Chasing Dirty Money: A Public Database of Ukrainian PEPs

Two weeks ago I posted Ferreting Out Kleptocrats’ Buddies: The Ukrainian Solution which described a list of Ukrainian public officials, their relatives, and close associates that a Ukrainian NGO had compiled. Banks and other financial institutions are required by national antimoney laundering laws to ask these individuals, “politically exposed persons” in antimoney laundering lingo, how they came by their money before doing business with them.  The idea is to keep money obtained through corrupt and other criminal means from polluting the financial system.  The hope is that such controls will either discourage PEPs from stealing from the public or, if not, open up one more way to catch those who have.

As Ferreting Out explained, currently the institutions subject to the antimoney laundering laws rely on PEP lists sold by large international companies, lists that often omit many names that should be on them.  Despite antimoney laundering laws in place around the globe, Ukrainian PEPs are spiriting money out of the country and into foreign financial institutions, real estate, and other investments at an alarming rate.  To help staunch the flow, the Ukrainian Anticorruption Action Center developed and published its own list of Ukrainian PEPs.  The list draws on many local sources and was compiled to complement the ones peddled by commercial vendors.

Center staff presented their work last weekend at the IMF-World Bank Annual Meetings.  A summary of their presentation with a link to the database follows. Continue reading

Curbing Corruption in Development Projects: Memo for the World Bank Board of Governors

The wAnnual meetingsorld’s finance ministers serve as the governors of the World Bank and meet this weekend to review the Bank’s activities over the last year and set policy for the coming one.  The annual meeting is the first since the OECD released a remarkable document, one that subtly but unmistakably  damns the development community for failing to curb corruption in the projects it finances. In skillfully-crafted prose that points the finger at no one miscreant while charging all with dereliction of duty, the OECD’s Council for Development identifies weaknesses large and small in the corruption prevention efforts of both bilateral and multilateral development organizations and urges major reforms.  Corruption in development projects not only defeats the reason development aid is provided but, as the council stresses, many times leaves the recipient worse off than had no aid been extended in the first place.

The Bank’s Board of Governors should make the report and its recommendations the focus of their meeting. For two reasons. Continue reading

Ferreting Out Kleptocrats’ Buddies: The Ukrainian Solution Part I

Every kleptocrat needs a buddy.  Someone to serve as an intermediary between the corrupt official and the bankers, real estate agents, and others in London, New York, and elsewhere happy to profit from handling dirty money.  A kleptocrat can’t just walk into a bank or real estate office in the United Kingdom, the United States, or other preferred offshore haven with a pile of money to invest.  As a public official, the antimoney laundering (AML) laws would oblige the banker or real estate agent to ask searching questions about how the kleptocrat came into the money and the law would likely also require them to report the transaction or proposed transaction to the authorities.  A buddy, particularly one who has remained out of the public limelight, is the perfect solution.  So long as they don’t know a potential customer is close to a senior public official, the banker or real estate agent meets their obligation to ascertain the source of the would-be customer’s funds by asking a few pro forma questions.

To plug the buddy loophole, the AML laws require banks and real estate agents to determine if anyone wanting to do business with them is a “close associate” of a senior official — a “politically exposed person” in the inelegant term coined by AML specialists.  If a potential customer is a PEP, the bank or real estate agent must ask the same searching questions about the origins of the individual’s funds that they must ask of a senior official.  Recognizing that bankers and real estate agents can’t be expected to know whether a foreign national wanting to do business with them is a close associate of a senior official in 190 plus countries, AML regulators allow them to rely on one of the several PEP lists peddled by commercial firms.  So long as the potential customer doesn’t appear on whatever PEP list they use, the banker or real estate agent need not conduct a detailed inquiry (“enhanced due diligence” in AML-speak) into where their money came from.

So how well do these commercial PEP lists do at identifying kleptocrats’ buddies?  Continue reading

Preventing Corruption in Development Projects: The World Bank’s La Guajira Project

Report Number No: 38508-CO for a Proposed Loan in the Amount of US$ 90 Million to the Department of La Guajira with the Guarantee of the Republic of Colombia for a Water and Sanitation Infrastructure and Service Management Program is probably not the first place one would turn for advice on preventing corruption in development projects.  But it should be.  For annex 11 contains a text book example of how to identify and mitigate the risk of corruption in a donor-funded project.

The annex is part of the project appraisal document, the paper the World Bank’s Board of Directors relied upon in February 2007 in approving a $90 million loan to the Department of La Guajira in Colombia to upgrade the department’s water and sanitation services.  The loan was for the purchase of equipment and construction of civil works in some dozen or so municipalities and pilot water and sanitation projects in several remote rural areas.  While the project document made a strong case for the project’s benefits, it minced no words when it came to the risks of corruption the project faced: “The Department of La Guajira has a reputation for weak governance, corruption, and the continued presence of parallel institutions which have prevented public sector efforts to meet citizen needs in an equitable and effective manner.”  To be sure the message was not lost on board members, the authors went on to warn that “corruption, public sector malfeasance, capture by elites and special interests, and the paucity of accountability and transparency” is endemic in La Guajira and is the reason why the department remains so poor.

After reading such a clear, candid statement of the project’s corruption risks, one might question the sanity of any board member who voted to put $90 million of World Bank funds at risk.  But in fact an unvarnished analysis of the risk of corruption in the project is the first reason why the board was right to approve the loan the corrupt environment in La Guajira notwithstanding.  Project managers cannot prevent corruption in their projects if they are in denial about the risks they face.

The second reason why the board was right to approve the project loan is the chart that appears in the annex. Continue reading

Uzbek Civil Society on the Hazards of Investing in Kleptocracies

Tonight Uzbekistan President Shavkat Mirziyoyev will tout the benefits of investing in his country to executives of multinational firms at a swank dinner at the Onyx Room in mid-town Manhattan.  He will point to measures the government has taken since the death last year of its first president, renowned kleptocrat lslam Karimov, to open the country to foreign investment — from reforms to economic policy to steps to improve its atrocious human rights record.  But before they open their checkbooks, the execs will want to heed the warnings contained in a letter Uzbek civil society activities just sent Washington lawyer Carolyn Lamm, chair of the American-Uzbekistan Chamber of Commerce, the host of tonight’s get-together.

Reprinted below, the letter cautions that there are still many signs that Uzbekistan has yet to shed its kleptocratic past, from the appointment of one of the most notorious kleptocrats of the previous regime as prime minister to the rise to power of Mirziyoyev’s sons-in-law.  The authors remind Ms Lamm and the members of her organization what happened to those who invested in Karimov’s kleptocracy.  Not only did their investments turn out to be a bust, but the bribes the investors had to pay to do business have cost them (or more accurately their shareholders) dearly.  One firm was fined $795 million by Dutch and American authorities and a second recently told shareholders it anticipates paying over $1 billion to resolve the case against it.

The authors sent a copy of their letter to the members of Ms Lamm’s organization, a group that includes General Electric,  General Motors, Boeing, Catepillar, Coca-Cola, Honeywell, Visa, and other well-know, well-respected companies traded on American stock exchanges (and thus subject to the Foreign Corrupt Practices Act). Readers holding shares in any of these companies will want to ensure company executives pay careful attention to the letter’s warnings.

Ms Carolyn Lamm
Chair
American-Uzbekistan Chamber of Commerce
601 13th St NW # 600S
Washington, D.C. 20005

September 18, 2017

An Open Letter to the American-Uzbekistan Chamber of Commerce regarding the Situation in Uzbekistan on the Eve of its Meeting with President Mirziyoev

Dear Chairwoman Lamm:

We, the undersigned Uzbek citizens and activists, write to you on the eve of your dinner with President Shavkat Mirziyoev on September 20, 2017, to express concern that your members may be misled into believing that meaningful reform is underway in our country. We ask you to share with them this letter explaining the current conditions in Uzbekistan and the risks any firm investing or doing business in the country will face. We further ask you to urge the President to reform the judiciary and create an independent, impartial and effective body to investigate allegations of corruption. Continue reading

ISO 37001 and the Federal Sentencing Guidelines Compared

The International Standards Organization’s ISO 37001: Antibribery Management Systems – Requirements with Guidance for Use has prompted an outpouring of commentary since publication last October.  Meant to set forth “reasonable and proportionate” measures organizations of any kind and size located anywhere can take to prevent, detect, and respond to bribery, it has received generally positive reviews — on this blog, the FCPA blog (examples here and here), and elsewhere (here, here, and here for examples).  Commentators offer it as a best practice guide for corporations wanting to instill an ethical culture among their employees and, not incidentally, avoid prosecution under the Foreign Corrupt Practices Act and its many offspring.  But none of the commentary, or at least none I have seen (a Google search for ISO 37001 brings back several hundred thousand hits), lists, let alone discusses, what ISO 37001 recommends.

As a start on filling this gap, the recommendations are summarized on this spreadsheet.  For perspective, ISO 37001 is compared to the latest version of the granddaddy of corporate compliance guides, the U.S. Government’s Federal Sentencing Guidelines (pp. 525 -33).  To make the comparison, both are benchmarked against the elements of a compliance program listed in the Anticorruption Ethics and Compliance Handbook for Business, a volume jointly issued by the OECD, the World Bank, and the UNODC in 2013.

Continue reading

Internationalizing the Fight Against Corruption: The EU Mission in Kosovo

For countries saddled with a tight-knit, corrupt leadership class, what happened last week in Guatemala is cause for celebration.  There a normally meek judiciary slapped down the president’s effort to end a corruption investigation that threatens his rule.  What made the difference was the investigation is led by a United Nations entity created under an accord an earlier government had signed with the U.N.  The agreement, and the support it enjoys both in Guatemala and abroad, gave the nation’s Constitutional Court both the legal rationale and the backbone to tell the president that even he was not above the law.

Before corruption fighters embrace internationalization as the deus ex machina in the corruption fight, however, they will want to pay heed to another, far less publicized event, that also took place last week: publication of Joschka Proksik’s analyis of the European Union’s rule of law mission in Kosovo ( (published in this volume). As with Guatemala, the government of Kosovo agreed to share with an international agency the power to enforce the nation’s criminal law.  Unlike Guatemala, however, where the U.N. can only investigate allegations of criminal misconduct and domestic prosecutors and courts must take it from there, in Kosovo the EU’s power is unlimited.  EU personnel can at any time and for any reason investigate, prosecute, and judge whether a Kosovar has violated the nation’s criminal law — without any involvement whatsoever by local authorities.  Moreover, EULEX, as the mission is known, is far larger and far better resourced than the UN’s Guatemalan mission, staffed at its peak by some 1,900 international personnel at a cost of over €100 million in administrative expense alone.

Proksik interviewed dozens of current and former EULEX staff, analyzed data on investigations, prosecutions, and convictions, and perused pervious evaluations by the European Union and independent observers to determine what the progress EULEX has made in its almost nine-year life in realizing its core objectives of helping Kosovo’s judiciary and law enforcement agencies remain “free from political interference” and adhere to “internationally recognized standards and European best practices.”  Because his careful, balanced, professional assessment merits the attention of aIl looking for ways to help countries stuck with corrupt leaders, I won’t give away the bottom line.  But safe to say it forms an important counter to the Guatemala experience.

Proksik suggests some reasons why the results of internationalizing the corruption fight in the two countries differ so: EU’s large and unwieldy bureaucracy, the lack of a shared language between Kosovars and internationals, and the short-term secondments of many international staff.  As Matthew explained earlier this year, there are pros and cons to internationalizing, or outsourcing, the fight against corruption.  Given what a successful effort can achieve, understanding why the results in Kosovo have been so different from those in Guatemala is surely a topic worthy of sustained, careful attention.