There’s No Panacea for Corruption. So We Can All Stop Pointing That Out.

I’m taking another one of my periodic breaks from semi-serious commentary to make a mostly frivolous, slightly snarky point about the way we talk and write about corruption. Here’s my plea for today:

Every sensible person would presumably agree that there’s no panacea (that is, no single cure-all) for corruption. But our community appears to have developed—perhaps as a kind of reflexive, semi-defensive verbal tick—the tendency to declare that whatever anticorruption measure we happen to be talking about is “not a panacea” for corruption. Thus we are told repeatedly, for example, that:

  • Transparency is not a panacea for corruption (see here, here, here, and here);
  • Anticorruption agencies are not a panacea for corruption (see here, here, here, and here);
  • New technologies are not a panacea for corruption (see here, here, here, and here);
  • Democracy is not a panacea for corruption (see here, here, and here);
  • Privatization is not a panacea for corruption (see here and here).

Other things that the literature has declared “not a panacea” for corruption include higher public sector salaries, international courts, more women in the public sector, EU membership, codes of corporate ethics, unexplained wealth orders, and economic sanctions.

Since we all agree (or should agree) that there is no panacea for corruption, we probably don’t need to keep saying that any individual measure is not a panacea. Of course it isn’t. There isn’t one. Done.

While this post is mainly meant as a gentle admonition (with the finger pointed at myself as much as anyone else) to be more mindful about trotting out tired clichés and banal statements of the obvious, I do think there’s something intriguing about how many of us working in this field (again, very much including myself) so frequently feel the subconscious compulsion to add what would seem to be an unnecessary caveat when discussing this or that anticorruption measure. Why do we do this? Perhaps we recognize the all-too-frequent tendency of advocates to make exaggerated claims on behalf of their preferred reform, and we want to reassure our audience that we are more nuanced and sophisticated? (I imagine, for example, that those advocating for greater use of modern information technology don’t want to be mistaken for naïve techno-utopians.) Or perhaps we worry, perhaps with justification, about managing the expectations of our audience, lest the failure of a proposed reform to eradicate the corruption problem be treated as evidence that the reform didn’t help, leading to greater cynicism and frustration?

Then again, maybe there’s no subject-specific explanation. Maybe it’s just a bad habit. In any event, I propose that we retire the phrase. Please allow me to be so bold as to officially declare in this blog post, on behalf of the anticorruption community, that there is no panacea for corruption. So, going forward, we don’t need to say it anymore. Just throw in an unexplained hyperlink to this post as soon as you introduce the anticorruption measure you want to discuss, without feeling the need to insert the “not a panacea” qualification. You’re welcome.

Anticorruption Court Rulings as a Gentle Reminder to Voters: Candidates’ Integrity Is Important

One of the great paradoxes in the research on corruption in democracies—and one of the great sources of frustration for anticorruption activists—is that while large majorities of voters consistently claim that they detest corruption and would be less likely to support corrupt politicians, nonetheless politicians credibly accused of corruption regularly win elections. There are many possible explanations for this, including the possibilities that voters lack sufficient information about corruption allegations against candidates, or that voters ultimately prioritize other factors. Yet another possibility—similar to yet distinct from these familiar explanations—is that even if voters are generally aware of corruption allegations against certain politicians, when the time comes to vote, other issues are more salient in many citizens’ minds, and integrity concerns fade into the background.

That last explanation implies that if concerns about politicians’ integrity were made more salient shortly before the election—even if the focus was on political corruption generally, or on corruption in some other jurisdiction—then voters would be less inclined to support politicians suspected of corruption. In a recent article, titled Can Institutions Make Voters Care about Corruption?, Omer Yair, Raanan Sulitzeanu-Kenan, and Yoav Dotan find that this may indeed be the case, and further suggest that if high-profile institutions—such as courts—take actions that raise the salience of corruption and integrity issues shortly before an election, this can lead voters to place more weight on such considerations when casting their ballots. Continue reading

The U.S. Qualified Opportunity Zone Program Is Vulnerable to Corrupt Manipulation by Politically-Connected Investors. Here’s How To Fix It.

The U.S. federal government’s Qualified Opportunity Zones Program, a program established as part of the 2017 Tax Cuts and Jobs Act, is supposed to drive investment to certain low-income neighborhoods (so-called “qualified opportunity zones,” or QOZs) by allowing investors to defer (or, in the case of sufficiently long-term investments, to avoid) capital gains taxes on their investments in these areas. The process of designating QOZs works as follows: First, the U.S. Department of the Treasury provides each state with a list of eligible “economically distressed” neighborhoods. This list is based on census data, but, importantly, it includes not only neighborhoods located in poor census tracts, but also neighborhoods that are adjacent to poor neighborhoods, or that overlap (even slightly) with areas designated as “empowerment zones” under a Clinton-era redevelopment initiative. Next, each state governor has the authority to nominate up to 25% of these eligible neighborhoods for designation as QOZs. The governors’ lists are then submitted to the Treasury Secretary, who has the final authority to certify these neighborhoods as QOZs. As of July 2020, 8,700 neighborhoods had been designated as QOZs.

Many have questioned the wisdom and efficacy of the QOZ program on a variety of grounds, with some characterizing the program as little more than a new form of tax avoidance for the wealthy that fails to address structural poverty. Even if one puts those concerns to the side, there are serious concerns that the existing QOZ program—and in particular, the process for selecting QOZs described above—has been corrupted by wealthy interests, who are able to exploit their political connections to get certain areas designated as QOZs, even when professional staff deem such designations inconsistent with the established program criteria. Consider just a few high-profile examples: Continue reading

Suspended EFCC Chair Answers Anonymous Charges

Opponents of Ibrahim Magu, suspended chair of Nigeria’s powerful anticorruption agency the Economic and Financial Crimes Commission, are doing their best to convict him of corruption in the court of public opinion.  While Chairman Magu patiently waits for a chance to clear his name before a special panel investigating charges levelled against him by Abubakar Malami, Minister of Justice and Attorney-General, stories of his supposed corruption appear daily in Nigeria’s raucous media. In response, his counsel Wasab Shittu has begun responding.  Below are excerpts from his July 26 letter.

Alleged Questions Over [the Chairman’s] Asset Declaration.

Our client has NEVER been confronted with any such allegations purportedly arising from the Panel’s proceedings. The story attributed to the panel, which has become a recurring decimal, is a dangerous attempt to discredit the work of the honorable panel.

Funds recovered from indebted NNPC marketers for the NNPC.

Contrary to the misleading media reports, EFCC under our client’s watch NEVER misappropriated any funds recovered for NNPC [Nigeria National Petroleum Corporation]. The truth of the matter is that well over N329billion recovered by EFCC under our client’s watch was remitted directly in10 NNPC dedicated accounts via REMITTA under a special arrangement endorsed by NNPC, EFCC and the affected NNPC’s indebted marketers.

New Podcast, Featuring Danielle Brian

A new episode of KickBack: The Global Anticorruption Podcast is now available. In this week’s episode, I interview Danielle Brian, the Executive Director of the Project on Government Oversight (POGO), a U.S. civil society watchdog organization that focuses on investigating, exposing, and preventing government corruption, fraud, and waste, and more broadly lobbies for systemic reforms to improve accountability and integrity in the U.S. government.

The interview begins with a conversation about POGO’s history and current work, and discusses POGO’s somewhat “hybrid model,” which combines investigation work on specific cases with a broader policy reform agenda. Ms. Brian provides, as an encouraging example of how groups like POGO can have a positive impact, POGO’s work in promoting significant reform in the regulations governing payments to oil and gas companies. She describes the case study as a useful illustration of a successful advocacy campaign, but also emphasizes that one of the lessons from this and other cases is that genuine reform takes time and requires patience. We then turn to several other challenges that anticorruption advocacy groups like POGO face, including how to maintain a reputation for nonpartisanship and how to balance the interest in engaging with the government and publicly criticizing the government. Ms. Brian and I also touch on a number of more specific issues, including concerns about corruption in the allocation of coronavirus relief funds, questions about whether or how to frame lobbying or other influence activities as “corrupt,” and the so-called “revolving door” problem.

You can also find both this episode and an archive of prior episodes at the following locations:

KickBack is a collaborative effort between GAB and the ICRN. If you like it, please subscribe/follow, and tell all your friends! And if you have suggestions for voices you’d like to hear on the podcast, just send me a message and let me know.

One other note: KickBack will be going on holiday in August, but we’ll be back with a new episode on September 7.

U.S. State Grand Juries Can Be Powerful Watchdogs. Let’s Put Them To Use (Again).  

Many commentators in the United States—including a number of GAB contributors—have lamented the lack of robust anticorruption investigations at the state level, and have advocated the creation or strengthening of state-level anticorruption commissions (see, for example, here, here, and here). While there is much to be said for these proposals, the existing commentary often overlooks the fact that states already have a powerful institution with the potential to perform many of the functions that reformers hope to vest with the state commissions. That institution is the state grand jury.

When most people hear the phrase “grand jury,” if they know the term at all, they probably imagine a scene from some TV crime show where a prosecutor endeavors to persuade a group of average citizens to indict someone that the prosecutor believes has committed a crime. And indeed in most states, grand juries’ principal function is to determine whether a state prosecutor has “probable cause” to put a defendant on trial. (After the trial beings, a different jury—the “petit jury”—decides whether the defendant is actually guilty.) But grand juries don’t just evaluate the prosecutor’s evidence at the indictment stage. Grand juries also have robust investigatory powers of their own. Like some state anticorruption commissions, state grand juries have the authority to subpoena documents or other tangible things. But unlike state anticorruption commissions, state grand juries can also compel witnesses to testify, and can hold those who refuse in contempt. (Indeed, while witnesses can invoke their constitutional right against self-incrimination to refuse to testify in a criminal trial, no such right exists in a grand jury investigation.) Moreover, grand juries can not only return criminal indictments (their more familiar function), but grand juries can also issue public reports about unethical and unsavory behavior.

If wielded properly, these immense powers could help unearth evidence of wrongdoing. Moreover, grand juries’ investigative powers may be especially valuable in cases involving corruption. While it might seem radical to propose that grand juries exercise these existing but largely moribund powers to assume the role of anticorruption watchdog, this would in fact be a return to one of the grand juries’ traditional functions.

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Unholy Alliance: How and Why India’s Politicians Protect India’s Corrupt Godmen

In my last post, I explained how loopholes in India’s legal system have enabled self-proclaimed “godmen” to amass fortunes by facilitating money laundering. But these corrupt godmen could not build their illicit empires without protection from politicians. After all, the government could crack down on godmen’s activities by changing the laws, or even by ensuring adequate enforcement of the flawed laws that currently exist. The government has not done so in part because of a corrupt relationship between godmen and politicians. The politicians provide the godmen with political favors, special privileges (including sweetheart deals for the godmen’s business ventures), patronage appointments, and, perhaps most importantly, the preservation of the system of legal loopholes and minimal oversight that enables the godmen to amass their fortunes. In return, godmen provide politicians with a number of services. These services include the same money laundering services that godmen provide to businessmen. But the godmen also provide politicians with three other services in exchange for the politicians’ complicity.

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Anticorruption Bibliography–July 2020 Update

An updated version of my anticorruption bibliography is available from my faculty webpage. A direct link to the pdf of the full bibliography is here, and a list of the new sources added in this update is here. As always, I welcome suggestions for other sources that are not yet included, including any papers GAB readers have written.

Godmen or Conmen? How India’s Religious Trust Laws Facilitate Money Laundering Empires

In the past two decades, India has witnessed the rise of so-called “godmen” (and “godwomen”), charismatic religious leaders who have amassed enormous fortunes. To take just a few of the most eye-popping examples: when the godman Sathya Sai Baba died in 2011, his holdings were valued at more than $9 billion. Another godman, Asaram Bapu, has a trust with an annual turnover of $49 million—which may seem like a lot, but pales in comparison to the over $1.6 billion in annual revenue earned by a company called Patanjali, controlled by yet another godman, Baba Ramdev. It would not be hard to supply many other examples. The godmen and their supporters will tell you that these empires are built on a combination of legitimate contributions and business savvy, and that the funds are used to support spiritual and charitable activities. But in fact there is ample evidence that the fortunes of these supposedly religious figures are tainted by extensive corruptiontax evasion, and money laundering.

One of the most common functions that godmen perform in the illicit economy is the conversion of so-called “black money” (unaccounted off-book money, often from illegal sources) into “white money” (or goods or services), in exchange for a hefty fee. Godmen are able to get away with this due to unfortunate features of India’s religious trust laws, which are opaque and riddled with loopholes, and leave religious trusts largely unchecked and unsupervised. Here’s how some of the godmen’s illicit schemes work:

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Guest Post: The Impending Reckoning on the U.S. Government’s Expansive Theory of Extraterritorial FCPA Liability

Today’s guest post is from Roxie Larin, a lawyer who previously served as Senior Legal Counsel for HSBC Holdings and is now an independent researcher and consultant on corruption, compliance, and white collar crime issues.

The U.S. Foreign Corrupt Practices Act (FCPA) is a powerful tool that the U.S. government has wielded to combat overseas bribery—not just bribery committed by U.S. citizens or firms, but also bribery committed by foreign nationals outside of U.S. territory. (The FCPA also applies to any individual, including a non-U.S. person or firm, who participates in an FCPA violation while in the United States, but this territorial jurisdiction is standard and noncontroversial.) The FCPA, unlike many other U.S. statutes, does not require a nexus of the alleged crime to the United States so long as certain other criteria are satisfied. For one thing, the statute applies to companies, including foreign companies, that issue securities in the U.S. In addition, the FCPA covers non-U.S. individuals or companies that act as an employee, officer, director, or agent of an entity that is itself covered by the FCPA (either a U.S. domestic concern or a foreign issuer of U.S. securities), even if all of the relevant conduct takes place outside U.S. territory.

In pursuing FCPA cases against non-U.S. entities for FCPA violations committed wholly outside U.S. territory, the agencies that enforce the FCPA—the Department of Justice (DOJ) and Securities and Exchange Commission (SEC)—have pushed the boundaries of this latter jurisdictional provision. They have done so in part by stretching to its limits (and perhaps beyond) what it means to act as an “agent” of a U.S. firm or issuer. (The FCPA provisions covering foreign “officers” and “employees” of issuers and domestic concerns are more straightforward, but also more rarely invoked. It’s rare for the government to have evidence implicating a corporate officer, and the employee designation doesn’t help unless the government is either able to dispense with notions of corporate separateness, given that foreign nationals are typically employed by a company organized under the laws of their local jurisdiction.) Until recently, the government’s expansive agency-based theories of extraterritorial jurisdiction had neither been tested nor fully articulated beyond a few generic paragraphs in the government’s FCPA Resource Guide. In many cases, foreign companies affiliated with an issuer or domestic concern have settled with the U.S. government before trial, presumably conceding jurisdiction on the theory that the foreign company acted as an agent of the issuer or domestic concern. (This concession may be in part because a guilty plea by a foreign affiliate is often a condition for leniency towards the U.S. company.) Hence, the government has not had to prove its jurisdiction over these foreign defendants.

But there was bound to be a reckoning over the U.S. government’s untested theories of extraterritorial FCPA jurisdiction, and the SEC and DOJ’s expansive theories are increasingly being tested in court cases brought against individuals who, sensibly, are more prone to litigating their freedom than companies are their capital. And it turns out that the U.S. government’s expansive conception of “agency” may be difficult to sustain in cases where the foreign national defendant—the supposed “agent” of the U.S. firm or issuer—is a low- or mid-level employee of a foreign affiliate, and even more difficult to sustain so where the domestic concern is only an affiliate and not the parent company. Continue reading