Do Chinese Aid Projects in Africa Make Corruption Worse? And If So, Why?

Development aid is a potentially powerful tool for promoting economic growth among the world’s poor. However, development aid is plagued by corruption, in no small part because many of the poorest areas are also the most susceptible to corruption. In addition to that dilemma, some research suggests that the injection of outside funds into existing corrupt societies can actually exacerbate governance problems. Is this true? And does the impact of development aid on corruption (and development) depend on the source of the aid? An important new paper by Ann-Sofie Isaksson and Andreas Kotsadam suggests that the answers are yes and yes—in particular, they find that Chinese aid projects in Africa may worsen local corruption.

To investigate the question whether Chinese aid projects affect local corruption in Africa, the authors combine data from separate sources. For data on local corruption, the authors make use of the Afrobarometer surveys, with data on nearly 100,000 respondents in 29 countries, collected over a 12 year period (2000-2012) in four separate surveys. The authors focus in particular on respondents’ answer to questions about the frequency of paying bribes to avoid problems with the police or to obtain documents or permits. The authors use the geographic location of survey respondents, together with information on the geographic location of 227 Chinese-aid-supported projects in Africa, in order to identify those respondents who live geographically close to a project supported by Chinese development aid. The results are stark: African citizens who live in areas with Chinese-sponsored projects are 4 percentage points more likely to pay a bribe to police, and 2 percentage points more likely to pay a bribe for permits or documents. Given baseline reported bribery rates of about 13-14%, this means that citizens living near a Chinese aid project are about 30% more likely to report paying a bribe to the police, and about 15% more likely to report paying a bribe for a permit or document.

The most natural explanation is that Chinese aid projects tend to stimulate more corruption. There are, of course, a number of other possible explanations, which the authors address and for the most part rule out, or at least suggest are unlikely:

Continue reading

Guest Post: After the Tsunami–Mexico’s Anticorruption Outlook Under Andres Manuel Lopez Obrador

Today’s guest post is from Bonnie J. Palifka, Associate Professor of Economics at Mexico’s Tecnológico de Monterrey (ITESM), and Luis A. Garcia, a partner at Villarreal-VGF specializing in corporate compliance and anticorruption matters:

The results of Mexico’s federal elections last July have been described as a “tsunami” for Andrés Manuel López Obrador (AMLO) and his National Regeneration Movement, known by its Spanish acronym “Morena.” AMLO won 53% of the popular vote and Morena swept the House and Senate, as well as a majority of the nine state governorships up for grabs and several local legislatures. This is all the more remarkable considering that Morena was founded as a civil society organization in 2011 (and registered as a political party in 2014), and was fighting for control of Mexico’s political left against AMLO’s former party, the PRD. Many are hopeful that AMLO will lead a transformation of Mexico into a modern, peaceful, fair, and prosperous society like Chile or Uruguay, while others fear that he will take the country down the route of Venezuela. That the same person can engender such different reactions is due in part to the vagueness and inconsistency of AMLO’s rhetoric throughout the campaign: sometimes he would take a highly confrontational and uncompromising attitude toward Mexico’s political and economic elite—what he termed the “mafia of power”—while at other times he would strike a more conciliatory tone. But one consistent theme in AMLO’s rhetoric—and in the analysis of the data on the reasons for Morena’s electoral triumph—was profound indignation at the blatant corruption and impunity of Mexico’s political and business elites.

Mexican voters’ frustration with corruption is understandable. Although in recent decades Mexico has undertaken a number of anticorruption measures—including, under former President Vicente Fox, a new freedom of information law, and, under current President Enrique Peña Nieto, a new National Anticorruption System (SNA), which, among other things, updates national and state laws to criminalize more acts, reduce immunities, and increase punishments—these measures have been insufficient, as reflected in Mexico’s increasingly poor showing on the Corruption Perceptions Index. AMLO identified corruption as Mexico’s most pressing problem and promised to bring about an honest and transparent regime that would be truly responsive to the country’s needs. And, in an encouraging sign, AMLO has brought in a diverse group of highly respected experts and activists, from all sides of the political spectrum, and has appeared flexible and open to dialogue. At the same time, though, he has displayed a puzzling blind spot for potential conflicts of interest, and his optimistic rhetoric has suffered from a lack of specificity, coherence, and concrete proposals. Continue reading

Did Manafort Corrupt European Politicians?

Former Trump campaign manager Paul Manafort’s guilty plea last Friday has fired speculation that he may “flip” on President Trump, telling prosecutors about Trump’s Russian ties in return for a lighter sentence. But for Europeans a much more important story emerges from the plea.  Buried in the 117-pages of documents released as part of the plea agreement is the story of how Manafort enlisted senior European politicians to paint Ukrainian President Victor Yanukovych’s pro-Russian, authoritarian regime as a democraticlly-led friend of Europe and America.  The story shows:

1) Manafort used the dark arts he learned as an American lobbyist to corrupt gullible European politicians;

or on another reading —

2) Some leading European politicians are as willing to prostitute themselves for whatever client will pay as some of their American counterparts.

The tale begins with Manafort’s June 2012 “Confidential: Eyes Only Memo” proposing to procure a “Super VIP Group of former European Heads of Governments and VIP Officials” to sell Yanukovych’s Ukraine to Europe and American policymakers.  The sale, Manafort explains, will be made “without any visible relationship” to the Yanukovych government through his “quiet direction” in newspaper articles, press commentary, and presentations at Manafort-organized conferences across Europe.

Less than a year later Manafort’s report on the work of what he christened the “Hapsburg Group” says: Continue reading

The US Can (Probably) Charge Bribe-Taking Foreign Officials as Conspirators or Accomplices in FCPA Cases

Given everything else that’s happening related to corruption right now (much of it awful), perhaps it’s a mistake for me to be spending so much time thinking about fairly narrow doctrinal issues related to applications of the U.S. Foreign Corrupt Practices Act (FCPA). But my reflections on the recent court of appeals decision in US v. Hoskins (which held that a foreign national could not be charged as an accomplice or co-conspirator in an FCPA violation based on conduct occurring abroad) have gotten me thinking about—and questioning—what I had assumed was a well-settled and straightforward conclusion that the foreign official who takes a bribe from a person or entity covered by the FCPA cannot be charged with aiding and abetting, or conspiring to commit, that FCPA violation.

That conclusion—that bribe-taking foreign officials may not be charged as accomplices or co-conspirators in FCPA cases—was announced by a US court of appeals in 1991 in a case called United States v. Castle. In Castle, according to the allegations (which for present purposes I’ll assume to be true), two private US businessmen paid a $50,000 bribe to two Canadian government officials in order to win a contract to provide public buses to the provincial government. The US government charged the American citizens with violating the FCPA—which, if the facts are as alleged, they clearly did. The Canadian officials cannot directly violate the FCPA, which by its terms prohibits only covered entities from giving (or promising or offering) bribes to foreign public officials; the FCPA does not criminalize the act of taking a bribe. But in the Castle case, the US government tried to get around this problem by charging the Canadian officials with conspiracy to violate the FCPA, pursuant to the federal conspiracy statute, codified at 18 U.S.C. § 371. That section makes it a separate crime (“conspiracy”) for “two or more persons [to] conspire … to commit any [federal] offense,” as long as “one or more of such persons do any act to effect the object of the conspiracy.” According to the U.S. government’s theory of the case, once the Canadian officials agreed with the US businessmen to accept money in exchange for a public contract, they had all conspired to commit a federal crime, and once the US businessmen took action in furtherance of this conspiracy (by paying the money), all the parties, including the Canadian officials, were liable as co-conspirators. The US district judge rejected that theory, and the court of appeals affirmed, simply endorsing and reprinting (with one minor correction) the district judge’s ruling.

Since Castle, so far as I can tell, this principle that the US government can’t prosecute bribe-taking foreign officials as conspirators in an FCPA violation (or, similarly, as accomplices to an FCPA violation under another statute, 18 U.S.C. § 2(a)), seems to have become generally accepted, largely unchallenged by the US government, and treated as clearly correct as matter of legal doctrine. And it matters a great deal as a policy matter: If the Castle ruling had gone the other way, than the FCPA—complemented by the general conspiracy and complicity statutes—would give the US government a very powerful tool, for better or worse, to prosecute bribe-taking foreign government officials, at least those with sufficient ties to the US to establish personal jurisdiction (an important qualification I’ll return to later). I’d always assumed, without much reflection, that Castle was rightly decided. But after some digging into the case law, prompted largely by the more recent decision in Hoskins, and re-reading the Castle opinion, I think that Castle’s broad holding is doctrinally incorrect. If certain other conditions hold, a bribe-taking foreign official can be guilty as an accomplice to or co-conspirator in an FCPA violation, even though the foreign official could not directly violate the FCPA. Continue reading

Getting People Off the Sanctions List: A Process that Doesn’t Support the Policy

Individually-targeted “smart sanctions”—not to be confused with country-wide sanctions, such as trade or arms embargoes—are garnering increased attention as a potentially powerful tool in the anticorruption toolkit, particularly in the United States. Such sanctions typically prohibit persons or entities on the list of those under sanction (known in the U.S. as the Specially Designated and Blocked Person (SDN) list) from accessing the sanctioning country’s financial system. They can also impose travel bans and/or prohibit third parties subject to the sanctioning country’s jurisdiction from doing business with the targeted individuals. These individually-targeted sanctions, particularly the asset freezes, are a powerful instrument, and may be an especially effective deterrent in the context of venal crimes like corruption, given that those motivated principally by greed might also be more sensitive to severe financial penalties. (According to a 2016 study by the US State Department, a sanctioned or associated company loses, on average, over half of its asset value and one-third of its employees and operating revenues.) While the United States had previously used individually-targeted asset freezes to punish individuals responsible for acts of public corruption in places like Venezuela (pursuant to Executive Order (EO) 13692), Syria (pursuant to EO 13460), and Zimbabwe (pursuant to EO 13469), the 2016 Global Magnitsky Act (GMA) has made individually-targeted asset freezes a more prominent piece of the US anticorruption arsenal. Pursuant to this Act, last December President Trump authorized sanctions against 15 individuals and 37 entities for human rights abuses and acts of grand corruption; in June, the Office of Foreign Asset Control (OFAC) added two more entities and five more individuals to the list.

In the months since OFAC released the first tranche of GMA names, there has been extensive discussion about how civil society organizations (CSOs) can add more names to the Global Magnitsky list. Former Deputy Assistant Secretary of State Rob Berschinski, for example, is spearheading efforts through Human Rights First to coordinate CSOs endeavouring to submit names for consideration, while the Helsinki Commission organized a special “how-to” event for CSOs to help them be more effective in lobbying to add names to the list.

Yet for all this attention on how to get names on to the GMA list, little ink has been spilled addressing the question of how sanctioned individuals might get off that list. It’s not surprising that CSOs would not devote their scarce resources to getting individuals who have engaged in acts of grand corruption off of a sanctions list. Yet the de-listing issue is important—even in contexts where it’s unlikely that a name would be added to the list erroneously. The main reason has to do with incentives. As the US Treasury Department acknowledges, the “ultimate goal with sanctions is not to punish, but to bring about a positive change in behavior of illicit actors.” And it is the prospect of getting off the sanctions list that can encourage bad actors to change their behavior and/or to cooperate with the US government investigations into wrongdoing. Continue reading

Coordination of Corporate Resolution Penalties Is Unlikely to Address the “Piling On” Problem in FCPA Prosecutions

Multinational companies that pay bribes may find themselves subject to prosecution by multiple jurisdictions. Some countries, including many in Europe, apply a double jeopardy bar (known there as ne bis in idem) that prevents one country from prosecuting an entity that has already been prosecuted elsewhere. Other countries, however—including the United States—have no such bar. US prosecutors may pursue those suspected of violating the Foreign Corrupt Practices Act (FCPA) even if the targets already have been, or are being, prosecuted in another country for the same bribe payments. Is this a problem? Some say no: the possibility of multiple prosecutions by different sovereigns might create a healthy “race to the top” and stronger deterrence. On the other hand, however, we might worry that multiple prosecutions risk over-punishing, thereby over-deterring risky but socially valuable conduct (like expanding into high-risk foreign markets). Companies also will not be sure when a matter is finally settled. In addition, there seems something arrogant about the US giving itself the power to evaluate whether a criminal prosecution in another country was adequate.

The US Department of Justice (DOJ), long a defender of its right to judge for itself whether to bring a parallel or follow-on prosecution in FCPA cases, recently signaled greater sympathy with those who take the latter side in this debate. Earlier this year, the DOJ unveiled a new policy meant to eliminate “unfair duplicative penalties” on corporate wrongdoers, including those participating in foreign bribery, and set out a number of factors that the DOJ can use to evaluate whether imposing multiple penalties serves “the interests of justice.” Describing the impetus for the policy update, Deputy Attorney General Rod Rosenstein echoed common complaints from the corporate community about how the “piling on” of multiple penalties for the same misconduct, from different regulatory and enforcement agencies, deprives the company and its stakeholders of the “the benefits of certainty and finality ordinarily available through a full and final settlement.”

It’s not clear, though, whether—at least with respect to FCPA cases—the new policy differs much from the approach that the DOJ’s FCPA Unit has been taking to joint and parallel investigations for many years. While formalizing the approach may seem to provide some relief to corporations, the new policy actually does little to address the “piling on” problem in the foreign bribery context: Continue reading

Anticorruption Bibliography–September 2018 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.