TIME Magazine recently quoted Ward & Ward partner and Georgetown professor Mark Vlasic in an article discussing Switzerland’s role in freezing assets. TIME relied on Vlasic’s expertise in stolen asset recovery to inform its understanding of a new Swiss law that makes freezing potentially stolen assets easier.
For Switzerland, it was a no-brainer. It didn’t even wait to be asked. Only two hours after Egyptian president Hosni Mubarak announced his resignation on Feb. 11, the Swiss government froze all the money he holds in the country’s banks. Now it plans to send it back to Egypt, where it can be used to do good.
Swiss authorities explained in a statement that the swift action on Mubarak’s wealth — and just how much of his reported multi-billion dollar fortune is deposited in Switzerland is not yet known — was taken “to avoid any misappropriation of Egyptian government assets.” And it was possible thanks to new legislation that went into effect on Feb. 1, making it increasingly difficult for plundering rulers to open accounts in Switzerland or lay claim to the assets hidden therein. The Restitution of Illicit Assets Act (RIAA) allows the government to immediately freeze and confiscate the funds of “politically exposed persons,” even if the implicated nation has not asked for the money back. Once returned to their country of origin, the funds must be used to improve quality of life, strengthen the judicial system, and fight crime.
“Normally, a foreign country lodges an official request when it seeks to find and freeze the illegally obtained assets of one of its corrupt officials,” explains James Nason, spokesman for the Swiss Banking Association (SBA), an umbrella group for the country’s financial institutions. “This Act was designed to deal with situations involving countries that have no functioning legal system and can’t competently follow through with any judicial procedure.”
Experts say the law will help Switzerland shake off its reputation as a place where bad guys go to hide their ill-gotten gains. Only two years ago, the country was placed on the OECD’s “gray list” of tax havens that failed to meet international transparency standards (it has since been removed from the list). Now Switzerland is a trailblazer in the quest to return stolen assets to developing nations. “Passing such a forward-leaning law is not easy,” says Mark Vlasic, a professor at Georgetown University in Washington D.C. who served as head of operations of the World Bank’s Stolen Asset Recovery Initiative and is now an international legal adviser to the Charles Taylor/Liberia asset recovery team. “It goes a long way in showing Switzerland’s intent to be on the right side of history when it comes to fighting grand corruption and kleptocracy.”
The Foreign Ministry devised the legislation because of its experience with former Haitian president Jean-Claude Duvalier, who stashed about $5.8 million of looted money in Switzerland. After “Baby Doc” was overthrown in 1986, the Swiss froze his assets. Then in 2010, following 24 years of legal wrangling, a Swiss court ruled that the money should be returned to Duvalier. However, since he couldn’t prove that he had earned the money legitimately, the Foreign Ministry blocked the release of funds and scrambled to devise and pass the RIAA. Under the new law, the confiscated assets will, according to the Department of Foreign Affairs’ website, “be returned to Haiti in order to improve the living conditions of the people.” The law stipulates that Switzerland and the country to which the money is returned should agree on the programs of public interest that will be financed with the assets, or the Swiss government can also return the money through international or national organizations.
This is really just a new twist on Switzerland’s long-standing tradition of restitution. So far, the country has returned $1.5 billion of plundered funds to their countries of origin — including Nigeria, the Philippines and Mexico — more than any other financial center of a comparable size. And long before RIAA went into effect, Switzerland had already enacted laws and procedures to combat money laundering and corruption. “Swiss banks must follow very strict procedures when they start a business relationship with a ‘politically-exposed person’,” says SBA’s Nason. “They must monitor that client’s financial activity and clarify any unusual transactions. But unlike many other countries, Swiss banks don’t have to wait for a court order to freeze suspicious accounts – they can act on their own initiative.” When Swiss banks detected suspicious activity on the account held by disgraced Peruvian spy chief Vladimiro Montesinos in 2000, for example, they reported it to the authorities and froze the assets, as they are obliged to do under Switzerland’s anti-money laundering laws. The same thing happened with Taiwan’s former president Chen Shui-bian in 2008.
But experts say Switzerland wouldn’t have to work so hard at fighting corruption if the banks in other countries were more careful about whose money they accept. When the government investigated the case of Nigeria’s former leader Sani Abacha, for example, they discovered that a substantial portion of the $700 million he had stashed in Swiss accounts had first gone through banks in the U.S. and the U.K. Funds of criminal origin often come to Switzerland from other countries where “know-your-customer” rules are not as strict, Nason says, pointing out that Swiss financial institutions must have detailed information not only about the account owner but also about their beneficiaries and those holding power of attorney over the assets. “In Britain, you can verify your identity when opening a bank account by showing a utilities bill with your name and address on it,” he says. “If you tried that in Switzerland, you would be laughed out of the bank.”