Three Valuable Additions to the Anticorruption Literature

March was a great month for the anticorruption community: two books and one report appeared that, in contrast to much that is published on corruption and related topics, are useful, insightful, and worthy of a careful read.

1) There is now no better introduction to the field of corruption studies than Ray Fisman and Miriam Golden’s Corruption: What Everyone Needs to Know, published in late March by Oxford University Press in an affordable paperback edition.  In nine readable chapters the authors summarize the main issues – what corruption is, why it is so harmful, the challenge of measurement, the forces behind it, and most importantly what can be done to reduce it.  The only group of readers that the book will disappoint is opportunistic politicians looking for quick and easy fixes.  There are, the authors remind readers at several points, “no easy fixes for a problem that been around for millennia.”

Theirs is not a counsel of despair, however.  Policy reforms can make a difference: higher salaries for public servants, the creation of an independent anticorruption agency, a “big bang” approach like Georgia’s wholesale dismissal of traffic police are three that are featured.  But such reforms can backfire, they warn, without complementary changes in the larger environment.  Wage hikes must be accompanied by more stringent enforcement of antibribery laws else the result may simply be to raise the bribe price. Quoting Gabe Kuris’ ISS study, they caution that anticorruption agencies will succeed only if they have built “alliances with citizens, state institutions, media, civil society, and international actors.”  With perhaps the disastrous results from disbanding the Iraqi army in mind, they discuss what could have befallen Georgia had its traffic police been let go under different circumstances.

Specialists will find nits to pick.  John Githongo never chaired the Kenyan anticorruption agency (he ran a unit in the President’s office); corporate interests are not the only ones that capture government agencies (labor and environmental interests can exercise undue influence over policy too); Switzerland long ago scrapped anonymous, numbered accounts.  But these are quibbles in what otherwise has to rank as the best one volume introduction to corruption and what can be done to fight it.

2) In the decade plus since my former World Bank colleagues Joel Hellman, Geraint Jones, and Daniel Kaufmann first advanced the idea that in some countries the forces of corruption are so powerful that they can be said to have “captured” the state’s policymaking machinery, the notion of “state capture” has been booted around academic and policymaking circles. Unfortunately not always with the greatest definitional or analytical clarity with the result that there is now a confusing mass of writing on what it means for a state to be captured and how it can be freed.  Thanks to the OECD, those looking for a source that makes sense of the welter of material on state capture now have a single volume to consult.  Preventing Policy Capture: Integrity in Public Decision Making, available here (free to read online, $20 to download) continues the high standards one has come to expect from OECD publications on governance, nicely synthesizing the massive literature Hellman and colleagues have inspired.

Just as Fisman and Golden warn that isolated interventions will not reduce corruption, the OECD authors stress that freeing a state from the bonds of corrupt interests requires a set of “actions that complement and reinforce each other.”  If anything, anti-capture policies are even trickier to implement than anticorruption policies, for, as the OECD warns, if not carefully constructed they can compromise fundamental democratic values of free expression and the right to petition government.  One of the volumes many strengths is that it never loses sight of these risks.

3) Perhaps the most salutary result of the international anticorruption movement is the spotlight it has cast on the massive theft of resources from poor countries by corrupt leaders.  There is no better guide to what has been dubbed “kleptocracy” than Cambridge Professor J.C. Sharman’s The Despots Guide to Wealth Management, just out in an inexpensive paperback edition from Cornell University Press.  The author of the leading text why tiny offshore jurisdictions were for so long able to help tax evaders and drug lords hide their money, Professor Sharman explains why kleptocracy — a practice wealthy nations once tolerated and one still facilitated by their banks, lawyers, and accountants — is now widely condemned.

Despite the sea change in attitudes, and accompanying changes in domestic and international law, however, corrupt money still gushes out of developing countries. Wealth Management is laden with pithy summaries explaining why efforts to halt the flow have failed. (Sanctioning international banks in the hopes concerns about a loss of reputation will deter them doesn’t work since “they appear to have little reputation left to lose.”)  Most importantly, Professor Sharman offers realistic recommendations for ending what has now become the most visible, and detestable, consequence of grand corruption.

 

Exposing Procurement Corruption: Ten Questions to Ask

No government activity is more susceptible to corruption than public procurement. The process by which government decides what to buy and from whom is lengthy, technically complex, and riddled with decision points that give procurement officers enormous discretion.  Oversight is thus especially difficult.  Moreover, because so much money is involved, the temptations procurement offers corrupt public servants and their private sector accomplices are particularly great.  Some developed countries spend as much as one-third of their budget on the purchase of public works, goods, and services, and the available data suggests the figure may even be higher in developing countries.

With so much at risk, it is no wonder that there has been an explosion of material on fighting corruption in public procurement.  The OECD, the World Bank, the European Union, and Transparency International have each issued a slew of publications on how to prevent corruption in public procurement, and the latest edition of Matthew’s anticorruption bibliography catalogues more than 100 articles, pamphlets, and books by academics, think tanks, and advocacy organizations on corruption in public procurement. Indeed, the amount of material is so overwhelming that reporters, civil society groups, and even parliamentarians and government auditors may be discouraged from pursuing allegations of procurement corruption.  For how does one know where to start?

Below are ten simple, straightforward questions that provide a starting-point.  They can be asked about any government purchase:  from “off-the-shelf” items like pencils and paper to a new road or bridge to the acquisition of customized IT systems.  The answers will provide a telling first indication of whether the procurement merits further scrutiny.  Continue reading

Reporting Corruption Easily and Safely: Papua New Guinea’s Phones Against Corruption Initiative

Nick Brown, head of Global Distribution for Mobimedia International, contributes the following Guest Post.

 Persuading corruption victims to complain remains one of the great challenges to combating corruption.  Policymakers can’t prioritize prevention efforts or know where to deploy enforcement resources if they don’t know who is demanding bribes where and from whom. But getting citizens to blow the whistle is no mean feat.  Citizens must be convinced it is worth the effort, that something will happen if they do speak up.  Citizens must also be assured they will be safe if they do, that the corrupters will not harm them or their loved ones, financially or physically.

With its “Phones Against Corruption” initiative, the Government of Papua New Guinea has hit upon a way that citizens can easily and safely report corruption complaints, and since its launch in 2014, with technical support from Mobimedia International and financial backing from UNDP and Australia, it has taken off.  Critical to its success is that it makes no technological or financial demands on PNG’s limited capacity.  It requires no more technological sophistication from citizens than the ability to send a text message, a form of communication widely used throughout the country. How does it work? Continue reading

Course on Anticorruption in Local Government July 10 – 14, 2017

The International Anticorruption Academy will offer a course this July 10 – 14 on combating corruption in local government.  Its purpose is to provide participants an in-depth understanding how corruption arises in local governments and what can be done to fight it.  The course is designed for local elected leaders, regional government administrators, anticorruption agencies’ professionals, experts from ombudsman offices and local anti-corruption organizations as well as governance specialists from development organizations

Former La Paz, Bolivia, Mayor Ronald MacLean-Abaroa will present his widely-praised work on cleaning up the city administration of La Paz. Ana Vasilache, founding President of Partners Foundation for Local Development, a Romanian NGO, will discuss the role of civil society in dealing with corruption in local government.  This writer will offer a series a modules on “Developing and Implementing an Anticorruption Strategy at the Local Level” drawing from the UNODC’s Anti-Corruption Strategies: A Practical Guide for Development and Implementation and case studies of successful anticorruption initiatives at the local level.

The Academy is located Laxenburg, Austria, a small town 12 miles south of Vienna. Details on the course and registration information is available here

A Sad Tale of Corruption in a World Bank Project –UPDATE

(Professor Ensminger’s testimony is here.)

Caltech Professor Jean Ensminger will today tell a Congressional panel a depressing story of corruption in a World Bank project in Kenya.  At a hearing on Bank accountability for its projects’ performance, she will document how money destined for the poorest of Kenya’s poor was siphoned off wholesale into the pockets of influential Kenyans and their cohorts.  At the same time, she will describe how, thanks to vigorous, extensive prevention measures, a similar Bank program in Indonesia brought significant benefits to those in poor communities with minimal “leakage.”

As she explained in a 2014 interview, the research underlying her testimony is the result of fortuitous circumstances.  A long-time student of the Orma, a semi-nomadic community found today in eastern Kenya, Dr. Ensminger was visiting the region shortly after several Orma villages had begun receiving funds from the World Bank’s Arid Lands Project.  Arid Lands is a “community driven development” project, meaning one where monies are distributed directly to local communities for projects they consider priorities.

Her Orma friends recounted hair-raising tales of corruption in the project, prompting her to shift focus to the impact of corruption at the village level. She presented her initial findings to the Bank’s research staff, where to protect her sources she did not reveal sufficient details to identify the project.  Bank staff determined on their own what the project was and opened an investigation.

In a brief interview before testifying Professor Ensimnger stressed that the point of her testimony is not that the Bank should refuse to fund community driven development projects. Rather it should, as was the case in the Indonesian project, provide sufficient oversight to ensure monies aren’t stolen.  And that doesn’t come cheap. While Congressional budget cutters may try to use her testimony to justify sharply reducing U.S. funding for the Bank, the real message of her testimony is that the oversight necessary to curb corruption can’t be had at bargain basement prices.

Her testimony and those of the other witnesses will be broadcast live starting 10:00 AM, US East Coast time, here.  Their written statements will likely be posted here at some point during or shortly after the hearing.  (Full disclosure: while drafting an internal “lessons learned” paper on the Arid Lands project for the World Bank, I came to know and admire Professor Ensminger and her work.)

Lifting the Resource Curse: Beyond Potions, Incantations, and EITI

Thanks to Google those who have had a curse put on them can find numerous ways to lift it: from drinking a special potion on the first night of the waxing moon to repeating a certain incantation 13 times while holding a rabbit’s foot.  (Here, here and here for useful sources.)  But Google is not nearly so helpful for policymakers looking to lift the resource curse: the corruption, violence, and misgovernment that befall a poor country with plentiful quantities of hydrocarbons or other natural resources.

The best Google does for them is tout the Extractive Industry Transparency Initiative, a voluntary compact where the government agrees to disclose the monies it receives from the companies that produce its resource and the companies agree to report the monies they pay government.  As the 300,000 plus “hits” on EITI in Google explain, the theory is that civil society will use the disclosures to hold government and the companies accountable. Unfortunately for the policymaker looking for solutions to the resource curse, Google will also pull up a long list of studies (here and here for examples) showing that so far it has had little to no effect on corruption and governance in resource rich poor countries and that at best the relief it promises is many years away.

With this post I hope to persuade Google’s powers that be to modify the search algorithm so that when a user enters “resource curse – how to lift” something besides “EITI” is returned.  That something is Continue reading

Trump Administration Backs Broad Reach of FCPA –UPDATE

(Two days after this post appeared Washington Post columnist David Ignatius offered an important insight into where the Trump Administration policy on the FCPA is likely to end up in his March 10 column on former Exxon chief and now Trump Secretary of State Rex Tillerson:

“An example of the role Tillerson could play is an exchange in February about the Foreign Corrupt Practices Act. During a White House meeting, Trump complained that the anti-bribery statute cost the United States billions of dollars in lost sales overseas and millions of jobs. According to one insider, Tillerson dissented and described how he had walked away from an oil deal in the Middle East after a leader there demanded a payoff — but later was invited back. “You’re Exxon!” Trump countered, but the former chief executive dissented again. “No, people want to do business with America.”)

Presented with a first opportunity to narrow the reach of the Foreign Corrupt Practices Act, the Trump Administration refused, choosing instead to back the Obama Administration’s view that the act reaches those who help bribe an official of a third country no matter whether the defendant ever steps foot in the United States or works or acts for a U.S. company.  In endorsing this broad reading of the act, the Administration rejected pleas from FCPA defense lawyers that such a reading was an “unwarranted” and “unprecedented attempt to … ensnare foreign individuals who fall outside the carefully-delineated categories of principals covered by the FCPA.”  To the contrary, its lawyers told an appeals court, if the act were read to exclude these individuals, executives of non-U.S. companies could orchestrate foreign bribery schemes involving American companies with impunity.

The case arose from allegations that executives of the American subsidiary of the French firm Alstom had bribed Indonesian officials to win a $118 million contract to build power plants for the government.  Among those the Justice Department charged with FCPA violations was Lawrence Hoskins, a citizen of the United Kingdom working for the Alstom parent in Paris. His role, if any, in the bribe scheme remains to be established at trial, but one possibility is he orchestrated or facilitated it from his Paris perch though never traveling to the U.S. nor working or acting for the American subsidiary. If these facts are proved at trial, the Department asserts Hoskins is guilty of violating the FCPA as an accomplice, either because he aided and abetted those who actually paid the bribe or conspired with them to do so.

The trial court rejected both theories, however.  It ruled that an accomplice to an FCPA violation is beyond the act’s reach if the accomplice remained outside the U.S. while the act was violated and did not work or act directly for the U.S. entity that violated it.   The Department appealed and written arguments were submitted before the Trump Administration took office.  The appeals court did not hear the case until March 2, giving the Trump Administration time to ask for a delay to reconsider the Obama Administration’s position.  It could have also backed away from the Obama Administration’s interpretation of the law at the March 2 hearing (as it has done twice in hearings involving civil rights cases) and endorsed the trial court’s narrow reading of the act.

That it did not pursue either option is another signal, like that recently sent by the Trump official immediately responsible for FCPA enforcement, that whatever changes the Administration has planned elsewhere, a more relaxed view of the reach of U.S. antibribery laws is not one of them.

(The FCPA Professor Blog excerpts the appeal briefs of the Justice Department and Hoskins as well as the friend of the court brief by FCPA defense counsel arguing the view of the act the Trump Administration is defending is “unwarranted” and “unprecedented” here.)