Guest Post: Corruption in Water Resources Management? Not Our Job Say Water-Sector Professionals

Today’s Guest Post is by Juliette Martinez-Rossignol, a graduate student of Political Economy of Development at Sciences Po, Paris, and at the London School of Economics; Laura Jean Palmer-Moloney, a hydro-geographer and consultant with Visual Teaching Technologies specializing in wetlands ecology and hydrology; and Mark Pyman a leader in corruption prevention efforts and co-founder of CurbingCorruption.

It is hard to imagine an area where corruption has a greater impact than in the management and distribution of the world’s supply of water. Examples abound. Locally, as in the misuse of water in a municipality; regionally, as in unregulated diversions in watersheds; and globally, as in corrupt mismanagement of marine protected areas or the diversion of funds intended to combat climate change.

We asked a cross-section of those who have devoted their professional careers to managing the world’s water supply what they were doing to combat corruption in the sector.  Interviewees included engineers in water utilities in the U.S., Mexico, and elsewhere, environmental lawyers, geographers, geologists, ocean economy investors, ecosystem scientists, natural resources managers, plus water anti-corruption practitioners and journalists to.

What we found is enormously troublesome.

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How Regulatory Gaps in National Security Create Corruption – A Closer Look at Israel’s 8200 Unit

While much of the discussion of corruption focuses on traditional, illegal acts like embezzlement and bribery, other shadowy, nominally legal practices can contribute to corruption, and perhaps should be considered corrupt themselves. An important manifestation of this phenomenon is the pipeline between government military intelligence services and the private intelligence industry. Though this is an issue in many countries, Israel’s 8200 unit provides a useful and especially salient example.

Founded in 1952, Israel’s 8200 unit conducts intelligence and cybersecurity operations, as well as cyber warfare. It is consistently recognized as one of the world’s most effective intelligence units. Unfortunately, the Israeli government does not regulate what its former soldiers do with their skills and expertise. As a result, many 8200 veterans go on to develop technologies for private intelligence and to found or work for private intelligence companies like Psy GroupBlack CubeMitiga, and NSO Group, to name just a few. 

While many people believe that these private firms need to be more tightly regulated, it may not be immediately apparent why this issue relates to corruption specifically. While employed by the 8200 unit, Israel’s soldiers are not abusing their entrusted public responsibility for private financial gain—to the contrary, they are working for the public’s safety and security. And while they do seek private financial gain after they leave government service, and to market the special skills and experience they gained while in the military, this is not on its face that different from how any number of former public servants go on to monetize their government-acquired expertise in the private sector.

But there are at least two respects in which the public-private pipeline in the context of the 8200 unit, or intelligence services more generally, is of particular concern for anticorruption advocates:

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Responding to the ABA’s Objections to the ENABLERS Act

In a rare moment of bipartisanship, the U.S. Congress is on the cusp of adopting a significant piece of anticorruption legislation: the ENABLERS Act.  The ENABLERS Act is targeted at closing loopholes in the American financial services system that have allowed corrupt foreign actors to use “gatekeeper” entities like law firms, trusts, payment processors, and accounting firms to launder billions of dollars through offshore accounts. The proposed legislation, which has been attached to the FY2023 National Defense Authorization Act (NDAA), would expand the definition of “financial institution” in the current Bank Secrecy Act (BSA) to cover more gatekeeper entities like those mentioned above, and would require these financial services-adjacent entities to institute anti-money laundering (AML) systems, comply with Know Your Client (KYC) regulations, and file suspicious activity reports (SARs) with the Treasury Department. 

The ENABLERS Act, discussed previously on this blog, has received widespread support in both the House and Senate, but some influential interest groups remain opposed. Notably, the American Bar Association (ABA) has objected to the inclusion of law firms among the entities that the ENABLERS Act would subject to the BSA’s AML rules. The ABA’s chief objections are that the ENABLERS Act—especially the requirement that law firms would be required to file SARs—would undercut attorney-client confidentiality and the right to effective counsel and would inappropriately interfere with state judicial regulation of the legal profession.

While the ABA is correct in emphasizing the fundamental principle that everyone is entitled to legal representation, and that lawyers have duties of confidentiality, loyalty, and zealous advocacy to their clients, the ABA’s objections to the ENABLERS Act are overstated. Upon closer inspection, the ENABLERS Act does not ask lawyers to do more than the ethical regime that governs the legal profession already requires or permits.

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Participatory Budgeting: A Way Forward for the Brazilian Anticorruption Agenda

In Brazil’s presidential elections last month, former President Lula, leader of the left-wing Workers’ Party, narrowly defeated right-wing incumbent President Bolsonaro. But even though many Brazilian anticorruption scholars and activists, as well as members of the international anticorruption community (including on this blog), had endorsed Lula over Bolsonaro, there is considerable pessimism about the future of anticorruption reform in Brazil, at least in the near term. Although Lula’s previous administrations had advanced important anticorruption reforms, as well as broader institutional reforms to strengthen the independence and effectiveness of Brazil’s institutions of justice, the fact that Lula was himself incarcerated for corruption offenses until the Supreme Court voided his conviction on procedural grounds has made anticorruption such a polarizing issue—and so associated the anticorruption agenda with the right wing—that many believe that Lula will be much more hostile to an anticorruption agenda this time around. Moreover, even if President Lula were amenable to backing anticorruption reforms, the right wing dominates Congress, making such reforms even less likely to pass.

Although the prospects for significant advances in the anticorruption agenda at the national level are dim, there are more opportunities for progress than the dominant pessimistic view acknowledges. Importantly, Brazil is a federal republic, where both state governments and local municipalities have a considerable degree of autonomy. Furthermore, even if the rhetoric of anticorruption has become unhelpfully politicized in Brazil, there are many reforms that do not overtly target “corruption” but that nonetheless may have significant anticorruption benefits. So, the way forward for Brazilian anticorruption reformers over the next several years involves a shift in focus from federal-level anticorruption prosecutions to local-level institutional reforms with significant but indirect anticorruption effects.

One reform that fits the bill is participatory budgeting (PB). Brazil’s anticorruption community should make common cause with other good-government and pro-democracy advocates to push for the expansion of PB at the municipal level.

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Who Can Commit Honest Services Fraud? The U.S. Supreme Court Will Soon Decide

One of the most potent anticorruption tools for U.S. prosecutors is the “honest services” fraud statute. In essence, the statute makes it illegal for someone to violate their fiduciary duty to the public by participating in a bribery or kickback scheme. The idea behind this law is that when someone owes a fiduciary duty to the public, engaging in corruption deprives the public of their right to “honest services” and thus constitutes a violation of that duty.

Yet while it is relatively clear what activities violate this statute, it is less clear who can violate it. Some cases are obvious: Public officials, for instance, hold a position of power that has been entrusted to them by the public, and in turn must act on behalf of the public when wielding that power. They clearly are the sorts of public fiduciaries to whom the honest services fraud statute can apply. At the other end of the spectrum are ordinary private citizens who have no connection whatsoever to government office. Such people may have a general moral responsibility to behave honestly, but they do not owe fiduciary duties to the public. But between those easy cases at either end of the spectrum are more challenging cases. Consider a person who does not formally hold office but who, by virtue of some relationship to public office or to a public official, have significant influence over government decisionmaking. Do those people owe a fiduciary duty to the public? Are they subject to conviction under the honest services fraud statute? This is the difficult problem that the U.S. Supreme Court will soon address in Percoco v. United States.

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Preventing Corruption in the Reconstruction of Ukraine

It is clear Russia’s attempt to break Ukrainians’ will to fight by attacking the nation’s critical infrastructure is failing. No matter how much destruction its daily bombardments wreak on power plants, district heating systems, and the other facilities that support daily life, Ukrainians remain determined to recover every inch of territory the invaders now hold.

Helping to shore up Ukraine’s determination is the commitment its Western partners have made to financing Ukraine’s reconstruction. But as donors pledge their support, concerns are being raised about corruption. It is no secret that at the time Russia attacked, Ukraine was still struggling with the ingrained corruption it inherited from Soviet rule and the post-Soviet oligarchs who grabbed money and power in the first years of independence.

The Ukrainian government must the lead the fight against corruption during reconstruction, and draft legislation now circulating in Kyiv recognizes this. All funds would be channeled through an independent government entity with a 20-person board of directors of which 15 would be drawn from donor organizations and five would be Ukrainian officials. That the majority will be drawn from outside Ukraine is a critical provision, one that should reassure donors that oversight will not be wanting.

A second critical provision is that the entity would have a strong internal audit department reporting directly to the board of directors. The proposed bill provides the department would conduct financial audits, ensure the fund operates within the law, that information the board requested was supplied, and that managers did not act beyond their authorized duties.

As important as these provisions are, they are mainly backwards looking, aimed at identifying where corruption has occurred. More important is preventing it from occurring in the first place.

Ukrainian officials and their partners should thus include strong prevention measures in the final draft. All contractors should have an anticorruption compliance program that has been independently certified to be compliance with the standards for an antibribery management system found in ISO 37001. The legislation should also create a prevention department. One model is that the Millennium Challenge Corporation has. Its unit trains grantees responsible for overseeing construction projects in the creation of a risk register and development of an action plan to reduce if not eliminate corruption in both the award and execution of construction contracts. Regular field visits monitor how well grantees are doing in implementing their action plan.

Current estimates are that rebuilding Ukraine will run upwards of $350 billion, a number sure to grow as Russian bombs continue to fall. That Western nations are prepared to invest such an extraordinary sum in rebuilding a victim of aggression is the most reassuring sign to date that despite economic turmoil, social upheaval, and the election of demagogues, there is indeed a broad and deep global consensus on the value of a liberal, democratic order. Every step possible should be taken to ensure corruption does not undermine it.

Reminder: Workshop on Specialized Anticorruption Courts Starting Imminently! Join Us on Zoom!

As I mentioned in my announcement last Friday, the Christian Michelsen Institute is hosting hosting a panel today, which I will be moderating. on specialized anticorruption courts, featuring panelists Sofie Schütte, Olha Nikolaieva, Marta Mochulska, and Ivan Gunjic. The panel starts in half an hour (at 8 am US East Coast time/2 pm Bergen time), and it is possible to join by Zoom. I hope some of you out there will join us, as I think, based on the quality of the panelists and the inherent interest of the topic, that it should be a good discussion.

Online Workshop on Specialized Anticorruption Courts

This coming Monday, November 14th, the Christian Michelsen Institute in Bergen, Norway will be hosting a panel on specialized anticorruption courts, which I will be moderating. The outstanding panel includes Sofie Schütte, a Senior Adviser at CMI’s U4 Anti-Corruption Resource Centre, Olha Nikolaieva, a Legal and Judicial Adviser for USAID, Professor Marta Mochulska of Lviv National University, and Ivan Gunjic, a PhD Candidate at the University of Zurich. The one-hour panel will start at 8 am US East Coast time (2 pm Bergen time), and it is possible to join by Zoom. The official panel description (also available here) is as follows:

Anti-corruption courts are an increasingly common feature of national anti-corruption reform strategies. By mid-2022 the U4 Anti-Corruption Resource Centre at CMI counted 27 such courts across Africa, Asia, and Eastern Europe. Reasons for their creation include the resolution of backlogs but also concerns about the ability of ordinary courts to handle corruption cases impartially. While there are no definitive best practices for specialised anti-corruption courts, existing models and experience provide some guidance to reformers considering the creation of similar institutions.

In this panel discussion we launch an update of “Specialised anti-corruption courts: A comparative mapping” and discuss experiences with the establishment of anti-corruption courts in Eastern Europe and Ukraine in particular.

Guest Post: U.K. Court Refuses to Compensate Victims of Foreign Bribery

Today’s Guest Post is by Dr Helen Taylor, senior legal researcher at Spotlight on Corruption, a charity that shines a light on the United Kingdom’s role in corruption at home and abroad. Helen leads Spotlight’s court monitoring programme, tracking the enforcement of the UK’s anti-corruption law in major court cases and building an evidence base for advocacy and policy recommendations on asset recovery, victim compensation, and other corruption-related issues.

Last week a London court fined commodities giant Glencore for bribing officials in five African oil producing nations in return for getting “special deals” on their oil. While the court ordered the company to pay £280 million (just over $318 million) for its numerous violations of the U.K. foreign bribery law, it refused to direct Glencore to compensate those its bribes injured: the governments and citizens of the five nations. In fact, victims did not even get a foot in the courtroom door — the Serious Fraud Office, which prosecuted the case, refused to put a compensation request before the court, and the court itself rejected the Nigerian government’s application for compensation.

The case brings home the pressing need to reform the UK’s compensation framework to ensure overseas victims are represented and compensated in complex corruption cases.

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Chile’s Way Forward: Corruption and Disqualification:

Many democracies have sought to preserve the integrity of their governments by prohibiting individuals who have been convicted of corruption-related offenses (or other serious crimes) from holding public office, either for a period of time or permanently. Such a prohibition was on the ballot this past September in Chile, when citizens voted on whether to adopt a new constitution. That proposed constitution included, among its many provisions, a specific article (Article 172) that would have disqualified from public office any person who had been convicted of a corruption offense. The provision did not become law, however, because Chilean voters overwhelmingly rejected the proposed constitution for reasons that had almost nothing to do with the relatively obscure Article 172.

The inclusion of that article in the proposed constitution does, however, invite the consideration of two distinct but related questions: First, should Chile—or another similarly situated democracy—adopt a law disqualifying those convicted of corruption from holding public office? Second, if the answer to the first question is yes, should that disqualification rule appear in the constitution (as opposed to an ordinary statute), which is, by design, much harder to change?

The answer to the first question, at least for Chile, is probably yes. The answer to the second question, though, is no. Chile should experiment with a disqualification law, but should not constitutionalize it.

This conclusion arises from a careful consideration of the advantages and disadvantages of disqualification laws and, perhaps more importantly, the conditions that must obtain for those laws to be beneficial:

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