Income and Asset Disclosure Statements: No Anticorruption Magic Bullet

For the second time in the space of a couple of months I find myself explaining to the leaders of an anticorruption agency that a program requiring senior officials to disclose their income, assets, and other details of their personal finances won’t end corruption or, for that matter, cure the common cold or otherwise solve all their nation’s ills.  There seems to be some kind of myth floating around the development community and at least some self-anointed anticorruption “experts” that such a program can by itself lead to the exposure of a great deal, if not all, of corrupt activity.

If only it were that easy.  The truth is the evidence points in virtually the opposite direction.

It is rare that analysis of an income and asset statement will, without more, reveal corrupt activity.  The reason is simple: the vast majority of dishonest officials take elaborate measures to disguise the proceeds of corruption.  They do not deposit large sums received as bribes in their personal bank accounts, nor do they hold expensive homes or cars realized from corruption in their own name.  Rather, they open bank accounts in the name of a relative or a corporation, or find other ways to hide the ill-gotten assets from the authorities’ view.

To be sure, there are instances where a financial disclosure program alone has tripped up an unwary corruption official.  He or she has registered a car or parcel of land acquired corruptly in a public registry while failing to disclose it on his or her disclosure form.  Or the official reported significant assets while showing only a small income, and is unable to offer a plausible explanation when queried about the disparity.  But these cases are unusual.  For example, the Thai authorities have reviewed thousands of income & asset declaration forms over a ten year period, and in that time they found only seven cases where property was registered in a public registry and not disclosed on declaration. And a study of the Macedonian income & asset declaration program found that out of 176 cases of unreported income investigated over a nine year period, none was significant enough to trigger prosecution for illicit wealth.

In the first years of a country’s disclosure program, simple analysis of the submissions may reveal some cases where corrupt officials unwittingly report information that exposes corruption.  But anticorruption agencies should not expect large numbers of corrupt officials will be caught this easily.  Not only will most dishonest officials already be taking steps to disguise their illegal behavior, but as soon as an agency makes out one case against a corrupt official from a submission, word will spread and others will take additional measures to hide their illegal assets and income.  Consider the reaction to the introduction of fingerprint technology: When criminals realized they could be caught if they left their fingerprints at the scene of a crime, all, or almost all, began wearing gloves.

Of course, the fact that savvy criminals now wear gloves hasn’t stopped the police from looking for fingerprints at the crime scene.  Likewise, evasive actions by corrupt officials does not mean income and asset disclosure programs are worthless.  They provide some assurance to citizens that public officials’ conduct is being monitored, a significant in countries where rumors of widespread corruption are rife.  Declaration requirements that force officials to take more elaborate measures to hide their loot raise the costs of corruption, and may therefore reduce its incidence somewhat.  And declarations are also useful once a corruption investigation has begun, because investigators can use a declaration to catch a suspect in a lie — for example, by comparing the income and assets reported against the suspect’s lifestyle.

But those advising anticorruption agencies owe it to their clients to be realistic about what financial disclosure programs can and cannot achieve.  Making extravagant claims about the effectiveness of financial disclosure programs, or any other anticorruption initiative for that matter, does real harm.  It leads policymakers to think there is an easy way to controlling corruption when the fact is that corruption control requires a patient, long-term commitment to a number of policy changes.

8 thoughts on “Income and Asset Disclosure Statements: No Anticorruption Magic Bullet

  1. Dear Rick, after reading your post I disagree with the message you deliver in that post. Asset disclosure statements do have a much more effective impact on anticorruption ( prevention and combating) as stated. Combined with publication of it ( like it is done in Indonesia) civil society as well as investigative journalism use it for reporting as well as pointing out contradictions. And also in countries in which the reversal of burden of proof exists such disclosure might be enough to catch somebody without linking it to a concrete corruption case. It is not a magic bullet, like non alone standing initiative in the fight against corruption, but it is an effective weapon in strengthening control and transparency. Your consideration might give the impression that they are useless as less effective as one expect. But they are an important part of an well working anticorruption system. The post should therefore be called: Income and Asset Disclosure Statements: No Anticorruption Magic Bullet as alone standing initiative, but highly useful under the right conditions.
    best regards, Johanna

  2. Rick, I see your point, and I agree that disclosure requirements are probably pretty easy to evade and likely not a “magic bullet,” but I think that they might be helpful, at least in conjunction with other initiatives. Specifically, I can think of at least two ways in which these disclosure obligations could help with the fight against corruption.
    First, in reference to one of Matthew’s earlier posts, these disclosures could help in the post hoc determination of when assets have been looted. It should be much easier for something like StAR to seize assets if a given politician has already disavowed ownership of them.
    Second, with respect to the issue of corruption “tells,” as described by Addar, it should be the case that disclosures would help to throw the distinction between avowed assets and lifestyle into starker relief. If a politician claims to be penurious but is actually living in luxury, it might make it harder for them to avoid allegations of corruption.

  3. Rick,

    I guess my reaction was similar to Johanna’s and Phil’s. I can understand that it must be frustrating when certain policy reforms are over-sold. And it sounds like in your experience there’s been some (maybe more than some) of that excessive hype with respect to income & asset disclosures. But that doesn’t mean that this tool isn’t one useful part of a larger anticorruption strategy. Just to take your fingerprinting analogy: If there were a bunch of people running around in the late 19th/early 20th century saying that fingerprint analysis was going end burglary, critics would rightly point out the excessive optimism of that prediction — but it’s still the case that the development of fingerprint analysis was a hugely important advance, and law enforcement agencies were clearly doing the right thing when they took advantage of it (and other new forensic techniques).

    Or to take another, more contemporary example: The Indonesian anticorruption agency (the KPK) made much more extensive use of wiretapping and other advanced surveillance technologies than had been typical in Indonesian law enforcement. This was hugely helpful in nailing a number of corrupt officials. Of course, wiretaps are no magic bullet either, and crooks will learn to be more careful about what they say on the phone. But it’s still a huge help.

    I suspect you wouldn’t disagree with any of this, but Johanna is right that the tone of your post seems overly negative on the value of personal financial disclosures.

    That said, I wholeheartedly agree with your last paragraph, which could apply to any number of anticorruption reform measures (audits, salary increases, local accountability, higher penalties, education, etc.) — all these things might be part of a comprehensive reform strategy, but it’s dangerous to over-hype any one intervention, standing alone, or to underestimate the time and effort it takes to get corruption under control.

    • Sorry if from the tone of the post the message was misinterpreted. I stand by my statement that income and asset disclosure statements by themselves won’t end corruption, cure the common cold, or whatever. But as I said later in the post and suggested elsewhere (http://www.u4.no/publications/income-and-assets-declarations-issues-to-consider-in-developing-a-disclosure-regime/), they are an important element of an anticorruption policy. For the reasons I stated as well as for the additional ones mentioned in the comments.

      At the federal level in the U.S. they are most valuable as a prophylactic measure. No individual is likely to be nominated, and certainly not confirmed, as Secretary of Defense if their stock portfolio consists of large holdings of companies that manufacture arms or other equipment purchased by the Defense Department. The Office of Government Ethics, which reviews the financial disclosures of individuals before they are nominated, would insist that the nominee sell off the stock. And if he or she did not and was still nominated, the Senate would surely refuse to confirm the person.

      It was Hong Kong that popularized the use of financial disclosure statements as a way to combat wealth acquired through bribery or other illicit means. As Joanna notes, a number of countries have followed that model. The anticorruption commission or other enforcement agency will assess an official’s lifestyle against their declared income and assets, and if there is an inconsistency – the official is living beyond his or her means – the burden will be on the official to show the wealth or income is derived from lawful sources.

      • While agreeing with the consensus that disclosure must be part of a package of reform, I find that Rick’s skeptical stance also points to the practical importance of comparing disclosure’s benefits to possible alternative controls when facing limited fiscal and institutional resources. Disclosure may at first glance seem cheap, in that it mostly burdens the officials that must produce their own records. But the administrative costs of auditing these records to deter dishonesty and generate leads for enforcement must be weighed against the ease of evasion. One can imagine that in some resource-constrained situations, more deterrence could be generated by targeted, surprise investigations or stings with stiff penalties than from universal review of records that have been assembled so as to mask any wrongdoing. What is appropriate in each context will vary, but puncturing inflated expectations may be important for ensuring that authorities adopt the best mix of solutions they can afford.

  4. Rick, glad you rectified the perception created that asset declarations are not the silver bullet but as the other have pointed out, if done well they are a powerful tool. However in the examples you gave you assume that the asset disclosure system if being utilized with the intention of actually identifying illicit gain or corruption. In the case you give on Macedonia, the State Committee for Prevention and Repression of Corruption (SCPC) asset disclosure system has been implemented without the resources or personnel to accurately verify neither the declarations nor the assets. Asset disclosure is an a tool that easily be intentionally mislaid as is the the case of the SCPC.

  5. It seems to me that Rick’s original post and all the comments are just disagreeing about the relative prominence and expectations that should be attached to this kind of disclosure program — and maybe not even about that. Everyone seems to agree that these programs have legitimate uses; everyone seems to agree they are no panacea.

    But Rick, what I would find more interesting is what gave rise to the tone of your post (which I appreciated since I think it’s the part of the post that really stands to give us the most new knowledge).

    You mentioned having to explain the non-panacea nature of disclosure programs to an anticorruption agency, and it seems like that’s a pattern. In your experience (and I think you have more on-the-ground experience than most if not all of the commenters), do these programs really interfere with the creation of more effective policies because they’re relied on too heavily? Do policymakers’ perspectives really get warped by the false promises of these programs?

    I’d love to hear more about that aspect of your post.

  6. Pingback: A Mexican Candidate’s Income and Asset Declaration Lambasted as “Amazing,” “Absurd,” “Inconsistent”    | GAB | The Global Anticorruption Blog

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