Monthly Archives: May 2016

London Anticorruption Summit–Country Commitment Scorecard, Part 1

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Well, between the ICIJ release of the searchable Panama Papers/Offshore Leaks database, the impeachment of President Rousseff in Brazil, and the London Anticorruption Summit, last week was quite a busy week in the world of anticorruption. There’s far too much to write about, and I’ve barely had time to process it all, but let me try to start off by focusing a bit more on the London Summit. I know a lot of our readers have been following it closely (and many participated), but quickly: The Summit was an initiative by David Cameron’s government, which brought together leaders and senior government representatives from over 40 countries to discuss how to move forward in the fight against global corruption. Some had very high hopes for the Summit, others dismissed it as a feel-good political symbolism, and others were somewhere in between.

Prime Minister Cameron stirred things up a bit right before the Summit started by referring to two of the countries in attendance – Afghanistan and Nigeria – as “fantastically corrupt,” but the kerfuffle surrounding that alleged gaffe has already received more than its fair share of media attention, so I won’t say more about it here, except that it calls to mind the American political commentator Michael Kinsley’s old chestnut about how the definition of a “gaffe” is when a politician accidentally tells the truth.) I’m going to instead focus on the main documents coming out of the Summit: The joint Communique issued by the Summit participants, and the individual country statements. There’s already been a lot of early reaction to the Communique—some fairly upbeat, some quite critical (see, for example, here, here, here, and here). A lot of the Communique employs fairly general language, and a lot of it focuses on things like strengthening enforcement of existing laws, improving international cooperation and information exchange, supporting existing institutions and conventions, and exploring the creation of new mechanisms. All that is fine, and some of it might actually turn out to be consequential, but to my mind the most interesting parts of the Communique are those that explicitly announce that intention of the participating governments to take pro-transparency measures in four specific areas:

  1. Gathering more information on the true beneficial owners of companies (and possibly other legal entities, like trusts), perhaps through a central public registry—which might be available only to law enforcement, or which might be made available to the general public (see Communique paragraph 4).
  2. Increasing transparency in public contracting, including making public procurement open by default, and providing usable and timely open data on public contracting activities (see Communique paragraph 9). (There’s actually a bit of an ambiguity here. When the Communique calls for public procurement to be “open by default,” it could be referring to greater transparency, or it could be calling for the use of open bidding processes to increase competition. Given the surrounding context, it appears that the former meaning was intended. The thrust of the recommendation seems to be increasing procurement transparency rather than increasing procurement competition.)
  3. Increasing budget transparency through the strengthening of genuinely independent supreme audit institutions, and the publication of these institutions’ findings (see Communique paragraph 10).
  4. Strengthening protections for whistleblowers and doing more to ensure that credible whistleblower reports prompt follow-up action from law enforcement (see Communique paragraph 13).

Again, that’s far from all that’s included in the Communique. But these four action areas struck me as (a) consequential, and (b) among the parts of the Communique that called for relatively concrete new substantive action at the domestic level. So, I thought it might be a useful (if somewhat tedious) exercise to go through each of the 41 country statements to see what each of the Summit participants had to say in each of these four areas. This is certainly not a complete “report card,” despite the title of this post, but perhaps it might be a helpful start for others out there who are interested in doing an assessment of the extent of actual country commitments on some of the main action items laid out in the Communique. So, here goes: a country-by-country, topic-by-topic, quick-and-dirty summary of what the Summit participants declared or promised with respect to each of these issues. (Because this is so long, I’m going to break the post into two parts. Today I’ll give the info for Afghanistan–Malta, and Thursday’s post will give the info for Mexico–United States). Continue reading →

Lacey Act Corruption-Based Risks Should Prompt Wood Importers to Branch Out

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The Lacey Act, a century-old U.S. statute, provides a unified set of penalties for possession of illegally procured animals or plants from the U.S. and, after amendments five years ago, those procured in violation of foreign laws as well. The Act was envisioned as a conservation statute, not an anticorruption statute; big cats (Siberian tigers) rather than big cronies were named as the motivation behind a recent prosecution under the new amendments. Yet in finalizing that case—involving retailer Lumber Liquidators’ purchase and import of illegally sourced wood—the Department of Justice (DOJ) seemed to suggest that companies could be held to a higher standard of diligence where they source natural goods from countries with high levels of corruption. In announcing Lumber Liquidators’ agreement to plead guilty to various Lacey Act charges for importing timber procured in violation of foreign logging laws, the DOJ emphasized the company’s failure to address red flags that the imports were illegally acquired. Those flags included that the imported wood came from a region known “to carry a high risk of [timber] being illegally sourced due to corruption and illegal harvesting.” Furthermore, the case suggests heightened scrutiny when natural resource products travel through intermediary agents whose countries also suffer from corruption or lack of robust enforcement of laws against illegal logging and the like. (In the Lumber Liquidators case, Russia was the source of the stock in question, and China was the intermediary seller’s base.)

The fate of Lumber Liquidators should put companies sourcing wood from regions with entrenched corruption on alert. The DOJ’s statement, if it is carried forward, foreshadows positive results. The Lacey’s Act’s potential in the fight against corruption is significant, straightforward, and good for everyone. A Bloomberg analysis notes that enforcement of foreign laws benefits U.S. producers as well as combatting foreign corruption. The Sierra Club emphasizes the role that corruption plays in global illegal logging and the Lacey Act’s role in “leading the fight” against it. The Natural Resources Defense Council blog also advocated the role of the Act in helping “countries establish rule of law and crackdown on corruption.” Such commentary highlights a second takeaway from the DOJ order: to reach the corruption-combatting potential of the statute, wood sourcing companies need to allow the Lacey Act threat to improve compliance in their source nations, rather than leaving for greener pastures. Indeed, using the Lacey Act to incentivize companies to “engage their supply chain” to avoid forestry corruption is both achievable and worthwhile:

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Jacob Zuma Violated the Constitution. Now What?

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It’s hard to imagine a court decision more dramatic than the South African Constitutional Court’s March 31 ruling on President Jacob Zuma’s misuse of public funds at his private home in Nkandla. In powerful language that sometimes verged on purple prose, the ConCourt announced that the Public Protector, the constitutionally-created institution charged with investigating improper government conduct, is the “embodiment of a biblical David, … who fights the most powerful and very well-resourced Goliath[:]  impropriety and corruption by government officials.” In order for the Public Protector to effectively serve that function, the ConCourt decided, the remedial action she recommends must be binding. By failing to follow her prescribed remedial action, which included paying back a “reasonable percentage” of the misused funds, Zuma had failed in his “obligation[] to uphold, defend and respect the Constitution.”

However, the scene in the National Assembly, South Africa’s lower (and more important) house of Parliament, on May 4 was equally dramatic—though much less dignified. With President Zuma scheduled to make his first appearance before the National Assembly since the Nkandla judgment–and with the reopening of a different judgment by a lower court that could lead to the investigation into another corruption-related incident–the opposition Economic Freedom Fighters (EFF) party demanded that he not be allowed to speak since he was clearly “illegitimate.” EFF members and the Speaker of the National Assembly got into a “screaming match,” which eventually escalated into a fight. As Parliamentary protection service officers forcibly removed the EFF from the legislature, the EFF members continued to shout insults and declare that it was the President, not they, that should be forced to leave. The day also involved the ruling African National Congress (ANC), Zuma’s party, ruling that any quotations from the Nkandla judgment during the legislative session were out of order, and the Democratic Alliance (DA), the primary opposition party, mocking Zuma and calling him the “looter in chief.” Putting a punctuation mark on this fracas was a five-day ban on the EFF’s National Assembly representatives and a decision by the remaining opposition parties to boycott the National Assembly the following day.

The ConCourt’s ruling, though, is far more than just a prompt for an exciting 24 hours in the National Assembly.  Looking further down the road, what does the Nkandla judgment mean for South Africa?

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Anticorruption Bibliography–May 2016 Update

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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.

Can Private Prosecution Fill the Corruption Enforcement Gap?

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A common lament within the anticorruption community is that too few corrupt officials are prosecuted.  The reasons offered are several: a lack of resources, the want of expertise, political pressure.  Whatever the case, for countries struggling to combat corruption, stepping up prosecutions is essential, for deterrence theory teaches that until public officials face a real threat of prosecution for raiding the public purse, corruption levels will continue to remain unacceptably high.

Where corruption prosecutions are lagging, it is often assumed that the only remedy is to strengthen government prosecution agencies, but this is in fact not always the case.  In many countries the public prosecutor is not the only one with the right to prosecute those accused of a crime.  Thailand, Taiwan, certain American states, and virtually all 53 members of the British Commonwealth allow private citizens to prosecute offenders, and there is no reason other countries couldn’t allow private prosecution as well.

In “Private Prosecutions: A Potential Anticorruption Tool in English Law,” British lawyers Tamlyn Edmonds and David Jugnarain explain the role private prosecution has played in the enforcement of the criminal law in England and Wales and argue it is one way to boost  corruption prosecutions in these jurisdictions and perhaps in others as well.  The Edmonds and Jugnarain paper is the fourth in the series of papers commissioned by the Open Society Justice Initiative on civil society and anticorruption litigation.  It follows earlier ones on standing by GAB editor-in-chief Matthew Stephenson, on civil society litigation in India by Vidhi Centre for Legal Policy Director Arghya Sengupta, and on the American experience with the False Claims Act by Houston Law Center Professor David Kwok.  As with the papers by Matthew, Arghya, and David, Tamlyn and David’s contribution provides civil society activists and policymakers wanting to bolster the enforcement of anticorruption laws in their country much to consider.

On Conferences, Speaker Time Allocation, and Simple Division (Warning: Trivial, Non-Substantive, and Snarky)

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So I’m very excited to have the opportunity to attend tomorrow’s “Tackling Corruption Together” conference in London (a civil society event to precede the government-organized Anticorruption Summit on Thursday). It looks like a great program, and I’m looking forward to doing some substantive posts on the conference discussion after I return home. And given how grateful I am to be included, I probably shouldn’t say anything critical about the conference program in advance. But I just can’t stop myself from pointing out that for the opening session has allocated a total of 45 minutes total for: a welcome address by the Rt. Hon. Patricia Southland (Secretary-General of the Commonwealth of Nations), a keynote speech by President Muhammadu Buhari of Nigeria, and opening remarks from three additional speakers (Jose Ugaz, Mo Ibrahim, and Jan Coos Gessink). That comes out to nine minutes per speaker, on average (assuming a punctual start, no delays between presentations, and no time allocated for remarks from the session chair, Axel Threlfall). And while perhaps President Buhari will prove unusually succinct, I’ve never seen a head-of-state manage to keep his or her remarks under half an hour. This strikes me as absurdly unrealistic time allocation.

The rest of the conference program suffers from similar problems, generally allocating around 9-11 minutes per speaker, on average (not including the session chairs, and again assuming no delays or dead time). And I strongly suspect that the most of these speakers will want to take at least 15 minutes for their presentations. So, what will happen (I predict) is that sessions later in the day will be rushed, there will be no time for Q&A or meaningful exchanges among the panelists, and the coffee breaks and lunch hour–often the most productive times of these meetings, because that’s when people really get a chance to interact–will be drastically compressed.

I’m hoping that I’ll be proven wrong, and if I am, I’ll post a mea culpa. But otherwise, we can add this to my litany of complaints about anticorruption conferences (and other conferences, for that matter): Overcrowded programs, with too many speakers and too little time–and perhaps an over-emphasis on getting “fancy” speakers giving prepared remarks, rather than creating opportunities for genuine dialogue. But, again, I fully expect some useful material to come out of this meeting, given the great lineup of speakers. This is hardly an unusual problem. Consider this not so much a criticism as a plea, for future conference organizers, to think carefully about what’s a realistic allocation of minutes-per-speaker.

The U.S. Government’s New Anticorruption Proposals: A Cause for Cynicism, Optimism, or Both?

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Last Thursday, two United States cabinet departments – the Department of the Treasury and the Department of Justice – issued separate but thematically related announcements (see here and here) regarding new initiatives to combat corruption, money laundering, and related malfeasance:

  • Treasury announced the finalization of a new Customer Due Diligence (CDD) rule (discussed previously on this blog), which would require that financial institutions collect and verify the personal information of the beneficial owners of accounts held at those institutions. Treasury also announced a proposal for new regulations that would require certain foreign-owned entities (single-member limited liability companies (LLC)) to obtain a tax ID number and report comply with the associated reporting requirements—a move that would close a loophole that currently allows these entities to shield the foreign owners of non-U.S. assets.
  • Treasury also announced that it plans to send draft legislation to Congress (the text of which does not yet seem to be publicly available) that would require companies to know and report accurate beneficial ownership information at the time of a company’s creation, and to file this information with the Treasury Department.
  • Justice also submitted proposed legislation to Congress that would give the Department new investigative powers (including the use of administrative subpoenas, rather than slower and less flexible grand jury subpoenas, for money laundering investigations, enhanced authority to access foreign bank and business records, and the ability to restrain property based on a request from a foreign country for 90 rather than 30 days). The draft legislation would also creating a mechanism to use and protect classified information in civil asset recovery cases, and would expand the scope of the money laundering offense to include, as a sufficient predicate offense, any violation of foreign law that would be a violation of U.S. law if committed in the United States.

I have not yet had time to review the final CCD rule or the proposed LLC rule, and as I noted above, I don’t think the full text of the legislative proposals is yet available. So I’m not yet in a position to comment on the substance, but at least on the surface, all this seems encouraging. It’s possible to take the cynical view that most of this doesn’t mean very much or represent genuine progress. And I’ll admit part of me is inclined to embrace the cynical view. But on the whole, I do think that last week’s announcements are genuinely encouraging, and signal the possibility of building greater political momentum for real progress.

First, though, the reasons for cynicism: Continue reading →

Laissez-nous Faire: France is Forgoing an Opportunity to Fight Corruption, But Maybe It is the Wrong One

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In an ongoing exchange on this blog, Susan Hawley and Matthew Stephenson have debated the desirability and practicality of global standards for the settlement of foreign bribery cases (see here, here, here, and here). A key country at issue in this discussion is France, which has bucked the trend among its peer nations – including the U.S., the U.K., the Netherlands, Switzerland, and Germany – toward resolving foreign corruption cases through negotiated resolution. In fact, France has increasingly come under fire from organizations like the OECD, the EU, and Transparency International for its failure to hold corrupt companies accountable at all – over the past 16 years, the French government has not secured a single corporate conviction for overseas bribery. As Sarah convincingly argued on this blog, the reason is not that French companies are less corrupt or that French authorities are less capable, but rather that procedural barriers prevent productive investigation and resolution of cases. Primarily, the French civil law system lacks a settlement mechanism by which companies can negotiate lighter penalties in exchange for fines and cooperation. France is thus an important target for legal and policy reform affecting out-of-court settlement procedures.

Until very recently, the French government was poised to undertake such reform. Late last year, French Minister of Finance Michel Sapin developed legislation aimed at strengthening the fight against corruption. The draft version of Loi Sapin II, as it is known, contained provisions that put in place a new national anticorruption agency with investigative and oversight powers, enhanced compliance requirements, greater protections for whistleblowers, and stricter disclosure protocols for public officials. The most powerful and controversial element of Loi Sapin II, however, was the “convention de compensation d’intérêt public” (CCIP). Also known as a transaction pénale, the CCIP is a settlement mechanism modeled on the American deferred prosecution agreement (DPA). This tool would have allowed agreements between companies and the government, by which an accused corporation would institute compliance measures and pay fines (capped at 30% of average revenue over the preceding three years) in lieu of facing prosecution.

Just before the text of the law was formally presented, however, the Conseil d’État – the government body that must review draft legislation sponsored by non-parliamentarians before it can be introduced in Parliament – issued a negative opinion on the CCIP. When the text was submitted to the government on March 30, it did not include the transaction pénale. Procedurally speaking, the provision isn’t yet dead – it may still be reintroduced by members of Parliament. Nevertheless, the opinion of the Conseil d’État says a lot about France’s approach to anticorruption, trends in global enforcement, and the prospects for universal settlement standards in a world where legal cultures differ substantially.

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The Petrobras Investigations and the Future of Brazil’s Democracy: Thailand and Italy as Cautionary Tales

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In March of 2014, when Alberto Youssef, the initial whistleblower for the now infamous Petrobras scandal disclosed his knowledge of the scheme to his lawyers, he prefaced his revelations with a grim prediction: “Guys, if I speak, the republic is going to fall.” While that prediction may have seemed melodramatic at the time, the recent turmoil in Brazil surrounding the Petrobras scandal and the impeachment proceedings against President Dilma Rousseff have led some to begin to question whether Mr. Youssef’s prediction might in fact ring true.

The Petrobras scandal may be the single biggest corruption scheme in any democracy, ever. By some estimates, up to US$5.3 Billion changed hands through inflated construction contracts and kickbacks to Petrobras executives and politicians. Even for a country accustomed to political corruption scandals, this case is unique in its breadth and scope. Dozens of Brazil’s economic and political elite have been implicated, including the CEO of the country’s largest construction firm (sentenced to 19 years in jail), and the former treasurer of Rousseff’s Workers’ Party (sentenced to 15 years in jail), plummeting Brazil into a true political and economic crisis. The investigations transcend party lines: Eduardo Cunha, the speaker of the House leading the charge for President Rousseff’s impeachment (for using accounting tricks to mask the nation’s deficit), has himself been charged in connection with the Petrobras Scandal. Indeed, this scandal appears to be a political reckoning, an indictment of the entire elite class in Brazil.

By most accounts, Brazil is a thriving democracy—elections are free and fair, and there is a multi-party system marked by vigorous competition between rival parties. Civil liberties are generally well respected. Protests against the government have been massive, but by most accounts peaceful and undisturbed by state authorities. But some have gone so far as to speculate that the unprecedented scale of this scandal may lead to a collapse of Brazil’s democratic system. At least one historical example suggests that this might not be so far-fetched: In Thailand, the political deadlock in 2014 following the ouster of President Yingluck Shinawatra on allegations of corruption and abuse of power ended with a military coup, and democracy has yet to return. Yet perhaps another, somewhat less dramatic but nonetheless troubling precedent is even more apt: In Italy in the 1990s, the Mani Pulite (Clean Hands) campaign revealed endemic corruption and led to the collapse of the four governing political parties. In this case, while democratic elections continued, the political void left in the wake of Clean Hands was filled by new, corrupt actors like Silvio Berlusconi, and political graft remains rampant. Though Brazil seems unlikely to suffer a fate similar to Thailand, it is highly plausible that the aftermath of the Petrobras scandal might resemble the Italian experience.

Let’s consider some of the possible parallels between Brazil and Thailand, on the one hand, and Brazil and Italy, on the other.

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Guest Post: What’s the Problem with Out-of-Court Settlements for Foreign Bribery? A Reply to Stephenson

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GAB is delighted to welcome back Susan Hawley, policy director of Corruption Watch, for further discussion and debate regarding the proposal to create global standards for out-of-court settlements in foreign bribery cases:

Matthew Stephenson has devoted three successive blog posts (see here, here, and here) to critiquing the position that we outlined in our report, Out of Court, Out of Mind, calling for global standards for corporate settlements on corruption cases. NGOs, including we at Corruption Watch, along with Transparency International, Global Witness, and the UNCAC Coalition, outlined this position in a letter to the OECD. I am delighted that our report and the joint letter has triggered such interest and discussion. This is a hugely important debate: it cuts to the heart of how countries enforce their anticorruption laws and what constitutes effective enforcement.

We wrote our letter to the OECD and released our report precisely to stimulate this kind of debate at a time when:

  • a number of countries are looking at whether to introduce Deferred Prosecution Agreements (DPAs) and/or Non-Prosecution Agreements (NPAs) specifically to improve their track record of dealing with overseas corruption and
  • many countries in Europe appear to be choosing to resolve the few enforcement actions that they are taking through out-of-court settlements.

This post offers a riposte to Professor Stephenson’s criticisms of our case for global standard for corporate settlements in these cases. The fact that Professor Stephenson devoted three blog posts to the subject shows how meaty it is, and it won’t be possible in a single reply post to go into all of his criticisms, but this post replies to some of the most essential points. Continue reading →