Civil Lawsuits to Combat Corruption The Third Conference on Evidence-Based Anti-Corruption Policies (CEBAP 3)

18 June 2015Sukosol Hotel, Bangkok, Thailand

Stephen BakerEnglish Barrister & Jersey Advocate

Civil Recovery –Case Study

Paulo Maluf

Trial July 2012

Federal Republic of Brazil -v- Durant International

Corporation and Kildare Limited• Criminal Law

• S.A.R.• Production Orders• International Co-operation• Civil Law• Norwich Pharmacal• Witnesses• Injunction

Federal Republic of Brazil & Another v Durant International

Corporation & Another• Concerned major fraud and widespread

corruption in public office surrounding completion of public works contract “Avenida Agua Espraida” in Sao Paulo

• R$13.5 million diverted, via system of “cold invoices”, from municipal funds of which US$10.5 million was ultimately received in Jersey

The Fraud

“Chanani”“Chanani”

Doleiros Dollar Account

Doleiros Dollar Account

Durant International Corp.

Durant International Corp.

Kildare Finance Limited Kildare Finance Limited

EucatexEucatex

The Oryx Fund

The Oryx Fund

Latin America

Infrastructure Fund

Latin America

Infrastructure Fund

Mercosurian Challenge

Fund

Mercosurian Challenge

Fund

Latinvest Fund

Latinvest Fund

Brazilian Value Fund

Brazilian Value Fund

Foundland Investments

Fund

Foundland Investments

Fund

EMURBEMURB

Mendes JuniorMendes Junior

SubcontractorsSubcontractors

Paulo MalufPaulo Maluf

Venus/ Lespan/ Otalan/ Bigs/

Minister

Venus/ Lespan/ Otalan/ Bigs/

Minister

Brazil

New York

Jersey

BVI

The Main Players – Paulo Maluf

• Mayor of Sao Paulo from January 1993 – December 1996

• Engaged in organisation of and running of fraud

• Owner/ controlling mind of Jersey trust structure

The Main Players – Flavio Maluf

• Owner/ controlling mind of Jersey trust structure

• Director of Sun Diamond Limited (“Trustee Company”) and Durant International Corporation

• President of the “family company” Eucatex SA

• Responsible for transferring monies from Brazil into Jersey trust structure via black market dollar dealers

The Main Players – “Dolieros”

• Black market dollar dealers based in Sao Paulo

• Responsible for exchanging proceeds of fraud from Brazilian Reals (R$) to US Dollars for onward transmission to USA

• Payments disguised by a number of code named accounts

Foreign Exchange via Dolieros

R$

Doleiros Reais Bank Account

Doleiros Dollar Bank Account

US$

Criminal Investigations

• In Jersey, Channel Islands

• New York, USA and Brazil

• Into Maluf and his associates for offences of money laundering

• Handling the proceeds of corruption

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Criminal Investigations

• Mutual Co-operation between Jersey and Brazil

• Jersey and USA

• Letter of Request

• Assets frozen

12

Criminal Investigations

• A series of challenges by Maluf against decisions to refuse to disclose Brazil’s letter of request for mutual assistance to Jersey

• Decision to transmit documents to Jersey

13

Results of criminal investigations

• USA Maluf and Falvio charged with money laundering

• Red Notices issued through Interpol

• In Brazil the case continues

• In Jersey relevant material sent to Brazil and USA

14

Civil Proceedings

• Brazil sues in Jersey

• It sues two BVI companies for knowing receipt of the proceeds of corruption

• It traces assets from Brazil through New York to Jersey

15

The Plaintiffs’ Claim

• The Plaintiffs claimed relief on the basis that:– The Municipality retained a proprietary interest

in the funds and as such:• The Defendants had knowingly received the

municipalities funds; and/ or• The Defendants had been unjustly enriched by the

municipalities funds

How the civil claim proceeded

• Disclosure Orders

• Norwich Pharmacal order against the Jersey bank which had information

• Freezing Orders against assets held in Jersey

• Trial

• Judgment in favour of Brazil with compound interest

17

01 Recibementos  24.12.97 R$ 8,337,335.31  26.12.97 R$ 208,433.38  30.12.97 R$ 12,542,198.43  02.01.98 R$ 600,115.71  09.01.98 R$ 11,481,085.02  16.01.98 R$ 10,136,000.00  23.01.98 R$ 7,528,081.16  02.02.98 R$ 6,459,162.19  Total R$ 57,292,411.20       02 Restituicoes de ISS    R$ 208,433.38    R$ 322,380.00    R$ 283,441.10  Total R$ 814,254.48       03 Liquido Recebido  Item 01-02 R$ 56,478,156.72       04 Total a pagar  Divida Passada R$ 2,217,254.00  Divida Atual R$ 11,295,631.34  Total Geral R$ 13,512,885.34

05 Operacoes  08.01.98 R$ 2,000,000.00 R$ 1,200 = U$ 1,666,666.67 15.01.98 C  13.01.98 R$ 549,000.00 R$ 1,220 = U$ 450,000.00 20.01.98 C  13.01.98 R$ 465,314.10 R$ 1,220 = U$ 381,405.00 20.01.98 C  13.01.98 R$ 610,000.00 R$ 1,220 = U$ 500,000.00 20.01.98 C  14.01.98 R$ 1,595,100.00 R$ 1,227 = U$ 1,300,000.00 20.01.98 C  14.01.98 R$ 1,034,647.58 R$ 1,227 = U$ 843,233.56 21.01.98 C  15.01.98 R$ 1,011,120.89 R$ 1,227 = U$ 824,059.40 20.01.98 C  15.01.98 R$ 613,500.00 R$ 1,227 = U$ 500,000.00 21.01.98 C  15.01.98 R$ 592,300.10 R$ 1,227 = U$ 482,722.16 21.01.98 C  20.01.98 R$ 1,021,426.00 R$ 1,225 = U$ 833,817.14 21.01.98 C  20.01.98 R$ 504,115.68 R$ 1,225 = U$ 411,523.00 26.01.98 C  20.01.98 R$ 501,658.32 R$ 1,225 = U$ 409,517.00 22.01.98 C  28.01.98 R$ 1,505,616.23 R$ 1,190 = U$ 1,265,223.72 29.01.98 C  04.01.98 R$ 1,291,832.44 R$ 1,159 = U$ 1,114,609.53 08.02.98 C  Total R$ 13,295,631.34 R$ 1,220 = U$ 10,982,777.18      28.01.98 R$ 217,254.00 R$ 1,245 = U$ 174,501.00 28.01.98 P  Total Geral R$ 13,512,885.34   = U$ 11,157,278.18    

Posicao em 05.02.98

A New Asset Recovery Paradigm

• Effective Asset Recovery operations require the use of a top quality private sector asset recovery team under the direction of the victim government and its counsel

• Take a broader view of what an “asset” is

19

Initial Considerations

• Cost effectiveness is key

• Members of the team:– Lead counsel & local counsel– Investigator– Forensic Expert

20

Pertinent Questions

• How can the investigation proceed to the next level?

• What are the considerations for hiring private counsel, investigators and forensic counsel.

• Does the victim government possess the necessary investigative tools?

• Should the victim government employ an asset recovery team?

21

Pertinent Questions II

• How can misappropriated, and possibly secreted, assets be located and recovered?

• What is the relationship between the civil and criminal arenas in these types of cases?

• What political considerations are there?

22

What are your options?

23

Other Considerations

• Privilege/ confidentiality issues

• Publicity and Pubic Relations

• Multi-jurisdictional coordination

• Coordination between criminal and civil matters

• MLAT and evidence gathering issues

24

Funding for Asset Recovery

• Principal barrier is obtaining up front funding to initiate civil actions to preserve and recover the assets and bring claims

• Defining “assets” broadly

• Low-hanging fruit

• Look for creative funding options

25

Thinking Outside the Box• The search for assets can, at first, appear to be a

daunting task

• Victim governments must often become involved in civil, criminal and other proceedings in multiple jurisdictions

• Victim governments often limit themselves to thinking in terms of criminal prosecutions and government-to-government asset recovery avenues

• Consider non-traditional assets and legal strategies

• Victim governments must work with experienced lead counsel to formulate an asset recovery plan

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Stephen BakerEnglish Barrister & Jersey Advocate

Tel: +44 (0) 1534 766254Fax: +44 (0) 1534 737355

Email: email@bakerandpartners.comwww.bakerandpartners.com