New Podcast, Featuring Olesea Stamate

A new episode of KickBack: The Global Anticorruption Podcast is now available. This episode is something of a milestone for us, as it is the fiftieth episode we have put out since the podcast premiered over two years ago. I’d therefore like to take this opportunity to thank my collaborators at the Interdisciplinary Corruption Research Network (ICRN), all of the wonderful guests who have taken time out of their busy schedules to appear on the podcast, and, perhaps most of all, you all of our listeners. I hope that the podcast has been helpful in providing helpful, stimulating, and sometimes provocative content concerning the fight against corruption around the world, and we look forward to the next fifty episodes. For this milestone episode, I’m delighted to feature my recent interview with Olesea Stamate, who is an advisor to President Maia Sandu of Moldova, and who previously served as Moldova’s Minister of Justice when Ms. Sandu was Prime Minister of the country in 2019. Ms. Stamate discusses her background in civil society and how it has informed her work in government service, and we then turn to discuss the current political situation in Moldova and the challenges of corruption and state capture facing the country. Ms. Stamate emphasizes the pervasive corruption in the institutions of justice–particularly the courts and prosecution service–and argues that these institutions cannot be expected to reform from within. Rather, she advocates an external review and vetting process to weed out corrupt actors and create a more honest and capable justice sector. Ms. Stamate also discusses reforms to Moldova’s key anticorruption agencies, the constructive role that the international community can play in supporting anticorruption reforms, and what other sorts of reforms are necessary to address the challenges facing the country. 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.

Peace and Profiteers: Corruption in the Libyan Process

This past February, delegates from the UN-led Libyan Political Dialogue Forum (LPDF) seemed to do what a slate of other diplomatic tracks had yet to achieve: give Libyans hope for peace. On February 5, under the auspices of the UN Mission to Libya (UNSMIL), the 74 Libyan delegates making up the LPDF elected businessman Abdulhamid Debeibah to lead a transitional Parliament as its Prime Minister, vesting him with the responsibility of ferrying Libya to free and fair elections this coming December. With all the main warring parties appearing to come to the table in good faith, it seemed UNSMIL had engineered a transformational breakthrough in a conflict that has torn Libya apart at the seams for the past decade. As the process unfolded, the international community watched with baited breath. A joint statement by the United States, United Kingdom, France, Germany, and Italy blessed the process, giving the LPDF its “full support.” The UN Security Council called the election an “important milestone.” The stage was set, at long last, for a successful consolidation of power into one transitional government.

The only problem? The vote electing Debeibah was rigged.

On March 2, a leaked UN report written by the Panel of Experts, an investigatory UN body, revealed that Debeibah had bribed several LPDF delegates to elect him Prime Minister. According to the report, two participants “offered bribes of between $150,000 to $200,000 to at least three LPDF participants if they committed to vote for Debeibah.” One delegate reportedly exploded in anger in the lobby of the Four Seasons hotel hosting the LPDF when he heard that some delegates received $500,000 for their bribes. Apparently, he only received $200,000.

Just hours after the news dropped, UNSMIL issued a strong response. It threw its full support behind Debeibah, distanced itself from the UN Panel of Experts, and urged the newly elected Parliament to confirm Debeibah’s election at its first scheduled session on March 8. And while outside observers can only speculate as to UNSMIL’s motives, this see-no-evil response to the Panel’s bombshell revelations may well reflect a frantic attempt to salvage a peace process the entire international community has rallied behind. Indeed, proponents of UNSMIL’s position have argued that the long-term stability of moving ahead with Debeibah at the helm and keeping December’s election schedule on track is worth any short-term scandal, as further disruption of the process could lead to its unraveling. This position—which has been endorsed by experts and fellows from the Brookings Institution, the European Council on Foreign Relations, and others—may seem like hard-headed realism. But in fact, UNSMIL’s refusal to hold Debeibah and his co-conspirators accountable through an open and transparent process is a mistake. UNSMIL has chosen, as one Libyan lawyer and LPDF delegate put it, to “priorit[ize] expediency above all else and at the expense of due process,” and by doing so, UNSMIL risks undermining both the LPDF’s legitimacy and Libya’s long-term peace prospects.

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Actions for Damages Caused by Corruption: American Law

American law allows corruption victims to recover damages under a variety of legal theories, and its class action procedures are well suited for recovery in certain cases.  This post discusses who the law deems a victim and what damages they are entitled to recover.  A second post will suggest where countries developing their own corruption victim law might follow American practice, and where American practice should be avoided at all costs.

In the United States, the party that most often recovers damages for corruption is a company whose employee accepted a bribe. The bribe will have been paid in return for awarding the bribe-payer a contract or for approving poor performance or overpayment on a contract the payer already holds with the employer. Most cases have arisen from one firm bribing an employee of another, but the same law applies when the victim is a government agency whose employee was bribed. U.S. agencies (here), cities (here and here) and counties (here), local police forces (here) and the United Nations (here) have all collected damages in these circumstances. So have foreign governments when the bribe was paid in violation of the Foreign Corrupt Practices Act (chapter 10 here). 

The basis of the employer’s damages is in taking a bribe the employee breached the duty of loyalty owed the employer. The duty of loyalty is also grounds for recovery in conflict of interest cases.  The most well-known public conflict of interest case is from the early 20th century. In United States v. Carter, Army Captain Oberlin Carter had awarded dredging contracts to a company in which he had a secret interest. The court ruled that not only was the Army entitled to Carter’s share of the company’s profits but to any money he had earned from investing those profits.

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Guest Post: Reforming Sudan’s Asset Declaration System

Today’s guest post is from Haytham Karar, an independent international development consultant based in Khartoum, Sudan.

The pro-democratic revolution in Sudan has ended a long-standing autocracy. However, public sector corruption, which remains widespread, threatens Sudan’s emerging democracy. The culture of using public office for private gain remains deeply entrenched, and the line between public and private roles is not clearly drawn or widely respected. Not only do the same people cycle back and forth through the “revolving door” between public office and the private sector, but many government officials own stakes in, or are otherwise directly connected with, private companies even while serving in government. In fact, many government officials continue to operate private enterprises while in office, even though the Constitution explicitly prohibits this practice. This blurring of public and private roles, and the associated conflicts of interest that arise, have contributed to the corruption and cronyism that continue to pervade the system.

One of the tools that is supposed to help combat these problems is the asset declaration system for public officials. While an asset declaration system is not by itself sufficient, a well-designed and operational asset declaration system is a crucial element in a larger strategy for promoting integrity and anticorruption. Unfortunately, Sudan’s asset declaration system is largely ineffective and in desperate need of reform. The current framework—which was designed under the previous government and was never implemented effectively or fairly—has a number of significant problems. Continue reading

Guest Post: The New French Ruling on Successor Liability Gives French Prosecutors New Leverage to Fight Corruption and Other Corporate Crime

For today’s guest post, GAB is delighted to welcome back Frederick Davis, a member of the New York and Paris Bars and a Lecturer in Law at Columbia Law School:

Commentators have aptly observed that US prosecutions of firms for foreign bribery and similar crimes has developed into a “US model of corporate crime deterrence,” a model that is based on aggressive pursuit of corporate entities to induce them to cooperate by “detecting, reporting, and helping prove” criminal acts by individuals in return for a negotiated resolution of the criminal charges against the corporation itself, one that avoids a corporate criminal conviction.

Earlier posts on this blog by myself and by others have noted the absence of this model in France, and the relative ineffectiveness of French prosecutors in pursuing corruption and other forms of corporate crime, in significant part because of the difficulty of proving corporate criminal responsibility under French law. As I noted last year, though, efforts by the Legislature to provide new investigative and prosecutorial tools, by the National Financial Prosecutor to use them, and by the courts in clarifying the principles of corporate criminal responsibility have produced encouraging results. French prosecutors have pursued, and French courts have convicted, both French and non-French corporations for serious crimes. On November 25, 2020, the French Supreme Court (Cour de Cassation) took an important additional step by ruling, for the first time, that in an acquisition situation the successor corporation will generally be criminally responsible for acts committed by the acquired company. The decision closes a significant gap in French corporate criminal deterrence, and will have an immediate and positive impact on corporate criminal investigations in France. Continue reading

A Mandatory Reporting Requirement in Israel: Maybe Not a Lost Hope?

In my last post, I discussed and critiqued a proposal, advanced in a policy paper published by the Israel Democracy Institute (IDI), for a mandatory reporting requirement in Israel’s public sector. Under the IDI paper’s proposal, a public official who, acting in his or her official capacity, formed a “substantial suspicion” that corruption has taken place or will take place could face disciplinary sanctions for failing to report this suspected corruption “as soon as possible.” I criticized this proposal on the grounds that it would both discourage reporting in those cases where a potential whistleblower is reluctant to report right away and so delays for a period of time, and would also deter employees from cooperating with investigators by sharing relevant information that they had not previously disclosed. In both of these cases—the employee who didn’t report right away but might be willing to report later, and the employee who didn’t voluntarily report but might be willing to share information when questioned by investigators—the threat of disciplinary sanctions for failure to report immediately may actually induce employees to keep silent, especially since the chances they will be caught and punished if they never reveal what they suspected are generally quite low. Instead of imposing a mandatory reporting requirement, I argued, Israel (and similarly situated countries) should strengthen positive incentives for whistleblowers, offering them more generous rewards and more effective protections against retaliation.

While many readers broadly agreed with my critique of the IDI paper’s mandatory reporting proposal in its current form, several colleagues suggested that a modified version of the mandatory reporting requirement might be effective and appropriate. In this post, I consider what seem to me the most plausible and promising revisions to the original IDI proposal, and evaluate whether these modifications would overcome my principal critiques: Continue reading

Guest Post: The U.S. Just Created a Public Beneficial Ownership Registry for a Subset of Companies

Today’s guest post is from Neil Gordon, a Senior Researcher at the Project On Government Oversight (POGO).

Companies with anonymous ownership structures are a serious global problem. Anonymous companies, as readers of this blog are likely well aware, play a significant role in facilitating grand corruption. Anonymous companies are associated with a wide range of other criminal misconduct as well. Unfortunately, the United States bears much of the blame for the proliferation of anonymous shell companies and the harm they cause. Most states make it relatively easy to set up a business without revealing the real owners—even easier than getting a library card, according to the anticorruption think tank Global Financial Integrity. That’s why it was so important that Congress finally enacted two key corporate transparency provisions as part of the fiscal year 2021 National Defense Authorization Act (NDAA).

The first provision, the Corporate Transparency Act (CTA), requires most companies to register their beneficial owners—the people who really own, control, and financially benefit from the company—with the Treasury Department’s Financial Crimes Enforcement Network. This provision received a great deal of media coverage, and rightly so. But the second key beneficial ownership transparency provision in the NDAA has received almost no attention, even though it could be a real game-changer. That second provision can be found in Section 885 of the NDAA. Section 885 requires all companies receiving federal contracts or grants over $500,000 to report their beneficial owners in the Federal Awardee Performance and Integrity Information System (FAPIIS), a database containing the misconduct and performance histories of federal contractors and grantees. Continue reading

Why Do So Few Corruption Victims Seek Compensation?

The United Nations Convention Against Corruption requires state parties to open their courts to those damaged by corruption.  Under article 35, states that have ratified UNCAC must provide victims of corruption a right to “initiate legal proceedings against those responsible for that damage … to obtain compensation.” According to the United Nations Office on Drugs and Crime, virtually all 187 states parties do. Its 2017 review of the convention’s implementation found article 35 was “one of the least problematic provisions of the entire convention.” “All but seven of the reviewed states,” it reported, “have adopted measures to fully or partly implement article 35.”

The UNODC’s conclusion comes from a reading of the parties’ laws.  While only a handful of states have enacted special legislation governing recovery of damages for corruption, in the remainder national authorities assured UNODC that corruption victims could recover damages “under the general principles of civil (contract or tort) law.”  But research by UNODC, the UNCAC Civil Society Coalition, Transparency International, and surveys of practitioners belies these assurances. It finds that in most nations few if any corruption victims have sought damages for injuries suffered.

For a UNODC/Stolen Asset Recovery Initiative project, I seek answers to two questions.  One, is the research correct? Are there really only a few cases where corruption victims have been awarded damages?  My preliminary analyses of U.S. data shows only some 30 arising from public, as opposed to private, corruption; given its size, the amount of corruption, and low barriers to suit, one would expect more. What about other states, especially larger, wealthier ones?

Two, if indeed there are few corruption damage actions in any jurisdiction, what explains the paucity? Why, despite the prevalence of corruption, the damage it has wreaked, and the worldwide attention it has drawn, have so few corruption victims sought redress. I hypothesize three factors are to blame: courts’ narrow reading of legal doctrine, especially that governing causation for harm (here); shortcomings in procedure, and in some countries the threat violent retaliation.

But these are my guesses, based largely on my experience as a lawyer in a wealthy common law jurisdiction and second hand reports from those in other nations. Readers’ thoughts and comments solicited. Cases and commentary in any language Google translate reads most welcome.

New Podcast, Featuring Diana Chigas and Cheyanne Scharbatke-Church

A new episode of KickBack: The Global Anticorruption Podcast is now available. In this week’s episode, I interview Diana Chigas and Cheyanne Scharbatke-Church, who are Professors of Practice at Tufts University’s Fletcher School of Law and Diplomacy, and affiliated with Tuft’s Henry J. Leir Institute. After describing how they came to a focus on corruption from a background in conflict resolution and peace-building, Professors Chigas and Scharbatke-Church describe the “systems analysis” approach that they use when evaluating and planning anticorruption interventions. That approach stresses understanding the social forces and social norms that sustain corrupt practices as a system, and focuses on identifying useful entry points for policy interventions. The interview moves from this general high-level analytical framework to a discussion of concrete examples of how this methodology can be used to design concrete interventions and support local efforts to promote integrity and change systems. 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.

Why Mandatory Corruption Reporting Requirements May Prove Counterproductive

Whistleblowers who report on and expose illegal acts in their workplaces are invaluable to fighting corruption. In Israel, as I stressed in a previous post, the recognition of the importance of whistleblowers has led to the adoption of several (unsatisfactory) legal instruments which are designed to encourage whistleblowers to step forward. These instruments are mainly about rewarding or protecting those employees who have dared to report on illegalities despite the personal and professional risks associated with their coming forward. An important example of such a positive instrument is Israel’s Protection of Workers (Exposure of Offenses and of Harm to Integrity or to Proper Administration) Law,  which establishes a whistleblower-friendly mechanism for seeking damages from employers who engage in unlawful retaliation .

But some argue that positive incentives are insufficient. In 2019, the Israel Democracy Institute (IDI), one of the country’s leading research institutes, published a policy paper in which the authors (Professor Mordechai Kremnitzer and Yazid Ershied) argued that negative incentives—that is, the threat of sanctions for those who fail to report corruption in their workplaces—should also be employed. More specifically, the authors propose that Israel’s disciplinary law include a provision that requires any public employee who, in his or her official capacity, has formed a “substantial suspicion” that an act of corruption has taken place to report on it “as soon as possible” to a newly established governmental unit which would address corruption in the public sector. The authors claim that adoption of such a mandatory reporting requirement, if backed by the credible threat of sanctions, would increase the number of reports by public officials who observe corruption. (The sanctions recommended by the authors would be disciplinary rather than criminal, as criminal sanctions in their view would be disproportionate and consequently ineffective.)

The IDI paper is the most thorough and impressive piece written on proposals to adopt a mandatory reporting requirement on corruption in Israel. But while the authors list some good reasons for adopting such a requirement, they fail to consider how their proposal would interact with the phenomenon of “delayed reporting.” Employees are often reluctant to report suspected corruption right away, but eventually become willing to report it. In other words, for entirely understandable reasons, it often takes whistleblowers some time and contemplation before they are finally ready to report on illegalities. When one takes this fact into account, it becomes apparent that the IDI paper’s proposed mandatory reporting requirement might prove counterproductive, for two reasons: Continue reading