Author Archives: Matthew Stephenson

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About Matthew Stephenson

Professor of Law, Harvard Law School

Trust in Government and Public Health: Corruption and Ebola Revisited

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A little while back I did a short post expressing skepticism about some claims that corruption was a significant contributor to the Ebola outbreak in West Africa. I agree that insofar as corruption diverts resources from public health and sanitation, or leads to undersupply of necessary medicines and supplies, it is likely to worsen both the frequency and magnitude of public health problems. But I was more skeptical that there was any direct evidence that the admittedly rampant corruption in places like Liberia, Sierra Leone, and Nigeria was a major contributor to that particular public health crisis.

Last month I was fortunate enough to moderate a panel on corruption and public health at the World Bank’s International Corruption Hunters Alliance meeting, and the presentations at that panel have altered my thinking about this issue somewhat. More generally, several of the presenters from countries hit hard by Ebola — including Commissioner Joseph Kamara of Sierra Leone’s Anti-Corruption Commission and Commissioner Aba Hamilton-Dolo of the Liberian Anti-Corruption Commission — made a convincing case that corruption has been, if not a primary cause, then at least a significant contributor to the extent and severity of the Ebola outbreak. Of course, there is still relatively little direct evidence, and it’s reasonable to wonder whether commissioners on anti-corruption commissions may be likely to overestimate the significance of their particular issue area for the most pressing immediate crisis facing their nations. Nonetheless, they did make a plausible case that corruption, while perhaps not a direct contributor to the outbreak, has significantly impeded the response.

On this point, Commissioner Hamilton-Dolo emphasized an important argument that I hadn’t really paid enough attention to, even though I quoted Professor Taryn Vian making essentially the same point in my earlier post: in addition to the squandering of public health resources, corruption may also impede the effective response to public health crises by undermining trust in government. The argument, as I understand it, goes something like this: Continue reading →

Guest Post: Fighting Corporate Corruption in Thailand, Part Two — Private Initiatives

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Karin Zarifi, an independent consultant to the Securities and Exchange Commission Thailand, contributes the following post (the second in a two-part series on combating corporate corruption among Thai public companies):

In my last post, I discussed how the Thai Securities and Exchange Commission (SEC) was undertaking innovative measures, in conjunction with private sector initiatives, to fight corruption and encourage good corporate governance in Thai public companies. One of the SEC’s most important partners in its efforts is the Stock Exchange of Thailand (SET), on which approximately 600 companies are listed. The SET and the SEC have been promoting their own and each other’s initiatives, as well as those of private sector organizations like the Thai Institute of Directors (IOD) and the Thaipat Institute, in ways that are encouraging, and seem to be helping Thailand to become a corporate sustainability leader among Association of Southeast Asian Nations (ASEAN) member countries.

The role of the SET in fighting corruption cannot be overlooked. Stock exchanges are uniquely positioned to use their listing and disclosure requirements to encourage sustainable practices, including anticorruption, by listed companies and allow consideration by investors. The role of stock exchanges in wealthy countries — most notably the New York Stock Exchange — in imposing ethics and disclosure requirements on listed companies is already well-known. The SET’s recent initiatives demonstrate that stock exchanges in developing countries can also play this role. Although a stock exchange’s anticorruption initiatives cannot substitute for appropriate action by government regulators, they are a vital complement to government efforts to prohibit bribery and corruption. Continue reading →

Anticorruption Bibliography — January 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.

Guest Post: Fighting Corporate Corruption in Thailand, Part One — Securities Regulation

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Karin Zarifi, an independent consultant to the Securities and Exchange Commission Thailand, contributes the following post (the first in a two-part series on combating corporate corruption among Thai public companies):

In Thailand, despite increased focus on anticorruption, corporate governance and Corporate Social Responsibility (CSR) improvements in the private sector (see, e.g., here and here), the Thai business community does not seem convinced that anticorruption is in its interest, at least short-term. Only last April, companies listed on the Stock Exchange of Thailand (SET) were telling the Thai Securities and Exchange Commission (SEC) that they were unwilling to stay away from paying “tea money” (that is, bribes), for fear of losing out to competitors. Yet the last nine months have seen considerable progress on this front.

Some of the progress has been driven by private sector initiatives, including initiatives spearheaded by the SET. I will discuss these in my next post. But much of the progress has been driven by the Thai SEC. As Jeena Kim pointed out in a recent post on this blog (in the context of South Korea) securities regulators are well-positioned — and often better-positioned than public prosecutors — to take effective action against corporate corruption. But whereas Ms. Kim highlighted the Korean securities regulator’s ability to enforce South Korea’s foreign anti-bribery laws, the Thai example illustrates how securities regulators can encourage the development of a culture of compliance, good corporate governance, and corporate social responsibility more generally, using tools beyond simply enforcing the securities laws. Continue reading →

Can Giving a Benefit to a Third Party Count as Bribing a Foreign Official? Yes, No, or Maybe So?

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One of the things I enjoy most about participating in the anticorruption blogosphere is the opportunity to engage in serious, substantive debates with smart people who think differently about these issues than I do. The exchanges are helpful, even when they fail to eliminate the disagreement. Case in point: My friendly sparring with Professor Andrew Spalding about the investigation of the JP Morgan “Sons & Daughters” program in China, which raises the question about whether offering a job to a foreign official’s child (or other friend or family member) can violate the anti-bribery provisions of the Foreign Corrupt Practices Act. Professor Spalding, in a four-part series of posts on the FCPA Blog last summer (see here, here, here, and here), says no. (He further claims that the US government already took that position in a couple of DOJ Opinion Releases from the early 1980s, and that a DOJ reversal of that position would therefore be an affront to the rule of law). In my post last week, I disagreed, and argued that–depending on the facts of the case–it’s at least possible (perhaps even likely) that JP Morgan’s activities violated the FCPA, and more generally that offering something to a third party can, under some circumstances, count as offering an improper benefit to a foreign official under the FCPA.

Professor Spalding has now posted a thoughtful reply on the FCPA blog. While I continue to disagree with his analysis, the exchange has been helpful (at least for me) is elucidating an important distinction in how we analyze potential FCPA violations–that between conduct that may violate the FCPA (under the right factual circumstances) and conduct that always or never violates the FCPA. Appreciating this distinction is key–in my view–to understanding where Professor Spalding goes wrong (though I suspect he will continue to disagree!). While I don’t want to go round and round in circles on the same issues, let me take one more crack at what I view as the key point: Continue reading →

Guest Post: Fighting Corruption in Anti-Deforestation Programs — The Case of REDD+

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Aled Williams, Senior Advisor at the U4 Anti-Corruption Resource Centre, contributes the following guest post:

The protection of tropical forests is a hot topic, particularly in light of the pressing threat of global climate change. The 2014 UN Climate Summit saw a range of national and subnational governments, along with numerous business and civil society organizations, endorsed the New York Declaration on Forests, which set a timeline for cutting natural forest loss in half (by 2020) and ending it completely (by 2030). A major goal of the declaration is to agree at the upcoming UN Climate Change Conference in Paris is to reduce deforestation and forest degradation as part of a post-2020 global climate agreement. And financial contributions are now stacking up, with more than USD 9.6 billion pledged by 22 countries to the UN’s Green Climate Fund.

Securing a global climate agreement that includes tropical deforestation would no doubt be a historic achievement. But once world leaders return from Paris next year, the proof of the pudding will lie in national implementation. They may well wish to consider what can be learned from recent schemes for Reducing Emissions from Deforestation and Forest Degradation (known as REDD+), to date largely funded by the Norwegian government through bilateral arrangements with major deforesters like Indonesia and Brazil, but also channeled through multilateral agencies. It turns out that even when donors have pledged substantial amounts of money, spending that money effectively can be challenging. A major part of that challenge relates to the difficult political-economy of forest sector reform in developing countries, where corruption in its various guises can be a core feature. Indeed, despite being described as a potential game-changer for addressing tropical deforestation, REDD+ financing also risks increasing corruption and related problems like land grabbing.

These challenges are not new and indeed were well-known among Norwegian aid practitioners as REDD+ pilots began some four years ago. But the U4 Anti-Corruption Resource Centre has just completed a three year research project–based on case studies of REDD+ pilots in the DRC, Indonesia, Kenya, the Philippines, and Tanzania–that sheds some new light on the issues. The report’s empirical findings suggest three main lessons: Continue reading →

JP Morgan, Sons & Daughters, and the Rule of Law

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One of the more interesting ongoing Foreign Corrupt Practices Act investigations involves allegations that the investment banking giant JP Morgan’s “sons and daughters” program in China. According to media reports, JP Morgan’s China and Hong Kong offices offered jobs, and in some cases consulting contracts, to the children of well-connected officials in China (including the heads of state-owned enterprises and senior party officials) in return for lucrative business opportunities in the Chinese market (see, for example, here and here). The case is still under investigation, the facts are still in dispute, and the government enforcement agencies have not yet accused JP Morgan of any of its executives of any wrongdoing. Yet there have been hints that if the facts turn out to be as bad as they look, the U.S. government will consider JP Morgan’s so-called “sons & daughters” hiring program to have violated the FCPA’s anti-bribery provisions. That conclusion would depend crucially on the premise that providing a job to the (adult, non-dependent) child of a foreign official counts as providing “anything of value” to the official. (Things would be different if there were evidence that the officials’ children funneled some of the money back to their parents, but at the moment no such evidence has come to light.)

About six months ago, Professor Andrew Spalding (who has also contributed a number of insightful posts to this blog – see here, here, and here) published a provocative four-part series at the FCPA Blog (see here, here, here, and here) raising serious concerns about this legal theory, and suggests that applying it in JP Morgan’s case would be not only inappropriate, but a serious affront to fundamental legal principles. Somewhat unusually, I find myself in disagreement with Professor Spalding. Indeed, if the facts turn out to be as bad as early media reports suggest, I think that this is an easy case. To my mind, it’s straightforward that offering a benefit to a third party can count as offering “anything of value” to a foreign official under the FCPA, and nothing in the DOJ’s prior opinion releases would constrain the U.S. government from applying that principle in this case. Continue reading →

Guest Post: How to Improve Foreign Bribery Enforcement in Korea

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Jeena Kim, a lawyer with Bae, Kim & Lee LLC (Seoul), contributes the following guest post:

South Korea was one of the first signatories to the OECD Anti-Bribery Convention in 1997, and in 1998 Korea enacted legislation–the Act on Preventing Bribery of Foreign Public Officials in International Business Transactions (Korean FBPA)–to implement the convention domestically. Yet while the US Foreign Corrupt Practices Act (FPCA), which served as a model for the Korean FBPA, has been actively enforced throughout the world, the Korean FBPA is significantly under-enforced, especially against corporate offenders. According to the OECD Working Group on Bribery, by the end of 2012, Korea had sanctioned 16 individuals and four legal entities for foreign bribery under the Korean FBPA, whereas the United States had imposed criminal sanctions on 62 individuals and 77 legal entities, and had imposed civil or administrative sanctions on an additional 41 individuals and 55 legal entities. Moreover, only nine cases have been prosecuted and convicted under the Korean FBPA since 1999, and eight of those involved bribery related to procurements for the U.S. army in Korea–that is, cases in which the bribery occurred in Korea rather than abroad. Korea’s under-enforcement of the Korean FBPA against foreign bribery is not only a problem for Korea, but also hinders multinational efforts to combat corruption, and creates many innocent victims in the host countries of bribed foreign officials.

While there are many possible explanations for the under-enforcement of the Korean FBPA, one of the most significant is the difficulty of collecting evidence of foreign bribery. The United States suffered the same problem in the early years of the FCPA, but the US government effectively overcame this obstacle through a two-pronged strategy: (1) granting a cooperation benefit to offenders that came forward and provided evidence, and (2) threatening severe punishment for uncooperative defendants. Many risk-averse companies therefore had the incentive to conduct a robust internal investigation, and to turn over evidence relevant to their own prosecution to the government in exchange for lenient treatment.

The success story of the United States in enforcing prohibitions against foreign bribery suggests a possible approach for Korea, though one that would need to be implemented in a somewhat different way, through different Korean institutions. Here’s how it could work: Continue reading →

More on the “News from Nowhere” Problem in Anticorruption Research

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One of my all-time favorite academic papers — which should be required reading not only for those who work on anticorruption, but on any topic where people casually throw around statistics — is Marc Galanter‘s 1993 article News from Nowhere: The Debased Debate on Civil Justice. Professor Galanter’s paper doesn’t have anything directly to do with international corruption. Rather, he sets out to debunk a series of widely-held but mostly-false beliefs about civil litigation in the United States, and in the process he traces the origins of many of the statistics often cited in debates about that topic. He finds that many of these statistics come from, well, nowhere. Here’s my favorite example: Around the time Professor Galanter was writing, it was common to hear claims that the civil justice system costs $80 billion in direct litigation costs; indeed, that figure appeared in an official report from the President’s Council on Competitiveness. The report’s only source for that estimate, however, was an article in Forbes; Forbes, in turn, had drawn the figure from a 1988 book by Peter Huber. But Huber himself hadn’t done any direct research on the costs of the system. Rather, Huber’s only source for the $80 billion figure was an article in Chief Executive magazine, which reported that at a roundtable discussion, a CEO claimed that “it’s estimated” (he didn’t say by whom) that insurance liability costs industry $80 billion per year. So: A CEO throws out a number at a roundtable discussion, without a source, it gets quoted in a non-scholarly magazine, repeated (and thus “laundered”) in what appears to be a serious book, and then picked up in the popular press and official government reports as an important and troubling truth about the out-of-control costs of the US civil justice system.

I thought about Galanter’s book the other day when I was reading the Poznan Declaration on “Whole-of-University Promotion of Social Capital, Health, and Development.” The Declaration itself is about getting universities to commit to integrating anticorruption and ethics into their programs; I may have something to say about the substance of the declaration itself in a later post. But the following assertion in the Declaration caught my eye: “Despite the relative widespread implementations of anti-corruption reforms and institutional solutions, no more than 21 countries have enjoyed a significant decrease in corruption levels since 1996, while at the same time 27 countries have become worse off.” Wow, I thought, that seems awfully precise, and if it’s true it’s very troubling. Despite the fact that I spend a fair amount of time reading about the comparative study of corruption, that statistic is news to me. It turns out, though, that it’s news from nowhere. Continue reading →

Updated Anticorruption Bibliography – December 2014 Update

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An updated version of my anticorruption bibliography is available from my faculty webpage.  A direct link to the pdf is here.  (And, if you only want to see the new additions in this update, you can find those sources here.) As always, I welcome suggestions for other sources that are not yet included, including any papers GAB readers have written.