Author Archives: Richard Messick

Enlisting the Private Sector in the Fight Against Corruption — Part 1

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Governments need all the help they can get in the war against corruption.  The enemy is resourceful, well-financed, and will engage in tactics legal and illegal to frustrate an investigation, defeat a prosecution, or undermine prevention policies.  When looking for allies, though, many governments have until recently ignored an obvious source of recruits: the corporations they license to do business.  Doing business in a country is not a right but a privilege, one commonly conditioned on a corporation’s agreement to register, hold an annual meeting, and publish a yearly financial report.  There is no reason, however, why the privilege of conducting business should not also be conditioned on the corporation’s willingness to join the fight against corruption.

As the chart below shows, more and more governments now realize the advantages of enlisting the corporate sector in the fight against corruption.  By my count (additions/corrections welcome) today 21 countries plus the Canadian province of Quebec require corporations to help in someway in the fight against corruption.  The movement to enlist the private sector is picking up steam.  Of the 22 jurisdictions shown below, 15, or almost three-quarters, have enacted legislation in 2016 and 2017.  Argentina is the most recent additon, where a law was approved November 9, and if press reports are accurate Vietnam is about to become the 23rd.

Country Date Country Date Country Date
Argentina 2017 Colombia 2016 Germany 2010
France 2017 Czech Rep 2016 U.K. 2010
Malaysia 2017 South Korea 2016 Chile 2009
Mexico 2017 Spain 2015 Switzerland 2005
Peru 2017 Brazil 2014 Tanzania 2005
Thailand 2017 Russia 2013 U.S. 2004
Ukraine 2017 Quebec 2012 Italy 2001
South Africa 2012

The approaches vary.  In a later post I will discuss the differences and also flag some of the ways these laws can be abused.   In the meantime, I again solicit readers help in ensuring the chart is accurate.

 

Compensating Victims of Corruption

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That corruption is not a victimless crime is no longer in doubt.  The once fashionable argument that corruption advances human welfare by “greasing the wheels” of clunky bureaucracies has been entombed thanks to a plethora of academic studies, media reports, and first-person accounts showing the undeniable, often enormous, harm corruption wreaks on individuals and society as a whole.  As UN Secretary General António Guterres told this week’s seventh meeting of the parties to the UN Convention Against Corruption, that harm ranges from denying citizens access to such basic rights as “health services, schools and economic opportunities” to undermining the very foundation of the state through enabling “a small elite in positions of power to prosper” thus destroying citizens’ “faith in good governance.”

While the damage corruption does is now clear, how to recompense the losses it causes is anything but.  The definitive legal text, the UN Convention Against Corruption, offers little help.  To be sure, article 35 requires state parties to give those “who have suffered damage as a result of an act of corruption … the right to initiate legal proceedings against those responsible … to obtain compensation and article 57 directs governments that have recovered the proceeds of corrupt acts to give priority to “compensating the victims of the crime.” Nowhere, however, does the convention offers any guidance on how to determine who is a victim of corruption or how their damages should be determined.  As a result, both international and domestic law on victim compensation will have to develop through court decisions, learned commentary, and legislation.

An important step in developing this law is the paper the UNCAC Coalition, a network of some 350 civil society groups from over 100 countries, submitted to this week’s meeting of UNCAC state parties.  “Recovery of Damages and Compensation for Victims of Corruption” draws on international law and emerging law and practice in both developed and developing states to guide the creation of laws governing corruption victim compensation.   The Coalition urges governments to: Continue reading →

French Court Convicts Equatorial Guinean Vice President Teodorin Obiang for Laundering Grand Corruption Proceeds

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GAB is pleased to publish this account and analysis by Shirley Pouget and Ken Hurwitz of the Open Society Justice Initiative of the decision in the criminal trial for money laundering of Equatorial Guinean Vice President Teodorin Nguema Obiang. Their earlier posts on the trial are here, here, here, here, here, here, here, and here.

court roomIn the first ever peacetime conviction of a high-ranking, incumbent office holder by the court of another state, a Paris criminal court has convicted Equatorial Guinean First Vice President Teodoro Nguema Obiang Mangue of laundering monies from corruption in Equatorial Guinea in France.  The historic decision, announced by the 32nd Chamber of the Tribunal Correctionnel de Paris on Friday, October 27, was tempered by the reality the court faced in finding a senior official of another country guilty of violating French law.  While it unconditionally awarded Transparency International – France, which as a “civil party” helped investigate the case, €10,000 in moral and €41,081 in material damages, and ordered seizure of much of the €150 million in assets Teodorin holds in France, it suspended (sursis) the three- year prison sentence and €30 million fine it imposed on Teodorin so long as the VP stays out of trouble for five years.   It also stayed the part of the asset seizure order confiscating the obscenely extravagant 101-room property on Avenue Foch Teodorin owns pending the outcome of proceedings before the International Court of Justice where, as explained in a previous post, the EG government is claiming the assets belong to it rather than to Teodorin.

The President of the Tribunal, Mrs Benedicte de Perthuis, detailed the reasoning supporting the ruling in a 45 minute oral explanation accompanying the judgement.  She explained that the three judge court rejected all Teodorin’s procedural and substantive defenses, including a claim asserting Teodorin’s immunity from criminal prosecution on the basis of his position as  First Vice-President of Equatorial Guinea.  She noted on the latter that his nomination as First Vice-President had conveniently occurred after his indictment by the French Courts, and the Tribunal ruled that his new functions could not be equated to those of a Head of State or Minister of Foreign Affairs (officials who, under ICJ precedent, would indeed enjoy immunity from this kind of a prosecution).

The verdict sends a clear message that grand corruption and the related offense of money laundering are no longer risk-free enterprises in France.  Continue reading →

Getting Serious (and Technical) About Procurement Corruption: The Transparent Public Procurement Rating Project

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For corruption fighters, public procurement is notable for two reasons. One, it is damnably complex. Two, it is often permeated with corrupt deals.  The latter makes it a critical target of anticorruption policy, the former a tough nut to crack. The thicket of laws, regulations, standard bidding documents, and practices that govern procurement means civil society groups advocating counter corruption measures are often at sea.  Lacking expertise on this bewildering set of rules, they can do little more than campaign in general terms for reform, urging steps like “greater transparency” or “tougher penalties” for corrupt activities.

But as anyone knows who has tried to persuade a government of uncertain will and commitment to adopt effective anticorruption policies, the devil is in the details.  Unless one has mastered the details of public procurement, a government can do all sorts of things to “improve transparency” or “crack down on procurement scofflaws” that are nothing but public relations gambits. So it is a pleasure to report that civil society organizations in Armenia, Azerbaijan, Belarus, Georgia, Moldova, and Ukraine have joined to form the Transparent Public Procurement Rating Project, which provides a way for staff to master the details of the public procurement and to thus be able to present detailed proposals for rooting corruption out of their nation’s public procurement systems.    Continue reading →

Chasing Dirty Money: A Public Database of Ukrainian PEPs

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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

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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

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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

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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

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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

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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 →