Public Beneficial Ownership Registries: A Response To Recent Criticisms

Anticorruption activists and other advocates for greater corporate and financial transparency scored a big win earlier this month when the UK announced that it would require the 14 British Overseas Territories (such as the British Virgin Islands (BVI) and the Cayman Islands) to create public beneficial ownership registers for all corporations and other legal entities registered in those jurisdictions. Many in the pro-transparency community believe that such registers are critical for fighting corruption and money laundering, as they make it harder to use anonymous companies to engage in unlawful transactions and hide the proceeds of crime by requiring information on the actual human beings (the ultimate “beneficial owners”) who own or control these artificial legal entities. At the very least, beneficial ownership information should be verified and kept on file so that it will be available to law enforcement in the event of an investigation, but many in the pro-transparency community believe that public beneficial ownership registers would be even more effective, as they would provide open data that civil society groups, the media, and others could scrutinize and analyze in order to unearth shady transactions and make it harder for kleptocrats and others to hide their loot. The British Overseas Territories are not the only or even the worse offenders when it comes to corporate secrecy—the United States is still struggling to enact laws that would provide for a non-public register, which the BVI and some other Overseas Territories already have—but there’s no doubt that these jurisdictions are often a preferred destination for dirty money.

So when the UK announced that it would require the Overseas Territories to adopt public beneficial ownership registers, many cheered. But not everybody. A couple weeks back, over at the FCPA Blog, Martin Kenney, a lawyer based in the BVI, published an intemperate denunciation of the new policy, lambasting the so-called “transparency brigade” for having a “mob mentality,” for being “naïve,” “hypocritical,” and neo-imperialist (and possibly racist), and of taking advantage of the devastation that many of the Caribbean Islands suffered in Hurricanes Irma and Maria to push their agenda at a time when “they perceive their prey to be weakened.” Indeed, the ad hominem invective in the post is so thick that it’s sometimes hard to discern the serious, substantive objections underneath all the vitriol. Which is a pity, because Kenney actually does advance at least one or two arguments that, while in my view likely incorrect, are worth taking seriously.

Last week, Rick offered a thoughtful, measured response to Mr. Kenney’s piece that got at some, but perhaps not all, of the core issues. I want to pick up where Rick left off, to lay out what I think are the most sensible concerns about the new UK policy (and about public beneficial ownership registers more generally). And, following Rick’s lead, I’ll try to turn the rhetorical temperature down a few notches, as there’s little to be gained in a (virtual) shouting match on a complicated issue like this. Continue reading

It’s Time for China to Show Its Foreign Bribery Law is Not a Paper Tiger

In May 2011, China criminalized the bribery of foreign public officials. More specifically, the 8th Amendment to China’s Criminal Law, among other things, added Article 164(2), which prohibits both natural persons and units (i.e. companies and other organizations) under Chinese criminal jurisdiction from giving “property to any foreign public official or official of an international public organization for the purpose of seeking illegitimate commercial benefit.” This legislative action, intended in part to fulfill China’s obligations as a State Party to the United Nations Convention Against Corruption, was considered an accomplishment given the under-criminalization of foreign bribery in Asia Pacific at the time. Many commentators devoted substantial attention to questions about the law’s meaning, including the definition of almost every term in the provision (“property,” “foreign public official,” “international public organization,” “illegitimate commercial benefit,” etc.—for a sampling, see here, here, here, here, here, or just search for “China Criminal Law 164” using any search engine).

However, almost seven years have passed, and nothing substantial has happened, except for some minor movements related to the law as observed by the media and commentators in some official and unofficial statements (see, for example, here, here, and here). Not a single enforcement action has been brought (or at least publicized) under Article 164(2). Even after President Xi Jinping launched in 2013 the most extensive anti-graft campaign China has ever seen, there have been no foreign anti-bribery enforcement actions.

There are several possible explanations for China’s non-enforcement of 164(2). One possibility, discussed previously on this blog, is that China’s traditional “non-interference” foreign policy might make China reluctant to go after transnational bribery; more generally, China might not be interested in devoting resources to fighting forms of corruption that don’t have domestic effects. Some have also suggested that China has little incentive to enforce its foreign anti-bribery law because bribery of foreign officials gives Chinese firms a competitive advantage in certain jurisdictions. It’s also possible that simple inertia is part of the story: It’s worth keeping in mind that although the U.S. Foreign Corrupt Practices Act (FCPA) was enacted in 1977, almost 80% of the FCPA enforcement actions (amounting to 95% of the total FCPA sanctions) occurred after 2007. Similarly, the UK Bribery Act came into force in 2011, but the first foreign bribery case under that act wasn’t resolved until 2014. South Korea enacted its foreign bribery law in 1999 but didn’t prosecute its first case until 2003, while Japan took even longer, enacting a foreign bribery law in 1998 but not bringing its first case until nine years later, in 2007. In fact, Transparency International observed in 2015 that about half of the then-42 countries taking part in the OECD Convention on Combating Foreign Bribery (to which China is not a party) have not yet prosecuted a single foreign bribery case since the Convention came into force in 1999. So China’s inertia is hardly unique.

Yet regardless of the reasons why China has not enforced its foreign bribery law, and regardless of whether this inaction renders China unusual or typical, it is now high time for China to start enforcing this law aggressively. Doing so is in China’s long-term strategic interests, for three reasons: Continue reading

The Chinese Corruption Crackdown and Political Maneuvering

China’s broad anticorruption drive, spearheaded by President Xi Jinping, has been making splashy headlines over the last five years. The scale of this effort has been huge, with hundreds of thousands of Chinese Communist Party (CCP) officials punished in the first half of 2017 alone, and recent reports of nearly a million officials under supervision as of December 2017.  Yet while China’s anticorruption efforts have been met with some qualified praise from the beginning, many critics have been troubled by signs that the anticorruption crackdown is being used for political purposes. These purposes include consolidating President Xi’s power, particularly in light of rule changes that allow him to serve indefinitely, and also protecting the CCP’s reputation (see, for example, here and here). And because so many top Chinese officials have been involved in some kind of illicit activity (perhaps because in the current system bribery and patronage is essential to advancement), selective enforcement of anticorruption and related laws could allow President Xi to take out anyone sufficiently disloyal or threatening.

A recent example of the political considerations of the anticorruption campaign is found in the story of Guo Wengui, a Chinese billionaire currently residing in the US. Continue reading

Guest Post: Paris Conference on the Transnationalization of Anticorruption Law–Call for Papers

Jan Dunin-Wasowicz, Vice Chair of the Anti-Corruption Law Interest Group of the American Society of International Law (ASIL), contributes today’s post, which announces a conference that might interest GAB readers:

The ASIL Anti-Corruption Law Interest Group, Sciences Po Law School, and the Zicklin Center for Business Ethics Research of the Wharton School of the University of Pennsylvania are organizing an international symposium on the “Transnationalization of Anti-Corruption Law.” The conference will take place at Sciences Po in Paris, France, on Thursday and Friday 6-7 December 2018. The organizers are accepting paper proposals until 23 July 2018.

The purpose of the conference will be to look back at the evolution of anticorruption law as it affects cross-border business, trade, and regulation, but without taking the standpoint of a particular jurisdiction. This retrospective review will seek to explore the mechanisms that have led to the development of modern “transnational” anticorruption law and standards. The conference will also discuss current challenges and possible ways forward. It will undertake to achieve these goals through an interdisciplinary approach considering public international law and private international law methods, as well as comparative law, among other fields, while looking at the role and influence of a variety of actors. The conference will also explore the contribution of other disciplines such as economics, political science, psychology, and anthropology to understand their impact on the development of anticorruption standards and their implementation in the transnational context.

With this in mind, the conference will consider whether and how anticorruption laws and standards should synergistically lean towards transnational harmonization, unification, or remain a multitude of overlapping and possibly at times conflicting regulatory and procedural regimes. Discussing possible adjustments in transnational anticorruption norms would imply looking at the following issues, among others:

  • What prompted the process of transnationalization in the area of anticorruption?
  • What does transnationalization mean in the anticorruption context?
  • Is there a normative hierarchy in anticorruption standards?
  • How are anticorruption law, concepts, and practices transplanted?
  • What is the role of international organizations, regulators, national courts, NGOs, civil society, private actors, and international tribunals in defining anticorruption norms and standards?
  • How should anticorruption regulators cooperate?
  • What is the effectiveness and legitimacy of transnational anticorruption law?
  • Can transnational anticorruption law find a coercive authority?
  • Should there be a world anticorruption court?
  • Has the transnationalization of anticorruption law gone too far?
  • What can be learnt from other disciplines when it comes to devising or implementing anticorruption laws and policies?

Additional details on how to contribute to the conference are available here. We hope many GAB contributors and readers will participate.

Public Disclosure of Beneficial Ownership: Do the Naysayers Have a Point?

Readers are no doubt celebrating the British House of Commons approval May 1 of legislation making it harder for corrupt officials to hide money offshore.  The new law requires that, starting 2021, the British Virgin Islands and the Cayman Islands along with other U.K. overseas territories must publicly disclose the actual person or persons – the “beneficial owners” – of companies organized under their laws.  Some half of the companies identified in the Panama Papers were organized in the British Virgin Islands, and estimates are that between 2007 and 2016 over $90 billion surreptitiously left Russia via British overseas territories.  Somewhere among the billions that mobsters, drug traffickers, and tax evaders are hiding in British overseas territory corporations are likely billions in monies stolen through corruption.  Forcing the corporations to reveal who is behind them will make recovering the monies that much easier.

No reform, no matter how powerful the arguments in support, is without its doubters.  Given the hefty fees banks, lawyers, accountants, and secrecy accomplices of all kinds earn helping hide money, it is no wonder the beneficial ownership legislation has attracted its share of naysayers.  The most thoughtful, and certainly the one who can turn the cleverest phrase, is BVI solicitor Martin Kenney. On Monday on the FCPA blog, he castigated “the NGO ‘transparency’ brigade.” It had “once again raised its guns and placed its cross-hairs over its preferred target: the offshore service providers in the British Overseas Territories.” And thanks to the Commons vote, the brigade can now mount its most wanted “trophy,” the BVI, on its wall.

Laying aside his colorful rhetoric, Kenney has a point.  Actually two.    Continue reading

On the Political Subtext of Definition Debates, Part 2: Measurement or Moralism?

In my last post, I conjectured that a great deal of what would seem like a dry methodological question—How should we define and measure corruption?—is actually shot through with political-ideological considerations. The reason, I further conjectured, is that “corruption” is both (1) a descriptive sociological term, used to categorize a set of related behaviors, and (2) an evaluative moral term, used to characterize certain behaviors (or people or governments or institutions or countries) as “bad” or “blameworthy.” The fact that the same term has these different functions, coupled with the fact that the word “corruption” is particularly (though not uniquely) ambiguous and open-ended, means that attempts to come up with definitions and measurements that are appropriate for some purposes may seem to others wrongheaded, even offensive.

My illustration of this difficulty in the my last post concerned debates over whether “corruption” should be defined (say, by advocacy organizations or researchers) principally as “the abuse of public power for private gain,” or instead should be defined to include purely private sector corruption (“abuse of entrusted power for private gain”). My admittedly speculative conjecture was that many (not all) who argue for the latter position do so not so much because of (plausible) arguments for analytical equivalence, but rather due to an implicit—and in my view incorrect—belief that focusing on public sector corruption suggests a neoliberal/libertarian skepticism of activist government.

Here I want to suggest a similar sort of ideological subtext in debates over whether the definition of corruption (and the sorts of corruption that the leading indicators should seek to capture) ought to be limited to what we might think of as the “direct” or “first-order” dishonest acts by the responsible officials (such as taking bribes or embezzling funds), or whether measures of corruption should also incorporate the activities that facilitate corruption (such as providing safe havens for stolen assets), as well as the ways in which the rich and powerful seek to influence public policy through legal means (such as lobbying and campaign donations). This has come up more than a couple of times in the last few months at various conferences and roundtable discussions I’ve attended. The context is typically a criticism—often impassioned—of Transparency International’s Corruption Perceptions Index (CPI) and the associated graphics (such as the color-coded country map) that are used to illustrate the index results. The criticism usually runs as follows (and here I’m paraphrasing, but I think fairly and accurately): Continue reading

Why DOJ’s New FCPA Corporate Enforcement Policy May Be a Step Backwards

At the end of last year, the U.S. Department of Justice announced a new Corporate Enforcement Policy to guide prosecutors charged with overseeing Foreign Corrupt Practices Act (FCPA) violations. This new policy codifies, and builds on, the DOJ’s FCPA Pilot Program, which had been in place since mid-2016. Under the Pilot Program, the DOJ announced that it would consider mitigated penalties for companies that voluntarily disclosed FCPA violations, fully cooperated with the government investigation, and agreed to remediation measures. Those mitigated penalties included a reduction in penalties by 50% below the low end of the U.S. Sentencing Guidelines range, or in some cases outright declination of prosecution.

The new Corporate Enforcement Policy goes further, stating that when a company voluntarily self-discloses an FCPA violation, fully cooperates, and adopts timely and appropriate remediation measures (including disgorgement of any gains from the violation), there is a presumption that the DOJ will offer the company a declination, absent aggravating circumstances (such as a particularly severe offense). This presumption of a declination is stronger than the Pilot Program, which only said that the DOJ would “consider” a declination. Additionally, while Pilot Program gave prosecutors the discretion to reduce requested fines, the new policy directs prosecutors to ask for lower fines as long as companies meet the requirements noted above. The new policy also gives favorable terms even to companies that do not voluntarily disclose misconduct, so long as they later fully cooperate and implement a remediation program. For these companies, the DOJ will recommend a sentence reduction of up to 25% off of the low end of the U.S. Sentencing Guidelines. (The DOJ also recently announced that it’s expanding this beyond the FCPA, applying it also to crimes such as securities fraud.)

One way to understand the new FCPA Corporate Enforcement Policy is as a response to concerns that the U.S. government’s traditional approach to enforcing the FCPA has over-emphasized corporate settlements at the expense of prosecuting individual wrongdoers. In that sense the new policy, and the Pilot Program before it, can be seen as consistent with the Yates Memo, which declared that the DOJ would focus more on individual liability. A related but distinct justification for the new Corporate Enforcement Policy is the idea that it will improve overall FCPA enforcement by encouraging more voluntary self-disclosures. The rationale is that there are likely a large number of low-level corporate bribery cases that companies learn about but don’t report, for fear of the expected penalties. The DOJ would prefer that companies disclose these transgressions, and the Department appears to have concluded that the benefits of encouraging such disclosures outweighs concerns about reducing punishments for FCPA violations. Indeed, in justifying the new enforcement policy, U.S. Deputy Attorney General Rod Rosenstein emphasized that under the Pilot Program, the number of voluntary disclosures during the program doubled to 30.

These justifications for the new policy at first seem plausible, but they suffer from an important flaw: They overlook the impact of DOJ’s enforcement posture on corporate culture. The new policy may increase incentives for voluntary self-disclosure and post hoc remediation, but at the same time the new policy weakens incentives for companies to actively work to promote a pro-integrity corporate culture. For that reason, the new policy may end up worsening overall foreign bribery activity, even if both corporate self-disclosures and prosecutions of individuals increase.

Continue reading

Ukraine’s Cynical Efforts to Mandate Public Asset Disclosures for Anticorruption Advocates Must Be Stopped

In 2016, under pressure from anticorruption organizations, Ukraine’s parliament passed the “On Prevention of Corruption” law, which required high-level government officials and other civil servants to disclose their income and assets in a public online database. A year later, however, the parliament—in what seems to have been an act of retaliation—adopted an amendment to that law, and required all individuals who “carry out activities related to the prevention and counteraction of corruption” to also declare their assets by April 1, 2018, or face potential penalties (including fines or imprisonment of up to two years). The amendment, in other words, imposes on anticorruption advocates the same financial disclosure requirements that many of these advocates had insisted on imposing on Ukrainian public officials.

Imposing this disclosure requirement on anticorruption advocates was rationalized as promoting transparency, since foreign money often supports anti-graft work in Ukraine. Some have claimed that anticorruption activists are themselves corrupt and work with anticorruption organizations to enrich themselves. More generally, the amendment seems to be motivated by an impulse toward retaliation (or a version of fairness): The message seems to be, “If you people think these requirements are appropriate for us, then you should be willing to put up with them too.”

But anticorruption workers do not hold public office and are not supported by taxpayer money, and there is no good reason to subject them to the same demanding disclosure standards that are entirely appropriate for public servants. This obvious distinction is further reason to believe that this amendment is yet another measure in line with previous government efforts to discredit anticorruption activists. Imposing the disclosure requirement has been roundly criticized both domestically and internationally, with activist organizations also arguing that the amendment violates Ukraine’s Constitution (particularly rights to freedom of speech, association, and employment). Even Ukrainian President Petro Poroshenko has called the bill a “mistake,” and in July 2017 he submitted to parliament two draft laws that eliminate the asset disclosure obligation for individual anticorruption activists—but place even more stringent reporting requirements on anticorruption organizations. These draft laws drew further criticism, and as the April 1, 2018 asset disclosure deadline approached and passed, Ukraine’s parliament has refused to consider any changes to the law.

Leaving in place the requirement that those who help fight corruption must make the same kind of public asset disclosures as government officials will sabotage and chill anticorruption work. It is vital that domestic activists and the international community keep up the pressure on Ukraine to eliminate this requirement altogether, and to do so soon in order to remove the cloud of uncertainty that has fallen over all anticorruption advocacy since the April 1 deadline passed. The disclosure requirement as it stands threatens to undermine the fight against corruption in Ukraine in at least three ways: Continue reading

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

For the last year (beginning in May 2017), GAB has been tracking 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, and providing monthly updates on media reports of such issues. Our May 2018 update is now available here. Despite the flurry of news reports over the past month concerning ethical issues and allegedly unlawful conduct in the Trump Administration, there have been relatively few new reports of activity specifically related to the profiteering-type activities our tracker emphasizes, and hence relatively few changes since the April 2018 update.

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.

An Amazing Database: DIGIWHIST Strikes Again

DIGIWHIST has struck again.  It has just released the latest version of its extraordinary data set covering political financing, disclosure of officials’ finances, conflict of interest, right to information, and public procurement in 34 European states plus the European Union.  With the laws on each subject along with an assessment of how thoroughly they address area, it is a real treat.

At least for the kind of people who read GAB (that means you, dear reader).

The database is part of an EU-funded digital whistleblowing project (DIGIWHIST).  The project’s aim is to improve trust in governments and the efficiency of public spending across Europe by providing civil society, investigative journalists, and civil servants with the information and tools they need to both increase transparency in public spending and enhance the accountability of public officials.  For those working in developing states, it is an invaluable resource, showing how different developed countries and those making the transition to a market economy deal with critical issues involving public integrity and transparency.  Thanks to the EU for supporting such a great project and congratulations to those whose hard work produced such a useful resource.