Monthly Archives: February 2017

State-Level Responses to Trump’s Corrupt Mix of Business and Politics: Some Preliminary Proposals

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In my last post, I suggested that legal responses to concerns about corruption in the Trump Administration—in particular, concerns about Trump’s use of the presidency to enrich his family—might be more successful at the state level than at the federal level, and might be more viable if they do not attempt to target Trump directly, but rather deploy state law tools to limit the Trump family’s ability to leverage Trump’s position for commercial gain. My last post noted two proposals for lines of legal attack that could be initiated by state attorneys general (or possibly by private parties) under existing bodies of state law: state unfair competition laws (some of which are framed very broadly) and state corporate laws (which give states considerable power to regulate corporations, and possibly limited liability companies (LLCs), operating pursuant to state charters).

These proposals are attractive because they do not require any changes in existing laws. At the same time, and for that same reason, the laws in question are not necessarily well-tailored to the specific and unprecedented corruption/conflict-of-interest problems at issue in the Trump Administration. For that reason, it might be worth exploring potential changes to state law that would give state enforcement agencies, and possibly private litigants, more effective tools to rein in some of the most egregious sorts of potential conflicts, and thereby to enforce a more rigid separation between the Trump Administration and the Trump family’s business interests. Even though Republicans control the large majority of state governments, there are several states where Democrats and sympathetic Republicans might well have enough clout to pass such legislation—including, perhaps most importantly, California, New York, and Delaware. (Many other states have popular ballot initiative processes that might enable the passage of legislation even over the objections of Republican-controlled state legislatures.)

What might such state-level legislative reforms look like? This is a topic I hope to explore in a series of future posts, but here let me throw out a few relatively simple preliminary ideas: Continue reading →

Guest Post: Anticorruption Enforcement Is the Key to Democratic Consolidation–Not the Other Way Around

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GAB is delighted to welcome Cristina Nicolescu-Waggonner, visiting professor of Political Science at Pomona College and Scripps College, Claremont, to contribute the following guest post, drawn from material in her new book, No Rule of Law, No Democracy:

It is fashionable to argue that the only way to root out systemic corruption is to establish a political system characterized by genuine democratic accountability and the rule of law. Unfortunately, corruption – specifically the conflicts of interest of political and judicial leaders – does not allow for this sort of development. True, there may be democracy, but in the presence of widespread corruption it will remain in a perpetual state of unconsolidated democracy, without true rule of law. And in such weak democracies, the electoral process stimulates rather than discourages corruption: Eager to win and short on cash, politicians make deals with businesses and misappropriate public funds to finance campaigns, a vicious cycle that starts political tenure with illicit means. Different from lobbying, this illegal activity puts the breaks on rule of law reform. Corrupt politicians, afraid of retribution, do not reform or establish enforcement mechanisms: supervisory commissions, integrity agencies, anticorruption institutions, genuinely independent courts, whistleblower protection, etc. This dilemma is exemplified by the Czech Republic, which does well on various international democracy and rule-of-law indexes, but in fact is a corruption hotbed, with politicians, members of the judiciary, and business people involved in a web of misappropriation of public funds—partly for personal enrichment, but more importantly for election and re-election. The same vicious cycle is prevalent in new democracies all over the world, from Brazil to Romania to South Korea to Mexico to Tunisia: Corruption negatively affects the process of democratization and stalls it before democracy can have a chance to fight corruption.

So, what can we do? Continue reading →

Should We Lament Trump’s Nixing Greater Transparency in Oil and Gas?

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President Trump’s February 14 approval of the Joint Resolution repealing the rule that American companies disclose publicly all payments to governments for extracting oil and gas from their lands has provoked much lamenting.  The lamenters see it as a major setback to the fight against corruption, taking it as a given that greater transparency in the oil and gas industry leads to less corruption.

Rather than assuming that this is true, I decided to look at the evidence. The best place I could find to look was the Extractive Industries Transparency Initiative.  The 49 governments who along with their civil society groups and private sectors have committed to EITI regularly publish two things: 1) all significant (“material”) oil, gas, and mining payments made by companies, whether state-owned or privately-held, to the government and 2) all material revenues the government receives from these companies.  EITI requires that this information be widely distributed in an accessible, comprehensive and understandable manner, and indeed EITI requires more than simple transparency.  The total amount companies report paying and the total government says it receives must be reconciled annually by an independent administrator which must then report any discrepancies.  No better a formula for ensuring that transparency leads to less corruption would seem on offer.

So what effect has EITI had in the decade plus it has been in operation?  Does the transparency engendered by the EITI actually result in better governance and development outcomes in EITI compliant countries? How well do EITI countries perform, or improve over time, compared to other countries on selected political and economic indicators?

As luck would have it, these are precisely the questions Professors Benjamin Sovacool, Götz Walter, Thijs Van De Graaf, and Nathan Andrews address in a 2016 article in World Development.  Their answers should bring cheer to those lamenting repeal of the U.S. rule.  Continue reading →

State-Level Responses to Trump’s Business Conflicts: A More Promising Line of Attack?

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It is genuinely alarming how much Donald Trump seems intent—in true kleptocratic/crony capitalist style—on using his position as President to advance the commercial and financial interests of himself, his immediate family members, and their various business enterprises. As I’ve written before, this approach to governance (if you can call it that) has plenty of precedents elsewhere in the world, but it’s a new experience for Americans. One hopes the U.S. electorate will come to its senses and throw the bum out in four years, but that’s a long way away. In the meantime, the hope that the President might be impeached over his possibly unconstitutional conflicts of interest seems profoundly unrealistic: Republicans control both the House and the Senate, and most Republicans actually seem quite happy to accommodate themselves to a Trump Administration if it enables them to advance their policy goals. Even those Republicans who find Trump’s conduct inexcusable are far more worried about a primary challenge supported by Trump’s rabid supporters than they are about the general electorate. For the same reason, proposals for new federal legislation that would strengthen ethical restraints on the President, whatever their symbolic value, are likely dead-on-arrival as practical proposals. Perhaps understandably, some anticorruption advocates have placed their hopes in the federal courts, most notably through lawsuits alleging that the Trump Organization’s business dealings with foreign governments violate the U.S. Constitution’s Foreign Emoluments Clause, though for reasons I have explained in previous posts (see here and here), I’m doubtful that such lawsuits have much chance of success.

This is all very depressing, and I acknowledge that in the short term there’s relatively little that can be done; the ultimate remedy will have to be through the electoral process. Nonetheless, I do think that the ideas of enacting new legislation and pursuing certain forms of litigation do hold some promise as means to impose significant constraints on Trumpian corruption. The problem with the proposals I noted above is that they involve proposed responses at the federal level, and for the most part they target the President himself. There’s an alternative, though: Litigation and legislation at the state level, targeting Trump’s business interests and their potential commercial partners. Though hardly a complete solution, there may be a number of things to do at the state level to constrain at least some of the abuses associated with politically-connected business interests that seek to leverage those political connections for commercial advantage, or to facilitate corrupt or otherwise unlawful conduct. To illustrate, let me note a couple of ideas that other experts have floated about how aggressive state attorneys general (or perhaps private litigants) might make use of existing state laws to target Trumpian corruption: Continue reading →

Anticorruption Bibliography–February 2017 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

Trump Official: Fighting Foreign Bribery “Solemn Duty” of Justice Department “Regardless of Party Affiliation”

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The Trump Administration official with immediate responsibility for overseeing enforcement of the Foreign Corrupt Practices Act suggested yesterday there would be little change in the act’s enforcement under the new administration.  Trevor N. McFadden, newly-installed as Deputy Assistant Attorney General in the Criminal Division of the Department of Justice, told a Washington audience that while it would be “hard to predict exactly” how enforcement will evolve, “some common themes are clear.”  The three he identified:

1)  FCPA enforcement will continue to be a priority.  “The FCPA has been and remains an important tool in this country’s fight against corruption.”  McFadden underlined that at his confirmation hearing incoming Attorney General Jeff Sessions “explicitly noted his commitment to enforcing the FCPA, and to prosecuting fraud and corruption more generally.”  McFadden went on to stress that “The fight against official corruption is a solemn duty of the Justice Department, emphasizing that “each generation of Department leaders and line prosecutors takes up this mantel from their predecessors, regardless of party affiliation.”

2)  Prosecution of individuals remains a priority.  In a September 2015 Memo to Justice Department prosecutors, “Individual Accountability for Corporate Wrongdoing,” then Obama Administration Deputy Attorney General Sally Yates stressed the importance of prosecuting individual corporate executives and employees for corporate crimes. In his remarks McFadden not only seconded this effort but suggested that the growing cooperation between the Department and foreign law enforcement authorities would lead to its expansion. “The Criminal Division will continue to prioritize prosecutions of individuals who have willfully and corruptly violated the FCPA. … Indeed, our partnerships with foreign authorities are increasingly allowing us to ensure that even individuals living abroad are held accountable for their actions.”

3) Cooperating defendants will be rewarded.  Seconding a long-standing DoJ policy, the newly appointed Deputy Assistant Attorney General said a corporation’s voluntary disclosure of violations coupled with its cooperation and remedial efforts will remain an important factor when making charging decisions.  “These principles continue to guide our prosecutorial discretion determinations, and they further our ultimate goal of compliance with the law.”

McFadden spoke to a group of lawyers, accountants, and others involved in counseling corporations on FCPA issues at a conference organized by Global Investigations Review, perhaps the leading global news service on the enforcement of corporate criminal law.  Previously a partner at a major American law firm, McFadden brings a background both in public service, as an aide to the Deputy Attorney General in the George W. Bush Administration, and in private practice where he specialized in FCPA compliance work.  From all accounts a mainstream Republican who could well have been appointed to the same position by any Republican president, McFadden’s remarks strongly suggest that whatever changes the Trump Administration may have in store elsewhere, it will not back off vigorous enforcement of the FCPA. The full text of his remarks are here.

Guest Post: A Breakthrough in Guatemala’s Fight Against Judicial Corruption

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GAB is honored to welcome Judge Claudia Escobar, who contributes the following guest post:

Guatemala usually does not get a lot of attention from the international media, and when it does it is usually because of widespread violence or political instability. But lately the country is gaining recognition for its serious efforts to fight corruption and impunity. Partly due to the legacy of 36 years of internal armed conflict, Guatemala has been plagued by a culture of impunity, as well as a legacy of criminal structures that infiltrated government institutions—structures that are still operating today, more than a decade after the 1996 Peace Accords. In response to this problem, the Guatemalan government to ask the United Nations for help in rebuilding the rule of law, and in response, the International Commission against impunity in Guatemala—CICIG—was created in December 2006 when the Guatemala Government and the UN signed the agreement. This new institution was conceived as an independent body to support the Public Prosecutor’s Office, the National Police, and other state law enforcement institutions. The ultimate goal of CICIG is to strengthen institutions within the judicial branch so that they will be able to confront illegal groups and organized crime.

CICIG has already been hailed as a major success and a potential model for other countries in the region to follow. Its most well-known impact to date is that its investigation into systemic corruption in the government of President General Otto Perez Molina and Vice President Roxana Baldetti ultimately forced both of them to resign. Another, more recent development has gotten much less attention in the international press, but is also a crucial step forward in Guatemala’s struggle to build the rule of law: On October 2016, as a result of a CICIG investigation that commenced two years earlier, former Congressman Godofredo Rivera and attorney Vernon Gonzalez were found guilty on corruption-related charges for attempting to influence a judge. Sentencing two white-collar defendants, with strong political connections, to lengthy prison terms for attempting to influence a judge is unprecedented in Guatemala, and a major step forward. This case was the first case of corruption to be presented against a high official in power by the office of the Attorney General Attorney and CICIG since the Commission was established. It is also the first sentence handed down under the anticorruption law approved in 2012 (which, coincidentally, Congressman Rivera signed into law when he was president of Congress).

The sentence also has a great deal of personal meaning for me, because I was the judge who Rivera and Gonzalez tried to corrupt, and I was the one who filed the case with CICIG. Continue reading →

Civil Society on Returning Stolen Assets to Highly Corrupt Governments

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The return of the proceeds of corruption to the victim country is a “fundamental principle” of the United Nations Convention Against Corruption.  How that return is to be realized, however, remains subject to dispute, particularly when the victim country’s government is highly corrupt.  Should governments where the stolen assets are discovered send them back no matter how corrupt the victim country’s government is?  Wouldn’t the return to a highly corrupt government frustrate the Convention’s most basic purpose — the prevention of corruption.

How to resolve this tension has been the subject of vigorous debate on this blog (here, here, here, here, here and here).  Now some 50 members of the UNCAC Coalition’s Civil Society Working Group on Accountable Asset Return, from both countries where stolen assets have been found and those where return has been requested or realized, have weighed in.  In a February 14 letter to an UNCAC conference on asset recovery (addis-ababa-conf-agenda-february-2017-updated-02-02-2017), they write that where the victim country’s government is highly corrupt, it should be bypassed: “returning and receiving countries should in consultation with a broad spectrum of relevant experts and non-state actors find alternative means of managing the stolen assets” (emphasis in original).  The letter offers powerful arguments in support of its position.  The full text and the list of signers follows.  Continue reading →

After the Repeal of the U.S. Publish-What-You-Pay Rule, What Happens Next?

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As most readers of this blog are likely aware, despite the valiant lobbying efforts of a broad and bipartisan swath of the anticorruption community (as well as a last-minute plug from GAB), the United States House and Senate recently passed a joint resolution, pursuant to a statute called the Congressional Review Act (CRA), to repeal the “Publish What You Pay” (PWYP) rules for the extractive sector (oil, gas, mining) that the Securities & Exchange Commission (SEC) had promulgated pursuant to a statutory mandate contained in Section 1504 of the 2010 Dodd-Frank Act. Once President Trump signs the CRA joint resolution disapproving the PWYP rule, it is wiped off the books. Professor Bonnie Palifka’s post last week explained some of the reasons why PWYP rules are so important to fighting corruption in the extractive sector, and why this repeal is the first sign that the new administration, and the Republican-controlled Congress, threaten to undermine U.S. anticorruption efforts and leadership. (For another very good analysis along similar lines, see here.) What I want to do in this post is to consider a somewhat more specific question: What are the implications of the CRA repeal of the SEC rule for the implementation of the Dodd-Frank Act’s PWYP mandate going forward?

This turns out to be a tricky legal question, involving some unexplored and untested issues concerning the relationship between the Dodd-Frank Act, the implementing regulations, and the CRA. Let me start with a quick summary of the key legal provisions, keeping this as non-technical as possible: Continue reading →

Guest Post: The Case for Greater US Deference to Foreign Anticorruption Prosecutions–A Response to Maruca

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GAB is pleased to welcome back Frederick Davis, a lawyer in the Paris office of Debevoise & Plimpton, who contributes the following guest post:

Last fall, I published two posts in which I raised concerns about overlapping jurisdiction in foreign bribery cases, and about the appropriate role of US enforcement authorities in such cases. My first post noted that the US is not bound by the outcome of criminal processes in other countries, but can—and sometimes does—bring FCPA cases against foreign companies that have already resolved investigations for the same conduct brought initiated by their home countries. (As I also observed, the absence of any such constraint on US authorities creates an asymmetry with respect to countries that endorse an international ne bis in idem/double jeopardy bar, which can block such countries from pursuing a corporation or person that has already been pursued in the US.) My second post urged that the US Department of Justice (DOJ) should be more transparent in articulating when it will defer to non-US prosecutions in the corruption area.

A few weeks back, Michael Maruca posted an interesting critical commentary on my posts. The main thrust of Mr. Maruca’s very thoughtful comment was that the DOJ should not unnecessarily defer to non-US counterparts, partly because he worries about downgrading the effectiveness of US FCPA enforcement efforts, and partly because he envisions competition among national authorities as encouraging a “race to the top” in achieving optimal enforcement of foreign bribery laws. He proposes that the DOJ, rather than being more deferential to foreign resolutions of conduct that might violate the FCPA, the DOJ should go further in sharing the monetary outcomes of multinational investigations, and he provides commonsense principles for how it might do so.

Mr. Maruca’s intervention usefully advances the discussion on a very important issue. I agree with much of what he says. Nonetheless, I continue to view the lack of sufficient US deference to foreign resolutions of foreign bribery cases as a problem, and I have the following concerns about the points Mr. Maruca’s makes: Continue reading →