Offshore expert calls for profit motive to spur anti-corruption battle

A new book by Jason Sharman, an expert on money laundering and offshore companies, argues that venture capitalists and vulture funds could help in the battle against corruption. Sharman argues that the existing system of conventions, laws and treatises is ineffective against a kleptocracy that seeks to steal state assets. Instead, Sharman proposes that venture capitalists, law firms and vulture funds should lead the attempt to locate looted money, even if this means they retain the recovered assets. For instance, US hedge fund Elliott Management recently obtained $2.28bn after suing the Argentinian government over defaulted-bonds. This could serve as a deterrent and could also save states huge legal costs that they fail to recoup. Sharman’s book, entitled ‘The Despots’ Guide to Wealth Management’, is due to be published next year.

Vulture funds that drag developing countries through the courts in order to recover unpaid debts might seem like unlikely allies in the fight against corruption.

The US hedge fund Elliott Management recently pocketed $2.28bn (£1.58bn) after winning a 15-year battle with Argentina over long defaulted-bonds, which it had bought cheaply before suing the government for repayment of their full face value plus interest. A leading authority on offshore companies and money laundering believes such aggressive pursuit of profit should be used against corrupt world leaders who plunder state assets.



In a new book, Jason Sharman, a professor at the Centre for Governance and Public Policy at Australia’s Griffith University, contends that efforts to combat kleptocracy should become a profit-driven industry because the current system of conventions, treaties, laws and regulations is ineffective.

The Despots’ Guide to Wealth Management, published next year, recommends that law firms, venture capitalists and vulture funds should become the primary players in the hunt for looted wealth, even if that means they keep a substantial proportion or all of the recovered assets.

This would be preferable to the current system where governments pursue criminal prosecutions against corrupt officials, because such legal action is often unsuccessful or leaves victim countries worse off, writes Sharman.

For example, in the aftermath of the Arab uprisings of 2011, the Egyptian government attempted to recover billions of pounds in assets believed to have been stolen by the deposed president Hosni Mubarak. But, Sharman notes, the case was blighted by poor co-operation between British and Egyptian officials, and Cairo spent millions of pounds on the services of a London law firm, Stephenson Harwood, without recovering any funds.

Sharman recomends that victim governments cut deals with law firms or venture capitalists to finance asset recovery cases in exchange for up to 50% of the money recouped. “If it fails it would be tough shit for the venture capitalist and the victim country wouldn’t lose anything,” said Sharman. “If it succeeded, half of the funds would go the venture capitalist firm, which has been paying the lawyers. Basically it’s turning the profit motive from an enemy of corruption into an ally of that cause.”

His book also proposes that vulture funds should be recruited to target kleptocrats, although they would keep all of the recovered money. Sharman points to the way legal action by two subsidiaries of Elliot Management – founded by the US billionaire and Republican party donor Paul Elliott Singer – helped to break the secrecy around shell companies, which can be used by corrupt officials and their associates to hide stolen assets.

In 2014, NML Capital launched legal action in Nevada to try to uncover the ownership of 123 shell companies it suspected of being controlled by Lázaro Báez, a close business associate of Argentina’s former presidents Néstor Kirchner and Cristina Fernández de Kirchner. The dispute with the firms’ agent, MF Nevada, not only proved that it was part of Mossack Fonseca, which the Panamanian law firm had denied, but also led to a court order demanding details about any money that had flowed through the Nevada companies.

In 2007, Kensington International supplied the human rights group Global Witness with copies of financial documents which revealed that money paid by western firms for Congolese oil went to shell companies controlled by Denis Christel Sassou-Nguesso, son of the president of Congo Brazzaville. Sassou-Nguesso asked the high court in London to order the NGO to remove the documents from its website, but the legal action failed and the judge remarked that the plaintiff was “unsavoury and corrupt” and that the oil profits “should go to the people of Congo, not those who rule it or their families”.

Sharman writes: “If a vulture fund takes someone corrupt to court and strips them of $100m then it doesn’t make the victim country any richer but it provides some accountability and a deterrent. Other would-be criminals think: well even if I escape my own government, there are these firms that will come after my money no matter where it is in the world.”

Other measures suggested by Sharman include extending visa bans on suspected kleptocrats to blacklist entire governments to prevent stolen assets from being hidden overseas, and allowing tax inspectors to prosecute corrupt officials for tax evasion arising from interest earned on their illegal wealth.

Rachel Davies, head of UK advocacy and research at Transparency International, said civil legal action should not be a replacement for law enforcement or public prosecution.

“The UN convention against corruption states that the main priority should be to return these funds to the origin state, legitimate owner or victims of the crime, with only reasonable expenses being deducted for the costs of investigations, prosecution or judicial proceedings,” she said. “In countries, like the UK, that are a target for the proceeds of corruption, law enforcement should be sufficiently resourced to take the lead on cases involving corrupt assets.”

Sharman, who will take up a professorship in international relations at Cambridge University later this year, said he would prefer that vulture funds seized ill-gotten wealth than corrupt officials kept it.

“I’m less interested in what laws say than what works,” he added. “The current system has a very poor record of actually returning money to victim countries, especially when you take into account the cost of investigation and legal action, the cost of post-repatriation monitoring and the danger it will be restolen.”