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.

I argue that disclosures in Russia function like a personal audit. The forms make available new information for actors in and outside of government to investigate crimes committed by officials both before and after they entered government.  Journalists have ready-made data to build investigations, while prosecutors can more easily bring criminal cases against officials by citing violations of the disclosure law. In fact, the law in Russia has led to hundreds of legal actions taken against municipal deputies for hiding assets and failing to explain how they afforded their luxury lifestyle. In other words, disclosures change an individual’s calculation about whether to serve in government. For many, using public office for future financial gain becomes less attractive if a paper trail of personal accounts is made mandatory.

Quantitative evidence supports this reading of how disclosures impact political behavior. Exploiting a quirk in the Russian election system, I compare the characteristics of 446,503 candidates that ran for municipal office right before versus right after the disclosure law was extended to the local level in 2015. Roughly 25% of incumbents declined to run for re-election after learning income and asset disclosures would be required the next year. Moreover, the disclosure law led to significantly fewer candidates with suspicious financial histories, i.e. individuals whose businesses mainly deal in cash and may be evading taxes. People with something corrupt or criminal to hide are more likely to avoid politics when disclosures become mandatory.

More interestingly, these political effects of disclosures were much more pronounced in Russian regions where independent media have been able to operate freely and law enforcement authorities have the resources they need to verify the data. Releasing disclosures into a vacuum, without ready users to analyze their contents, does little to deter corruption among officials. However, the more journalistic investigations implicating officials, the more criminal cases brought by prosecutors that led to real, legal consequences for municipal deputies in Russia. Although most federal elites skirted any real scrutiny, enforcement actually happened in Russia at the local level, perhaps because the Kremlin was less concerned about any backlash from the officials targeted. Interestingly, most of the deputies that were punished were aligned with the ruling United Russia party, signaling a less arbitrary, politicized application of the law.

Transparency alone may be not be enough to fight graft. Institutions need to be put in place to help individuals act on the information disclosed. But do disclosure laws actually lower the amount of corruption? Unfortunately, we still have much work to do developing individual-level measures of corruption in Russia and tracing them over time. Instead, what this study can say is that requiring officials declare their wealth increases the costs of engaging in corruption. Some officials will inevitably learn how to structure their wealth to prevent their disclosures from triggering scrutiny, such as by hiding assets in harder-to-trace shell companies or transferring ownership to proxies. But these steps impose their own set of financial and agency costs. For corruption to persist in highly transparent settings with empowered third-party actors, it must become more sophisticated, which should deter many individuals from abusing their authority.

To understand the full effects of disclosure laws, we have to dig into the actual information disclosed. Yet governments (including Russia) put up all sorts of obstacles to accessing and analyzing these data. By developing cutting-edge technological tools, our team at Transparency-International Russia is quickly closing in on an automated solution to some of these issues. Our publicly available database is available at the Declarator website, with disclosures for over 350,000 Russian public officials ready to be analyzed. Making these data accessible and usable for journalists, academics, activists, and even law enforcement officials should be a key priority for any country setting given the large deterrent effects on those trying to use public office for public gain.

8 thoughts on “New Research on the Effect of Income and Asset Disclosures

  1. Why do you specify the names of various professors and their research, but do not name the authors of the World Bank study you reference?

    • The qualified right to respect for private life is properly liable to rational and proportionate adjustment, in the public interest. Government service, especially when adequately remunerated and secure, is a desirable career. Successful applicants know what the rules of disclosure are and, on acceptance of an appointment, volunteer to comply. There is no real conflict between privacy and disclosure. The need for disclosure, after all, arises because of chronic abuse of position by PEPs and public officials.

    • Courts in Germany, Romania, Chile, and the U.S. have all ruled on the issue. All uphold laws requiring public officials to disclose their income and assets against claims that they violate constitutionally protected rights to privacy. All reach this result after balancing citizens’ right to information about public officials against the officials’ privacy rights.

  2. Requiring people to disclose their assets and those of their spouse and dependent children makes a lot of sense. However, once the children become older and independent, parents can no longer be held responsible for their assets. So what if parents start transfering proceeds from corruption to their independent children living abroad? Curious to know if there is any way around this?

    • No direct way that I can see. Adult children of government officials are considered politically exposed persons under antimoney laundering rules, and a large transfer to them should trigger enhanced due diligence by the bank receiving the money. In theory, the bank should inquire as to the source of the funds, and finding out it was a parent, ask where the parent got the money.\

  3. The assets disclosure system needs to integrate with the land registration, corporate affairs registry as well as the vehicle title registration database. This is in addition to the work of the financial intelligence in the banks. That will help to track such transfers

    • It will help track transfers. But how well? I have always been skeptical of the efficacy of cross-checking an official’s asset disclosure submission against other data bases. How many crooked officials would register a car in their name in the motor vehicle registry and then fail to disclose in on their asset declaration? I am not against doing so if it can done with little time and effort. But I have seen cases where the main work of an ethics/anticorruption agency has been painstaking manual comparison’s of officials’ asset disclosures against public records. Rather see the staff in these cases spending time surveilling those suspected of living beyond what they report on their submissions. I think such life-style checks bases on what my Filipino friends term “ocular inspection” more likely to be fruitful.

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