Author Archives: Matthew Stephenson

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About Matthew Stephenson

Professor of Law, Harvard Law School

Guest Post: There’s Nothing (Legally) New About “Declinations” Under the DOJ’s Corporate Enforcement Policy

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Today’s guest post is from Professor Karen Woody, at Indiana University’s Kelley School of Business:

Last year, the US Department of Justice (DOJ) announced a new “Corporate Enforcement Policy” (CEP) that would apply to Foreign Corrupt Practices Act (FCPA) cases, among others. A key feature of the CEP was the offer of leniency—in the form of a “declination”—so long as the company met certain conditions, including voluntary disclosure of the violation, full cooperation, and disgorgement of any ill-gotten gains from the unlawful conduct. While the basic contours of the DOJ’s new policy are reasonably clear, the use of the term “declination” has created some confusion and uncertainty. Is a “declination” merely a decision not to prosecute? Is it something more? Does it depend?

This confusion is illustrated by Maddie McMahon’s post last month, in which she argued that declinations granted pursuant to the CEP are indeed a “new” kind of enforcement action, distinct from a simple decision not to prosecute. And the DOJ has to some extent fostered that understanding: As Maggie points out, the CEP itself states (somewhat enigmatically), “if a case would have been declined in the absence of such circumstances [of compliance with the CEP], it is not a declination pursuant to the Policy,” which seems to imply that there still may be DOJ declinations, in addition to distinct declinations “pursuant to the CEP.” But in fact the CEP does not create a new mechanism for resolving FCPA cases (or other corporate enforcement actions). What it does do (confusingly and unhelpfully) is use the same term—“declination”—to describe two distinct, but familiar well-established, types of resolution.

To see this, it is critical to distinguish two types of cases for which the DOJ might issue a “declination” pursuant to the CEP: (1) unilateral declinations, where any required disgorgement is made in a separate settlement with the Securities and Exchange Commission (SEC); and (2) “declinations with disgorgement,” in which the SEC lacks jurisdiction and the disgorgement required to qualify for a “declination” under the CEP is made as part of an agreement between the company and the DOJ. Continue reading →

Guest Post–Assessing Corruption with Big Data

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Today’s guest post is from Enestor Dos Santos, principal economist at BBVA Research.

Ascertaining the actual level of corruption is not easy, given that it is usually a clandestine activity, and much of the available data is not comparable across countries or across time. Survey data on corruption experience can be helpful, but it is often limited to very specific kinds of corruption (such as petty bribery). Researchers and analysts have therefore, quite reasonably, tended to rely on subjective corruption perception data, such as Transparency International’s well-known Corruption Perceptions Index (CPI). (The CPI aggregates corruption perception data from a variety of other sources, mostly expert assessments.) But conventional corruption perception measures (including those use to construct the CPI) have well-known problems, including limited coverage (with respect to both years and countries) and relatively low frequency (usually annual). And they rely on the perceptions of a handful of experts, which may not necessarily be representative. These limitations mean that while traditional perception measures like the CPI may be useful for some purposes, they are not as helpful for others, such as measuring the impact of individual events or news reports on corruption perceptions, or how changes in corruption perceptions affect government approval ratings.

To address these concerns, a recent study by BBVA Research, entitled Assessing Corruption with Big Data, offered an alternative, complementary type of corruption perceptions measure, based on Google web searches about corruption. To construct this index, we examined all web searches classified by Google Trends in the “Law and Government” category for individual countries, and calculated the proportion of those searches that contain the word “corruption” (in any language and including its misspellings and synonyms). Our index, which begins in 2004, covers more than 190 countries and, unlike traditional corruption indicators, is available in real-time and with high-frequency (monthly). Moreover, it can be reproduced very easily and at very low cost.

Here are some of our main findings: Continue reading →

Tracking Corruption and Conflicts of Interest in the Trump Administration–July 2018 Update

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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. Our July 2018 update is now available here.There are not too many substantive updates since last month–the most notable concerns revelations that Commerce Secretary Wilbur Ross appears to have misled Congress and the public about potential financial conflicts of interest.

Guest Post: The UK’s Compensation Principles in Overseas Corruption Cases–A New Standard for Aiding Victims of Corruption?

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GAB is delighted to welcome back Susan Hawley, Policy Director at Corruption Watch, to contribute today’s guest post:

The issue of whether money from foreign bribery settlements should go back to the people of affected countries has generated a fair amount of heat over the years. Back in 2013, the World Bank’s Stolen Asset Recovery Initiative (StAR) asked whether countries whose people were most harmed by corrupt practices were being left out of the bargain in foreign bribery settlements. According to the StAR study, out of the $6 billion in monetary sanctions imposed for foreign bribery in 395 settlements between 1999 and 2012, only 3.3%, or $197 million, had been returned to the countries where the bribes were paid. Those statistics have provoked considerable controversy, as has the question whether the UN Convention Against Corruption (UNCAC) requires states parties to share money from foreign bribery settlements with affected countries. Yet the fact remains that when the huge fines paid by US and European companies for bribing officials in developing countries go into the treasuries of the US and Europe, while the people of those countries affected by that bribery get nothing, this creates a serious credibility and legitimacy problem for the international anticorruption regime.

For that reason, the UK enforcement bodies’ publication, this past June 1st, of joint principles to compensate overseas victims of economic crime is a welcome development, and provides another opportunity to think again about what is possible and what is desirable in terms of compensating the people of affected countries when companies get sanctioned for paying bribes. The UK Compensation Principles were first mooted and drafted at the 2016 London Anti-Corruption Summit; that Summit’s Joint Communique recognized that “compensation payments and financial settlements … can be an important method to support those who have suffered from corruption,” and led nine countries (though only four from the OECD) to commit to develop common principles for compensation payments to be made “safely, fairly and in a transparent manner to the countries affected.” The UK’s new principles are an effort to fulfill that Summit commitment. They commit the UK’s enforcement bodies to:

  • Consider compensation in all relevant cases;
  • Use whatever legal means to achieve it;
  • Work cross-government to identify victims, assess the case and obtain evidence for compensation, and identify a means by which compensation can be paid in a transparent, accountable and fair way that avoids risk of further corruption; and
  • Proactively engage where possible with law enforcement in affected states.

Interestingly, these principles have been in informal operation since late 2015, which helps shed some light on how these principles are likely to operate in practice. Continue reading →

Is the West Being Too Critical of Corruption in Ukraine? The Debate Continues

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A couple weeks back I posted a commentary on an interesting debate over the West’s approach to promoting anticorruption in Ukraine. On the one side, Adrian Karatnycky (the Managing Partner of a consulting firm that assists international clients with government relations in Ukraine) and Alexander Motyl (Professor of Political Science at Rutgers) published a piece arguing that the West’s approach to promoting anticorruption was misguided, for two reasons: First, because (according to the authors) there was too much focus on punishing individual wrongdoers rather than on institutional reform, and second because the emphasis on the failings of the Ukrainian government (and the wrongdoing of individual Ukrainian officials) was undermining a reformist government, and would likely lead Ukrainian voters to embrace populist demagogues. On the other side, Daria Kaleniuk (the executive director of a Ukrainian civil society organization called the Anti-Corruption Action Center) countered that the only reason the Ukrainian government has made any progress on anticorruption reforms is because of pressure from the West, and that holding individual wrongdoers accountable is essential to making progress on this issue and restoring the faith of the Ukrainian people in the institutions of government.

My own take was that Ms. Kaleniuk is likely correct that individual accountability, though not sufficient, is a necessary component of an effective anticorruption strategy; Karatnycky and Motyl’s implicit argument that Ukraine could make headway on the corruption problem without an effective system for holding individual wrongdoers accountable, as long as the country pursues “institutional reforms” (like privatization and de-monopolization), struck me as both facially implausible and inconsistent with what we know about successful anticorruption reforms elsewhere. Karatnycky and Motyl’s second point, about “messaging,” struck me as harder. On the one hand, it’s true that emphasizing only problems and failures and shortcomings might breed cynicism, frustration, and possibly political instability. But on the other hand, exposing corruption may be the only way (or at least the most effective way) to mobilize public opinion to address some very real problems.

I probably wouldn’t have returned to this topic (about which, I can’t repeat enough, I lack genuine expertise), but Mr. Karatnycky and Professor Motyl published a rejoinder to Ms. Kaleniuk last week that I think merits further commentary. The new piece makes a number of separate points, and I won’t touch on all of them. But if I had to sum up their central argument, it would go like this:

Don’t be too critical of the ruling elites—even if those elites are pretty corrupt, and even if the only reason they’ve done much of anything about corruption in the past is because they’ve been pressured or shamed or coerced into doing so. If you’re too mean to them, they might lose the support of the people—and what comes next might be much worse.

That summary, which I admit is a bit of a caricature, might seem unfair. But I don’t think it is. Indeed, I not only think it’s an accurate distillation of Karatnycky and Motyl’s main argument, but I actually think that it’s an argument worth taking seriously, and in some circumstances might even be right. But I’m skeptical it’s right in most cases, and I remain to be convinced that it’s right about Ukraine. Under most conditions, I think it’s probably wrongheaded and dangerous to say that we shouldn’t criticize a government for failing to tackle corruption or try to expose the corruption of individual politicians out of a concern that doing so might undermine the legitimacy of the government.

So, before I proceed, let me make clear that my caricature—“Don’t say mean things about the kinda-corrupt-but-kinda-reformist incumbents”—really is a fair distillation of the argument. Here the key passages from Karatnycky and Motyl’s most recent piece: Continue reading →

Guest Post: More on the Hazards of Public Beneficial Ownership Registries–What Stephenson and Others Miss

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Today’s guest post, from Geoff Cook (the CEO of Jersey Finance), continues an ongoing debate an exchange we’ve been hosting here at GAB regarding the desirability of public (as opposed to confidential) registries of the ultimate beneficial owners (UBOs) of companies and other legal entities. This exchange was prompted by a piece that Martin Kenney, a lawyer specializing in asset recovery in the British Virgin Islands, published on the FCPA Blog, which criticized the UK’s decision to mandate that the 14 British Overseas Territories create public UBO registries. Mr. Kenney’s post prompted reactions from Rick Messick and from me. Our critical reactions stimulated another round of elaboration on the critique of the UK’s decision, with a new post from Mr. Kenney and another from Mr. Cook. I subsequently replied, explaining why I did not find Mr. Kenney’s or Mr. Cook’s criticisms fully persuasive. Mr. Kenney responded to that post earlier this month, and in today’s post Mr. Cook contributes his critical reactions to my response: Continue reading →

Guest Post: More Transparency Is Needed to Fight Grand Corruption in the Pharmaceutical Sector

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Today’s guest post is from Till Bruckner, the founder of TranspariMED:

In the pharmaceutical sector, public agencies are routinely handing over billions in public money to private companies for products whose value they cannot accurately assess, because the vendors control the flow of information generated by clinical trials. (Even the purchasing price is often kept secret, but that is another story.) If we observed this sort of opacity in the public procurement sector, it would immediately raise red flags. If public contractors were taking billions from governments in exchange for products of dubious quality that the governments cannot assess, the anticorruption community would be–rightly–up in arms. But for the pharmaceutical industry, this is business as usual.

Consider, as one particularly egregious example, what can only be described as an $18 billion heist of public money by a pharma company. In 2006, governments around the world began stockpiling Tamiflu, an anti-retroviral drug, due to fears that outbreaks of bird flu (and later swine flu) could turn into a lethal global pandemic. The evidence available at the time suggested that the drug was safe and effective at reducing the symptoms of influenza. In total, 96 counties accumulated enough Tamiflu to treat 350 million people. Then, in 2009, a doctor noticed that the results of eight clinical trials of Tamiflu were missing from the public record. (Worldwide, around half of all clinical trials have never reported their results.) After a struggle lasting four years, independent scientists finally got the company to turn over the relevant data from these trials—and concluded that the drug did little, if anything, to help patients.

This example is especially egregious, but it is not otherwise exceptional. Amazingly, comprehensive information on the safety and effectiveness of drugs is not only inaccessible to independent scientists, but also to government agencies. When a drug company applies for a marketing license, it has to submit detailed documentation from every relevant trial to regulatory agencies such as the U.S. Food and Drug Administration (FDA). Regulators review these submissions, called Clinical Study Reports (CSRs) – and then promptly lock them away in their confidential archives. This is especially frustrating for scientists working for health technology agencies, who are tasked with assessing the cost-effectiveness of different drugs but are often unable to access CSRs. To date, only the European Medicines Agency systematically releases (some) CSRs.

Politicians have tried to bring transparency into the sector, but the laws they pass often remain unenforced. In the United States, the 2007 FDA Amendment Act made it compulsory for companies and universities to publish the summary results of some clinical trials on public registries. (Summary results are a kind of “executive summary” of a clinical trial; they are far shorter and less detailed than CSRs, but still better than nothing). In 2015, an investigation by STAT News found that pharmaceutical companies routinely violated the law. The law stipulates a fine of up to $10,000 for every day a result is overdue. In theory, Big Pharma has already racked up over $25 billion in fines. In practice, the FDA has yet to collect a single cent. In the European Union, a similar regulation exists, but there too it remains unenforced by national agencies. In Britain, a 2013 parliamentary inquiry called for greater transparency, but its recommendations were largely ignored.

Last December, a coalition of four health integrity organisations issuing a wake-up call for governments to finally get serious about clinical trial transparency. Transparency International Pharmaceuticals & Healthcare (PHP), TranspariMED, Cochrane, and the Collaboration for Research Integrity and Transparency (CRIT) released a study that documents in detail how opacity in the sector harms patients, prevents public health agencies from making informed decisions, wastes public health funds, slows down medical progress, and exposes shareholders to substantial risks. The study also shows that clinical trials can be made significantly more transparent without introducing new legislation. Public research funders could demand that grantees report the results of publicly funded trials. Regulators could make continued market access conditional on companies agreeing to make CSRs publicly available. And in many cases, simply enforcing the rules already on the book could make a huge difference – and the costs of enforcement could easily be covered by imposing fines for noncompliance.

The medical research community has long called for greater transparency in medical research. The AllTrials campaign, which calls for all clinical trials to be registered and fully reported, has attracted the support of over 700 groups, including the American Medical Association and dozens of patient groups, and TranspariMED is currently building a broader coalition to push for greater transparency in the sector. It’s high time for the wider anticorruption community to join the fray.

Guest Post: The Taxi Driver Paradox–or How Descriptive Social Norms Shape Corrupt Behavior

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Nils Köbis, a post-doctoral researcher at the Center for Experimental Economics and Political Decision-Making (CREED), University of Amsterdam, contributes today’s guest post:

Whenever I am traveling and take a taxi, I try to strike up a conversation with the driver. The beauty of this situation is that both sides can be really candid. The length is typically short, and chances are you will never meet again. The chat usually kicks off with some small talk about sports, weather, and food. Once warmed up, I have often asked: “What do you think is the biggest problem in your society?” So far, the most common answer has been corruption. And my taxi-driver-based anecdotal evidence is consistent with large  international surveys. Notwithstanding the old canard that people who live in corrupt societies generally tolerate corruption as normal and natural, ample empirical evidence (and my taxi drivers) suggests that this is not true: People widely despise corruption, especially in countries riddled with it. Yet on several occasions the very same taxi driver who has been ranting to me about corruption has stopped by a traffic police officer—and willingly paid a bribe to avoid a ticket.

What explains this apparent paradox? The most frequent explanation for why a person outraged by corruption would nevertheless pay a bribe is that “everybody does it”—as the Nigerian novelist Chimamanda Adichie nicely puts it, “If we do something over and over again it becomes normal. If we see the same thing over and over again it becomes normal.” This notion of normality plays an important role in explaining why corruption is sometimes the exception and sometimes the rule. Scholars who research social norms differentiate between injunctive norms, which concern whether a given behavior is acceptable, and descriptive norms, which indicate whether the same behavior is common. This distinction might help to explain the taxi-driver-paradox: People might often bribe because everybody else is doing it, even though they think it’s wrong. Continue reading →

Western Anticorruption Policy in Ukraine: Success or Failure?

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A few weeks back, I came across an interesting point-counterpoint on the impact of Western-backed efforts to promote anticorruption reform in Ukraine. On one side we have an online piece in Foreign Affairs by Adrian Karatnycky (the Managing Partner of a consulting firm that “works with investors and corporations seeking entry into the complex but lucrative emerging markets of Ukraine and Eastern Europe”) and Alexander Motyl (Professor of Political Science at Rutgers University) entitled, “How Western Anticorruption Policy Is Failing Ukraine.” And then on the other side we have a response piece on the Atlantic Council blog from Daria Kaleniuk (Executive Director of the Anti-Corruption Action Centre in Kyiv) entitled “Actually, the West’s Anticorruption Policy Is Spot on.” I’m no Ukraine expert, and so I’m reluctant to take a strong position on which side has the better of the argument, but I found the debate interesting not only for its implications for Ukraine, but also because it raises a couple of more general issues that come up in many other contexts, issues that anticorruption advocates should pay attention to even if they have no particular interest in Ukraine. Those issues are, first, a question of messaging—what I’ll call the glass-half-full/glass-half-empty question—and, second, the relative importance of holding individual wrongdoers personally (and criminally) accountable for corrupt conduct.

Let me first try to give a flavor of the debate, and then say a bit about each of those two issues. Continue reading →

Anticorruption Bibliography–June 2018 Update

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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.