Category Archives: Commentary

Not the “Panama Papers” But the “BVI Papers” or Better Still the “EI” Papers

Posted on by
9

The immense public service performed by the consortia of journalists who exposed the inner-workings of the Panamanian law firm Mossack Fonseca is plain to all.  The thousands of stories in multiple languages revealing how M/F works with law firms and banks around the globe to help individuals hide their wealth has provided law enforcement a cornucopia of leads — as the investigations launched in France, Switzerland, South Africa, Pakistan, the United Kingdom, El Salvador, Argentina, and India attest to.  Far more important than nailing a few tax cheats or crooked politicians, though, are the revelations showing how easily firms like M/F can dodge laws that supposedly bar them from helping individuals keep their wealth a secret and what changes are needed to end this legal dodge ball.

But there is a risk that, because the revelations have been dubbed the “Panama Papers,” reformers will be thrown off the scent.  Panama is a small part of the story at best.  The real problem lies in jurisdictions like the British Virgin Islands where, as an April 4 Guardian story shows, an obscure provision in its antimoney laundering law allows M/F and other firms like it to establish a BVI corporation without having to verify who the true, or beneficial, owner of the corporation will be.  This creates an opportunity to introduce a layer of secrecy between the owner and his or her money and law enforcement authorities.  A name better calculated to lead reformers in the right direction would have been the “BVI Papers” since most of the corporations M/F establishes for clients are created under the law of BVI.

An even better name still might be the “EI Papers” as it is the “EI” provision of BVI law that allows M/F to duck verifying the identity of the beneficial owners of the corporations it creates.  “EI” stands for “eligible introducer,” and the best way to see how the EI provision in BVI law makes hiding money so easy is through an example.  Suppose, just for the sake of illustration, Russian President Vladimir Putin was about to come into a large amount of rubles that he would rather Russian citizens and his critics abroad not know about.  How would the EI provision in BVI law help him keep his wealth secret? Continue reading →

Against Global Standards in Corporate Settlements in Transnational Anti-Bribery Cases

Posted on by
2

A couple weeks ago, Susan Hawley, the policy director of the UK-based NGO Corruption Watch, published a provocative post on this blog calling for the adoption of “global standards for corporate settlements in foreign bribery cases.” Her post, which drew on a recent Corruption Watch report on the use (and alleged abuse) of the practice of resolving foreign bribery enforcement actions through pre-indictment diversionary settlements—mainly deferred-prosecution and non-prosecution agreements (DPAs/NPAs)—echoed similar arguments advanced in a joint letter sent by Corruption Watch, Transparency International, Global Witness, and the UNCAC Coalition to the OECD, on the occasion of last month’s Ministerial meeting on the OECD Anti-Bribery Convention.

A central concern articulated in Ms. Hawley’s post, as well as the CW report and the joint letter, is the fear that corporate settlements too often let companies off too easily–and let responsible individuals off altogether–thus undermining the deterrent effect of the laws against transnational bribery. I’m sympathetic to the concern about inadequate deterrence, but unconvinced by the suggestion that over-reliance on DPAs/NPAs is the real problem. (Indeed, I tend to think that under-use of these mechanisms in other countries, such as France, is a far greater concern.) My last post took up that set of issues. But, as I noted there, the question whether the U.S. use of settlements is (roughly) appropriate is conceptually distinct from the question whether there ought to be global standards (or guidelines) on the use of such settlements. After all, while one could object to U.S. practices and call for (different) global guidelines—as Corruption Watch does—one could also object to U.S. practices but still resist attempts to develop global guidelines. Or one could not only endorse current U.S. practices, but also call for global guidelines that similarly endorse those practices. And then there’s my position: basically sympathetic to the general U.S. approach to corporate settlements in FCPA cases, and generally skeptical of the case for global guidelines.

Having spent my last post elaborating some of the reasons for my former instinct, let me now say a bit about the reasons I’m unconvinced by the call for global guidelines on corporate settlements (or at least why I think such calls are premature): Continue reading →

Violence Is Not the Answer: The Case Against Rodrigo Duterte

Posted on by
4

The life of Rodrigo Duterte, mayor of Davao City in the southern Philippines, reads more like that of a mob boss than a mayor. The National Bureau of Investigation (NBI) has investigated Duterte for his alleged links to a vigilante group called the Davao Death Squad (ties he later admitted), as well as threats made to kill village chiefs who did not support his government programs. He has expressed his support for extrajudicial killings as a means to fight corruption and crime. And in case you don’t think he’s serious, suspects have turned up dead after Duterte issued an ultimatum to all drug dealers to either leave his city within 48 hours or be killed. The man is rumored to have pushed a drug dealer out of a moving helicopter, and has openly stated that he would like to kill all criminals himself and throw them into Manila Bay. The most terrifying thing about him? He’s running for President, and he’s winning.

Duterte’s success can be explained by a number of factors, but one of the most troubling reasons for his popularity is that Filipinos have become so disillusioned by corruption in politics that they’ve become attracted to dangerous, zero tolerance policies. Duterte has stated that he would like to bring back the death penalty for the crime of plunder, and while he back-pedaled on his support for extrajudicial killings in the last presidential debate, Duterte still admits to having killed in the past, with a new ominous and unclear caveat: “It’s always bloody, but I never said extrajudicial.”

The popularity of these extreme policies reflects how frustrated citizens are with corruption in the Philippines. Corruption is incredibly widespread, and plagues the country’s politics, courts, and police forces at the local and national levels. Many voters view Duterte’s approach as necessary to combat this immense problem, which persists despite years of promises from many so-called anticorruption candidates.

While I understand this frustration with Philippine corruption, Duterte’s zero-tolerance approach is short-sighted, misguided, and incredibly dangerous. As voters prepare for the election next month, they should consider the troubling implications of Duterte’s violent approach to the fight against corruption.

Continue reading →

The Case for Including Sextortion Measures in TI’s CPI

Posted on by
1

In a recent post, I called for the creation of an international index of sexual corruption. While I believe that such an index will have an effect standing alone, I also believe that such an index, once created, should be included as one of the sources used to construct composite indexes such as Transparency International’s Corruption Perceptions Index (CPI). As most GAB readers are likely aware, the CPI is does not reflect TI’s own independent assessment of corruption perception, but rather aggregates corruption perception measures from a range of other sources. These other sources, however, all measure perceptions of monetary corruption, such as bribery and embezzlement. But, as TI itself acknowledges, sexual corruption may not correlate well with other forms of corruption, meaning that an index like the CPI may give us an incomplete and misleading picture.

The exclusion of sexual corruption is not TI’s fault; there are currently no global comparative measures of perceptions of sexual corruption for TI to incorporate. Indeed, this gap is precisely why I advocate the creation of an international sexual corruption perceptions index. Of course, even if such an index is created, it would be a separate question whether the results ought to be included in the CPI. I believe it should be.

Continue reading →

Five Things Washington Should Do to Help Latin America Curb Corruption

Posted on by
4

The following is based on a March 24 talk I gave at the Washington office of the Council on Foreign Relations.  It is posted in a slightly different form on “Latin America’s Moment,” the Council’s blog on Latin America.

One of the most promising developments in U.S. foreign relations is the all out war on corruption being waged across Latin America.  From “Operation Car Wash” in Brazil to investigations of presidential wrongdoing in Bolivia, El Salvador, Honduras, Guatemala, and Panama, across the region independent, tenacious prosecutors and investigators are out to end the massive theft of state resources that for so long has hobbled political development and throttled economic growth.  Americans should be cheering for these corruption warriors, for we have much to gain if they succeed.  Less corruption translates into more stable, reliable political allies; it means faster, more equitable growth and that means shared prosperity and less northward migration.  Finally, less corruption in government will offer American firms new opportunities. Think what the end of corruption in Brazilian public works would mean for U.S. engineering and construction companies.

But given the stakes in Latin America’s corruption war, America should be doing more than cheering from the sidelines.  It should be doing everything it can – without infringing the sovereignty or sensibilities of Latin neighbors – to see its corruption warriors succeed.  Here are five things to start with: Continue reading →

The Case for Corporate Settlements in Foreign Bribery Cases

Posted on by
9

Although 41 countries have signed onto the OECD Anti-Bribery Convention, the United States remains the most active enforcer—by a lot. Two salient facts about the U.S. strategy for enforcing its Foreign Corrupt Practices Act (FCPA) are often noted: Sanctions against corporations are more common than cases targeting individuals, and most of these corporate cases are resolved by settlements—often pre-indictment diversionary agreements known as deferred prosecution agreements (DPAs) and non-prosecution agreements (NPAs). Both of these facts are sometimes exaggerated a bit: According to the OECD’s most recent composite data (for enforcement actions from 1999-2014), the U.S. imposed sanctions on 58 individuals (compared to 92 corporations or other legal persons), and of those 92 legal persons sanctioned, 57 reached a settlement via a DPA or NPA (meaning that 35 of them were sanctioned through a post-indictment plea agreement or—much more rarely—a trial). Still, it’s true that the U.S. enforcement strategy makes extensive use of pre-indictment settlements with corporate defendants, and that fact has attracted its share of criticism.

While most of that criticism (at least in the FCPA context) has come from the corporate defense bar and others opposed to aggressive FCPA enforcement, the use of DPAs/NPAs has been questioned by anticorruption advocates as well. Recently, the UK-based anticorruption NGO Corruption Watch (CW) published a report entitled “Out of Court, Out of Mind: Do Deferred Prosecution Agreements and Corporate Settlements Fail To Deter Overseas Corruption”; shortly thereafter, CW, along with several other leading NGOs (Global Witness, Transparency International, and the UNCAC Coalition) sent a letter to the OECD expressing “concern that the increasing use of corporate settlements in the way they are currently implemented as the primary means for resolving foreign bribery cases may not offer ‘effective, proportionate and disuasive’ sanctions as required under the Convention,” and “urg[ing] the OECD Working Group on Bribery to develop as a matter of priority global standards for corporate settlements based on best practice.” Last week, here on GAB, CW’s policy director Susan Hawley provide a succinct summary of the case for greater skepticism of the practice of resolving foreign bribery cases through DPAs/NPAs, and the need for some sort of global standard.

I disagree. While I have the utmost respect for Corruption Watch and the other NGOs that sent the joint letter to the OECD, and I sympathize with many of their concerns, I find most of the criticisms of the DPA/NPA mechanism, particularly as deployed by U.S. authorities in FCPA cases, wide of the mark. I also remain unconvinced that there is a pressing need for “global standards” for corporate settlement practices, and indeed I think that pushing for such standards may raise a host of problems. These issues—whether DPAs/NPAs are sufficiently effective sanctions, and whether we need common global standards regulating their use—are quite different, so I will address them separately. In this post, I will respond to the main criticisms of the U.S. practice of using DPAs/NPAs to resolve FCPA cases, focusing on the concerns emphasized in the CW report. In my next post, I will turn to the question whether the OECD, the UN Convention Against Corruption, or some other international agreement or body ought to try to establish global standards regulating the use of corporate settlements.

So, what’s wrong with the analysis in the CW critique of corporate settlements? Lots of things—so many that it’s hard to know where to begin. But before turning to my criticisms, it’s worth starting out by re-stating some of the main reasons why it might make sense to resolve some anti-bribery cases via corporate settlements: Continue reading →

Verdicts and Judicial Strength: Why Convictions Should Not Be the Focus of Anticorruption Efforts

Posted on by
13

As I discussed in my last post, effective anticorruption enforcement requires a judicial system with the capacity and will to hold powerful defendants criminally liable for their malfeasance. Understandably, then, judicial institutions, especially in developing countries, are often written off as weak or corrupt if they are unable to convict and sentence high-profile corruption defendants. Acquittals can seem synonymous with impunity, regardless of the justifications put forth by the court. On this measure, many domestic judiciaries charged with high-profile cases fail. For example, almost all of the central figures ousted in the 2011 Arab Spring uprisings in Egypt were ultimately acquitted of all corruption-related charges. Additional examples of high-profile corruption acquittals or dismissals abound around the world (see here, here, here, here, and here).

To be sure, the inability of many judiciaries to hold high-profile corruption defendants criminally accountable is often indicative of underlying problems in the court system, and these problems must be addressed. At the same time, though, I worry that domestic and international constituencies sometimes put too much emphasis on individual verdicts, or overall conviction rates, as the measure of judicial effectiveness. While these indicators can provide important information, overemphasizing guilty verdicts in particular corruption cases, or overall conviction rates, could actually be counterproductive to anticorruption progress, for at least three reasons: Continue reading →

Senator Menendez and the Great Speech or Debate Clause

Posted on by
3

The corruption allegations against Senator Robert Menendez (D-NJ) have the hallmarks of a classic Capitol Hill scandal. The Department of Justice’s Public Integrity Section indicted Senator Menendez last spring for allegedly using his official position to promote the business and personal interests of his friend and long-time donor Dr. Salomon Melgen, a Florida ophthalmologist. According to the allegations, Dr. Melgen provided Senator Menendez with lavish trips to Florida, Paris, and the Dominican Republic, as well as political contributions to allies. In exchange, Senator Menendez allegedly interceded with immigration authorities to help Dr. Melgen secure visas for his foreign girlfriends, sought to influence an administrative enforcement action against Dr. Melgen for $8.9 million in Medicare overbilling, and pressured the Executive Branch to intervene in Dr. Melgen’s contract dispute with the Dominican Republic.

Unsurprisingly, this legal fight has been ugly. Senator Menendez and his legal team have accused the prosecution of gross misconduct in the grand jury investigation, of “misapplying” and “making up from whole cloth” certain legal standards, and “disparaging defendants’ motives and defense counsel.” The prosecution, for its part, has accused the Senator’s camp of deploying “vituperation” instead of substance and of advancing “false factual premises and specious legal reasoning.”

The latest iteration of this saga is taking place at the appellate level, where the Third Circuit recently heard oral arguments on Senator Menendez’s assertion that his actions on behalf of Dr. Melgen are entitled to immunity under the U.S. Constitution’s “Speech or Debate” Clause (an argument the trial court rejected). The Speech or Debate Clause provides that “for any Speech or Debate in either House, [Members of Congress] shall not be questioned in any other Place.” Like many legislative immunity clauses in other countries, the Speech or Debate Clause was born in part out of a desire to protect legislators from political prosecution for the views they express when legislating, and to encourage free and informed debate.

U.S. courts have interpreted the Clause quite generously over the years, reading it to cover not only actual speeches and debates, but also other “legislative acts” (such as voting on legislation, authorizing an investigation by a Congressional Committee, preparing reports, and holding hearings). Senator Menendez, however, argues for an even broader understanding of the conduct that qualifies as “legislative acts” shielded by the Clause. These arguments should be rejected. Not only are Senator Menendez’s claims legally dubious under existing precedents, but, if accepted, they would also hamstring the prosecution of classic quid pro quo corruption.

Continue reading →

When Should Governments Keep Stolen Assets?

Posted on by
6

The Swiss government agreed in early March to return $321 million to the Nigerian government that was stolen by the late Sanni Abacha during his kleptocratic reign as the country’s president.   The agreement provides that the funds will be used for programs to benefit the Nigerian people in “an efficient and accountable way” and, to ensure the funds do indeed go to such programs, the World Bank will monitor their use.

World Bank oversight is one way to ensure returned assets are not again stolen, and in the case of Nigeria — a relatively open society with an elected government, a lively, unconstrained media, and a vibrant civil society – World Bank monitoring, when coupled with these conditions, may be sufficient to guarantee the funds are put to good use.  But what about in closed societies?  Those without elections, free media, an independent civil society.  Countries where the same tight-knit, authoritarian group which stole the assets in the first place remains in power?  Is there any way to ensure stolen assets returned to these countries will be used to benefit the nation’s citizens rather than going straight back into the pockets of the thieves? Continue reading →

The Roles of Anticorruption Academics and Advocates: Insights from the NGO Side

Posted on by
1

One of the purposes of this blog (as noted in our mission statement) is to promote the interchange of ideas across disciplinary boundaries, including–indeed, especially–between researchers and practitioners. It turns out that despite our shared interests in understanding and fighting corruption, there’s often quite a gulf between the academic and advocacy communities. I’ve commented this difference in perspectives in the past (from the perspective of an Ivory Tower academic), both in general terms, and with respect to some particular topics, such as the optimal degree of simplification, the role of university education, and the use of eye-catching statistics. While I recognize that discussion of these issues may seem like navel-gazing, I actually think these conversations are quite important, given the complementary but distinct roles that academic research and advocacy work have in the overall anticorruption project.

I was therefore delighted to read a recent speech by Robert Barrington, the Executive Director of Transparency International UK, on precisely this topic. It’s one of the best discussions of this issue that I’ve come across. (And I’d say that even if he didn’t reference one of my posts on this blog!) Whereas I come at this issue from an academic perspective, Mr. Barrington is a leading voice in the advocacy community, and he has some good advice for all of us. The speech is very short, so instead of attempting to summarize it I’ll just encourage interested readers to click on the link above. But let me close here by quoting Mr. Barrington’s summation, with which I wholeheartedly concur:

We should be two communities that work closely together. There is little excuse not to. As an advocate, this is my message: our subject is too important for academics to be obscure or self-referential, or for NGOs to be ill-informed, misguided or unchallenged. Our choice is not whether to work hand-in-hand, but how we should do so.