the marcos cleptocracY

illicit financial flows - case study of philippines -

klára bažantová (333095)mvz474: corruption: global risks and

responses

introductionLiterature: Chapter 6 “The Marcos Kleptocracy” in: D. Chaikin and J. Sharman, 2009. Corruption and Money Laundering: A Symbiotic Relationship, Palgrave Macmillan, pp. 153-187.

Illustrative case study of Money Laundering and Corruption nexus in Philippines under the rule of the president F. Marcos (a practical illustration of crony capitalism and Money Laundering and Grand Corruption nexus)

!biggest theft from public funds in history

corruption ranged from theft of military and foreign aid to domestic system of crony capitalism, very sophisticated tools while laundering illicit assets

illustrates the enormous challenge of delay and lack of cooperation in recovering corrupt assets that have been laundered

structure1. Basic facts, brief introduction to the case study of grand corruption in Philippines

2. Political role of Marcoses

3. The varieties of corruption of Marcos family and their cronies

4. Money laundering methods

5. International cooperation in recovering the illicit Marcos wealth

6. Criminal prosecution

7. Conclusion

Overviewbasic facts - 92 million people. 12th most populated country in the world

brief history of his rule - president 1965-86, authoritarian regime, 1972 martial law (fighting the political opponents, prolonging presidential career, abusing human rights, developing enormous grand corruption, nepotism and crony capitalism), People Power Revolution in 1986 - removal from power and exile in Hawaii

political role of marcos familyMarcos = Politically Exposed Persons

1. Ferdinand Marcos- gifted child, great memory- murdering his father's political rival and imprisoned, developing his brilliant legal skills -> instrument for concealing his corruption and money laundering activities- 1949 to 1986: professional politician - Senator, Congressman, President of Senate, President of the Republic- authoritarian regime- monopolisation of traditional patron-client system- abusing military to crush the opposition, suppressing independent media and subverting the judiciary and bureaucracy for his own personal ambitions

2. Imelda Marcos- the president’s wife, a senior powerful public figure during the fourteen-year Marcos dictatorship. Eccentric person, obsession about shoes and jewellery- In 1978 the president created a new Cabinet post for his wife

3. children- the beneficiaries of corruption under the will of Ferdinand Marcos.- daughter "Imee" - the cabinet representative of a national youth group (1979–1986) and a member of the National Assembly (1984–1986) during her father’s presidency. Marcos family’s return to political power by serving as a Congresswoman from 1998 to 2007. - son “Bongbong” - the vice governor and then the governor of his father’s home province of Ilocos Norte (1980–1986)

ferdinand and imelda marcos

the varieties of corruption of the marcos family and their cronies

1. diversion of foreign economic and military aid

2. embezzlement of governmental monies

3. the pork barrel

4. theft of official gold stocks

5. institutionalised and private sector extortion, securing of kickbacks from private businesses

6. illicit takeover from private firms

7. creation of monopolies for the private benefit of the Marcos family, relatives, and cronies

size of stolen wealth

- within a few weeks of the expulsion of the Marcos family, the Philippine government estimated that $1 billion had been stolen by Marcos and his accomplice in the twenty years of his rule, later in 1986 estimated to $5 billion.

- in 1986 Operation Big Bird revealed that at least $3 billion and possibly up to $8 billion of Marcos monies were in Swiss banks and financial institutions that had assisted Ferdinand Marcos to hide his wealth over the duration of his presidency.

- in 1991 Operation Domino alleged that $13.2 billion in gold accounts had been hidden in secret precious metal accounts at one of Switzerland’s leading banks.

money laundering methods

- possible mechanism of secrecy to launder his illicit wealth through financial institutions, investments and multilayer shareholdings

- 1st stage - the mechanism for receiving corrupt benefits - 2nd stage - layering of funds - 3rd stage - the integration of the illicit proceeds into the financial system by the process of hidden investment

- during the period 1986–2007, the Philippine government recovered from the Marcos family, associates, and cronies only the sum US$1.8 billion

international cooperation in recovering the illicit marcos wealth - part 1

- strategy of the Philippine government - to obtain legal assistance in criminal matters from foreign governments and to freeze and recover the illicit assets of Marcos family.- legal requests to governments in the United States, Switzerland, Liechtenstein, Germany, Hong Kong, and Australia- the efforts of the Philippines government over twenty years to recover the Marcoses’ illicit wealth through international cooperation have been disappointing, with the largest recovery being the $356 million frozen in Switzerland in 1986.

United States - the first country to help (e.g. Marcoses invested more than $100 million for the purchase of leases in the New York buildings) - "Honolulu Papers" - done to protect the U.S. government from embarrassing findings such as the alleged theft of U.S. aid monies

international cooperation in recovering the illicit marcos wealth - part 2Switzerland

- greatest amounts of legal assistance (freezing the assets of Marcoses, relatives and cronies x financial secrecy of Lithuania and Switzerland)- problems - returning assets to Philippines - technical problems, new untested legal system- ! the recovery of the Marcos assets from Switzerland has been presented as an example of successful international cooperation, the Philippines government and its Swiss lawyers have expressed concern that the Swiss authorities have failed to trace and return billions of dollars of Marcos assets

Lichtenstein

- "money laundering community" which has stronger bank secrecy and professional secrecy laws than Switzerland, is suspected of attracting money laundering business from Switzerland, Marcoses’ wealth as well

criminal prosecution

-> not one member of the Marcos family, any relative, friend, public official, or member of the military has spent one day in jail

-> why criminal prosecutions are problematic in the case of dictators?

- 1. a range of unique legal and political problems in putting a deposed dictator on trial in the country where he or she has been the ruler.

- 2. Anglo-American tradition - criminal trials must be heard in the presence of the defendant and meet the witnesses face to face

- 3. Marcos in exile - danger of rallies among Marcos loyalists in Phillipines - 4. U.S. - concern that any future trial might be heavily politicised - Ferdinand and Imelda Marcos had been allies of the United States and had a close personal relationship with U.S. president Ronald Reagan and his wife Nancy since 1969.

- 5. difficult to link Imelda to criminal actions of her husband - 6. under the judicial system of the Philippines, excessive delays are commonplace and the judiciary is inclined to postpone hearings at the request of the defence or prosecution

conclusion

The Marcos case study presents strong evidence that corruption and money laundering will often occur together, mutually reinforcing each other.

During the time of the Marcos rule there were no international AML regulation:

-> international AML standards are required in order to combat the most serious forms of corruption. -> The Marcos case illustrates the importance of comprehensive anticorruption preventative laws, such as annual financial disclosure requirements of public officials.

thank you for your attention!