Author Archives: Matthew Stephenson

Unknown's avatar

About Matthew Stephenson

Professor of Law, Harvard Law School

Guest Post: Global Shell Games — Experimenting with Untraceable Shell Companies

Posted on by
Reply

GAB is delighted to welcome back guest contributor Professor Jason Sharman of Griffith University, Australia, who contributes the following post:

Among the various mechanisms for hiding and laundering large sums of money associated with corruption, shell companies that cannot be linked with their real owners have proved one of the most troublesome. A 2011 Stolen Asset Recovery Initiative report on laundering the proceeds of grand corruption noted that from a total of 213 cases, 150 involved the use of shell companies (or, more rarely, trusts) to launder $56.4 billion. Since 2003, all those governments bound by the standards of the Financial Action Task Force (FATF) have promised to ensure timely access to information on identity of those owning shell companies, and FATF rates member countries according to their compliance and the overall level of risk they present. Despite (or perhaps because of) a renewed stress on tracing shell companies’ beneficial (i.e. real) owners, most recently at the G20 leaders’ summit in my home state of Brisbane, there are good reasons to be skeptical about whether the standards are really enforced.

Frustrated with the poor measurement of policy effectiveness in this area, Michael Findley, Daniel Nielson, and I decided to try a new approach. We ran a real-world experiment to see whether corporate service providers would comply with the rules on client screening, particularly in cases where the client profile raised “red flags.” Our findings, reported in our book Global Shell Games, were both worrying and counter-intuitive. Continue reading →

Happy International Anti-Corruption Day!

Posted on by
Reply

As some readers of this blog already know, today (December 9th) is International Anti-Corruption Day. Other readers may be wondering, “Huh? International Anti-Corruption Day? What’s that?”

I’m glad you asked. When the UN Convention Against Corruption (UNCAC) was opened for signature in 2003, the General Assembly’s resolution included a specific plank “decid[ing] that, in order to raise awareness of corruption and of the role of [UNCAC] in combating and preventing it, 9 December should be designated International Anti-Corruption Day.” (And you thought the UN General Assembly never decided anything important. Shame on you.)

So what should you do to celebrate International Anti-Corruption Day? It’s easy to make fun of things like this — and as should be clear, that’s a temptation I can’t entirely resist. But at the same time, I do think that raising awareness of the issue is important. And though I can’t find much about attention-raising activities in conjunction with this year’s International Anti-Corruption Day, apparently last year the UN tried to take the opportunity to launch a campaign — with slogans, Tweets, etc. — to get more attention to the issue. You can check out their website on how to “celebrate” International Anti-Corruption Day here.

One last Anti-Corruption Day thought: As I said, I’m all for raising more awareness. But at the risk of sounding like a Grinch, I think it’s fair to raise the question whether publicity gambits like this are starting to outlive their usefulness. Many in the anticorruption community–particularly those who started working on these topics in the 1990s or earlier, when it was definitely treated as marginal in many quarters–have spent a lot of time and energy trying to raise awareness about the issue. And the thing is, they’ve succeeded. The international community is aware of the problem, and takes it seriously (at least in the sense of acknowledging corruption as a legitimate concern). As I see it, the anticorruption movement is now in a tricky transitional phase: The first generation won an important battle, by getting corruption on the international agenda. The new generation needs to make more progress on figuring out what exactly to do about it. So by all means, use the International Anti-Corruption Day gimmick as a way to raise awareness. But at the same time, let’s recognize that we’re reaching the point where raising awareness isn’t really a central issue anymore.

Transparency International Makes Its Data Less Transparent: Why TI Should Be Ashamed of Its 2014 CPI Report

Posted on by
10

For all its flaws, I’ve long been of the view that Transparency International’s annual Corruption Perceptions Index (CPI) has, on balance, made a positive contribution to our understanding of corruption, and the fight against it. (A couple of my sympathetic treatments can be found here and here.) Although some in the media (and, depressingly, some in academic and policy circles) misuse the index, TI has generally been quite clear about what the CPI numbers do and do not tell us.  And to its great credit, TI has proven remarkably receptive to criticism: each year TI’s annual CPI report has become better, clearer, more nuanced, and more transparent in its limitations.

Until this year. The 2014 CPI came out yesterday, and I’m disappointed at how TI has taken a big step backward, making the meaning of its scores less transparent, and choosing to play for catchy headlines rather than to deepen understanding. Continue reading →

Guest Post: The OECD Phase 3 Report on Turkey

Posted on by
1

GAB is pleased to welcome back Gönenç Gürkaynak, the managing partner and head of the Regulatory and Compliance Department at ELIG, Attorneys-at-Law (Istanbul), who contributes the following guest post:

The OECD Working Group on Bribery (“WGB”) has published its Phase 3 Report on Turkey, following the Phase 2 and Phase 2Bis Recommendations (“Follow-Up Report”) of March 2010, to assess Turkey’s efforts in implementing the OECD Anti-Bribery Convention. The Phase 3 Report is dominated by criticism of Turkey’s low level of enforcement and its inaction with respect to detecting, investigating, and prosecuting acts of foreign bribery. This result is consistent with the assessment provided by Transparency International in its 2014 Exporting Corruption report, which found that Turkey had “little or no enforcement” of its foreign anti-bribery laws. Indeed, despite the fact that Turkey is the 17th largest economy in the world, and has trade relations with many countries presenting potentially high risks of foreign bribery, Turkey has had only six foreign bribery investigations (only one of which was a result of pro-active detection by Turkish authorities) and no foreign bribery convictions in the 14 years since the Convention entered into force in Turkey. Thus the Phase 3 Report is yet another reminder that Turkish law enforcement regarding foreign as well as domestic bribery has still a long way to go.

As one might imagine given the disheartening enforcement statistics just noted, many of the WGB Phase 3 recommendations emphasize the need for improvements in Turkey’s mechanisms for gathering information to ensure effective detection of foreign bribery allegations and to enhance investigations by engaging with other investigative authorities. But there are three other important features of the Phase 3 report that are at least as important, and deserve more attention: First, the ambiguity of Turkey’s corporate liability laws; second, the inadequacy of Turkey’s whistleblower protections; and third, the significance of Turkey’s recent controversies over domestic anticorruption enforcement issues. Continue reading →

The Hidden Dangers of Anticorruption Education Initiatives

Posted on by
11

A little while ago, in a post reflecting on the role of academics in the anticorruption movement, I noted the distinction between anticorruption classes that focus on “teaching of skills” (helping students become effective lawyers, policy analysts, critical thinkers, etc.) and “teaching of values” (using education to inculcate anticorruption norms and reduce cultural tolerance for corrupt activities). In this post I want to pick up on that latter theme, which has become increasingly important to anticorruption activists and policymakers. Fighting the “culture of corruption,” many have persuasively argued, requires not just changing incentives and formal institutions, but also changing norms and values. And one way to change values may be through education–not only formal classroom education at all levels, but other forms of educational campaigns. For example, many attribute the success of Hong Kong’s Independent Commission Against Corruption not only to its law enforcement efforts, but to its broad-based educational campaigns to change the attitude of the Hong Kong population. Many countries have tried to emulate some version of this broad-based “anticorruption advertisement” campaign, and there are at least anecdotal examples of such programs making a difference (though not, to my knowledge, and rigorous assessment through something like a randomized controlled trial).

But these sorts of education efforts, if not carefully designed, can prove not only ineffective, but counterproductive. I recently came across a very nice analysis by the political scientist Frederic Charles Schaffer making this point, drawing on a detailed case study of anti-vote-buying campaigns in the Philippines, and to a lesser extent in Thailand. (I haven’t yet had a chance to read Professor Schaffer’s 2008 book, The Hidden Costs of Clean Election Reform, but I gather it goes into much more depth and discusses a range of other issues and countries as well.)  The paper is from 2005, so it’s possible some of the specific examples and criticisms might no longer be apt, but my sense is that the larger points are still highly relevant, and quite important to anticorruption reformers who want to use mass education/advertisement campaigns to change citizen attitudes and behaviors toward corrupt practices. I won’t try to summarize all of Professor Schaffer’s nuanced account, but here’s what I take to be the essential argument: Continue reading →

More on CPI Changes Over Time (or Not)

Posted on by
3

OK, in my post from a few weeks back, I asserted that year-to-year changes in a country’s Corruption Perceptions Index (CPI) score are not meaningful, even after the thoughtful and welcome changes that Transparency International made to its methodology in 2012. My concern was — and remains — that the underlying data sources that TI uses to create the index are themselves not likely to be comparable across years, which means that the CPI inherits the problem. But for purposes of this post, I’m going to completely disregard my own warning in that earlier post, and take a look at whether there have been fact been any notable changes in individual countries’ perceived corruption between 2012 and 2013.  Based on a very quick scan of the data, the answer appears to be (mostly) no.

Continue reading →

Anticorruption Bibliography – November 2014 Update

Posted on by
Reply

An updated version of my anticorruption bibliography is available from my faculty webpage.  A direct link to the pdf is here.  As always, I welcome suggestions for other sources that are not yet included, including any papers GAB readers have written.

Upcoming UK Parliamentary Hearing on the ICAI Criticisms of DFID — Opportunity to Comment

Posted on by
Reply

Last week, I discussed the brewing controversy over the most recent report from the UK’s Independent Commission for Aid Impact (ICAI), which sharply criticized the UK Department for International Development (DFID) approach to anticorruption in its aid programs. In addition to noting some of the critical commentary the report has already received, I added some criticisms of my own. It turns out that the report itself, and possibly also the critical commentary, has prompted the UK House of Commons’ International Development Committee to schedule a hearing on December 10. In connection with that hearing, the Committee has invited any interested party to submit written statements or evidence on the issues raised by the ICAI report; the online form for submitting comments is here, and the deadline for written submissions is November 28 (two weeks from today).

Although obviously of greatest interest to those in the UK or in countries that receive substantial DFID aid, the controversy and questions surrounding the ICAI report raise larger questions about the approach to anticorruption in development assistance, as well as questions about methodology and measurement. I hope that many GAB readers with interest in these matters will read the ICAI report and submit comments to the Parliamentary Committee. There is an opportunity here to raise some of these crucial issues in a much more public and prominent forum than is typical.

Guest Post: Hosting Proceeds Down Under — Australia and the G20 Anticorruption Agenda

Posted on by
2

Professor Jason Sharman of Griffith University, Australia, contributes the following guest post:

On November 15th–two days from now–the latest G20 leaders’ summit kicks off in my home town of Brisbane, Australia, with anticorruption once again on the agenda. Though the G20 Anti-Corruption Working Group has made some important progress, many of the member states have been letting down the side. Specifically, Australia tends to receive less critical scrutiny than it should when it comes to international action against corruption, particularly in terms of hosting stolen assets from other countries in the region. And the G20 leaders’ summit is as good a time as any for the international community to press Australia for its many failures to deal with its status as a regional haven for money laundering in the Asia-Pacific. Continue reading →

Transparency International’s Laudable Campaign for Beneficial Ownership Transparency

Posted on by
3

As many readers of this blog are likely aware, Transparency International–the leading worldwide anticorruption NGO–has made the corporate secrecy problem a centerpiece of its “Unmask the Corrupt” campaign. TI is focusing in particular on the problem of shell companies whose true (or “beneficial”) owners are unknown, and which can be used by corrupt officials and businesspeople to shelter and launder stolen public funds. The TI Secretariat, along with several of TI’s national chapters, have been pushing for action at both the national and international level, especially for reforms that would make transparent the beneficial owners of these companies. I wanted to use this post as an opportunity to call attention to two of TI’s recent efforts in this area, which might be of interest to GAB readers:

  • First, the TI Secretariat wants to use the G20 leaders’ summit this weekend in Brisbane, Australia as an opportunity to raise awareness of the issue and to put pressure on the G20 leaders to commit to take action on this issue. To this end, TI organized an open letter, signed by a number of prominent civil society activists and other public figures (including John Githongo, Desmond Tutu, and Richard Goldstone), calling on the G20 leaders to outlaw secret company ownership and mandate public registries of the true beneficial owners of all legal entities.
  • Second, as I noted last month, the US government is currently in the midst of a rulemaking process to strengthen due diligence and disclosure requirements on beneficial ownership. TI-USA submitted a set of supportive but critical comments on the rule, urging the US Treasury Department to expand the definition of “beneficial owner” to include individuals who control the entities through means other than a formal management position, to apply the new rules apply to existing accounts as well as new accounts, and to require financial institutions not only to verify the identity of the (alleged) beneficial owner, but to independently verify that the person listed as the beneficial owner is in fact the true beneficial owner.

TI’s efforts in this direction are most welcome, and I hope they have some impact on the G20 summit and the development of new rules in the US (and elsewhere). I’m happy to take this this opportunity to publicize TI’s efforts, and I hope some of our readers out there might be able to contribute to the push that TI and other organizations are making on this issue.