Ceiling Prices: A Second Best Method for Attacking Bid Rigging

The procurement laws of all countries provide that with a few, narrowly drawn exceptions public contracts are to be awarded on the basis competition.  As the drafters of the UN model procurement law explain, the reason is straightforward. A competitive procurement gives all those seeking the government’s business an equal chance to win the contract while at the same time maximizing the chance that government will receive quality goods, services, or civil works at the lowest price.

The problem comes when would-be suppliers do not compete for government’s business.  When instead of each one preparing its bid independently, based on what price the firm can charge and still make a reasonable profit, the bidders sit together and agree which one will “win” the contract and at what price, a price that can sometimes be twice what it would have been were there competition.

How can a government reap the benefits of competition when bidders have rigged the bid? The answer is that it cannot.  At least not immediately.  It can, as both the U.S. Department of Justice and the OECD recommend, institute procedures that make it harder for firms to collude, and it can, again as both these agencies regularly urge, vigorously enforce laws that outlaw bid rigging.  But these measures take time to have an effect; in the meantime, a government cannot halt all procurements.  It still needs to buy computers, desks, and other goods, to contract with cleaning, fumigation, and other service providers, and it must continue to build and repair roads, damns, and other civil works.

So in the face of collusion or cartel-like behavior by its suppliers, is government powerless in the short-run?  Must it accept whatever price the bid riggers offer? No matter how high it might be? Continue reading

Guest Post: Did the London Summit Make a Difference to Open Contracting? Does Open Contracting Make a Difference for Tackling Procurement Corruption?

Gavin Hayman, Executive Director of the Open Contracting Partnership, provides today’s guest post:

Anyone remember the London Anti-Corruption Summit last May? It seems like a long, long time ago now, but it was a big deal for us when 14 countries stepped forward at the Summit to implement the Open Contracting Data Standard to open, share, and track all data and documents coming from the billions of dollars that they are spending on public contracting and procurement each year.

One year later, how well have these countries have followed through on their commitments, and how much of a difference open contracting has made in combating corruption in public procurement? After all, it is government’s number one corruption risk; it’s where money, opacity, and government discretion collide.

The news is generally positive: the Summit commitments appear to have promoted genuine progress toward more open contracting in many of those countries, and the preliminary evidence indicates that such moves help reduce procurement corruption. Continue reading

Reforming FIFA: Why Recent Reforms Provide Reason for Hope

Over a year has passed since Gianni Infantino was elected President of FIFA. When elected, Infantino promised to reform the organization and win back the trust of the international football community following the numerous incidents of corruption that preceded his tenure as President (see here and here). Corruption not only existed at the executive level of FIFA, but also permeated down to the playing field, where incidents of match fixing and referee bribery were widespread. On the day he was elected, Infantino remarked, “FIFA has gone through sad times, moments of crisis, but those times are over. We need to implement the reform and implement good governance and transparency.”

Yet despite some reforms in the past year, a recent Transparency International report–which surveyed 25,000 football fans from over 50 countries—showed that the public still lacks confidence in the organization, with 97% of fans still worried about corruption, especially match fixing and bribery of officials. While the results show some improvement compared to the previous year, the numbers should worry both Infantino and FIFA: 53% of fans do not trust FIFA, only 33% of fans believe FIFA is actively working against corruption in football, and only 15% of fans have more confidence in FIFA now than they did during last year’s corruption scandal.

The public’s distrust of FIFA is certainly understandable, as is a degree of cynicism regarding Infantino’s promise to clean up the organization. After all, Sepp Blatter ran on a similar platform to Infantino when he elected President in 1998, also claiming that he was going to reform FIFA. Yet despite the lack of confidence in Infantino and FIFA, there are a few reasons to believe that change may be occurring within the organization, and that FIFA, under Infantino’s leadership, may be making strides in the right direction. Since Infantino’s election, FIFA has undertaken the following steps to curb corruption within football and the organization:

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The US Navy’s “Fat Leonard” Scandal: How the Virtuous Fall

Last March, the U.S. Department of Justice unsealed the latest indictment in the so-called “Fat Leonard” corruption scandal that has haunted the Navy since 2014 and continues to grow. “Fat Leonard” is Leonard Glenn Francis, a Malaysian citizen and the owner of Glenn Defense Marine Asia (GDMA), which provided support to the Navy’s Seventh Fleet in Southeast Asia from 2006-2014. When Navy ships pull into foreign ports, local companies are contracted to provide marine husbanding, port security, refueling and waste management services, ground transportation for sailors and Marines in port, etc. GDMA offered these services, but also much more: for a number of senior Navy officials, Francis paid for prostitutes, extravagant meals, luxury hotel stays, and other travel expenses, and provided gifts of both cash and goods. All he asked for in return was assurances that Seventh Fleet ships would use ports Francis controlled, classified information about Navy operations (including ships’ schedules), sensitive information on the business practices of his competitors, and assistance in facilitating a price gouging scheme that yielded GMDA excess profits of $35 million over eight years. The total number of people charged in the “Fat Leonard” scandal now comes to 27, including two admirals, fifteen other senior active duty naval officers, an NCIS special agent, and two contracting supervisors; another 200 additional individuals remain under scrutiny by prosecutors. This was a full-fledged cultural problem, not just a case of a few bad apples.

The details of what these men got up to in port are quite salacious, but my focus in this post is instead on what this scandal exposes about how corruption can spread among decorated public servants and what can be done to prevent similar scandals in the future. Every single one of the senior officers charged had been trained to be self-disciplined and to put mission and country above self—it’s what those of us who serve in the military vow to do. Each officer had a long and distinguished career before becoming entangled with Francis and his lurid scheme. Yet each sold his integrity, and sold out his country, for immediate gratification. Why? Continue reading

Guest Post: An Exercise in Underachievement–The UK’s Half-Hearted Half-Measures To Exclude Corrupt Bidders from Public Procurement

GAB is delighted to welcome back Susan Hawley, policy director of Corruption Watch, to contribute today’s guest post:

A year ago, in May 2016, the UK government gathered 43 nations around the world together at the London Anti-Corruption Summit to show their commitment to fighting corruption. The resulting declaration made a number of bold promises. One of the most important—though not one that grabbed a lot of headlines—was the announcement that corrupt bidders should not be allowed to bid for government contracts, and the associated pledge by the declaration’s signatories that they would commit to ensuring that information about final convictions would be made available to procurement bodies across borders. Seventeen signatories went further, making specific commitments to exclude corrupt bidders, while six countries pledged to establish a centralized database of convicted companies as a way of ensuring procurement bodies could access relevant information. (Three other countries committed to exploring that possibility.)

The London Anti-Corruption Summit was right to be ambitious about focus on this issue in its declaration. Research shows that the risk of losing business opportunities such as through debarment from public contracts ranks has a powerful deterrent effect—equal to that associated with individual executives facing imprisonment, and much greater than one-off penalties such as fines. Yet debarment of corrupt companies for public contracting is quite rare. The OECD Foreign Bribery report found that while 57% of the 427 foreign bribery cases it looked at spanning 15 years involved bribes to obtain government procurement contracts, only two resulted in debarment. Even the US which has a relatively advanced debarment regime and which debars or suspends around 5000 entities a year from public procurement, appears to debar very few for foreign bribery and corruption. And the UK does not appear to have ever excluded a company from public procurement, despite laws in place since 2006 that require companies convicted of corruption and other serious crimes to be excluded from public contracts.

Did the London Anti-Corruption Summit mark significant turning point in the UK’s approach to this issue? Having persuaded 43 countries to sign a declaration that included a commitment to exclude corrupt bidders, did the UK have its own bold new vision to implement that commitment domestically? Unfortunately, the answer is no. Continue reading

The Trump Legacy: A Gladstonian Finale?

For a man whose biographer describes him as obsessed “with protecting his image,” President Donald Trump seems oblivious to how flouting conflict of interest norms is blackening that image.  Perhaps he thinks that the criticisms leveled (examples from GAB: here and here, major media: here, here, and here) are just the carpings of Clinton supporters that will fade over time. And that his presidential accomplishments will overshadow whatever he may do to grow the Trump patrimony while holding the office.

He might want to consider how conflict of interest charges have sullied the image of one of Britain’s finest leaders since he left office 123 years ago.  So great has the fuss been that that no biographer, no matter how sympathetic, and no history of 19th century Britain can ignore the charges. Continue reading

Is It a Crime To Promise To Support a Legislator Who Votes the Way You Want?

Last March, while President Trump and House Speaker Paul Ryan were trying—ultimately unsuccessfully—to muster enough votes for the first version of their proposed Obamacare replacement, the American Health Care Act (AHCA), the Koch brothers’ political organizations announced that they would set up a fund to provide substantial campaign support to all Republicans who voted against the AHCA (which the Koch brothers opposed on the grounds that it didn’t go far enough in repealing the health insurance expansions brought about by the Obamacare). Stripped to its essence, the Koch brothers said to Republican House Representatives: “If you vote the way we want on this bill, we’ll donate (more) money to your campaigns; if you don’t, we won’t.”

Was that offer a violation of the federal anti-bribery statute? In a provocative essay, Louisiana State University Law Professor Ken Levy says yes, it was. Professor Levy reasons as follows: The anti-bribery statute, codified at 18 USC § 201(b), prohibits any person from “giv[ing], offer[ing] or promis[ing] anything of value to any public official … with intent to influence any official act.” The Koch brothers certainly “offered” or “promised” campaign donations, and campaign donations indubitably count as a “thing of value.” Moreover, the Koch brothers made this promise in order to influence a vote in the legislature, clearly an official act. Moreover, as Professor Levy points out, although many people seem to think that the Supreme Court has ruled that providing campaign donations in exchange for votes is constitutionally protected, in fact the Court has held the opposite: promising campaign donations in exchange for an “official act” does qualify as an unlawful bribe, so long as there’s a quid pro quo; in the absence of a quid pro quo, Congress’s power to regulate campaign donations or expenditures is more limited. Thus, all the elements of a §201(b) violation are present, and at least in principle, the Koch brothers could be prosecuted, convicted, and sentenced to a prison term of up to 15 years and/or a fine of up to three times the value of the thing of value offered (which this case could run into the tens of millions of dollars).

Professor Levy’s legal analysis seems, at least on a first reading, to be correct. At the same time, I find it unthinkable that any federal prosecutor—not just Jeff Sessions, but even someone like Preet Bharara—would bring criminal charges in this case, or that any judge would allow a conviction to stand. Professor Levy’s provocative essay has forced me to think a bit harder about why that is. The fact that I can’t imagine a federal bribery case could or should be brought against the Koch brothers for their announced campaign support plan, despite the fact that the conduct seems clearly to violate the letter of the law, suggests that something has gone seriously awry with how U.S. law, and U.S. political culture, think about the relationship between campaign donations, political speech, and criminal bribery. Continue reading

Shareholder Proposals as a Response to Trump’s Conflicts of Interest

Donald Trump’s continuing failure to place his assets in a blind trust creates an opportunity for him to abuse the public office of the Presidency for private gain—his own and his family’s. The Trumps have shown themselves willing to work with blatantly corrupt business partners in the past; now, with the awesome power of the Presidency, Trump is in a unique position to do significant damage to the anticorruption agenda. People who, like me, are bothered by the conflicts of interest have sought ways to fight back. While my last post discussed the viability of the Trump anticorruption boycotts, here I discuss a different but potentially complementary approach: shareholder proposals.

What is a shareholder proposal? Every year, each shareholder receives a long booklet of information, called a proxy statement, from every company in which he or she holds stock. These proxy statements are compiled by corporate leadership and distributed to shareholders, who are asked to vote on certain matters: electing directors to the board, hiring the corporate accounting firm, and approving executive compensation. At the end of the proxy statement come the shareholder proposals, short recommendations for the board of directors. Shareholders are asked to vote for or against those proposals.

Under SEC Rule 14a-8, any shareholder (or group of shareholders) who holds $2,000 or 1% (whichever is less) of the company for at least one year may submit a proposal. (There are a few other procedural requirements as well, but they are not too onerous.) Although shareholder proposals are merely advisory—the directors and management retain their power to make decisions on behalf of the corporation—shareholder proposals in the past have been used to advance social and political goals. For example, social activists used shareholder proposals to urge divesting from South Africa during the apartheid era. Last year Exxon Mobile included shareholder proposals to place a climate expert on the Board and to report on compensation for women. A shareholder proposal for Coca-Cola asked the company to report on its operations in high-risk regions with poor human rights records.

In this vein, anticorruption activists who hold stock in corporations that do business with the Trump family brands (such as Amazon, Macy’s, or Zappos) could submit shareholder proposals urging those companies to report on or cease all such business. To be sure, shareholder proposals are merely recommendations to the board. But shareholder proposals are nonetheless a low-cost tool in the anticorruption advocate’s toolbox that can help keep public attention on the issue and prevent the normalization of Trump’s conflicts.

An anti-Trumpian-conflicts-of-interest shareholder proposal, cast in the formalistic style typical of such proposals, might look something like the following:

Continue reading

Post-TPP Withdrawal: Loss of a Trade-Corruption Milestone?

As promised, President Trump removed the United States from the Trans-Pacific Partnership (TPP) trade agreement soon after he took office in January. The move withdrew the world’s leading economy from the largest regional trade deal ever proposed. It also represented a major step back from what looked like a breakthrough in linking anticorruption and trade. As I discussed in a previous post, the TPP’s anticorruption chapter was an important step towards inclusion of anticorruption commitments in trade deals, making the U.S. withdrawal from the TPP a step backwards for the decades-old movement to incorporate anticorruption provisions in trade agreements.

Yet Trump’s move was not the end of the TPP negotiations. Nor should it be the end of championing an increased role for anticorruption and transparency in trade deals. With the TPP having reached the final stages of negotiation, its Transparency and Anticorruption Chapter can provide an outline for future trade deals that might provide further opportunities for trade-corruption linkage. As outlined in a previous post, the TPP’s chapter on anticorruption made several strides forward, including obligations to join UNCAC and respect other anticorruption instruments. What’s more, the anticorruption provisions were to be made enforceable in trade dispute resolution tribunals (though, as Danielle has previously written, corruption can already support certain actions in trade dispute arbitration). Looking at the strides forward in the draft TPP, there are three key avenues through which the Transparency and Anticorruption Chapter can continue to strengthen international trade deals.

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Guest Post: When It Comes To Attitudes Toward Corruption, Russians Are More Like Americans Than You Think

Today’s guest post is from Marina Zaloznaya, Assistant Professor of Sociology at the University of Iowa and author of, The Politics of Bureaucratic Corruption in Post-Transitional Eastern Europe:

Russia and corruption have been dominating the news recently – with the reporting from Washington and Moscow converging in an unusual way. Ongoing accusations against Trump Administration officials resonate even more strongly when linked to Russia, a country most Americans view as rife with corruption. Indeed, many Americans think that Russian citizens are perfectly comfortable with the systematic corruption of political and business elites.

This is a myth. Yes, it is true beyond doubt that corruption is common in Russia – much more so than in the United States – affecting hundreds of thousands of people. But this is not because Russians are systematically more tolerant of corruption than are Americans. Continue reading