There’s No Panacea for Corruption. So We Can All Stop Pointing That Out.

I’m taking another one of my periodic breaks from semi-serious commentary to make a mostly frivolous, slightly snarky point about the way we talk and write about corruption. Here’s my plea for today:

Every sensible person would presumably agree that there’s no panacea (that is, no single cure-all) for corruption. But our community appears to have developed—perhaps as a kind of reflexive, semi-defensive verbal tick—the tendency to declare that whatever anticorruption measure we happen to be talking about is “not a panacea” for corruption. Thus we are told repeatedly, for example, that:

  • Transparency is not a panacea for corruption (see here, here, here, and here);
  • Anticorruption agencies are not a panacea for corruption (see here, here, here, and here);
  • New technologies are not a panacea for corruption (see here, here, here, and here);
  • Democracy is not a panacea for corruption (see here, here, and here);
  • Privatization is not a panacea for corruption (see here and here).

Other things that the literature has declared “not a panacea” for corruption include higher public sector salaries, international courts, more women in the public sector, EU membership, codes of corporate ethics, unexplained wealth orders, and economic sanctions.

Since we all agree (or should agree) that there is no panacea for corruption, we probably don’t need to keep saying that any individual measure is not a panacea. Of course it isn’t. There isn’t one. Done.

While this post is mainly meant as a gentle admonition (with the finger pointed at myself as much as anyone else) to be more mindful about trotting out tired clichés and banal statements of the obvious, I do think there’s something intriguing about how many of us working in this field (again, very much including myself) so frequently feel the subconscious compulsion to add what would seem to be an unnecessary caveat when discussing this or that anticorruption measure. Why do we do this? Perhaps we recognize the all-too-frequent tendency of advocates to make exaggerated claims on behalf of their preferred reform, and we want to reassure our audience that we are more nuanced and sophisticated? (I imagine, for example, that those advocating for greater use of modern information technology don’t want to be mistaken for naïve techno-utopians.) Or perhaps we worry, perhaps with justification, about managing the expectations of our audience, lest the failure of a proposed reform to eradicate the corruption problem be treated as evidence that the reform didn’t help, leading to greater cynicism and frustration?

Then again, maybe there’s no subject-specific explanation. Maybe it’s just a bad habit. In any event, I propose that we retire the phrase. Please allow me to be so bold as to officially declare in this blog post, on behalf of the anticorruption community, that there is no panacea for corruption. So, going forward, we don’t need to say it anymore. Just throw in an unexplained hyperlink to this post as soon as you introduce the anticorruption measure you want to discuss, without feeling the need to insert the “not a panacea” qualification. You’re welcome.

Anticorruption Court Rulings as a Gentle Reminder to Voters: Candidates’ Integrity Is Important

One of the great paradoxes in the research on corruption in democracies—and one of the great sources of frustration for anticorruption activists—is that while large majorities of voters consistently claim that they detest corruption and would be less likely to support corrupt politicians, nonetheless politicians credibly accused of corruption regularly win elections. There are many possible explanations for this, including the possibilities that voters lack sufficient information about corruption allegations against candidates, or that voters ultimately prioritize other factors. Yet another possibility—similar to yet distinct from these familiar explanations—is that even if voters are generally aware of corruption allegations against certain politicians, when the time comes to vote, other issues are more salient in many citizens’ minds, and integrity concerns fade into the background.

That last explanation implies that if concerns about politicians’ integrity were made more salient shortly before the election—even if the focus was on political corruption generally, or on corruption in some other jurisdiction—then voters would be less inclined to support politicians suspected of corruption. In a recent article, titled Can Institutions Make Voters Care about Corruption?, Omer Yair, Raanan Sulitzeanu-Kenan, and Yoav Dotan find that this may indeed be the case, and further suggest that if high-profile institutions—such as courts—take actions that raise the salience of corruption and integrity issues shortly before an election, this can lead voters to place more weight on such considerations when casting their ballots. Continue reading

The U.S. Qualified Opportunity Zone Program Is Vulnerable to Corrupt Manipulation by Politically-Connected Investors. Here’s How To Fix It.

The U.S. federal government’s Qualified Opportunity Zones Program, a program established as part of the 2017 Tax Cuts and Jobs Act, is supposed to drive investment to certain low-income neighborhoods (so-called “qualified opportunity zones,” or QOZs) by allowing investors to defer (or, in the case of sufficiently long-term investments, to avoid) capital gains taxes on their investments in these areas. The process of designating QOZs works as follows: First, the U.S. Department of the Treasury provides each state with a list of eligible “economically distressed” neighborhoods. This list is based on census data, but, importantly, it includes not only neighborhoods located in poor census tracts, but also neighborhoods that are adjacent to poor neighborhoods, or that overlap (even slightly) with areas designated as “empowerment zones” under a Clinton-era redevelopment initiative. Next, each state governor has the authority to nominate up to 25% of these eligible neighborhoods for designation as QOZs. The governors’ lists are then submitted to the Treasury Secretary, who has the final authority to certify these neighborhoods as QOZs. As of July 2020, 8,700 neighborhoods had been designated as QOZs.

Many have questioned the wisdom and efficacy of the QOZ program on a variety of grounds, with some characterizing the program as little more than a new form of tax avoidance for the wealthy that fails to address structural poverty. Even if one puts those concerns to the side, there are serious concerns that the existing QOZ program—and in particular, the process for selecting QOZs described above—has been corrupted by wealthy interests, who are able to exploit their political connections to get certain areas designated as QOZs, even when professional staff deem such designations inconsistent with the established program criteria. Consider just a few high-profile examples: Continue reading

Suspended EFCC Chair Answers Anonymous Charges

Opponents of Ibrahim Magu, suspended chair of Nigeria’s powerful anticorruption agency the Economic and Financial Crimes Commission, are doing their best to convict him of corruption in the court of public opinion.  While Chairman Magu patiently waits for a chance to clear his name before a special panel investigating charges levelled against him by Abubakar Malami, Minister of Justice and Attorney-General, stories of his supposed corruption appear daily in Nigeria’s raucous media. In response, his counsel Wasab Shittu has begun responding.  Below are excerpts from his July 26 letter.

Alleged Questions Over [the Chairman’s] Asset Declaration.

Our client has NEVER been confronted with any such allegations purportedly arising from the Panel’s proceedings. The story attributed to the panel, which has become a recurring decimal, is a dangerous attempt to discredit the work of the honorable panel.

Funds recovered from indebted NNPC marketers for the NNPC.

Contrary to the misleading media reports, EFCC under our client’s watch NEVER misappropriated any funds recovered for NNPC [Nigeria National Petroleum Corporation]. The truth of the matter is that well over N329billion recovered by EFCC under our client’s watch was remitted directly in10 NNPC dedicated accounts via REMITTA under a special arrangement endorsed by NNPC, EFCC and the affected NNPC’s indebted marketers.

U.S. State Grand Juries Can Be Powerful Watchdogs. Let’s Put Them To Use (Again).  

Many commentators in the United States—including a number of GAB contributors—have lamented the lack of robust anticorruption investigations at the state level, and have advocated the creation or strengthening of state-level anticorruption commissions (see, for example, here, here, and here). While there is much to be said for these proposals, the existing commentary often overlooks the fact that states already have a powerful institution with the potential to perform many of the functions that reformers hope to vest with the state commissions. That institution is the state grand jury.

When most people hear the phrase “grand jury,” if they know the term at all, they probably imagine a scene from some TV crime show where a prosecutor endeavors to persuade a group of average citizens to indict someone that the prosecutor believes has committed a crime. And indeed in most states, grand juries’ principal function is to determine whether a state prosecutor has “probable cause” to put a defendant on trial. (After the trial beings, a different jury—the “petit jury”—decides whether the defendant is actually guilty.) But grand juries don’t just evaluate the prosecutor’s evidence at the indictment stage. Grand juries also have robust investigatory powers of their own. Like some state anticorruption commissions, state grand juries have the authority to subpoena documents or other tangible things. But unlike state anticorruption commissions, state grand juries can also compel witnesses to testify, and can hold those who refuse in contempt. (Indeed, while witnesses can invoke their constitutional right against self-incrimination to refuse to testify in a criminal trial, no such right exists in a grand jury investigation.) Moreover, grand juries can not only return criminal indictments (their more familiar function), but grand juries can also issue public reports about unethical and unsavory behavior.

If wielded properly, these immense powers could help unearth evidence of wrongdoing. Moreover, grand juries’ investigative powers may be especially valuable in cases involving corruption. While it might seem radical to propose that grand juries exercise these existing but largely moribund powers to assume the role of anticorruption watchdog, this would in fact be a return to one of the grand juries’ traditional functions.

Continue reading

Unholy Alliance: How and Why India’s Politicians Protect India’s Corrupt Godmen

In my last post, I explained how loopholes in India’s legal system have enabled self-proclaimed “godmen” to amass fortunes by facilitating money laundering. But these corrupt godmen could not build their illicit empires without protection from politicians. After all, the government could crack down on godmen’s activities by changing the laws, or even by ensuring adequate enforcement of the flawed laws that currently exist. The government has not done so in part because of a corrupt relationship between godmen and politicians. The politicians provide the godmen with political favors, special privileges (including sweetheart deals for the godmen’s business ventures), patronage appointments, and, perhaps most importantly, the preservation of the system of legal loopholes and minimal oversight that enables the godmen to amass their fortunes. In return, godmen provide politicians with a number of services. These services include the same money laundering services that godmen provide to businessmen. But the godmen also provide politicians with three other services in exchange for the politicians’ complicity.

Continue reading

Godmen or Conmen? How India’s Religious Trust Laws Facilitate Money Laundering Empires

In the past two decades, India has witnessed the rise of so-called “godmen” (and “godwomen”), charismatic religious leaders who have amassed enormous fortunes. To take just a few of the most eye-popping examples: when the godman Sathya Sai Baba died in 2011, his holdings were valued at more than $9 billion. Another godman, Asaram Bapu, has a trust with an annual turnover of $49 million—which may seem like a lot, but pales in comparison to the over $1.6 billion in annual revenue earned by a company called Patanjali, controlled by yet another godman, Baba Ramdev. It would not be hard to supply many other examples. The godmen and their supporters will tell you that these empires are built on a combination of legitimate contributions and business savvy, and that the funds are used to support spiritual and charitable activities. But in fact there is ample evidence that the fortunes of these supposedly religious figures are tainted by extensive corruptiontax evasion, and money laundering.

One of the most common functions that godmen perform in the illicit economy is the conversion of so-called “black money” (unaccounted off-book money, often from illegal sources) into “white money” (or goods or services), in exchange for a hefty fee. Godmen are able to get away with this due to unfortunate features of India’s religious trust laws, which are opaque and riddled with loopholes, and leave religious trusts largely unchecked and unsupervised. Here’s how some of the godmen’s illicit schemes work:

Continue reading

Suspended Nigerian Anticorruption Agency Head Rebuts Charges

As this blog has reported, Ibrahim Magu, the Acting Chair of Nigeria’s Economic and Financial Crime Commission, was detained July 7 by the state security service on vague charges involving corruption and misfeasance in office.  Since then, in what would appear to be an orchestrated campaign to discredit him, the Nigerian press has been awash with allegations of Magu’s wrongdoing.  They range from a claim that he secretly owns property in Dubai to charges he has embezzled millions from the Commission to an assertion he has paid off Nigeria’s sitting Vice President.

A point-by-point rebuttal of the allegations, issued by Mr. Magu’s counsel Wahab Shittu, is below.  An interview with Mr. Shittu on the public affairs program “Law Weekly,” is here, and a discussion of the issues raised by Magu’s treatment and their implications for Nigeria’s fight against corruption is here.

Many Nigerians fear that the real reason Magu was detained and subsequently suspended from office is that he has been far too effective a corruption hunter (examples here and here). Let’s hope the Presidentially appointed panel investigating Magu acts promptly, fairly, and decisively.  Nigeria needs an strong, effective Economic and Financial Crimes Commission to fulfill President Buhari’s pledge to fight corruption.

THE CHAIRMAN                                                                                                                               The Presidential Investigation Committee on The Alleged Mismanagement Of Economic and Financial Crimes Commission (EFCC)                                                                               Federal Government Recovered Assets and Finances From May 2015 to May 2020.

Attention: Hon Justice Isa Ayo Salami (Rtd)

Gentlemen:

PUBLICATIONS PREJUDICIAL TO THE PROCEEDINGS OF THIS HONOURABLE PANEL Continue reading

Countering Corruption in the Energy Sector: After Initial Missteps, Tanzania Shows the Way

The effects of corruption can be felt long after the incidents take place. There’s no better illustration of this than the history of Tanzania’s energy sector. In 1992, the Government of Tanzania was facing an energy crisis, and was in discussions with a Canadian company to develop its natural gas fields with funding from the World Bank. But then, the Tanzanian government received an unsolicited proposal from a Malaysian company, which offered to partner with a local Tanzanian firm to build and operate an emergency diesel-fueled power plant. The government abandoned its discussions with the Canadian company and, in 1995, signed a 20-year power purchase agreement (PPA) with Independent Power Tanzania Limited (IPTL), a joint venture entity formed by these Malaysian and Tanzanian private interests. By 1995, however, the energy crisis had already passed, and it was not at all clear that this PPA was in the government’s interest. In fact, Tanzania’s principal energy regulation agency, the Ministry of Energy and Minerals (MEM), consistently opposed the deal. Yet parties with significant ownership interests in IPTL managed to get the PPA through, in part by bribing senior officials and politicians.

The deal was a disaster, one that had a substantial negative impact on Tanzania’s energy sector for close to two decades. (The initial corrupt deal, together with multiple other improprieties, significantly undermined the financial stability of Tanzania’s energy sector, resulting in lower investment, substantial delays in the construction of more efficient power plants, higher energy costs for consumers, and inadequate expansion of electrification into rural communities.) But, without minimizing the seriousness of the mistakes that were made or the costs that resulted from this corrupt deal, ultimately Tanzania’s efforts over the last decade to hold the corrupt actors accountable and to overhaul its regulatory system provide a roadmap for how countries that have suffered from this sort of corruption, in the energy sector and elsewhere, can respond. Continue reading

Two Legal Changes Which Would Bolster Israel’s Protection of Whistleblowers

Like many other jurisdictions around the world, Israel has long recognized the value of whistleblowers who report and expose illegal acts in their workplaces. Without such whistleblowers, it is almost certain that Israeli citizens and law enforcement would never have learned, for example, about alleged corruption in the Israel Tax Authority, municipalities, Israel Aerospace Industries, the Ministry of Transport and Road Safety, and others. In order to encourage more whistleblowers to come forward, Israel has developed several legal instruments, the strongest and most central being the Protection of Workers (Exposure of Offenses and of Harm to Integrity or to Proper Administration) Law (PoWL) (see here and here). The PoWL, originally enacted in 1997 and amended three times since then, civilly and criminally forbids employers from retaliating against employees for whistleblowing, and establishes an employee-friendly mechanism for the victims of such retaliation to seek damages. These cases are heard by Israel’s specialized Labor Courts. In addition to awarding compensatory damages, the courts are also authorized to order employers to pay exemplary (that is, punitive) damages, and may also invalidate the whistleblower-plaintiff’s dismissal, or order that the whistleblower be moved to “another appropriate position” in the workplace.

While at first glance the PoWL seems to offer strong protections for whistleblowers, the PoWL suffers from two major weaknesses that significantly compromise its effectiveness. These problems must be addressed if the PoWL is to provide whistleblowers with adequate protections against retaliation: Continue reading