Costa Rica shows the way to managing seized and forfeited assets

Costa Rica has found a successful formula for tackling the troublesome legal and administrative issues of managing assets seized and forfeited from narcotraffickers and their money laundering operations. As part of a comprehensive overhaul (Law No. 8204) of legislation on narcotic substances and money laundering activities in 2002, an Asset Management Unit was set up within the Costa Rican Institute on Drugs (ICD).

"Prior to Law No. 8204, there was no express norm that authorized the seizure of assets without a judicial ruling," says Denis Cheng, the chief of the Asset Management Unit. Quick action is crucial in depriving traffickers of their financial spoils.

Practically all CICAD member states have woken up to the pressing need for each government to set up a specialized unit to manage assets seized in narcotrafficking and money laundering cases until a final ruling in the State's favor. This measure is needed to preserve the value of assets, ensure the appropriate use of resources and prevent their deterioration, loss or destruction to the detriment of the national treasury, thus avoiding potential claims and compensation.

Denis Cheng, chief
of the ICD's Asset
Management Unit

The Costa Rican government had to start from scratch because, like most other Latin American or Caribbean countries, there was no existing institution, specialized personnel or budget resources set aside for use in asset seizures and forfeitures, and efficient management.

The turning point

However, Cheng says the real turning point came when the government issued regulations for the Asset Management Office in September 2005 because the precedent-setting nature of this new administrative area required clear, precise guidelines and procedures, especially to gain the full cooperation of law enforcement agencies, prosecutors and judges.

The Asset Management Unit has a small staff: one administrator, three inspectors, four lawyers and additional support staff. "Lawyers are the gears of the process," says Cheng, because they begin following the assets as soon as the police make arrests in a case. They coordinate with prosecutors, trace property rights, take custody of the assets until there is a final judicial ruling and then determine how best to dispose of the assets, either by public auction or donation to government agencies, or by returning the properties to their original owner if acquitted. The Unit represents the State's interests in the court system in extremely complex criminal cases that also can have ramifications in criminal, civil and land title law and procedures.

The unit is short-handed, given its case load, so it has to be selective in choosing which assets to seize.  Cheng says, "The Asset Management Unit carries out what has been denominated until now ‘seizures of quality and not quantity.’”  In other words, given limited administrative capacity, it's better to prioritize on high-value assets, rather than being spread thin by sweeping up all properties involved in a case.

The Unit has also taken a "more business-like" approach to seizures and forfeitures, says Cheng: "We've taken the view that we are a business and we have 'clients' we have to satisfy." Fast processing ensures that resources are put to use as quickly as possible while getting good returns on short-term cash holdings. Seized assets may also be businesses or assets that would lose their value if mismanaged.

Protecting proprietors' rights

From the start, Costa Rica put in place safeguards for the rights of third parties falsely implicated in money laundering cases. Law No. 8024 has a full chapter on how third parties can appeal to the judicial system and what criteria must be met to regain control over their property.

Since late 2005, the Unit gained momentum and generate revenue by disposing of a total of $3 million in assets. Cheng says, "We are giving more resources to law enforcement to strengthen the fight against narcotrafficking, as well as those institutions that carry out prevention efforts aimed at demand reduction."

According to the law, the proceeds are distributed in the following portions:

• 60 percent - prevention programs - Half of the proceeds go to Costa Rica’s Institute of Alcoholism and Drug Dependency for drug abuse prevention, treatment and rehabilitation programs.
• 30 percent - law enforcement
• 10 percent - asset management

Cheng says that the 10-percent share does not adequately cover the administrative overhead. "When you consider the costs of insurance coverage, maintenance, repair and, especially, security, it's insufficient."

The right tools for the job

In general, there are abundant reasons to institute seized and forfeited asset management in dealing with narcotrafficking and money laundering cases. These are the primary ones:

1. 
   School children received computers for their classrooms.
   Turning narcotrafficking assets into public resources
   The national drug commissions, law enforcement agencies and drug-control related institutions need resources to deal with a whole spectrum of social, legal and financial repercussions from the narcotics trade. The cost of teaching children and young people to resist the appeal of drugs should be levied on those convicted of narcotrafficking.
2. Appropriate punishment
   To make enforcement effective, the trafficking networks have to be hit where it hurts, in their banking accounts, and also deprive them of the funds to continue their criminal enterprises.
3. Risk of Corruption or Theft
   Without an adequate institutional and legal framework for the management of seized assets, these properties are frequently tempting targets for theft and corruption.
4. Good use
   Another principle that has emerged in asset management is that the custodians should make good use of assets while they are awaiting final adjudication. Vehicles can be assigned to law enforcement officials, for instance, and residences or buildings can be used as office space by government agencies. In effect, it ensures the safekeeping of the assets because, otherwise, they would be abandoned.