Author Archives: Matthew Stephenson

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About Matthew Stephenson

Professor of Law, Harvard Law School

UNCAC Does Not Require Sharing of Foreign Bribery Settlement Monies with Host Countries

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Maud Perdriel-Vaissiere, the Advisor on Asset Recovery for the UNCAC Coalition (a global civil society network committed to promoting compliance with the UN Convention Against Corruption) recently published a post on the UNCAC Coaltion blog entitled, “Is there an obligation under the UNCAC to share foreign bribery settlement monies with host countries?” Her answer is yes. Indeed, she says that the contrary position is based on a “gross misreading” of UNCAC, that UNCAC’s asset recovery provisions (in Chapter V) apply even to “stolen or embezzled funds over which foreign governments cannot establish prior ownership” (emphasis hers), and that there is “no doubt [that] there is an obligation under the UNCAC [for supply-side enforcers] to share foreign bribery settlement monies with host countries!” (The exclamation mark is hers as well.)

As readers of this blog may be aware, I think this is wrong, based on a sloppy and tendentious misreading of the language of the treaty. Though I’ve written on this before, I think Ms. Perdriel-Vaissiere’s analysis deserves a rebuttal. Continue reading →

Guest Post: Compliance Culture in Emerging Markets — Tone at the Top or Tone in the Middle?

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Today’s guest post is from Gönenç Gürkaynak, the managing partner and head of the Regulatory and Compliance Department at ELIG, Attorneys-at-Law, a leading law firm in Istanbul:

When listing the fundamental pillars of a compliance program, guidance on the Foreign Corrupt Practices Act and UK Bribery Act both stress the importance of the top-level commitment — “tone at the top” — for creating and maintaining a compliance culture within the company. Because the actions and stances of the board of directors and senior executives reflect and shape the corporate compliance culture, these directors and managers are expected to fulfill leadership roles within scope of the compliance program of the company. But the compliance leadership of the top-level management can be undermined by the reckless actions of the mid-level managers who have the obligation to meet operational targets and deal with the various problems posed in the field. Accordingly, a tone from the top is not enough to create or sustain a compliance program — especially in emerging markets — unless such tone is supplemented by the voice of the mid-level management (“tone in the middle”). Continue reading →

So Is Corruption the Problem or Not? Moses Naim’s Curious Inconsistency

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OK, this may not be the most important thing in the world, but I noticed it and can’t help pointing it out:

Here’s Moses Naim (who humbly describes himself as “an internationally renowned columnist and commentator”) writing in The Atlantic last May about what he sees as the big oversight in Thomas Piketty‘s surprise bestseller on economic inequality, Capital in the Twenty-First Century:

[T]he problem [of inequality] requires a more complete diagnosis [than Piketty provides]. It is not accurate to assert that in countries like Russia, Nigeria, Brazil, and China, the main driver of economic inequality is a rate of return on capital that is larger than the rate of economic growth. A more holistic explanation would need to include the massive fortunes regularly created by corruption and all kinds of illicit activities. In many countries, wealth grows more as a result of thievery and malfeasance than as a consequence of the returns on capital invested by elites….

Corruption-fueled inequality flourishes in societies where there are no incentives, rules, or institutions to hinder corruption. And having honest people in government is good, but not enough. The practices of pilfering public funds or selling government contracts to the highest bidder must be seen as risky, routinely detected, and systematically punished.

Most of the roughly 20 nations from which Piketty forms his analysis classify as high-income countries and rank among the least-corrupt in the world…. Unfortunately, most of humanity lives in countries where … dishonesty is the primary driver of inequality. This point has not attracted as much attention as Piketty’s thesis. But it should.

All well and good. But here are Naim’s thoughts on the global anticorruption movement (from Foreign Policy) in March 2005: Continue reading →

Why Rational Anticorruption Voters Might Not Support the Anticorruption Candidate

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As some readers of this blog are likely aware, Fordham law professor Zephyr Teachout is challenging the Andrew Cuomo, New York’s incumbent governor, in the state’s Democratic primary, to be held tomorrow. One of her main campaign themes is corruption: Her campaign emphasizes corruption in the Cuomo administration both in the narrow sense of raising concerns about unethical and possibly unlawful conduct in New York state government (as well as Governor Cuomo’s controversial decision to disband the Moreland Commission, which had been looking into these issues), and also “corruption” in the broader sense of excessive influence of wealthy interests and the distorting effect this has on politics. Teachout herself concedes that if she wins it would be the “upset of the century,” and indeed most political prognosticators give her virtually no chance of winning. Why not?

It’s true, of course, that Teachout has no prior experience in electoral politics and is up against a savvy and well-funded incumbent. But there’s a bigger problem for her — and for any insurgent anticorruption candidate or party — that derives from the nature of the U.S. electoral system that Nobel Laureate Roger Myerson identified over two decades ago in a technical game theory paper on how electoral institutions affect the success or failure of insurgent anticorruption candidates. Although Myerson’s analysis does not correspond perfectly to the New York primary (for reasons I will explain in a moment), it is nonetheless enlightening–not only for the challenges faced by Teachout, but for anticorruption parties more generally. Continue reading →

Corruption, Cultural Relativism, and Edmund Burke

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An occupational hazard of working on corruption and anticorruption is the frequency with which one encounters some version of the claim (in more or less sophisticated forms) that “corruption” is a modern Western concept, and that in traditional/developing/non-Western cultures, behaviors that modern Westerners would see as corrupt (like bribery, nepotism, or diversion of government resources for personal uses) would be seen as somewhere between acceptable and outright legitimate. An even stronger version of this position maintains that when Westerners find themselves operating in one of these “Other” environments, it is entirely acceptable to operate according to “local norms”—that is, to engage in bribery and similar acts.

Now, there’s of course some truth to the claim that the meaning of corruption varies across times and places, but I’ve always thought the claim that corruption was a modern Western notion, with minimal applicability to developing/non-Western societies, was both factually inaccurate and tinged with a bit of cultural condescension masquerading as cultural sensitivity.

I touched on this a bit in post a few months back, focusing on contemporary debates about corruption as an issue in development policy, but I also think it’s useful to consider these debates in historical perspective. On that note, a little while back I came across a terrific article on the intellectual history of these debates.  This article, by Padideh Ala’i at American University’s Washington College of Law, focuses on Edmund Burke’s role as lead prosecutor in the (unsuccessful) effort to impeach Warren Hastings, a former Governor-General of India, for extensive corruption during his tenure.

Continue reading →

U.S. Treasury Department Is Soliciting Comments on New Anti-Money Laundering Rule

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A quick public service announcement:

The Financial Crimes Enforcement Network (FinCEN) of the U.S. Treasury Department is seeking public comments on a proposed rule that is intended to make it harder to hade the proceeds of corruption (or other criminal activities, like drug trafficking) in the U.S. financial system. The full text of the proposed rule is here. That proposed rule is fairly lengthy and complicated (taking up close to 20 pages in the Federal Register, in 3-column small print), but the basic gist of the rule is that it would impose new “know-your-customer” obligations on U.S. financial institutions, and in particular would require banks to identify the “beneficial owner” — the actual person (human person, not corporate person) who benefits from an account owned by an artificial legal entity.

I’m not an expert in this area, but this strikes me as a very good idea. Some supporters, though, have argued that the rule does not go far enough. Global Witness, in a useful post summarizing and discussing the proposed rule, points out some of the deficiencies of the proposed rule, including the fact that although the rule requires financial institutions verify the identify the beneficial owner of an account — that is, to attach the account to a real live human being — the rule does not require banks to independently verify that the listed beneficial owner is in fact the real beneficial owner.

The Treasury Department, following standard procedures under U.S. Administrative law, is seeking pubic comments on the rule. Comments can be submitted in hardcopy, but can also be submitted online. Just go to the regulations.gov site, and in the “search” field type FINCEN-2014-0001. That should take you to the docket, where you can view the rule, read the comments that have already been submitted online (very few so far), and submit any comments of your own.  (A direct link to the docket is here, but I included the above instructions because the direct links to dockets sometimes stop working.) The notice of the proposed rule also lists specific questions and issues that the FinCEN would like commenters to address. Among other things, FinCEN seeks comments on:

  • The proposed definitions of “beneficial owner” and “legal entity customer,” as well as the proposed exemptions (and possible additional exemptions);
  • Whether the rule should apply retroactively to existing accounts, or only to accounts established after the new rule goes into effect;
  • Whether the proposed processes for verification of beneficial owners, updating of beneficial ownership information, and ongoing monitoring of suspicious transactions are sufficiently clear and appropriate.

Comments are due by midnight on October 3rd.

Should We Use Randomized Trials for Anticorruption Education and Training?

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I recently attended two unrelated anticorruption conferences that both raised — in very different contexts — questions related to the appropriate design of education programs designed to inculcate ethical norms and prevent corruption.  In one conference, focused on corporate anti-bribery compliance, the issue had to do with the design of compliance training programs (and associated measures) designed to teach employees about their legal and ethical obligations, as well as the steps they should take to address any potential problems they come across in the course of their work.  At the other conference, focused more broadly on university education in the developing world, participants spent a considerable amount of time discussing (and sometimes advocating) the integration of anticorruption components into university courses — including courses not specifically on corruption — in order to produce a generation of students who would be more likely to resist corrupt norms and promote more ethical conduct.

Notably, although there seemed to be wide consensus in both discussions that education is important, there was much less of a clear sense of what sorts of education or training programs are most likely to be effective, and how much of an impact one can expect such programs to have. That’s understandable, of course: In this context, as in many others, the messiness of reality makes it very difficult to figure out what works, and to isolate the impact of any one intervention. But perhaps some forms of anticorruption education (in both the corporate training and academic contexts) may be suitable for randomized controlled trials (RCTs). Let me use this post to make a tentative case for expanded use of RCTs in this context. Continue reading →

Multiple Errors in Quantitative Data Analysis, from Site Specializing in Quantitative Data Analysis

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Like many people out there, I’m both a huge fan of Nate Silver–and the rigorous quantitative approach to election forecasting that he popularized–and at the same time quite disappointed in his FiveThirtyEight website, where the posts (especially those not by Silver himself) often seem to be slapdash efforts by people who have a smattering of statistical knowledge but don’t really know much about the topics they’re writing about. A depressing recent example, germane to this blog, is a post from last week entitled “It Only Seems Like Politics Is More Corrupt.” I normally wouldn’t bother to comment on something so slight here (especially because the post appears to have been written by an intern, and I generally try to avoid beating up on people who are just starting out), but many of the errors in analysis are both sufficiently elementary, and sufficiently common in discussions of corruption trends in other contexts (and by people with much more experience and therefore less of an excuse), that it’s worth taking a moment to explain what’s wrong.

A quick summary: The author cites recent U.S. Gallup poll data showing that the percentage of Americans who believe that “corruption is widespread” throughout the government in the United States has increased from about 60% in 2006 to a little over 75% in 2013. However, the author argues, the data doesn’t support the idea that corruption in the U.S. has actually worsened. To support that claim, she points to two other data sources:

  1. U.S. Department of Justice statistics from 1992-2012 show that the number of cases prosecuted by the DOJ’s Public Integrity Section (as well as the number of convictions and number of cases awaiting trial) appears to have declined, or at least hasn’t increased.
  2. The U.S. score on the Transparency International Corruption Perception Index (CPI) hasn’t changed very much between 1995 and 2013 (although there’s concededly a slight downward trend).

Do these two data sources disprove the idea that corruption in the U.S. has worsened over the last eight years, or more generally that the U.S. public’s perception of corruption is inaccurate?  In a word, no. There are so many elementary conceptual and statistical errors in this analysis, it’s difficult to know where to begin, but let me take a shot at cataloguing the most egregious problems: Continue reading →

More on Compliance Certification–A Response to TRACE International

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In a recent post, which built directly on a report from Transparency International USA, I raised some questions about the value of the compliance program “certifications” that certain private firms offer to provide.  (In a follow-up post, I also expressed even greater skepticism about current efforts to generate an International Organization for Standards (ISO) anti-bribery compliance program standard.) I won’t repeat everything in the original post here, but to summarize quickly: I expressed concern that “certifying” a compliance program (as distinct from reviewing and assessing it) could prove counterproductive because (1) the certification would not (or should not) be treated as significant by government enforcers or third parties, and (2) the certification might lead companies either to do too little or too much.

TRACE, one of the leading firms that offers compliance certification services (and also, through a separate but affiliated nonprofit, provides anti-bribery compliance support to member companies), has provided a thoughtful, thorough, and enlightening response to my post on the TRACE blog. The TRACE post takes issue with my criticisms, and also uses my post as an opportunity to “address head-on some common assumptions and misunderstandings that … surround anti-bribery certifications.”

I highly recommend that readers interested in this debate — which TI-USA deserves credit for kicking off — read TRACE’s post; I won’t try to summarize it here.  Let me say a few words about where I think we actually agree, then highlight what I think are the most significant points of disagreement, and then highlight one particularly intriguing aspect of the TRACE post that may deserve more extensive consideration. Continue reading →

UNODC’s Academic Anticorruption Initiative (ACAD)

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The good folks over at the UN Office of Drugs and Crime (UNODC), along with Professor Nikos Passas at Northeastern University, launched an “Anti-Corruption Academic Initiative” (ACAD) about three years ago. (I was fortunate enough to be able to attend ACAD’s most recent meeting last November in Panama, as well as a conference on teaching anticorruption courses last week in Vienna.) The initiative is still a work in progress, but UNODC has created a useful webpage for ACAD as part of the TRACK system, with links to an assortment of papers on different topics (a bit haphazard, but nonetheless useful). One of the things that came out of the Panama meeting was the need for those of us who teach, or hope to teach, courses on corruption and anticorruption in university settings to exchange syllabi and other course materials; the ACAD website may eventually become a repository for such materials. I recommend checking out their website. In addition, the TRACK website also includes a “legal library” with a list of (and links to!) anticorruption laws from many different countries.  A very useful resource.