Monthly Archives: January 2018

Assessing Corruption Assessments: TI’s National Integrity System

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Paul Heywood and Elizabeth Johnson raise important questions in a recent journal article about Transparency International’s corruption assessment methodology; their article deserves close attention by consumers and producers of any type of corruption assessment.  The purpose of a corruption assessment is to determine where a country is falling short in the fight against corruption and what more it needs to do.  An assessment is the backbone of any national anticorruption policy, providing both a roadmap for reform and a gauge for measuring progress, and with a wrong map or inaccurate gauge, the chances the policy will curb corruption are slight.

TI calls its corruption assessment method the National Integrity System (NIS).  One of the more than 500 different corruption assessment methodologies (or “tools” in anticorruption jargon) now in use, it is among the oldest and most widely used.  Since 2001, it has been an input into anticorruption policy in over 100 countries.  Heywood and Johnson find it has four weaknesses  – Continue reading →

Guest Post: Global Progress on Beneficial Ownership Transparency

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Joseph Kraus, Director, Transparency and Accountability at The ONE Campaign, contributes today’s guest post:

Readers of this blog are likely familiar with the pernicious effects of anonymous companies, those all-too-secretive corporate vehicles that can be – and often are – used to facilitate corruption. Such entities thwart the ability of investigators, journalists, and civil society watchdogs to “follow the money” and hold bad actors accountable. Despite this obvious problem, there has been little political will to better regulate such entities.  Yet that is changing. In the past five years, there has been growing political momentum to put an end to corporate anonymity. Most recently, last month the European Union agreed on landmark regulations that will require public registers of company beneficial ownership information. (The EU also agreed to allow law enforcement, financial institutions, and anyone with an as-yet undefined “legitimate interest” to access trust ownership information.) These groundbreaking new rules will be implemented across the bloc’s 28 Member States.

Given the recent victory in the EU, it’s worth taking stock of global progress and tracing what has helped fuel gains that few thought plausible just a few years ago. Continue reading →

Remembering Ferdinand Marcos’ History of Corruption is Relevant to the Philippines’ Present Anticorruption Efforts

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Ferdinand Marcos, who ruled the Philippines as a dictator from 1972 to 1986, is remembered for the thousands of human rights violations he committed, as well as his massive corruption. Indeed, Marcos holds the dubious title of being the most corrupt Philippine president (a title for which there is unfortunately stiff competition), and has been identified in one study as the second most corrupt government leader in the world, as measured by the value of public assets he stole. The profligacy of Ferdinand Marcos and his wife Imelda—even at a time when the Philippines was spiraling into recession and a debt crisis—was shameless, and symbolized by Imelda’s 2,700 pairs of shoes and extravagant shopping sprees.

Given the magnitude of the corruption and abuses he perpetrated, one would think that Marcos’ place in Philippine history and in Filipinos’ collective memory is already well-settled. But alarmingly, a “revisionist” account of his presidency has recently gained, and continues to gain, wide currency. Many Filipinos are now beginning to consider the notion that Marcos may not really have been so bad—that his “sins” were merely overstated by the victors who wrote post-Marcos history. (Some of these issues are discussed here, here and here, but they are more frequently debated informally in mass and social media platforms.) These revisionist narratives spiked during the 2016 Philippine elections, when Marcos’ son, Ferdinand, Jr. (known as “Bongbong”), ran for, and almost won, the Vice Presidency. During his campaign, Bongbong denied his father’s legacy of corruption and framed his own platform as a revival of Marcos’ supposed “golden age” of peace and progress. Bongbong’s efforts to whitewash his father’s historical record to suit his electoral objectives gained traction, and has even spread to other fronts, like Wikipedia and Facebook. It did not help that President Rodrigo Duterte favorably endorsed the Martial Law declaration that paved the way for Marcos’ dictatorial rule in 1972 (calling it “very good”), and that the Supreme Court, in a recent controversial ruling, allowed the interment of Marcos’ remains in the Libingan ng mga Bayani (“Cemetery of Heroes”).

From a historical perspective, this phenomenon is disturbing in itself; but, if not arrested, this distortion of collective memory about Marcos’ history of corruption would also have dangerous implications for the Philippines’ ongoing and future anticorruption efforts. Continue reading →

How to Crack Down on Cryptocurrencies

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Bitcoin and other cryptocurrencies are electronic currencies that rely on a technological innovation called a “blockchain”—essentially, a complete transaction record, or “ledger,” stored across a network of computers rather than on a single site. Because of the transparency and alleged incorruptibility of the blockchain ledger, many anticorruption advocates have welcomed the possibility that blockchain technology might be an effective technology to combat corruption in a variety of ways, from ensuring transparency and accuracy in land records to helping to fight money laundering. Whether that optimism is justified remains to be seen. Unfortunately, the most popular application of blockchain to date—Bitcoin—is proving to be a major problem for the fight against corruption, money laundering, and a whole range of other black-market transactions.

Bitcoin is an unregulated currency and is fundamentally difficult to track. Bitcoin allows for the transmission of large amounts of money without the need to go through the traditional, and heavily regulated, financial service providers. Unlike cash, which is also difficult to trace, bitcoins are easy to hide, as the information necessary to stash hundreds of millions of dollars can be kept on a small USB thumb drive. And despite the vaunted transparency and incorruptibility of the Bitcoin “ledger,” which does indeed record all Bitcoin transactions, there is no easy way to establish the real-world identities of Bitcoin users. Nor is there any easy way to generate a record of individuals’ bitcoin holdings, which would have to be reconstructed from hundreds of thousands of transactions. Laundering money with bitcoins is further facilitated through the use “mixing” technologies that pool bitcoins and forward them onward to other accounts, thwarting the transparent blockchain.

Government efforts to address these problems have so far fallen short. China has begun to crack down on domestic Bitcoin exchanges, and some countries such as Bolivia have outright outlawed the use of Bitcoin. But these efforts have largely failed because the storage and exchange of bitcoins requires so little information; you can send bitcoins using protocols as simple as email or text message. Many governments have financial disclosure laws that require public officials to declare all their assets, including bitcoins. And sometimes officials do: three Ukrainian ministers recently disclosed, pursuant to Ukraine’s new asset declaration law, holdings of a combined US$45 million worth of bitcoins. But if corrupt government officials chose to violate the law by failing to disclose their Bitcoin holdings, it would be all too easy for them to do so without getting caught. Governments could also crack down on the services that make bitcoins easier to use—the digital exchanges and apps—but all this would likely do is cause the providers of those electronic services to shift their operations to other jurisdictions, as has happened with digital torrenting sites (which facilitate the pirating of digital content) after the US cracked down.

There is, however, an alternative regulatory strategy that holds more promise:  Continue reading →

Guest Post: We Need To Talk About Donors

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GAB is delighted to welcome back Mark Pyman, Senior Fellow at the London Institute for Statecraft, who also served as Commissioner of the Afghanistan Joint Independent Anti-Corruption Monitoring and Evaluation Committee until November 27, 2017.

When it comes to fighting corruption and promoting accountable government, donors provide funds, expertise, and support, often over many years. They face many difficult challenges, and we all sympathize with the hard issues they have to contend with. Yet at the same time we have to forthrightly acknowledge that, for all their good intentions, when it comes to corruption, international donors easily become part of the problem. Donors, researchers, politicians and grantees have all been too silent on this.

Let me illustrate this with problems at one large, well-intentioned donor program in Afghanistan, the Comprehensive Agriculture and Rural Development Facility (CARD-F) Program. This Program, funded by the UK’s Department for International Development (DFID) and Denmark’s aid agency DANIDA to the tune of $120 million over two phases, was established to increase rural employment, incomes, and business opportunities through the design and implementation of projects, such as infrastructure work (such as building irrigation canals), provision of grants to producers and processors, establishment of greenhouses and poultry farms, and training for farmers.

Between March and October 2017, the Afghanistan Independent Anti-Corruption Monitoring and Evaluation Committee (MEC) made an inquiry into corruption concerns at CARD-F, based on allegations from five whistleblowers. MEC is the premier anti-corruption entity in Afghanistan, set up by Presidential decree in 2010, led by a Committee of six (three eminent Afghans and three international experts), and with an Afghan Secretariat of some 25 professional staff. It is funded by international donors. MEC found plenty of malpractice, including nepotism and cronyism in the Management Unit; multiple irregularities in the awarding of grants and procurement contracts; poor monitoring provided by expensive UK companies (that, to be blunt, were not doing their job); and international (UK) contractors with a built-in incentive to use up more of the available budget for their own “technical assistance.” MEC found that only 33% of CARD-F funds in the first phase reached the intended end users, instead of the planned 60% (the other 40% planned to going on technical assistance and administration; eventually 67%). Moreover, not one of the five separate whistleblowers whose concerns were passed to MEC felt protected enough to complain through the CARD-F program, nor through DFID or DANIDA. At least two of these whistleblowers were fired, and others felt they had to leave.

At the same time the donors vigorously opposed MEC’s plan to do the inquiry, suggesting that MEC surely had other more important priority topics to examine, and that MEC shouldn’t be concerned because the donors had already done an audit (which was not shared with MEC) in response to a previous whistleblower. Not-so-subtle pressure was applied: MEC’s own core funding, which comes partly from DFID and DANIDA, would need to be “reviewed” if MEC persisted. Ultimately, MEC had to request the President of Afghanistan to intercede, before DFID Afghanistan offered its support to MEC’s inquiry.

Any organization doing or sponsoring work in a tough environment like Afghanistan can expect to have corruption issues. But trying to hide the problem, and then to bully it away? As an anticorruption professional who has seen DFID do good work elsewhere in the world, and indeed in Afghanistan, I was really shaken. Less naïve than me, the Afghans are well aware that such internationally sanctioned malpractice is taking place, and they too see this as evidence of dishonesty and hypocrisy.

The huge disconnect between donors’ generally good intentions on the one hand and the, frankly, perverse bureaucratic politics that drives donor agencies is a known problem. Most donors know what is going on in their programs, but feel driven to cover themselves with expensive and often ineffective technical veils – fiduciary risk assessments; supply chain mapping, due diligence, layers of oversight – to protect themselves from charges of lax supervision.

An honest conversation about this is surely overdue. Here are ideas on four of the key topics to start the discussion: Continue reading →

Tracking Corruption and Conflicts of Interest in the Trump Administration–January 2018 Update

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Last May, we launched our project to track credible allegations that President Trump, as well as his family members and close associates, are seeking to use the presidency to advance their personal financial interests.Just as President Trump’s son Eric will be providing President Trump with “quarterly” updates on the Trump Organization’s business affairs, we will do our best to provide readers with regular updates on credible allegations of presidential profiteering. Our January 2018 update is now available here.

There were relatively few major new developments, though there are some changes and modifications throughout to reflect more recent coverage of some of the allegations, as well as some more detail on concerns about foreign governments currying favor with the administration through favorable treatment of Trump-affiliated businesses (most notably in Indonesia and Panama).

As always, we note that while we try to include only those allegations that appear credible, we acknowledge that many of the allegations that we discuss are speculative and/or contested. We also do not attempt a full analysis of the laws and regulations that may or may not have been broken if the allegations are true. For an overview of some of the relevant federal laws and regulations that might apply to some of the alleged problematic conduct, see here.

Do Mandatory Asset Declarations Reduce Corruption? And If So, How?

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The United Nations Convention Against Corruption (UNCAC) calls on States Parties to adopt asset declaration and financial disclosure regimes for their public officials (see Article 8, paragraph 5 and Article 52, paragraph 5), and most states have complied with this commitment in one form or another. Indeed, according to a report by the Stolen Asset Recovery Initiative, there is a continuous upward trend in the number of states that have enacted financial disclosure laws (see Figure 1.1 at page 8). Yet the near-universal popularity of mandatory asset declarations does not mean that this tool is actually effective. True, there have been a few high-profile cases where asset declarations played an important role in anticorruption efforts, such as the impeachment of the Chief Justices of the Philippines and Sri Lanka, as well as the resignation of the Vice Rectors of a prestigious university in Thailand and the top brass of a state bank in Portugal. But such high-profile cases are rare and may not be representative of the larger picture. In a previous post on this blog, Rick Messick expressed some skepticism about the extent to which asset declarations and other forms of mandatory financial disclosures actually contribute to anticorruption efforts, and criticized what he saw as extravagant and unrealistic claims about the effectiveness of such disclosures as anticorruption tools.

So what does the existing research actually say about the effectiveness of asset declarations on anticorruption efforts? While there are only a few studies on this topic, the evidence they supply nevertheless offers valuable insights.

Continue reading →

Lessons from the “Isolated Capital” Effect for the Fight Against Public Corruption

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As numerous commentators have written on this blog and elsewhere, the New York state legislature suffers from a serious corruption problem (see, for example, here and here), with six corruption convictions of government leaders in eleven years, and suspicions that the rot runs much deeper. Would things be any better if New York’s capital were in New York City rather than in Albany? While it’s impossible to say for sure, research suggests—perhaps surprisingly—that the answer might be yes. In an influential paper, Filipe Campante and Qhoc-Anh Do found that, on average, corruption (as measured by federal corruption-related crime convictions per capita) is higher in states where the state capital is more “isolated”—that is, farther from the state’s major population centers. (States with relatively isolated capitals include not just New York (Albany), but also Illinois (Springfield), South Carolina (Columbia), Nevada (Carson City), and Florida (Tallahassee), among others.)

Of course, states are very unlikely to relocate their capitals, but understanding the likely mechanisms that explain Campante and Do’s surprising finding may help us better understand the sorts of policy levers that might help reduce corruption in state government. So why might it be the case that states with more isolated capital cities might have more corruption? Continue reading →

Guest Post: Tackling Corruption in Afghanistan’s Education Sector

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GAB is delighted to welcome back Mark Pyman, Senior Fellow at the London Institute for Statecraft, who also served as Commissioner of the Afghanistan Joint Independent Anti-Corruption Monitoring and Evaluation Committee until November 27, 2017.

One of the successes of the last fifteen years in Afghanistan has been the rise in the numbers of students attending school, especially girls. According to the Afghan Ministry of Education, more than 9.2 million children, 39% of them girls, are now enrolled in school (though these statistics continue to be disputed, with alternative enrollment estimates ranging between 6 and 10 million). Yet the Afghan government, the citizenry, and external observers are all well aware that the education system remains beset by endemic corruption. As one parent put it in a focus group discussion: “A suicide attack isn’t the most dangerous thing for us, because a few people will die…. It is the unprofessional and unknowledgeable teachers that are most dangerous for us because they kill the future of Afghanistan.”

A major new report from the Afghanistan Anti-Corruption Monitoring and Evaluation Committee (known as MEC), carried out at the request of the Minister of Education, evaluates the corruption vulnerabilities across the education system and how they need to be addressed. The study, conducted in cooperation with the Education Ministry, visited 138 schools in nine provinces, and conducted over 500 interviews with a range of stakeholders (including Ministry officials, provincial education officials, teachers, parents, students, and others), as well as 160 focus group discussions. These interviews and focus group discussions assessed a broad range of education corruption issues, including both corruption that arises at the level of schools and districts (such as students paying for advance copies of papers, or teachers using nepotistic influence to avoid having to turn up) and corruption in central government education policy and management (such as corruption in teacher appointments, school construction, and textbook procurement). Some of the report’s main findings are as follows: Continue reading →

Corruption Risk Assessments: Am I Missing Something?

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Surely one of most salutary developments to result from the intense focus on corruption over the past two decades is the growing use of corruption risk assessments by public and private entities alike.  Risk assessments were first employed in the 17th century to assess the likelihood a steam engine would explode and refined over the years to address risks as varied as the meltdown of a nuclear reactor or climate change.  A corruption risk assessment estimates the chances a government agency or private corporation will experience one or more types of corruption.  Just as assessing the risks of an engine explosion or reactor melt-down is an indispensable prerequisite for designing measures to mitigate if not eliminate these risks, a corruption risk assessment provides the critical information public and private sector decisionmakers need to design practicable corruption prevention programs.

A plethora of guides explaining how to conduct a corruption risk assessment are posted on the internet (examples for the public sector here and here; for the private sector here, here, and here).  All recite the standard method for assessing risks of any kind found in text books and government reports.  First, all conceivable forms of corruption to which the organization, the activity, the sector, or the project might be exposed is catalogued.  Second, an estimate of how likely it is that each of the possible forms of corruption will occur is prepared and third an estimate of the harm that will result if each occurs is developed.  The fourth step combines the chances of occurrence with the probability of its impact to produce a list of risks by priority.

The critical steps are the second and third.  If the estimate of where bribery is likely occur or its impact if it does occur is wrong, prevention efforts will not be properly targeted. That happened to the U.K. insurance firm Aon Limited.  Thinking bribery was more likely to occur in its U.K. operations than those overseas, it put the bulk of its enforcement efforts into preventing bribery in the U.K.  Because, as the U.K. financial regulator found, it “failed properly to assess … the higher risks presented by some of the countries in which [its overseas] divisions operated,” it thus spent little time overseeing its non-U.K. agents.  That mistake was costly.  When it was revealed that many non-U.K. agents had paid bribes, the U.K. Financial Services Authority, the U.S. Department of Justice, and Securities Exchange Commission all brought enforcement actions.

Given the importance of accurate estimates of bribery risk and impact to developing a corruption risk assessment, one would expect “how to” guides to explain ways to improve the accuracy of the estimates.  Especially since risk assessments in other areas do. Continue reading →