Guest Post: Brazil’s Bill Restricting Cash Transactions Would Help Fight Corruption

Today’s guest post is from Marcelo Costenaro Cavali, a Brazilian Federal Judge in the District Court of Sao Paolo and a Professor of Criminal Law at the FGV Sao Paolo law faculty.

Criminals like to use cash because it is widely accepted, anonymous, and virtually impossible to track. Paying bribes in cash, for example, may be less risky than using more easily traceable electronic transfers. For this reason, many countries have enacted, or are considering, legislation restricting the use or possession of cash in large quantities. For example, in Brazil, the Senate is currently considering a bill that would prohibit the use of cash for all real estate transactions and for all other transactions over 10,000 Brazilian reais (approximately 1,900 US$); the bill would further prohibit carrying over 100,000 reais (approximately 19,000 US$) and possessing over 300,000 reais (approximately 57,000 US$) in cash, except in specific situations. (The bill would leave the implementation and enforcement to the Brazilian Financial Intelligence Unit (COAF), which would also have the power to adjust the threshold amounts.) Such limits on holding and using cash can be an effective means for disrupting money laundering, corruption, and tax evasion, and this bill, if passed, could therefore be an important step forward in Brazil’s fight against corruption and other economic crimes. Continue reading

Guest Post: Succeeding or Failing… at What?

Today’s guest post is from Michael Johnston, Professor of Political Science Emeritus at Colgate University:

A bracing and long overdue debate has surfaced recently on this and other blogs, focusing primarily upon the issue of whether anticorruption efforts have failed but also raising important questions about definitions, theory, analytical methods and—not least—the norms of scholarly discourse. Entries by Bo Rothstein, Matthew Stephenson, Robert Barrington, and Paul Heywood offer searching critiques and a number of cautionary tales that I will certainly take to heart.

The discussions raise many more questions than I can analyze in this short discussion, but as for the issue that launched the exchange—whether many or most anticorruption efforts have failed—my answer is to raise another question: How would we know? To that I add a critical follow-up: If we were to see significant success, what might it look like? The first question, I suggest, has no single clear-cut answer, and never will. As for the second: In my view success would not revolve around levels of corruption, but about the prevalence of justice. Continue reading

Keep the Dogmatic Privatization Argument Out of Style

It used to be trendy to talk about privatization as the solution for corruption. The World Bank, for example, declared back in 1997 that “any reform that increases the competitiveness of the economy will reduce incentives for corrupt behavior. Thus policies that lower controls on foreign trade, remove entry barriers to private industry, and privatize state firms in a way that ensures competition will all support the fight [against corruption].” (See also here, here, and here.) Although this theory declined rapidly after its peak in the 1990s, anticorruption policy ideas, like fashion, seem to be cyclical. Even as the privatization dogma has become démodé in Western anticorruption circles, it has gained new life elsewhere. As “privatization as a solution to corruption” debates reemerge in India and the Philippines, it’s worth reexamining the flaws in such policy proposals that made them fall out of favor twenty years ago.

The logic behind the idea that privatization inherently(or at least usually)decreases corruption is the notion that private shareholders are more interested than government bureaucrats in the efficient usage of whatever resources they control, and are therefore more likely to crack down on corruption. Relatedly, competition in the private market should favor those entities that can provide a service most efficiently—and if graft is inefficient, as many believe, market competition should drive corruption down. On top of this, private organizations also reduce corruption by offering more competitive wages, which means that employees aren’t forced to turn to corrupt means to supplement their incomes.

That’s the theory. The problem is that it isn’t supported by empirical evidence. Starting in the early 2000s and continuing well into the present, scholarship examining the aftermath of the privatization wave of the 1990s has repeatedly found that privatization has been largely unhelpful, and in some cases outright detrimental, to efforts to bring corruption under control (see here, here, here, here, here and here, to cite but a few sources). Why is this? Three main problems stand out:

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Is Italy Backtracking on the Fight Against Foreign Bribery?

Press reports, informed commentary, and the recent acquittal of ENI and Royal Dutch Shell despite overwhelming evidence they bribed Nigerian officials provide alarming evidence that Italy’s commitment to curbing foreign bribery is waning.

That commitment was never that strong to begin with. Although bound by the OECD Antibribery Convention to investigate and prosecute foreign bribery cases, in 2011 the OECD Working Group on Bribery found Italy had done little to comply. In the decade since ratifying the convention, only a few dozen cases had been brought, almost all against individuals for small-time bribery, and most had ended in acquittals. This dismal record was not surprising, the Working Group observed, given no one had been trained on how to investigate foreign bribery cases, and no public prosecutor’s office specialized in such cases.

The one bright spot the Working Group found was the Milan office of the public prosecutor.  It had aggressively pursued foreign bribery cases, opening by far the lion’s share of cases, including all those where a corporation was involved. Its future is now in doubt.

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Anticorruption Bibliography–October 2021 Update

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. Additionally, the bibliography is available in more user-friendly, searchable from at Global Integrity’s Anti-Corruption Corpus website.

As always, I welcome suggestions for other sources that are not yet included, including any papers GAB readers have written.

New Research on the Effect of Income and Asset Disclosures

GAB readers have recently been treated to a vigorous back-and-forth on the efficacy of anticorruption laws. Gothenburg University Professor Rothstein sharply questions their value whereas GAB editor-in- chief Matthew Stephenson and Sussex Professor and anticorruption practitioner Robert Barrington take issue with such a sweeping claim, Professor Barrington pointing to the U.K. 2010 Bribery Act as an example of an effective legal reform.

In today’s Guest Post, George Washington University Assistant Professor David Szakonyi offers additional evidence that anticorruption laws make a difference — and in a surprising place: the Russian Federation. Exploiting a 2015 change in law that required those running for local office to disclose their income and assets (the kind of natural experiment the Nobel committee lauded when awarding this year’s prize in economics), he shows how disclosures affected different individuals’ willingness to seek office.

Professor Szakonyi is also a co-founder of the Anti-Corruption Data Collective. His academic research focuses on corruption and political economy in Russia, Western Europe, and the United States. He is a Research Fellow at the Higher School of Economics in Moscow.

There are few anti-corruption reforms as widespread as mandating officials submit income and asset disclosures. According to the World Bank, 161 out of 176 countries surveyed have some sort of disclosure system in place. Yet there still is deep skepticism that forcing public officials to disclose their personal wealth makes much of an impact. Officials have every incentive to lie on their forms, and many fail to submit them entirely. Others stash their assets in the names of relatives or cloak their ownership in offshore chains out of the reach of those tasked with oversight. In brief, verification is tough. Given all the opportunities for evasion, are disclosures anything more than an anti-corruption paper tiger?

My forthcoming paper at the American Journal of Political Science provides some encouraging evidence: requiring income and asset disclosures deters those prone to corruption from seeking office. The case studied is Russia, which perhaps surprisingly has one of the most comprehensive anti-corruption disclosure laws on the books anywhere in the world. Each year over 2 million public officials must submit detailed reports to oversight commissions about their income and assets, as well as those of their spouses and dependent children. A portion of every official’s disclosure is posted online for the general public to access.

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New Podcast Episode, Featuring Will Fitzgibbon

A new episode of KickBack: The Global Anticorruption Podcast is now available. In this week’s episode, my colleague Christopher Starke interviews Will Fitzgibbon, a senior reporter with the International Consortium of Investigative Journalists (ICIJ), about the Pandora Papers leak and what this evidence, and the associated reporting, reveals about international financial secrecy and the ways in which this system facilitates illicit financial flows and enables corruption, tax evasion, and organized crime. 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.

Guest Post: Contesting the Narrative of Anticorruption Failure

Today’s guest post is from Robert Barrington, currently a professor of practice at the University of Sussex’s Centre for the Study of Corruption, who previously served as the executive director of Transparency International UK, where he worked for over a decade.

I have read with great interest the recent exchange of views between Professor Bo Rothstein and Professor Matthew Stephenson on the academic study of corruption and anticorruption. As an anticorruption practitioner who now works within an academic research center, I was particularly struck by how their exchange (Professor Rothstein’s initial post, Professor Stephenson’s critique, and Professor Rothstein’s reply) surfaced some extremely important issues for anticorruption scholarship, its purposes, and its relationship to anticorruption practice.

I find it hard to agree with Professor Rothstein’s analysis, but this is before even looking at his points of difference with Professor Stephenson. My main beef with Professor Rothstein’s analysis is with his starting assumption of widespread failure. Like so many prominent scholars who study corruption, he proceeds from the premise that pretty much all of the anticorruption reform activity over the last generation has failed. He asserts that “[d]espite huge efforts from international development organizations, we have seen precious little success combating corruption,” that anticorruption reform efforts have been a “huge policy failure,” and sets out to explain “[w]hy …  so many anti-corruption programs [have] not delivered[.]” Professor Rothstein then offers three main answers, which Professor Stephenson criticizes.

In taking this downbeat view, Professor Rothstein is not alone. The scholarship of failure on this subject lists among its adherents many of the most prominent academic voices in the field. Professor Alina Mungiu-Pippidi has framed as a central question in corruption scholarship, “[W]hy do so many anticorruption reform initiatives fail?” Professor Michael Johnston asserts that “the results of anticorruption reform initiatives, with very few exceptions, have been unimpressive, or even downright counter-productive.” Professor Paul Heywood, notable for the nuance he generally brings to anticorruption analysis, asserts that there has been a “broad failure of anticorruption policies” in developing and developed countries alike. And many scholars proceed to reason backwards from that starting point of failure: If anticorruption reform efforts have been an across-the-board failure, it must be because anticorruption practitioners are doing things in the wrong way, which is because they are proceeding from an entirely wrongheaded set of premises. The principal problems identified by these scholars, perhaps not coincidentally, are those where academics might have a comparative advantage over practitioners: use of the wrong definition of corruption, use of the wrong social science framework to understand corruption, and (as Professor Rothstein puts it) locating corruption in the “wrong social spaces.”

That so many distinguished scholars have advanced something like this assessment makes me wary, as a practitioner, of offering a different view. But I do see things differently. In my view, both the initial assessment (that anticorruption reform efforts have been an across-the-board failure) and the diagnosis (that this failure is due to practitioners not embracing the right definitions and theories) are incorrect; they are more than a little unfair, and potentially harmful. I want to emphasize that different take should not be considered as an attack on eminent scholars, but a genuine effort to tease out why, when presented with the same evidence, some academics see failure, while many practitioners see success. Here goes: Continue reading

Professor Rothstein’s Reply to My Critique

A couple of weeks ago, I wrote a post criticizing several trends that I have noticed in some (certainly not all) anticorruption scholarship. The inspiration and focus of my critique was a post by Professor Bo Rothstein (on the Tufts Corruption, Justice, and Legitimacy (CJL) Blog) which I thought exemplified some of the trends which I found problematic. Just a quick recap:

  • I think that too much anticorruption scholarship is fixated on definitions, and has an exaggerated sense of the importance of definitional debates. In that regard, I criticized (indeed, I characterized as “ridiculous”) Professor Rothstein’s claims that the reason anticorruption reforms had not been more successful is because people are not defining “corruption” in the right way.
  • I think that too much scholarship on corruption misunderstands and misuses social science concepts. Here, I took aim at Professor Rothstein’s assertion (which is hardly unique to him) that “principal-agent theory” can’t help us understand corruption, an argument that appears to be based on a fundamental misunderstanding and mischaracterization of what a principal-agent problem actually is.
  • I also think that too much scholarship on corruption (and, frankly, too much scholarship generally) engages in sweeping and uncharitable dismissal of prior work and thought, often (or so it seems) because the scholar who wants to promote theory/hypothesis A feels the need to suggest that theory/hypothesis B has nothing whatsoever to offer. On this point, I focused on a less prominent but still important argument in Professor Rothstein’s post, namely his assertion that legal reform is irrelevant to the fight against corruption because all countries have “very good laws against corruption.” I took issue with this both because I think it’s wrong on the merits (all countries prohibit core forms of corruption like bribery, but there are huge and important variations in the nature of the specific relevant laws and legal institutions) and because I think such a quick rejection of the extensive and sophisticated line of research on the role of law in the fight against corruption was unhelpful, unnecessary, and counterproductive.

Because my critique focused on Professor Rothstein’s post, and because I had used strong critical language in advancing that critique, I offered Professor Rothstein an opportunity to write a response on this blog. He declined that offer, but he recently informed me that earlier this week he had published a response on the CJL blog. I am delighted that he chose to respond to my critique in writing. It will come as little surprise that I do not find his responses convincing in the slightest (for reasons I’m happy to elaborate if anybody so requests), but I greatly respect his willingness to take the time to write the response, so that our readers can follow the exchange and make up their own minds. Really, the main audience for this dispute consists of up-and-coming young scholars, who are making their own decisions about what kinds of work they want to do, what styles of scholarship and research topics will be most fruitful, and the like. I hope that these young scholars will find the exchange between Professor Rothstein and myself helpful in thinking through the kind of work they want to pursue.

Beneficial Ownership Disclosure Mandates and the Legitimate Privacy Interest in Anonymously-Owned Real Estate

In a forthcoming article in the Notre Dame Law Review, Professors Reid Weisbord of Rutgers Law School and Stewart Sterk of the Cardozo Law School examine the trade-offs posed by requiring the public disclosure of the beneficial owners of real estate. While promoting real estate ownership transparency and curbing criminals’ ability to use anonymously-owned real estate, there are clear disadvantages to making the home addresses of all citizens public, the recent murder of a federal judge’s son at the family home by a disgruntled litigant who found their address online the most patent.

As Professors Weisbord and Sterk explain, a common law trust is one way citizens can keep their home address private, but as they also say, the Pandora Papers shows how easy it is for corrupt officials and criminals of all kinds to use a trust to thwart law enforcement. As Congress considers legislation to end trust abuses, the two urge lawmakers not to lose sight of the downsides of requiring the unrestricted public disclosure of the home addresses of all citizens.  At GAB’s request, Professor Weisbord summarized the relevant portion of their article for GAB readers. The Notre Dame article and an earlier article by Professor Weisbord prompted by publication of the Panama Papers should be required reading for those struggling with how to ensure criminals cannot hide from law enforcement through the use of anonymous corporations, trusts, and other “offshore vehicles,” while protecting judges, victims of domestic or sexual abuse, or others with a legitimate need to keep their home address private.

On October 3, 2021, the International Consortium of Investigative Journalists (“ICIJ”) published the findings of a massive worldwide investigation that painstakingly reviewed nearly 12 million confidential financial documents, a collection now known as the Pandora Papers. In keeping with its prior bombshell investigations, including the Panama and Paradise Papers, the ICIJ has once again exposed a trove of secret financial transactions by a global cohort of world leaders, politicians, and billionaires who have offshored assets by covertly acquiring or storing property in foreign countries. There can be legitimate reasons for individuals to secretly acquire property abroad, but such transactions are also notoriously used to launder money and defraud creditors or tax collectors by evading the jurisdictional reach of the individual’s domestic legal system.

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