Monthly Archives: March 2019

Transparentizing the Commodity Trading Sector: Why Trading Companies Must be Subject to Mandatory Payments Disclosure

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Commodity trading companies (CTCs) mainly operate as middlemen in a business model called “transit trade,” where CTCs administer the delivery chain for primary economic products (energy, metals, agriculture, etc.) from the extraction site to the ultimate buyers. Though CTCs rarely have physical possession of these commodities, the CTCs are the ones that typically build connections with foreign officials and politicians, pre-finance extraction activities by indebted governments (often through loans pledged on future commodity deliveries), and sell raw materials across the globe. Because of CTCs’ frequent interaction with foreign governments and state-owned enterprises, their complex structure, and the opacity of the commodities market, the corruption risks—particularly in the markets for “hard” commodities like oil, gas, or minerals—are especially large, as a few recent cases have highlighted (see, for example, here, here, and here). Politically exposed persons (PEPs) also take advantages of the opacity in commodity trading to launder illicit proceeds derived from corruption.

Yet in stark contrast to the focus on the corrupt activities of those companies engaged directly in extractive activities, as well as by the ultimate purchasers “upstream,” corruption by CTCs has not received much attention. This oversight should be corrected, in part by covering CTCs under the “Publish What You Pay” (PWYP) laws of their home countries—laws that usually only mandate payment disclosures relating to exploration, extraction, and processing, and that often explicitly exclude payments related to “commodity trading-related activities.” This exclusion is a mistake, as there are at least two good reasons to apply PWYP rules to CTCs: Continue reading →

Guest Post: Whistleblower Protection in Kosovo–An Unlikely Success Story of Civil Society Collective Action and International Support

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Today’s guest post is from Nedim Hogic, a PhD candidate at the Sant’Anna School of Advanced Studies in Pisa, Italy, and Arolda Elbasani, Visiting Scholar at New York University. The research on which this post is based was sponsored by Kosovo Open Society Foundation.

In Kosovo, as in the rest of the Balkans region more generally, anticorruption initiatives and institutional solutions have typically been top-down efforts based on templates recommended by international actors and hastily approved by a circle of local political allies. Few of those international initiatives have proved successful, often because the new laws provided enough discretion for political interests to thwart effective implementation. Hence, Kosovo, like much of the rest of the Balkans, seems trapped in a continuous yet futile cycle of international-sponsored institutional- and capacity-building measures, which have not delivered.

The 2018 amendments to Kosovo’s law on the protection of whistleblowers suggests a more promising model of legislative drafting. The amended law stands out for its collaborative and open mode of drafting, involving various international, governmental, and civil society actors, a welcome contrast to the more prevalent pattern of top-down, and largely futile, approach to legal and institutional reform. Continue reading →

Asset Repatriation Under UNCAC

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One of the most far-reaching changes the United Nations Convention Against Corruption made to international law was the requirement that states cooperate to return assets stolen through corruption to the country where the crime was committed.  No international convention had ever before required a state where the proceeds or the instruments of the crime were found to return them to the state where the offense was committed.

The overarching principle is straightforward, but translating it into exacting, legally binding language is anything but. The drafters had to account for cases where the state requesting return and the requested state have quite different laws on transferring ownership rights by judicial decree and on the effect a decree in one state has on proceedings in another. The result is series of lengthy, complex provisions laced with a thicket of paragraphs, subparagraphs, and cross-references that may warm some lawyers’ hearts but in which many reader can easily become lost.

I mapped the provisions for a forthcoming asset return conference. As the map isn’t (at least yet!) on Google maps, a copy is below. Two experienced UNCAC guides kindly read and corrected an earlier version (thank you Queensland University Senior Lecturer Radha Ivory and Mat Tromme of the Bingham Centre for the Rule of Law).  Readers spotting any further mis-directions or errors are asked to flag them. Continue reading →

Golden Visa/Passport Programs Have High Corruption Risk and No Demonstrated Economic Benefit. So Let’s Abolish Them.

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We’ve had a couple of posts recently (from regular contributor Natalie Ritchie and guest poster Anton Moiseienko) about the corruption-related problem associated with so-called “golden visa” and “golden passport” programs (GV/GP programs), which grant either residency (golden visas) or citizenship (golden passports) in exchange for “investments” (or sometimes simply direct payments to the government) that exceed a certain threshold. Both Natalie and Anton reference recent reports by Transparency International-Global Witness and the European Commission, both of which focus in particular on the EU, and which are both very useful in documenting the risks associated with these residence/citizenship programs—including though not limited to corruption and money laundering risks. That said, the solutions proposed, while certainly helpful, feel a bit thin, in part because both the TI-GW and EC reports assume that these programs have at least some legitimate uses, or at the very least that it would be overstepping for outsiders (be they international bodies, other countries, or NGOs) to try to coerce states into abandoning these programs altogether.

My inclinations are somewhat different, and a bit more radical: I’d push for abolishing these programs entirely—certainly the golden passport programs, but probably the golden visa programs too. The risks associated with GV/GP programs are well-documented in Natalie and Anton’s posts, as well as the TI-GW and EC reports (and other sources), so I won’t dwell on them here. In short, as these and other sources convincingly demonstrate, GV/GP programs may provide safe havens for wealthy criminals and their money, often produce corruption in the programs themselves, and may also have more diffuse pernicious effects associated with the commodification and marketization of membership in a political community. I acknowledge that the risks associated with well-run programs may not be huge, but they’re not trivial, either. And I can’t for the life of me figure out what benefits these programs could have (to society, not to the governments that run them) that could possibly justify those risks.

The usual story is that these programs attract necessary foreign investment, stimulate the economy, and create jobs and raise government revenue. I’m no macroeconomist, and so I may be about to reveal my ignorance in embarrassing fashion, but I have yet to hear a convincing argument, let alone see a persuasive study, that establishes that these programs indeed have substantial economic benefits. Let me explain my puzzlement, and if I’m obviously misunderstanding some crucial point, either about how the programs work or about the economics, I hope some readers out there will correct me. Continue reading →

Can “Force Majeure” Be A Justification for Corruption? Russia Believes So.

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In late January of this year, the Russian Justice Ministry proposed draft legislation that would legalize corruption. More specifically, the proposal, which implements one of the recommendations of Putin’s 2018-2020 Anti-Corruption Plan, would decriminalize corruption “when non-compliance with prohibitions, restrictions, and requirements established in order to combat corruption… [is] due to force majeure”—that is, when circumstances beyond the official’s control make corruption unavoidable. Or, as the Russian government puts it, “[i]n certain circumstances, the observance of restrictions and prohibitions, requirements to prevent or resolve conflicts of interest, and the fulfillment of duties established in order to combat corruption are not possible for objective reasons.” The proposed legislation would create a commission to “assess the objectivity of circumstances” to determine if compliance was possible.

What are these alleged “objective reasons” that might establish a force majeure defense to corruption charges? In contract law, force majeure—sometimes known as an “act of God”—covers unforeseen circumstances, like natural disasters or wars, that are totally outside the control of the parties to the contract, and that make it impossible for one of those parties to perform his or her end of the agreement. But what could force majeure possibly mean in the context of corruption? What circumstances, equivalent to a war or natural disaster, could compel a government official to take a bribe, or embezzle public funds? It is difficult to imagine such a scenario. The Justice Ministry did release a preliminary statement with some initial clarification into the type of circumstances that might trigger this force majeure exemption from criminal liability. That statement noted, for example, that it may not be possible for officials to take the usual measures to prevent or resolve conflicts of interest when the officials are posted in small, remote areas. The idea seems to be that is such settings the community is so small and close-knit that it wouldn’t be feasible for an official to recuse from all decisions in which she might have personal relationships with some of the parties affected. The preliminary statement also noted that sometimes former family members (say, ex-spouses) do not agree to provide information on income and expenses of common children (information that officials are usually obligated to disclose), and that sometimes non-performance of certain duties related to anticorruption might be due to a prolonged and serious illness. The Justice Ministry promised that it would provide more specific information on what constitutes force majeure after the proposed rule’s comment period closed on February 8, 2019. The government has not yet done so, however, despite the fact that more than a month has passed.

At least some of the force majeure examples in the Justice Ministry’s preliminary statement sound reasonable, though it’s not clear whether the special exemption is really needed to deal, say, with an official who isn’t performing certain duties because of a debilitating illness. (Presumably, that official would be on indefinite leave anyway?) But the legislation is written much more broadly than these narrow examples would suggest. Would the new legislation allow individual bribe-payers and bribe-takers to assert a force majeure defense on the grounds that they didn’t create the “culture” or “system” of corruption in which they find themselves embedded? If that counts as force majeure, it would open a giant loophole allowing in Russia’s anticorruption laws, allowing anyone accused of corrupt action to argue that they felt pressured by (social) forces beyond their control. The proposed legislation could be read that way, and if it is, it would undermine efforts to combat corruption. Indeed, one cannot help but wonder if that is the exemption’s purpose. Moreover, by taking the position that certain offenses shouldn’t count as corruption at all, the proposal sends a signal that corruption is not a priority for the Russian government, thus providing room for further loosening of corruption legislation.

Now, the Russian government might be sincerely concerned about not over-punishing people who technically violated the law but do not seem sufficiently blameworthy to deserve harsh sanctions. But if that is the worry, there are other ways to address it, ones that don’t risk creating an enormous loophole in anticorruption laws and that don’t send the signal that the government might not take corruption that seriously. Here are three alternatives to decriminalizing corruption that Russia’s Justice Ministry could consider:

Continue reading →

Israel Needs to Fight Official Corruption. That Doesn’t Mean It Should Deprive Elected Officials of Their Right to Silence.

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On April 9, 2019, millions of Israeli citizens will vote in the national legislative elections for the party they wish to represent them in the parliament (the Knesset). Numerous ongoing investigations into corruption allegations against senior officials and various public figures (including Prime Minister Benjamin Netanyahu) ensure that anticorruption will feature prominently on the agendas of most major political parties. One can only hope that the next elected Knesset will manage to pass effective anticorruption legislation. However, one piece of anticorruption legislation that has been repeatedly proposed should not be adopted: a de facto limitation on senior elected officials’ right to silence in criminal interrogations in which the officials are suspects. (The proposed legislation would also de facto limit elected officials’ narrower right of refraining from answering specific questions when doing so may put them at risk of criminal prosecution; for the sake of brevity I will discuss only the broader and more comprehensive right to silence.) Currently, elected officials enjoy the right to silence just like any other suspect in a criminal case in Israel, yet proposals have been repeatedly floated that would require certain high-level elected officials (such as the prime minister, ministers, Knesset members, or mayors) who exercise this right to be removed from office. Most of the bills, which differ from each other in certain respects, would apply to criminal interrogations related to the officials’ duty, but some go even further, with a broader application to any kind of criminal interrogation in which the officials are suspects.

The explicit goals of these bills are strengthening the war on corruption and promoting public trust in the rule of law. So far, none of these bills have been enacted, but Knesset members from across the political spectrum have been flirting with this idea for the last few decades, almost always in response to occasions in which Israeli officials (whose political views typically diverge from those of the proposing Knesset members) chose not to cooperate with the interrogators in corruption investigations. It is very likely that something like this will be proposed again in the next elected Knesset, as some parties have already declared in their official platform that they intend to promote such legislation.

While I agree that an elected official’s refusal to answer interrogators’ questions inspires a great deal of unease, adoption of the aforementioned bills would be unjustified and even dangerous. Although the proposed bills do not technically eliminate elected officials’ right to silence, requiring a public official to give up his or her position as a condition for exercising this right is a sufficiently severe sanction that the bills unquestionably impose a severe practical limitation on this right. If Israel were to adopt such a rule, it would be a significant outlier among peer nations: Research conducted by the Knesset’s Research and Information Center in 2007 found no equivalent limitation on elected officials’ right to silence in numerous legal systems around the world. Taking such a step would therefore be unprecedented, but more importantly, it would be unwise, for several reasons: Continue reading →

Anticorruption Bibliography–March 2019 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.

To Get Serious About Asset Recovery, Get Serious About the Facts

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The asset recovery provisions of the United Nations Convention Against Corruption make it one of the most consequential international agreements of the past 50 years.  Prior to UNCAC, the law of “finders keepers” applied when the proceeds of a crime committed in one state were discovered in a second.  If the second state caught thieves with a sack of cash stolen from a bank in the first state, the first state could ask that the money be returned.  But the second state had no obligation to return it.

UNCAC repeals “finders keepers” for corruption offenses.  It makes the return of assets stolen from a state party through corruption “a fundamental principle of this Convention” and obliges state parties to “afford one another the widest measure of cooperation and assistance in this regard” (article 51).  When the requesting state’s title to the assets is clear, its courts have issued a final order confiscating them, and that order has been given effect by the holding state’s courts, return is immediate (article 57(3)).  In all other cases, return is made pursuant to “mutually acceptable arrangements on a case-by-case basis” (article 57(5)).

From their first meeting in December 2006, parties to the convention have focused on how well the asset recovery provisions are working in practice.  At that meeting, they created an open-ended working group “to advise and assist” them “in the implementation of [the convention] mandate on the return of proceeds of corruption.”  At every meeting up to and including the most recent one in 2017, the parties have directed the working group to continue investigating the efficacy of the asset recovery articles with an eye on how they can be improved.  Yet at no time have the parties ordered the first and most important step in assessing their effectiveness. Continue reading →

KickBack: The Global Anticorruption Podcast

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I’m pleased to announce the launch of KickBack: The Global Anticorruption Podcast, a joint enterprise between myself (on behalf of the GAB team), and the Interdisciplinary Corruption Research Network (ICRN), represented in this venture by Nils Kobis and Christopher Starke. Our plan for this podcast is to feature regular interviews with leading voices in the anticorruption field, from academia, politics, activism, journalism, and elsewhere. We hope that, like GAB, the podcast will help to enhance serious debate and discussion about important issues in the field from a variety of different perspectives.

For our first episode, we are delighted to feature an interview with Yale Professor Susan Rose-Ackerman. (What better way to launch our anticorruption podcast than with the person who helped launch the modern economic analysis of corruption?) You can find this episode, along with a separate segment in which Nils, Christopher, and I introduce the podcast (and ourselves), in the following locations:

We hope that the podcast will also be available soon on iTunes.

If you like it, please subscribe/follow, and tell all your friends! And if you have suggestions for voices you’d like to hear on the podcast, just send me a message and let me know.

Proposed Changes in Brazil’s Anticorruption Legislation: A Summary and Critique

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Early last month, Brazilian Minister of Justice Sergio Moro (a former judge best known for his role in the so-called Car Wash corruption cases) introduced an extensive anti-crime legislation package. The package includes many measures, including some related to things like violent crime, but it notably includes five measures that are especially relevant to Brazil’s fight against corruption. What are these proposed changes, and what would their implications be?

Continue reading →