Gaia Pianigiani/The New York Times/Redux

Odious Assets

by thorvaldur gylfason

thor gylfason is a professor of economics at the University of Iceland.

Published May 24, 2023


The concept of “odious debt“ is by now well established in international law, thanks to the Russian lawyer Alexander Sack who launched the legal theory involved.

It goes without saying that if I take out a loan in your name without your authorization, the creditor cannot compel you to repay the fraudulent loan. Likewise, if a manager borrows money on behalf of a corporation without proper authorization by the owners, the firm is not obliged to repay the loan. Such debts are commonly recognized as odious and thus illegitimate.

Sack argued that the same principle should apply to dictators who pile up debts without the people´s consent and use the proceeds for private purposes. In such cases, the people ought to have the legal right to refuse to pay.

The parallel is clear. The people, as taxpayers, should not be obligated to repay the debts amassed by kleptocrats – think Ferdinand Marcos in the Philippines, Papa Doc in Haiti and Mobutu Sese Seko in Congo. Even so, national governments have been reluctant to refuse to repay these debts for fear of forfeiting their current and future access to international financial markets. The post-apartheid government of South Africais a case in point.

Ways need to be found to resolve this dilemma by making it more difficult for kleptocrats to run up debts without compromising legitimate finance. What to do? Either the loot amassed by kleptocrats needs to be reclaimed through confiscation, or the creditors need to face the consequences of their poor choice of borrowers.

The flip side of an odious debt is an odious asset, which also ought to be fair game for legitimate public authorities. Even so, experience shows that governments have not been particularly eager or sucessful in their search for such loot.

Count the Ways

There are two main kinds of odious assets. One is the bling, such as mansions and yachts, indirectly acquired by kleptocrats mostly through foreign borrowing. The other is the ill-gotten gains of oligarchs, again including mansions and yachts (not to mention professional sports clubs and Formula 1 racing teams), through their expropriation of public assets that belong to the people by sovereign law as well as by international convenants on human rights. The point here is to ensure that loot cannot be protected by legal provisions concerning private property rights.

One way to tackle the issue is to sanction those suspected of illegal expropriation, as has been done in recent years to Russian oligarchs and others by freezing their odious assets. Then await the court verdicts on the appeals by those culprits (or their mothers) claiming to be protected by legal provisions on property rights.

The symmetry between the forgiveness of odious debt and the reappropriation of odious assets by law needs to be recognized and respected. History suggests that the best revenge available is grabbing the bad guys by the wallet.

Another way is to bring offenders before the United Nations Human Rights Council, which is authorized to require the 167 state signatories to respect the International Covenant on Civil and Political Rights, including its stipulation that the property rights to natural resources belong to the people. Under authoritarian regimes, where the people have no way of asserting their claims to common property resources, the expropriation of such resources constitutes not only theft but also a violation against human rights.

By design, the ICCPR supersedes national laws, even if the UNHRC does not have the ability to enforce its binding opinions beyond naming and shaming violators. The failure of nations to abide by the rulings of the UNHRC could pave the way for escalation in the form of referrals to the International Criminal Court in the Hague

A third way would be to establish a new international institution, ideally under the auspices of the United Nations, to adjudicate allegations that assets are odiously held. Nationalization is a time-tested means of reversing mismanaged privatization (think Iceland after the 2008 financial crash) and can be used the same way to manage natural resources to promote efficiency as well as fairness. The giant Norwegian oil fund, now pension fund, is a case in point.

The Peculiar Institution

A clear historical example of odious assets is provided by slavery. When slaves were set free in the British colonies in 1833, in French and Danish colonies in 1848, in Russia in 1861, and in the United States in 1865, many slave owners, extolling the sanctity of private property, demanded compensation. Their demands were, as a rule, ignored.

But in the United States an exception was made for Washington, DC, where slave owners were paid to release 3,100 slaves in exchange for a nominal sum of $300 dollars per slave, equivalent to about $8,000 dollars in today´s money. A far more important exception was made in Haiti, whose desperately poor people (most descendants of slaves) were forced by the French government to pay huge amounts from 1825 to 1947 to some 8,000 former slave owners and their descendants in France.

Actually, yet another exception has recently come to light. The British Treasury spent £20 million from 1833 to 2015 (about £300 million or $375 million in today´s money), in compensation to slave owners. Banks lent the governments of Haiti and Britain the monies needed to pay out the compensation. Had the payments been discontinued before the odious debts were repaid in full, the banks would have taken a hit – not the slave owners. No compensation was ever offered to emancipated slaves or their descendants.

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The lesson from slavery is clear. Other odious assets, such as those accumulated through state capture by corrupt governments or through the expropriation of rents from common property resources, need to be viewed and treated the same way as slavery before courts of law. The symmetry between the forgiveness of odious debt and the reappropriation of odious assets by law needs to be recognized and respected. History suggests that the best revenge available is grabbing the bad guys by the wallet.

main topic: Governance