Monthly Archives: August 2020

Lebanon Disaster Update: An Excellent and Disturbing OCCRP Report Sheds New Light on the Backstory of the Deadly Explosion

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A couple of weeks ago, I did a short post in reaction to the deadly warehouse explosion in Beirut, which killed at least 182 people, wounded thousands, and left hundreds of thousands homeless. My post wasn’t really about the Lebanon blast per se—especially because the causes of the explosion, and the role that corruption may have played, were unclear—but rather discussed more generally the direct and indirect ways that widespread corruption can increase the risk of deadly accidents. But I continue to wonder whether, with respect to the Beirut tragedy, it will turn out that corruption (rather than “mere” incompetence) will have been a contributing cause.

We still don’t have all the answers—particularly with respect to the decision-making process within Lebanon itself—but thanks to excellent investigative reporting by an international team of journalists with the Organized Crime and Corruption Reporting Project (OCCRP), we now have a great deal more information about the shadowy and highly suspicious backstory of the abandoned ship that brought the ammonium nitrate to Beirut in the first place. I don’t think I can do the report justice, but I highly recommend that everyone read it—it’s available here. And to give you a sense of what’s in it, I’ll just quote the main findings summarized at the beginning of the report: Continue reading →

“The Cyprus Papers”: Al Jazeera Report Sheds New Light on Golden Passport Programs

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Last year, we had a series of posts on so-called “golden visa” and “golden passport” programs—systems in which countries allow foreign nationals to obtain permanent residence (in the case of golden visa programs) or even citizenship (in the case of golden passport programs) in exchange for a sufficiently large investment in the country, or in some cases for a straight-up cash payment to the government. (See here, here, here, and here.) These programs raise three corruption-related concerns:

  • First, in the eyes of some critics, the programs are themselves a form of (legalized) corruption, enabling individuals to use money to purchase something (permanent residence or citizenship) that should not be for sale.
  • Second, even if we adopt a narrower understanding of corruption, golden visa and golden passport programs may make it easier for corrupt officials and their cronies (as well as other wealthy criminals) to find safe havens for themselves and their money.
  • Third, while several countries have rules designed to deal with the preceding problem, these rules can generate considerable corruption in the programs themselves, as individuals who are ineligible for golden visas or passports can bribe or otherwise corrupt those administering the system to skirt the rules.

Data on the extent of these or other problems, though, is a bit thin, in part because information on the operation of golden passport and golden visa programs—especially with regard to the individuals who take advantage of these programs—is generally not publicly available. But those interested in this topic—and concerned about the corruption risks or other problems associated with these programs—might be interested in a recent report from Al Jazeera, dubbed “The Cyprus Papers,” which analyzed leaked documents on the operation of Cyprus’s “golden passport” program between 2017 and 2019. (Golden passport programs in Cyprus and Malta have attracted particular concern because those two countries are EU members, thus making citizens of these countries EU citizens as well.)

Al Jazeera provides a user-friendly interactive webpage for exploring the results of its analysis of these leaked documents, and I recommend that those interested in this subject check it out. A few highlights: Continue reading →

International Anticorruption Academy Summer Program September 5 – 11

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This year’s summer program of the International Anticorruption Academy will be delivered online September 5 through September 11.  University of Gothenburg Bo Rothstein, SOAS Professor Mushtaq Khan, and OECD Antibribery Working Group Chair Drago Kos are among the authorities on corruption-related topics who will speak.  Yours truly will moderate a panel discussion on preventing corruption in infrastructure.  Participants not able to attend all live sessions will be have access to video recordings.

Details on the program and how to register here

Guest Post: Promoting Procurement Transparency During the COVID-19 Pandemic in Brazil

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Today’s guest post is from Guilherme France, the Research Coordinator at Transparency International Brazil (TI Brazil), together with TI Brazil researchers Maria Dominguez and Vinicius Reis.

While the new coronavirus has slashed through Brazil at alarming rates since March, an old problem has undermined the government’s response: corruption. A considerable portion of the government money spent to deal with the pandemic may have already been lost to corruption and waste. To give just a few examples: in Amazonas the state government bought inadequate medical ventilators from a wine store; In Santa Catarina, the government spent over US$5 million on 200 ventilators that were never delivered; and in Rio de Janeiro, fraud led to losses of more than 700 million reais in the hiring of a company to construct emergency hospitals, most of which were never delivered.

As many have pointed out, the corruption risk in procurement is heightened during an emergency, because traditional procurement rules are relaxed or circumvented to allow goods and services to be purchased in a timely fashion. In Brazil, the problem is compounded by a lack of centralization—with over 5,000 independent government entities (federal institutions, states, and municipalities) competing with each other and international buyers for the same equipment.

In this challenging context, efforts to increase the transparency of government procurement and to promote social accountability are essential. To promote greater integrity and transparency in COVID-19 emergency procurement, last May Transparency International Brazil (TI Brazil) and the Federal Court of Accounts jointly published a set of Transparency Recommendations in Public Procurement. These recommendations inspired a methodology for assessing how well government entities were implementing transparency mechanisms to make emergency procurement data available in their websites. (The assessment method examines four dimensions: (1) the presentation of detailed information on suppliers and contracts, (2) the publication of data in open formats that allow complex analysis, comparison, and reuse; (3) information on the government’s own legislation regarding emergency procurement and related matters; and (4) the quality and availability of channels for citizens to make Freedom of Information requests and report on irregularities related to COVID-19 procurement, as well as the existence of committees, with civil society organizations, to monitor emergency procurement.) Using this method, TI Brazil has created an index on Transparency Ranking on Efforts Against COVID-19, which ranks government entities on a 0-100 scale and also assigns a designation of Poor, Bad, Regular, Good or Great, depending on how well the entity performs on the four dimensions of transparency described above. The initial index included an assessment of 53 local governments (states and state capitals), and monthly evaluations have been undertaken since.

The results are impressive so far. Between the first and the third rounds, for instance, every local government analyzed improved its score, and in the most recent round, 33 governments (20 capitals and 13 states) earned a transparency grade of “Good” or “Great”. The average scores increased from 46 to 85 (capitals) and from 59 to 85 (states). Continue reading →

Implicit Corruption in the Chinese Consumer Debt Industry? A Close Look at Recent Evidence

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While many country’s bribery laws require an express quid pro quo—an agreement to exchange a specific benefit for a specific exercise of government power—in practice many corrupt relationships involve implicit quid pro quos, in which the private party provides something of value to government officials, and the government officials use their power to help their private benefactors, but there is never any express agreement, or even any direct connection between any individual official act and a particular benefit conferred by the private party. The context in which such implicit quid pro quos are most widely suspected and discussed is perhaps campaign finance in democracies, but such implicit quid pro quos can occur in many other contexts as well. It is often very difficult—not only for law enforcement agencies, but also for empirical researchers—to find sufficiently clear evidence of an implicit corrupt deal. Yet quantitative empirical researchers have been making important strides in using available data to detect evidence of hidden or implicit wrongdoing—an approach sometimes dubbed “forensic economics.”

A fascinating recent paper by Sumit Agarwal, Wenlan Qian, Amit Seru, and Jian Zhang (forthcoming in the Journal of Financial Economics) illustrates both the potential and limitations of this approach. The paper, entitled “Disguised Corruption: Evidence from Consumer Credit in China,” presents quantitative evidence of an implicit quid pro quo between a large Chinese bank and government officials who wield regulatory authority over the bank. The paper finds that the bank offers unusually favorable lending terms to government employees (the “quid”) and that in those provinces where this practice is more widespread, the bank receives more favorable treatment from governments (the “quo”). While this evidence alone cannot establish that there was an implicit exchange (the “pro”), the authors suggest that this is the most plausible explanation of the data.

The data is certainly susceptible to that interpretation, but there are other, more benign possibilities. I’ll first say a bit more about the main evidence the paper offers for an implicit quid pro quo, and then suggest (though not necessarily urge) a possible alternative explanation.

Continue reading →

Anticorruption Bibliography–August 2020 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.

Corruption and Deadly Accidents

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After last week’s catastrophic explosion in Beirut—which killed over 150 people, injured thousands, and left hundreds of thousands homeless—Lebanese citizens are rightly demanding a full investigation of the incident and accountability for those responsible. The official reports so far have stated that the source of the blast was an abandoned Russian cargo ship carrying a large quantity of ammonium nitrate; it is not clear why that vessel and its dangerous cargo, which arrived at the port in 2013, were allowed to remain for so long despite repeated warnings about the dangers. Some commentators have expressed skepticism about the official account, and suggested that the blast was caused by illegal munitions being smuggled through Lebanon. We do not yet know, and may never know, the full story.

Much of the coverage of the incident has emphasized the widespread corruption of the Lebanese government, and many Lebanese protestors have emphasized this same theme. It is not yet clear whether corruption had much directly to do with this incident. The official account so far suggests negligence and mismanagement rather than intentional malfeasance. But the instinct to suspect corruption is entirely understandable, because there is ample evidence that corruption is often a significant contributing cause of many deadly accidents. Indeed, while much of the public discussion about the costs of corruption, particularly by donor agencies and international institutions, focuses on macroeconomic outcomes (such as per capita income, GDP growth rates, and economic inequality) or on other measures of human development (such as education, literacy, and health), corruption is also a significant contributing cause of avoidable accidental deaths. Continue reading →

How the European Union Can Work with China To Advance Anticorruption Goals in the Western Balkans and Beyond

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The European Union has traditionally imposed strict anticorruption rules for its lending and development projects. In the Western Balkans in particular, the EU’s Western Balkans Investment Framework attaches transparency and anticorruption conditions to EU investments. Moreover, the EU has made clear that progress on anticorruption reform is a main requirement for attaining EU membership, a core goal of all countries in the region. The EU’s approach, however, is under increasing pressure given competition from China, which has steadily ramped up its investment in Southeastern Europe—especially in the energy, transport, and telecommunications sectors—via its Belt and Road Initiative (BRI). China is willing to invest heavily in the region (largely via loans) without attaching any anticorruption conditions. This approach can be more appealing to many of the region’s (corrupt) public officials, who would like to build infrastructure quickly and under less scrutiny.

Because of competition from China and its demonstrated negative effects on local anticorruption efforts, the EU needs to reevaluate its approach. While last year the EU published a strategic outlook paper labeling China a “systemic rival” and toughened its overall approach to the country, the EU should actively pursue more cooperation with China when it comes to investment in Southeastern Europe. This does not mean that the EU should relax its strict anticorruption and governance conditionalities. The EU still retains considerable leverage in the region, and can and should continue to use this leverage to push an anticorruption agenda. But the EU’s efforts would be more effective if the EU directly engaged with China on this topic. Indeed, the EU may even be able to work with Chinese companies in ways that raise the latter’s integrity standards and safeguards. Continue reading →

How the EBRD Can Help Fight Structural Corruption in the Western Balkans

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The European Bank for Reconstruction and Development (EBRD), created in 1991 to help former Eastern bloc countries undergoing economic transitions, is a multilateral bank that uses investment as a way to build market economies and integrate them into regional and global systems. The EBRD started out primarily investing in private enterprises with commercial partners, but its focus has since expanded to the public sector, which now accounts for over 50% of its portfolio in about a third of its countries of operation. The EBRD, like other international financial institutions, recognizes the risks that corruption and other forms of misconduct pose to the effectiveness of its projects and to its own credibility, and has taken extensive precautions to prevent misconduct by project clients and the EBRD’s own staff.

While the EBRD has worked hard to guard against corruption in the bank’s investment projects, the EBRD can and should do more to explicitly promote anticorruption reform—particularly in regions like the Western Balkans, where corruption is widespread and reforms have stalled. The EBRD, by virtue of being one of the region’s biggest lenders, and one with a good reputation, has considerable leverage and legitimacy. Of course, sustainable reform ultimately needs to come from domestic agents, and EBRD officials are understandably cautious about what they can realistically accomplish (a point that Sergei Guriev, the EBRD’s former chief economist, noted in a KickBack podcast last fall). All that said, the EBRD can and should do more to shape domestic anticorruption agendas in the countries it assists, beyond simply insisting on integrity and regulatory compliance for EBRD grants and loans.

To its credit, the EBRD has explicitly recognized and emphasized the importance of good governance to economic development, and has started to look at ways to promote lasting governance-related reforms and structural change. In pursuing this agenda in the Western Balkans, the EBRD should apply lessons learned from its more aggressive anticorruption efforts in Ukraine, and in particular should push for reforms in three main areas: Continue reading →

Tracking Corruption and Conflicts of Interest in the Trump Administration–August 2020 Update

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Back in May 2017, this blog started the project of tracking and cataloguing credible allegations that President Trump, and his family members and close associates, have been corruptly, and possibly illegally, leveraging the power of the presidency to enrich themselves. The newest update is now available here. As has been true for the past couple of months, most of the newest items relate to the federal government’s response to the coronavirus pandemic, including further evidence that federal bailout money has flowed to businesses owned or closely connected to President Trump’s family and cronies, and White House pressure to include in the next coronavirus relief package an unrelated $1.75 billion for the renovation of the FBI headquarters building located across the street from Trump’s D.C. hotel. One item, though, actually concerns events that took place over two years ago, but were only disclosed this past month: Apparently the U.S. Ambassador to the United Kingdom, acting at President Trump’s request, tried (unsuccessfully) to use his influence to get the British Open held at Trump’s Scotland golf course.

As previously noted, while we try to include only those allegations that appear credible, 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.)