Monthly Archives: November 2018

“Say It Ain’t So, Sergio!”: Judge Moro’s Appointment to the Bolsonaro Cabinet Is a Setback for Brazil’s Struggle Against Corruption

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Two weeks ago, far-right candidate Jair Bolsonaro was elected President of Brazil. Likely no single factor explains Bolsonaro’s success, but as I noted in a previous post, disgust at the corruption of the Worker’s Party (the PT), which had been exposed by the so-called Car Wash (Lava Jato) investigation, likely played a significant part. The Lava Jato operation has brought to light shocking levels of corruption, mainly though not exclusively at Brazil’s state-owned oil company Petrobras, and has led to the convictions of scores of businesspeople and politicians. Some of the key figures involved in the Lava Jato operation, including prosecutor Deltan Dallagnol and Judge Sergio Moro, have become national heroes, at least in some quarters. But their popularity is by no means universal. The fact that Lava Jato has investigated and convicted so many PT politicians, including former President Luiz Inacio Lula da Silva (known as Lula), has led some PT members and sympathizers to accuse the investigators, prosecutors, and judges involved in the Lava Jato operation as engaged in a politically-motivated right-wing conspiracy against Lula, the PT, and the left generally. On this account, Lula is a “political prisoner,” and the impeachment and removal of his successor, President Dilma Rousseff, was a “coup.”

Many people, me included, have pushed back hard against the notion that the Lava Jato operation is a politically-motivated conspiracy. The evidence that has come too light seems incontrovertible, and while critics have identified a number of questionable decisions by the prosecutors and judges (criticisms I’m not in a position to evaluate on the merits), the notion that it’s all a politically motivated sham are baseless. Overall my impression, shared by many other domestic and international observers, is that the Lava Jato operation has been conducted with great professionalism. Yes, it’s true that the operation has targeted many PT figures, but Lava Jato has gone after politicians from across the political spectrum, and if PT politicians seem to make up a disproportionate share, this is most likely because the PT had held the presidency from 2003 to 2016, first under Lula and then under Dilma. Furthermore, many of us in the international community, along with a number of Brazilian anticorruption scholars and activists, worried that these unsubstantiated attacks on the integrity of Lava Jato—attacks that go beyond challenging individual decisions or rulings—would do serious damage to the longer-term development of an effective set of institutional checks and balances in Brazil. One doesn’t need to subscribe to a naïve view that prosecutors and judges are entirely “neutral” to recognize the importance of developing institutions of justice that are not, and are not perceived as, partisan or “political” in the crude sense.

It’s in that context that I was so disheartened to learn last week that Judge Moro had accepted President-Elect Bolsonaro’s appointment to serve as Minister for Justice. I have no reason to doubt Judge Moro’s integrity or to believe that he accepted this job for any reason other than because he believes it will give him an opportunity to serve his country. But I nonetheless fear that it was a mistake, one that will set back Brazil’s ongoing efforts to develop more robust anticorruption institutions. Continue reading →

When Justifiable Anger Leads to Bad Policy: The Unintended Consequences of Colombia’s Anticorruption Referendum

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Last August, Colombia held a national referendum on seven anticorruption measures. Despite the fact that six of these measures had previously been proposed in, but failed to pass out of, the lower house of the legislature, popular support for the measures was overwhelming: each measure received 99% “Yes” votes. The referendum did not pass, however, because even though more people voted “yes” on the referendum than voted for the current President, under Colombian law the referendum would only pass if a quorum of 12.1 million citizens voted, and the 11.6 million voters who turned out fell short of that number. Nonetheless, proponents of the referendum declared it a success because it has put public pressure on Colombia’s political leaders to implement these measures. And indeed, President Duque has convened an anticorruption roundtable and vowed to implement all seven measures by December 2018.

Is this a good idea? It’s certainly the case that Colombia needs to do more to combat corruption, which is estimated to cost Colombian taxpayers at least $17 billion a year. But it’s not clear that all of the proposed solutions, though doubtless well-intended, are good public policy. I won’t attempt a comprehensive review of all seven measures here. I’ll put to one side discussion of those measures that focus on improving transparency (for example, by publicizing government budgets, legislators’ voting records, and public officials’ tax returns and asset declarations) or on making penalties more severe (for example, requiring those convicted of corruption to serve their full sentences, and nullifying government contracts with parties convicted of corruption). Rather, I want to address two measures that target Colombian legislators: one of these measures would impose a three-term limit, while the other would substantially cut legislators’ pay.

These two measures appear to reflect understandable public anger at how legislators have abused their positions for private gain. But this retributive impulse may produce bad policy. Indeed, both term limits and salary cuts are likely to prove counterproductive in the fight against corruption in Colombia.

Continue reading →

Open Contracting and the Withholding of Commercially Sensitive Information: the U.S. Experience

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U.S. courts and federal agencies have grappled for more than 40 years with the question of what information in a government contract should be made public and what should be withheld as “commercially sensitive.” The anticorruption community now seeks an answer to that same question.  The Open Contracting Partnership, the leading advocate for the full disclosure of every contract let by every government, acknowledged in July there should be an exemption from disclosure for such information, and a Center for Global Development working group followed in October with draft principles for determining what is commercially sensitive.

Getting the correct answer is critical, particularly for developing nations, precisely the countries where advocates believe open contracting will make the greatest difference and where the push for open contracting laws is felt the most.  Too narrow an exemption, one that would result in the release of genuinely sensitive information, will discourage companies from bidding on public tenders.  On the other hand, if the exemption is too broad, contractors can use commercial sensitivity assertions to hide information showing whether a contract was awarded fairly and honestly and whether the public is getting value for its money.

Though far different than conditions in these countries, the American experience nonetheless offers lessons to those urging developing nations to embrace open contracting. The most important being that it counsels more caution than many open contracting advocates might at first think is warranted. Continue reading →

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

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Since 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. It looks like our approach is catching on, given that this past month the New York Times published a similar compendium (which the authors described as “the definitive list”) of Trump-related corruption and conflict-of-interest allegations. It’s not clear whether the NYT plans to regularly update this compendium–if they do, then we might wind down the Trump COI tracker here at GAB, given the NYT‘s much wider reach and greater resources. But for now, we’re going to keep plugging away with our monthly updates. The October 2018 update is now available here. The most notable additions since the previous update include:

  • Reports that Interior Secretary Ryan Zinke may have been involved in a shady property development deal that entails negotiations and transactions with parties connected to firms over which the Interior Department has regulatory authority.
  • Renewed and intensified concern about President Trump’s past and present business ties to Saudi Arabia, in light of the administration’s tepid response to the murder of Saudi journalist and U.S. resident Jamal Kashoggi in the Saudi consulate in Turkey, apparently by Saudi intelligence agents.
  • President Trump’s intercession with Japanese officials on behalf of his campaign donor and supporter Sheldon Adelson, in connection with the latter’s interest in a lucrative license to operate a casino in Japan.

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.

Is the U.S. Political System Characterized by “Legalized Corruption”? Some Tentative Concerns About a Common Rhetorical Strategy

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Today is Election Day in the United States. It’s an important election (they all are, really), and I hope those of our readers who are eligible to vote in the United States will do so. But this post isn’t going to be about these U.S. elections specifically. Rather, I want to consider a question about the U.S. electoral system more generally: Is it accurate to describe the U.S. system as a one of “legalized corruption”? That is, do the campaign finance and lobbying rules in the United States amount to a system in which wealthy individuals and interest groups “purchase” favorable policy through what are effectively “bribes”—in the form of campaign contributions or support?

The use of the rhetoric of corruption and “legalized bribery” to describe the U.S. political system has been around for a while, and it seems to have become even more pronounced over the last few election cycles—perhaps galvanized by the U.S. Supreme Court’s controversial decision in the Citizens United case. (For examples, see here, here, here, and here.) I certainly understand, and indeed share, the underlying concerns about how the influence of concentrated economic wealth can distort the political process and tilt policy outcomes in a direction that favors the affluent. Yet I’ve felt increasingly ambivalent about the use of the language of “systemic corruption” or “legalized bribery” to describe the very real money-in-politics problem in the United States. There are three main reasons for my ambivalence. Continue reading →

South Africa Exhibits the Pitfalls of Private Prosecutions for Corruption

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In March 2018, after several years of investigation stemming from allegations of corruption and mismanagement, South Africa’s National Prosecuting Authority (NPA) announced that it would not pursue charges against former South African Revenue Service Commissioner Tom Moyane. But this was decision short lived. A few weeks later, the NPA abruptly reversed course, explaining that it had reopened its investigation into Moyane and was reconsidering its decision not to prosecute. In the interim, the South African civil rights group Corruption Watch had publicly requested from the NPA a certificate of nolle prosequi—a document formally affirming the NPA’s decision not to prosecute. Obtaining such a certificate was a preliminary and necessary legal step for Corruption Watch to launch its own private prosecution of Moyane—which, under South African Law, Corruption Watch would have been able to do if the NPA formally declined to prosecute. Corruption Watch was calling NPA’s bluff, saying, in effect, “prosecute Moyane or else we will.”

Corruption Watch’s implicit threat stems from Section 7 of South Africa’s Criminal Procedure Act (CPA), which permits a citizen to criminally prosecute another person or entity if the NPA formally declines to prosecute. These prosecutions are similar to civil suits but with all the trial rights and potential penalties associated with a state prosecution. Moreover, at any time during a private prosecution the NPA may request permission from the supervising court to step back in and take over the case. South Africa is not unique in this regard: There are provisions for private prosecutions in other countries—especially Commonwealth countries—including the UK, Canada, Australia, Zimbabwe, and Kenya, as well as in China and Israel.

Many commentators in the international community have been optimistic about the potential of private prosecutions, particularly in combating corruption (see here, here, and on this blog here). And forces inside South Africa have been especially enthusiastic; in 2017, the South African civil society organization AfriForum launched its own dedicated private prosecutions unit focused on prosecuting corrupt government officials, with other organizations expressing similar interest. Much of this optimism stems from sheer frustration with the current prosecution regime in South Africa, a country that has long been plagued by selective prosecution, especially in the area of corruption.

South Africa could certainly use more pressure on the NPA to act; the country would also benefit from more resources, whatever the source, devoted to investigating and prosecuting corruption cases. And the fact that the threat of private prosecution appears to have spurred the NPA to action in the Moyane case is encouraging. Nevertheless, South Africa’s recent flirtation with private prosecutions actually illustrates why countries—including and perhaps especially South Africa—should be cautious about embracing organized, comprehensive private prosecution regimes to supplement traditional state prosecution. Continue reading →

Guest Post: To Be Effective, Public Company Ownership Registries Must Be Linked

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Today’s guest post is from Louise Russell-Prywata, Program Manager at OpenOwnership, a global non-governmental organization that promotes greater corporate transparency by making it easier to publish and access data on company ownership.

Danske Bank’s Estonian branch appears to have enabled international money laundering on an enormous scale, with Danske Bank currently investigating  about $236 billion in suspicious transactions (including, but not limited to, the notorious “Azerbaijani Laundromat” in operation from 2012-2014). Yet while money laundering on this scale may be unusual, the mechanisms that allowed funds to flow undetected from countries such as Russia, through Danske Bank Estonia, and into jurisdictions including the UK, are quite familiar. One of the most important of these techniques is the use (and abuse) of anonymously-owned companies.

If we want to stem the tide of money laundering through corporate vehicles, then public registers of the every company’s “ultimate beneficial owners” (UBOs) are an important part of the solution. Publicly available information would decrease reliance on whistleblower allegations to uncover money laundering, and companies themselves would benefit by reducing the costs of due diligence. There has been significant progress to implement public UBO registers in some countries, including the UK and Ukraine, and several other countries have committed to adopting UBO registers in future. There is already some evidence that these registers can make a difference. For example, following the requirement for UBO disclosure for Scottish Limited Partnerships (SLPs), the number of new incorporations fell dramatically; this is encouraging, as SLPs have featured prominently in several grand corruption cases. However, the Danske Bank revelations highlight that the power of national registers in isolation is limited.

To effectively deter and detect corruption and money laundering, public UBO data from different countries needs to be linked in a manner that is useful for law enforcement, investigative journalists, and others. The data from different registers must be compatible, so that it would be possible, for example, to ascertain whether the Ms. Doe owning Doe Holdings Ltd. registered in the UK, is the same Ms. Doe owning Doe’s Ltd. in Cayman Islands. This is important because a money-laundering trail rarely leads neatly from source jurisdiction straight to a company whose UBO is listed in a public register. Criminals and their associates tend to create a complex chain of legal entities to hide the illicit origin of their funds. This was the case in the Azerbaijani Laundromat, for example. Linking together UBO information from different jurisdictions would make it far easier to “follow the money” in grand corruption and money laundering cases. While law enforcement in some cases have powers to do this now, in practice the process can be complex and expensive, and it is not easily possible to link information at scale. Continue reading →