The EU and UK are releasing the money of deposed dictators
Why is the EU lifting sanctions on politicians accused of corruption in Egypt, Tunisia and Ukraine, when so little money has been recovered?
On 12 March, the EU lifted sanctions against nine Egyptians alleged to have been responsible for the misappropriation of Egyptian state funds and unfroze the suspected proceeds of corruption, claiming that "the regime had served its purpose".
The sanctions were imposed ten years ago, in 2011, with the stated purpose of helping the Egyptian authorities recover misappropriated state assets.
This action follows another EU decision, earlier in March, to reduce the number of people sanctioned for misappropriation of Ukrainian state funds, and the UK’s decision not to roll over any EU sanctions into its own post-Brexit sanctions regime.
When the transition period ended on 31 December, the UK adopted its own legislation in line with the previous EU framework, allowing it to sanction individuals accused of the misappropriation of state assets. However, it did not immediately sanction anyone under this new regime. As a consequence, none of the individuals previously sanctioned in Tunisia and Egypt by the EU are subject to sanctions by the UK.
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The reality is that very little in the way of money or assets has been returned to the people of Egypt, Tunisia and Ukraine, the three countries originally placed under EU sanctions.
What went wrong and can we really hail the sanctions as a success?
The EU imposed sanctions on the former presidents of Tunisia and Egypt (both in 2011) and Ukraine (2014), as well as their families and close circles of advisers, after the revolutions in each country ousted the leaders from power.
In each case, there were allegations of high levels of corruption. European sanctions to freeze the assets of certain individuals were seen as both a political signal of support aimed at stabilising the situation in the three countries and a way to prevent the exodus of any money and other assets hidden in the EU.
The idea was that after the sanctioned individuals were successfully convicted of corruption in their home countries, the assets would be released and returned to the people from whom they were initially stolen. However, the reality proved very different.
Very little money returned
Take the Egyptian case, for example. Around $664m of the billions allegedly misappropriated and hidden abroad by the former president, Hosni Mubarak, and his clan were found – and frozen – in Swiss banks. But the total size of the allegedly misappropriated funds is still unclear, since European countries provided only piecemeal information about the assets frozen on their territories.
Very little of the frozen money has been returned to the Egyptian state or its citizens. Instead, over time the money has been released – though without much explanation of who the beneficiaries are.
Spain froze $28m worth of assets including upmarket properties in Madrid and Marbella, luxury cars, cash and financial investments. However, none of the money was returned to Egypt. More than €100m linked to Mubarak was also found and frozen in the UK, but, again, the Egyptian people have not received any of this money.
The only successful recovery of assets came after the Egyptian authorities offered immunity from prosecution to sanctioned individuals if they restored missing funds. Following these agreements, Switzerland returned about $183m to Egypt in 2016, followed by another $34m two years later.
Although the sanctions were successful at signalling support for the new rulers in each country, they did not lead to the return of assets. The EU did not carry out any investigations relating to the sanctions. Instead, the designations relied on evidence of corrupt conduct from the three counties, all of which were going through substantial and difficult transitions after the ousting of their former presidents.
The EU reviews sanctions on an annual basis, so some individuals were delisted over time due to insufficient evidence – either from outside the EU or because of a lack of substantive investigations within the EU.
It’s hard to agree with the EU that the sanctions against Egypt have ‘served their purpose’
The EU also faced legal challenges from those involved. All 22 of the sanctioned Ukrainians challenged their sanctions at the European Court of Justice (ECJ), claiming lack of evidence. In some instances, they were successful and the EU had to drop their name from the sanctions list. Others achieved only a partial annulment. The ECJ still upheld recently renewed sanctions, where the evidence was stronger.
For example, the Mubarak family successfully challenged sanctions imposed between 2016 and 2018, and these were annulled on 3 December 2020. But the 2019-2020 sanctions remained and therefore any funds linked to the Mubarak family stayed frozen. Though not for long: on 12 March, all the Egypt sanctions were lifted.
Dirty money in European countries
After ten years of these hurdles, the EU’s decision to remove the Egyptian sanctions and reduce the Ukrainian sanctions hardly comes as a surprise. The way the sanctions were initially set up was clearly not working from the EU’s perspective.
In light of this, it’s hard to agree with the European Council that the sanctions have “served their purpose”. However, the question we should ask now is: how do we ensure a more successful process next time?
Corruption is notoriously hard to prove. The past decade has taught us that it is a mistake to place the whole burden of proof of corruption on countries in a state of transition, when they are facing their own political and institutional challenges, and have limited capacity to conduct financial investigations.
European countries are not only better equipped to conduct money laundering investigations, they also have a moral and legal obligation to support the asset recovery of dirty money that has made its way into their financial systems.
They need to be more proactive in helping other countries recover their stolen money. For example, by supporting them to use civil (rather than criminal) legal proceedings or empowering tax authorities to seize undeclared assets.
Only when the recovery of corruption money linked to sanctions becomes the rule, rather than the exception, will sanctions have truly served their purpose.
Update, 25 May 2021: This article has been edited to clarify that allegations that the Mubarak family misappropriated Egyptian state funds have not been proven. We have also removed a statement about the beneficiaries of the funds released by Swiss banks. In addition, we have clarified an error about the timing of the annulment of European sanctions.
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