About Matthew Stephenson

Professor of Law, Harvard Law School

Anticorruption Bibliography–February 2019 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. As always, I welcome suggestions for other sources that are not yet included, including any papers GAB readers have written.

Ownership Transparency Works: Geographic Targeting Orders in the US Real Estate Market

The anticorruption community, along with those concerned about tax evasion, fraud, and other forms of illicit activity, has made anonymous company reform a high priority on the reform agenda. It’s not hard to see why: Kleptocrats and their cronies, as well as other organized criminal groups, need to find ways to hide and launder their assets, and to do so in ways that are difficult for law enforcement authorities to trace. Moreover, those whose legitimate sources of income would be insufficient to obtain luxury assets would like to conceal their ownership of such assets, as the ownership itself could arouse suspicion, and might make the assets more vulnerable to forfeiture.

So-called “know-your-customer” (KYC) laws in the financial sector have made it much more difficult—though, alas, far from impossible—for account owners to conceal their identities from the banks and government overseers, at least in the US and most other OECD countries. But it is still far too easy for criminals to purchase substantial assets in wealthy countries like the United States while keeping their identities hidden. All the bad actor needs to do is, first, form a company in a jurisdiction that does not require the true owner of the company to be disclosed and verified to the government authorities, and, second, have this anonymous shell company purchase assets in a transaction that is not covered by KYC laws. Step one is, alas, still far too easy. Though we often associate the formation of these sorts of anonymous shell companies with “offshore” jurisdictions like the British Virgin Islands, in fact one can easily form an anonymous shell company in the United States. Step two, having the anonymous company purchase substantial assets without having to disclose the company’s owner, is a bit trickier, because you’d need to avoid the banking system. But you can get around this problem by having your anonymous company purchase assets with cash (or cash equivalents, like money orders or wire transfers), so long as no party to the transaction is under obligations, similar to those imposed on banks, to verify the company’s true owner.

One of the sectors where we’ve long had good reason to suspect this sort of abuse is common is real estate, especially high-end real estate. Though money laundering experts had long been aware of the problem, the issue got a boost from some great investigative journalism by the New York Times back in 2015. The NYT reporters managed to trace (with great effort, ingenuity, and patience) the true owners of luxury condos in one Manhattan building (the Time Warner Center), and found that a number of units were owned by shady characters who had attempted to conceal their identities by having shell companies make the purchases.

The US still hasn’t managed to pass legislation requiring verification of a company’s true owners as a condition of incorporation, which would be the most comprehensive solution to the anonymous company problem. Nor has the US taken the logical step of extending KYC laws to real estate agents across the board. But starting back in 2016, the US Treasury Department’s Financial Crimes Enforcement Network (known as FinCEN) took an important step toward cracking down on anonymous purchases of luxury real estate by issuing so-called Geographic Targeting Orders (GTOs). And thanks to some excellent research by the economists C. Sean Hundtofte and Ville Rantala (still unpublished but available in working paper form), we have strong evidence that many purchasers in the luxury real estate market have a strong interest in concealing their true identities, and that requiring verification of a company’s ultimate beneficial owners has a stunningly large negative effect on the frequency and aggregate magnitude of anonymous cash purchases. Continue reading

Some Good News and Bad News About Transparency International’s Interpretation of its Latest Corruption Perceptions Index

In my post last week, I fired off a knee-jerk reaction to Transparency International’s latest Corruption Perceptions Index (CPI). My message of that post was simple and straightforward: We shouldn’t attach much (or perhaps any) importance to short-term changes in any individual country or region’s CPI score, and the bad habit of journalists—and to some extent TI itself—of focusing on such changes is both misleading and counterproductive.

Since I was trying to get that post out quickly, so as to coincide with the release of the CPI, I published it before I’d had a chance to read carefully all of the material TI published along with the new CPI, and I promised that once I’d had a chance to look at those other materials, I would follow up if I had anything else to say. I’ve now had that chance, and I do have a few additional thoughts. The short version is that the way TI itself chose to present and discuss the implications of the 2018 CPI, in the accompanying materials, is both better and worse than I’d originally thought.

So, first, the bad news: Continue reading

Tracking Corruption and Conflicts of Interest in the Trump Administration–February 2019 Update

Since May 2017, GAB has been tracking credible allegations that President Trump, as well as his family members and close associates, are seeking to use the presidency to advance their personal financial interests, and providing monthly updates on media reports of such issues. The February 2019 update is now available here

As always, we note that while we try to include only those allegations that appear credible, we acknowledge that many of the allegations that we discuss are speculative and/or contested. We also do not attempt a full analysis of the laws and regulations that may or may not have been broken if the allegations are true. For an overview of some of the relevant federal laws and regulations that might apply to some of the alleged problematic conduct, see here.

A Reminder: Year-to-Year CPI Comparisons for Individual Countries are Meaningless, Misleading, and Should Be Avoided

Today, Transparency International released its new Corruption Perceptions Index (CPI) for 2018. At some point, hopefully soon, I’ll have time to look closely at the new data and accompanying materials, and if I have something to say about it, I’ll post it here. But that will probably take a while, and since the media coverage of the CPI is usually pretty intense in the first few days after the release, and dissipates in a week or two, I wanted to get out at least one post right now, on the day of the release, with a plea to everyone out there–especially journalists, but civil society activists and others as well:

DO NOT COMPARE ANY GIVEN COUNTRY’S CPI SCORE TO LAST YEAR’S SCORE TO MAKE CLAIMS ABOUT WHAT’S HAPPENING IN THE FIGHT AGAINST CORRUPTION.

Just don’t do it. Don’t. I know the temptation can seem overwhelming. Who’s up? Who’s down? Things are getting better! Things are getting worse! Nothing is changing! So many stories can be written based on these changes (or non-changes).

But these sorts of comparisons are virtually all completely useless, and probably counterproductive. Continue reading

Anticorruption Bibliography–January 2019 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. As always, I welcome suggestions for other sources that are not yet included, including any papers GAB readers have written.

Announcement: Transparency International Seeking External Experts for Its Helpdesk

Transparency International (TI), as many readers of this blog may already be aware, runs a very useful “Anti-Corruption Helpdesk” service, which produces 10-12 page topic briefs in response to inquiries from members of the TI network and certain other stakeholders, and publishes those briefs on its website for anyone to download. The briefs are typically completed within 10 working days of the receipt of the inquiry.

TI is currently seeking external experts to assist in the preparation of Helpdesk briefs. The details of the consultancy (including responsibilities, necessary qualifications, remuneration) can be found here. This may be an especially exciting opportunity for young (and somewhat-less-young) professors and advanced graduate students. However, please note that the deadline for applications is the end of next week (January 25), and the application requires the completion of a writing assignment (which TI says shouldn’t take more than three hours, though I think doing it well may take somewhat longer). So, if this is of interest to you, I encourage you to check out the link above, download the relevant materials, and start work on your application now!