The OECD Report on Corruption in Sectors: Will it Hurt the Brand?

Consequences of Corruption at the Sector Level and Implications for Economic Growth and Development is the OECD’s latest report on corruption. Released March 25, it was written at the request of G-20 governments and follows an earlier one the organization did for the G-20’s September 2013 meeting.  Whereas that report examined the impact of corruption on rates of economic growth and levels of development, this one adopts a micro perspective, analyzing the effect of corruption and suggesting ways to fight it for four sectors of national economies: i) extractive industries, ii) utilities and infrastructure, iii) health, and iv) education. Among its more striking conclusions:

  • ”independent, competent and better regulatory and law enforcement systems” are critical for combating corruption;
  • “transparency should be an integral component of all anti-corruption strategies;” and
  • “anti-corruption measures must . . . be targeted and tailored.”

Additional examples of focused, cutting edge policy recommendations can be found by clicking “Continue reading.” Continue reading

Anticorruption Bibliography–April 2015 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.

The Golden Handshake: Background Rules and the Choice of Restoring Money or Doing Justice

The anticorruption community has recently put more emphasis on freezing, seizing, and repatriating the assets of corrupt kleptocrats. But while this move is in many ways welcome, it is still the case that essentially none of the most infamous kleptocrats have ended up behind bars. Even when governments go after the illicit assets of these kleptocrats, their cronies, and other “politically exposed persons” (PEPs), the governments seeking asset recovery often find themselves put to an uncomfortable choice: either to accept the return of only a part (sometimes a small part) of the looted wealth in a settlement, or to continue to pursue their attempts, often in vain, to seize and repatriate all (or at least most) of the stolen assets.

Sophisticated PEPs know this, and usually take advantage of the slowness of the asset recovery process (as well as their ability to use their ill-gotten wealth to hire top-notch legal talent to wage a protracted legal battle), to the point where the governments are willing to allow the PEP to secure the “golden handshake” of a favorable settlement. Nothing illustrates this better than the attempts to recover the assets of former Nigerian President Sani Abache and of former Kenyan President Daniel Arap Moi. Abache’s family’s lawyers stiff resistance to asset recovery efforts eventually led to a settlement whereby the Abache family returned $1 billion–but got to keep $300 million. In the latter case, the Kenyan authorities insisted on recovering the full amount–and have ended up with nothing. The Kenyan experience has served as a cautionary tale, inducing for example many of the Arab Spring countries to accept settlements they would have never accepted two years ago. This result frustrates the foundational principle of penology that a criminal who gets caught should end up worse off than he would have been if he did not commit the crime. A corrupt official who knows that the worst that can happen is that he might have to give back half or two-thirds of the money he stole is unlikely to be deterred.

At the moment, it does not seem realistic to expect more severe criminal punishment for many kleptocrats, so reliance on settlement will continue for a while. Accordingly it is important to figure out how to use settlements to guarantee the maximum restoration of assets. The two most important factors that shape the content of a settlement are national and foreign justice. Consider each in turn. Continue reading

Cells for Suites: Why Corruption in Prison Matters, and What To Do About It

In the latest chapter of Philippine corruption drama, a police raid of a large prison complex revealed the lavish accommodations enjoyed by several drug lords. The luxury cells included jacuzzis, strip bars, and marble-tiled bathrooms. Police also uncovered methamphetamines, inflatable sex dolls, and a small concert stage, complete with strobe lights and a disco ball. The prisoners involved were found with over $40,000 each in their pockets, which they had kept on hand in order to pay off prison officials. It is incredible that such a blatant abuse of the system took place under the watch of government officials. As one anticorruption advocate noted, the scandal highlighted the frustrating truth that, due to widespread corruption in the prison system, even a conviction does not guarantee that justice has been done.

The Philippine example may be extreme, but the issue of prison corruption is an important one, and it receives far less attention from the anticorruption community than it should. To be sure, there have been a few studies about this topic, including the U4 Issue Report on Detention and Corrections, released in January 2015. But the U4 Report, while helpful in some ways, contains only broad, general assessments about the possible causes of corruption among prison officials. Moreover, the report considered the issue of prison corruption in isolation—it focused only on the effects of such corruption on the prison itself, without addressing the effects on the broader fight against corruption in society at large. While prosecutorial efforts and institutional reforms are crucial to anticorruption efforts, it is also extremely important that prison officials act in accordance with the law, and ensure that justice is, in fact, done. Continue reading

Corruption is BOTH a “Principal-Agent Problem” AND a “Collective Action Problem”

Let me admit right up front that this is going to be kind of a nerdy post, focused mostly (though not entirely) on questions of terminology.  But there’s a particular meme that seems to have emerged in much of the discussion of anticorruption strategy, which I think is just wrongheaded and misleading.  The meme goes something like this:

“Although some people describe corruption as a principal-agent problem, corruption is actually a collective action problem.”

(I hate to point fingers, but just so you know I’m not making this up, examples of this meme appear here, here, here, here, herehere, here, and here.  Most depressingly, the not-very-good Wikipedia entry on corruption also includes this claim.)

This statement uses sophisticated-sounding social science jargon, but to anyone who knows what the terms “principal-agent problem” and “collective action problem” actually mean, in their technical economic context, it doesn’t make much sense–at least insofar as it implies that “principal-agent problem” and “collective action problem” are mutually exclusive alternatives. In fact, corruption is both a principal-agent problem (always) and a collective action problem (often).  Recognizing the latter claim need not and should not entail rejecting the former claim; the assumption that it does not only reflects conceptual confusion, but also entails the risk that we will neglect the many insights that principal-agent theory has to offer the study and practice of anticorruption.

I am certainly not the first to make this point. Heather Marquette and Caryn Peiffer have a very nice U4 Issue Paper developing many of the same themes (in greater depth). But because this has been bugging me for a while, let me offer my take on this issue:

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Disclosure Rules and Political Corruption: The Lessons of the Menendez Case

On April 1, 2015, the United States Department of Justice issued a 68 page indictment charging U.S. Senator Robert Menendez and Dr. Salomon Melgen, a Florida ophthalmologist, with 22 separate violations of American federal criminal law arising from their long running relationship.  The Department alleges that Dr. Melgen provided Senator Menendez “domestic and international flights on private jets, first-class domestic airfare, use of a Caribbean villa, access to an exclusive Dominican resort, a stay at a luxury hotel in Paris, expensive meals, golf outings, and tens of thousands of dollars in contributions to a legal defense fund.” In return the Department claims that Senator Menendez used his position as a member of the U.S. Senate to advance Dr. Melgen’s personal and business interests.

If both Dr. Melgen and Senator Menendez stand by their initial responses to the indictment, prosecutors will find it very hard to prove that Melgen bribed Menendez.  The doctor and the Senator are not disputing the facts; what they say is that they are friends and what each did for the other was motivated by friendship.  To overcome this “gifts from a friend” defense, prosecutors must prove that what was in the minds of the two men when the gifts passed was not friendship but corruption.  Showing what was in a defendant’s mind is always difficult and is even more difficult when the defendant offers a plausible, benign alternative. So unless the Department intends to call a mind reader as a witness, proving the 21 charges of bribery or acts relating to bribery in the indictment will be a challenge.

That’s what makes the 22nd charge so important.

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Announcement: TRACE International Essay Contest on “How to Pay a Bribe”

TRACE International, a private anti-bribery compliance support and consulting organization, is holding an essay competition that I think might be of interest to some GAB readers:

TRACE publishes biennial edited volume called How to Pay a Bribe: Thinking Like a Criminal to Thwart Bribery Schemes, which provides an informative collection of essays on the nitty gritty details on how firms and individuals pay and conceal unlawful bribes. (For information on the first two editions, from 2012 and 2014, see here and here.) For the next edition of this series, TRACE is soliciting submissions that describe real-world bribery schemes in international business. TRACE will select up to five submissions to be published in the third edition of How to Pay a Bribe, and the authors of the five winning submissions will receive a US$2,000 honorarium. The submission guidelines indicate that entries should be no more than 3,500 words, that all submissions must be original and not previously published, and that narratives and anecdotes are preferred over academic writing. The submission deadline is June 30, 2015. More information on the contest can be found on TRACE’s website here.

Big Data and Anticorruption: A Great Fit

There is no shortage of buzz about Big Data in the anticorruption world. It’s everywhere — from public efforts like Transparency International’s public procurement analysis to cutting-edge private-sector FCPA compliance programs implemented by Ernst & Young. TI has blogged about Big Data and corruption, with titles like “Can Big Data Solve the World’s Problems, Including Corruption?” and “The Potential of Fighting Corruption Through Data Mining.” Ernst & Young’s conclusion is more definite: “Anti-Corruption Compliance Now Requires Big Data Analytics.”

In previous posts, contributors to this blog have written about how the anticorruption community was excited about social media-style apps (“crowdsourcing”) in anticorruption efforts. Apps like iPaidABribe allow citizens to report their encounters with corrupt officials, generating a fertile data set for anticorruption activists. Big Data is a related effort: activists can mine huge amounts of data for patterns that reveal corrupt activity, making it a powerful tool for transparency. However, as the name suggests, Big Data requires massive amounts of data in order to be useful.The anticorruption community should throw its weight behind proposals to open up data sets for Big Data analysis. As with crowdsourced anticorruption efforts, the excitement surrounding Big Data could quickly turn into disappointment unless this tool can be integrated into the broader anticorruption effort. Continue reading

Buyer Beware: What Does President-Elect Muhammadu Buhari’s Anticorruption Record Actually Mean for Nigeria?

In my last post, I tied the rampant corruption in the Nigerian armed forces to the military’s historically central role in the country’s politics. But on March 28 and 29, Nigerians went to the polls and voted against the status quo and corruption in the military. In doing so, they ousted President Goodluck Jonathan in favor of President-Elect Muhammadu Buhari, the candidate from the All Progressives Congress (APC) party. A number of factors – the threat of Boko Haram, plummeting oil prices, out-of-control corruption and, important in light of my last post, a fissure between current and retired army officers – aligned to bring about Nigeria’s first ruling party transition since the country’s adoption of multiparty democracy in 1999. It is a truly momentous time in the country’s history and many — from President Jonathan, to the Independent National Electoral Commission, to courageous voters in conflict areas — deserve recognition.

Although many see the recent election result as a blow Nigeria’s old guard, President-Elect Buhari is from an even older guard. A former major general in the Nigerian military, he acted as head of state from 1983 to 1985 after seizing power in a coup against the democratically elected leader, Shehu Shagari; Buhari himself was ousted by coup shortly thereafter. His track record during his brief prior presidency leaves one feeling decidedly ambivalent. He waged an infamous “War Against Indiscipline,” which aimed to instill order and integrity through public whippings, summary arrests and convictions, wildly disproportionate prison sentences, and humiliating penalties for minor infractions. He is also remembered for issuing draconian decrees curtailing press freedoms.

Yet Buhari has eschewed his authoritarian past, explaining “now I want to operate as a partisan politician in a multiparty setup. It’s a fundamental difference.” There is some evidence that this is more than just talk. He stood for election in the last three cycles and, despite accusations of incitement to violence, he accepted the unfavorable results each time. Additionally, President Buhari’s progressive party, the APC, will likely influence his agenda, as will Vice President-Elect, Yemi Osinbajo, the former Attorney General of Lagos State who is a staunch advocate for justice sector reform. It will also help that Nigeria has a mostly free press, robust civic engagement, and the attention of the world. A more positive aspect of Buhari’s record from his last stint as head of state is his regime’s reputation for honesty, dedication to the fight against corruption, and action against offending officials. In fact, the 1983 coup came about under conditions quite similar to those animating Buhari’s surge today – flagrant financial mismanagement by Shagari and depressed oil prices. Buhari’s short-lived regime imprisoned roughly 500 elite politicians and businessmen on corruption charges. Partly because of this legacy, there are now high expectations — perhaps unrealistically high — that President-Elect Buhari will be able to act effectively against corruption in Nigeria. After all, his campaign platform emphasized anticorruption (along with pledges to fight Boko Haram more effectively), and this theme had widespread appeal among voters. Given President-Elect Buhari’s record from his previous stint as Nigeria’s president in the early 1980s, many believe that he has the “political will” to fight corruption that President Jonathan sorely lacked.

Yet even if Buhari’s intentions are pure, and his will strong, there are a number of reasons not to get too excited too soon about what Buhari will be able to accomplish on this front. Indeed, the progress that Nigeria has made toward genuine multiparty democracy, exemplified by Buhari’s election, may — perhaps ironically or perversely — make it more difficult for him to pursue an anticorruption agenda now than it was the last time around.

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Should Governments Subsidize Corporate Compliance?

Several months ago I did a couple of posts (here and here) on the Transparency International USA report from a couple months back on verification of corporate anti-corruption compliance programs. That report also got me thinking about a more general question: Should governments provide a subsidy (perhaps in the form of a tax credit) for businesses — particularly small and medium-sized enterprises — to support spending on the design, evaluation, and testing of their anti-bribery compliance programs?

I haven’t yet come across anything that advocates for something like this, so let me make a tentative case for why it might be a good idea:

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