Beneficial Ownership Disclosure by Multilateral Development Banks

Joseph Kraus at The ONE Campaign recently summarized for GAB readers  measures governments are taking to require companies registered in their territory to reveal the natural person or persons who own and control them, their beneficial owners.  A parallel effort has begun to persuade the international development banks – the World Bank, the African Development Bank, the Asian Development Bank, the Inter-American Development Bank, and the European Bank for Reconstruction and Development – to reveal the beneficial owners of the companies “their monies” (read taxpayer monies) fund.  In May 2017, the U.S. Congress ordered the Secretary of the U.S. Treasury to see that each bank: –

“collects, verifies, and publishes, to the maximum extent practicable, beneficial ownership information … for any corporation or limited liability company, other than a publicly listed company, that receives funds from [it].”  Division J, section 2079(f) of the  Consolidated Appropriations Act, 2017.

As the U.S. is a significant funder of each bank, an American serves on the board of each.  In the 2017 law, Congress directed the Treasury Secretary, to whom the American board members answer, “to instruct” each to urge its bank to comply with Congress’ wish on beneficial ownership.  It also required the Secretary to report on how the successful the American board member had been in persuading the other board members and the management of their bank to gather and reveal beneficial ownership information.

The Secretary’s report contains several surprises on which banks took the U.S. effort on beneficial ownership seriously and which ones blew it off.  With the banks that ignored the U.S. effort, it leaves unanswered an interesting question: What if anything did board members representing other countries committed to the disclosure of beneficial ownership do to push the issue?

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Corruption Discussion on “The Scholars’ Circle”

Last summer UCLA Professor Miriam Golden and I did a radio interview on political corruption for a program called The Scholars’ Circle, hosted by Maria Armoudian. I just learned that a recording of the program is available online, and I thought it might be of interest to some readers of this blog. The recording can be found here; the discussion about corruption begins at 17:16.

The relatively brief but wide-ranging discussion, skillfully moderated by Ms. Armoudian, touches on five major issues (issues that we’ve also covered on this blog):

  • How should we define corruption, and how can we try to measure it? (at 18:11-26:31 on the recording)
  • Possible factors that might contribute to the level of corruption, including economic development, governance systems (democracy v. autocracy), social norms, and culture (26:32-32:41)
  • Whether and how countries can make the transition from a state of endemic corruption to a state of manageable/limited corruption—as well as the risk of backsliding (32:52-47:32)
  • What will the impact of the Trump Administration be on corruption, and on norms of integrity and the rule of law, in the United States? (47:42-52:02)
  • What are some of the main remedies that can help make a system less corrupt? (52:03-56:34)

There’s obviously a limit to how deep one can go in a format like this, and the program is geared toward a non-specialist audience, but I hope some readers find the conversation useful in stimulating more thinking on the topics we covered. Thanks for listening!

Why Samsung’s Recent Conviction Will Not Rid South Korea of Chaebols

Samsung is in search of a new leader after Jay Y. Lee, grandson of Samsung’s founder, was convicted of bribing South Korea’s President to approve a controversial merger between two Samsung affiliates. Many thought that the proposed merger, which had been heavily criticized by independent analysts and investors, would not receive the legally-required approval from then-President Park Geun-hye’s administration. Lee allegedly bribed President and people close to her, to the tune of $38 million, for her support. When this corruption was exposed, President Park resigned and Lee was prosecuted and ultimately convicted.

Some hope that these dramatic developments portend more far-reaching changes in South Korea’s economy—in particular, the destruction of the chaebols (literally “wealth clans”), the multinational conglomerates in which leadership is passed from person to person within a family. Many credit chaebols with the successful post-World War II transformation of South Korea’s agrarian economy into an international economic powerhouse, but others criticize chaebols on a number of grounds, including the claim that they concentrate power and wealth in the hands of a small family minority, pay low dividends to ordinary investors, and facilitate the sort of grand corruption exposed in the Samsung affair.

After President Park resigned in disgrace, she was replaced by President Moon Jae-in, promised to put an end to chaebols altogether. Alas, this is unlikely. Indeed, it’s looking increasingly like Samsung’s recent scandal will not have a lasting effect on chaebols, or even on Samsung’s long-term profitability. Continue reading

Can Sri Lanka Clean Up Its Elections?

Schools bags, school books, seed and fertilizer, clothes, sewing machines, clocks, calendars, and mobile phones – these are just some of the items that were distributed to the public during the 2015 Sri Lankan Presidential election campaign as “election bribes”. Indeed, this election was plagued by widespread violations of election law and the blatant misuse of state resources, including the illegal display of cut-outs, distribution of money during political meetings, the use of vehicles belonging to state institutions for propaganda purposes, and the construction of illegal election offices. Moreover, overall spending on election activities by the two main candidates was colossal. Incumbent Mahinda Rajapaksa (the losing candidate) is reported to have spent over 2 billion Rupees (approximately US$13 million) of public funds on his advertising campaign alone, excluding the cost of production, while the winning candidate, Maithripala Sirisena, is reported to have had a budget of 676 million Rupees (approximately US$ 4.4 million) for electronic and print media.

In this context, reports that the Cabinet of Sri Lanka has unanimously approved a proposal to amend the country’s election laws in order to place more controls on campaign-related expenditures is good news. Such reform would address a gaping void in the existing legal framework: although Sri Lanka has laws prohibiting vote-buying and similar practices, there are currently no laws regulating campaign finance. The specifics of the approved Cabinet Memorandum are still not publicly available, and it is therefore not yet possible to offer a detailed evaluation of the proposed changes. Nonetheless, given what we already know about election campaigns in Sri Lanka—especially regarding the corruption risks associated with the lack of adequate regulation—it is possible to offer a few general observations and recommendations. Continue reading

Guest Post: Global Forum or Global Farce on Asset Recovery?

GAB is delighted to welcome back Susan Hawley, Policy Director at Corruption Watch, to contribute today’s guest post:

The global record on recovering assets looted from public treasuries is not good. The World Bank and UNODC estimate that between $20-40 billion is stolen each year. Between 2006 and 2012, $2.6 billion stolen assets were frozen in so-called “destination” countries, and $423.5 million was returned. That means of the roughly $120 billion (taking the lowest end of the World Bank and UNODC’s estimate) thought to have been potentially looted globally in that 6 year period, only 0.3% was actually recovered.

To strengthen international efforts to combat this problem, the 2016 London Anti-Corruption Summit called for the creation of a Global Forum on Asset Recovery (GFAR); the World Bank and UNODC’s Stolen Asset Recovery Initiative organized the inaugural Global Forum on Asset Recovery (GFAR), in December 2017 in Washington, D.C., with the US and UK governments as co-hosts. The GFAR, which welcomed over 300 participants from 26 jurisdictions, focused on four countries: Nigeria, (thought to have to have lost $32 billion to corruption under previous President Goodluck Jonathan); Sri Lanka (where former President Rajapaksa allegedly stole up to $5.38 billion); Tunisia (where former ruler Ben Ali and his family are thought to have amassed wealth of over $13 billion); and Ukraine (where former president Yanukovych and his associates are thought to have stolen around $7.5 billion). These countries were selected for their political will to recover stolen assets and the considerable assets they have to recover.

The stated objectives for the GFAR were “progress on cases achieved by the four focus countries, increased capacity through technical sessions, renewed commitment to advancing asset recovery cases, and increased collaboration among involved jurisdictions.” As measured against these objectives, was the GFAR a success? Should it be a regular event? More generally, do asset recovery forums like this have sufficient positive impact to justify their cost? Continue reading

Learning from Defeat: The Menendez Case

Last Friday, the Department of Justice asked for another chance to try U.S. Senator Robert Menendez on corruption charges, requesting that the court “set the case for retrial at the earliest possible date.”  The first trial resulted in a mistrial.  Ten of the 12 jurors held out for acquittal, saying prosecutors had produced no “smoking gun.”  Yet the prosecution did indeed have a smoking gun – irrefutable proof the Senator broke the law – which it did in fact show the jury.

Prosecutors can learn much about trying corruption cases from the failure to convict Menendez the first time.  Not, as one commentator claims, that America’s anticorruption laws are so flawed only the most flagrant violators need fear them.  The lessons have nothing to do with America’s anticorruption laws, which are hardly in bad shape. Nor its system of 12 citizens determining the facts in a criminal case.  Continue reading

The Dismissal of the CREW v. Trump Emoluments Lawsuit: Some Quick Reactions

As those who follow the debates swirling around President Trump’s extensive conflicts-of-interests are likely aware, last month a United States District Court dismissed, on jurisdictional grounds, a lawsuit asserting that President Trump’s business interests put him in violation of the U.S. Constitution’s foreign and domestic Emoluments Clauses. The opinion came down over a month ago, but I was traveling at the time and didn’t have a chance to read it until recently. There was plenty of informed commentary in the immediate wake of the decision (see, for example, here, here, here, and here), and I recognize that further discussion may not be that useful. But since I had posted several times about the case last year, I thought it might be worth saying a few words about what we might take away from the opinion and its impact.

For those whose memory of the details of the case is a bit fuzzy, a brief recap: The Foreign Emoluments Clause prohibits any official of the U.S. government from accepting any “present [or] emolument” from a foreign government, while the Domestic Emoluments Clause prohibits the U.S. President from receiving any “emolument” from the U.S. government or any state government during his or her term of office. The Citizens for Ethics and Responsibility in Washington (CREW) filed a lawsuit asserting that President Trump was in violation of both clauses. The complaint alleged that several of Trump’s businesses—from which he did not divest—solicited and received the patronage of foreign governments, in contravention of the Foreign Emoluments Clause, and that Trump companies had received business and/or benefits from both federal and state government entities, thereby offending the Domestic Emoluments Clause. The CREW suit, which was later joined by several co-plaintiffs who compete economically with Trump hotels and restaurants, asked the court to enjoin President Trump from continued or future violations of the Emoluments Clauses, and to order him to release his financial records in order to be sure that no such violations took place.

I’m sympathetic to CREW’s arguments on the merits (though I recognize that there are important arguments on the other side, which I admit I haven’t fully worked through – see here and here). But I feared that the lawsuit was likely to be dismissed—not on the merits, but on the grounds that the court lacked jurisdiction to hear the case. Indeed, I thought such a dismissal was almost certain. I also fretted that CREW’s decision to bring the case might be a serious strategic error: My worry was that the near-inevitable dismissal of the suit on jurisdictional grounds would give most of the public the misleading impression that the underlying claims of improper behavior were meritless, and that pro-Trump media outlets would foster that misimpression, with the net result that concern about Trump’s conflicts of interest would dissipate rather than intensify. My concerns somewhat but not fully abated when the additional plaintiffs (competing restaurants, hotels, and their employees) joined the suit. I thought that these additional plaintiffs, unlike CREW itself, were more likely to have “standing” (one of the requirements for the court to have jurisdiction), but that other jurisdictional problems might still stop the court from reaching and deciding the question whether President Trump is in violation of the Constitution.

So, now that the decision is out, what should we think of it, and what can we learn from it? My own reaction is, perhaps, a bit paradoxical: After reading the opinion and the subsequent commentary and news coverage, I’m even more convinced than I was before that this lawsuit and others like it will be dismissed on jurisdictional grounds, but I’m less concerned that pursuing these suits is a strategic mistake (though there are still questions about whether it’s a worthwhile use of scarce advocacy resources, or of the court system). Continue reading