Colleagues, we're waiting for a couple of members to arrive, because of the Olympians coming into the House. I think we have quorum, so let's do a little bit of House business before we officially go to our agenda on meeting number 31 pursuant to the order of reference.
I want you to look at the subcommittee's eighth report to the committee.
||The Subcommittee on Agenda and Procedure of the Standing Committee on Foreign Affairs and International Development has the honour to present its
||Your Subcommittee met on Tuesday, November 1, 2016, to consider the business of the Committee and agreed to make the following recommendations:
||1. That the proposed calendar for November and December 2016 and the suggested witnesses in the document entitled “Additional Witnesses For Committee’s Review of the Special Economic Measures Act and the Freezing Assets of Corrupt Foreign Officials Act” be agreed to.
||2. That the Committee give priority to suggested witnesses who can speak on the theme of anti-corruption with regard to the review of the Special Economic Measures Act and the Freezing of Assets of Corrupt Foreign Officials Act.
||3. That Gary Kasparov be invited to appear before the Committee on Wednesday, December 7, 2016 in relation to the review of the Special Economic Measures Act and the Freezing of Assets of Corrupt Foreign Officials Act.
||4. That a letter be sent to the Department of Justice with specific questions related to the Committee’s review of the Special Economic Measures Act and the Freezing of Assets of Corrupt Foreign Officials Act.
As I mentioned at the committee, we will be sending you a copy of that letter in draft to get your input before we send it to the Department of Justice.
||5. That when the Committee invites officials from Government departments to appear before it that the Deputy Minister or the appropriate Assistant Deputy Minister of the Department be the officials who appear.
That's respectfully submitted by your chair.
I'd like to move that report on behalf of your subcommittee.
(Motion agreed to)
The Chair: I think we'll stop there, colleagues, and go right to our witnesses.
I want to start by apologizing to our witnesses for our late start. Parliament went a little over time today.
Colleagues, as a reminder, there will be votes at 6 o'clock, so we'll try to stick to the agenda as best as possible, to be completed around 5:30 p.m.
Before us this afternoon, pursuant to our terms of reference and section 20 of the Freezing Assets of Corrupt Foreign Officials Act and our statutory review of the act, are Maya Lester, Queen's Counsel, Brick Court Chambers, and Daniel Drezner, professor of international politics, Fletcher School of Law and Diplomacy at Tufts University.
Mr. Drezner will be with us by teleconference, so you won't see him, but you'll hear him.
With that, I'll turn it over to Ms. Lester to make her presentation, then we'll go directly to Mr. Drezner. We'll then go into questions by committee members.
Welcome to the committee, Ms. Lester. Thank you very much for being patient with us. We look forward to hearing your remarks.
Thank you very much, and thank you very much for inviting me. It's a great honour to appear before you.
I should say that I gave evidence to our own Parliament, to the House of Lords EU Justice Sub-Committee about two weeks ago, because they have been inquiring into various aspects of the EU's sanctions regimes. I would be happy to talk to you about that if it would be interesting for you to hear, perhaps in the questions.
I am a barrister; I am a litigator. I specialize in European law and public constitutional law, with a particular expertise and interest in sanctions regimes. I should say I am by no means an expert in Canadian law, so I will confine my remarks to what I know about, which is the European Union sanctions regimes. I know a little also about the United Nations, and of course the U.K.'s own regimes, to the extent that they have them, and I will come back to that.
I have a practice predominantly acting for listed parties, people and entities subject to sanctions, and I've litigated a very large number of cases in the European Court on their behalf, but I also do a lot of advisory work in other litigation related to sanctions for non-sanctioned parties.
What I thought I would do is briefly outline—and I hope it's not too basic—the EU system for imposing sanctions, and then I'll explain what I think are some of the challenges and problems in the European Union's system, which has given rise to a large number of court cases that you may be aware of.
The EU imposes sanctions as a group of states, as 28 member states—possibly 27 pretty alarmingly soon—as part of its common foreign and security policy, and decisions to impose sanctions have to be unanimous. That's very much the background to the EU sanctions regime, which is 28 member states trying to agree on what to do. To that extent, Canada has an easier job.
The decision-making body is the council of ministers in the EU, which is really all of the EU foreign ministers acting together. That's the executive body that decides on sanctions.
EU sanctions, like the U.S., the UN, and other sanctions regimes, consist partly of targeted asset freezes and travel bans, which are EU-wide, and partly of less-targeted sanctions, particularly in regimes like Iran, Syria, and, to some extent, Russia. In addition to targeted asset freezes and travel bans, there are broader prohibitions on, for example, certain kinds of business or financial transactions that can be done between the European Union and various states.
How does the court get involved? It's an exception to the general rule that foreign policy measures of the European Union are not subject to judicial review. There is an exception to that rule for individuals and entities that are the subject of targeted asset freezes and travel bans. This is because the EU Court has taken the view that, since these are restrictive measures that have an impact on the fundamental rights of people, whether they're EU citizens or not—and many are not—they should have access to judicial review to be able to challenge their designations. I understand that there is a system of that kind in operation in Canada. This judicial review must take place within two months of a sanctions listing in the General Court of the European Union, which is in Luxembourg. There have been literally hundreds of these cases in Luxembourg, many successful. I think, on average, about half of the cases that go to the European Court have succeeded.
Why? Well, originally when I first started doing these cases in about 2009-10, the practice was not to give reasons why people were designated on sanctions lists. The United Nations also was not giving reasons. So the basic initial challenges were due process challenges, where the European Court said that if you are going to impose restrictive measures on individuals and entities, you, the European Union institutions, have to comply with basic standards of due process. This means giving reasons why you have been designated; some basic evidence if you challenge the factual basis for your listing; some evidential support for what the institutions are saying as a justification for your listing; and some basic judicial review and proportionality analysis by a court.
Now we can come back to all of that, but the basic reason that so many cases were successful was an evidential reason. After these basic standards of due process were set out by the European court, there were then hundreds of cases—mostly Iranian cases, but by no means all; every different regime has brought cases—where, after initial cases that were lost by the institutions because of a lack of reasons, the focus of the court has been much more on whether the European institutions can substantiate with some kind of sufficiently solid factual basis, as they put it, the evidential basis for a sanctions listing. In many cases they haven't been able to do so, and again, we can come into that in more detail, if that would be of interest to the committee.
This basic reasoning and framework has been applied both to EU autonomous sanctions, those imposed by the European Union, and also to European Union implementation of United Nations Security Council sanctions. That has been very controversial. There was a famous case I was involved in called Kadi, in which the European court decided that it could review EU measures, even those that implement UN Security Council resolutions. That case was partly decided because of the lack of due process at the United Nations level, and that case led directly to the creation of the office of the ombudsperson for the UN Al-Qaida Sanctions Committee, the first incumbent of which, Kimberly Prost, I'm sure is well known to you and I think may be giving evidence to your committee.
The result of these cases was that many won. Many were brought. They're tailing off a little now for reasons that I can go into after my opening remarks.
The system has had particular problems, I think, which are reflected in the case law, to some extent. First, there is a real absence, in my view, of a body capable of gathering evidence to a robust and rigorous standard in the European Union. Now the council of ministers is not, in itself, an evidence-gathering agency. It's a group of member states, and so its sanctions capabilities, and the degree to which it can gather robust evidence to support sanctions listings, depend entirely on the evidence that member states are willing to share with each other in the council, and which, then, the council is willing to share with listed people and with the court.
This has led to another very interesting topic that I'd be delighted to speak about, which is rules of procedure that now will permit the institutions to rely on classified material. So far the court has taken the view, unlike the U.S. courts in this area, that all material relied on must be open to all parties. That may be changing in Luxembourg because of the problem of open-source material, but some of the quality of the open-source evidence, in my view, is not robust; it consists of some press articles and Internet printouts, very often.
The second problem, in my view, is that the EU institutions are not responsive to people who are affected by being included in sanctions lists. It takes them a very long time to respond to correspondence, even in real cases of urgency, and there's a real lack of engagement on the substance in the correspondence. Again, I can go into this in more detail, but I think—and I said this to the House of Lords committee—there is a real case for a Kimberly Prost ombudsperson process in the European Union in order to analyze evidence and provide a real responsive system.
Third, the court system has its own difficulties. It's very slow, is expensive, and there have not been injunctions given in cases of urgency, quick hearings, or damages in cases of serious errors in listings. There has also been—if I can call it—a bit of a game of re-listing: almost every entity and person that wins a case in the European court finding him or herself or itself on a sanctions list the next day, with slightly different reasons given for designation. The lawfulness of that process is being litigated in the European courts at the moment.
Finally, and I'll end with this comment, in my view there is a particular concern about the misappropriation regimes, and that may also be of concern to this committee. These are the Tunisia, Egypt, and Ukraine regimes which freeze the assets of people said to have misappropriated state funds. Why are these of concern? Well, in the case of the European Union—and I don't know about Canada—the origin of all of these lists was a request by the then governing bodies in Egypt and Tunisia, post-Arab Spring, to the European Union to please freeze the assets of a list of what they themselves called the enemies of the state who may wish to punish—was the kind of language that was used.
Now, the European Union, without leaving any time for analyzing the basis for any of the evidence that the people on these lists had been responsible for corruption offences of different kinds, immediately imposed an EU-wide asset freeze on them. Of course, the standards of due process by which these people are often standing trial in absentia, or that judicial investigations have been opened and pursued against them in these countries, without standards that Canada or the United Kingdom certainly would regard as complying with the rule of law is, in my view, shocking. The European Union has simply relied on the words of prosecutors in those countries as being sufficient to show that because these people are being investigated for corruption offences, that should be sufficient to keep them on EU sanctions lists. Although they are called temporary precautionary measures, they have now been in place for a very large number of years. I should say, though, that the European court has upheld the legality of these measures.
There are many other topics I could touch on. One, of course, is the potential consequences of the United Kingdom leaving the European Union for sanctions regimes, but I'll leave my remarks there and look forward to answering questions.
Thank you very much for the opportunity to testify. I'll give a little bit of background about myself. I'm a professor of international politics at the Fletcher School of Law and Diplomacy outside of Boston. My area of expertise is not legal, but rather in international relations. I've written a book and several articles about the utility of economic statecraft in international affairs. Much of what I will say today is based on a report that I co-authored for the Center for a New American Security in Washington which just came out about recent changes in the way the United States employs economic sanctions, which I will talk about now and which might hopefully be relevant to your Parliament.
In some ways, the interesting evolution in the American approach to economic sanctions has been that, when I started work on this in my dissertation 20 years ago, it was widely thought among policy circles that sanctions did nothing. Economic sanctions were usually thought to be a useless symbolic tool and a demonstration of states doing something without necessarily accomplishing anything. Twenty years later, what is striking is the degree to which the policy consensus in Washington has done a 180° turn. There is an increased amount of enthusiasm for the utility of economic statecraft, the tool in terms of advancing American interest in foreign policy, as well as advancing things like the cause of human rights.
The question is, what happened in those 20 years? Was it just the policy-makers were wrong both times or has there actually been changes in the way in which the United States has employed sanctions? The answer is a little bit of both. I would argue that policy-makers were excessively pessimistic when they were assessing the utility of sanctions back in the late 1990s and they are now excessively optimistic about the utility of economic sanctions for a variety of reasons.
That said, there were changes in the way that sanctions were employed. You can argue that the history of sanctions in the United States basically boils down to three phases. The first was up until about 1990. Then the Iraq sanctions which were placed immediately after the Gulf War were a notion of so-called comprehensive sanctions. That is the idea that any economic sanctions that are employed should be employed against an entire country, should usually be trade-based, and should be designed to maximize the economic punishment that a country faces unless they comply with whatever is asked with respect to sanctions.
It quickly became clear that this process did not work terribly well in terms of its success rate, and more importantly, demonstrated massive negative externalities as the Iraq case demonstrates in the form of humanitarian catastrophes, an increase in corruption, and so forth. Essentially, any employment of economic sanctions is an effort to outlaw what would otherwise be considered ordinary, perfectly fine commercial activity. It therefore creates an incentive for actors to find ways to work around sanctions rules as a way to earn above-average profits and it is therefore a breeding ground for corruption.
It is no coincidence that if you look at the list of countries in terms of corruption according to, let's say, Transparency International's or the World Bank's governance indicators, the countries at the bottom, the most corrupt countries are countries that have usually been under sanctions in one form or another, because once sanctions are imposed, the corruption is often longer lasting.
In response to that, the United States began to embrace the idea of smart sanctions. The idea of smart sanctions was to focus on somewhat more targeted aspects of the country rather than trying to hurt the population writ large. The idea was that certain kinds of sectoral sanctions would be used, things like sanctioning luxury goods, imposing travel bans, imposing arms embargos, various financial sanctions. These sanctions would presumably hurt the elite of the target's population rather than the broad-based populace and therefore would cause pain to presumably the most politically influential members of the target country.
Furthermore, the other idea was to essentially start imposing sanctions on individuals rather than countries writ large, with the idea of making individual policy-makers or wealthy people who were considered close to policy-makers potentially liable for the implications of policy transgressions.
The problem was that most of these smart sanctions also didn't work very well. Indeed, the track record of the UN smart sanctions cases that were imposed in the 1990s and the 2000s show that they actually have a success rate of perhaps 11%, which is much lower than the success rate of ordinary comprehensive sanctions. While it did alleviate some humanitarian suffering, they didn't seem to accomplish that much.
The one exception appeared to be cases in which targeted financial sanctions were employed against the targeted country. In part, this is because when financial sanctions are imposed, the effect on the private sector in some ways actually enhances the effect of the sanctions, as opposed to the case of trade.
Generally, when you impose trade sanctions, you're incentivizing black market activity and corruption. However, as a general rule, when you're imposing financial sanctions, because the U.S. capital market is so central to the international financial system, generally speaking, for banks that have to deal with these kinds of sanctions, access to U.S. capital markets matter much more than any small profits they could gain from sanctions busting. Furthermore, private capital would engage in prudential risk calculation in terms of anticipating the effect of any kind of financial sanctions on a targeted economy. This is often referred to as de-risking.
The degree to which U.S. regulatory officials have fined various banks, such as HSBC, Commerzbank or BNP Paribas, for violating other kinds of sanctions, and these fines have run into the billions of dollars, have caused much of the western financial community to comply very quickly with sanctions edicts that come from the United States. Indeed, by 2015, the use of targeted sanctions was a relatively important component of President Obama's national security strategy.
Generally speaking, the question is, do these actually still work? The evidence suggests that the targeted financial sanctions do, in fact, have a better success rate than previous comprehensive sanctions as well as smart sanctions. Generally speaking, the success rate is along the lines of 40%, which might not sound that great, but again you're dealing with difficult cases. The fact that they work at all is relatively impressive.
Sanctions tend to work much better if they have a well-defined demand—which is a banal point but nonetheless important—if they hurt target elites, and most important, if there are lower expectations of future conflict between the country imposing the sanctions and the country on the receiving end of sanctions, or to put it another way, sanctioning allies, oddly enough, tends to work much better than sanctioning adversaries. Of course, countries are obviously more reluctant to sanction allies, which is why it doesn't happen all that much.
That said, there are still negative externalities that come from sanctions. Sanctions undeniably cause investment to dry up in the targeted economy. You do see massive increases in the assessment of economic and political risk by the private sector when any kind of targeted sanctions are imposed. There is not that much evidence of a “rally around the flag” effect, which is to say the sanctions don't necessarily lead to members of the targeted population deciding to support their leaders that much more.
The logic seems to be with targeted financial sanctions that the imposition of sanctions leads to an elevated perception of political risk among private sector actors, which then causes private sector investment in the targeted economy to expire. The question is whether or not we have reached peak sanctions, for lack of a better way of putting it. One of the reasons you can argue that some of these cases of sanctions have worked, for example, the sanctions that were imposed against Iran prior to the nuclear deal, is that in some ways people did not anticipate that they would actually have the potency that they did. Therefore, the actual imposition of sanctions was a genuine policy surprise not just to the target economy, but I would argue to U.S. policy-makers as well. The interesting question is whether or not going forward you're going to see an increasing amount of countries anticipating the fact that this can actually happen, and therefore, as result, hedging or finding alternative ways to guard against U.S. financial power. Indeed, you're even seeing in some cases countries such as Russia trying to find alternatives to the SWIFT payment system and to excessive reliance on the U.S. dollar as a form of international trade.
The question is whether or not the U.S. government appreciates this. Indeed, there are indications from a speech that Secretary of the Treasury Jacob Lew gave back in the spring that, in fact, U.S. officials are aware of this, and that in some ways while they will have to engage in continued financial intelligence in order to be able to continue to impose successfully targeted sanctions, there is a concern that essentially if the United States continues to become sanctions happy, there will be too much blowback, and that, in turn, could affect the dominance of the U.S. financial system.
I think I will leave my remarks there.
To both our witnesses, thank you very much for two different perspectives on the U.S. and the EU.
Dr. Drezner, we're reviewing our Special Economic Measures Act and our Freezing Assets of Corrupt Foreign Officials Act. We're trying to figure out if maybe there's a spot we're missing. We've heard loudly from a number of witnesses who state that sanctions have unintended consequences and sometimes these things seem to be a challenge. Both of your remarks bear that out today in terms of once again talking about those stats.
I'm assuming, Dr. Drezner, you are familiar with Magnitsky, and that's part of the reason we're talking about this today. You did say that smart sanctions are more effective. We're looking at trying to figure out if we have a gap in some of our legislation that maybe doesn't address this or doesn't give us an opportunity. Do you have any comments on Magnitsky? I've certainly heard your testimony say that smart can make some sense, that targeted makes sense, that it can have an effect.
We're looking at those who have bad behaviour, massive human rights abusers who raid their countries of money and all these things, and then say, “Hey, we're going to park it in western democracies, and then when we're done ripping off our own countries we'll be able to travel there, we'll be able to live there.”
We're hearing a number of different things. Obviously, if you're going to do something you have to have the tools. You have to have the ability. We've heard here in Canada that maybe we need more resources to target some of these things.
We also hear the complications of what happens with banks. You also talked about that in your testimony. We'll go back to Magnitsky. It's pretty early stages in terms of this act in the U.S. We see some of the blowback that happened from Russia in terms of refusing adoptions of babies, etc.
What are your thoughts on that approach? What are some of the things we need to look out for as we review some of our legislation?
Again, I think with Magnitsky the question is always, what do you want to get out of the sanctions? In other words, do you see the sanctions as a tool of punishment for prior bad acts? This, in some way, is what the Magnitsky sanctions did.
Part of the problem in terms of evaluating their success is that essentially they took place in a steadily worsening state of Russian-American relations. As I said, in some ways the expectation of a future conflict between Russia and the United States...the Magnitsky Act was simply one element of it that further increased the conflict between the two countries. Any time you increase the idea that there's going to be conflict, you decrease the likelihood that the target will make any concessions, even if the target is an individual citizen. I have to say I would not define the Magnitsky sanctions as all that much of a success in terms of the effect on Russian officials who have been placed under sanction.
There is one other possibility, however, although this is an extremely nebulous category and it's extremely hard to nail down, which is you can look at the Magnitsky sanctions as an example of potentially sanctioning as a form of deterrent, which is that imposing those sanctions will not necessarily alter the behaviour per se of the individuals under sanction, but it might cause other officials in the same country or other countries to recognize the implications of deciding to engage in similar behaviour. That could lead to one of two effects. It could actually successfully deter them or it could cause them to take countermeasures to make sure that even if those kinds of sanctions are imposed, they, as a result, do not suffer as much.
I cannot stress enough that this is extremely difficult to identify. As a scholar, it's hard for me to say we conclusively can show that this takes place. There is some limited evidence that this has occurred in certain categories of sanctions, that you see other actors responding to it. But I do know from my conversations with state department officials that another thing that's going on is that Russian officials, once being placed under sanction, are trying to figure out ways, obviously, to circumvent them in terms of depositing money or assets with relatives or known friends, and so on and so forth.
As a result, there's a constant arms race in terms of financial intelligence, to be able, if you're going to impose these sanctions, to see not just the effect on the intended target, but also the penumbra of relationships that this intended target possesses.
—but that's very controversial, and members of the European Parliament have repeatedly called on the EU to do so. Some countries feel very strongly that there should be a list. It has not been possible to reach an agreement on it.
I think that serious human rights violations are perhaps a good example of a use for targeted sanctions. Although I don't disagree with anything that has just been said by Mr. Drezner, when people talk about the efficacy of targeted sanctions, I often wonder exactly what they mean by that. It seems to me to be very rare that targeted sanctions ever actually identify what it is they're trying to achieve and what someone who is targeted by those sanctions has to do if he or she wishes to change behaviours and not be sanctioned anymore.
What one tends to see are very broad formulations like “In view of the situation in Zimbabwe” or “In view of the situation in Russia, we are imposing sanctions,” but there are never achievable, clear goalposts. I wonder whether or not this is intentional. It seems to me in those circumstances to be extremely difficult to say whether targeted sanctions have worked or not because it is just not measurable.
Of course it also depends on who is imposing the sanctions and whether the targets care or not. If the European Union freezes your assets and prevents travel, you're not going to care, other than perhaps by reputation or symbolically, if you don't hold assets in the European Union and you're not going to travel there. The same would be true, of course, in the case of Canada.
As a final example, the EU's Russia program does not include on its list President Putin or his very close allies. This highlights the point that targeted sanctions, like others, are of course highly political. Very often the criticism is made that the real targets of the sanctions tend to be the business classes, the middle classes, and not the real decision-makers who are actually responsible for policy.
Very often you see decisions to include people in lists that are not really based on their conduct, but rather on their association with a regime or their status. There are plenty of studies showing that these have sort of counterproductive effects, because if you freeze out or make life more difficult for those people but not their rulers, the politicians who actually do have control over policy in those entities, then how can you say in any meaningful sense that those sanctions are working?
I think the difficulty with evidence beforehand is that most, if not all, imposing authorities will say that, because of the risk of asset dissipation, they can't let someone know that they're going to have sanctions imposed on them before they're going to be imposed. The whole point, really, is to have a surprise effect to stop people channelling funds out of the European Union or out of Canada, or whatever it is. I'm not aware of a system that provides due process, if you like, in advance of a sanctions listing.
To me, the two key factors are, as quickly as possible after a listing, someone should be notified that they've been listed and why, and they should have some meaningful opportunity from a responsive, swift, efficient decision-maker to know the case against them and be able to challenge it. I don't necessarily subscribe to the view that it must be a full court providing full judicial review. The ombudsperson process, for example, can be very effective, as long as it provides a real substantive review of the underlying evidence to a transparent, consistent, and appropriate standard of review. The important thing from a target's point of view is to feel that someone has actually reviewed the evidential basis for their listing in detail and has heard what they have to say, explain whether they agree with it or not, and then have the ability to recommend delisting or not.
If I were designing a system, I would try to have a very responsive administrative system and I would also have a layer of judicial review, but not one that, with respect to the European court, takes two or three years. Hopefully it would be some sort of swift court procedure. In the U.K. where we have domestic judicial review as you do in Canada, one can have a pretty swift hearing particularly in cases of urgency, and it doesn't have to take years and years.
To me, there are two components: administrative review, and judicial review based on some kind of appropriate evidential threshold.
I appreciate the opportunity to tell you a little bit about my knowledge on the subject of corruption, and specifically what your committee is doing.
I would like to underline something about the modern authoritarian state. Whether we speak of elected autocrats, like Nicolás Maduro in Venezuela, Vladimir Putin in Russia, or of dictators like Teodoro Obiang in Equatorial Guinea or Nursultan Nazarbayev in Kazakhstan, all of these are almost pathological kleptocrats. To achieve their aims of accumulation of illegally gotten wealth, they typically rely on significant natural resources that range from gold and diamond mines, oil and gas exploitation, vast forests, or even water to secure the funds that they want to hide in distant jurisdictions. Just as important, kleptocrats in power rely on domestic or foreign henchmen who operate in excellent terms domestically and through unhinged joint ventures with western companies and are ready to take a significant share of the spoils in return for silent complicity and for acting as fixers. The proxies and cronies of corrupt rulers are usually free to travel to the west, to own luxury mansions and apartments, to open bank accounts and invest in the stock market, and to make significant investments elsewhere.
I'm here to make two general points, and then to provide an important, current, and developing example. First, as currently constituted, your sanctions system lacks any teeth to punish corrupt officials, who are also gross human rights violators, or their cronies, who are also key enablers in dictatorships. My second general point is that passing a Canadian version of the U.S. Magnitsky Act would be a step in the right direction.
On the first point, if we consider the way the modern dictator operates, the Freezing Assets of Corrupt Foreign Officials Act, or FACFOA, sanctions come into place too late: when the corrupt dictatorship has already been removed from power and the new democratic or authoritarian government requests Canada to go after the assets of the most recent set of thieves, such as in the cases of Tunisia or Ukraine. Because of the way your law is written, FACFOA may even serve as a political tool for one set of corrupt officials to settle problems with another set of the same type of official that preceded them. Furthermore, FACFOA requires a foreign state actor to initiate a process.
Unless there are exceptional situations where the UN urges, through the UN Act, or the Canadian government determines that a serious threat to international peace and security exists, the Canadian sanctions system does nothing to deal with corrupt cronies and individuals who act as enablers of corrupt government officials who are also dictators. Both may be laundering their money in Canada. Essentially, a discussion of a Canadian Magnitsky Act has stalled after it was first introduced in 2015. To the extent that it targets specific government officials and cronies closely connected to gross human rights violations by the regime in question, I believe this act would be an excellent first step in the right direction. In this case, Canada should heed the advice of former member of Parliament and human rights champion Irwin Cotler.
With regard to FACFOA's and SEMA's deficiencies, let me provide one example. A group of Venezuelan businessmen formed a criminal association that operates under the name Derwick Associates. The principals of this company are in their twenties and thirties, and they had no prior experience whatsoever in government contracting, yet, in the space of one year, the Government of Venezuela provided them with 12 construction and procurement contracts for power plants. The businessmen, Venezuelans who also hold foreign citizenships for countries like Spain, Italy, and Germany, subcontracted all of the work to a second-rate company inside the United States. Derwick Associates then overbilled the Venezuelan government by almost $2 billion, and carried out an exchange rate fraud. The total amount stolen by these men exceeds $4 billion Canadian. If you consider the size of other well-publicized scandals around the world, if you consider the FIFA scandal, this scandal is multiples of that.
They paid kickbacks to Venezuelan government officials at the highest level, and then they set about laundering their money. They laundered part of this money by using U.S. banks, and they also laundered it by using the Royal Bank of Canada. They then invested hundreds of millions of their ill-gotten gains into numerous ventures, including two oil companies. One is a Texas company called Harvest Natural Resources. They also bought 20% of a publicly traded Canadian company by the name of Pacific Rubiales Energy. Incidentally, thanks to their ownership of this Toronto-based company, they blocked the acquisition of that company by a Mexican business group. Having stopped that merger, the shares of Pacific Rubiales tumbled to historic lows, causing losses in the hundreds of millions of dollars in value for shareholders.
In Canada, these men don't operate under the name Derwick Associates. They operate under the name O'Hara Group. The names of these men are Leopoldo Alejandro Betancourt, Pédro José Trébbau, Francisco Convit, Orlando Alvarado, and Francisco D'Agostino Casado. This last individual is the brother-in-law of the president of the Venezuelan legislature. I'm familiar with the actions of these individuals, because I am one of the two plaintiffs in a lawsuit against them, where we include in our verified complaint detailed allegations of bribery, kickbacks, money laundering, and predicate acts that reveal them to be engaging in racketeering.
Distinguished members, any act of corruption in conjunction with an authoritarian government is by necessity an action that empowers the government and enables it to continue to violate human rights with impunity. It is an action that entrenches these authoritarians. In the case of Derwick Associates, to give one very clear example that involves Canada, they've carried out smear campaigns against whistle-blowers in four different countries, and they have corrupted the financial systems of Spain, Andorra, the United States, and Canada.
Authoritarian governments would be powerless if they didn't have enforcers willing to arbitrarily arrest, torture, and execute innocent people, but just as importantly, they need individuals willing to whitewash and launder dirty money and pay them kickbacks. Governments often target individuals who choose to become enforcers of brutality, injustice, and oppression; however, enablers of corruption, the clearly corrupt cronies like these men have remained largely spared from any sanctions.
The Canadian sanctions under the Special Economic Measures Act jointly with FACFOA is a program that should be strengthened to cover not only corrupt cronies in Tunisia, Ukraine, Russia, Burma, North Korea, Iran, Libya, South Sudan, Syria, and Zimbabwe, but also the corrupt cronies of Nicolás Maduro's government and many other governments around the world. Simple, targeted sanctions like visa denials and asset freezes, such as the one being discussed here today, have the potential to change the mindset of the financial enablers of the authoritarians and motivate them to abandon the oppressive political structures that they currently prop up.
Mr. Halvorssen, I truly appreciate the emphasis in your advocacy. I think it moves forward a point that we are trying to study, at least when we break it down.
With great respect, where I do see quite a large disservice in your advocacy is the tendency to mix up the issues with the facts at hand. We are studying a legislative scheme. It's FACFOA and SEMA, which deal with the sanctions Canada may impose on states or actors at the request of states, and the potential holes, which you identified specifically in the area of gross human rights violations and in corruption.
What I tend to hear from advocates such as you and others, for which you are obviously not responsible, is a tendency to commit this confusion of proceeds of crime with the opposite of ill-gotten assets, assets that are not tainted by criminality, and say that there is a hole somehow in Canadian legislation.
I don't like doing this, but let me read from the Criminal Code, which states quite clearly that, in Canada:
||Every one commits an offence who uses, transfers the possession of, sends or delivers to any person or place, transports, transmits, alters, disposes of or otherwise deals with, in any manner and by any means, any property or any proceeds of any property with intent to conceal or convert that property or those proceeds, knowing or believing that all or a part of that property or of those proceeds was obtained or derived directly or indirectly as a result of
||(a) the commission in Canada of a designated offence; or
||(b) an act or omission anywhere that, if it had occurred in Canada, would have constituted a designated offence.
Clearly, this, along with our well-documented money-laundering legislation, provides a pretty important net to catch people who are trying to hide assets in Canada that are derived from or are the proceeds of crime.
You may have legitimate arguments about the ability to seize assets. We have our own questions with respect to our own officials. You may have legitimate arguments with respect to people elsewhere who have committed gross human rights violations—quite disgusting ones, and we've heard a lot of evidence of that—but when it comes to ill-gotten gains, Canada has quite a tight regime. When it comes to SEMA and threats against international peace, it is quite a tight regime. It's the same thing with FACFOA, although the hole you identified was designated by the nature of the legislative scheme.
I think that when you are trying to address a very important point, there is a very important disservice done by mixing apples and oranges.
Obviously, you are cognizant of the fact that we are a pluralistic democratic country. We are often dealing with state actors or non-state actors who live under a regime that isn't the same as ours. We don't necessarily have the same tools at our disposal that a so-called kleptocracy may have, and we do have to follow the rule of law. What are your concerns with people or institutions that we may consider putting on lists, freezing their assets, which may have been gotten by legitimate means in Canada, and their ability to use our judicial system to abide by a very important rule in Canada, which they have in the United States as well, and in Britain, which is the rule of law and due process?
Let me start start off by saying that obviously, I'm not responsible for the confusions or conflation of issues in terms apples and oranges said by people who preceded me in this conversation. I will, however, own up to everything I've said.
Now, if the system that you describe in place exists and is tight, how is it possible that a group of Venezuelans was able to put hundreds of millions of dollars into your system? These people were not hiding. There had been multiple news articles about their crimes. It would not take very long to realize, in fact, that some of these news articles were on front pages of financial newspapers looking at these people who came out of nowhere and just bought 20% of Pacific Rubiales in Toronto. So in that sense, the system has in fact failed, and they are a perfect example. There is no question that all of their wealth is ill-gotten; they had none before this began, and there is no question that the power plants that they built, which, by the way, don't function, are an enormous scandal.
As for due process, I think that, much like in asset forfeiture situations, there are many cases where people have had their wealth taken from them and held, particularly at the local level, by zealous prosecutors or police who simply don't like the idea of people having a lot of cash, or immediately have a question mark about it. I am the first to advocate for a lot of scrutiny on the state when it comes to asset forfeiture, but we're not talking about going after a supermarket owner or going after someone who operates a cash business who may be suspected of being engaged in drug money laundering. We're talking about going after people like the Bongo family, who have hundreds of millions of dollars in real estate, including in Canada, homes that are worth $100 million euros in France, and so on and so forth. That is what I am addressing in those particular cases. I think due process should most definitely exist in the case of Obiang in France or in the United States when his son was unable to provide an explanation for how, with an $80,000-a-year salary as minister of forestry, he was able to buy one of the largest houses in Malibu, California, or for that matter, 16 race cars, and a home worth in excess of $120 million.
I don't think I'm off base in pointing out that one example that I happened to be involved with, the Derwick case, was a signal of that failure. I do think there are gaps. One of the main gaps, I think, is that it's a state actor which has to initiate it upon receipt of a notice from a government. Why can't private individuals be enough? If Mubarak steals tens of billions of dollars and invests it in Canada, clearly the Egyptian government is not going to be blowing the whistle on its own dictator, but if a private citizen does, then it is incumbent upon Canada. Of course Canada may say, “We like our relationship with Egypt”, which is why we should have a situation where you have enough division of power and a civil service to actually follow through on these matters.
So there are things to be criticized in what's presently on the table. Now, I'm not an expert in Canadian legislation, and I'm here to help as much as I can. I was invited to do this three days ago, so forgive me, I actually flew yesterday evening from California to London, and as soon as I arrived, I went to another engagement, so work with me here. I'm happy to come back again in the future, too.
Among the governments that I believe are using the might of government internationally to further discourage human rights abusers, different tools are being used by different governments.
I could enter into this from a different perspective, not from the point of view of sanctions. For instance, the Government of Sweden has been particularly excellent in using foreign aid or limiting foreign aid tied directly to corruption and tied directly to whether or not they believe that the government needs this money. In other words, if the government is putting most of its money in Swiss bank accounts or bank accounts in Andorra or Singapore, they certainly don't need Swedish foreign aid.
With regard to the sanctions regime, I do believe that in the last eight years the United States has made some significant progress. This progress is underlined by doing less of a country-broad approach and much more an approach aimed at specific individuals inside a government.
Again, I cannot stress enough how if you were to, beyond denouncing these individuals, have that tag, that scarlet letter, of being a human rights violator and being called that by a democratic government, it tends to set off a domino effect, because if they're denied visas to the United States, for instance, or to the United Kingdom or to France—if we're going to do the European Union—it sends a message that perhaps this is not someone we want.
Now, is there a risk that there might be a due process violation or that someone could be accused falsely? There certainly is that risk. However, a visa is a privilege. It's not a right for you to enter another country, so the bar certainly is lowered. That said, I do believe that directives can be written in such a way so as to ensure that if someone is unfairly smeared with human rights violations, as has occurred previously, this does not lead to a visa being pulled.
There are examples, such as the Magnitsky case, where it is beyond question that Sergei Magnitsky is dead, that he was murdered because he blew the whistle on a tax fraud case and that certain government officials were involved in his persecution, prosecution, and the cover-up. In going from the individual to the general, the Magnitsky case is excellent.
Again, I'm not someone who believes that government is in fact the answer to problems. My view is government tends to be the initiator of most problems and most certainly human rights violations around the world are committed mostly by governments. I'm wary of that fact, but I do think the United States has a large enough system and large enough structure that can be emulated and some of the best practices can be used and some of the worst, such as a very low bar for asset seizure can be reformed and made better.
The problem with multilateral sanctions is that they tend to be watered down, or people tend to wait until it's far too late, or until really all the teeth are taken out. You're dealing with so many different considerations at the same time.
I think unilateral sanctions are a great way and it's absolutely incumbent on democratic governments, whether it's Denmark or Canada, to push them through and to lead the way. Sometimes these lists are not necessarily going to be the same. Sometimes they will overlap and sometimes they will not, but they will bring some enormous value.
With me today, waiting for me outside, is Abdul Aziz al-Hamza, who is a member of Raqqa is Being Slaughtered Silently, a collective based out of Syria. When someone like that knows that you are talking about these issues and that you are taking specific action against certain government officials, in the Assad government for instance, it's a sea change of transformation to people on the front lines of the human rights fight.
Once individual actors in this are being identified, it sends a very strong message to people in that country. No one wants to be on one of these lists.
I would encourage you to have a list for each country that you think is problematic and then let the court of public opinion, let investigative journalism, and if there is a process that can be had, determine whether or not these people should or should not be on the list. These lists have enormous power. We're not talking about putting these people in prison by being on a list. It could be a visa sanction or it could be asset seizures. I think it's a very good thing and I highly encourage you to keep looking more into this.
Canada can be a world leader on this subject, especially if it also goes after the cronies, the people who are looting. Remember, no human rights violations would occur if it wasn't for loot. These people aren't violating human rights because they wish to rule over others. They're violating human rights because they wish to rule over others while they take the natural resources from those countries and hide them away, many times with Canadian companies helping them to do so.