Pubdate: Wed, 14 Nov 2001 Source: Wall Street Journal (US) Page: Page One Feature Copyright: 2001 Dow Jones & Company, Inc. Contact: http://www.wsj.com/ Details: http://www.mapinc.org/media/487 Author: Roger Thurow, Staff Reporter Of The Wall Street Journal Freezer Burn: SWITZERLAND HAS DISCOVERED THAWING ASSETS IS TOUGHER THAN FREEZING CULLY, SWITZERLAND -- Freezing assets here is easy. All it takes is a banker's suspicion of a client's ill-gotten gain and a quick call to the federal money-laundering office, and it's done. Thawing out assets, though, can be an entirely different story. Consider the tale behind the Nixon-family portrait on the desk of Jean-Pierre Allaz in this small wine village on the shores of Lake Geneva. "To His Excellency General Mobutu," begins the good-luck message scribbled across the photo. It is signed by Richard Nixon, framed in marble and topped with the U.S. presidential seal. Nixon's Staying Power This memento was no gift, for Mr. Allaz never knew the Nixons or the late Zaire President Mobutu Sese Seko. Rather, it fell into his hands when the Swiss government froze Mr. Mobutu's assets in Switzerland in 1997, as he was being booted from power. Mr. Allaz happens to be the local bankruptcy-claims official in the region where Mr. Mobutu had a grand villa. The residence contained an eclectic mix of furniture, 300 bottles of wine and a key to the city of San Francisco. Mr. Allaz was entrusted with all of it. "We were thinking one, maybe two years, that we would have it. But not four years!" he says. Last month, Mr. Allaz was finally able to auction off the villa for about $2 million. In June, he had sold most of the contents, except for some personal items such as the Nixon portrait. But the proceeds, along with $4 million in cash previously seized, are still frozen. "We're waiting," he says, "for the [Swiss] federal government to tell us what to do next." The federal government, meanwhile, is waiting to hear from the Democratic Republic of Congo, as Zaire is now called, that the money was indeed illegally spirited out of the country. The Congo government is wondering how it is going to prove that. Dictator's Money "In a dictatorship, the government treasury is mixed with the pocket of the dictator," says Therese Nseka-Koko Diakanua, a diplomat at the Congo embassy in Bern. "When the dictator takes money from his bank, he just takes the money." But without evidence that a judicial inquiry is underway in Congo, Switzerland won't release the assets. "It looks so simple, but it isn't," says Jacques de Watteville, head of financial and economic affairs in the Swiss foreign ministry. Since the Sept. 11 terrorism attacks, many officials in the U.S. have been clamoring about freezing. Few have dwelled on unfreezing. Lists of individuals and institutions suspected of involvement in terrorism have been sent around the globe by the White House and the United Nations, and tens of millions of dollars in hundreds of accounts have been frozen or are under investigation. "Right now, the focus has been on freezing the assets and getting the money out of the terrorists' hands," says a U.S. Treasury official. But then what? Will frozen terrorist money go to victims of the terror attacks? Will it help to rebuild the World Trade Center? Will frozen Taliban money go to the Northern Alliance or some future government of Afghanistan? What about the Afghan people? To seek some answers to these questions and others about repatriating frozen assets in general, diplomats and finance officials from the world's major financial centers are meeting Wednesday and Thursday in Lausanne, just a few miles from the Mobutu mansion. "One of the questions [the world] will have to face is, 'Fine, we've frozen, but now what are we going to do with it?" says Kurt Hoechner, the diplomat leading the Swiss delegation at the conference. That question comes up frequently in Switzerland. Trying to live down its history as a haven for the secret bank accounts of the world's bad guys, the Swiss have enacted stringent laws against money laundering in recent years. During the past decade, they have frozen more than $1 billion in ill-gotten accounts of potentates and crooks. "We hope this gives us the opportunity to clearly show that anyone who is corrupt and puts money in Switzerland is at risk of being frozen," says Nicolas Michel, the foreign ministry's director of international law. Freezing assets also has become a more common practice around the world, including in the U.S., as a weapon against drug-running, terrorism, repression and corruption. In the case of drug money, Switzerland and other countries have a financial incentive to freeze, since under standard international practice, they generally can keep a cut of the money that has been forfeited in legal proceedings. In some nondrug cases, countries seeking the return of frozen assets have proven the illegal nature of the funds to the Swiss judicial system. Thus, in recent years, Switzerland has returned $4.5 million to Argentina from a bribery case and, after a six-year process, $2.5 million to Mali from the frozen accounts of former political leaders. But as the Mali case illustrates, money claimed by poor nations or suffering victims can languish for years because of the difficulty in sorting out who should get it. In 1986, the Swiss froze about $300 million from accounts associated with late Philippine ruler Ferdinand Marcos and his cronies. Fifteen years later, the money -- which has more than doubled with interest -- is still frozen. The Swiss banks continue to take their conventional fees for tending such assets, but the government doesn't keep a share when politically tainted money is returned. With little precedent to guide them, the Swiss are probing novel approaches to get rid of political money more quickly. In 1999, Switzerland froze more than $650 million from the accounts of former Nigerian leader Sani Abacha and people in his circle. The bulk of this money was blocked at Nigeria's request, and it will remain frozen until the Nigerians complete a judicial review of charges that it was embezzled. Some $60 million was blocked by Swiss banks acting on their own under Switzerland's money-laundering law, which obliges bankers to freeze assets if they have a serious suspicion about a client's possible felonious activity. Because it was blocked at Swiss initiative, the country had more say over its dispensation. After negotiations with Nigerian officials, prosecutors in Geneva came up with the idea of funneling this money through the Bank for International Settlements in Basel to pay down Nigeria's debt to various nations. Beyond this case, Swiss authorities are pondering other ways to repatriate money to poor nations, such as sending funds through an international-development agency that would assure money is spent on projects benefiting the citizens of a country. "Morally, we can't give money back to a country if we know it will just go into another pocket, from one corruption case to another," says Mr. de Watteville. But even when governments claiming frozen money are democratically elected and have signed U.N. human-rights pacts, the restitution process can be tortuous. Exhibit A is the Swiss Marcos money. Weeks after the two-decade Marcos regime was toppled in 1986, the new Philippine government requested assistance from Switzerland in tracking down the money. The Swiss banks found hundreds of millions and froze it. "We blocked the money, and then nothing happened," says Mr. Hoechner, a former Swiss ambassador to the Philippines. The money had been salted away in the accounts of various foundations, leaving a complicated paper trail. "The banks here had the documents, they were all in German and it was hard to find them," says Rora Navarro-Tolentino, the current Philippine ambassador to Switzerland. "There were different banks, big and small. And different cantons. We had three lawyers working in each section of Switzerland." In the Philippines, the process was slowed by claims from the Marcos family and political haggling. In the mid-1990s, the Swiss courts began moving money, albeit still frozen, to a Philippine bank. A Swiss federal court said the eventual disposition of the money should benefit victims of Marcos human-rights violations. A Philippine law stipulates, however, that recovered Marcos money should go to agrarian reform. Philippine lawmakers are now considering legislation to square the two goals. For the moment, about $25 million remains frozen in Switzerland. Nearly $650 million, fattened by years of interest, is frozen in the Philippines -- "though maybe as we are conversing, it is higher," laughs Ambassador Navarro-Tolentino. "Court processes are always long." In a breezy office in Zurich, another case is just beginning. Cornelia Cova, an examining magistrate, displays what looks like an intricate diagram of a spider's web. Green, pink, yellow, orange and violet lines connect at least 20 banks in Switzerland, Luxembourg, the U.S., Russia and Peru. It is a flow chart of money from the network of Vladimiro Montesinos, Peru's former spy chief, now awaiting trial in that country on corruption charges. Last year, Swiss banks froze about $114 million from this web, beginning with a bank in Zurich that acted based only on media reports linking Mr. Montesinos to suspicious activity. Ms. Cova then began tracing the money's sources, with the ultimate goal of sending it back. Her message to Peruvian officials, who are aware of the Marcos-money saga: "If you want the money back, you have to prove that Montesinos was a corrupt guy." In poor countries, a former ruler's millions can make a difference. Mr. Mobutu's frozen money "is not enough to build up a country and help everyone who is suffering, but it's a little drop that helps," says Fidele Sambassi, another diplomat at the Congo embassy in Bern. The Swiss are waiting for a Congo trial to sort out the Mobutu regime's activities. Congo diplomats say a trial could hinder attempts in their country to foster reconciliation after a long and brutal bush war. Besides, they note, the government that overthrew Mr. Mobutu declared that all Mobutu money should be sent back to the country. But a subsequent leader's fiat isn't enough to repatriate Swiss funds. "For the moment, we have no indication that a judicial case is going on" in Congo, says Mr. de Watteville. At the same time, various members of the Mobutu clan are claiming parts of the fortune, as are several creditors. There is one person who would like the freeze of Mobutu money to continue: a former Mobutu bodyguard who has kept vigil over the empty mansion all these years. He has told Swiss officials he fears that if he is sent back, with the money and the Nixon portrait, he will lose his head. - --- MAP posted-by: Richard Lake