Asset forfeiture in Latin America can be a powerful tool against organized crime, but one fraught with legal and moral pitfalls.
On October 7, 2015, the US Treasury Department’s Office of Foreign Assets Control (OFAC) placed the Honduran business behemoth Jaime Rosenthal Oliva, his son Yani and his nephew Yankel on the “Kingpin List,” labeling and sanctioning them “specially designated narcotics traffickers.”
The designation ran parallel to an indictment against the three and their lawyer, and it set into motion a series of seizures, including the Rosenthal-owned Continental Bank, which was the first ever OFAC designation of a bank. Working with the US Treasury, the Honduran government also seized a number of commercial companies and luxurious residences, among other things, La Prensa reported.
The message was clear, but so was the impact. As many as 12,000 people were put out of work. In a country where the World Bank estimated in 2016 that two-thirds of the population is living in poverty, and where the unemployment rate was 7.3 percent in 2015, this was a massive blow to the economy.
Moreover, the Rosenthals and their lawyer had not been convicted of any crimes. They responded by calling for Honduran authorities to “immediately stop the harassment and disproportionate measures [being taken] against the Continental Group and the Rosenthal family.”
The Rosenthal case put front and center the problems with asset forfeiture, the practice of seizing assets allegedly obtained through criminal means or used in the commission of crimes. While it can be an effective tool to undermine organized crime, it can also have high social and political costs. And, as the Rosenthals’ outcries illustrated, there is a decided lack of due process in many cases where it has been applied.
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Asset forfeiture policies are relatively new in Latin America. In 1996, Colombia became the first country in the region to implement an asset forfeiture law, later introducing reforms to it in 2014. Currently, 12 countries in the region have asset forfeiture laws in place, though a handful of others are considering implementing them or are in the process of doing so.
Typically, authorities use asset forfeiture laws in cases related to drug trafficking and money laundering. From the beginning, however, prosecutors are faced with obstacles. Sometimes illicit assets are clearly owned or used by criminals. In other instances, proving these ties is much more difficult.
These obstacles continue when it comes to prosecutions. Gaps in due process, difficulties in bilateral collaboration and outright corruption pose the greatest problems for prosecutors. These difficulties directly impact the effectiveness of these policies.
Regulations for asset forfeiture proceedings vary throughout the region, and in some cases a successful conviction is not required before illicit assets can be seized. This has raised concerns about abuses and lack of due process limiting these policies’ effectiveness.
As in the Rosenthal case, due process was called into question in Colombia after US and Colombian authorities seized hundreds of stores that were part of the Droguería La Rebaja drugstore chain.
OFAC designated the drugstore chain owners as specially designated narcotics traffickers with illicit links to Colombia’s Cali Cartel on September 14, 2004. Three days later, the Colombian government seized control of more than “400 stores in 28 cities across the country carrying the name Droguería La Rebaja,” according to the Associated Press.
This case raised the same moral and legal questions as that of the Rosenthals. After the seizures, thousands of Colombians were put out of work and due process was again called into question, leading to political and social fallout.
Eventually, Colombia’s Superintendent of Economic Solidarity (Superintendencia de la Economía Solidaria) took control of the business, later legalizing the drugstore chain. Today, the Droguería La Rebaja drugstore chain is one of Colombia’s largest chains of pharamacy stores with locations across the country.
In El Salvador, efforts are underway to improve due process as well.
In May, members of all three of El Salvador’s major political parties all signed an initiative to reform the country’s asset forfeiture law that would preserve the assets in question before a final judgement is handed down.
Under the current law, assets in question under precautionary measure go directly to the National Council of Property Administration (Consejo Nacional de Administración de Bienes – CONAB) without a definitive judgement being made first, La Prensa Gráfica reported.
However, El Salvador Attorney General Douglas Melendez feels there is some kind of “conspiracy” against the law that has prompted proposals to reform it, claiming that lawmakers only started to criticize the law after prosecutors started to target and freeze the assets of officials or large criminal networks. Still, the proposed reforms to the country’s asset forfeiture law were approved on July 18.
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While in some cases the assets in question are undoubtedly linked to criminal activities, in other cases it is not so clear. Reforms like the one in El Salvador should ideally force prosecutors to prove their case soundly before the assets can be seized. But even still, that can take years.
As it was in the Rosenthal case, the United States has tried to push asset forfeiture policies as an effective tool. Currently, the US has “bilateral executive agreements on forfeiture cooperation” with 20 countries in Latin America, including Colombia, the Dominican Republic, Ecuador and Mexico.
Bilateral cooperation has at times proven to be effective. In 2012, the US Attorney General’s Office agreed to share $6 million in forfeited funds with Mexico’s Attorney General’s Office after they provided “valuable cooperation” in a US money laundering case. Furthermore, after the United States and the Dominican Republic entered into a “Permanent Forfeited Asset-Sharing Agreement” in 2012, more than $3 million in assets have been shared since, according to the US State Department.
But sometimes cooperation is lacking, says former federal prosecutor Stefan Cassella, who was one of the US government’s leading experts on asset forfeiture law and handled many cases in Latin America. In his experience, Cassella says that he had the most difficulty prosecuting asset forfeiture cases when the crime was committed in one country but the property was located in another.
“The biggest obstacle to the effective prosecution of international cases with the aim of recovering proceeds is this inability to register and enforce each other’s forfeiture judgements,” Cassella told InSight Crime, adding that criminals “move money across borders with impunity, but we’re at times limited by sovereignty.”
There’s evidence to support his experiences. In a 2016 case involving the United States and El Salvador, a Florida judge found probable cause to initiate forfeiture proceedings with four aircraft thought to be illegally registered in the United States that were linked to an influential Salvadoran businessman, José Enrique Rais, and his alleged involvement in contraband and drug smuggling activities.
Just two months later, the same Florida judge ordered the return of several aircraft to Rais after the forfeiture case was dropped. Despite this, sources close to US federal authorities told InSight Crime at the time that Rais was still a “person of interest” for the Drug Enforcement Administration (DEA), in addition to being the “center of an investigation” by El Salvador’s ethics tribunal.
Even if the United States can iron out bilateral cooperational issues, due process is often still lacking. Trying to have more due process and actually having more due process are two very different things. In the Rosenthal case, for instance, there was no open investigation into their alleged illicit activities in Honduras.
Jaime Rosenthal’s son Yani, his nephew, Yankel, and his lawyer are in the United States facing the charges against them. Jaime Rosenthal remains in Honduras. As of August 2016, Honduran authorities had yet to make an assessment on the assets seized from the Rosenthals.
In an email to InSight Crime in 2015 prior to the release of the indictment, Jaime Rosenthal argued that his family was doing what they could.
“In Honduras it is very difficult to be wealthy and avoid suspicion of having made your money in illegal transactions,” he said. “People do not believe that you can be wealthy because of honest and hard work.”