A Cautionary Note on the “World Anticorruption Police”

In an Op-Ed in the New York Times this past Wednesday, Alexander Lebedev, former KGB officer and current owner of the Moscow newspaper Novaya Gazeta, calls for “an international body to police corruption.” Lebedev astutely describes how “international banks, law firms and accountants” make it far too easy to hide the proceeds of corrupt activities, and far too difficult to bring the perpetrators to justice.  Yet his proposed solution–an international anticorruption police force–is likely to have costs that far outweigh whatever benefits it may have. Continue reading

Political Bias in U.S. Anticorruption Enforcement

In my post last week, which reacted to Dani Rodrick’s discussion of the political situation in Turkey (and also to some of the commentary on recent anticorruption enforcement patterns in China), I noted the ambivalence that many people (myself included) feel about anticorruption enforcement that is simultaneously (1) legitimate (in the sense that there is evidence that the targets have indeed violated the law) and (2) politically-motivated (in the sense that the targets may have been selected not only, or not primarily, because of the alleged corruption, but also because of partisan or factional political conflict).

One thing that I should have made clearer in the post, but didn’t, is that concerns about politically-motivated anticorruption enforcement are not limited to developing countries. Indeed, there’s some fairly strong evidence of partisan political bias in anticorruption enforcement in other countries, like the United States. The strongest evidence that I know of is a terrific paper by the political scientist Sandy Gordon, which finds very strong evidence that the U.S. Department of Justice is more likely to prosecute state and local officials for various corruption offenses if those officials belong to a different political party than the one that controls the White House. (This effect was particularly strong during George W. Bush’s presidency.) Continue reading

Personal Financial Disclosure by Chinese Officials: Will China Finally Get Serious?

Matthew noted yesterday how continuing revelations of the vast wealth some Chinese officials have accumulated put China’s leaders in a bind.  If they don’t curb corruption, they risk undermining their legitimacy; on the other side, so many senior individuals are involved that a serious crackdown could ignite a power struggle.

An important gauge of the direction the leadership will choose is how vigorously it enforces a directive issued in November 2013 requiring public servants to disclose details about their and their family members’ finances.  Requiring senior officials to reveal their personal finances can be a valuable tool in the battle against grand corruption, as one of China’s East Asian neighbors can testify.  In the Philippines, the Statement of Assets, Liabilities, and Net Worth officials must file has been central to exposing the corrupt dealings of a president and a chief justice as well as revealing a nest of corrupt tax collectors. Continue reading

Reflections on the ICIJ’s Expose on Chinese Princelings’ Offshore Holdings

For those who haven’t seen it already, last month the International Consortium for Investigative Journalists (ICIJ) released a highly detailed report on the extensive offshore holdings of China’s “princelings” (close relatives of China’s political elite), and other relatives and close associates of the leadership. It’s worth a read. I doubt anyone who follows China even slightly will be terribly surprised to learn that friends and family of the Communist Party elite have stashed billions of dollars in shell companies and offshore bank accounts, but the level of detail—and the naming of names—is impressive. And while nothing in the report directly indicates that the money is the product of corruption or other illegal activity, as the saying goes, where there’s smoke…

A few quick thoughts on the report: Continue reading

Do Investment Arbitration Treaty Rules Encourage Corruption?

Is it possible that current investor-state arbitration rules actually encourage states to tolerate corruption? A terrific 2012 note by Zachary Torres-Fowler in the Virginia Journal of International Law raises that question. Here’s the gist of his argument: According to the widely discussed arbitral decision in World Duty Free v. Kenya, states in investment treaty arbitration can escape liability by proving that the aggrieved investor engaged in corrupt activities in connection with the investment under dispute–even if senior state officials were full participants in the corrupt transaction. That being the case, states that receive inbound foreign investment have a perverse incentive to tolerate corruption in the officials who deal with foreign investors, because that corruption may help shield states from legal liability should the state subsequently renege on its agreement with the investor. This is a great insight, and one which I think could actually be expanded a bit further.

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What Does “Zero Tolerance” of Corruption Mean? A Comment on Labelle

Rick’s last couple of posts (here and here) critiqued Bill Gates’ claim that, because corruption in development aid projects as relatively small-scale (allegedly around 2%), it’s therefore a manageable “tax” on aid. Rick asserted (correctly, in my view) that the corruption problem is much bigger, and that the 2% figure is essentially a made-up number. Over at the Huffington Post, Huguette Labelle, the Chair of Transparency International, also responds to Gates. Most of what she says is pretty standard (which doesn’t mean it’s not right). But near the end of her post, she takes a striking position that’s worth thinking about a bit more critically: She argues forcefully against “[a]ccepting low levels of corruption as a pragmatic fact of life,” and instead advocates “[z]ero-tolerance for corruption.” This is quite different from Rick’s argument; Rick pointed out that corruption in development aid projects is not in fact low-level. But Ms. Labelle’s “zero tolerance” stance implies that even if Bill Gates were right about the facts, he would still be wrong in his conclusions. “Zero tolerance” of corruption certainly sounds good. But what exactly does it mean? Continue reading

Bill Gates on Corruption in Development Projects: Is This How He Ran Microsoft? (Part II)

In an earlier post I showed that Bill Gates’ supposition that only 2 percent of expenditures in development assistance projects were lost to corruption was wildly off the mark.  I also asserted that such lowball estimates are a major hurdle to more effective aid programs: When corruption losses are lowballed, so are the resources devoted to combating corruption.  If losses are 2 percent of the total budget, then it makes little sense to spend 4 percent of the budget trying to prevent them.  But if losses are 20 percent, then 4 percent spent on audits and investigations is a miserly sum.  If losses are closer to 40 percent, then spending 4 percent borders on criminal negligence.

So where did Gates get the 2 percent figure? It turns out that the likely source for that figure illustrates not only how casually influential people sometimes throw around baseless numbers, but also the perverse incentives that development programs sometimes face to downplay the seriousness of corruption in their projects.

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Turkish Turmoil and Politically-Motivated Anticorruption Enforcement

At the Project Syndicate website, Dani Rodrik had a very nice commentary last month about the recent power struggles in Turkey, which have included prominent anticorruption actions against senior government figures. These actions have been brought by prosecutors sympathetic to one faction (the Gülenists) against high-ranking figures affiliated with Prime Minister Erdoğan and his party (the AKP). For people like me, who know next to nothing about Turkey, Rodrik’s post provides a nice overview (albeit one with a strong editorial slant). In addition, one passage in Rodrik’s post caught my attention, as it seems related to a common pattern, and problem, in the world of anticorruption enforcement:

The Gülenists have dressed up their campaign against Erdoğan in the guise of a corruption probe. No one who is familiar with Turkey would be surprised to learn that there was large-scale corruption surrounding construction projects. But the corruption probe is clearly politically motivated, and Erdoğan is right to question the prosecutors’ motives. The current round of judicial activism is as much about rooting out corruption as previous rounds were about [other alleged malfeasance] – which is to say, not much at all.

This seems to be a frequently recurring pattern: (1) one party or faction launches an aggressive anticorruption probe against a rival party or faction; (2) it is almost certainly true that most or all of the targets of the corruption investigation did in fact engage in corruption—often serious corruption; yet (3) it is also often the case that those pushing the investigations are doing so not only, or even primarily, out of genuine concern about corruption, but rather as a way to damage a political rival. The most familiar manifestation of this pattern occurs when a new party or faction comes to power and launches corruption investigations against its predecessors or main rivals, as part of what may amount to a purge (or, more mildly, an effort to consolidate power). There’s a plausible argument that this is what’s happening right now in China. The Turkey situation is a bit different, in that a faction that does not currently control the government nonetheless has enough support within the justice system (police, prosecutors, judges, etc.) to launch politically-motivated corruption probes of government officials. Continue reading

On Differing Understandings of “Corruption”

I’m sometimes asked how my work on anticorruption (and this blog) relates to the work of my Harvard Law School colleague Larry Lessig, who is the Director of Harvard University’s Edmond J. Safra Center for Ethics (and who also has a widely-read blog). Under Larry’s leadership, the Safra Center has been focused primarily on “institutional corruption,” and Larry’s 2011 book Republic, Lost likewise focuses on how money corrupts the U.S. Congress. So, what’s the relationship between our two projects?

The short answer is that, although I respect and admire Larry’s work, our corruption projects are about very different things. By itself that’s not terribly interesting, and I wouldn’t bother posting about it except that I think the differences in our projects highlight a longstanding difficulty about the term “corruption” and its use in social science and political advocacy. I don’t want to belabor the issue—when academics run out of ideas, they argue about definitions—but maybe a few quick observations on this point are in order.

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Bill Gates on Corruption in Development Projects: Is This How He Ran Microsoft? (Part I)

The Bill & Melinda Gates Foundation has emerged as a major force in the development community – thanks not only to the $28 billion (yes, billion) the Foundation has donated to improve the lives of the world’s poor, but to the license it gives co-chair Bill Gates to speak to development policy. After all, as they used to say of the brokerage firm E.F. Hutton, when a billionaire speaks, people listen — particularly one who gives billions away each year.

Not surprisingly, the letter he and spouse Melinda wrote to serve as the Foundation’s 2014 annual report has been the subject of much attention — excerpted in the Wall Street Journal, quoted in hundreds of press stories and blogs. For the most part, the attention is welcome; the letter nicely puts the lie to several myths that pervade the discussion of poverty and development.  But in a section Microsoft’s founder wrote slaying some common myths about foreign aid, he perpetuates another myth, one that is a major hurdle to more effective aid programs: that corruption in these programs, though undesirable, is relatively minor and manageable. That’s just not true. Continue reading