Guest Post: U.S. Implementation of the EITI–Good Progress, But Needs Improvement

GAB is delighted to welcome back Daniel Dudis, Senior Policy Director for Government Accountability at Transparency International-USA, who contributes the following guest post:

The United States recently published its first narrative report and payment reconciliation report under the Extractive Industries Transparency Initiative (EITI). The EITI was founded in 2003 to help end the “resource curse” by which the revenues generated from natural resource extraction benefit a small group of politically-connected insiders and do nothing to improve the lives of the vast majority of people in many resource-rich countries. The concept that underpins the EITI is simple: by requiring participating resource extraction companies to report the payments they make to all levels of government in a country, while simultaneously requiring participating governments to report the revenues (including royalties, bonuses, rents, penalties, fees, and corporate income taxes) received from those companies, one can compare the reported figures and bring transparency to an often opaque sector. This transparency can in turn be used to hold governments accountable for how they distribute and spend resource wealth. Membership in the EITI is voluntary; there are currently 49 countries participating. The EITI is governed at both the international and national levels by multi-stakeholder groups composed of representatives of government, civil society, and industry.

The recently published U.S. EITI report covers payments made and received in 2013. There is much valuable information in the both report and the accompanying U.S. EITI website. The Department of Interior is to be commended for publishing 100% of payments it received in 2013 from companies producing on federal lands and in federal waters (totaling approximately $12 billion), as well as state-by-state royalties for 18 resource-rich U.S. states. The report also provides detailed information on natural resource extraction governance at the federal, state, and tribal levels, statistics on the size of the extractives sector (in terms of economic output and employment), as well as a valuable assessment of the revenue sustainability in 12 resource-dependent counties.

That said, there are a couple of important respects in which the report falls short: Continue reading

The Amount of Bribery and the Cost of Bribery Are Not the Same

I’ve posted before (see here, here, and here) about some of my concerns regarding the accuracy of the estimates people sometimes throw around about the total amount of bribes paid each year (sometimes given in absolute terms, sometimes as a percentage of global GDP, but in all cases based on dubious extrapolations from suspect data). But for the moment I want to put those concerns aside to make another point: Even if we knew the total amount of bribes paid, that would not necessarily tell us much of anything about how much bribery costs society. (And that’s true even if we limited attention to economic costs, narrowly construed.) This is not an original point – lots of people have made it, and indeed it’s fairly obvious when you stop to think about it. Yet I keep seeing references to estimates of the amount of bribery that treat these figures as if they were measures of the cost of bribery. (For examples, see here, here, here, here, and here.) But that’s just not right. Continue reading

France’s Failure to Fight Foreign Bribery: The Problem is Procedure

When it comes to effective implementation of the OECD Anti-Bribery Convention, France is the black sheep of the herd. In 2012, the OECD’s Working Group on Bribery’s Phase 3 Report praised France’s efforts to enact an adequate legal framework, but expressed concerns on the low number of convictions. Two years later, the Working Group reiterated its concerns that France was insufficiently compliant with the Anti-Bribery Convention, and the EU’s 2014 Anti-Corruption Report expressed similar worries. In 2015, Transparency International placed France in the category of “limited enforcer” and has stated that France had failed to prosecute foreign bribery cases efficiently. Indeed, in the 16+ years since the OECD Convention came into force, no companies have ever been convicted in France for foreign bribery, and only seven individuals have been found guilty. The only French-led conviction against a company–Safran–was overturned on appeal last January. Even in this case, on appeal, the prosecution did not seek the conviction of the corporation, stating that the conditions to corporate criminal liability were not met (the court of appeal did not rule on that specific issue, and overturned the conviction on factual grounds).

The low number of French convictions for foreign bribery offenses is not due to the fact that French corporations do not bribe. In fact, a recent study on purchasing activities in the private sector showed that 25% of the Chief Purchasing Officers in France have been offered bribes by other French companies. And French companies have often been penalized by more aggressive enforcers, particularly the United States, when they have jurisdiction. (Most recently, Alstom agreed to pay a $772 million fine for violating the U.S. FCPA by bribing officials in several countries.) While some in France have grumbled about U.S. overreach, others in France share the views of the President of Transparency International France, who declared (in reference to cases like Alstom), “It’s humiliating for everyone in France that our judiciary is not capable of doing the work themselves”.

Why is France such a laggard with respect to its enforcement obligations under the OECD Convention? The issue is not France’s domestic legislation criminalizing foreign bribery, which is more than adequate. The real issue resides in France’s failure to enforce these laws. And the explanation for this lies not in France’s substantive criminal law on corruption, but rather in a number of important aspects of French criminal procedure and prosecutorial practices. Continue reading

Fighting Corruption in Central America: Suggestions for Improving the CICIG Model

There has been a great deal of optimism surrounding Guatemala’s International Commission Against Impunity (CICIG) in recent months. This UN-sponsored body, in existence since 2006, played a key role in exposing a massive customs fraud scheme that implicated the nation’s president and vice president. Both leaders are currently awaiting trial in Guatemala following their resignations and arrests. Following talk, including on this blog, about the merits of instituting CICIG-like bodies in other Central American nations, a Honduran version of CICIG is now set to become operational in 2016. As I discussed in a previous post, CICIG’s counterparts in Honduras and El Salvador are less robust (as currently formulated) than CICIG, though ultimately their effectiveness will depend on the strength of their leadership.

Yet notwithstanding CICIG’s recent high-profile successes, there are some important weaknesses in the CICIG model–weaknesses that reformers should consider and address before CICIG-like structures can be fully embraced as the solution to corruption and impunity in Central America. Key areas for improvement include the following: Continue reading

Anticorruption Bibliography–December 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.

Should Anticorruption Agencies Have the Power to Prosecute?

One of the main reasons policymakers cite for establishing a standalone, independent anticorruption agency is the need to strengthen the enforcement of their nation’s laws against bribery, conflict of interest, and other corruption crimes.  In the past 25 year some 150 countries have created a specialized, independent agency to fight corruption (De Jaegere 2011), and virtually all have been given the lead responsibility for investigating criminal violations of the anticorruption laws.  But while a broad international consensus exists on the value of creating a new agency with investigative powers, opinion remains sharply divided on whether these agencies should also have the power to prosecute the crimes it uncovers.  As this is written, Indonesian lawmakers are considering legislation to strip its Corruption Eradication Commission (KPK) of the power to prosecute while a bill before the Kenyan parliament would grant its Ethics and Anticorruption Commission (EACC) the power to prosecute the cases it investigates.

No matter the country, debate about whether a single agency should have the power to both investigate and prosecute corruption cases inevitably comes down to a small set of conflicting claims.  Those who oppose giving a single agency both powers raise an argument at the center of the older debate about the relative responsibilities of police and prosecutors — investigator bias.  In the words of a British Royal Commission that studied the relationship between English police and prosecutors, an investigator “without any improper motive . . . may be inclined to shut his mind to other evidence telling against the guilt of the suspect or to overestimate the strength of the evidence he has assembled.” That is, once an investigator hones in on a suspect, confirmation bias sets in, and he or she will interpret all evidence as supporting the suspect’s guilt.  Putting the decision about whether to prosecute a case in an agency wholly separate from the one that investigates provides a strong check against such bias, reducing the chances that the innocent will be put to a trial or weak cases brought to court.

The investigator bias argument has a long and distinguished pedigree, and a 2011 survey of the powers of 50 anticorruption agencies by World Bank economist Francesca Recanatini found that it often carries the day.  Only half of the 50 agencies she surveyed have both investigative and prosecutions powers.  But as the contemporary debates in Indonesia and Kenya suggest, proponents of combing investigation and prosecution in a single agency have a very powerful counter argument in their corner.  Continue reading

Is China’s Anticorruption Campaign Hurting Its Economy? Some Skeptical Thoughts on Eye-Popping Estimates

I read a striking claim last week about the impact of China’s anticorruption crackdown. CNBC reported that Chi Lo, a senior economist at the bank BNP Paribas, claimed the anticorruption campaign “has knocked between 1 and 1.5 percent off the [China’s] gross domestic product (GDP) annually over the past two years[.]”

I realize that, despite the widespread belief that corruption is bad for the economy overall (a belief I share), there have been some serious and legitimate concerns raised about whether China’s aggressive approach might be going too far, deterring not only corruption but also legitimate investment projects. But Mr. Lo’s estimate (assuming CNBC reported it accurately) struck me as implausibly high, for two reasons: Continue reading