Category Archives: Commentary

The U.S. Supreme Court’s Erosion of U.S. Anticorruption Law Continues

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The U.S. Supreme Court has been chipping away at the federal public corruption prosecutor’s toolkit over the past decade, in cases like McDonnell v. United States, Kelly v. United States, and Percoco v. United States. This past month, the Court heard oral arguments in a case called Snyder v. United States, which may further undermine federal prosecutors’ ability to go after state and local corruption. If the Court finds in favor of the defendant in Snyder, it could create a roadmap for American state and local government officials to profit from private interests at the expense of the public they are supposed to serve.

The specific statute at issue in the Snyder case is codified at 18 U.S.C. § 666. That statute, which happens to be the most prosecuted public corruption statute in the U.S., makes it a federal crime for a state or local official to “corruptly solicit[,] demand[,] …or accept[] … anything of value from any person, intending to be influenced or rewarded in connection with any” federally funded program. The question at issue in the Snyder case is whether this statute criminalizes so-called gratuities—payments made in recognition of actions that a covered official has taken or has committed to take, but without any quid pro quo agreement to take those actions in exchange for the payment. The facts of the Snyder case illustrate this sort of payment: James Snyder, while mayor of Portage, Indiana, accepted $13,000, allegedly for “consulting services,” from a truck company shortly after that company was awarded a contract to sell garbage trucks to the city government. There is no evidence that the company offered or promised Snyder the payments in exchange for the contract. Nevertheless, the federal prosecutors successfully argued at trial that proving such an offer was unnecessary, because as long as the prosecution could show that the alleged “consulting fee” was actually a gratuity—a payment made by the company to thank, or reward, Snyder for the contract—then Snyder’s acceptance of this payment was enough to violate § 666.

It’s true, as Snyder’s lawyers argued to the Supreme Court, that the language of the statute does not explicitly include “gratuities.” But reading § 666 as covering gratuities is the only sensible way to read the statute if we are truly concerned with preventing public officials from being bought.

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Personnel is Policy: Why Argentina’s Latest Supreme Court Nominee Threatens Anticorruption Efforts

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Last November, Javier Milei, a former economics professor and political outsider, won the presidency of Argentina, riding a wave of popular outrage against the political elite. The roots of that outrage are not hard to understand: Argentina is in the midst of a historic economic crisis, with out-of-control inflation and skyrocketing poverty. And many believe, with some justification, that Argentina’s deep-rooted political corruption is partly to blame. Argentina has been rocked by a series of corruption scandals, several of which have been documented on this blog (see here, here, and here). In campaigning on a platform of radical economic reform, Milei promised to take on the “parasites” and “thieves” who comprise the corrupt elite. After Milei’s victory, he immediately faced a problem in advancing his policy agenda: his newly-created party won just 44 out of 329 seats in Congress. That left Milei with two options: He could either take the traditional route of trying to form alliances with other parties to get some form of compromise reform package through Congress, or he could push the constitutional envelope by trying to enact aggressive reforms through executive fiat. Milei has chosen the latter path. This is not surprising: He was always going to face an uphill battle getting Congress onboard with his aggressive reforms, as there are simply too many entrenched interests, and Milei himself is an exceptionally polarizing figure. But pushing through radical reforms without congressional consent will require approval of the Supreme Court, an institution deeply embedded in the political caste.

In seeking to secure Supreme Court approval of his attempt to radically restructure the economy by executive fiat, Milei appears poised to make Argentina’s corruption problem even worse. Many observers believe that one of Argentina’s current Justices—a savvy political power player named Ricardo Lorenzetti—offered Milei a deal: If Milei would appoint Lorenzetti’s allies to fill the two vacant seats on the Court—which would give Lorenzetti’s faction a majority—Lorenzetti would use his influence to ensure favorable judicial treatment of Milei’s aggressive reforms in the justice system. One of the two nominees that Milei has put forward, a Lorenzetti ally named Ariel Lijo, is one of the Argentine judiciary’s most notoriously corrupt figures. One can see why Milei was tempted to stack the Court with Justices who would reliably side with him, but this is a Faustian bargain that poses a grave and long-term danger to anticorruption efforts in Argentina.

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No Strings Attached: Learning from the EU’s Approach to Government Advertising in Private Media

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Recently, the European Union moved forward with comprehensive new media freedom law, the European Media Freedom Act (EMFA). The EMFA includes a number of important reforms meant to protect journalistic independence, including prohibitions on interference in editorial decisionmaking and protections for sources. But one of the proposed reforms is especially important for those who care about preserving the media’s role as an anticorruption watchdog: the EMFA’s rules on government advertising in private media. The EMFA requires that governments (1) adopt fair, transparent, and objective standards for the distribution of state advertising revenue to journalists, and (2) make efforts to disclose how those funds are distributed. Because governments often use advertising spending as implicit or explicit leverage to suppress and deter anticorruption reporting, these changes will likely have a significant effect. As countries outside of the EU struggle with similar issues, they should follow the EMFA model.

The EMFA model may be especially valuable in Central and Eastern Europe. After the post-socialist transitions, media organizations in these countries found themselves free of state control—at least in part. But despite privatization, many of those media companies, struggling to stay afloat, have turned to their governments for advertising revenue. This has proven to be a devil’s bargain. The fact that state advertising has become a major source of revenue for media outlets has given governments a tool that they can leverage to influence coverage, stifling anticorruption reporting. When new parties come to power, they often redirect advertising funds to media organizations that bury corruption news, financially sinking the organizations that are willing to call out misconduct. Journalists that do break corruption stories see their funding quickly disappear. Even without direct pressure, media organizations have been afraid to call out the actors that effectively fund them, and they understand that the government will reward friendly media companies with extra money. The result is that media outlets do not invest time and energy into investigating potential government misconduct, and they fail to run, or underemphasize, stories highlighting corruption allegations. (This problem is hardly limited to Europe: States across the world use advertising to influence the media, often to great success. And studies in Argentina, Ghana, and Turkey, for instance, have found that government advertising in media outlets reduces coverage of government corruption.)

The most direct solution to this problem—eliminating or significantly reducing government ad spending—is unrealistic. Given how unreliable private advertising has become, many journalists are dependent on state dollars, and taking that funding away could tank them economically. Although some organizations are starting to develop alternative business models, it is too risky to rely on those models before they have proven successful. Neither are grants or other support from NGOs plentiful enough as of now. But as the EU recognized, there are ways to mitigate the risk that media dependence on state advertising revenue will lead to the suppression of corruption-related news.

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Government Leaders Should Watch Who Watches Them Wearing Their Pricey Watches

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Peruvian President Dina Boluarte is the latest government leader to be ensnarled in a corruption flap thanks to a penchant for high-end time pieces. Before her it was the then-Prime Minister of Croatia Ivo Sanader (here) and after him the then-Thai Deputy Prime Minister Prawit Wongsuwan (here).

Like them, she apparently believed wearing a different expensive watch on different occasions was part of the job of running a country. And like them, her luxurious taste was caught on camera. Photographs show her at one or another function modeling watches that in toto cost more than $500,000.

From the collection of Peruvian President Dina Boluarte. Source: Presidential Flickr account

Just as with the Sanader and Wongsuwan flaps, photos of Boluarte’s watch collection prompted uncomfortable questions: Why didn’t she report the collection on her income and asset declaration form as required by law? And how could she, like them a longtime government employee, afford such a pricey collection?

Despite Sanader and Wongsuwan’s lame explanations –“I didn’t know I had to report them.” “Oh wait, they aren’t mine, I just borrowed them.” – the exposure of their unexplainable wealth cost them nothing more than civil society reproaches. Whether Peruvian authorities will accept Boluarte’s similarly flimsy explanations remains at this writing to be seen.

Beyond the reminder that some government leaders are incurably venal, these serial watchgates offer lessons. For leaders enamored of fancy timepieces, report them on your income and asset disclosure form or keep them up your sleeve when a photographer is nearby. For anticorruption agencies, there is a less flippant, more important lesson.

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Performance Over Promises: The MCC’s Formula for Fighting Corruption

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Can foreign aid be used to spur anticorruption reforms? Many donor agencies have tried. The typical approach is to make aid to a recipient country conditional on the adoption of a series of substantive anticorruption or good governance reforms. Unfortunately, there is little data to suggest conditional aid buys reform. To the contrary, grants of conditional aid have been associated with increases in corruption, slower policy reform, and the deterioration of governance generally. While one might expect that, all else equal, conditional aid would result in relatively more aid flowing to more honest governments, it seems the opposite is true: after controlling for a country’s poverty level, regime type, and other factors, it appears that more aid goes to more corrupt countries.

Twenty years ago, a small U.S. federal agency, the Millennium Challenge Corporation (MCC), took a different approach to spurring anticorruption reform through foreign aid. The MCC, which provides large ($100M+) grants to low-income countries, embraced a strategy that differed from traditional aid conditionality in two ways. First, rather than selecting aid recipients on an ad hoc, case-by-case basis, the MCC determines eligibility using a uniform scorecard. As relevant here, the MCC requires that, to become eligible for MCC grants, a country must score above an absolute level on the World Bank Institute’s “control of corruption” index. (Countries must also score above the median for their income class on ten of twenty additional indicators.) The MCC provides grants to most countries that do meet those criteria. (Of the 80 countries are eligible under this scheme, at least 50 have received funding.) Second, and relatedly, once countries are deemed eligible, no further conditions are attached to MCC funding, which can be directed towards any purpose and is rarely withdrawn. On average, countries receive $160M in unconditional funding, though grants have been as large as $698M.

At the time the MCC was created, this approach was labelled “crude and dogmatic.” Critics complained that the MCC approach would divert aid away from the countries in greatest need of both aid and reform, and towards countries that already outperformed their peers. But the evidence strongly suggests the MCC’s approach has spurred meaningful anticorruption reforms, at least among countries near its eligibility threshold. Researchers have compared countries are right above the threshold to others right below the threshold, and found that up to 38% of countries just below the threshold have implemented substantive anticorruption reforms as a result of MCC’s creation (see here and here). Analysis of statements and correspondence with officials from MCC candidate countries (from, for example, leaked embassy cables, meeting transcripts, and the like) provides corroborating evidence that countries near the threshold utilized the scorecard to galvanize reform.

Why has the MCC’s performance-based approach been more successful in catalyzing anticorruption reform than traditional conditional aid? It’s impossible to say for sure, but the research to date suggests a few intriguing hypotheses: Continue reading →

Working Smarter, Not Harder: Using Secondary Sanctions to Strengthen the Global Magnitsky Act

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Arkady Rotenberg, Vladimir Putin’s childhood judo partner, is living large. Despite using his relationship with Putin to facilitate state capture, gaining lucrative contracts for everything from constructing the bridge between Russia and Crimea to hosting spurious “anticorruption trainings” for state employees, and being subject to American sanctions since 2014, Rotenberg maintains extensive links with the global economy. He has used Deutschebank to move millions of dollars out of Russia, channeled investments through a technology firm co-owned with a member of the British royal family, and hired a well-connected Monegasque lawyer to manage his taxes and PR. Rotenberg is not alone: Corrupt officials around the world, and their cronies, use Western professional service providers to facilitate their use of corrupt funds.

The United States has a powerful and under-utilized tool to control connections between corrupt officials and the professionals service providers who enable them: the Global Magnitsky Act (sometimes shortened to “GloMag”), which authorizes the U.S. government to impose targeted sanctions on individuals engaged in serious human rights abuses and/or high-level corruption. To date, the U.S. has imposed GloMag sanctions on 299 persons deemed to have been involved in official corruption. Yet despite some high profile successes (see here, here, and here), critics have pointed out that GloMag remains too limited in scope to seriously impact many of its targets. Sanctions against corrupt officials remain mostly unilateral tools, with governments often failing to coordinate their sanctions, leaving opportunities for evasion (see here and here). And while GloMag has inspired similar efforts by 35 additional countries, many of these governments—and the European Union—use GloMag-inspired programs only to target human rights abusers, not those engaged in grand corruption (see here and here).

There have been proposals to increase the comprehensiveness of GloMag sanctions, ranging from simply listing more corrupt officials to convincing the EU to broaden its sanctions regime to cover those engaged in high-level corruption. While these are worthwhile efforts, the United States possesses an extremely powerful tool that it could use unilaterally to drastically increase the heft of GloMag sanctions, one which is already authorized by statute and executive order: secondary sanctions. Secondary sanctions are sanctions that are imposed on a set of persons or entities that transact with an individual who is subject to primary sanctions under GloMag or a comparable regime. The U.S. can and should impose secondary sanctions on the professional service providers (such as accountants, wealth managers, bankers, and real estate agents) that provide individuals covered by GloMag sanctions with the services they need to launder the proceeds of their corruption. Under such a regime, for example, if Deutchebank helps Arkady Rotenberg (already the target of sanctions) to move his money around the world, then the U.S. would also sanction Deutschebank—restricting its ability to transact using U.S. dollars, a disastrous outcome for many firms.

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Too Nice? Why Canada’s Corruption of Foreign Public Officials Act (CFPOA) Needs Revamping

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Capping off a series of scandalous events that shook Canadian politics to its foundation, in February 2019, Jody Wilson-Raybould––the country’s then-Justice Minister and Attorney General––resigned from the cabinet and alleged that Prime Minister Justin Trudeau’s office had pressured her to intervene in a criminal case against the Canadian construction firm SNC-Lavalin. Wilson-Raybould claimed the Prime Minister’s office ordered her to arrange a more lenient remediation agreement with the firm, which was facing bribery and fraud charges for its 2001–2011 dealings with the Muammar Gaddafi regime in Libya, because of its economic significance. (SNC-Lavalin employs more than 9000 Canadians).

These revelations brought some much-needed attention to deficiencies in Canada’s enforcement of its laws against foreign bribery. While this scrutiny is welcome, and allegations of political interference are especially troubling, the SNC-Lavalin affair may be a somewhat misleading illustration of the most pervasive problems with Canadian authorities’ anti-bribery efforts. In fact, the SNC-Lavalin affair is anomalous because, notwithstanding the alleged interference from the Prime Minister’s office, the company was actually convicted and punished in the end—to the tune of a hefty $280 million CAD fine. In Canada, such prosecutions and convictions are quite rare—not because of political meddling, but because of structural deficiencies that prevent authorities from even pursuing such investigations in the vast majority of cases.

Read more: Too Nice? Why Canada’s Corruption of Foreign Public Officials Act (CFPOA) Needs Revamping

Canada enacted its federal prohibition on bribing foreign public officials, the Corruption of Foreign Public Officials Act/Loi sur la corruption d’agents publics étrangers (CFPOA), in 1998, shortly after it ratified the OECD Anti-Bribery Convention. Much like the U.S.’s Foreign Corrupt Practices Act (FCPA), the CFPOA prohibits the bribery of foreign officials, and also requires companies to maintain accounting practices and internal controls sufficient to ensure that bribery does not occur.

Unfortunately, Canada’s track record of enforcing the CFPOA does not match the United States’ track record of enforcing the FCPA. Indeed, as early as 2005, Canada’s lackluster anti-bribery efforts attracted scrutiny and criticism from the OECD Working Group on Bribery, which evaluates how well member countries abide by the OECD Anti-Bribery Convention. In response, the Canadian Parliament amended the CFPOA in 2013 to strengthen its anti-bribery provisions. Yet, enforcement of the CFPOA continued to be infrequent, and when enforcement actions took place, the penalties were typically quite low. The 2010s saw slightly more high-profile investigations, with Niko Resources fined $9.5 million CAD in 2011 and Griffiths Energy fined $10.35 million CAD in 2013. And then, of course, there was the SNC-Lavalin case, which involved alleged CFPOA violations, though the company eventually negotiated a plea bargain that removed bribery-related charges in exchange for a fraud conviction. (Doing so avoided triggering the CFPOA’s debarment provisions, which would have prevented the company from doing further business in Canada).

But these few notable enforcement actions did not change the overall picture: As recently as October 2023, the OECD Working Group on Bribery described the Canada’s anti-bribery enforcement activity as “exceedingly low” relative to the strength of the Canadian economy and in comparison to similar countries. A recent Transparency International report similarly gave Canada poor marks in enforcing its laws against foreign bribery, comparing Canada disfavorably to peer countries. As the report noted, Canada did not initiate any CFPOA investigations in 2020 or 2021; during the same time span, the United States initiated 15 foreign bribery cases, and Switzerland initiated 28. In fact, charges have only ever been laid in nine cases in the CFPOA’s entire history, with only two individuals and four companies ever having been sanctioned. Canada’s anemic CFPOA enforcement is particularly worrisome given that Canadian exports and investments are disproportionately in high-risk sectors, such as energy and mining. 

Canadian anti-bribery efforts would benefit greatly from a revised approach that does three main things: Continue reading →

Anti-Defamation Laws: Politicians Abuse Them, But Can Anticorruption Activists Use Them?

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Defamation is a scary word for the anticorruption community. After all, anti-defamation laws are frequently abused to harass, deter, and discredit people who accuse politicians of misconduct. But defamation suits can also be an important tool for anticorruption activists to defend against false and misleading attacks designed to undermine their work. As smear campaigns deter and diminish anticorruption advocacy, we must be cautious in our attempts to weaken or repeal anti-defamation laws, for they may prove to be a necessary line of defense.

To understand why anti-defamation laws can be so important to activists, take the case of Peruvian journalist Gustavo Gorriti. Gorriti has spent much of his life trying to investigate and expose corruption. When the Lava Jato scandal rocked Latin America, his publication, IDL-Reporteros, helped uncover millions in bribe payments to public officials. Gorriti played an important role in what shaped up to be one of the most consequential anticorruption investigations in the continent’s history.

Unsurprisingly, Gorriti came under fire for his investigative work. Among other lines of attack, stories started to pop up in some media outlets falsely accusing Gorriti of having ties to directors of the bribe-paying construction company that he had investigated; these stories were clearly part of a campaign to undermine his credibility by spreading false or misleading information. This is no isolated case. Corrupt politicians and their supporters routinely make use of disinformation campaigns to discredit accusers. The problem is only getting worse, and the consequences are serious. Such campaigns often spark violence and harassment against anticorruption activists, and they can even lead to the opening of criminal investigations purporting to act on the (fabricated) allegations. Other times, disinformation undermines public support for important reforms. These consequences make life harder for the people who, like Gorriti, want to expose corruption.

What did Gorriti do about this problem? Trying to persuade the public through counterspeech wasn’t very helpful. But Gorriti had another idea: sue for defamation. If persuasion couldn’t overcome the lies thrown at him, then perhaps he could use the legal system to hit his attackers where it hurts—their pocketbooks. Claiming to have borrowed the idea from a Finnish journalist who tried the same, he did his research on who was spreading lies and brought them to court. His strategy was successful, and Gorriti scored some important victories, including getting his opponents to retract their false statements and apologize.

Although anticorruption activists and journalists rarely file suits against their attackers, more might (and for that matter, should) start to follow Gorriti’s example. Recent defamation suits against media companies and politicians show that they have a real impact. They correct the record and deter people from initiating smear campaigns in the first place. Continue reading →

IMF Staff: British Virgin Islands A Haven for Fraudsters, Tax Cheats, Corrupt Officials, Other Assorted Financial Crooks

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The IMF staff doesn’t put the conclusion to their report on the British Virgin Islands’ antimoney laundering controls as starkly as the headline to this post does. But its February 27, 330-page assessment of the island nation’s efforts to curb money laundering leaves no doubt the headline is accurate.

The report finds regulatory oversight of the financial sector is sparing at best, and in the rare instance when a violation is detected, the penalty is laughably weak. What seals the deal for those needing a safe place to stash money from corruption, drug dealing, and other financial crimes is the “who cares about others” attitude of the authorities for crimes committed elsewhere.

“The relevant authorities and key reporting institutions broadly view the illicit activities of the foreign beneficial owners as having an insufficient nexus with the territory and do not consider that VI entities are directly involved in such activities.”

IMF Country Report No. 24/55. British Virgin Islands: Detailed Assessment Report on Anti-Money Laundering And Combatting The Financing Of Terrorism

In other words, if you want to put money you stole from the citizens of your country in our banks or take advantage of our lax approach to verifying who really owns a BVI corporation to keep your country from finding your assets, fine by us. Not our problem.

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The Price of Rhetoric: Anticorruption Narratives and Violence Against Doctors in China

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In China, violence against doctors and other healthcare professionals has become a worrisome trend. Much as Americans have gotten depressingly used to the expression “school shooting,” Chinese citizens are now familiar with “hospital stabbings.” While still quite rare events relative to China’s enormous population, these incidents are both troubling in themselves and indicative of larger problems, including distrust and anger toward medical professionals and the healthcare establishment.

Could this distrust and anger have something to do with the rhetoric that has accompanied some of China’s high-profile anticorruption campaigns? It is hard, perhaps impossible, to prove a direct link, but consider the following suggestive evidence: Continue reading →