Friday, February 17, 2017

"Sovereign Conduct on the Margins of the Law" Notes From the Symposium Hosted by the Vanderbilt Journal of Transnational Law



Issues surrounding sovereignty have received increasing attention over the last few years, most recently in Congress’s decision regarding Saudi Arabian immunity. The Vanderbilt Journal of Transnational Law hosted four panels around the themes of legalization of sovereignty within globalization. Sovereign conduct is considered at the margins of the public and private spheres, and at the juncture of law and politics especially in the transnational sphere. More specifically the issues coalesce around sovereign power and money--finance and economics. The panels explored various facets of these issues, such as: the involvement of sovereigns in cyber-crime; terrorism financing, the immunity aspects of state owned enterprises; and the problems surrounding sovereign debt crises. Participants in these panels included practitioners and academics with expertise in each of these topics. This symposium was held at the Vanderbilt Law School on Friday February 17, 2017.

This post includes the Conference Program and summary observations on each of the presentations, all of which follow, below. 



SCHEDULE OF EVENTS

FRIDAY
7:00 a.m. – 8:45 a.m. Breakfast and Registration

9:00 a.m. – 9:15 a.m.Opening Remarks

9:15 a.m. – 10:45 a.m.
Panel #1 | Analyzing the Argentinian Debt Crisis 11:00 a.m. – 11:45 p.m.

Lunch

12:00 p.m. – 1:45 p.m.
Panel #2 | The Intersection of Cybercrime and State-Sponsored Actions

2:00 p.m. – 3:15 p.m.
Panel #3 | The Immunity of State-Owned Enterprises 3:30 p.m. – 4:30 p.m.

Panel #4 | Terrorism Financing and Banking Regulations
4:30 p.m. – 6:00 p.m.

Reception

__________


Panel #1 | Analyzing the Argentinian Debt Crisis





Moderator Prof. Ingrid Wuerth


Prof. Anna Gelpern (Georgetown University Law Center)

Presentation: "Domestic Bonds, Alien Comforts." Focused on what is durable about the Argentina sovereign default and its legalized repercussions. What is left after the smoke clears: the nob of what is durable is the development of the enforcement techniques forged through the litigation.  That, then, served as the focus of her remarks. The major points raised were (1) EM sovereigns shift to domestic debt; (2) domestic-external distinction is more unstable and incoherent; (3) the attributes of debt must be unpacked (residency, currency, law, location and exclusion, (4) case studies from Russia, Argentina and Greece, and then (5) what might be coming. Historically most sovereign debt is trending toward domestic with less foreign debt holders.


Consider the traditional thinking of the ramifications of domestic debt included debt issued by a state and held by its citizens. Yet that may be misleading as globalization reduces barriers to local private purchase by foreigners. Thus, unbundling debt reveals a number of issues--from residence issues, location issues, governing law and currency control over value. Issue foreign currency debt to foreigners used to mean a commitment to repayment; the opposite for domestic debt.  But unbundling suggests that the old categories no longer apply usefully as characteristics are reshuffled. The ultimate issue, of course, is the extent to which these factors help understand the risk to debtholders of sovereign debt with peculiar attributes and (for IFIs) the issue turns on the stability of peculiar debt structures for macro economic planning. She then suggested the effect by looking at the Argentina "detour" of 2012 and the focus on the location of clearing banks. She noted the US court determination that bonds governed by Argentine law but playable in US dollars qualifies as external indebtedness.   What does this tell us about domestic and external debt.  As a creditor is it all about location of execution? residence of agents&intermediaries? Broader lesson if you want to enforce against the sovereign one must find actors other than the sovereign that the sovereign needs and it is against these that one may most usefully act. 
Professor Gelpern has published articles on financial integration, debt contracts, and development and has coauthored a textbook on International Finance. In addition, she has contributed to international initiatives on financial reform and sovereign borrow- ing, most recently as an expert for the United Nations Conference on Trade and Development.

Prof. Rodrigo Olivares-Caminal (Queen Mary University of London’s Centre for Commercial Law Studies)

Presentation: "The Past, Present, and Future of the Pari Passu Clause." He made two principal points:  (1) uncertainty around the clause even after over a decade of engagement and (2) highlights the limitations of the clause in the light of growing complexity of transactions and multiplicity of actors. Object is to ignite debate rather than point to solutions.  Pari passu focuses on ranking, of equal ranking among equals in the context where multiple debt instruments must be ordered and the rights of debt holders of a class must be arranged. Pari passu--bonds run equal with each other and or bonds run equal to other debt instruments. A prime issue is the character of the clause as a payment clause (when one is paid all are paid) or something broader. Looked to the history of the clause from 1843 and its interpretive journey , especially with respect to the debt payments failures of the 21st century. For the broader reading he considered the default of Argentine 1994 binds and the 2011 SDNY court order determining that the 2010 second exchange offer breached the pari passu clause to the extent that Argentina would pay debtors who agreed to exchange over those who declined. The impacts touched on both the interpretation of the clause but also complex issues of jurisdiction of courts seized with jurisdiction in or around the matter in other jurisdictions. But that still leaves the issue of the issue of ranking versus payment around which pari passu litigation (and drafting) currently revolves. He then compared priority orders in corporate sector and in sovereign debt restructuring noting the substantial differences among them.

Among the most important is the super priority of public debt, especially IFI lending. That tends to drive private lending out. Conclusion, pari passu not worth the paper it is written on in terms of its effectiveness nor utility. It generates huge transaction and legal costs adding little substantive rights or solutions.
Professor Olivares-Caminal specializes in international finance and insolvency law. He has acted as a Sovereign Debt Expert for the United Nations Conference on Trade and Development and as a Senior Insolvency Expert for the World Bank/IFC. He also consults for various multilateral institutions, law firms, central banks, and sover- eign states around the world.

Prof. Tim Samples (University of Georgia’s Terry College of Business)

Presentation: Topic is the tribunalization of sovereign debt disputes. It thus focused on private and judicial conduct at the margins of the law in the Argentine debt litigation.  This is part of the larger trend toward the judicialization of the transnational sphere around the structures of legalized rules applicable increasingly to states. Underlying issues is legal coercion of behavior among sovereigns the core character of which is the ability to resist coercion through law. Started with a short history of arbitration of sovereign defaults through ICSID. He then touched on some of its consequences.  One is the naturalness of this development in the case of investors seeking means of coercing state compliance with sovereign obligations (against the traditional right to breach). It acquires the characrer of regulatory arbitration--something quite new.  Tribunalization, then, doesn't relate as much to specific claims as it is used to create a web of governance norms around which states are expected to mold behavior. But he is skeptical of these claims.Adding another forum is unlikely to resolve problems nor will it add a useful regulatory layer.  It might reduce flexibility in administration nor provide the sort of stable regulatory substitute that its advocates hope.
Professor Samples’ current research explores legal issues in the areas of sovereign finance and investor-state relations. On Argentina, he has researched the pari passu saga in U.S. courts, Argentina’s experience with GDP-linked instruments (with Stephen Kim Park), and the 2016 settlement (with Juan José Cruces).

Prof. Veronica Santarosa (University of Michigan Law School)

Presentation: How does 19th and 20th century state actors could float sovereign debt in cultures of absolute immunity? Look at historical precedent, using market for sovereign debt in London pre-1929.  Sovereign bond contracts included a number of protective clauses but the focus was on security for the loan. But why write long convoluted contracts in an era where they would not be enforceable in courts?  The answer was the growth of societal structures (markets) providing extra legal enforcement--a lex mercatoria for sovereign debt? At the center was the stock exchange.  How did they enforce: (1) by refusing listing of bonds by defaulting states (substantial negative effects for states seeking money); (2) underwriters were also subject to sanctions; (3) reputational sanctions for banks. These governance rules were then applied through quasi judicial tribunals. Corporation of foreign bond holders had various tools: (1) information, (2) sanctions, (3) monitoring, (4) coordination among bond holders.  As a result sovereigns rarely released collateral but relied on these societally sourced regulatory structures. Functional parallelism to modern structures, though grounded in entirely distinct sensibilities.  It does suggest that there are alternative methods in societal systems especially in the failure of public legalization of sovereign lending, at least as a historical fact. She noted the value of pari passu clauses as a signalling device (contrast Rodrigo Olivares-Caminal). The object, of course is to work through societal or legalized systems that produce working markets for debt beyond the legal structures of the actors for which it might be useful to reconsider the early 20th century rules, mechanisms, and structures for rethinking trends in legalized sovereign debt structures.  [I also wonder what might happen if the entire legalized structure of sovereign default mechanisms were wiped away; would a robust societally effective governabce regime re-emerge?]. She ended with suggestions about the value of such an exercise int he context of the Argentine sovereign default.
Professor Santarosa’s research interests include law and economics, financial economic history, and law and development. Her current projects empirically and theoretically examine how legal innovations and political institutions affect firms and financial markets now and throughout history.

Prof. Mark Weidemaier (UNC Chapel Hill Law School)

Presentation: Venezuela and sovereign debt was the focus of the presentation. Started with reinforcing the insight of Anna Gelpern that in order to hold the sovereign accountable one must be able to reach non sovereign intermediaries on which the sovereign relies for the source or management of its debt. He seeks to identify those intermediaries and then complicates it by considering the problem when these intermediaries themselves are state organs with separate legal personalities. The context for consideration was Venezuela. Venezuela is interesting because of the character of the determination of debtors and their principal technique--not principally to get their money back through asset seizures but to shut a defaulting sovereign out of debt markets (the point raised in historical context by Veronica Santarosa).  So what happens in Venezuela's case if the assets are located in transnational SOEs (the Venezuelan petroleum company)? Issues then touch on veil piercing but in an odd way--we move for sovereign debt issues to basic issues of corporate personality and asset partitioning principles, applied to an SOE.  In this case the wrinkle is reverse veil piercing as well, that the SOE may be liable for the debt of its principal shareholder. He argues that traditional concepts of asset partitioning may not be as strongly applicable in these sorts of cases. Veil piercing int he sovereign context, then serves as the basis for analysis and critique int he presentation. He argues that most justifications for asset partitioning in the sovereign context aren't compelling. He considers the issue by noting that asset partitioning in the context of a robust system of sovereign immunity is redundant at best and creates unfair sovereign advantage in their commercial activities at worst. Or perhaps sovereign immunity itself requires reconsideration in the presence of robust asset partitioning principles for SOEs. [I also wonder as well about the rules currently used to characterize the commercial character of sovereign borrowing].
Professor Weidemaier’s research interests involve the intersection between contracts and dispute resolution in domestic and international settings, particularly as relates to the structure and enforcement of government debt.







Panel #2 | The Intersection of Cybercrime and State-Sponsored Actions



Moderator Prof. Yesha Yadav

Mr. Eric Blinderman (CEO, Therium, Inc.)

Presentation: Focus is on criminal accountability of actors.  Distinction between perpetration of acts by states and those by private actors. Moves away from private actors to sovereigns. PLA recent hack of US defense contractors and others to steal for commercial advantage and the state, and then through spear phishing sought info on F35 development (indictment). None of this is new.  Cyber is simply the latest permutation of conventional espionage. Problem is changing technologies changes the character of vulnerability and the cost of spying for those with technical expertise.  It reducing the asymmetries of power between developed and small undeveloped states. Then considered the confused state of legal and policy on coherence and coordination. First looked at US statutory context that channels enforcement efforts. Looked at how these affected enforcement against Iranian hacktivists suborned by the Islamic Republic that used a denial of service schemes through botnets shutting down a series of banks and gaining control of the Bowman dam.Use of indictment for naming and shaming.  The PLA indictment appears to change Chinese behavior, and a treaty of espionage restraint, but the connection is hard to prove.Effective control standard for state liability poses a problem as an unrealistically high thresh hold.
During Mr. Blinderman’s military service, he advised senior members of the Unit- ed States, Coalition, and Iraqi governments on public international law, commercial law reform, international criminal law, and constitutional matters. As a part of this work, he also advised the Iraqi High Tribunal as it tried members of the former regime.


Mr. Donald Good (Director, Navigant—Information Security & Investigations Practice)

Presentation: First, context--responsibility for response to cybercriminality within the enterprise.  Engages in pro-active services--monitoring and system improvement.  Well familiar with the structures of cyber criminality.  Information sharing is critical, stressing a point raised by Ms. Tiffany McLee. First spoke to the character of cyber threats.  52% social engineering (outsider scamming), 40% insider threats (trusted insider), and 39% advanced persistent threats (threats form abroad).

Cyber threats include hacktivists, criminals, insiders, nations, and cyber terrorism (including radicalization and kill lists). Attack life cycles: initial recon, initial compromise, establish foothold, escalate privilege, internal recon, move laterally, maintain presence, complete mission.Ransomware an increasing threat, especially in healthcare and financial services.It is distinct from maleware and suggests specialization within cybercriminality. State anti-cyber units are jurisdictionally diverse: FBI, USSS, DHA and NSA/DOD.  Cooperation and coordination is key, especially for overseas threats.  Information sharing through Infraguard, National Cyber Forensics Training Alliance, ISACs, ISAOs, and law enforcement.
Mr. Good has held multiple high-level positions in the private and public sectors dealing with cybersecurity. For instance, he has served as the Deputy Assistant Di- rector of the FBI’s Cyber Intelligence Outreach and Support Branch. In this position, he supported the Cyber Division’s mission to identify, pursue, and defeat cyber-adversaries targeting global U.S. interests by overseeing efforts to enhance strategic partnerships and intelligence coordination.

Prof. Magnus Hörnqvist (Stockholm University)

Presentation:"Sovereignty at the Center". Underlying question: sovereignty at the margins--money laundering and terrorist financing de-centers sovereignty. Focused on the move from government to governance. Government: enforcement, rule based, state centered. Governance: compliance oriented, risk based, nodal. In some areas state has been withdrawn in others the role of the state extended  This is one area of state extension of authority: more resources through crime control.  The move toward the Centaur State: liberal at the top and paternalistic at the bottom.

Short circuit between policing and regulation; policing is punitive and compliance oriented. Deliverance more managerial.  Considers the "follow the money strategy", the vision of which to keep track of money flow. The players involved a number of sometimes uncoordinated state agencies with authority and coherence issues. But following the money doesn't let you know where it is going. But the choices are telling. In Sweden targeted the small fish, the usual suspects. Only lately shifted to bigger and transnational "fish." Responsibilitation strategy--directing efforts to more central financial actors.Involves displays of sovereignty in its classic sense (symbolic power, public perception of legitimacy, claim to supremacy, back up of violence, mandate to protect the established order).  But are these optics good policy?
Professor Hörnqvist has published extensively on key issues related to state power, risk, and regulation. He led the research project ‘New Risks and Actors,’ which elab- orated a new perspective on state sovereignty by investigating economic strategies that target organized crime and money laundering.

Prof. Rainer Hülsse (Ludwig-Maximilians-Universität)

Presentation: "Money Mule: Its Discursive Construction and the Implications." Picked up discussion on money mules. Looking at its discursive and political ramification.  Why money mule? Connection between money laundering and cyber criminality.  This is a new hybridity in criminality as technology makes innovation possible. Cybercriminal steals money, sends money to mule account, mule withdraws cash, mule transports cash to money transmitter, transmitter transfers money to criminal. Money mule is the key figure--a low tech ("stone age") mechanism is a high tech sophisticated system.How is it possible that this is such a critical element of criminality in this sector? Looks to discursive analysis, documents of national and international authorities with a focus on OECD states. He looked at its content, the discursive means and its policy implications. How is the money mule constituted in the documents?: male citizen of an OECD state, student or senior citizen or immigrant or the desperate, and who is not aware of the criminality of their actions. The criminal is constituted as a cyber criminal, operating through organized crime syndicates in Eastern Europe and Ukraine/Russia and West Africa. The financial institutions are money transmitters (Western Union etc.) who are unable or unwilling to monitor transactions. These are the basis for case narratives because they serve as socialization and training n a political and cultural level; they read like morality tales in which the state authorizes are the heroes. We make sense of the world through narrative.

And these set the reality of the criminality and its judgment of good and evil and the place of actors within it. These are augmented with visual imagery--pictures are taken and manage the scope of reality. Also metaphors--mule orchestration and phishing (use abstract phenomena in terms of something we know). It is against this constructed reality that we develop policy.  What is outside the discourse becomes unknowable and impossible to respond. Both a value and a significant detriment when the discourse is incomplete or pushes int he wrong direction. Who winds up being the "bad guys"? the narrative suggests the money transmitters. They are constructed as a security problem against which the state can act to punish and to coopt and it enables counter measures against "bad actor" states.He suggested that this indulges a blame shifting expedient--shift blame to cyber crime homes to deflect from their own issues. And of course there is the element of exaggeration for political ends.  There is a good story in money mules yet it accounts for about 10% of suspicious transaction.  The symbolic element overpowers its relative effect as it serves as aposter to advance the management of the image of state law enforcement agencies.
Professor Hülsse’s research focuses on issues of global governance, theories of international relations, and international money laundering. He has written extensively on anti-money laundering enforcement and its implications for sovereignty.

Ms. Tiffany McLee (Intelligence Analyst, National Cyber-Forensics Training & Alliance)

Presentation: Intersection of cybercrimes and states. Broad vectors of attack--energy. manufacturing, aviation and others.  Big issue are actors creatures of the state or independent actors advancing a cause.  The difference is important.  Nation state actors can be disciplined in the legal and political sphere; private causes are mire difficult if offshore. China is a big actor in state cybercriminality.  Russia big in botnets and political interference.  Others focus on political attacks and cyber espionage--disruption of web sites and data harvesting.  Hacktivists seek to leverage their political messaging, foe example Anonymous and others. Cyberfinancial criminals focus on fraud scams, online fraud.  Hierarchies are sophisticated and operate trans-nationally. More difficult for police to respond. She then described some of the more current schemes for defrauding individuals and institutions.  Always probing for weakness. Latest is phishing for email accounts.  Mule accounts. Key to counter is information sharing between the public and private sector.  Issues of privacy must be rethought.
Throughout Ms. McLee’s career, in both the private and public sectors, she has been responsible for analyzing and investigating financial transactions to identify potential money laundering, terrorist financing, and other financial crimes.








Panel #3 | The Immunity of State-Owned Enterprises



Moderator Prof. Tim Meyer

Prof. Larry Catá Backer (Pennsylvania State University Law School)

Presentation: "Between State, Company, and Market: A Preliminary Engagement on the Business and Human Rights Obligations of States and State Owned Enterprises (SOEs) " He spoke to the issue of the human rights responsibilities of state owned enterprises--as businesses--and of the state, as controlling shareholder of these entities, under emerging international law and norm frameworks. In the summer of 2016, the Working Group on the Issue of Human Rights and Transnational Corporations and other Business Enterprises delivered its 2016 Report to the U.N. Human Rights Council. The focus of that report was the relationship of states and state owned enterprises to the state duty to protect and the corporate responsibility to respect human rights at the core of the United Nations Guiding Principles for Business and Human Rights. Part II develops a deep analysis of the 2016 WG Report, interrogating its conceptual framework and its implantation programs. The Report casts a light on the emerging consensus around SOEs--one around the so-called Nordic Model--in which SOEs are treated as autonomous enterprises, but through which states might use their regulatory power.  The focus on a European approach left open the question of Marxist Leninist SOEs as well as the special problems of resource managing SOEs of developing states.

Part III then briefly considered a set of ten (10) generalized challenges and work left to be done: from conceptual lacunae to implementation. They ranged from the core issue of SOE definition and purpose, to the way in which the state SOE nexus is understood in law and policy. These recommendations and challenges suggest that issues of corporate personality, of sovereign immunity, of asset partition, and of the mania for compartmentalization that marks certain approaches to global economic and financial regulation may well hobble the work of embedding human rights within the operation of states as owners and SOEs as public enterprises. More importantly it suggests the difficulty of the current strongly held consensus that the focus of regulatory governance must be grounded in and through a formally constituted enterprise, the SOE, rather than focusing regulation on economic activity irrespective of the form in which it is undertaken. Until these conceptual issues are considered the regulation of economic activates—SOEs, supply chains, multinational corporations, will remain elusive. POWERPOINT HERE.
Professor Backer’s research focuses on the intersection of constitutional and enterprise law. His most recent work touches on the regulation of multinational corporations, sovereign wealth funds, transnational constitutionalism, and the convergence of public and private law. He also researches the issues that arise with governments as private actors in global markets and the development of law and social systems to regulate business and human rights.


Mr. Jonathan Gimblett (Partner, Covington & Burling LLP)

Presentation: Practitioner's perspective on emerging trend and implications for SOE oil and gas enterprises in the Middle East now increasingly looking to restructure themselves. Context: subcategory of oil and gas SOEs in Middle East in the context of national sovereignty over natural resources. In the 1970s associated with the rise of OPEC. Currently distinct trend toward state owners considering whether 100% state ownership the answer or whether they can commercialize minority ownership. May be driven by oil and gas price volatility and the transformation of these sector enterprises into "energy" rather than oil and gas companies. Issue what are the ramifications, especially with respect to sovereign immunity (against price fixing, export monopolies, [human rights?]). Traditionally FSIA analysis  embraced the restrictive approach to sovereign immunity.  Foreign SOE are preemptively immune as instrumentality of state with exception for commercial activities with nexus to  Weltover represents jurisprudence that reflects the sort of traditional approach to economic conduct at the root of modern sovereign immunity mechanisms. Distinguish between regulatory act and commercial act.  [I have suggested this no longer works in light of realities of globalization and rise of regulatory governance in SOE areas]. Challenges where SOEs have minority shareholders: (1) are they an instrumentality of state; (2) harder to characterize  issues as regulatory where SOE might have to act in interests of shareholders and thus the act no longer regulatory; (3)how to ensure that any liability for commercial activity is imputed to the state itself (requires careful corporate structuring perhaps). Special problem for SOEs listed on US exchanges with respect to SOEs including application of FCPA.
Mr. Gimblett’s work focuses on investor-state arbitration and public international law disputes, on which he advises domestic states, corporations, and international clients. He also represents clients in U.S. federal court litigation relating to international law issues, including the application of the Foreign Sovereign Immunity Act.


Prof. Nicholas Howson (University of Michigan Law School)

Presentation: Sovereign conduct that betrays promise of the law and the legal order in the context of China. First notes the rise of the firm in China (PRC). Really talking about the corporatizaiton of traditional SOEs and more recently groups of such SOEs which now dominate Chinese domestic economy and are pushing out.  Also big in global capital markets.  Talk to a very specific institutional movement. Within the Chinese landscape there are many other forms but focus on this very specific manifestation of economic organization. Leads with the appearance of what appears to be highly convergent Chinese forms--they look like firms as the West understands them. But they are also evidence of deep divergence in their operation--which requires looking back a century. In Imperial China one looks at 1872-1911, from the establishment of the Supervision of Private Enterprise Office to the establishment of the first company law. The pre-1911 enterprises were public enterprises privately managed, and eventually were migrated to increasingly state control.  In some instances state officials start to migrate these enterprises to their own private interests.  We see the same developments in post 1949 China.  These maintain the forms of enterprises (through a cage of regulation) but fewer of its characteristics in effect.   In act the entities are merely a shift in organizational form--the legalization of the form but not a change in its operation as provinces for the advancement of the CCP nomenklatura. The transition of 100 years ago is the same as now, from corporatized SOEs int he direction of slightly more autonomous enterprises governed by opportunistic officials or others which have learned that there is no cost to ehm of raising money abroad.
As the former managing partner for Paul, Weiss, Rifkind, Wharton & Garrison LLP's Asia Practice, Professor Howson handled many precedent-setting transactions. He has also served as a consultant to the Ford Foundation, the United Nations Development Programme, the Asian Development Bank, and the Chinese Academy of Social Sciences, and has advised the PRC legislature on amendments to the PRC Company Law and the PRC Securities Law. He acts regularly as a Chinese law expert or party advocate in U.S. and international litigation and U.S. government enforcement actions.


Prof. Pammela Quinn Saunders (Drexel University Law School)

Presentation: Genesis of the project was on the issues surrounding the 45th President's efforts to disengage form his business dealings. Might this be like an SOE but upside down. What happens in the event of the impossibility of disentangling the President from his enterprises. Is there a new category--a head of state owned enterprises?  That is the focus of the presentation.  This becomes more important in the face of the litigiousness of the 45th President.  Question, what potential immunity laws may apply to a head of state enterprises? Perhaps head of state immunity? It is a part of sovereign immunity but might be narrowed as diplomatic immunity.  There is a question about the commercial activities exception to the immunity itself.  No cases on point. The only possible relevant cases include assertions that point to this exception. But they raise more questions than answers. There does appear to be very little supporting a commercial activities exception to head of state immunity.There is no good answer to day but the speaker was able to map out the way forward.
Professor Saunders’ scholarly interests focus on issues related to the regulation of institutions and actors across national borders. Her current research explores the effectiveness of different strategies in regulating transnational corporations and promoting corporate social responsibility.




Panel #4 | Terrorism Financing and Banking Regulations



Ms. Alma Angotti (Managing Director, Navigant—Global Investigations and Compliance Practice)



Presentation: Problem--banks and financial institutions wanted principles based regulation regimes but then they ask the regulating entity what it is they must do. In effect they are looking for soft implementation schemes grounded in principles based hard regulation. But that drives regulators crazy, and it drives the banks and financial institutions crazy as well precisely because principles based regulation does not include specific direction and its legal certainty. Hard traditionally to get regulators to fine banks for poor anti money laundering practices.  Discussion under 45th President to move regulatory oversight out of Treasury and back down to regulators. Legal fragmentation is deep in the US not just between the US and international but also within the US and its political subdivisions.This fragmentation is structural and more important than the costs to efficient approaches to combating terrorism financing.  This is especially the case where one jurisdiction's terrorist is another "freedom fighter." So cooperation is episodic and political. US only leverage is undertaken through US control of dollar availability [but might the US give this up in its retreat from the world?]. More importantly, even compliance can create liability--the bank that dutifully files SARs may find itself liability because the state may argue that at some point they needed to stop reporting and deny transfers.Moreover, the effectiveness of monitoring is itself problematic as the character of the sources of money laundering and its objects changes radically. On a related note, even if there is sufficient information, the large players avoid contact with enforcing states, that would require targeted enforcement abroad which has been controversial. More importantly, the regulatory frontier is moving from conventional banks and financial institutions to emerging and unconventional forms.Regulators are always a step behind.
Ms. Angotti is a widely recognized anti-money laundering (AML) expert. She has trained and advised the financial services industry, regulators, and government officials worldwide on AML and combating the financing of terrorism compliance. Formerly, she was an enforcement attorney, conducting investigations and litigating a variety of enforcement actions. She served in senior enforcement positions at the U.S. Securities and Exchange Commission, the Treasury’s Financial Crimes Enforcement Network, and the Financial Industry Regulatory Authority.


Prof. Richard Gordon (PCase Western Reserve University School of Law)

Presentation: The discretionary nature of regulation makes it dangerous for banks and financial institutions to go against their regulators. This occurs where banks note that their examiners, for example, are applying rules that might appear to contradict statute. Prudential supervision vests government with extraordinary discretion that they might use to mask retaliation for annoying conduct. What does into examination manuals then also tends to support a broad range of discretionary choices by the regulator-examiner. System that is required even if it is not possible to get agreement on the category terrorist group is agreement on the overall system that should be implemented.  Undertaken through Financial Action Task force that brings consensus outside the operational structures of the states they serve. Indeed with respect to compliance liability there are policy contradictions--some argued that as a matter pf policy it always pays to continue to report and monitor while others suggest that at some point reporting becomes complicity.  How does a financial institution chose among these policy options where the state itself is of two minds? Worse, gathering data for counter terrorism int he context of terrorism finance becomes difficult.  And even where feasible, it is time consuming and expensive.  In many cases the sharing of information became difficult; and sometimes legal requirements might create a problem for data sharing by unrelated units.The main focus of stat harvesting goes to those activities that are structured to avoid  legal triggers. The enforcement effort is also hampered by the logic of its structure and incentives that make it difficult to change.
Following the events of September 11, 2001, Professor Gordon served on the select International Monetary Fund (IMF) Task Force on Terrorism Finance and co-led the IMF and World Bank’s involvement in anti-money laundering and counter- terrorism financing. He was the principal drafter of the preventive measures section of the first compliance assessment methodology for the Financial Action Task Force (FATF) 40 Recommendations and has participated in a number of FATF 40 compliance assessments in the Caribbean, Africa, and Asia. He has published numerous scholarly articles, book chapters, and research studies on anti-money laundering, terrorism, and taxation.


Prof. Michael Newton (Vanderbilt Law School (Panelist and Moderator))

Presentation: Two part question: (1) fragmentation of law globally with cross cutting norms and jurisdictional polycentricity with legal contradiction; (2) solutions may be impossible given the logic of the current regulatory structure. A further question--even if one can identify the problem, how does one create structures of reporting that protects the banks and is efficient for law enforcement? Indeed enforcement has become difficult as the law itself provides the means for its evasion.  For example moving funds through a charity  Requires time intensive information gathering (e.g., the use of charity fund to buy night vision goggles). More frustrating is that enforcement avoids the big institutional players and go after the operations level individuals.
Professor Newton is an expert on terrorism, accountability, transnational justice, and conduct of hostilities issues. Over the course of his career, he has published more than 80 books, articles, op-eds, and book chapters. He has been an expert witness in terrorism related trials and was senior editor of the Terrorism International Case Law Reporter, a series published by Oxford University Press from 2007-2013. He also negotiated the "Elements of Crimes" document for the International Criminal Court and coordinated the interface between the FBI and the Inter- national Criminal Tribunal for the former Yugoslavia. 

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