting challenge, according to a recently released report.

Crime, corruption, and tax evasion by the global elite cost between $1 trillion and $1.6 trillion and hit poor countries especially hard, says the study, "Barriers to Asset Recovery." Yet in the past 15 years, only $5 billion in stolen assets have been repatriated. The report offers advice to policymakers aimed at increasing that lowly rate of return. It was produced by the Stolen Asset Recovery Initiative (StAR), a joint project of the World Bank Group and the Office on Drugs and Crime at the United Nations (U.N.).

The problem, says Raymond Baker, the director of Global Financial Integrity, a Washington watchdog group, is that even in nations like Switzerland that have changed procedures and rules to reduce bank secrecy, "it's not entirely clear" how foreign governments can get stolen assets back.

The first efforts to put the spate of new rules to the test, Baker says, "will probably come from Egypt or Tunisia." For the impoverished people of both these countries, who recently toppled long-standing authoritarian governments, the stakes are substantial. U.S. intelligence officials estimate that deposed Egyptian President Hosni Mubarak accumulated between $1 billion and $5 billion during his 30-year reign. London"s Telegraph newspaper reported ex-Tunisian President Zine el-Abidine Ben Ali's personal wealth at £3.5 billion.That's the equivalent of $5.7 billion, more than an eighth of Tunisia"s annual gross domestic product.

Even those estimates of ill-gotten wealth "[do] not capture... the societal costs of corruption," the report adds. "Theft of assets by corrupt officials, often at the highest levels of government, weakens confidence in public institutions, damages the private investment climate, and divests needed funding available" for investments in public health, education, and infrastructure.

And "there are many obstacles to asset recovery," said Kevin Stephenson, a senior financial sector specialist at the World Bank and the lead author of the study, in a press release. "Not only is it a specialized legal process filled with delays and uncertainty, but there are also language barriers and a lack of trust when working with other countries."

The StAR report, released in late June, documents the few multilateral international legal instruments dispossessed governments have at their disposal. Chief among them: the U.N. Convention against Corruption, the U.N. Convention Against Transnational Organized Crime, and the Financial Action Task Force (FATF) on Money Laundering, an intergovernmental organization that develops policies to combat illegal cash flows.

But they're not worth much, according to Baker. "So you walk into a bank with those two treaties and the task force's 40 recommendations and plunk them down, and say, 'I want to recover money stolen by my corrupt former head of state.' Then the banker raises his eyebrows and says, 'You want to do what?' "

As Baker suggests, financial institutions may be reluctant to honor international standards that are not even followed by many of the governments who seek to enforce them. The compliance rate for one important FATF recommendation is troublingly low, as the U.N. Office on Drugs and Crime pointed out in a 2009 report for the StAR Initiative. More than three-fifths of the 124 jurisdictions evaluated were not monitoring accounts held by politically powerful people.

This is a challenge for regulators, even in the U.S., according to Sen. Carl Levin (D-Mich.). "Weakness in our financial regulations have allowed these [politically powerful people] to move millions of dollars into or through U.S. bank accounts, often by using shell company accounts, attorney-client accounts, escrow accounts, or other accounts, or by sending wire transfers that shoot through the system before our banks react," he said in a 2010 hearing on international corruption.

Often times, strong domestic legislation coupled with effective bilateral communication has proven to be a more powerful tool than multilateral international agreements. The report, which was largely scrubbed of specific names and jurisdictions, gives the example of a Swiss law that in 2005 allowed authorities "to declare that a former head of state, his family, and associates constituted a criminal organization" and could therefore have their property confiscated. The example sounds similar to the case of the late dictator General Sani Abacha, whose fortune was seized by the Swiss at the behest of the Nigerian government and then returned to Nigeria for use in poverty-reduction programs there. The World Bank did not respond to iWatch News' requests for comment.

The report may yet go some ways towards improving the implementation of international agreements to repatriate stolen national assets and encourage the spread of effective national legislation and cooperation. But for now Baker believes closing the loopholes that allow corrupt government officials to get away with it in the first place is more important than trying to recover what's already been lost.

For example, authorities in India, from which he he recently returned, have been "all exercised about recovering stolen money, but they're not going to get very much. By all means, go for it," Baker said, "but it's far more important to curtail the outflow."

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