Potentate funds and the return of stolen assets

Marcos: the freeze of 1986

The development of Swiss money laundering law ran in parallel with a second line of practice that concerned the assets of deposed rulers. Its starting point was the fall of Ferdinand Marcos. In February 1986, after twenty years in power, Marcos fled the Philippines for Hawaii. Within weeks it became clear that he and his associates held large sums in Swiss banks. The Federal Banking Commission issued a preliminary warning to the banks on 21 March 1986, after the Kreditanstalt had alerted it to an attempt to withdraw funds. On 24 March 1986 the Federal Council ordered a preventive freeze of the Marcos accounts.¹ The legal basis was the Federal Council's power under the Federal Constitution to take measures to safeguard the country's interests in foreign relations, a form of emergency law that remained controversial.

The freeze was a political act, and it had to be converted into a legal procedure. The Philippine government submitted requests for mutual legal assistance in criminal matters, which were executed in the cantons of Zurich, Fribourg and Geneva. The assets were held with the Swiss Bank Corporation in Geneva and Fribourg and with the Kreditanstalt in Zurich, in the names of foundations and companies with names such as Aguamina Corporation, Avertina and Vibur.² In the canton of Zurich the competent authority was the Bezirksanwaltschaft Zürich, the district public prosecutor's office. The case therefore brought Zurich's criminal justice authorities into the centre of one of the largest asset recovery procedures of the century.

On 21 December 1990 the Federal Supreme Court approved the transfer of bank documents and the principle of returning the assets, but made the release conditional on a final judgment in the Philippines. The Philippine proceedings dragged on for years. On 21 August 1995 the Zurich district attorney ordered the early release of the assets to an escrow account of the Philippine National Bank, on the basis of an escrow agreement of 14 August 1995. On 20 February 1997 the Zurich Obergericht reversed that decision. In the meantime Parliament had amended the Federal Act on International Mutual Assistance in Criminal Matters by an Act of 4 October 1996, which introduced Article 74a on the surrender of assets for the purpose of confiscation or restitution.³

BGE 123 II 595: the leading decision

In its judgment of 10 December 1997, the Federal Supreme Court allowed the early surrender of the Marcos assets. It held that an early release was not excluded from the outset if it was ensured that the decision on confiscation or restitution would be taken in proceedings that met the standards of the rule of law. The court attached conditions. The Philippines had to guarantee that the decision on confiscation or restitution would be taken by a court in proceedings consistent with the procedural guarantees of the International Covenant on Civil and Political Rights, that the procedural rights of the defendants and of the formal holders of the assets would be respected, and that the Swiss authorities would be kept regularly informed of the proceedings and of the measures to compensate victims.⁴

The decision was important for two reasons. It established that Switzerland could return assets before the requesting state had completed its own proceedings, provided the criminal origin of the assets was evident and fair procedures were guaranteed. It also turned the conditions of return into a matter of law. From then on, every restitution involved an assessment of the requesting state's judicial system and, increasingly, an agreement on how the returned money would be used. In June 1998 around 683 million francs were transferred to Manila. A final tranche of some ten million francs followed in 2009. A Swiss diplomat later admitted that Switzerland had arrived at its role in asset recovery almost by accident. The phrase she used was “wie die Jungfrau zum Kind”.⁵

Abacha: the test of the Anti-Money Laundering Act

General Sani Abacha ruled Nigeria from 1993 until his death in June 1998. His regime was estimated to have diverted more than 2.2 billion dollars of state funds. After his death the new Nigerian government asked Switzerland for mutual legal assistance. In 1999 around 700 million dollars were frozen in Switzerland on some 140 accounts. Separate proceedings concerned about 350 million dollars that had been blocked in Luxembourg and elsewhere in connection with proceedings against Abacha's sons.⁶

The Abacha case put the banks' due diligence under a spotlight. On 4 September 2000 the Federal Banking Commission published a report on Abacha funds at Swiss banks. It had examined nineteen banks, which held around 660 million dollars at the end of 1999, of which around 115 million had since been released. The Commission found serious failings at Credit Suisse, Crédit Agricole Indosuez (Suisse), Union Bancaire Privée and M.M. Warburg Bank (Schweiz), as well as at Bank Hofmann and Bank Leu, two subsidiaries of the Credit Suisse Group. The failings included a gross misjudgement of customer relationships, ignoring indications of a possible dubious origin of funds and failing to pass important information up the hierarchy. The Commission ordered special audits and stressed that banks had to exercise particular care in relations with customers from a country as prone to corruption as Nigeria.⁷ Several of the institutions concerned had their head offices in Zurich. For Credit Suisse, the successor of the Kreditanstalt of the Chiasso years, the report was a painful reminder of 1977.

The return of the Abacha funds took several years. In December 2003 a first transfer of 85 million dollars was made, followed in April 2004 by a further 200 million dollars. In August 2004 the Federal Office of Justice ordered the return of the remaining blocked assets. In its decision of 7 February 2005 the Federal Supreme Court confirmed that the greater part of the funds were of obviously criminal origin. Further transfers of 290 million dollars in September 2005 and 170 million dollars announced in November 2005 closed the first chapter. The Bank for International Settlements in Basel acted as intermediary and credited the funds to the Central Bank of Nigeria. Heinrich Koller, the director of the Federal Office of Justice, stated that Switzerland was the first country to return Abacha funds on the basis of an official decision.⁸ Swissinfo later described the return of around 700 million dollars as the highest amount returned worldwide in an asset recovery procedure at that time.⁹

The return itself became controversial. Non-governmental organisations and the World Bank found that part of the money had been attributed to development projects that had already been completed at the time of restitution, and Public Eye criticised the absence of safeguards for the use of the funds.¹⁰ The criticism shaped the second Abacha restitution. After a Swiss court authorised the repatriation of further Abacha assets in December 2014, Switzerland, Nigeria and the World Bank signed a memorandum of understanding on 4 December 2017. It provided for the return of 321 million dollars through the National Social Safety Net Project, which funded targeted cash transfers to poor and vulnerable Nigerians. The World Bank monitored the use of the funds, and civil society organisations provided independent monitoring.¹¹ The contrast between the two tranches shows how the practice matured: from a transfer between central banks to a monitored programme with defined beneficiaries.

Montesinos: a Zurich case

The case of Vladimiro Montesinos showed the Anti-Money Laundering Act working as intended. Montesinos had been head of the Peruvian intelligence service under President Alberto Fujimori from 1990 to 2000. In October 2000, as the Fujimori regime collapsed, Swiss banks reported accounts connected with Montesinos and with the former commander of the armed forces, General Nicolás de Bari Hermoza Ríos, to the Money Laundering Reporting Office. The funds were frozen and an investigation opened in Zurich.¹² The investigation was led by the Zurich district prosecutor Cornelia Cova. The funds largely originated from commissions on arms purchases, and Montesinos was reported to have received a commission of eighteen per cent on weapons transactions since 1990.¹³

On 12 June 2002 the Zurich authorities decided to return the funds to Peru. On 20 August 2002, 77.5 million dollars were transferred, comprising 49.5 million dollars from Montesinos's accounts and 21 million dollars from the accounts of General Hermoza Ríos, among other sums. The Federal Office of Justice emphasised the efficient cooperation between Switzerland and Peru, which had begun in November 2000, and presented the case as evidence of the effectiveness of Swiss anti-money-laundering law.¹⁴ Swissinfo described Switzerland as the first country to have made a repatriation possible by its own confiscation decision in this case, with further tranches following in 2006, 2017 and 2020.¹⁵ The sequence of events, from the bank's report to the confiscation and return, ran through the institutions that the legislation of 1990 and 1997 had created. The reporting duty brought the case to light, the reporting office passed it to the prosecutor, and the Zurich criminal justice authorities decided on confiscation and return.

Duvalier and the legislation on potentate funds

Not every case ended so smoothly. Jean-Claude Duvalier, who had ruled Haiti from 1971 until he fled to France in 1986, kept assets worth several million francs in Switzerland. The assets were frozen in 2002. Because the Haitian state was unable to conduct criminal proceedings that met the standards required for mutual legal assistance, the Federal Supreme Court held on 12 January 2010 that the assistance proceedings could not continue. Without a new legal basis, the assets would have been released to the Duvalier family.¹⁶

Parliament responded with the Federal Act of 1 October 2010 on the Restitution of Illicit Assets of Politically Exposed Persons, known as the “Lex Duvalier”, which entered into force on 1 February 2011. It allowed the Federal Council to block assets and to seek their confiscation before the Federal Administrative Court when mutual legal assistance failed because of the collapse of state structures in the country of origin. It also reversed the burden of proof, so that the holders had to demonstrate the lawful origin of the assets.¹⁷ In September 2013 the Federal Administrative Court confirmed the confiscation of the Duvalier assets.¹⁸ The Lex Duvalier was replaced by the Federal Act of 18 December 2015 on the Freezing and the Restitution of Illicit Assets held by Foreign Politically Exposed Persons, which entered into force on 1 July 2016. Its Article 17 states that restitution aims to improve the living conditions of the population of the country of origin or to strengthen the rule of law there.¹⁹ The application of this statute belongs to Part I of this book.

Notes

1. swissinfo.ch, “Sperrung von Potentatengeldern: Der Fall Ferdinand Marcos war für die Schweiz ein Lehrstück”, https://www.swissinfo.ch/ger/schweizer-position/sperrung-von-potentatengeldern-der-fall-ferdinand-marcos-war-f%C3%BCr-die-schweiz-ein-lehrst%C3%BCck/91084790. The article names the state secretaries Edouard Brunner and Cornelio Sommaruga as the architects of the decision and discusses the constitutional basis in Article 102 of the Federal Constitution of 1874. ↩
2. Federal Supreme Court, BGE 123 II 595 of 10 December 1997, facts, https://www.servat.unibe.ch/Dfr/bge/c2123595.html. ↩
3. BGE 123 II 595 (above), facts, referring to the earlier decision BGE 116 Ib 452 of 21 December 1990. ↩
4. BGE 123 II 595 (above). The frozen assets amounted to around USD 1.96 billion including accrued interest, according to the summary of the decision. ↩
5. swissinfo.ch, “Der Fall Ferdinand Marcos war für die Schweiz ein Lehrstück” (above), for the transfers of 1998 and 2009 and for the remark by the diplomat Pascale Baeriswyl in 2016. ↩
6. Public Eye, “Die Abacha-Gelder”, https://www.publiceye.ch/de/themen/archiv/potentatengelder/abacha-gelder. ↩
7. Federal Banking Commission, press release “Abacha funds at Swiss banks”, 4 September 2000, https://www.finma.ch/finmaarchiv/ebk/e/archiv/2000/pdf/neu14a-00.pdf. ↩
8. swissinfo.ch, “Abacha-Gelder kehren nach Nigeria zurück”, 16 February 2005, https://www.swissinfo.ch/ger/leben-und-altern/abacha-gelder-kehren-nach-nigeria-zurueck/4362990, for the transfers of 2003 and 2004, the decisions of 2004 and 2005 and the statement by Heinrich Koller; swissinfo.ch, “Schweiz schliesst Kapitel um Abacha-Gelder”, 2 November 2005, https://www.swissinfo.ch/ger/schweiz-schliesst-kapitel-um-abacha-gelder/4823362, for the transfers of 2005 and the role of the Bank for International Settlements. ↩
9. swissinfo.ch, Sibilla Bondolfi and Ester Unterfinger, “Die grossen Fluchtgeldaffären in der Schweiz”, 5 April 2022, https://swissinfo.ch/ger/die-grossen-fluchtgeldaffaeren-in-der-schweiz/47376784. ↩
10. Public Eye, “Die Abacha-Gelder” (above). ↩
11. World Bank, “World Bank Monitoring of Repatriated Abacha Funds”, factsheet, 4 December 2017, https://www.worldbank.org/en/news/factsheet/2017/12/04/world-bank-monitoring-of-repatriated-abacha-funds; swissinfo.ch, “Switzerland to return $321 million to Nigeria”, 5 December 2017, https://swissinfo.ch/eng/abacha-funds_switzerland-to-return--321-million-to-nigeria/43728534. ↩
12. Stolen Asset Recovery Initiative (StAR), “Vladimiro Montesinos (Switzerland chapter)”, https://star.worldbank.org/asset-recovery-watch-database/vladimiro-montesinos-switzerland-chapter. ↩
13. swissinfo.ch, “Gewaschene Gelder zurück an Peru”, 20 August 2002, https://www.swissinfo.ch/ger/demografie/gewaschene-gelder-zurueck-an-peru/2882336. ↩
14. swissinfo.ch, “Gewaschene Gelder zurück an Peru” (above). ↩
15. swissinfo.ch, Bondolfi and Unterfinger, “Die grossen Fluchtgeldaffären” (above). StAR (above) records a return of USD 16.3 million in 2020. ↩
16. StAR, “Jean Claude ‘Baby Doc’ Duvalier (Switzerland chapter)”, https://star.worldbank.org/asset-recovery-watch-database/jean-claude-baby-doc-duvalier-switzerland-chapter. ↩
17. swissinfo.ch, “‘Duvalier Law’ enters into force”, 1 February 2011, https://www.swissinfo.ch/eng/swiss-politics/duvalier-law-enters-into-force/29395684. ↩
18. StAR, “Duvalier (Switzerland chapter)” (above). ↩
19. Federal Act on the Freezing and the Restitution of Illicit Assets held by Foreign Politically Exposed Persons (SRVG/FIAA), SR 196.1, Articles 1, 3, 4, 17, 18 and 31, https://www.lexfind.ch/tolv/258496/de. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of September 2025.