Monthly Archives: January 2021

Nigeria’s Government Assistance Programs for Small Businesses: A Gateway for Corruption

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Nigeria’s Small and Medium Enterprises (SMEs) are the backbone of the country’s economy, accounting for 96% of Nigeria’s businesses, 84% of its labor force, and 48% of its GDP. SMEs also provide Nigeria’s oil-dependent economy with some important economic diversification. Nevertheless, difficulties in securing startup or operational funds, among other problems, makes starting and operating a small business in Nigeria remarkably challenging. To mitigate these difficulties, the Nigerian federal government has created an assortment of agencies to support SMEs. In addition, at least 26 of Nigeria’s 36 state governments have established at least one SME development agency or office.

Unfortunately, government funds meant to help small businesses often fail to reach their intended recipients. Instead, the government’s SME programs often function as gateways for corruption, either in the form of misallocation of resources for political patronage, or as outright embezzlement of funds. This corruption problem is well illustrated by two of the most important national-level government programs meant to support Nigerian SMEs:

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Guest Post: Time for UNCAC Mark II?

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GAB welcomes back international anticorruption consultant Alan Doig, who contributes the following guest post:

The United Nations Convention against Corruption (UNCAC), which came into force in 2005 and has been ratified by 187 countries, is the oldest and most comprehensive Convention solely devoted to the prevention, detection, and investigation of corruption. Yet today UNCAC, for all of its importance, is not serving as an effective blueprint or framework for promoting innovative and effective responses to corruption. There are four main reasons for this:

  • First, perhaps due to UNCAC’s genesis in the UN Convention against Transnational Organized Crime, UNCAC is skewed too heavily toward the criminal justice aspects of anticorruption, as demonstrated by the fact that nearly 80% of UNCAC’s substantive Articles relate to law enforcement, asset recovery, and related issues.
  • Second, UNCAC left too many key terms undefined or underspecified, allowing for significant interpretation (or misinterpretation) of the Articles, and some 40% of UNCAC’s substantive Articles are non-mandatory; these factors tend to undermine the efficacy of the Convention.
  • Third, UNCAC’s review mechanism is too slow and fragmented, and fails to employ a sufficiently holistic framework that assesses performance and progress in implementation and impact.
  • Fourth, and most significant, UNCAC is not amenable to updating. This has meant that issues which were only emerging back in 2005, such as political-party funding or beneficial ownership transparency, only received limited attention. Issues that were once addressed, if at all, through ad hoc references scattered throughout the Convention are assuming more importance. The difficulty of updating the Convention derives in part from the insistence of the UN Office of Drugs and Crime (UNODC) that UNCAC may be used as a legal document suitable for treaty purposes—even though other international instruments serve similar purposes and its value as a treaty has been limited (as demonstrated by, among other things, the fact that UNCAC has been used for mutual legal assistance only 17 times in over a decade).

So, with a reboot of the existing Convention unlikely, maybe it’s time for a new Convention—an UNCAC Mark II. An UNCAC Mark II— which we might perhaps call the UN Convention on the Prevention of Corruption (UNCPC)—could provide a framework that promotes innovative, flexible, and forward-looking means to address corruption challenges, going beyond technical and compliance approaches.

The main focus of the proposed UNCPC, as the name implies, should be on mainstreaming prevention of corruption, both for its own sake and as a means toward wider objectives, such as trust in public institutions, good governance, and the rule of law. Chapters of such a convention could address, for example: risk assessment, developing strategic approaches, promoting public integrity, transparency and accountability, managing the political and partisan dimensions of public life, preventing profiting from corruption, prioritizing citizen-facing public services, and developing measurable progress and performance. In particular, and largely missing from the current Convention, a UNCPC should address the roles and expectations of a wide range of named in-country public and private sector organizations, as well as in civil society, to collectively mainstream the Convention as part of their work.

Such a Convention needn’t start from scratch. Its contents and coherence would come from synthesizing and integrating the wide range of the corruption prevention initiatives, most of which post-date UNCAC. These include, for example, the Kuala Lumpur Statement on Anti-Corruption Strategies, the international standard on anti-bribery management systems (ISO 37001), the Council of Europe’s work on public ethics, the extractive industries and other transparency initiatives, and the work of organizations like the UN Global Compact and the UNCAC Civil Society Coalition. The contents of a new Convention could also draw on the empirical evidence from GRECO reviews and Transparency International National Integrity Studies. Engaging with all these organizations, who have a stake in prevention, will foster a collective sense of ownership, and they can also take a leading role in monitoring and reviewing implementation of the Convention.

In contrast to UNCAC, this proposed new Convention should not seek global membership. Rather, the UNCPC should require both serious substantive commitments and acceptance of a rigorous whole-Convention peer-review system focused on demonstrable performance and progress. At the same time, evidence from practice on the ground will inform an equally rigorous review and revision of the Convention to ensure its relevance. The overall goal is a more comprehensive and dynamic Convention that provides a collective, mutually-supportive approach to anticorruption, one that seeks to achieve meaningful results within realistic timeframes.

Guest Post: Every Bank Robber Needs A Getaway Car; Banker Held Accountable For Money Laundering

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GAB is pleased to publish this analysis by Emile J. M. Van Der Does De Willebois, Coordinator of the World Bank/UNODC Stolen Asset Recovery Initiative, of the significance of a decision of the Gerechtshof Den Haag, the Dutch appeals court in The Hague. As he explains, for too long authorities in the developed world have ignored the role lawyers, bankers, and other “enablers” play in facilitating corruption in the developing world.  Let us hope that the court’s decision marks a turning point in holding them accountable for their role in corruption crimes.  

Last month, a Dutch appeals court ordered the public prosecutor to initiate the criminal prosecution of the former CEO of the nation’s largest bank. The court directed that Ralph Hamers be put on trial for money laundering and other crimes the Amsterdam-based banking giant ING committed during his seven–year tenure as its chief executive. Financial and legal professionals are rarely prosecuted for crimes they facilitate, and it is even rarer that senior executives, as opposed to the institution they run, are targeted. Until this decision, the indictment of Goldman Sachs bankers for their role in the 1MDB scandal was a notable exception.

The culpability of those who, like the driver in a bank robbery, facilitate a crime is not particularly controversial. We all know that the corruption that happens “over there” needs the services of bankers, lawyers, accountants and other facilitators “over here.” We like to pay lip service to the idea that “it takes two to tango” and acknowledge, at least verbally, that the financial and corporate services in the financial centers of the developed world facilitate the corruption found in large parts of the developing world.

But whether those working on anti-corruption always act upon that notion is another matter. A quick look at the Transparency International corruption perceptions index helps maintain the illusion that the rich developed world is doing well on corruption, and that, looking at the bottom of the table, corruption is really a developing-country problem. We have not really internalized the lessons of the Panama Papers, 1MDB, Danske Bank and, most recently, the FinCEN files, which shone a spotlight on the services provided by banks, lawyers and other professionals in making corruption possible.

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It’s Not Just the Corporate Transparency Act: Other Reasons To Welcome the Passage of the U.S. NDAA

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Last week I posted about the Corporate Transparency Act (CTA), the new law requiring companies to provide the government with information about their ultimate beneficial owners. The CTA, which was passed (over President Trump’s veto) as part of the National Defense Authorization Act (NDAA), has been getting a lot of attention in the anticorruption and anti-money laundering (AML) community, and rightly so. The product of decades of tireless and shrewd advocacy, the CTA—despite its limitations and imperfections—will make it substantially harder for kleptocrats, terrorists, organized crime groups, and others to abuse corporate structures to facilitate their crimes and hide their loot. But the CTA is not the only part of the NDAA that may have a substantial positive impact on the fight against corruption and money laundering. And while it’s entirely understandable that most of the attention (and celebration) in the anticorruption community has focused on the CTA, I wanted to use today’s post to highlight several other provisions in the NDAA that may also prove important in combating corruption and money laundering. Continue reading →

The IMF’s (Non-)Engagement with Corruption in Military Spending

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In a move that has been hailed by the anticorruption community as a “major step forward,” the International Monetary Fund (IMF) has declared that it will address corruption in its member states, insofar as that corruption is “macro-critical” – that is, when corruption “affects, or has the potential to affect, domestic or external [macroeconomic] stability.” As I stressed in a previous post, the focus on “macro-criticality” is the IMF’s solution to a persistent problem with how to distinguish economic policy (which the IMF may influence) from matters that are outside the IMF’s mandate—because, after all, the IMF is a “monetary agency, not a development agency.” Grounding anticorruption in the Fund’s mission to support the international financial system allows IMF staff to discuss anticorruption strategies frankly with country authorities.

Yet certain corruption-related topics still seem off limits, notwithstanding their arguably macro-critical characteristics. For instance, although the IMF has touted its comprehensive framework for reviewing corruption risks, the IMF’s strategy leaves out certain key channels that facilitate corruption, such as the corrosive effect of corruption on, and in, military spending. The wholesale omission of military spending from the IMF’s anticorruption strategy demonstrates that the IMF’s attention to macro-critical corruption problems is tempered by understandable concerns about the reputational blowback that might result from intervention into politically sensitive areas. Understandable as it may be, the IMF’s decision to exclude military spending from its anticorruption strategy deprives member countries of the broader benefits that are provided when the IMF acknowledges a concern as macro-critical.

Understandable as it may be, the IMF’s decision to exclude military spending from its anticorruption strategy deprives member countries of the broader benefits that are provided when the IMF acknowledges a concern as macro-critical.

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Fixing the Brazilian Anticorruption Leniency Program

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When the Brazilian Anticorruption Law came into force in 2014, pundits celebrated the enactment of a statute that finally authorized action against corporations and other legal entities involved in public corruption, and that provided for substantial penalties. The statute’s most important innovations, however, were not so much its substantive provisions but rather the procedural reforms it introduced, chief among them the Anticorruption Leniency Program, which, alongside the criminal plea bargains for accomplice cooperation created by the Organized Crime Act (enacted on the same day as the Anticorruption Law), authorizes enforcement agencies to settle corruption-related cases.

            The Anticorruption Leniency Program largely reproduces the key features of Brazil’s Antitrust Leniency Program, which, in turn, was inspired by the amnesty program adopted by the U.S. Department of Justice’s Antitrust Division. To qualify for a leniency agreement, a company must be the first among those involved in a corruption scheme to state its interest in cooperating, admit its participation in the wrongdoing, cease any further involvement, cooperate fully with the investigation, and agree to pay compensation for any harm caused to the Public Administration. In exchange, the qualifying company can receive a significant reduction in the administrative fine, as well as protection against debarment or suspension from doing business with the Public Administration. (In contrast to the Antitrust Leniency Program, however, an Anticorruption Leniency agreement does not shield individuals associated with the qualifying company from criminal prosecution.)

Despite its importance in high-profile investigations such as the Lava Jato investigation (Operation Car Wash), critics have emphasized shortcomings of the Anticorruption Leniency Program. Coordination – or rather the lack thereof – between different enforcement agencies is often considered the most significant weak point of the program. However, I want to suggest a different source for the relative ineffectiveness (so far) of the Anticorruption Leniency Program: the requirement that, in order to be eligible for leniency, a company must admit its participation in the wrongdoing. Importantly, this requirement is not (merely) that the company accepts legal responsibility; rather, the program requires admissions of facts—facts that the company cannot subsequently dispute in other proceedings, which, from an enforcement standpoint, is precisely what creates the need for coordination between agencies. But such admissions can also entail additional collateral consequences:

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A Few Thoughts on the Passage of the U.S. Corporate Transparency Act

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[Note: I drafted the post below earlier this week, before yesterday’s shocking events in the U.S. Capitol. I mention this only because it might otherwise seem odd, and perhaps a bit tone-deaf, to publish a commentary on new corporate transparency rules when we just saw an attempted insurrection incited by the siting U.S. President. I don’t really have anything to say about the latter events (at least nothing that others haven’t already said), so I decided to go ahead and publish the post I planned to publish today anyway.]

Last week, as I suspect many readers of this blog are well aware, the United States Congress enacted one of the most significant anticorruption/anti-money laundering (AML) reforms in a generation. The Corporate Transparency Act (CTA), which was incorporated as part of the annual National Defense Authorization Act (NDAA), will require—for the first time in the United States—that corporations, limited liability companies, and similar entities will have to provide the U.S. government (specifically, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN)) with the identities of the ultimate beneficial owners of those entities. That beneficial ownership information, though not made publicly available, will be provided to law enforcement agencies, as well as to financial institutions conducting due diligence (with customer consent). This reform will make it substantially harder for kleptocrats and their cronies—as well as other criminals, including human traffickers and terrorists—to conceal and launder their assets in the United States through anonymous shell companies, and will make it substantially easier for law enforcement to “follow the money” when investigating possible criminal activity.

This important reform has already gotten a ton of coverage in the anticorruption/AML community (see here, here, here, and here), as well as the mainstream media (see here, here, here, and here), though mainstream coverage has understandably been overshadowed by both the coronavirus pandemic and President Trump’s attempts to subvert the recent election. And we’ve had quite a bit of discussion of the issue on GAB prior to the passage of the NDAA (see, for example, here, here, here, here, and here). So, I’m not sure I really have that much to add to what others have already said. Nevertheless, it felt strange to allow this landmark event to go entirely undiscussed on GAB, so at the risk of self-indulgence, I’d like to throw out a few additional thoughts and observations related to the CTA. Continue reading →

Kleptocracy Strikes Mongolia? A Batbold Advisor Replies

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GAB’s December 8 “Kleptocracy Strikes Mongolia? The Batbold Case” prompted dozens of reader comments. The post recounts a recently filed New York civil case where it is alleged that, while he was Prime Minister, Sukhbaatar Batbold worked with a South Korean couple to embezzle hundreds of millions of dollars which went in part to buy real estate in New York and elsewhere registered in the couple’s name. Although the couple appears to have no experience in international commodity markets, they bought large quantities of ore from Mongolian state-owned or controlled mines during Batbold time in office on questionable terms. Batbold’s children now live in or use properties registered to the couple.

Dozens of readers commented on the post, roughly half claiming the charges were fabricated and half saying it was past time to hold Batbold accountable. No one addressed the substance of the allegations however, and hence in a follow up post December 23 readers were invited to do so. To date the one response has been a letter from a Batbold advisor asking GAB to delete the two posts. GAB Editor-in-Chief Matthew Stephenson wrote in reply that while GAB does not remove a post because someone believes it unfair, GAB will correct it if it is inaccurate.

The advisor’s letter contains a blanket denial of wrongdoing by Batbold and a claim the case is politically motivated. It points to no inaccuracies, however. It does note that subsequent to the first post’s appearance the government of Mongolia voluntarily discontinued the case against Batbold.  The letter implies this was because the court exonerated him. That is not correct. The court has not ruled on any of Mongolia’s allegations. Likely Mongolia decided to discontinue its case against Batbold for technical reasons having to do with his claim that as a public official he is immune from all court action. In any event, the South Korean couple remain parties.The letter is below. 

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New Podcast Episode, Featuring Norm Eisen

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A new episode of KickBack: The Global Anticorruption Podcast is now available. In this week’s episode, I interview Norm Eisen, currently a Senior Fellow at the Brookings Institution. Mr. Eisen previously served as the White House Special Counsel for Ethics and Government during the Obama Administration, as the U.S. Ambassador to the Czech Republic from 2011-2014, and as counsel to the U.S. House Judiciary Committee during the impeachment proceedings against President Donald Trump. Mr. Eisen is also a founder and previous board chair of the Citizens for Responsibility and Ethics in Washington (CREW), which, among other activities, sued President Trump for allegedly receiving unlawful emoluments from foreign and state governments. My conversation with Mr. Eisen–like my conversation with my Jack Goldsmith last month–focuses primarily on what the Trump Administration has taught us about the strengths and weaknesses of the U.S. system for constraining corruption, conflicts of interest, and other forms of wrongdoing by the President and senior members of the executive branch, as well as what kinds of institutional reforms and policy changes would help prevent such wrongdoing going forward. Mr. Eisen emphasizes the resilience of U.S. institutions in the face of the “stress test” provided by the Trump Administration, outlines some of the most important reforms he’d like to see adopted to address the corruption risks that Trump experience has highlighted, and discusses some of the international implications of this issue. You can find this episode here. You can also find both this episode and an archive of prior episodes at the following locations: KickBack is a collaborative effort between GAB and the ICRN. 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.

The Goldman Sachs 1MDB Settlement Was Just and Appropriate

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In late October, the United States Department of Justice announced a major settlement with the global investment bank Goldman Sachs for its involvement in the 1MDB scandal, an international bribery scheme in which high-level Malaysian officials embezzled an estimated $4.5 billion from a fund designed to finance infrastructure and other economic development projects. Between 2012 and 2013, Goldman Sachs helped raise $6.5 billion for 1MDB in three bond sales, and at least two Goldman bankers aided Jho Low, an advisor to the fund, in embezzling much of the capital. As part of the settlement with DOJ, Goldman agreed to pay over $2.9 billion to authorities in the US, Hong Kong, UK, and Singapore. Of the nearly $3 billion in fines, approximately $1.85 billion will go to the United States, over $600 million to Malaysia (on top of a $3.9 billion settlement the Malaysian branch of Goldman reached with the country in July), and $440 million to financial regulators in other nations.

Despite these eye-popping numbers—including what appears to be the largest fine to date levied under the U.S. Foreign Corrupt Practices Act—some experts have characterized the $2.9 billion penalty as “surprisingly small” or even “virtually meaningless” for a company that made $3.6 billion this last quarter alone. And, in what has become a common refrain among critics of these sorts of settlements with big firms, many complain that no senior Goldman Sachs executives were held personally, criminally liable for the bank’s role in the 1MDB fiasco.

Yet an assessment of the punishment must also include the penalties that extend beyond these government-imposed fines. Indeed, while some regard Goldman Sachs’ settlement as a slap on the wrist for a global corporation that’s a glutton for punishment, the implications of the settlement reveal a more just outcome than appears at first blush.

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