Monthly Archives: March 2017

Guest Post: A Call for Higher Integrity Standards and Deeper Democratization

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Jeroen Michels, Policy Analyst at the OECD, and Michael Johnston, the Charles A. Dana Professor of Political Science at Colgate University, contribute today’s guest post:

Many of the recent woes and challenges of democracies worldwide—such as fading policy consensus, populist discontent, and widening equality gaps—have been fueled, at least in part, by corruption and unethical practices (not all of which are currently illegal). The Panama Papers and similar leaks have dented the reputation of elected politicians, established firms, and respected countries. Soon after their term in office, some public sector leaders have taken up lucrative posts and board memberships in banks, lobbying firms, and multinationals, leaving voters disillusioned about political integrity and the intertwinement of elite networks across sectors in society. Less visible but equally harmful can be the ways in which narrow interests seek to influence public decision-making for their own profit. Inequalities in access to policymaking processes, often reflecting inequalities in wealth and status, often lead to decisions that benefit and further empower those narrow interests, which exacerbates inequalities and fosters the perception of politics as unfair or illegitimate. Against the backdrop of widening income gaps between the rich and poor, the abuse of power leading to a concentration of economic resources in the hands of fewer people is a worrisome prospect.

As a result, these legal and illegal forms of influence peddling corrode the meanings and mechanisms of democracy itself. As Professor Mark Warren has argued, corruption can be described as duplicitous exclusion: corruption undermines democracy by excluding people from decisions that affect them and in which they expect to have a voice. When people lose confidence that public decisions are taken for reasons that are publicly available and justifiable, and that those in official positions take citizen views and interests seriously, they often become cynical, expecting duplicity in public speech. This tarnishes all public officials, whether or not they are corrupt. And when people are mistrustful of government, they are also cynical about their own capacities to act in favor of the public good. Elections, for too many citizens, become a way to reject traditional democratic values and practices.

There are no quick fixes or easy remedies to this dilemma, but there are two things that activists and reformers must emphasize: Continue reading →

Lifting the Resource Curse: Beyond Potions, Incantations, and EITI

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Thanks to Google those who have had a curse put on them can find numerous ways to lift it: from drinking a special potion on the first night of the waxing moon to repeating a certain incantation 13 times while holding a rabbit’s foot.  (Here, here and here for useful sources.)  But Google is not nearly so helpful for policymakers looking to lift the resource curse: the corruption, violence, and misgovernment that befall a poor country with plentiful quantities of hydrocarbons or other natural resources.

The best Google does for them is tout the Extractive Industry Transparency Initiative, a voluntary compact where the government agrees to disclose the monies it receives from the companies that produce its resource and the companies agree to report the monies they pay government.  As the 300,000 plus “hits” on EITI in Google explain, the theory is that civil society will use the disclosures to hold government and the companies accountable. Unfortunately for the policymaker looking for solutions to the resource curse, Google will also pull up a long list of studies (here and here for examples) showing that so far it has had little to no effect on corruption and governance in resource rich poor countries and that at best the relief it promises is many years away.

With this post I hope to persuade Google’s powers that be to modify the search algorithm so that when a user enters “resource curse – how to lift” something besides “EITI” is returned.  That something is Continue reading →

Guest Post: The 2017 World Development Report’s Embrace of Anticorruption Incrementalism

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GAB is pleased to welcome back Finn Heinrich, from Transparency International’s research team, who contributes the following guest post:

In January, the World Bank published its latest World Development Report (WDR)– this time focused on “Governance and the Law” and their role in effective development policies. The annual World Development Reports typically receive significant attention from the wider development community, and indeed there have already been a number of events (see here, here, and here) and reviews (see here and here) dedicated to the 2017 WDR. The reviewers generally agree that the report’s key points—that governance matters a lot for many development outcomes, that what matters are governance functions rather than specific institutional forms, and that effective governance often depends more on underlying power dynamics than on institutional forms or capacities—are important insofar as the World Bank’s explicit acknowledgement of them represents a big step for the bank, but otherwise nothing new. After all, initiatives such as Thinking and Working Politically and Doing Development Differently have propagated these insights for a while.

None of the existing reviews, however, engages with the question of the 2017 WDR’s implications for the anticorruption community specifically. Yet the report repeatedly emphasizes three dysfunctionalities of a governance system—exclusion, capture, and clientelism—all of which are “negative manifestations of power asymmetries,” and all of which can be thought of as forms of corruption. While these terms (especially “capture,” which ends up being the one the WDR uses most frequently) is still conceptually underdeveloped, the term helpfully focuses on systemic forms of corruption in public institutions (broadly defined), rather than on corruption as an individual exchange between two actors (such as bribery). Thus, the WDR emphasizes that combatting the corruption of policies and governance processes (i.e. corruption in its political, grand, and systemic forms, rather than a focus on street-level bribery) is at the heart of making development policies work. That the World Bank is taking this position in its flagship publication is no small accomplishment, especially given that 25 years ago the Bank shied away from even using the word corruption.

Where the WDR falls short, however, is to put forward operationally relevant insights on how to address the problem of capture of public institutions by private interests. It starts off well with acknowledging the importance of expanding participation in governance (“contestability”) and of changing the relevant actors’ incentives and belief systems. Yet the WDR’s real-life examples of anti-capture interventions, scattered throughout the report, largely refer to cases where minor nudges or other incremental adjustments slightly shifted preferences and therefore behavior. To be clear, many of these examples of anticorruption interventions are not widely known to the anticorruption community, making the WDR a treasure trove of empirical nuggets on accountability, transparency, and participation interventions. Nonetheless, the report is frustratingly silent on the question of how to proceed when fundamental dysfunctional power asymmetries need to be changed.

Perhaps, though, that aspect of the report is a feature rather than a bug: Maybe it is a reflection of a new humility on the part of the World Bank and other external development actors in terms of what role they can be expected to play in governance and anticorruption. Mushtaq Khan, for example, embraced the WDR as “the incrementalist’s manifesto,” arguing that external development agencies should focus on fixing those problems where the interests of reformers and powerful actors within the society align (see also here). Could it be that this incremental approach to anticorruption will yield more results over time than the many grand and ambitious initiatives which unfortunately have often fallen short of their marks?

When and Why Do Corrupt Politicians Champion Corruption Reform? A Character Study

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Can corrupt leaders enact effective anticorruption reform? The brief answer seems to be yes: Leaders who are (perceived as) corrupt can initiate and support effective anticorruption reform efforts. For example, as this blog has previously discussed, President Peña-Nieto (who has repeatedly been accused of corruption and graft) supported constitutional anticorruption reforms in Mexico. Egypt’s current President, Abdel Fattah al-Sisi, has similarly launched various anticorruption campaigns, even while fending off numerous corruption allegations.

But why do corrupt leaders institute anticorruption reforms? While there’s no universal explanation, there appear to be at least three archetypes that might help anticorruption activists identify and push unlikely reformers: The Power Player, The Top-Down Director, and The Born-Again Reformer. Continue reading →

Trump Administration Backs Broad Reach of FCPA –UPDATE

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(Two days after this post appeared Washington Post columnist David Ignatius offered an important insight into where the Trump Administration policy on the FCPA is likely to end up in his March 10 column on former Exxon chief and now Trump Secretary of State Rex Tillerson:

“An example of the role Tillerson could play is an exchange in February about the Foreign Corrupt Practices Act. During a White House meeting, Trump complained that the anti-bribery statute cost the United States billions of dollars in lost sales overseas and millions of jobs. According to one insider, Tillerson dissented and described how he had walked away from an oil deal in the Middle East after a leader there demanded a payoff — but later was invited back. “You’re Exxon!” Trump countered, but the former chief executive dissented again. “No, people want to do business with America.”)

Presented with a first opportunity to narrow the reach of the Foreign Corrupt Practices Act, the Trump Administration refused, choosing instead to back the Obama Administration’s view that the act reaches those who help bribe an official of a third country no matter whether the defendant ever steps foot in the United States or works or acts for a U.S. company.  In endorsing this broad reading of the act, the Administration rejected pleas from FCPA defense lawyers that such a reading was an “unwarranted” and “unprecedented attempt to … ensnare foreign individuals who fall outside the carefully-delineated categories of principals covered by the FCPA.”  To the contrary, its lawyers told an appeals court, if the act were read to exclude these individuals, executives of non-U.S. companies could orchestrate foreign bribery schemes involving American companies with impunity.

The case arose from allegations that executives of the American subsidiary of the French firm Alstom had bribed Indonesian officials to win a $118 million contract to build power plants for the government.  Among those the Justice Department charged with FCPA violations was Lawrence Hoskins, a citizen of the United Kingdom working for the Alstom parent in Paris. His role, if any, in the bribe scheme remains to be established at trial, but one possibility is he orchestrated or facilitated it from his Paris perch though never traveling to the U.S. nor working or acting for the American subsidiary. If these facts are proved at trial, the Department asserts Hoskins is guilty of violating the FCPA as an accomplice, either because he aided and abetted those who actually paid the bribe or conspired with them to do so.

The trial court rejected both theories, however.  It ruled that an accomplice to an FCPA violation is beyond the act’s reach if the accomplice remained outside the U.S. while the act was violated and did not work or act directly for the U.S. entity that violated it.   The Department appealed and written arguments were submitted before the Trump Administration took office.  The appeals court did not hear the case until March 2, giving the Trump Administration time to ask for a delay to reconsider the Obama Administration’s position.  It could have also backed away from the Obama Administration’s interpretation of the law at the March 2 hearing (as it has done twice in hearings involving civil rights cases) and endorsed the trial court’s narrow reading of the act.

That it did not pursue either option is another signal, like that recently sent by the Trump official immediately responsible for FCPA enforcement, that whatever changes the Administration has planned elsewhere, a more relaxed view of the reach of U.S. antibribery laws is not one of them.

(The FCPA Professor Blog excerpts the appeal briefs of the Justice Department and Hoskins as well as the friend of the court brief by FCPA defense counsel arguing the view of the act the Trump Administration is defending is “unwarranted” and “unprecedented” here.)

Further Thoughts on Government Size and Corruption: Why Do Patterns Across U.S. States Look So Different from Patterns Across Countries?

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In a couple of posts (here and here) last fall, I discussed the relationship between government size (usually measured by the ratio of government expenditures to GDP, or occasionally by public sector employment rates) and corruption. The main takeaway from the cross-country data is that, in apparent contradiction to the “big government causes corruption” hypothesis, government size is, if anything, negatively correlated with perceived corruption, as measured by the Corruption Perceptions Index (CPI) or similar sources. While that evidence does not decisively refute the claim that larger governments are more prone to corruption—the relevant studies have important limitations, and it’s at least possible that the result is due to reverse causation—it certainly seems to suggest that, when it comes to fighting corruption, too-small governments are probably a more significant problem than too-large governments.

Most of the research on the relationship between government size and corruption relies on international comparisons. But some work has performed single-country studies, attempting to identify the relationship between government size and corruption across sub-national jurisdiction. Some of this work reaches results that are largely consistent with the international research. For example, a recent analysis of 290 Swedish municipalities found that those municipalities with higher public expenditure levels had lower corruption, as reported in an anonymous survey of senior politicians and civil servants. But other research—particularly research on the United States—has found the opposite result: Within the U.S., when controlling for a number of other economic and demographic factors, states with larger public sectors seem to have higher corruption. What’s going on here? Continue reading →

France’s New Anticorruption Law — What Does It Change?

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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:

The ineffectiveness of French efforts to combat overseas bribery is well-known if not entirely understood. Put most simply, in the 17 years since France adopted comprehensive anti-bribery legislation, essentially similar to the U.S. Foreign Corrupt Practices Act (FCPA), France has not convicted a single corporation of classic overseas bribery under that legislation. This shortfall has been regularly documented in periodic reports by the OECD, and by NGOs such as Transparency International and others. Its causes are complex. They may include a simple deficit in willpower, but as others as well as I have pointed out, French criminal procedures, and in particular the difficulty of demonstrating corporate responsibility under French criminal law, impede effective prosecution.

Stung by the fact that four very large French companies entered into a variety of guilty pleas or deferred prosecution agreements (DPAs) with US authorities, pursuant to which these companies paid well over $2 billion in fines and other payments to the US treasury, in December 2016 the French legislature finally adopted a long-pending law, known as the Loi Sapin II, which progressively goes into effect during 2017. The law is unmistakably a reaction to US success in prosecuting French companies under the FCPA: it only applies to corporations, and only to allegations of overseas corruption or other crimes very similar to those prosecutable under the FCPA.

Several of new law’s provisions are unexceptional: it creates a new Anticorruption Agency, called the AFA, to replace an existing agency, known as the SCPC, which was widely viewed as ineffective; the law requires medium- and large-sized companies to adopt compliance programs pursuant to criteria to be developed by the AFA. (While the AFA can impose administrative sanctions for absent or deficient compliance programs, it will have no criminal investigative authority). The new law also slightly extends the territorial reach of French anti-bribery laws to make them applicable to companies that “carry out all or part of their economic activity on French territory,” and enhances whistleblower protection available under existing laws. But the Loi Sapin II’s most ambitious innovation by far is a series of amendments to the French Code of Criminal Procedure to permit negotiated outcomes generally similar to DPAs as practiced for many years in the United States, and since 2014 in the United Kingdom, that result in the payment of fines and other penalties but not in a criminal judgment. Under the new provisions, a French corporation may enter into an agreement, known as a “Judicial Convention in the Public Interest” (JCPI), under which the firm admits facts sufficient to show the commission of a relevant crime, and agrees to a fine that may be as high as 30% of the company’s annual turnover for the prior three years. The company may also agree to the imposition of a corporate monitor, to be supervised by the AFA. Continue reading →

The Backstory on Brazil’s Extraordinary War on Corruption

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Hardly a day passes without news from Brazil that a senior politician or business person has been charged with corruption or has admitted guilt or found guilty of a corruption offense or is cooperating with authorities in their ever-expanding investigation into the rot that has infected Brazilian politics.  Brazil is not only the envy of corruption hunters everywhere, but for those living in countries where big time, grand corruption is the norm, it provides enormous inspiration and hope.  “If the Brazilians can do it, we [fill in the blank] can do it too,” is a refrain I have heard in more than one country.

But just how Brazil has “done it” has remained a mystery.  Or at least it has until the recent release of The Sum Of Its Parts: Coordinating Brazil’s Fight Against Corruption, 2003 – 2016, the latest in a series by Princeton University’s Innovations for Successful Society on how countries are combating corruption. Through revealing interviews with key participants and observers, author Gordon LaForge chronicles how a handful of reformers built the law enforcement institutions now bringing corrupt Brazilian politicians and their private sector co-conspirators to heel. Investigating and prosecuting complex corruption cases takes coordinated action across numerous agencies, and the emphasis throughout is on the painstaking, time-consuming efforts required to build the needed inter-agency cooperation.

The Sum of its Parts is essential reading for those trying to make their country “the next Brazil.”  It should also be valuable for those trying to understand the process of political change in developing nations.  One of its strengths is that it never loses sight of the fact that human agency is critical element.