Author Archives: Jeanne Jeong

Artful Transactions: Corruption in the Market for Fine Arts and Antiques

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The fascination surrounding art theft and forgery has long been the subject of much exploration. Only more recently, however, has the art market come under increased scrutiny regarding its connection to money laundering and corruption. It’s not just that stolen artworks often end up in the hands of criminals: even the market for non-stolen art is especially vulnerable to money laundering and corruption. With more banks cracking down on illicit activities, art has become an “efficient instrument for hiding cash.” As an article in the New York Times observed, no business seems “more custom-made for money laundering, with million-dollar sales conducted in secrecy and with virtually no oversight.”

Considering the attention paid by anticorruption and anti-money laundering activists to the role of the real estate market and the market for other luxury goods to facilitate money laundering and bribery, it is perhaps a bit surprising that there hasn’t been more attention to the art market—which is perhaps even more deserving of scrutiny. Continue reading →

Watching the Watchmen: Should the Public Have Access to Monitorship Reports in FCPA Settlements?

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When the Department of Justice (DOJ) settles Foreign Corrupt Practices Act (FCPA) cases with corporate defendants, the settlement sometimes stipulates that the firm must retain a “corporate monitor” for some period of time as a condition of the DOJ’s decision not to pursue further action against the firm. The monitor, paid for by the firm, reports to the government on whether the firm is effectively cleaning up its act and improving its compliance system. While lacking direct decision-making power, the corporate monitor has broad access to internal firm information and engages directly with top-level management on issues related to the firm’s compliance. The monitor’s reports to the DOJ are (or at least are supposed to be) critically important to the government’s determination whether the firm has complied with the terms of the settlement agreement.

Recent initiatives by transparency advocates and other civil society groups have raised a question that had not previously attracted much attention: Should the public have access to these monitor reports? Consider the efforts of 100Reporters, a news organization focused on corruption issues, to obtain monitorship documents related to the 2008 FCPA settlement between Siemens and the DOJ. Back in 2008, Siemens pleaded guilty to bribery charges and agreed to pay large fines to the DOJ and SEC. As a condition of the settlement, Siemens agreed to install a corporate monitor, Dr. Theo Waigel, for four years. That monitorship ended in 2012, and the DOJ determined Siemens satisfied its obligations under the plea agreement. Shortly afterwards, 100Reporters filed a Freedom of Information Act (FOIA) request with the DOJ, seeking access to the compliance monitoring documents, including four of Dr. Waigel’s annual reports. After the DOJ denied the FOIA request, on the grounds that the documents were exempt from FOIA because they comprised part of law enforcement deliberations, 100Reporters sued.

The legal questions at issue in this and similar cases are somewhat complicated; they can involve, for example, the question whether monitoring reports are “judicial records”—a question that has caused some disagreement among U.S. courts. For this post, I will put the more technical legal issues to one side and focus on the broader policy issue: Should monitor reports be available to interested members of the public, or should the government be able to keep them confidential? The case for disclosure is straightforward: as 100Reporters argues, there is a public interest in ensuring that settlements appropriately ensure future compliance, as well as a public interest in monitoring how effectively the DOJ and SEC oversee these settlement agreements. But in resisting 100Reporters’ FOIA request, the DOJ (and Siemens and Dr. Waigel) have argued that ordering public disclosure of these documents will hurt, not help, FCPA enforcement, for two reasons:  Continue reading →

Building Booms and Bribes: The Corruption Risks of Urban Development

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Windfall gains often create opportunities for corruption. The big inflow of money increases the opportunities and incentives for kickbacks and bribery as a means to capture new funds. Well-known examples of this phenomenon include disaster relief efforts, resource booms, and humanitarian aid. Yet the concern is not limited to those contexts. Changes in the price and value of land in a given area can also create the opportunity for windfall, and associated corruption risks.

The corruption risks in the land sector and real estate industry have been discussed broadly as pervasive; routine land administration and land grabbing provide ample opportunities for corruption to flourish where land governance is weak. Yet these discussions sometimes overlook another sort of corruptogenic windfall in land markets, one that is often hiding in plain sight: the effects of gentrification of urban centers. Experiences from cities around the world exemplify three common ways in which these windfall gains from gentrification provide opportunity for corruption. Continue reading →

To Fight Corruption, the Green Climate Fund Should Improve the Anticorruption Mechanisms in its Accreditation Process

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The Green Climate Fund (GCF), which the UN created in 2010, seeks to marshal pledges of $100 billion per year by 2020 from wealthy nations (which have been disproportionately and primarily responsible for the world’s carbon emissions), as well as other private and public sources, to finance climate change mitigation and adaptation projects in developing nations, which bear the greater share of adverse effects from those emissions. Last March, the United States delivered $500 million to the GCF, the first installment of the $3 billion pledge the United States made as part of the COP 21 UN Climate Summit last December. Climate and development advocates hope that the GCF will support development that is both “low-emission” and “climate-resilient,” helping countries limit greenhouse gas emissions and adapt to impacts of climate change. The GCF operates principally through so-called “accredited entities”—private and public sector subnational, national, regional, and international entities, which will implement climate change programs using GCF funds. These entities are selected through an accreditation process (hence the name), which assesses their ability to manage resources against the GCF’s fiduciary principles, environmental and social safeguards, and gender policy. Specific projects are assessed against investment criteria, including impact potential, sustainable development potential, responsiveness to recipients’ needs, promotion of country ownership, and efficiency.

As with many humanitarian or development aid efforts, the GCF is not without corruption risks. Recognizing this, the GCF Board approved an Initial Monitoring & Accountability Framework for the accredited entities that manage and implement GCF projects. Yet the GCF should do more to ensure that its basic accreditation mechanisms themselves rigorously evaluate entities for their capacities not only to disburse climate funds but also to monitor and address corruption. This up front assessment would complement efforts to ensure that entities, once accredited, remain faithful to the Fund’s fiduciary principles. The following aspects of the GCF accreditation process raise potential corruption risks, and the GCF should take steps to address them: Continue reading →

Bitcoin, Blockchain, and Land Reform: Can an “Incorruptible” Technology Cure Corruption?

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Since its inception in 2009, Bitcoin—a digital currency secured by encryption—has attracted attention, interest, and controversy. Less attention (at least until recently) has been paid to other applications of the underlying technology, “blockchain,” that makes Bitcoin possible. And while the anonymity associated with Bitcoin is, if anything, often associated with illicit transactions in the “dark web,” other applications of the blockchain technology might be used to enhance transparency and promote integrity. Some of the early proposals along these lines are indeed encouraging; at the same time, blockchain is not a technological panacea, and recognizing its limitations can identify areas that may require particular attention in anticorruption efforts.

First, a bit more (non-technical) information on the technology. Blockchain functions as an online, public digital ledger. In the Bitcoin context, the technology makes it possible to track and record Bitcoin transactions in the ledger and distribute that information in real-time to all computers connected to the Bitcoin network. Because of this distribution, the ledger is updated independent of any central authority. Moreover, because each chronological “block” in the chain contains both unique information about each transaction and also a unique identifier of the previous block, which is then distributed to all computers on the network, it is very difficult (perhaps impossible) to tamper with or alter the transaction records.

While the blockchain technology made Bitcoin possible, its public and tamper-proof data storage function could assist with efforts to promote transparency and fight corruption. For example, in the context of land reform, Austin-based start-up Factom has reached an agreement with the Honduran government to transfer its land registry onto a blockchain-enforced digital database. The objective is to create a reliable land title-keeping system in a country where, as USAID notes, “only 14% of Hondurans legally occupy properties and, of the properties held legally, only 30% are registered.” In addition to a lack of registration, government officials currently can alter titles to those properties that are registered, allocating properties to themselves (or to others in exchange for bribes). Moreover, citizens often lack access to records, which may provide conflicting information, and are thus unable to defend themselves against infringement of property, use, or mineral rights. By recording land title in an immutable public registry (relying, according to reports, on the Bitcoin blockchain’s data-embedding function), the partnership between Factom and the Honduran government seeks to secure for the public a clear, trustworthy record of ownership in order to improve protection of land rights, and to incentivize registration.

This seems like a worthwhile initiative, and one that transparency and anticorruption advocates should watch closely. At the same time, it’s worth noting several reasons we should be careful not to lose sight of important corruption challenges amidst the excitement surrounding the digitized ledger: Continue reading →

Do Corrupt Politicians Deserve a Second Chance?

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In 2003, Joe Ganim left his fifth term as mayor of Bridgeport, Connecticut in disgrace. A federal jury convicted Ganim on sixteen corruption charges, including racketeering, extortion, bribery, and mail fraud, and he served seven years in prison. Yet five years after his release, Ganim is poised to become mayor again, having won the Democratic Party primary (in overwhelmingly Democratic Bridgeport)—defying the predictions of those who thought his corruption sentence would make a political comeback all but impossible. Yet if Bridgeport were located just across the Connecticut border, in neighboring New York, Joe Ganim would not be allowed to run, because New York—along with several other states such as Mississippi, South Carolina, and Virginia—has a disqualification law. Such laws prevent officials who have been convicted of corruption-related crimes from running for elected office, for periods ranging from several years to life (depending on the state). We see something like this approach in many other countries as well, though different countries have adopted varied approaches to the question of whether people convicted of crimes – corruption-related or not – can run for office. In Brazil, politicians convicted of certain enumerated crimes, including corruption-related offenses, are barred for eight years pursuant to a 2009 bill (which had been championed by civil society groups). In Canada, those convicted for corrupt acts must wait seven years from the date of conviction before they can run for the House of Commons (the limit for those convicted of other crimes is five years). In France, courts have the discretion to impose, as part of criminal conviction, a period of up to ten years during which the defendant may not vote or run for public office. Other countries, like Denmark and Finland, leaves the matter up to the parliament, which can vote to disqualify someone convicted of an offense showing untrustworthiness or unfitness for public office.

Are disqualification rules of this sort a good idea? Would it be better if Connecticut had a law like New York’s, which would prevent someone like Joe Ganim from running for life? Should other democracies that suffer from widespread public corruption follow the example of countries like Brazil, which have adopted these sorts of disqualification laws? This solution is indeed a tempting one. After all, the Bridgeport race—and numerous elections elsewhere—show that voters will not always prevent those convicted of serious corruption offenses from seeking and winning public office. Yet the experience of countries that have adopted statutory disqualification signals reasons for caution. Although one must be careful about overly broad generalizations, given the extent of variation in government structure and political culture, disqualification laws raise serious risks, and may not be necessary. Continue reading →