Gretta Fenner Zinkernagel: “The really critical condition in investigating financial crimes is no political interference”
Director of the International Centre for Asset Recovery at the Basel Institute on Governance about cooperation with the Prosecutor General’s Office of Ukraine in investigating financial crimes of the Yanukovych regime, effective tools to search for stolen assets, and mechanisms of international interaction in financial intelligence
Photo by Dmytro Korenev
You have been cooperating with Ukraine’s Prosecutor General’s Office on the recovery of stolen assets. What do you work on together specifically?
Our cooperation started in August 2014 when we signed an agreement with the Prosecutor General’s Office which mandated my organization, the International Centre for Asset Recovery, to assist it in locating and ideally recovering assets that were suspected to have been stolen by former President Yanukovych and his close allies. The ICAR assistance in particular focuses on assistance in devising the investigation strategy, financial investigation, and the use of more tools for tracing assets. Almost all of the cases involve tracing the money internationally. That requires active liaison with law enforcement agencies in other counties and help in drafting requests for legal assistance to other jurisdictions – European and American. That’s our primary mandate. We do that in other countries as well.
How active is the Ukrainian side in this cooperation?
We can see some progress in some cases – in domestic investigation, which is always essential.
Generally, there is often a misunderstanding that the solution to a stolen asset problem is in a foreign jurisdiction where the money is. However, the solution is never in another country. It is always primarily in the domestic investigation, and only then in the other jurisdiction.
That has taken some time for the PGO to understand, and that’s also something we see in other countries. It is easy for countries where lots of money has been stolen to blame other jurisdictions that have accepted it – and, indeed, they do have some blame to take. But you can’t just wait for them to do the job and bring you the money back. It doesn’t work like that. The reason is that a lot of the evidence of what happened with the money – how it was stolen and in what way it was illegal – is in Ukraine. So the local law enforcement agencies have to do their job. I think we lost a bit of time initially with creating that understanding.
As to the cases, I would say that we have progress in some cases, while in others the process is very slow. That has partly to do with the fact that certain cases are extremely complicated.
It has also to do with the fact that there are different levels of capacity – even in the PGO. Some investigators are more experienced, others are less so. In general, there is no great level of experience in financial investigations at the GPO. Again, this is not typical just for Ukraine, but for countries all over the world. Utilizing financial investigation tools is still something very new – even for some of the more developed jurisdictions.
Also, we are probably looking at different levels of motivation. This can be understood: it takes courage, at the very low salary paid at the PGO, to be the lead investigator against people who are still very powerful and have resources at their disposal to destroy you if they want to. So I have great sympathy for the investigator level – it’s not an easy job. If you’re too successful in your work, you expose yourself to risks.
In addition to that, there are operational issues which we are addressing: we are helping the PGO create better connections between cases. So far, they are used to working on cases individually, while in financial crimes there is a lot of interconnection.
Ultimately, the success of these cases will depend on leadership. It will depend on instructions from Prosecutor General and from Deputy Prosecutors General. Investigators really need the backing to do this very courageous job. Unless they have that leadership, it will be very difficult for them to work successfully.
In fact, many in Ukraine see the lack of top political will as the biggest problem in investigating financial crimes by former politicians and preventing new ones. Is it generally the crucial component to success in asset recovery efforts?
It’s a very important condition. The really critical condition is that there should be no political interference. In the best case scenario, you have no political interference but strong political support in terms of giving the message: yes, we want you to prosecute this and we’ll give you resources to do this. That’s an ideal scenario. You can do without the political support as long as you don’t have political interference. Independence of the PGO is therefore absolutely essential. And that is often not given in countries that still struggle in democratic transition. Prosecution services all around the world, in countries with young democracy or no democracy for a long time, have actively been used as a tool of political power. Changing that, in reality and in perception, takes time.
How long do you think Ukraine could take to recover the assets stolen from it, and what share could it be?
The first question is always how much money was actually stolen. In terms of assets that are currently frozen, we know it’s not as much money as people expect. So we have an expectation management problem. The recoveries we will probably see will most likely take at least another 3 years, or more. The fastest recovery I have seen took 5 years, and that’s a fast and comparatively easy case. But the main point of asset recovery, in my view, is not only to bring the money back, but to deal with impunity, to showing people that there is the will to break with the past practices and punish the criminals. We should not hope too much for recovering the money, but rather for closing cases and giving people satisfaction in that those who stole the assets can’t get away with it.
Where does the first step come from in investigating cases on stolen assets? Is it necessarily initiated by the country where the money was stolen, or are there alternative ways?
There are two first steps, in my view. On the one hand, the state where the assets have been stolen – Ukraine in this case – has to immediately seize any information or piece of evidence possible after the fall of the regime. This has to be done very quickly because money can disappear rapidly, information can be burned, files can be lost.
On the other hand, other jurisdictions have to act very quickly to search for and freeze assets. In the case of EuroMaidan, European jurisdictions acted as fast as they ever have. Yet, there are still differences from one jurisdiction to another. Switzerland has a special legal regime that makes it possible to act quickly, with the so-called administrative freeze. This means that the Federal Council can freeze assets under the Constitution when it serves the purpose of “safeguarding the country’s interests”. By contrast, most jurisdictions need to have either sanction lists for people, suspicious transactions reported to financial intelligence unit, freeze requests from other jurisdictions, or they have to open criminal investigations themselves and freeze under those provisions.
The EU sanction list helped as well. However, the problem with the sanction-based freezes in the EU is that they are up for renewal regularly. In an ideal world, you freeze assets under the sanction regime or constitutional provisions, then add additional layers of freezing, i.e. freeze assets under an opened criminal investigation, report from a financial investigation unit or under the mutual legal assistance mechanism. The point is to have as many layers of freeze as possible so that it becomes difficult for the defendant to challenge that, while you have more time.
But that takes very quick reaction and a lot of coordination between the involved jurisdictions. What often happens is so-called “fishing expeditions”, where one jurisdiction asks another to freeze assets but cannot present enough information to substantiate this request. So it’s essential that the so-called “requesting jurisdiction”, in this case Ukraine, does not just ask other jurisdictions to freeze assets on a vague suspicion, but that it presents as much detailed information as possible. The information that civil society collected in the immediate aftermath of the fall of former President Yanukovych for example was important in this context.
What are the major hubs for corrupt leaders to store their stolen assets, especially in the developed world?
Usually, everybody talks about Switzerland, the UK, the US, Austria and Lichtenstein in the Ukrainian case. It’s true – we often find money there. But in my experience, the amount of money in terms of percentage of the total global corrupt assets has decreased in these jurisdictions. This seems to indicate that criminals are choosing other destinations because these ones are getting a little too risky for them. What bothers me in this whole discussion is that many other financial centers, such as the Middle Eastern and Asian ones, in addition to certain overseas territories and special jurisdictions, or in fact a number of European jurisdictions, are never mentioned for the simple fact they don’t collaborate actively in asset recovery. We don’t find money there – because they don’t provide the same level of support and assistance that countries like the UK or Switzerland or Lichtenstein do. There are a lot of jurisdictions which, in my opinion, should take a greater responsibility in supporting international efforts to recover stolen assets. That includes Germany and France, and those countries which don’t take the same leadership as the UK or Switzerland.
What about joint efforts to try and limit the space for corrupt assets? How do you see the dynamics there, particularly after scandals like the Panama leak, or that of Ukraine, Russia, the leaders of Arab Spring countries earlier?
I think there are some efforts going in the right direction in that regard. The international community of FIUs is probably the most advanced when it comes to finding pragmatic and quick ways to share intelligence. There is a joint intelligence platform where one can post information and others can call upon it. It goes through the Egmont Group. And that’s an excellent example of a tool that allows you to act very quickly in a pragmatic, legal and efficient way. There are a lot of ideas like creating the International Anti-Corruption Court, or giving the International Criminal Court jurisdiction over corruption cases. In addition to that, we have Interpol, Eurojust, Europol. So, I’m always in favor of using existing international organizations and tools more effectively, rather than creating new ones.
Do you think the latest Panama scandal will affect in any way the way the world of financial flows operates?
I think it was great, a massive wake up call. We know that all this is happening. But the mere scale of it is shocking! And it was just one law firm in Panama!
I think the effect will be a huge push for more transparent beneficial ownership registries. There is a lot of expectation from Panama papers to create much evidence and intelligence information that will allow us to solve all cases in the world. I’m not necessarily sure about that aspect. One of the risks – and I hope it won’t materialize - is that everyone points their fingers at Panama and thinks that once that one is dealt with, the problem is solved. But there are many more jurisdictions that have the same effect.
Gretta Fenner holds bachelor and master degrees from the Otto-Suhr-Institute at the Free University Berlin, Germany, and the Paris Institute for Political Science ("Sciences Po Paris"), France. In 2010, she further completed an MBA at the Curtin University Graduate School of Business, Australia. She served as the Managing Director of the Basel Institute on Governance in 2005-2008 and since 2011 till present. During these intermittent years, she primarily worked as freelance consultant advising governments, donors, international organisations and multinational corporations from around the world in governance and anti-corruption related topics as well as organisational change and development processes and policy design. Prior to joining the Basel Institute, from 2000 to 2005, Gretta worked at the Organisation for Economic Co-operation and Development (OECD) in Paris as the organisation’s manager for anti-corruption programmes in the Asia-Pacific region where she played a key role in establishing the ADB/OECD Anti-Corruption Initiative for Asia-Pacific.