World Bank Monitoring of Repatriated Assets Should Be Part of Major Settlements

The issue of repatriating the proceeds of corruption to the countries from which they were stolen has attracted substantial commentary, including in multiple posts on this blog (see here, here, here, here and here). Much of the discussion focuses on whether and how to return funds to countries that still suffer from systemic corruption or outright kleptocracy. In these cases, the risk that the assets, if simply returned, will be stolen again is, in the view of some critics, unacceptably high. In some cases, despite these risks, the government that seized the assets nevertheless repatriates the seized funds directly to the government from which they were originally stolen; the US Department of Justice (DOJ) has done this in several cases, including asset returns to Peru, Italy, and Nicaragua. In other cases, by contrast, the seized funds have been funneled to a local NGO rather than to the government. This was done in the agreement among the United States, Switzerland, and Kazakhstan regarding the transfer of corruption proceeds to Kazakhstan (an agreement which created a new NGO called the BOTA Foundation). This mechanism was also included in the DOJ’s settlement with Equatorial Guinea over the disposition of assets stolen by the President’s son, Teodorin Obiang. Another approach, which we saw in this past February’s trilateral agreement among the United States, Jersey, and Nigeria regarding the return of $308 million in assets stolen by former Nigerian dictator General Sani Abacha (which I discussed at greater length in a previous post), entails the earmarking of the repatriated funds for specific infrastructure projects, coupled with oversight by a yet-to-be-determined independent auditor and yet-to-be-determined independent civil society organizations (CSOs), with both the auditor and the CSOs selected by Nigeria, but subject to a veto by the United States and Jersey.

The inclusion of these various conditions is understandable. Notwithstanding the sovereignty-based objections advanced by the so-called “victim countries”—which often assert that they have an absolute right to the unconditional return of assets stolen from their national treasuries—returning huge sums to corrupt or weak governments without any safeguards would be irresponsible. Nevertheless, there are many pitfalls involved with leaving oversight largely to the victim country government and local CSOs, and the ability of countries like the United States to monitor compliance with the terms of repatriation agreements in foreign countries is limited. The best way to address these concerns is to involve an international institution—such as the World Bank, or possibly one of the regional multilateral development banks—in monitoring the terms of repatriation agreements.

Continue reading

Finding Politically Feasible Anticorruption Reforms in Bosnia and Herzegovina: The Case for Indirect Approaches

Bosnia and Herzegovina (BiH), like many of its neighbors in the Western Balkans, is beset by endemic, seemingly unsolvable corruption. Understandably, many Bosnian citizens would like to see the prosecution and conviction of high-level officials engaged in corrupt practices. Local activists and the international community have pressed for improvements to BiH’s judicial sector and law enforcement capacities, at least in part to make such high-level prosecutions more likely, and more likely to succeed. Yet while convictions of corrupt senior officials should indeed be one important goal, in the short term it will be very difficult to achieve, for the simple and familiar reason that political leaders will vigorously resist any changes that could put themselves at risk of criminal prosecution. Ending the culture of elite impunity in BiH, while necessary, will remain a long-term project.

That doesn’t mean, though, that there’s nothing that can be done about corruption in BiH in the short-to-medium term. Indeed, there are a number of measures, besides direct criminal prosecutions, that could reduce corruption in ways that are more indirect, and therefore less threatening to those currently in power. That feature, coupled with the fact that many of these reforms would also produce substantial economic benefits even independent of their corruption-reducing effect, makes these kinds of reforms more politically feasible. Reforms in the two following economic areas are examples of how BiH could cut opportunities for corruption and make everyday life better for Bosnians, and do so in a way that might be acceptable or even attractive to incumbent politicians. Continue reading

Tracking Corruption and Conflicts of Interest in the Trump Administration–July 2020 Update

Over three years ago, in May 2017, this blog started the project of tracking and cataloguing credible allegations that President Trump, and his family members and close associates, have been corruptly, and possibly illegally, leveraging the power of the presidency to enrich themselves. The newest update is now available here. As was true last month, there are relatively few new items this month, in part because other issues (especially but not exclusively the coronavirus pandemic) have dominated the news. And indeed most of the notable new issues related to concerns about corruption and conflicts-of-interest in the Trump Administration relate to the coronavirus response. For example concerns that the administration has been steering relief funds to companies connected to Trump and his allies have been exacerbated by the administration’s efforts to block oversight of how these funds are spent. For example, the Treasury Department refused to share information about beneficiaries of certain business relief programs, and the Small Business Administration (SBA) has also provided federal officials and their families with a blanket exemption from the conflict-of-interest review that would otherwise apply when business owned by these individuals apply for coronavirus relief funds administered by the SBA.

A previously noted, while we try to include only those allegations that appear credible, many of the allegations that we discuss are speculative and/or contested. We also do not attempt a full analysis of the laws and regulations that may or may not have been broken if the allegations are true. (For an overview of some of the relevant federal laws and regulations that might apply to some of the alleged problematic conduct, see here.)

Canadian Legislation to Permit Use of Stolen Assets for Humanitarian Relief

Ontario Senator Ratna Omidvar has introduced legislation to allow the Canadian government to use frozen assets for humanitarian end. The Frozen Assets Repurposing Act (Loi sur la réaffectation des biens bloqués) would authorize the Attorney General or a designee to request the court where an asset is frozen to seize it. If after a hearing the court is satisfied on the balance of probabilities that the asset is “associated with a foreign national who is responsible for or complicit in” corruption or human rights violations, the asset would be liquidated and the proceeds paid into the court. The court may then distribute the funds to any person, organization, or foreign state for a “just and appropriate” purpose.

The Senator’s bill solves a problem both Canada and the European Union faced in the wake of the Arab Spring.  Canada’s federal government and EU executive both had the power to freeze assets where there was evidence that they were obtained through corruption. But the law allowed them to do no more.  The laws of both assumed the governments from which the assets had been stolen would initiate return proceedings in accordance with chapter V of UNCAC.  But thanks to some combination of a lack of capacity and political wherewithal, successor governments in Egypt, Libya, Tunisia, and Yemen did not. The freezes either ended and the funds went back to the crooked leader or they remain frozen indefinitely.

Although the legislation leaves it to the court to decide how to use the confiscated funds, Senator Omidvar’s bill explicitly states that consideration be given to helping foreign states accommodate refuges. She suggests for example that the frozen funds of Venezuela’s corrupt rulers could be distributed to Colombia and other neighboring countries to alleviate the suffering of Venezuelans who have sought refuge in them.

The confiscation process follows that in the U.K.’s Unexplained Wealth Order law. The holder of the asset would be given the opportunity to show he or she had obtained it through lawful means.  Only if the holder failed to convince the court that it was would confiscation follow.

The legislation was inspired by this 2018 World Refugee Council paper.  The Senator’s “Make Corrupt Foreign Officials Pay,” an article in the online journal Policy Options Politique, makes a strong case for its enactment.  The arguments are not Canada-specific. Perhaps legislators in other countries where the corrupt hide their money will be inspired to copy her bill?  The text is here.

New Podcast, Featuring Asoka Obeysekere

A new episode of KickBack: The Global Anticorruption Podcast is now available. In this week’s episode, I interview Asoka Obeysekere, the Executive Director for Transparency International’s Sri Lanka chapter (TI-SL). Our conversation covers TI-SL’s various approaches to combating corruption in Sri Lanka, including both “retail” legal aid efforts to assist individual citizens in dealing with corrupt bureaucrats, as well as efforts to secure broader legal and institutional reforms, as well as broader cultural change. On that latter subject, the interview also covers the system of corruption in Sri Lanka, how corruption has become normalized, and whether an dhow attitudes about corruption can be changed. We also discuss how TI-SL, drawing inspiration from a civil society initiative in Ukraie, has compiled its own registry of Politically Exposed Persons (PEPs) using publicly available, and how the creation of such a database can be helpful in detecting suspicious activity and exposing potential wrongdoing. The interview concludes with the advice Mr. Obeysekere would offer to other civil society leaders operating in similarly challenging environments on how they can be most effective in advancing an anticorruption agenda.

You can find this episode here. 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.

Municipal Dissolution as a Means of Combatting Criminal Corruption

In December of 2019, the Italian government dissolved the municipal government of the Calabrian town of Africo, replacing it with a national governmentk commission that would run the city for the next 12 to 24 months. This drastic action, decried by (former) Africo city councilor Nicola Paris as “interrupting democracy,” was authorized by a special Italian law, adopted in 1991, that permits the national government to dissolve a local government if that local government has been infiltrated by the mafia. Since 1991, 341 such dissolution decrees have been issued (though 21 were cancelled by administrative courts), with 22 issued in 2019-2020 alone. Sixty-six communities have seen their local government dissolved more than once. (Africo’s city council, for example, has now been dissolved three times.) And the practice is spreading geographically. Between 1991 and 2011, the vast majority of city council dissolutions were in the three regions under the “traditional” sphere of mafia control (Campania, Calabria, and Sicily), with only three dissolutions outside of those regions. But since 2011, the Italian government has dissolved city councils in 21 municipalities outside of that traditional sphere.

The dissolution of city councils is a serious measure, and is strictly regulated. The process begins when concrete evidence emerges of links between town councilors and organized criminal elements that could bias political decision-making or affect public security. This evidence is submitted to the Prefecture, an administrative body responsible for implementing state functions at the local level. The Prefecture appoints a three-person Committee of Inquiry. After an investigation, which usually takes roughly 3-6 months, the Committee presents its findings to the Prefect, who presents them to the Minister of Interior within 45 days. The Minister of Interior, after deliberating with the Council of Ministers, then decides whether to issue a proposal of dissolution; a dissolution is only finalized when the President of the Republic issues a decree of resolution. The issuance of such a decree is judicially reviewable by the administrative courts (and, as noted above, 21 dissolution orders have been judicially nullified). When a municipal government is dissolved, the mayor, councilors, and members of the executive committee are removed from office, and a group of three individuals, known as the Extraordinary Commission, takes over all council activities for a period of up to two years. At the end of this time, new local elections are held.

Even with all of this process, dissolution of a local government is an extreme measure, but in Italy, where deeply-entrenched organized criminal groups are able to secure their control thorough corruption of local governments, such an extreme response is warranted. Indeed, other countries struggling with similar problems might consider adopting a similar mechanism. Continue reading

Protecting Guyana from the Natural Resource Curse

The ethnically-divided country of Guyana is one of the smallest and poorest countries in South America. It has a population of just 782,000 people—roughly the size of North Dakota—and its income per capita is less than $5,000 per year. But while the rest of the world faces a crippling recession, Guyana’s economy is projected to grow by 53% this year, thanks to a significant offshore discovery. (The country’s projected growth had been even higher before the recent stress in oil markets.) Guyana sold its first barrel of oil this past January, and national oil output is expected to reach 750,000 barrels/day by 2025 and 1.2mm barrels/day by 2030—more than a barrel of oil per day for each of Guyana’s 782,000 citizens.

But will this oil wealth benefit Guyana’s citizenry? Many observers worry that Guyana may fall victim to the “natural resource curse”—a paradoxical phenomenon in which resource wealth not only fails to generate sustainable economic growth but actually worsens the standard of living for most of a country’s citizens. While some manifestations of the natural resource curse are macroeconomic in nature (for example, the so-called “Dutch disease,” in which resource-driven currency appreciation stifles other tradable sectors), other versions of the resource curse involve resource wealth undermining institutions and weakening governance. Natural resource wealth, especially from point-source resources like oil, gives the political leaders who control the resource cash flows the power and opportunity to engage in various forms corruption. Not only can these leaders profit directly through kickbacks or embezzlement, but they can use resource wealth to solidify their own political power through favoritism and clientelism. In both cases, political leaders may weaken or eliminate transparency, accountability, and institutional checks that are designed to constrain their ability to improperly use resource wealth for their own personal or political benefit. These risks are greatest in countries that already have relatively poor governance and weak institutional frameworks when the resource wealth is discovered. And this corruption and institutional weakening may make ordinary citizens worse off than they were before the resource boom, even as those with connections or political power get rich.

This manifestation of the resource curse is a significant concern for Guyana, a country with political institutions that are already fragile and prone to corruption. In a winner-take-all political system with voters split along ethnic (and even geographic) lines, politicians win by favoring their base and suppressing opposition turnout. And indeed, this year’s presidential elections, conducted just two months after the country’s first oil sale, were marred by vote rigging, civil unrest, and violence. But there are also encouraging signs that the Guyanese government is taking steps to address the resource curse concern by strengthening budgetary institutions. In January 2019, the government established the Natural Resource Fund (NRF) to manage the country’s natural resource wealth. Similar to funds established in Ghana and Timor-Leste, the NRF is structured as an offshore fund that invests in liquid international securities with well-established guidelines governing fund transfers to Guyana’s Ministry of Finance. By codifying transfer rules and prohibiting fund borrowing, the NRF will compel the government—and whichever political party controls it—to save a significant portion of its oil revenue, limiting its discretionary spending abilities and curbing the corruption opportunities that arise from unencumbered financial resources.

The NRF, however, is not sufficient. While the NRF is restricted from borrowing, the Guyanese government is not. And while the NRF limits a government’s ability to withdraw more oil revenue than the NRF’s bylaws allow, the Guyana state is not forbidden from borrowing against this revenue. This loophole would allow a profligate government—especially one that intended to reward its constituents or award suspicious investment contracts—to borrow in international financial markets to fund its expenditures. Furthermore, even with the constraints imposed by NRF transfers, Guyana’s central government expenditures are projected to double from 290 billion Guyanese dollars (approximately US$1.4 billion) to 580 billion Guyanese dollars (US$2.8 billion) over the next five years. This presents ample opportunity for political leaders to leverage their power over discretionary spending to enrich and entrench themselves.

To further constrain the sort of resource-fueled discretionary spending associated with the natural resource curse, Guyana should take at least two additional steps: Continue reading

Guest Post: Ukraine’s Recipe for Fighting Judicial Corruption—Civil Society and International Experts

Today’s guest post is from Halyna Chyzhyk, a judicial reform expert at the Anticorruption Action Centre (ANTAC) in Kyiv, Ukraine:

Since Ukraine’s so-called Revolution of Dignity in 2013-2014, the country has substantially reformed its laws—both statutory and constitutional—on the judiciary and the status of judges. A new Supreme Court was created from scratch, the composition of Ukraine’s two judicial governance bodies—the High Qualification Commission of Judges (HQCJ) and the High Council of Justice (HCJ)—were completely changed, and several new anticorruption measures were enacted. For instance, judges are now required to submit electronic asset declarations, and failure to prove that the assets all derive from legal sources is grounds for dismissing a judge. Moreover, all judges are now obliged to pass an evaluation of their professional competence and integrity.

Despite these reforms, the judiciary remains one of the most corrupt and least trusted institutions in the country. One of the main problems is that the bodies most responsible for judicial appointment, removal, and self-governance—the HQCJ and the HCJ—do not take corruption seriously. In fact, these institutions are actively helping to protect and cover for corrupt judges, in some cases even using their authority to persecuting independent judges who try to expose judicial corruption. Consider, for example, the case of Larysa Holnyk, a judge from Poltava. In 2014, Judge Oleksandr Strukov, the head of the Poltava court, assigned Judge Holnyk a case concerning a potential conflict of interest of the Mayor of Poltava. The Mayor’s representative contacted Judge Holnyk to make an offer to settle the matter “amicably”—the clear implication was that the Mayor was offering some sort of improper inducement in exchange for making the case go away. Judge Holnyk not only refused the offer, but she reported the Mayor and his representative for attempted bribery. Since that time she has been suffering harassment from Judge Strukov, numerous court suits, and even physical attacks. However, the HCJ has refused to investigate Judge Strukov`s possible involvement in the corruption scheme, and has not punished him for persecuting Holnyk. Instead, the HCJ punished Judge Holnyk. Continue reading

Australian Lawyers and Real Estate Agents: Kleptocrats’ Best Friends?

Government officials who steal “vast quantities” of their citizens’ money need help hiding the loot.  The first generation of kleptocrats — the Ferdinand Marcoses, Mobutu Sese Sekos, and Sani Abachas of the world – showed that the preferred way is to retain someone to surreptitiously move the money into a safe haven abroad and then invest it in assets that cannot be traced back to them.  The anticorruption community calls these accomplices to grand corruption “enablers,” for they enable corrupt officials to hide their money.

The international community has begun cracking down on this professional class of crooks.  The primary means has been through making them subject to domestic anti-money laws.  Just as the laws of virtually all countries require banks and other financial institutions to take particular care (“enhanced due diligence”) before accepting as a customer current or former senior government officials or their family members or close associates and to report any suspicious transaction these “politically exposed persons” conduct, the Financial Action Task Force recommendations 22, 23, and 28 require the same from lawyers, accountants, real estate agents and others with the professional skills required to hide stolen assets. FATF has no power to compel countries to transpose these recommendations into domestic law.  It relies instead on the peer pressure generated by regular, highly publicized reports on individual nation’s compliance with them.

That system has now ground to a halt. According to the Financial Review, the reason is fierce opposition from Australian lawyers and real estate agents to what a FATF review of Australian compliance with the anti-money laundering recommendations would reveal. For 13 years the two have blocked the extension of the Australian anti-money laundering rules to their activities; last November a scheduled FATF review was about to finally call them out.  It was then suddenly cancelled. The only explanation given was that FATF had decided “to temporarily pause the start of all scheduled follow-up assessments pending the outcomes of the strategic review of FATF currently underway.”  Although FATF acknowledged discussing the review at its February 2020 meeting, no details about what the review would cover or when it would be completed was provided.  In the meantime, professions in the United States, Canada, and other nations (here, here, and here) who oppose extending anti-money laundering rules to their activities can breathe easier.  So can kleptocrats wanting to tap their expertise in hiding money.

New Blog on Police Corruption and Accountability

These past several weeks, protests in the United States and around the world have brought much-needed scrutiny to the problem of police misconduct. While the main focus of attention has rightly been on issues related to systemic racism and police violence, rather than police corruption (narrowly defined), concerns about police misconduct relate to important themes that the anticorruption community has long emphasized. Indeed, as I discussed in my post a couple weeks back, there are intriguing and troubling similarities in the organizational-cultural characteristics associated with corrupt firms and abusive police departments. And perhaps some of the lessons learned from institutional reform strategies designed to combat corruption can help inform approaches to reforming law enforcement agencies more generally.

I’m not the right person to lead that conversation, since I lack the relevant expertise, but I’m happy to announce a new addition to the blogosphere that will focus on these issues. The CurbingCorruption project (which I’ve mentioned earlier), which already featured a section on fighting corruption in the law enforcement sector, has launched a new blog called Trusted Policing. According to the official description:

Achieving Trusted Policing requires changes to laws and to police institutional practices to stop corruption, brutality, racism and harassment. It requires leadership of change not only from protesters but also from those in positions of responsibility – the police themselves, elected officials, public officials, whether in government, law enforcement agencies – and those who analyse and live the problems – academics, not-for-profit organisations, grass-roots reformers, police committees. The purpose of this blog is to contribute to one small part of this massive improvement challenge: to serve as a source and a repository for good experience and constructive proposals for police improvement from around the world.

The blog is brand new and only has a handful of posts so far, but those posts are quite interesting, and I think this may be a useful forum for those interesting in engaging in dialogue at the intersection of anticorruption reform and policing reform more generally.