Author Archives: Matthew Stephenson

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About Matthew Stephenson

Professor of Law, Harvard Law School

It’s Time to Abandon the “$2.6 Trillion/5% of Global GDP” Corruption-Cost Estimate

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In my post a couple weeks back, I expressed some puzzlement about the source of the widely-quoted estimate that corruption costs the global economy approximately $2.6 trillion, or roughly 5% of global GDP. I was hoping that someone out there in GAB Reader-Land would be able to point me to the source for this figure (as several GAB readers helpfully did when I expressed similar puzzlement last year about the source for the related estimate that there are approximately $1 trillion in annual bribe payments). Alas, although several people made some very insightful comments (some of which are in the public comment thread with the original post), this time it seems that nobody out there has been able to point me to a definitive source.

I’ve done a bit more poking around (with the help of GAB readers and contributors), and here’s my best guess as to where the $2.6 trillion/5% of GDP number comes from: Continue reading →

Guest Post: Connecting Health and the Fight Against Corruption

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Taryn Vian, Associate Professor of Global Health at the Boston University School of Public Health, contributes the following guest post:

The recent endorsement of the Sustainable Development Goals (SDGs) has prompted greater discussion and debate about the most important aspects of, and the most effective means for achieving, sustainable development. Most of the discussion of corruption in the context of the SDGs has focused on SDG 16 (“Promote just, peaceful, and inclusive societies”), which specifically includes anticorruption and related objectives among its targets (and which has prompted some debate on this blog – see here, here, here, and here.) But the fight against corruption is also closely linked to the achievement of another one of the SDGs: SDG 3 (“Ensure healthy lives and promote well-being for all at all ages”).

On its face, SDG 3 is about health, not corruption. But the fight against corruption is in fact closely connected to SDG 3, and health professionals need to open their eyes to this connection. Corruption worsens health outcomes in many ways: siphoning off resources that are supposed to be devoted to health care (for example, through embezzlement and absenteeism), increasing the cost and decreasing the availability of medicines and medical equipment (or enabling the spread of fake medicines), creating barriers to use of health services (particularly by poor and uneducated people who are especially vulnerable to bribery) and reducing the overall availability and quality of health services. Thus the fight for increased health ought to be—perhaps must be—seen as inextricably connected to the fight against corruption.

Though measuring the impact of corruption on health is challenging, at this point we have a sufficiently large (and growing) body of evidence that corruption threatens health. Consider the following: Continue reading →

Where Does the $2.6 Trillion Corruption Cost Estimate Come From?

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Last year, I published a post expressing my puzzlement regarding the source of the widely-cited statistic that over $1 trillion dollars are paid annually. I was pleasantly surprised by the speed with which several GAB readers pointed me to the original source that described the methods and data used to calculate that number—and while I wasn’t entirely satisfied, it was at least nice to know where the number came from.

I’m hoping someone out there can help me with a very similar question: Within the last few months, I’ve been at several conferences and meetings where someone has quoted the figure that worldwide corruption (not just bribery) imposes annual costs to the global economy of approximately $2.6 trillion, roughly 5% of global GDP. I’ve looked and looked, and I cannot for the life of me figure out where this number comes from. Continue reading →

Guest Post: U.S. Implementation of the EITI–Good Progress, But Needs Improvement

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GAB is delighted to welcome back Daniel Dudis, Senior Policy Director for Government Accountability at Transparency International-USA, who contributes the following guest post:

The United States recently published its first narrative report and payment reconciliation report under the Extractive Industries Transparency Initiative (EITI). The EITI was founded in 2003 to help end the “resource curse” by which the revenues generated from natural resource extraction benefit a small group of politically-connected insiders and do nothing to improve the lives of the vast majority of people in many resource-rich countries. The concept that underpins the EITI is simple: by requiring participating resource extraction companies to report the payments they make to all levels of government in a country, while simultaneously requiring participating governments to report the revenues (including royalties, bonuses, rents, penalties, fees, and corporate income taxes) received from those companies, one can compare the reported figures and bring transparency to an often opaque sector. This transparency can in turn be used to hold governments accountable for how they distribute and spend resource wealth. Membership in the EITI is voluntary; there are currently 49 countries participating. The EITI is governed at both the international and national levels by multi-stakeholder groups composed of representatives of government, civil society, and industry.

The recently published U.S. EITI report covers payments made and received in 2013. There is much valuable information in the both report and the accompanying U.S. EITI website. The Department of Interior is to be commended for publishing 100% of payments it received in 2013 from companies producing on federal lands and in federal waters (totaling approximately $12 billion), as well as state-by-state royalties for 18 resource-rich U.S. states. The report also provides detailed information on natural resource extraction governance at the federal, state, and tribal levels, statistics on the size of the extractives sector (in terms of economic output and employment), as well as a valuable assessment of the revenue sustainability in 12 resource-dependent counties.

That said, there are a couple of important respects in which the report falls short: Continue reading →

The Amount of Bribery and the Cost of Bribery Are Not the Same

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I’ve posted before (see here, here, and here) about some of my concerns regarding the accuracy of the estimates people sometimes throw around about the total amount of bribes paid each year (sometimes given in absolute terms, sometimes as a percentage of global GDP, but in all cases based on dubious extrapolations from suspect data). But for the moment I want to put those concerns aside to make another point: Even if we knew the total amount of bribes paid, that would not necessarily tell us much of anything about how much bribery costs society. (And that’s true even if we limited attention to economic costs, narrowly construed.) This is not an original point – lots of people have made it, and indeed it’s fairly obvious when you stop to think about it. Yet I keep seeing references to estimates of the amount of bribery that treat these figures as if they were measures of the cost of bribery. (For examples, see here, here, here, here, and here.) But that’s just not right. Continue reading →

Anticorruption Bibliography–December 2015 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.

Is China’s Anticorruption Campaign Hurting Its Economy? Some Skeptical Thoughts on Eye-Popping Estimates

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I read a striking claim last week about the impact of China’s anticorruption crackdown. CNBC reported that Chi Lo, a senior economist at the bank BNP Paribas, claimed the anticorruption campaign “has knocked between 1 and 1.5 percent off the [China’s] gross domestic product (GDP) annually over the past two years[.]”

I realize that, despite the widespread belief that corruption is bad for the economy overall (a belief I share), there have been some serious and legitimate concerns raised about whether China’s aggressive approach might be going too far, deterring not only corruption but also legitimate investment projects. But Mr. Lo’s estimate (assuming CNBC reported it accurately) struck me as implausibly high, for two reasons: Continue reading →

Guest Post: Empowering Youth To Fight Corruption — Examples from Kosovo

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Shqipe Neziri, Manager with UNDP’s anticorruption program in Kosovo, contributes the following guest post on behalf of UNDP-Kosovo. [Note: For purposes of this post, in reflection of the fact that Kosovo is not a member of the UN, references to “Kosovo” should be understood to be in the context of Security Council Resolution 1244 (1999)):

Young people are often forgotten victims of corruption, left without an opportunity to voice their concerns, to help make positive changes, or to enhance their skills and become active citizens for a better future. Yet young people can play an important role in the fight against corruption. They tend to be more open to wide-scale socio-political transformation and have less vested interested in maintaining the status quo. Moreover, the values and attitudes of young people today will shape the values of the society tomorrow. The question is how to harness then energy and innovation of young people, and to provide the right kinds of support.

UNDP’s recent efforts in Kosovo may provide an example of how to foster a youth-based anticorruption movement. Corruption in Kosovo is a serious problem, viewed by Kosovars as the third-most serious problem, after poverty and unemployment. Kosovo’s population skews young –half of its 2 million citizens are under the age of 30 – and Kosovo’s young people are frustrated by corruption and lack of economic opportunity. (The overall unemployment rate is 35%, while unemployment rate of youth aged 15-24 years is 60%.) For several years, UNDP Kosovo has been placing youth at the core of its development support. Through our anticorruption efforts we have been helping to strengthen the voice of the youth and to foster their participation in decision making through the use of traditional and social media, and working to make institutions more responsive to youth.

What are some of our most successful youth-focused anticorruption initiatives? Here are some examples, which might serve as useful models for others: Continue reading →

Can the OECD Convention Prevent FCPA Backsliding?

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A little while back I expressed some concern (perhaps excessive) about the possibility that we might be seeing a revitalized movement to “reform” (that is, weaken) the FCPA; I also worried a bit that a greater focus on prosecutions of individuals might lead to judicial rulings that would force the government to substantially narrow its reading of the statute (for example, with respect to the definition of “foreign official,” or what counts as “anything of value,” or the scope of statutory jurisdiction, or other matters where the statute itself is arguably ambiguous). In response to the latter concern, Duke Law Professor Rachel Brewster raised an intriguing possibility (in addition to several other reasonable responses to my worries): The OECD Anti-Bribery Convention, she suggested, might limit the degree to which the U.S. Congress or courts narrow or limit the FCPA. As Professor Brewster succinctly put the point in her comment on one of my earlier posts:

[T]he OECD treaty … is even broader than the FCPA. Moreover, the courts of appeal that have ruled on the meaning of the FCPA (Kay, Esqenazi) have explicitly relied on the more robust OECD treaty provisions to support the government’s position. That gives me some comfort that the US court system is going to continue to support the DOJ/SEC’s current enforcement strategy. Even if the OECD treaty does not explicit answer questions like “who is a foreign official” and “what is anything of value” (although it does help with the narrow interpretation of the facilitating payments), the general tenor of the treaty (and subsequent treaties the US has backed and joined) supports the government’s strong enforcement approach.

This is a valuable point, and to a certain extent I agree. But I am less sanguine than Professor Brewster that the OECD Convention will prove much of a firewall against a potential congressional or judicial backlash against the DOJ and SEC’s aggressive approach to interpreting and enforcing the statute. Continue reading →

NYU Roundtable on the DOJ Fraud Section’s New “Corporate Compliance Counsel”: The Video and Some Thoughts

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As many readers are likely aware, the U.S. Department of Justice Fraud Section (now headed by Andrew Weissmann), which has responsibility for enforcing the Foreign Corrupt Practices Act (among other things), recently created a new position called the “Corporate Compliance Counsel,” and appointed to the post Hui Chen, a former corporate compliance officer for a number of major firms (including Microsoft, Pfizer, and Standard Chartered). The avowed purpose of the new position is to assist the DOJ in assessing the quality of a company’s internal compliance program and remediation measures. In the FCPA context (and others), these assessments are relevant to the DOJ’s decisions regarding whether to prosecute, what penalties to seek, and what additional remedial measures to pursue, even though there is not a formal “compliance defense” under the FCPA (or other statutes that the Section enforces). Thus, the thinking behind the creation of the new DOJ position seems to be that having someone in the Section with a lot of background in corporate compliance will enable the DOJ prosecutors to do a better job in evaluating the quality of a company’s compliance program and remedial efforts.

The creation of the Corporate Compliance Counsel position has garnered praise in some quarters, but also attracted some criticism; the critics tend to argue that the creation of the new position is, at best, a public relations move with little real consequence, and at worst an indirect effort to weaken the enforcement of corporate criminal laws.

Last week, the NYU Program on Corporate Compliance and Enforcement (PCCE) hosted a public forum where Mr. Weissmann and Ms. Chen discussed the new position and answered some questions posed by NYU Professor (and PCCE co-director) Jennifer Arlen. Because I thought that this might be of interest to some readers, here’s a link to a video of the discussion.

A few additional thoughts about what I thought were the more interesting exchanges: Continue reading →