An Inside View of Corruption in a Tax and Customs Agency

Information derived from the direct observation of corrupt behavior provides insights no other source can match.  From first-hand reports of the number and amount of bribes Indonesian truck drivers paid to traverse different provinces, Barron and Olken reached important conclusions about centralized versus decentralized bribery schemes. Data Sequiera and Djankov gathered from South African and Mozambican clearing agents on bribery at their nations’ ports and border posts allowed the two to show how differences in tariff rates and uncertainties over the expected bribe amount affected firms’ behavior. The resourcefulness these and other researchers displayed in compiling direct evidence of corruption and the thoughtful, sometimes counter-intuitive conclusions their analysis yielded are summarized in this first-rate review essay by Sequiera.

As rich a source of learning on corruption as it is, collecting direct observation data is no mean feat.  Those committing corruption crimes don’t generally invite nosy observers to watch and record their actions. That is why it was especially welcome when a friend and colleague shared the parts of an interview with the head of a Latin American customs and tax agency that touched on corruption. The agency head’s insider view, though informed by training as a professional economist and a background in academia, offers nothing close to what readers can take from Barron and Olken, Sequiera and Djankov, and other full-blown academic studies.  Nonetheless, what he reports raises interesting, provocative issues of use to reformers and to those looking for hypotheses worth testing.

The portion of the interview dealing with corruption, anonymized to protect the source, is below.  Would other insiders please come forward?  Again, it is doubtful your observations will be anywhere near as valuable as the data the Barrons, Olkens, Sequieras, and Djankovs of  the world have so cleverly and painstakingly collected, but in an information scarce environment, all contributions are welcome. GAB would be more than happy to publish what you have observed about corruption in your organization with safeguards to protect your identity. Continue reading

A Welcome Analysis of Where Mozambique’s Goats Eat

To say that a successful attack on corruption begins with a political economy analysis is commonplace.  To declare that absent such an analysis of the political, economic, and social conditions that foster a particular type of corruption, an anticorruption policy has little chance of succeeding is hardly remarkable.  What remains noteworthy is in the two decades plus since the global war on corruption began how few such analyses have been done.

Of the more than 7500 entries in Matthew’s corruption studies bibliography, titles of fewer than 50 indicate a political economy focus. The corruption and development “gray literature,” reports on corruption in developing nations commissioned by donor organizations, is little better.  Perhaps a larger number of studies, but few quality ones, and perhaps surprisingly, a real dearth of analyses of petty corruption, the kind that citizens of developing nations, most often the poor, regularly encounter in their daily life.

That’s why it was a pleasure to discover Inge Tvedten and Rachi Picardo’s recent study of where Mozambican goats eat.  The Mozambican expression cabrito come onde está amarado (“goats eat where they are tied up”’) refers, as they explain, to the two-legged species rather than the four-legged one.  The kind that exploit their place in government to enrich themselves, friends, and supporters.  The two draw upon years of accumulated research to show how, in a variety of thickly described situations, “a set of structuring principles and common schemes” lead to the “internalization” or “embodiment” of corruption.  (Others might term the principles and schemes “institutions” and internalization or embodiment a “Nash equilibrium.”) An especially thought-provoking example is how traditional norms of deference to authority figures interacts with the way the District Development Fund, a program to help the poorest, is managed to keep beneficiaries marginalized.

Whether hunting for how to deprive a greedy Mozambican goat of nourishment or for a first-rate example of political economy analysis of petty corruption, readers will profit from perusing Tvedten and Picardo’s article.

The Swiss U-Turn on Asset Return Explained

Historically, a Swiss bank has been the bank of choice for corrupt leaders wanting to hide money. The reality is quite different today.  Just ask Tunisia’s ousted strong man Ben Ali, deposed Ukrainian president Victor Yanukovich, or the relatives of deceased former Haitian president Jean-Claude Duvalier, of the late Nigerian dictator Sani Abacha, or of Hosni Mubarak, the recently passed Egyptian president.  All believed money stolen from their nations’ citizens was safe in a Swiss bank.

At the time, they were not wrong. Dating back to when its secrecy rules protected the wealth of France’s Catholic kings from the prying eyes of nosey Protestant journalists, Swiss law permitted banks to take money with few questions asked and sanctioned those disclosing information about an account or its holder. Strict bank secrecy laws gave the Swiss financial industry an enormous advantage over other financial centers; it’s one reason why today financial services plays an outsized role in the Swiss economy — accounting for 10 percent of the GDP, twice the average of other OECD nations.

As the Duvaliers, Abachas, and Murabanks of the world learned to their chagrin  however, over the past decade Swiss policy has made a sharp U-turn.  Despite the weight of history and tradition, and the economic interest of so many Swiss citizens, current Swiss policy not only no longer condones the deposit of stolen assets in its banks, it now demands that banks and others in the financial services industry come to the aid of governments searching for money stolen by former rulers and cronies.  No other nation today goes to such lengths to help countries recover stolen assets.

Swiss lawyers François Membrez and Matthieu Hösli document this extraordinary change in Swiss policy in How To Return Stolen Assets: The Swiss policy pathway. Just published by the Geneva Centre for Civil and Political Rights, the two explain how Swiss  asset recovery law has turned Switzerland from the destination of choice for stolen funds into the least hospitable jurisdiction in the world.  The paper is an essential guide to Swiss law on asset recovery and provides a blueprint for other nations wanting nothing to do with stolen assets.

 

Recovering Damages for Mozambican Victims of the Hidden Debt Scandal: Possible Suits in the United Kingdom

A recent post explained that Mozambicans harmed by the corruption behind the “hidden debt” scandal may well be able to sue the perpetrators for damages in the courts of many nations.  Mozambique, where the harm was suffered, and most probably France, Lebanon, Russia, Switzerland, the United Arab Emirates, and the United Kingdom, countries where one or more of the alleged perpetrators is located or does business.  The legal basis would be article 35 of the United Nations Convention Against Corruption.  It requires convention parties to open their courts to actions by corruption victims against “those responsible” for the corruption “in order to obtain compensation.”

The U.N. Office of Drugs and Crimes reports that all 187 parties accept the principle of compensation for corruption.  Suits for corruption damages are a relatively recent development, however, and in its latest review of the convention’s implementation, UNODC explains that establishing causation and proving damages remain to be elaborated through application of parties’ domestic law principles governing harm caused by intentional acts.  At the same time, it noted that in corruption damage cases article 35 mandates that these principles be interpreted broadly.  There need be no direct interaction between the perpetrators of corruption and the victim; nor is recovery limited to cases where the perpetrators foresaw the injury the victim would suffer.

In a just released paper, London barrister James Mather shows how English law would apply to claims Mozambicans brought for hidden debt damages in the United Kingdom. He opines that recovery could be had on the basis of an unlawful means conspiracy and perhaps too on the tort of bribery and dishonest assistance.  English law, he writes, incorporates the liberal principles of causation of damages enshrined in article 35. “The approach to the award of damages for conspiracy in particular is quite liberal in English law and extends to losses which cannot be strictly proved.”  English law also offers Mozambican claimants a procedural advantage.  Rather than each person having to file a separate suit, a group action could be filed with a single claimant suing on behalf of all those who suffered a similar injury.

Mather, a distinguished member of Serle Court in London, cautions that while based on what has been reported it would appear Mozambicans injured by the hidden debt scandal could recover damages in the United Kingdom, much factual research is required to be sure. His paper is an important step forward in seeing that those who suffered enormous harm thanks to the corruption behind the hidden debt scandal are made whole by the perpetrators.  Click on Mather paper to download a copy of his first-rate analysis.

Will This Whistleblower Cost Equatorial Guinea its IMF Loan?

Juan Carlos Angue Ondo, pictured below, is the latest individual to reveal details of the grand corruption that plagues Equatorial Guinea.  In recent interviews (here in English and here in Spanish), he describes how the country’s rulers use the judicial system to perpetrate corrupt schemes and maintain their grip on power. The revelations confirm what human rights (here and here) and anticorruption groups (here and here) have said for years: that ideas of judicial independence, due process, and the rule of law are strangers to Equatorial Guinea. 

Angue’s whistleblowing comes at particularly fraught time – both for the nation and for the International Monetary Fund. As blog readers know (here and here), last December the government secured an IMF loan to rescue the economy from recession.  In return, it pledged to take concrete, measurable steps to strengthen the rule of law and combat corruption.  An obvious first step would be to take what Angue claims seriously.  To investigate the allegations, and where warranted prosecute wrongdoers and make needed reforms to laws and judicial institutions. But will Equatorial Guinea’s government do so?

And what will the IMF do if it does not? Halt loan disbursements?  Or sweep the matter under the rug?

The allegations cannot be lightly dismissed. Angue likely knows more about judicial corruption, the absence of the rule of law, and the lack of judicial independence than anyone in Equatorial Guinea. Continue reading

Civil Damage Actions for Corruption: Possibilities Offered by the Mozambican Hidden Debt Scandal

The April 2016 disclosure that Mozambican officials accepted large bribes to secretly guarantee hundreds of millions of dollars in loans wreaked enormous damage on the nation’s economy and its citizens. The “hidden debt” scandal caused economic growth to plummet and donors to freeze funding, forcing the government to make deep cuts in public spending (media accounts here, here, here, and here; selected GAB posts here, here, and here).

The Mozambique government has brought a criminal action against a number of the alleged perpetrators in its own court (Mozambique indictment) and filed a civil suit for damages against others in the London High Court (Mozambique complaint).  So far, though, no citizen has filed an action for the harm hidden debt scandal caused them.

In a recent paper, “Civil Suits for Damages by Mozambicans Harmed by the Hidden Debt Scandal,” I consider who in Mozambique might be able to bring a damage action, for what and where, and the additional legal and factual research required before one or more more suits are filed. Comments welcome.

What to Study in a Corruption Studies Program: Comments & Information Please

Despite Trump lawyer Rudy Giuliani’s attempt to paint Ukraine as a cesspool of corruption to advance his client’s reelection, media reports (here and here) and assessments by the IMF and the World Bank show the country making steady progress in bringing corruption to heal. One especially promising sign is the large number of university students and mid-career professionals studying how to combat corruption. Last September Ukraine’s Anticorruption Research and Education Center (ACREC) partnered with the National University of Kyiv-Mohyla Academy, the nation’s oldest institution of higher learning, to offer a degree in corruption studies for students and a certificate for civil servants, business executives, and others in the workforce needing to know more about the topic to better do their job. Classrooms are bulging, and plans are being made to expand the number of courses.

The Ukraine program sparked the interest of other Eurasian nations in starting similar programs, and in January representatives of non-governmental organizations and universities from Armenia, Georgia, Kyrgyzstan, and Moldova met in Kyiv to learn from ACREC’s experience. Topics included whether to concentrate on students or mid-career professionals, whether, as in Ukraine, a program should be offered by a partnership between an NGO and a university, and the pros and cons of charging tuition versus seeking a grant from the government or a donor agency.

I spoke about what to teach. As the notes from my talk show, my bias is towards a heavily academic curricula, one that stresses analytical tools that prepare students to tackle a range of public policy issues. That is not the only way to teach about corruption, and indeed my friend Alan Doig has argued for a different focus.

I had planned to compare my proposed corruption studies curricula with those offered by universities and other institutions across the globe, but surprisingly little is readily available on the web.  A 2013 U4 Anticorruption Resource Centre study catalogued the courses and degree programs then offered but contains little on what is taught and many of the links to the programs are dead.  The only substantial description of a curricula I found was that of the International Anticorruption Academy, which has offered a Masters-level program in corruption studies since 2012 along with individual courses on specialized topics. (Full disclosure: one of which on local government I have taught on occasion.)

If we want more effective anticorruption policies and better implementation of those policies, we need policymakers, policy advisors, administrators, lawyers and business executives with a deep understanding of corruption and how to combat it. There is no one curricula or course that will meet everyone’s needs.  The more the global anticorruption community knows about what has been taught and what has been learned about teaching corruption, the better.  Readers with thoughts on what students and anticorruption practitioners should learn, with course syllabi, information on degree or certificate programs, and experience in or techniques for teaching about corruption are invited to share their knowledge with the GAB community.