There are multiple ways to deal with an issue which can provide known and unforeseen benefits. Today we celebrate one of those as it was on this day in 1944, that President Franklin Roosevelt signed the GI Bill into existence. The primary purpose of the GI Bill was to avoid a relapse into the Great Depression after the war ended, provide GIs with a smoother economic transition back into US society and, most particularly, to prevent a repeat of the Bonus March of 1932, when 20,000 unemployed veterans and their families flocked in protest to Washington. The destruction of their makeshift camp and dispersal of the Bonus Marches was a black eye on the Hoover administration and contributed to his defeat in 1932.

However, the GI Bill ended up achieving much more than even these laudable goals. An entire generation of returning GIs (including my father) went to college on the GI Bill. Before the war, only 10-15% of US males went to college but the GI Bill opened this educational opportunity up with interest loans, business loans and unemployment compensation. In many ways the American economic miracle of the last half of the 20th century was fueled by this signature government effort.

I thought about the numerous effects of the GI Bill in the context of the fight against bribery and corruption. The Foreign Corrupt Practices Act (FCPA) is well known as a supply side law focusing on the bribe payor’s conduct. It criminalizes the offer to or bribe of a foreign government official or employee of a state-owned enterprise. Yet for every bribe paid there are multiple parties involved and multiple illegal acts engaged in by a number of these parties. Put simply, the money must go somewhere. While it is possible to hide millions of dollars in illegal bribe payments between your mattresses or in false wall of your home as recently occurred in Nigeria where CNN reported, “The Nigerian anti-corruption unit discovered more than $43 million in US dollars at an upscale apartment in Lagos”, where the money was ““neatly arranged” inside cabinets hidden behind wooden panels of a bedroom wardrobe.” Of course, there were reports earlier this year of the discovery of $9.7MM, in fireproof safe in a house owned by Dr. Andrew Yakubu who was the former Group Managing Director of the Nigeria National Petroleum Corporation (NNPC).

More typically money is laundered the more traditional way, through a bank. Rebecca R. Ruiz, reporting in a New York Times (NYT) article, entitled “Banker Admits to Money Laundering in FIFA Case”, discussed former Swiss banker, Jorge Luis Arzuaga, a former managing director at the Swiss bank Julius Baer, who pled guilty last week to money laundering conspiracy in conjunction with the ongoing FIFA corruption scandal. Arzuaga admitted to arranging the transfers of more than $25 million in bribes and other corrupt payments from 2010 to 2015 for corrupt FIFA officials. This is the first guilty plea in the plethora of service providers who facilitated the massive corruption scandal engaged in by FIFA officials. His former employer, the bank Julius Baer, which is under an unrelated Deferred Prosecution Agreement (DPA) for helping wealthy Americans evade taxes, is also under investigation for its role in helping corrupt FIFA officials to launder money obtained through illegal bribery and corruption.

Arzuaga’s money laundering was for one of the defendants who has pled guilty, the Argentinian sports marketing firm Torneos y Competencias and Julio Grondona, a longtime FIFA and Argentine soccer association official who died in 2014. Being a professional Swiss banker, Arzuaga was quite diligent in the services he provided. Ruiz noted, “The indictment said Mr. Arzuaga also arranged for money in accounts held by Mr. Grondona to be distributed to his heirs after his death.”

In a statement, Richard Weber, chief of the Internal Revenue Service (IRS) criminal investigation division said “We are pursuing the bad actors — including soccer officials, sports marketing companies, financial institutions and their bankers — who have intentionally and criminally violated the law by laundering illegal proceeds. Prospective private bankers and relationship managers should take note of Mr. Arzuaga’s conviction and think twice about the consequences of conspiring to launder money.”

Azuaga’s guilty plea not only opens a new front in the FIFA corruption scandal but also shines a light on services providers who help illegal actors. If bankers can be prosecuted, what about others who might facilitate such conduct? This expansion of the FIFA corruption scandal may portend a new and most welcome chapter in anti-corruption enforcement.

Combatting corruption with other tools, the Wall Street Journal (WSJ) reported last week, in an article entitled “U.S. Lawsuit Links $2.2 Billion Deal to Malaysian 1MDB Scandal”, the Department of Justice (DOJ) filed suit involving a $2.2 billion purchase of a US energy company, Coastal Energy by the Abu Dhabi sovereign wealth fund. The allegation is that $50 million of the purchase price was provided by Jho Low, who is alleged to have been involved in the looting of the 1MDB fund. Reports indicate that for his $50 million contribution to the purchase price, a shell company controlled by Low received recompense in the amount of $350 million one week later. In a lawsuit, seeking forfeiture of the proceeds of the sale, the DOJ dryly noted, “The commercial basis for this nearly immediate 600% return on investment is not immediately apparent.”

The WSJ article went on to note, the lawsuit “provided detailed allegations that in 2013 and 2014 funds allegedly stolen from 1MDB were funneled via a series of bank accounts and shell companies to partly finance the purchase of Coastal Energy, a Houston firm controlled at the time by legendary Texas oilman Oscar Wyatt Jr. The lawsuit seeks to seize proceeds from the Coastal deal, but not Coastal assets.” Additionally, “The Justice Department is interested in the Coastal deal because it says the $50 million Mr. Low invested originally came from 1MDB. The Justice Department on Tuesday moved to seize London property that it says was bought with some of the $350 million proceeds of the Coastal deal. The Justice Department has questioned people involved in the deal in recent months, according to people familiar with the investigation.”

The asset forfeiture lawsuit is also interesting as it shows that companies must now not only know with whom they are doing business but the source of money which forms the basis of a transaction. This had been a well-known requirement in banking around KnowYourCustomer (KYC) and investigations of business partners and sales agents. However, this new approach for acquisitions of organizations should put all compliance professionals and business advisors on notice as to the provenance of the funds involved and the ownership structure of purchasers.

 

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2017

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