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Asset Forfeitures:The Free Market and Property Rights

Eze Nwagbaraji

As Cecilia Ibru goes to prison for bank fraud as a result of her plea bargain, the Economic and Financial Crime Commission (EFCC) prosecutors have shown that they can score victory in the prosecution of those who basically loot financial institutions.

It provides an initial victory for the Lamido Sanusi led Central Bank of Nigeria (CBN), who had waged a relentless battle on the financial institutions’ managers overbearing conducts.

As damning as Cecilia Ibru’s case is to the functioning of our free market system, it does not obliterate the fundamental questions of where were the market regulators who signed on to some of the reports that are now public records, the auditors who complied with her requests on them, the Board of Directors and members of the Executive Committees of her vast enterprises, etc. These were professionals with fiduciary responsibilities to act. Ibru’s conviction is a conclusive statement that these professionals failed in their fiduciary responsibilities to the shareholders of companies she ran.

In accepting her plea bargain with the prosecutors, His Lordship, Justice Dan Abutu, went along with the recommendations that assets forfeited by her be consigned to the Asset Management Corporation of Nigeria (AMCON) for management, an Agency of the Federal Government. Both the Prosecution and the Learned Justice did not address the proper question as to who does these assets belong to.

As fruits of a fraud, these assets were acquired with stolen money, taken from the owners of such institutions as Oceanic Bank. Because the case did not go to trial, where all the detailed sources of the funds would have been raised through testimonies, examinations and cross examination of the defendant and witnesses, market efficiency required that the Prosecution and the Court at its minimum take into consideration the beneficial interests of the owners of the stolen funds before such assets could be consigned to a Federal Agency.

Assets Subject to Forfeiture
These are assets or properties used to facilitate a crime. For example, cars used to transport narcotics, smuggle guns, or banned weapons.

The primary reasons for supporting government confiscation of these properties are that they are the proceeds of a crime or instrumentalities of criminal acts and that the government has to protect the public interests by seizing gains derived from these acts. When a criminal actor steals a car from a an innocent owner, then uses such car in gun running or narcotics smuggling, confiscating the car after apprehending the criminal is not within the anticipated purview of asset forfeitures.

Asset forfeiture operates as a deterrent against criminal conduct. It is an attempt to deprive the criminal the fruit of the poisonous conduct, where the act is the poison while the fruit of such poisonous acts are the assets that are being confiscated.

Asset forfeiture laws in most jurisdictions such as the United Kingdom, the United States of America, Australia, Italy, and South Africa can either be pursued through the criminal or civil courts.

In cases, such as the one against Cecilia Ibru, asset forfeiture is almost a collateral issue. It is a punitive sanction that does not necessarily have to point to a particular asset (though in the Ibru case specific assets were seized pursuant to the plea agreement).

All that the prosecution need to prove is some quantity of money or ill gotten wealth and virtually all the convict’s assets would be open to seizure to the extent necessary to assuage the monetary damage. This is not the case in civil asset forfeiture proceedings, where the litigation had to be particularized.

The prosecution in a civil asset litigation case must sue each of the assets in question (as is the case in the United States), in other words, the prosecution will bring a case against a particular property, alleging that such property was a fruit of a poisonous conduct (criminal conduct). Upon proof, the courts will allow such property to be seized by the government. The defendant does not need to be found guilty of any crime.

Whether criminal or civil, the purposes of asset forfeiture laws are the same. They are meant to deprive the defendant the benefits of the crime. However, they are never to punish the innocent victims of the criminal’s conduct. The consignment of all the forfeited Ibru properties to AMCON operates as a punishment to the shareholders of the corporations that she deprived to acquire the assets. These shareholders did not get the opportunity to contest the forfeiture nor were they given the proper procedural requirements inherent under our laws that would have afforded ample opportunity for them to be heard.

It is proper for the prosecution and indeed the Court to ensure that property interests of third party victims are not affected by our forfeiture laws, especially where a defendant is eager to reach a plea.

The right of third party owners to notice and hearing in the disposal of their interests was usurped in the Ibru case. This is also antithetical to the constitutional guarantee that protects citizens against loss of their properties without compensation.

Democratic ideals and free markets are intertwined. Our democracy will be stunted in all attempts to interfere with the normal functioning of the free market. Free markets on the other hand are a collective call on private economic agents to become participants in our economy. What these private agents put into our free markets become property rights that require collective protection against expropriation either through well intentioned public policies or debasements through the criminal acts of individuals or groups.
The public outrage over the looting of corporate assets was not necessarily in sympathy with regulatory agents who uncovered the acts. The outrage was primarily in sympathy with shareholders who had committed private funds as investors in those corporations. The regulatory agents, the Central Bank of Nigeria, had a duty to the public to uncover these acts as part of their function to protect shareholders and depositors who had put their resources in trust into the banks. To be effective regulators, the CBN must consistently work to deter these criminal acts.

Effective regulation is not synonymous to conviction after the crime had been committed. It is only coterminous, where rigorous efforts to regulate have been out-maneuvered. Hence the regulator then wields the instruments of criminal prosecution that leads to criminal forfeiture of the ill gotten wealth.

As the palladium of our individual rights and the rock of our collective political salvation, the constitution amply anticipated situations where the government pursues a favorite policy with zealous melancholy; thereby overlooking the means through which such policy is achieved. These occasions, where the barriers of government and the boundaries of the constitution are defaced, are the primary reasons for the constitutional guarantees such as the admonitions against expropriation of private property rights without adequate compensation.

Human history is not bereft of men who espouse to their fellow men that they mean to be good masters, but they turn out to be masters. They intend to be good governors, but they turn out to govern and lord it over their fellow men. The Nigerian constitution in its strictest sense is our collective contract to shield everyone against the dangers of good intentions.
In pursuit of those who have debased the integrity of our financial institutions, we must take cognizance of the boundaries of our constitutional guarantees. Each crisis creates its own fears and supports necessary for public sympathy and outrage, which lead the public to believe that extreme regulatory action is necessary.

However, the danger lie in the truth that extreme governmental power, once accepted as a tranquilizer to deal with any issue, becomes difficult to dissolve. Even courts sometimes, go along with such extreme positions.

The Fiduciary Duty to Act
Cecilia Ibru’s conviction is pursuant to a plea bargain reached between the prosecution and the defendant. There are no appealable issues in the case because it was a valid contract between the defendant and the prosecution, which the court accepted.

Directors of the companies and or corporations that she has been convicted of looting have a duty to act individually or collectively to recoup some or all of the losses suffered by the companies or corporation.

The Securities and Exchange Commission (SEC) as a primarily market regulator has a duty to act both on behalf of the market and the investors in such public corporations to protect the investors and sustain market integrity.

For both the Directors and the SEC, civil actions seeking to either hold the forfeited assets in abeyance while the proper owners of the assets are ascertained are necessary to carry out their fiduciary responsibilities to the shareholders and the market.

AMCON, which the court had handed the properties to are not the proper representatives of the asset owners. There is also the fundamental issue whether the enabling law that created AMCON empowers the courts to assign private properties to the Agency.

Are these forfeited assets the toxic assets contemplated under the enabling law that created AMCON? Is AMCON management of the assets directed at distributing its proceeds to the shareholders of the affected corporations? The SEC and the Directors of these affected corporations have a fiduciary responsibility to ascertain through appropriate civil litigations, the answers to these questions.

The intent of the AMCON is not to expropriate legitimate property rights or to debase the integrity of our markets. However, it is the SEC, the Directors, and Shareholders of these corporations that have the standing to bring these cases before our courts.

The decisions of Justice Abutu in the conviction should not be the final decision on this matter.  The fiduciary duty of a director, even if such director was appointed by the CBN, is not to the CBN. It is to the corporate entity and its shareholders. For the SEC., it is to the market and shareholders. These fiduciary duties are to protect the interests against all.


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