Case Study 4

December 2020

The Russian arms dealer case

How the Peruvian State used its non-conviction based forfeiture law, extinción de
dominio, to recover a Swiss bank account containing illicit kickbacks paid for the
purchase of war planes.

Oscar Solórzano, Head of Latin America, Basel Institute on Governance

Recovering the illicit assets required,

among other things, following the
money flow through the international
financial system.

Key points
→ The Peruvian State used a non-conviction → The case is relatively small in monetary terms
based forfeiture mechanism to recover a bank – around USD 700,000 plus interest – but
account frozen in Switzerland. The account hugely significant in terms of asset recovery
contained illicit commissions paid in the efforts and international co-operation.
context of the purchase of war planes by the
→ The case study shows how the extinción de
Peruvian Government during the armed conflict
dominio law was applied with proportionality
with Ecuador.
and in full respect of the rule of law and
→ This case was the first of a series of cases fundamental human rights.
between Peru and Switzerland involving Peru’s
→ All of the facts described below are contained
extinción de dominio law, which enables the
in the relevant and publicly available Swiss
confiscation of illicit assets in cases where
and Peruvian jurisprudence.
a criminal conviction of an individual is not
possible. It has paved the way for other
proceedings, some of which are still pending
in the tribunals.
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The case

1. Vladimiro Montesinos Torres was the chief of the later, Peru also investigated the case, applying
Peruvian intelligence service and advisor of former non-conviction based confiscation techniques.
Peruvian President Alberto Fujimori (in office from It requested and exchanged evidence with
1990 to 2000). Montesinos headed a criminal Switzerland through the formal channels of
organisation through which he systemically mutual legal assistance (MLA).
distributed bribes to public officials to accumulate
influence over vast areas of government, the 7. Khozyainov appealed the seizure of the assets in
media and public life in Peru. Switzerland, claiming Peru did not grant him a due
process and that the freeze violated the Swiss MLA
2. Fujimori and Montesinos orchestrated large regulations. In February 2014, the Swiss Federal
procurements for the Peruvian State that were Court rejected Khozyainov’s appeal and upheld
tainted with corruption and resulted in massive the freezing order (Decision RR.2013.164).
losses for Peru. Together with their enablers,
they stole several billions of US dollars in public 8. In February 2016, the Peruvian courts ordered the
assets from Peruvian coffers. confiscation of Khozyainov’s Swiss bank account.

3. In 1998, Montesinos and Fujimori instigated the 9. Two months later, Peru requested Switzerland to
purchase of military aircraft by the Peruvian state. execute the decision and to hand over the assets,
The vendor was a Russian state-owned company by including interest.
the name of Rosvooruzhenie, whose vice-director
was a Russian citizen called Yuri Khozyainov. 10. Switzerland granted MLA and executed the request
in June of that year, but Khozyainov appealed to the
4. Montesinos and his allies received illicit commis- Swiss Federal Criminal Court. The court rejected
sions totalling more than USD 16 million in his arguments and ordered the return of the frozen
relation to a single procurement contract. These assets to Peru (Decision RR.2016.147).
commissions were paid into two Swiss bank
accounts at First International Bank of Israel 11. Arguing a further violation of rights of constitu-
(FIBI) and Bank Leumi in Zurich. This scheme, tional nature, Khozyainov lodged an appeal at the
as well as later acts of money laundering, were Swiss Federal Supreme Court, which ultimately
detected and subsequently investigated in ruled that that the Peruvian investigation and
several jurisdictions, including Peru, Switzerland trial was fair in all aspects.
and Luxembourg.

5. It was later revealed that Khozyainov was deeply What can we learn from this case?
implicated in Montesinos’ money laundering
scheme. Of the USD 16 million in illicit commis- The value of early preparatory meetings
sions, around USD 708,000 were forwarded to Among the many lessons learned in this process was
an account held by Khozyainov at the bank Credit the great importance of preparatory meetings between
Lyonnais. central and executing authorities.

6. The bank reported Khozyainov’s account to It is continuously pointed out in international fora that
the Swiss Financial Intelligence Unit (FIU) and for an asset recovery case to be successful it needs to be
it was subsequently frozen as part of a Swiss closely coordinated between requesting and requested
money laundering investigation. A few years States. We profoundly adhere to this statement.

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In practice this means that substantive work needs In the course of our work in Latin America, ICAR’s
to be undertaken as a basis for such discussion and financial investigators and their Peruvian counter-
coordination. The case examined here has provided parts had been able to establish with a high degree
Peru and Switzerland with the opportunity to discuss of certainty that the assets in the Swiss accounts
in detail the mechanisms Switzerland will use to originated in the Peruvian treasury. To do this, they
recognise and execute the Peruvian decision based needed to analyse a large amount of financial data
on a typology of confiscation which is unknown in the received by Peru through MLA channels. The financial
Swiss legal framework. reports were able to reconstitute the paper trail and
were used by the Peruvian prosecutors to satisfactorily
On the other hand, these preliminary meetings allowed support their claim in the domestic courts.
the Peruvian authorities to understand the condi-
tions in the Swiss domestic legal framework for the At the same time, the financial investigation showed
execution of foreign confiscation orders. without a shadow of doubt that the assets result from
the corruption offence perpetrated by Montesinos and
Creating precedent-setting jurisprudence his associates.
Obviously, the above-mentioned exercise requires
innovative thinking and a deep knowledge of both This in turn provided the legal argument that the Swiss
legal systems as well as the languages and legal tradi- authorities needed to cooperate in criminal matters,
tions. ICAR’s specialists, in close coordination with even if the underlying foreign confiscation order did
prosecutors of the requesting and requested state, not result from ordinary criminal proceedings but from
supported these efforts. a non-conviction based forfeiture action.

The end conclusion was that both legal systems had Further reading
equivalent provisions for dealing with similar under-
lying facts. This enabled the Peruvian decision to be • Read an interview with Peruvian prosecutor Dr
admitted in Switzerland for execution. Hamilton Castro on the challenges of applying the
extinción de dominio law in international cases.
Financial investigations at the heart of asset recovery
Independently of the underlying legal action that led • A comprehensive description of all historic cases
to the recovery of the illicit assets, Switzerland’s using Peru’s extinción de dominio law can be
capacity to cooperate in such asset recovery scenarios found in the 1,100-page Compendium of Juris-
depends on two main preconditions pertaining to the prudence on Extinción de Dominio published in
foreign procedure: July by Peru’s Procuraduría General del Estado
(in Spanish).
1. The respect of due process requirements in the
victim State. • Learn more about how the Basel Institute, through
2. That the asset is of criminal origin, i.e. is linked to its International Centre for Asset Recovery
a crime. This is necessary in order to execute the (ICAR), provides assistance to victim countries
foreign decision through MLA in criminal matters. in recovering assets stolen through corruption.
In addition to this type of technical assistance on
It is no simple matter to demonstrate in court that specific asset recovery cases, ICAR also delivers
assets – especially when they undergo several trans- capacity building programmes and contributes
formations in a money laundering scheme – are the to States’ efforts to introduce legislative and
proceeds of a crime. institutional reforms to facilitate asset recovery

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Keywords About this Case Study

Extinción de dominio This publication is part of the Basel Institute on

Governance Case Study series, ISSN XXXX-XXXX. It
Non-conviction based forfeiture is licensed for sharing under a Creative Commons
Attribution-NonCommercial-NoDerivatives 4.0 Inter-
International cooperation national License (CC BY-NC-ND 4.0).

Human rights
Suggested citation: Solórzano, Oscar. 2022.
“The Russian arms dealer case.” Case Study 4, Basel
Switzerland
Institute on Governance. Available at: baselgov-
Peru ernance.org/case-studies.

Montesinos The Basel Institute’s asset recovery work is funded

primarily by the core donor group of the International
Centre for Asset Recovery (ICAR): the Government
of Jersey, Principality of Liechtenstein, Norwegian
Agency for Development Cooperation (Norad), Swiss
Agency for Development and Cooperation (SDC) and
UK Foreign, Commonwealth & Development Office
(FCDO). In addition, a portion of the Basel Institute’s
asset recovery assistance in Peru is funded by the
Swiss State Secretariat for Economic Affairs, through
the Subnational Public Finance Management Strength-
ening Programme (Programa GFP).

The views expressed are those of the author and do not

necessarily represent the views of these institutions
and governments, or of the University of Basel.

Basel Institute on Governance +41 61 205 55 11 @BaselInstitute The Basel Institute on ­Governance
Steinenring 60 [email protected] Basel Institute is an Asso­ciated Institute of the
4051 Basel, Switzerland baselgovernance.org ­University of Basel.