Nigeria’s Government Assistance Programs for Small Businesses: A Gateway for Corruption

Nigeria’s Small and Medium Enterprises (SMEs) are the backbone of the country’s economy, accounting for 96% of Nigeria’s businesses, 84% of its labor force, and 48% of its GDP. SMEs also provide Nigeria’s oil-dependent economy with some important economic diversification. Nevertheless, difficulties in securing startup or operational funds, among other problems, makes starting and operating a small business in Nigeria remarkably challenging. To mitigate these difficulties, the Nigerian federal government has created an assortment of agencies to support SMEs. In addition, at least 26 of Nigeria’s 36 state governments have established at least one SME development agency or office.

Unfortunately, government funds meant to help small businesses often fail to reach their intended recipients. Instead, the government’s SME programs often function as gateways for corruption, either in the form of misallocation of resources for political patronage, or as outright embezzlement of funds. This corruption problem is well illustrated by two of the most important national-level government programs meant to support Nigerian SMEs:

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It’s Not Just the Corporate Transparency Act: Other Reasons To Welcome the Passage of the U.S. NDAA

Last week I posted about the Corporate Transparency Act (CTA), the new law requiring companies to provide the government with information about their ultimate beneficial owners. The CTA, which was passed (over President Trump’s veto) as part of the National Defense Authorization Act (NDAA), has been getting a lot of attention in the anticorruption and anti-money laundering (AML) community, and rightly so. The product of decades of tireless and shrewd advocacy, the CTA—despite its limitations and imperfections—will make it substantially harder for kleptocrats, terrorists, organized crime groups, and others to abuse corporate structures to facilitate their crimes and hide their loot. But the CTA is not the only part of the NDAA that may have a substantial positive impact on the fight against corruption and money laundering. And while it’s entirely understandable that most of the attention (and celebration) in the anticorruption community has focused on the CTA, I wanted to use today’s post to highlight several other provisions in the NDAA that may also prove important in combating corruption and money laundering. Continue reading

The IMF’s (Non-)Engagement with Corruption in Military Spending

In a move that has been hailed by the anticorruption community as a “major step forward,” the International Monetary Fund (IMF) has declared that it will address corruption in its member states, insofar as that corruption is “macro-critical” – that is, when corruption “affects, or has the potential to affect, domestic or external [macroeconomic] stability.” As I stressed in a previous post, the focus on “macro-criticality” is the IMF’s solution to a persistent problem with how to distinguish economic policy (which the IMF may influence) from matters that are outside the IMF’s mandate—because, after all, the IMF is a “monetary agency, not a development agency.” Grounding anticorruption in the Fund’s mission to support the international financial system allows IMF staff to discuss anticorruption strategies frankly with country authorities.

Yet certain corruption-related topics still seem off limits, notwithstanding their arguably macro-critical characteristics. For instance, although the IMF has touted its comprehensive framework for reviewing corruption risks, the IMF’s strategy leaves out certain key channels that facilitate corruption, such as the corrosive effect of corruption on, and in, military spending. The wholesale omission of military spending from the IMF’s anticorruption strategy demonstrates that the IMF’s attention to macro-critical corruption problems is tempered by understandable concerns about the reputational blowback that might result from intervention into politically sensitive areas. Understandable as it may be, the IMF’s decision to exclude military spending from its anticorruption strategy deprives member countries of the broader benefits that are provided when the IMF acknowledges a concern as macro-critical.

Understandable as it may be, the IMF’s decision to exclude military spending from its anticorruption strategy deprives member countries of the broader benefits that are provided when the IMF acknowledges a concern as macro-critical.

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Fixing the Brazilian Anticorruption Leniency Program

When the Brazilian Anticorruption Law came into force in 2014, pundits celebrated the enactment of a statute that finally authorized action against corporations and other legal entities involved in public corruption, and that provided for substantial penalties. The statute’s most important innovations, however, were not so much its substantive provisions but rather the procedural reforms it introduced, chief among them the Anticorruption Leniency Program, which, alongside the criminal plea bargains for accomplice cooperation created by the Organized Crime Act (enacted on the same day as the Anticorruption Law), authorizes enforcement agencies to settle corruption-related cases.

            The Anticorruption Leniency Program largely reproduces the key features of Brazil’s Antitrust Leniency Program, which, in turn, was inspired by the amnesty program adopted by the U.S. Department of Justice’s Antitrust Division. To qualify for a leniency agreement, a company must be the first among those involved in a corruption scheme to state its interest in cooperating, admit its participation in the wrongdoing, cease any further involvement, cooperate fully with the investigation, and agree to pay compensation for any harm caused to the Public Administration. In exchange, the qualifying company can receive a significant reduction in the administrative fine, as well as protection against debarment or suspension from doing business with the Public Administration. (In contrast to the Antitrust Leniency Program, however, an Anticorruption Leniency agreement does not shield individuals associated with the qualifying company from criminal prosecution.)

Despite its importance in high-profile investigations such as the Lava Jato investigation (Operation Car Wash), critics have emphasized shortcomings of the Anticorruption Leniency Program. Coordination – or rather the lack thereof – between different enforcement agencies is often considered the most significant weak point of the program. However, I want to suggest a different source for the relative ineffectiveness (so far) of the Anticorruption Leniency Program: the requirement that, in order to be eligible for leniency, a company must admit its participation in the wrongdoing. Importantly, this requirement is not (merely) that the company accepts legal responsibility; rather, the program requires admissions of facts—facts that the company cannot subsequently dispute in other proceedings, which, from an enforcement standpoint, is precisely what creates the need for coordination between agencies. But such admissions can also entail additional collateral consequences:

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A Few Thoughts on the Passage of the U.S. Corporate Transparency Act

[Note: I drafted the post below earlier this week, before yesterday’s shocking events in the U.S. Capitol. I mention this only because it might otherwise seem odd, and perhaps a bit tone-deaf, to publish a commentary on new corporate transparency rules when we just saw an attempted insurrection incited by the siting U.S. President. I don’t really have anything to say about the latter events (at least nothing that others haven’t already said), so I decided to go ahead and publish the post I planned to publish today anyway.]

Last week, as I suspect many readers of this blog are well aware, the United States Congress enacted one of the most significant anticorruption/anti-money laundering (AML) reforms in a generation. The Corporate Transparency Act (CTA), which was incorporated as part of the annual National Defense Authorization Act (NDAA), will require—for the first time in the United States—that corporations, limited liability companies, and similar entities will have to provide the U.S. government (specifically, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN)) with the identities of the ultimate beneficial owners of those entities. That beneficial ownership information, though not made publicly available, will be provided to law enforcement agencies, as well as to financial institutions conducting due diligence (with customer consent). This reform will make it substantially harder for kleptocrats and their cronies—as well as other criminals, including human traffickers and terrorists—to conceal and launder their assets in the United States through anonymous shell companies, and will make it substantially easier for law enforcement to “follow the money” when investigating possible criminal activity.

This important reform has already gotten a ton of coverage in the anticorruption/AML community (see here, here, here, and here), as well as the mainstream media (see here, here, here, and here), though mainstream coverage has understandably been overshadowed by both the coronavirus pandemic and President Trump’s attempts to subvert the recent election. And we’ve had quite a bit of discussion of the issue on GAB prior to the passage of the NDAA (see, for example, here, here, here, here, and here). So, I’m not sure I really have that much to add to what others have already said. Nevertheless, it felt strange to allow this landmark event to go entirely undiscussed on GAB, so at the risk of self-indulgence, I’d like to throw out a few additional thoughts and observations related to the CTA. Continue reading

Kleptocracy Strikes Mongolia? A Batbold Advisor Replies

GAB’s December 8 “Kleptocracy Strikes Mongolia? The Batbold Case” prompted dozens of reader comments. The post recounts a recently filed New York civil case where it is alleged that, while he was Prime Minister, Sukhbaatar Batbold worked with a South Korean couple to embezzle hundreds of millions of dollars which went in part to buy real estate in New York and elsewhere registered in the couple’s name. Although the couple appears to have no experience in international commodity markets, they bought large quantities of ore from Mongolian state-owned or controlled mines during Batbold time in office on questionable terms. Batbold’s children now live in or use properties registered to the couple.

Dozens of readers commented on the post, roughly half claiming the charges were fabricated and half saying it was past time to hold Batbold accountable. No one addressed the substance of the allegations however, and hence in a follow up post December 23 readers were invited to do so. To date the one response has been a letter from a Batbold advisor asking GAB to delete the two posts. GAB Editor-in-Chief Matthew Stephenson wrote in reply that while GAB does not remove a post because someone believes it unfair, GAB will correct it if it is inaccurate.

The advisor’s letter contains a blanket denial of wrongdoing by Batbold and a claim the case is politically motivated. It points to no inaccuracies, however. It does note that subsequent to the first post’s appearance the government of Mongolia voluntarily discontinued the case against Batbold.  The letter implies this was because the court exonerated him. That is not correct. The court has not ruled on any of Mongolia’s allegations. Likely Mongolia decided to discontinue its case against Batbold for technical reasons having to do with his claim that as a public official he is immune from all court action. In any event, the South Korean couple remain parties.The letter is below. 

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The Goldman Sachs 1MDB Settlement Was Just and Appropriate

In late October, the United States Department of Justice announced a major settlement with the global investment bank Goldman Sachs for its involvement in the 1MDB scandal, an international bribery scheme in which high-level Malaysian officials embezzled an estimated $4.5 billion from a fund designed to finance infrastructure and other economic development projects. Between 2012 and 2013, Goldman Sachs helped raise $6.5 billion for 1MDB in three bond sales, and at least two Goldman bankers aided Jho Low, an advisor to the fund, in embezzling much of the capital. As part of the settlement with DOJ, Goldman agreed to pay over $2.9 billion to authorities in the US, Hong Kong, UK, and Singapore. Of the nearly $3 billion in fines, approximately $1.85 billion will go to the United States, over $600 million to Malaysia (on top of a $3.9 billion settlement the Malaysian branch of Goldman reached with the country in July), and $440 million to financial regulators in other nations.

Despite these eye-popping numbers—including what appears to be the largest fine to date levied under the U.S. Foreign Corrupt Practices Act—some experts have characterized the $2.9 billion penalty as “surprisingly small” or even “virtually meaningless” for a company that made $3.6 billion this last quarter alone. And, in what has become a common refrain among critics of these sorts of settlements with big firms, many complain that no senior Goldman Sachs executives were held personally, criminally liable for the bank’s role in the 1MDB fiasco.

Yet an assessment of the punishment must also include the penalties that extend beyond these government-imposed fines. Indeed, while some regard Goldman Sachs’ settlement as a slap on the wrist for a global corporation that’s a glutton for punishment, the implications of the settlement reveal a more just outcome than appears at first blush.

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A GAB’s Eye View of 2020

Thanks to WordPress, the free, open-source, amazing software that runs GAB, Matthew and I know something about our readers.  Don’t worry. It doesn’t tell us who you are or what your email addresses are, but WordPress does show us where you live and what posts you find of greatest interest.  As 2020 comes to its welcome end, we thought you would be interested to know where you come from and what topics most interest you.

GAB readers live in all but five of the 193 members of the United Nations and in one prominent non-member state.  Pope Francis himself may not be one of GAB’s Vatican City readers, but we would like to think that GAB posts chronicling the impact of corruption on less developed nations has in some way contributed to his forceful denunciation of corruption and the harm it wreaks on the least fortunate.

The five UN member states where not a single citizen read even one GAB post this past year are:

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Is the Global Magnitsky Sanctions Program Working?

The 2016 Global Magnitsky Human Rights Accountability Act (GMA), inspired by the imprisonment and death of Sergei Magnitsky in Russia after his discovery of $230 million in tax fraud orchestrated by the Russian government, stands as the boldest authorization of U.S. economic sanctions in the fight against corruption. Executive Order 13818, issued in December 2017, designated the first sanctioned parties under GMA, enabling asset freezes and travel bans.

Since then, approximately 150 individuals and entities worldwide have been sanctioned for corruption under the GMA. (The GMA also allows for sanctions against human rights violators, and such authority was exercised to target 75 more individuals and entities.) The list includes current and former government officials—or those acting on their behalf—in Cambodia, China, Cyprus, Democratic Republic of the Congo, Dominican Republic, Equatorial Guinea, Gambia, Iraq, Latvia, Lebanon, Mexico, Nicaragua, Serbia, South Africa, South Sudan, Uganda, and Uzbekistan, among others. The designations include familiar names in the anticorruption community such as Gulnara Karimova, former Uzbek first daughter convicted of embezzlement and other corruption totaling more than $1.3 billion, Dan Gertler, the Israeli billionaire who earned millions of dollars through underpriced mining contracts in the Democratic Republic of the Congo, and Angel Rondon Rijo, a Dominican lobbyist central to Brazilian construction firm Odebrecht’s $4.5 billion Latin America-wide bribery-for-contracts scheme. Other sanctioned parties include the former Gambian president and first lady for misappropriating $50 million in state funds, a former Mexican judge and a former Mexican governor who took bribes from drug cartels, and a Sudanese businessman who, along with senior South Sudanese government officials, embezzled millions of dollars from a government food program.

The GMA represents a new era of so-called “smart sanctions.” Instead of limiting transactions with an entire country—as in the case of U.S. sanctions programs targeting Cuba, Iran, North Korea, and Syria—these individualized sanctions are designed to maximize harm and minimize collateral economic damage by restricting only bad actors’ access to global commerce, not that of entire populations. This approach is catching on outside the United States, with Canada, the United Kingdom, and the European Union recently announcing their own GMA-esque sanctions, while other countries, like Australia and Japan, are actively considering adopting similar programs.

Yet, a fundamental question remains: is the GMA working?

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A Covid-19 Checkup: How the IMF’s Transparency Measures Have Fared So Far

With a trillion dollars in lending capability, the International Monetary Fund (IMF) is one of the best-equipped institutions to deal with the Covid-19 public health and financial crisis. Since March, the IMF has met an “unprecedented number of calls for emergency financing” with “unprecedented speed and magnitude,” through renegotiations of rapid credit facilities, refinancing initiatives, and debt relief assistance for more than 100 countries, totaling over $100 billion in disbursements so far. In the early days of the pandemic, there was a great deal of concern among anticorruption advocates over the way these emergency funds would be monitored (see collections of pieces here and here). The IMF’s initial approach generally did not impose formal transparency or governance requirements as a condition for receiving emergency Covid relief funds. Rather, the IMF chose to rely more on after-the-fact safeguards: recipient countries were told to spend as needed but to “keep the receipts.”

The IMF’s approach is understandable. As Jason Keene argued on this blog, the IMF at that early stage faced a trade-off between speed and transparency, and may have reasonably concluded that it would not be advisable to bargain over transparency measures if doing so would slow the deployment of much-needed funds. This conclusion, as a May 2020 IMF publication revealed, was influenced by the IMF’s experience with the 2014-2016 Ebola outbreak in West Africa: Many, including a prominent public health journal, blamed the IMF for the lethality of the Ebola epidemic, provoking a backlash against what was seen as unduly burdensome loans, a focus on austerity, and the underfunding of medical systems in vulnerable countries (see here, here, and here). Given this background, it’s understandable that the IMF might, on balance, favor speed over transparency, providing loans for Covid-related public health and budgetary shortfalls without much conditionality.

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