Corruption has been simply defined as the abuse of entrusted power for private gain. In many countries corruption is a problem of enormous proportions, with substantial theft of public funds and the payment of bribes for the award of public contracts or other business advantages.
In addition to criminal prosecution, civil claims arising from corrupt activities can be made by states not only against public officials themselves, but also against those that have benefited from the corruption and anyone that assisted the public officials to obtain, launder or hold the proceeds of corruption. This note considers the range of possible defendants to proceedings brought in a common law jurisdiction such as England to recover stolen assets and bribes, or damages for corruption, either by a state or any claimant that has been defrauded in a similar way. The note also introduces some of the concepts which are important to those claims.
Duties arising from the principal/agent relationship
Claims arising from corruption are typically founded on the duties of good faith and loyalty owed by public officials to the state in which they hold office. In many countries specific duties and responsibilities of public officials are codified in legislation or in the state’s constitution.
A public official will typically owe, for example, a duty to act in good faith and in the best interests of the state; a duty not to put themselves in a position where their personal interests or the interests of others conflict with their duties and responsibilities owed to the state; a duty not to solicit or accept bribes; and a duty or to make any undisclosed profit from their position.
These duties are akin to the fiduciary duties owed by any agent to his or her principal, such as the duties owed by a director to a company. Trustees and beneficiaries, partners and co-partners, lawyers and clients, are all examples of other relationships where such duties exist. An example of a claim presently ongoing in the English Courts in relation to a director of a bank is that brought by JSC BTA Bank against Mukhtar Ablyazov, the former Chairman of the bank. It is alleged that he defrauded the bank of several billions of dollars by procuring the payment of the bank's money to offshore companies which he owned or controlled. Due to Mr Ablyazov's failure during the course of the proceedings to comply with court orders requiring him to disclose his assets, Mr Ablyazov was sentenced to prison (in absentia) for contempt of court and had his defence struck out to the proceedings which led to judgment being entered against him for amounts in excess of US$1 billion. In March 2013, JSC BTA Bank also obtained judgments against a number of the bank's former officers who were alleged to have assisted Mr Ablyazov in his "scheme of misappropriation”. Just as a director can be liable for stealing company assets, accepting bribes or diverting business opportunities, so can a public official.
Claims by states against public officials
The victim state is entitled to make a number of claims against a corrupt public official. It can make a proprietary claim for stolen funds, obtain the value of bribes, and obtain compensation for the corrupt activities or an account of profits.
There have been a number of successful civil cases against public officials brought by Governments. However, the number is low considering the extent of corruption in office and the amount of monies believed to be laundered through the financial system. Claims have, for example, succeeded in England by Nigeria against the estate, associates and family of former President Sani Abacha as well as against State Governors, and also by Zambia against its former leader.
“Proprietary claims” to bribes
Historically, under English law, it was believed that a principal, such as a state, could make a proprietary claim for bribes paid to its agent, such as a public official. This meant the state could claim it was the owner of the money. This had three important consequences in corruption cases. First, the state could recover the funds representing the bribes regardless of any other claims the defendant faced, which is important if a defendant faces more claims than assets to meet them. Secondly, the state was entitled to the profits earned on the “bribe”, for example, profits on investment or assets purchased with the bribe. Where a defendant had been a wise investor, the uplift could be significant. Thirdly, it was harder for the public official to fritter away the funds to pay defence lawyers, at least without full disclosure of assets to demonstrate that the lawyers could not be paid from elsewhere.
The English law position as to ownership of bribes was uncertain because of a historical conflict in previous cases. In 2011 it appeared that the position was clarified by the Court of Appeal in Sinclair v Versailles  Civ 347 which decided that a principal has no proprietary right to a bribe or secret commission obtained by its agent unless they were beneficially owned by the principal or derived from opportunities beneficially owned by the principal. However, the position was muddied by the subsequent Court of Appeal decision in FHR European Ventures v Mankarious  EWCA Civ 17 which defined the rules a little more broadly so as to allow a proprietary claim in respect of a secret commission in particular circumstances.
This remains an area of law in real need of clarification either through a decision of the Supreme Court or through legislation: the Court of Appeal in FHR has itself stated that an "overhaul of this entire area of the law of constructive trusts" was required "in order to provide a coherent and logical legal framework".
Claims by states against third parties
There are a variety of claims that can be brought against third parties that have assisted a public official to obtain or launder the proceeds of corruption, even where those third parties owe no direct duties to the victim state. These include claims for knowing receipt, for dishonest assistance, and for unlawful means conspiracy to injure.
Knowing receipt claims typically arise in the context of stolen public funds or assets. They can be brought against anyone who holds those funds and assets, having received them in the knowledge that they were transferred in breach of the fiduciary duties owed by the public official to the state. That knowledge makes it “unconscionable” for the third party to retain the asset, and an obligation to restore it to the victim state. If the third party holds the asset at the time of a claim, the state will seek a judgment that it be handed over. If the third party has disposed of the asset, the claim will be for compensation to the value of the asset.
Dishonest assistance broadly arises as follows: any person who assists in a breach of a fiduciary duty by a public official may be personally liable to the state for the losses suffered as a result of that breach of duty. The defendant must act dishonestly, that is he or she must have sufficient knowledge or suspicion that the public official is in breach of his duties to render his or her participation dishonest. Knowledge can therefore include “turning a blind eye to the obvious”. As an alternative to compensation for losses, the victim state could obtain an account of the profits that the dishonest assister has obtained.
Unlawful means conspiracy requires an agreement between two or more individuals or entities to use unlawful means to achieve a particular goal, and the execution of that agreement; an intention to injure the claimant in doing so; and loss and damage to the claimant. Theft of public funds will satisfy this test.
These concepts, and others, can also be used against offshore companies and trusts controlled by the corrupt public official, and which hold assets on his or her behalf, and against business or personal associates.
Claims by states against legal advisers
Claims against third parties could extend to claims against legal advisers acting for the corrupt public official. In many cases involving sophisticated corruption, a legal adviser wittingly or unwittingly assists the wrongdoer laundering the proceeds of his crime. Recently, a UK solicitor, Bhadresh Gohil, the lawyer for James Ibori, the former Nigerian governor of Delta State, who pleaded guilty before the British courts for money laundering and conspiracy to defraud, was sentenced to seven years in jail for assisting Mr Ibori in his dishonest scheme. The presiding judge held that Mr Gohil was "a solicitor of the supreme Court and holding out as a man of integrity”. He added that “It is said the real villains are in Nigeria, but this fraud required special expertise and you [Mr Gohil] lent yourself to it”.
But other proceedings have demonstrated that claims against solicitors are not necessarily straightforward even where a defendant solicitor accepts with the benefit of hindsight that the money that was laundered was tainted. An example is the proceedings brought in England by Zambia against its former President, Dr Chiluba, and a number of defendants including against a firm of English solicitors called Meer Care & Desai and its two partners.
The proceedings against Dr Chiluba were largely successful. Broadly, the claim against the solicitors' firm was that it was party to an unlawful means conspiracy in allowing Zambian Government money to pass through the firm's client account and paid out for the personal benefit of Dr Chiluba and others.
At first instance the claim against the solicitors succeeded. Mr Justice Peter Smith decided that one of the partners had provided dishonest assistance. The decision was appealed and the Court of Appeal considered whether the judge had applied correctly the test of knowledge i.e. did the lawyer know the money was tainted or was he wilfully blind to the truth. The Court of Appeal decided that on the evidence the probable explanation for the lawyer’s conduct was that he was honest, "albeit foolish, sometimes very foolish, and far from competent in his understanding … of relevant professional duties, above all the need to comply with the warnings about money-laundering".
Whilst this case perhaps serves to demonstrate that dishonest assistance cases are not straightforward, the solicitors in this particular case were saved by their own incompetence, a defence not all solicitors involved in corruption are likely to be able to sustain.
Financial advisers, accountants, estate agents and others may also be subject to such a claim if they have dishonestly handled or laundered sums of illegally acquired monies.
Claims by states against banks
Banks are also potential defendants to claims by states. The vast majority of the proceeds of corruption flow through the banking system. A report prepared by the now obsolete Financial Services Authority (FSA) in 2011 entitled: "Banks' management of high money laundering risk situations" came to the depressing conclusion that: "Despite changes in the legal and regulatory framework a number of the weaknesses identified during this review are the same as, or similar to, those identified in the FSA report of March 2001 covering how banks in the UK handled accounts linked to the former Nigerian military leader, General Sani Abacha. We are concerned there has been insufficient improvement in banks’ AML systems and controls during this period."
Further, in March 2012, the FSA fined Coutts & Company £8.75 million for failing to take reasonable care to establish and maintain effective anti-money laundering (AML) systems and controls relating to high risk customers, including Politically Exposed Persons.
Banks are susceptible to dishonest assistance, knowing receipt and conspiracy claims. Proving dishonest or unconscionable behaviour is a high hurdle, but the task is easier where banks have been willing to rely on unverified assertions from public officials as to the source of wealth and funds, particularly where banks have failed to follow industry standard money laundering requirements and guidelines, failed to follow their own internal procedures for the monitoring of accounts or allowed their high net worth individual managers to have far too close a relationship with clients that are public officials.
Claims by states against bribing companies
It is possible for states to sue companies1 which have paid bribes to public officials to win business. The claim would typically be for the value of the bribe, and also for any losses which the state can prove, for example, losses that arise from substandard services or goods because the bribing company was not the best contender for the work. The state may also have the right to terminate or set aside the contract obtained through bribery.
A bribing company may potentially also be sued for damages by competitors who have lost business as a result of bribes being paid. Claims are possible whether or not the contract was subject to a formal bidding process. Such claims could, for example, be brought in unlawful means conspiracy.
Anybody that has knowingly assisted with corrupt activities, or handled the proceeds of corruption, could be a possible defendant to proceedings brought by the victim state. English law has always sought to provide severe remedies against fraudulent defendants. For example in a recent bribery case, Mr Justice Clarke remarked that "the English Courts have steadfastly set their face against bribery and corruption, whose prevalence in cases coming before this Court shows no sign of reducing, and have, for that purpose, fashioned draconian remedies whose intended effect is to deprive those who are party to bribery, whether as briber or beneficiary of the bribe, of any profit from transactions which its taint pollutes, which may not be limited to the transaction in respect of which the bribe was given in the first place. 2"