Monthly Archives: April 2018

Best Practices for a “Database of Deals”

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Last month, Joseph Percoco, former aide to New York Governor Andrew Cuomo, was found guilty of conspiracy to commit fraud and soliciting bribes for nearly $300,000 in connection to several multimillion-dollar economic development contracts in upstate New York. Next month, Alain Kaloyeros, the former President of the State University of New York Polytechnic Institute, will similarly go to trial on federal bid rigging, fraud, and bribery charges related to the upstate economic development project the “Buffalo Billion.” As I previously wrote, these are two of six high-profile corruption trials in New York this year—cases that have already generated calls for ethics reform (see here, here, and here). While similar calls for reform after the high-profile convictions of former New York state legislators Sheldon Silver and Dean Skelos were largely ignored, one modest proposal seems particularly promising: creating a public database of businesses and organizations that are awarded state economic development contracts and grants.

New York state and local governments spend over $8 billion on economic development programs each year, the most of any state in the country. However, little clarity exists about which companies receive subsidies, the value or amount of these subsidies, the employment and investment commitments tied to these subsidies, and whether these commitments are being met. This opacity not only makes it difficult to assess the successes and failures of development programs, but also creates opportunities for the type of corruption that ensnarled Mr. Percoco and Mr. Kaloyeros. Creating a database of all public economic development benefits (including grants, loans, or tax abatements) would increase transparency and accountability. Such a “Database of Deals” would provide a central source for authorities to monitor and flag irregularities, increasing public confidence in the procurement process, and deterring corruption by individuals who know that the public can assess the return on investment for each economic development project.

The recently passed 2019 New York State Budget included billions of dollars in new appropriations for economic development, yet bi-partisan legislation creating a “Database of Deals” was dropped from the budget the day before it passed. However, the New York state legislature still has several months to pass similar legislation. Moreover, six other states—including Florida, Maryland, Indiana, Illinois, and Wisconsin—have created and implemented similar searchable databases after calls for greater transparency and accountability. If and when New York, and other states, create similar databases, there are certain “best practices” that they ought to follow, to maximize the effectiveness of these databases in deterring corruption.

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Getting the Right People on the Global Magnitsky Sanctions List: A How-To Guide for Civil Society

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Last December, pursuant to the 2016 Global Magnitsky Act, President Trump issued Executive Order 13818, which declared that “the prevalence and severity of human rights abuse and corruption that have their source, in whole or in substantial part, outside the United States … threaten the stability of international political and economic systems,” and authorized the Treasury Secretary to impose sanctions against (among other possible targets) a current or former government official “who is responsible for or complicit in, or has directly or indirectly engaged in: (1) corruption, including the misappropriation of state assets, the expropriation of private assets for personal gain, corruption related to government contracts or the extraction of natural resources, or bribery; or (2) the transfer or the facilitation of the transfer of the proceeds of corruption.” Pursuant to this Executive Order, the Treasury Department imposed powerful economic sanctions against 37 entities and 15 individuals, including Chechen warlord Ramzan Kadyrov, Israeli billionaire Dan Gertler, and Artem Chaika, the son of Russia’s Prosecutor General.

This was big news, for a couple of reasons. Most obviously, Trump doesn’t exactly have a reputation as a “human rights guy,” let alone a Russia hawk. Given that the 2016 Global Magnitsky Act (unlike its predecessor, the 2009 Magnitsky Act) enables but does not require the imposition of sanctions, it was far from inevitable that the Trump Administration would make use of it. Perhaps just as newsworthy was where the specific names on the list came from: nearly half of those names were provided to the Administration by civil society organizations (CSOs) or by Congress (and in the latter case, it was likely CSO efforts that brought individual names to the attention of Congressional staffers).

The Global Magnitsky Act and EO 13818, then, seem to create promising opportunities for anticorruption CSOs to impose consequences on kleptocrats and their cronies. Because the process is so new, it’s not yet clear how it will develop, yet it is nevertheless useful to draw lessons from the first round of Global Magnitsky sanctions for how CSOs can be maximally effective in using this new tool. The Committee on Security and Cooperation in Europe (also known as the Helsinki Commission) hosted a workshop in early March 2018 to discuss this issue. I was fortunate enough to attend this gathering, and in this post I’ve attempted to distill a handful of key lessons that the participants’ discussion identified. I’ve framed the lessons as a “how-to” guide addressed to members of a hypothetical anticorruption CSO: that would like to take advantage of this powerful tool.

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Anticorruption Bibliography–April 2018 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.

CliffsNotes for Implementing an Income and Asset Disclosure System for Public Servants

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CliffsNotes are what American students pressed for time turn to at exam time.  Rather than reading the whole of Macbeth or the Iliad or sweating through their entire Physics text, students can breeze through the 20-page or so CliffsNotes on the topic, learning enough to at least pass the test.  Lawmakers are often in the same position during a session of parliament as these students are on the eve of an exam.  They must grasp enough of a subject to write legislation guiding how policy should be implemented but do not have the time to delve deeply into the subject matter.

One topic where this is the case is legislation introducing or revising a policy requiring public servants to disclose information about their personal finances.  Thanks to StAR,  the Council of Europe, the OECD, and indeed this writer and this blog (sample here and here), a diligent lawmaker could spend weeks if not months perusing volumes on how to create and operate a system for administering a personal financial disclosure law.  But like the student who would very much like to read all of Macbeth but has two other tests in the next three days, the legislator’s time is short and the demands on it high.

Hence, a need for a CliffsNotes on financial disclosure systems.  Continue reading →

The “Master of the Roster”: Reforming the Role of the Chief Justice of India

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“There have been instances where cases having far-reaching consequences for the nation and the institution have been assigned by the chief justices of this court selectively to the benches ‘of their preference’ without any rational basis for such assignment.” This sharp critique of the Supreme Court of India was not leveled by a losing appellant or civil society group, but rather by Justice Jasti Chelameswar. On January 12, 2018, Justices Chelameswar, Ranjan Gogoi, Madan Lokur, and Kurian Joseph, the four most senior justices of the Supreme Court of India (other than the Chief Justice), took the extraordinary step of speaking to the public about their concern with bias in how Chief Justice of India (CJI) Dipak Misra was assigning cases. The four justices accused Chief Justice Misra of selectively setting benches to shape the outcome of particular cases, which not only cuts against the rule of law and fundamental fairness, but also implicates broader concerns of judicial corruption. In publically criticizing the assignment practices of the current Chief Justice, these Justices set off an unprecedented institutional crisis for the court. Stabilizing the institution and combating corruption and bias requires serious action, including reducing the unilateral power the CJI has over case assignment.

To appreciate the significance of the CJI’s power of case assignment, and the ways this power can be abused, a bit of background on the Court is necessary. The Supreme Court of India is comprised of the CJI and up to 30 justices, although it currently only has 24 serving justices. The Court hears cases in division benches (comprised of two or three justices), and these division benches come together to form a constitutional bench (comprised of five or more justices) to settle fundamental questions of law. The CJI has the sole authority to set up division benches and assign cases, resulting in the label of the CJI as the “master of the roster.” That authority can be—and allegedly has been—abused. For example, in the Prasad Educational Trust case, although allegations of bribes paid to fix the outcomes of Supreme Court cases implicated Chief Justice Misra, he nonetheless listed the case in front of himself and several relatively junior Justices. When asked by an attorney in the case to recuse himself, the Chief Justice refused and threatened to hold the attorney in contempt.

In response to the criticisms leveled by his four colleagues regarding biased assignment of cases, Chief Justice Misra took a striking step of publicizing, for the first time, the Supreme Court’s roster, which details which types of cases will be heard by which justices. The publically released roster system, which took effect on February 5 and was recently altered, assigns cases based on subject category to different justices. For example, the Chief Justice himself is assigned, among other categories, social justice matters, election matters, contempt of court matters, habeas corpus matters, and public interest litigation (PIL) cases. The roster details subject categories for the twelve most senior justices of the Supreme Court, and there are overlapping categories (e.g. criminal matters, civil matters, etc.) between the justices. But while publication of the roster certainly makes the assignment process more transparent, it nevertheless falls short of addressing the CJI’s unchecked power and discretion in allocating cases for four primary reasons:

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Can the KPK and the Indonesian Public Finally Root Out State-Sanctioned Corruption? Updates from Novanto’s Corruption Scandal

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Indonesia’s Corruption Eradication Commission (KPK), established in 2003, has had many successes, including prosecutions of several former Ministers, the former Governor of Indonesia’s Central Bank, and a former Chief of Police. As of the end of last year, the KPK had tried and convicted a total of 119 members of parliament and 17 governors, among others. Now, the KPK is on the verge of catching one of its biggest fish yet: Setya Novanto, former Speaker of Indonesia’s House of Representatives Speaker. Novanto was finally detained, indicted, and brought to trial at the end of last year for his alleged embezzlement of 2.3 trillion rupiah (approximately US$170 million) from a 5.9 trillion rupiah national electronic identity card (e-ID) project. Novanto allegedly played a central role in allowing the mark up e-ID procurement costs in order to steal millions and redistribute them to the pockets of around 100 public officials, including approximately $7.4 million for himself. Novanto had been implicated in many previous scandals, but had managed to avoid punishment. This time, prosecutors are seeking a jail term of at least 16 years, plus a repayment of $7.4 million he is suspected of plundering. Novanto denied all the allegations and blamed the Interior Ministry, but the evidence, gathered and submitted by the KPK, is against him. With the final judgment to be made soon, the KPK is on the verge of winning one of the biggest corruption cases against a senior politician.

If the KPK wins this case, it would be an important victory, demonstrating the KPK’s power, as an independent anticorruption agency, to hold accountable even the most powerful politicians, and inspiring the Indonesian public to hold politicians to higher ethical standards. At the same time, though, a victory in this case won’t mean that the war against endemic corruption of has been won: the legislature and other powerful state actors will continue to fight back, especially by weakening the power of the KPK. Civil society, and the public at large, must continue to be vigilant to provide the backing the KPK needs to retain its power and independence.

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Lessons from Moldova’s “Theft of the Century”

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One year ago today, on April 20th, 2017, a Moldovan businessman named Veaceslav Platon was sentenced to 18 years in prison. His crime? Helping to steal a billion dollars. Between 2012 and 2014, businessmen and politicians siphoned off money from Moldova’s three largest banks in a crime now known as the “Theft of the Century.” While corruption is endemic in many parts of Eastern Europe, the theft in Moldova was spectacular in its size and in the severity of its consequences.

This theft was an economic, social, and political catastrophe for Moldova. The amount of money that disappeared was similar to the amount implicated in the 1MDB scandal in Malaysia–but Malaysia’s GPD is 2.3 times the size of Moldova’s. The Moldovan government’s secret bailout of the banks cost $870 million, one-eighth of Moldova’s GDP. As a result of the theft, three of Moldova’s main banks went bankrupt and were liquidated; more banks are still under the supervision of the National Bank of Moldova, and there is persistent instability in the financial sector. And then there’s the human cost. For example, the misuse of money in the State Health Insurance Company’s accounts led to a medicine shortage in 2014-2015. During street demonstrations that ensued after the theft became public, two dozen people were injured. The political fallout from the theft has also been substantial: Confidence in the government was shattered, as every government branch and every major political party seemed implicated. Furthermore, because the party seen as most heavily involved in the theft was a pro-EU party, Moldovan support for joining the EU plummeted. Pro-Russian sympathizers capitalized on the public reaction, and the pro-Kremlin Igor Dodon was elected president in 2016. Dodon has talked about joining the Russia-controlled Eurasian Economic Union, halted participation in NATO exercises, and opposes the opening of a NATO office in Chisinau, Moldova’s capitol.

The investigation into the theft has dragged. More than 40 people have been implicated, and more prosecutions are supposedly in the pipeline, but only a few people have been convicted so far. With Moldova’s 2018 elections looming, now is a good time to look back at the fallout and lessons from the Theft of the Century.

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Guest Post: Further Developments on French Law Regarding Anti-Bribery Prosecutions by Multiple States

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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 Supreme Court of France recently reversed two criminal judgments on the application of the international double jeopardy principle (or ne bis in idem, as the principle is known in Europe and elsewhere) in transnational bribery cases (and others). Taken together with some other recent developments, these developments suggest a renewed determination in France to regain leadership from US prosecutors in enforcing international bribery norms in France.

The ne bis in idem principle limits prosecutors’ power to pursue individuals or companies already convicted or acquitted elsewhere, including in other countries. Several European countries have domestic laws endorsing this principle; in France, the prosecutor is not bound by non-French outcomes if the French prosecution is “territorial” (that is, if an element of the offense took place on French soil) but cannot prosecute a defendant already pursued elsewhere if the only French basis for prosecution would be so-called “extraterritorial” principles (such as French citizenship of the perpetrator or the victim). Separately, a number of Europe-wide treaties, the most effective of which is the Convention Implementing the Schengen Agreement (CISA), have provisions that, with some exceptions, basically mean that no one can be prosecuted twice in Europe for the same offense.

But these provisions do not apply to US prosecutors, who are by far the most aggressive and effective pursuers of cross-border crimes such as overseas bribery. US courts interpret the Double Jeopardy clause of the Fifth Amendment to mean only that a single sovereign cannot prosecute the same defendant twice for the same offense. Some have argued that the US position creates a tension with Article 4.3 of the OECD Anti-Bribery Convention, which provides that when more than one country is competent to prosecute, they must consult to “determin[e] the most appropriate jurisdiction for prosecution,” clearly contemplating that only one country prosecute a given defendant for the same acts. But for reasons I have explored elsewhere, as well as in this space here and here, US prosecutors have not followed the spirit of Article 4.3, instead acting as the “final arbiter” of outcomes around the world, not hesitating to bring actions if they deem non-US outcomes insufficient.

Two formally unrelated decisions of the Paris Court of Appeals in 2016 – the ones that the French Supreme Court just vacated – seemed to complicate matter still further: Continue reading →

What Chinese Cuisine and Deferred Prosecution Agreements Have in Common

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As Kees noted Monday, the use of American-style deferred prosecution agreements (DPAs) to resolve corporate corruption cases short of trial is on the rise.  The United Kingdom, France, Argentina, and most recently Singapore now permit prosecutors to suspend or even drop altogether the prosecution of a firm for a corruption offense in return for the accused firm paying a fine, adopting measures to prevent future offenses, and cooperating with ongoing investigations.  Australia and Canada are on the verge of approving DPAs, and influential voices in India and Indonesia are urging their adoption too.

Apostles say DPAs allow governments to realize the benefits of a criminal conviction without the need for a lengthy, expensive, arduous trial against a well-funded corporate defendant where defeat is always a risk.  Former U.K. Attorney General Lord Peter Goldsmith told a New Delhi audience last October that once India begins using DPAS, companies would start coming forward and admit wrongdoing.  During the recent debate in Singapore one commentator observed that DPAs “provide an incentive to corporate entities to confront criminal conduct within their ranks,” and a group of Indonesian professors claim DPAs will be particularly valuable in their country.   In Indonesia, conviction of a corporation provides no assurance the defendant will not commit the same offense again while, they write, a DPA does.

DPA evangelists are about to learn what DPAs have in common with Chinese cuisine.  The first-time visitor to China soon discovers that Chinese food in China is unlike Chinese food at home.  Beef broccoli tastes much different outside China than in. Connoisseurs of DPAs will shortly find that what American prosecutors are able to cook up looks much different when prepared abroad.     Continue reading →

Can U.S. History Teach Us Anything Useful About the Fight Against Corruption in the Developing World Today?

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A little while back I attended a very interesting talk by California Supreme Court Justice Mariano-Florentino Cuellar about a paper of his, co-authored with the political scientists Margaret Levi and Barry Weingast, entitled “Conflict, Institutions, and Public Law: Reflections on Twentieth-Century America as a Developing Country.” It’s a short, provocative paper, well worth reading for a number of reasons, but what I really want to focus on here is less the substance of the paper itself than the broader theme, captured by the paper’s subtitle, that it may be valuable to think about the pre-World War II United States as not so different from modern developing countries. Most relevant for readers of this blog, it may be worth looking to U.S. history (and the history of other developed countries) to better understand the process by which endemic public corruption may be brought under control.

The Cuellar-Levi-Weingast paper itself touches on, but doesn’t really delve into, this issue. Nonetheless, it got me thinking about three features of the historical U.S. struggle against systemic corruption—a struggle that, while certainly not complete, does appear to have successfully transformed the United States from a system where corruption was the norm (with some happy exceptions) to one where integrity is the norm (with some unhappy exceptions). Importantly, each of these three observations casts doubt on prominent claims in the modern debate about fighting corruption in the developing world: Continue reading →