The interoperability problem

A veteran U.S. anti-corruption investigator says busting financial criminals in the global marketplace hasn’t really gotten any easier since the 1970s. As the Journal reports, Jack Blum has some ideas on how that can change. 

Jack Blum realizes he’s not a very popular guy in Cayman. 

But he’s been coming here since 1973, when he first arrived as part of a U.S. Senate investigation into the “disappearance” of Robert Vesco’s money.  

Cayman didn’t have much to do with the nvestigation into Vesco’s dealings, blamed in the U.S. as the start of the “industrialization of the cocaine business,” according to Blum. But he admits, back in the early days, the islands were already “on the map” as a center for money laundering.  

“The first morning I was here, I went down to the lobby [of the old Holiday Inn] and there was a long line of American lawyers wearing suits and ties and they’re all lined up outside the pay phone in the lobby,” Blum says. “The internal phone system at the hotel had broken down. 

“These guys were all on the phone to various bankers here in Cayman, asking what services they could provide for clients who wanted to hide the money from the Internal Revenue Service or from various creditors. I was struck by how many lawyers there were and how eager they were. 

“It was clear to me….[Cayman] was a place I should keep an eye on.”  

Over the course of a four-decade career busting corruption, including the Vesco case and another now-infamous 1970s probe involving bribes to the Japanese prime minister by a U.S. aerospace company, Blum says Cayman’s global banking system is much more sophisticated and has improved ten-fold its checks and balances against potential money laundering.  

However, he’s also come to an inescapable conclusion: Corruption was, is and always will be a world-wide problem, not one limited to a few small Caribbean Islands or sub- 

Saharan Africa.  

“Corruption will be around until the end of time. The question is, what do we do about it?” 

 

International theft 

It was Blum’s efforts in the area of asset recovery, working with the United Nations, that he encountered the problems that have plagued numerous anti-corruption probes the world over.  

“How do you ensure that thieves on a national level don’t get to enjoy the fruits of that crime?” Blum asks. “You have to send a message to the next guy, that if he steals the money he won’t be able to keep it.”  

The asset recovery issues were highlighted by the case of former Philippines President Ferdinand Marcos, who was forced from power in the 1980s by a popular uprising. When things got a bit too hot in the Philippines, Marcos merely left town, Blum says.  

“He flies out of Manila and he’s got plane-loads of jewelry, Emelda’s shoes….for years people tried to track the money and get it back, largely unsuccessfully,” he says  

Blum also encountered similar problems much more recently working with the Nigerian government in an asset recovery case involving Halliburton, a U.S. company convicted of paying hundreds of millions in bribes to get Nigerian gas contracts.  

“The U.S. did not like the idea of prosecuting Americans for what they did in Nigeria, which should have happened,” Blum says.  

The workings – or non-workings – of asset recovery through the 1980s and 1990s revealed a much deeper problem of cooperation in international law enforcement, Blum says.  

“The way we’re organized globally doesn’t really make a lot of sense,” he says. “There are about 190 sovereign entities that present themselves to the United Nations.”  

Sovereignty, of course, means law enforcement information sharing agreements must be done by way of treaty. The first of which for the U.S. was made in 1976 as a result of the bribery scandal in Japan.  

“[At the time] there was no machinery for the U.S. to give that information to the Japanese in a way that it was admissible in the courts of Japan,” Blum says. “That led to the signing of the very first mutual legal assistance treaty.”  

Since 1976, a number of similar treaties have been established in the international arena, but Blum says they don’t often serve the needs of international law enforcement very well, even in simple cases.  

“For example, a friend of mine…his house was robbed and the suspect was a Kenyan national,” Blum says, explaining that the suspect left fingerprints at the scene of the crime and that local authorities in the U.S. wanted to get matching prints from Kenya to compare with those found at the crime scene.  

“What did the police in Bethesda, Maryland, have to do? They had to go to their senior people at the state level, who then went to the federal level, who then went to the Justice Department, to the [U.S.] State Department to the Kenyan foreign office to the Kenyan Justice Ministry to the Kenyan local police.  

“And then when the Kenya police found the guy, they went out and got the fingerprints and sent it back [through the same process].
“There’s a basic rule of bureaucracy,” Blum says. “Every time you have to move paper from one desk to another it takes about a month. It really makes investigation brutally difficult…we have to find a way around that.”  

 

Financial crisis  

The bureaucracy, Blum says, is one of the reasons why – since the international financial crisis of 2008-2009 – virtually no one has been prosecuted. A number of companies have paid hefty fines in exchange for no admission of guilt and no personal criminal charges against anyone.  

“It’s too difficult to get your hands on the evidence, the evidence is in too many different places and there’s no way you can compel testimony [across international borders],” Blum says. “We can’t run a global financial system without a level of police cooperation and regulatory cooperation that makes the system clean and protects against crime and fraud.” 

Blum says to accomplish this, “new ideas” must be explored.  

“Where legal systems are similar, police and prosecutors should be able to work across international boundaries,” he says. “I think any qualified lawyer from Cayman should be able to go to a U.S. court and get a search warrant. Currently, that’s an impossibility.” 

Blum refers to it as “interoperability,” or making people functional without depending on their geography.  

 

Similar legal systems, but big differences 

But even somewhat similar legal systems, such as the U.S. and the United Kingdom, have huge differences, Royal Cayman Islands Police Commissioner David Baines points out.  

Baines says its time to at least consider a change in the English, and Caymanian, legal systems to allow information obtained as part of a plea bargain with a criminal suspect to be entered into court evidence.  

A plea bargain, often referred to in the U.S. as “turning states evidence,” occurs when a criminal suspect who has been caught in the act agrees to give up other individuals involved in the same crime in exchange for leniency in sentencing.  

“On many of the cases [Blum] described, [he] used the phrase ‘we were able to cut a deal’ and get somebody further up [the criminal hierarchy],” Baines says. “Could [he[ have operated under the English common law system where to offer the deal negates its use in evidence?”  

Blum admits that this also is a recurring problem in pursuing financial crime investigations across international lines, particularly in the U.K. and continental Europe.  

“The favorite tool of American prosecutors is ‘look, you’re going to face the rest of your life in jail, or you’re going to come up with the materials we need to go up the chain and figure out who done it,’” Blum says.  

“Let’s be honest, no criminal turns up wanting to bare his soul, clear his heart and turn to God…unless somebody offers him a better choice for a better future,” the police commissioner says.  

However, Blum advises caution on the issue.  

“I’m not sure that our system doesn’t get abused as well,” he says. 

In a slightly different context, plea bargaining practices have come under fire in the U.S. recently. In particular, a$285 million settlement between Citigroup and the U.S. Securities and Exchange Commission over the sale of mortgage-backed securities raised the issue of whether large and wealthy corporations could avoid any admission of liability simply by paying large sums of cash. 

A U.S. district court judge rejected the settlement. 

Even in much less complex criminal cases, Mr. Blum said plea bargains may backfire.  

“It’s important to be certain that whatever the guy tells you as he’s baring his soul is the truth,” Blum says. “There are plenty of people who’ve bared their souls and lied their hearts off in an effort to get off.“ 

In a way, Blum says, global financial crime problems are similar to issues revolving around climate change, which are also crucial to the Cayman Islands. 

“You could cut energy consumption in Cayman to zero and the ocean would continue to rise,” he says. “You have to get everybody else to worry about the problem…to protect yourselves. “There are going to be these global problems that have to be dealt with together.” 

NO COMMENTS