Castles of Corruption

Owning a castle has never been easier. In 2017, Italy’s State Property Agency made international headlines by announcing that the country would be giving away over a hundred castles for free. The only catch? Takers must promise to restore the dilapidated structures and turn them into tourist sites. (The program builds on an existing initiative in which the Agency gives historical federally-owned properties to local authorities for restoration.) At first glance, this program looks like a win for everyone. The Italian federal government no longer has to deal with crumbling historic castles, the properties will be cleaned up and made available to tourists, and lucky entrepreneurs and local governments can reap the profits. Unfortunately, however, there are reasons to worry that this program, like so many other castle restoration initiatives, will end up sapped by corruption, money laundering, collusion, and nepotism.

 Corruption and related malfeasance is quite common in the context of castle ownership and restoration. This is not all that surprising, given that corruption is a perennial issue within the construction industry as a whole. All of the usual problems in that sector—including bribery in the bidding process, collusion to funnel work to friends and family, embezzlement, and the substitution of substandard materials—apply in the specific context of castle restoration. On top of that, real estate has long been a favorite of those involved in money laundering due to the lower scrutiny that real property transactions receive, at least in comparison to stock or other commodities. But in addition to these familiar risk factors, castle restoration projects have several additional distinctive features that make them even more vulnerable to corruption than comparable construction projects and real estate transactions:

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Perishing Under Corruption: A Cautionary Tale from the Dutch East India Company

A transnational megacorporation that exerts near total monopoly, mints its own currency, fields its own armies, negotiates treaties, and executes convicts. This is not the stuff of dystopic cyberpunk novels, but history books. Founded in 1602, the Vereenigde Oostindische Compagnie (often referred to in English as the Dutch East India Company, but self-styled as the VOC) was the first publicly-traded company, established the first stock exchange, became the first multinational corporation, and boasted the first globally recognizable logo. At the height of its valuation in 1637, the VOC was worth roughly $8.28 trillion in 2021 dollars—more than Apple, Microsoft, Google, Amazon, Facebook, and fifteen more of the world’s most important modern companies combined (or, if you prefer, roughly the GDP of modern Germany, the UK, and France added together). Yet, by the mid-1790s, the VOC was bankrupt. On December 31st, 1799, the Company dissolved entirely. The principal reason for this collapse was no secret: a popular joke at the time said that VOC actually stood forvergaan onder corruptie” (“perished under corruption”).

How did the world’s wealthiest and most powerful corporation “perish under corruption” in just a handful of decades? And what lessons can be learned from such a failure?

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New Zealand’s Discomfort at the Top of the Corruption Perception Index

Earlier this year, Transparency International released its annual Corruption Perception Index (CPI) and, once again, New Zealand was ranked as the “least corrupt country in the world” – a title it has held thirteen out of the last fifteen years. It may come as something of a surprise, then, that this news was greeted in New Zealand not so much with celebration as with measured caution. Even the most positive New Zealand news outlets led with caveats that New Zealand still faces corruption risks, including “inadequate protection for whistle-blowers, and no register showing who ultimately controls or benefits from companies registered in this country.” Others skipped the congratulatory headlines entirely, preferring headers such as “Government Warned Not to Ruin Corruption-Free Status.” As one New Zealand newspaper succinctly put it: “New Zealand is the least corrupt country in the world, but when that statement is whispered over here it is almost always followed by a ‘however’.”

This near-ubiquitous grimness of New Zealand’s press with regards to anticorruption measures practically begs the outside observer to ask: Why the doom and gloom? What explains the gap between “all major ranking institutions and indexes” and the perception of New Zealand’s citizenry themselves?

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Let’s Talk About Monaco

Monaco, the sovereign city-state on France’s Mediterranean coast, is many things. It is the second smallest country in the world, following only Vatican City. It boasts the highest GDP per capita of any country. It is a constitutional monarchy, ruled by the same family for over 700 years. It is known for its opulent casino, expensive real estate, and swaggering F1 drivers.

It is also willfully resistant to the Council of Europe’s anticorruption transparency recommendations – or any transparency measures at all, for that matter.

Perhaps due to its small size, Monaco has flown somewhat under the radar in international corruption monitoring. The city-state doesn’t feature in Transparency International’s annual Corruption Perceptions Index, and TI’s web page for Monaco is quite blank. Despite being an international tax haven and banking center, Monaco is conspicuously missing from both the World Bank’s Doing Business rankings and the Heritage Foundation’s index of economic freedom. It’s not that Monaco is a corruption-free paradise. In the few lists in which it does appear, Monaco does not score particularly well: In the RAND Corporation’s Business Bribery Risk Assessment, for instance, Monaco ranked 72nd out of 192 jurisdictions. And a number of recent corruption scandals have involved Monaco, either directly or indirectly. Last year, for example, two brothers who ran a Monaco-based consultancy called Unaoil pleaded guilty in the United States to charges involving millions of dollars in bribes paid between 1999 and 2016. Corruption alarms were also raised in July 2019, when Monaco’s justice minister abruptly blocked term renewal for a judge leading a corruption inquiry that involved a Russian billionaire, a former Monaco justice minister, senior Monaco police officials, and others. More recently, in late November 2020, former French president Nicholas Sarkozy went on trial for attempting to bribe a French magistrate with a prestigious job in Monaco.

These incidents have largely come to light because of involvement outside of Monaco: international companies, legal battles that cross borders, and foreign politicians. Monaco itself remains something of a black box. As a 2017 report from the Council of Europe’s Group of States Against Corruption (GRECO) noted, there are no records whatsoever of criminal or disciplinary proceedings related to corruption in Monaco’s parliament. This lack of reported cases, GRECO concluded, is likely due not to an absence of corruption, but to a lack of oversight. As the report noted, Monaco has “few mechanisms to ensure satisfactory transparency of parliamentary work and consultations,” and lacks a “code of conduct that would govern, among other things, the acceptance of gifts and other benefits, the management of conflicts of interest, or relations with lobbies and other third parties seeking to influence parliamentary processes and decisions.” The GRECO report further observed that although judicial proceedings are typically public, there is a carve-out for holding court behind closed doors where public proceedings “might cause a scandal or serious inconvenience.” Cases “concerning the internal operation of courts” are also not public. In practice, there is even less transparency than the official policies would indicate, as most criminal cases are in fact dealt with in France, behind closed doors.

Without a code of conduct against corruption-related activities, with no mechanisms to provide oversight, with any corruption scandals that do occur likely to be tried in secret, and with little international attention on the issue beyond infrequent GRECO reports, Monaco can keep its corruption well hidden. Although occasional scandals might pop up around Monaco, the country makes it difficult to know the nature and extent of its corruption.

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When Anticorruption Begets Corruption: A History Lesson from the Roman Republic

Most readers of this blog are likely to support rigorous anticorruption laws. But a modicum of caution is necessary: If poorly designed, even anticorruption laws adopted with the best of intentions can be weaponized by bad-faith actors. This is not only a modern problem. Indeed, a troubling illustration of how overly ambitious anticorruption laws can spectacularly betray their core purposes can be found some two thousand years ago, in the dying days of the Roman Republic.

The Roman Republic had a comprehensive and complex legal code, with multiple statutes (lex) prohibiting the general crime of ambitus. It is frustratingly unclear what precisely constituted ambitus, but at its core, ambitus (which shares the same linguistic root as modern-day “ambition”) covered electoral bribery and other forms of electoral fraud and corruption. That said, the line between legal electioneering and illegal ambitus was often blurry, and ambitus was sometimes used as a general pejorative accusation for when a candidate’s ambition “went too far.” (In that sense, Roman debates over the definition of ambitus may parallel modern debates over the definition of “corruption.”)

A handful of ambitus laws were passed during the Middle Republic. For example, an ambitus law from 358 BC prohibited political candidates from canvassing on market days, and a 314 BC law created a commission to investigate election rigging. Yet such laws were relatively rare, and ambitus does not seem to have been a prominent concern during this period. During the Late Republic, however, the problem of rampant electoral bribery prompted the Senate to enact a flurry of new ambitus legislation. Many of these laws were direct responses to specific incidents of ambitus, and exhibited a pattern of increasingly harsh punishments and prosecution-friendly procedural changes. Despite addressing a very real problem, these reforms to the ambitus laws of the Late Republic ended up being not only ineffective, but actively exacerbated the decline of the Republic.

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Corruption and the COVID-19 Vaccine: The Looming Problem of Distribution

From the earliest days of the COVID-19 pandemic, activists and analysts have called attention to the significant corruption risks associated with the response to both the public health crisis itself and the economic disruption it has caused. Anticorruption advocates have highlighted, for example, the corruption risks associated with the distribution of relief funds and personal protective equipment, and have emphasized the need for reforms like enhancing transparency, requiring audits, and ensuring protections for whistleblowers. (For samples of the discussion of the need for anticorruption measures in coronavirus response, see here, here, here, and here.) Yet there has been surprisingly little sustained discussion or planning concerning a specific issue which, while still prospective, is of pressing global importance: the inevitable corruption risks that will be associated with the distribution of a COVID-19 vaccine, if and when such a vaccine becomes available.

This is not to say that there has been no exploration of the subject. Commentators have discussed the difficulties of ensuring that a vaccine is distributed equitably, as opposed to simply being given to the most affluent, and have called attention to the problems of black markets and price gouging that are likely to emerge once vaccines are available. There has also been some general, abstract discussion of the fact that the distribution of a COVID-19 vaccine, once one exists, has significant potential for both grand and petty corruption. Absent from the discussion, though, has been the development of concrete plans for incorporating anticorruption measures in vaccine distribution—plans that take into account the inherent logistical challenges. The World Health Organization (WHO), to its credit, has released a seventeen-page plan for fair allocation of a COVID vaccine, which discusses detailed measures to ensure that vaccines are distributed fairly. However, the WHO plan devotes little more than a page to promises of “strong accountability mechanisms” in the governing bodies to “ensure protection against undue influence.” The WHO does note that the primary role of its own Independent Allocation Validation Group is to ensure that proposals from the vaccine Allocation Taskforce remain “transparent and free from conflicts of interest,” but while this sort of internal monitoring is laudable, the WHO plan conspicuously lacks any further guidance or recommendations on appropriate anticorruption measures once the vaccines are handed over to their allocated countries.

Although the timeline for a vaccine remains uncertain—and there’s no guarantee that a vaccine will be available any time soon—it would make sense for both international organizations and national governments to identify the most likely corruption risks associated with vaccine distribution and to begin developing safeguards to mitigate those risks. While there are many possible corruption risks associated with vaccine distribution, the two most significant are diversion of vaccines and extortion. Let’s examine each in turn:

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