Category Archives: Commentary

Will Honduras’ MACCIH Become Another CICIG?

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After a several month negotiation with the Organization of American States, the ruling party, the opposition, and civil society, the Government of Honduras agreed to form a new anticorruption body that offers the Central American nation the hope that the endemic corruption blamed for making it one of the poorest, most unequal, and most violent societies in the Western Hemisphere can be brought to heel.  On January 19, Honduran President Juan Orlando Hernández signed an international accord with the OAS establishing the Mission to Support the Fight against Corruption and Impunity in Honduras (known as MACCIH, its initials in Spanish).  MACCIH was inspired by the success of a similar body in neighboring Guatemala, the International Commission Against Impunity (known too by its Spanish initials, CICIG), which, as readers of this blog (here, here, and here) or of a June 2015 Washington Office on Latin America report know, has made significant inroads in taming corruption in that country.

Like CICIG, MACCIH is a hybrid international-domestic agency.  Its staff will be international civil servants paid for, and accountable to, the OAS and immune from Honduran law, yet MACCIH’s staff is tasked with the same mission as Honduran law enforcement agencies, to ferret out corruption in the Honduran body politic.  As with CICIG, in creating MACCIH the hope is to establish an independent, incorruptible body of investigators, prosecutors, and judges able to pursue cases where, thanks to corruption, incompetence, or intimidation, their Honduran counterparts have not.  But important differences between the powers granted MACCIH and those CICIG enjoys make observers wonder whether, as Washington College Professor Christine Wade recently wrote,  MACCIH isn’t a “ruse designed to appease domestic and international critics” of the government.

For MACCIH to be something more than a way to buy time until the furor over the recent corruption scandals that spawned it fades from view, it must overcome three challenges. Continue reading →

More Phony Numbers–This Time on the Anticorruption Impact of Open Data

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OK, I know I’m beating a dead horse. Within the last month I’ve already posted several times (see here, here, and here) about bogus anticorruption statistics, as has Rick. And I promise that after this post, I’ll move on to other topics. But I can’t help commenting on this latest release from Transparency International, criticizing the recent World Economic Forum (WEF) meeting for not explicitly addressing corruption. As its lead example, TI faults the WEF for not addressing issues like open data (and openness more generally). I’m sympathetic to TI’s policy position, but in making the case, TI asserts, “One study suggests that open data could reduce the costs of corruption by about 10 percent.”

I was curious (and, admittedly, skeptical) about yet another seemingly precise estimate of something that’s inherently hard to measure. So I clicked on the link to the “one study” that “suggests” that open data technologies would reduce the costs of corruption by 10%. This “study” is actually a report (really, an advocacy document) from an Australian consulting firm (Lateral Economics), commissioned by a philanthropic fund (the Omidyar Network) that invests in open data initiatives. How does this “study” reach its conclusion that open data could reduce the costs of corruption by 10%? I will now quote in full the entirety of the evidence and analysis supporting that conclusion: Continue reading →

What Does China’s Anticorruption Campaign Mean for Africa?

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In advance of Chinese President Xi Jinping’s attendance at a China-Africa summit in Johannesburg last December, a flurry of news articles in African outlets—especially in Zimbabwe—optimistically highlighted the role China could play in helping African countries curb corruption. As previously discussed on the blog, in the first three years of his tenure, President Xi has made a crusade against corruption an important rhetorical part of his presidency, and backed up those words with actions (though some have questioned his techniques). It’s equally well-established that China has become very involved with Africa.  China increasingly depends on Africa’s mineral resources to feed China’s growing industries, and Chinese businesses see Africa as a potentially lucrative export market. Many African countries seeks partners, like China, that are willing to invest in infrastructure and business development. Though there has been recent pushback to China’s actions, and even a decline in Chinese investment in Africa, President Xi’s $60 billion pledge at the summit indicates China will continue to be an important player in the region for the foreseeable future.

Many commentators hope that the combination of these two factors—China’s anticorruption campaign and its substantial economic engagement with Africa—will give a boost to anticorruption efforts in Africa. Alas, those hopes are overstated.

Continue reading →

Is Corruption an Emerging Cause of Action in Investor-State Arbitration?

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The Trans-Pacific Partnership Agreement (TPP) has attracted unprecedented public interest in investor-state arbitration—also known as investment treaty arbitration, investor-state dispute settlement, or ISDS. Sovereign nations and foreign investors may choose this process as an alternative to ordinary litigation in domestic courts, by submitting their claims before a panel of expert judges applying international law. Though some critics seem to suggest that ISDS imposes a static list of economic rules, arbitration actually applies a complex system of legal principles which balance investor security against the sovereign autonomy of host states. Over time, investor-state arbitration has proven to be an emerging space for enforcing international norms—including transparency and anticorruption. Indeed, the TPP demonstrates this growing influence of anticorruption norms in ISDS. Not only is the TPP the first multilateral trade agreement to explicitly require anticorruption commitments from its members, its ISDS chapter will also commit members to the anticorruption rules emerging in investor-state arbitration.

Since long before the earliest discussions of the TPP, arbitral panels have sometimes used anticorruption norms to interpret treaties and contracts that made no mention of anticorruption or transparency. Indeed, although no previous trade or investment treaty has obligated host states or investors to observe anticorruption standards, ISDS panels have increasingly considered corruption relevant, and even dispositive, in determining liability. This process has enabled the development of what is effectively a common law of anticorruption principles. (Although there is no doctrine of stare decisis in investor-state arbitration, arbitral decisions provide persuasive authority in future disputes, and particular decisions may gain influence and recognition comparable to precedent. An arbitral panel has discretion to consider other public international law authorities, including previous investor-state disputes, international commercial arbitration between two private companies, public international courts, and ad hoc bodies such as the Iran-US Claims Tribunal. All of these systems have helped contribute to the emerging anticorruption norms in ISDS.)

Arbitral panels considering corruption have most often treated it as a “shield”—that is, as a defense against liability. But while recent panels and commentators have questioned the merits of a “corruption defense,” recent cases hint at the emergence of a freestanding cause of action for corruption—as a sword rather than a shield. This potential shift suggests that, in addition to the the TPP’s express transparency and anticorruption terms, the ISDS chapter may offer hidden tools for anticorruption enforcement.

Continue reading →

WAGing at Corruption:  A Modest Proposal

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Matthew sparked a lively discussion last week on the use “of widely-repeated . . . statistics” that are in fact “unreliable guesstimates misrepresented as precise calculations—and at worst, completely bogus” in discussions about corruption.  He cited the claims that “$1 trillion in bribes are paid annually” and that “corruption costs the global economy $2.6 trillion per year” as examples.  The former, a wild guesstimate, and the latter not even that are routinely accepted as fact in media accounts and policy notes issued by development agencies and appear even in papers purporting to be serious academic works. I do not link to examples for two reasons.  One, there are so many that I would have to choose which ones to cite, and I don’t want to be accused to playing favorites.  Second, the links would embarrass the guilty by calling them out.  But many readers will know of whom I speak, and those who don’t can easily compile a list of offenders thanks to the magic of internet search engines.

I think Matthew did those concerned about combating corruption a great service by prompting debate about the use of such numbers, and I applaud him and those who replied for moving the discussion forward.  At the same time, I fear Matthew may have inadvertently pushed the discussion off-track with his observation in the opening paragraph that “in the grand scheme of things, made-up statistics and false precision are not that big a deal.”  I say this because, in responding to Matthew’s post, readers focused on a single issue: how much help it can be in discussions about controlling corruption to throw around phony numbers.

If the only question were whether what can fairly be termed a “wild ass guess” about the extent of corruption or some type of corruption or the losses it causes or what-have-you is if it helps advances policies that will help stamp corruption out, then Matthew is right; “made-up statistics and false precision” aren’t a big deal.  But suppose WAGs, by which I include both unsupported guesstimates and bogus numbers, are harmful too?  That not only are they sometimes useful by drawing attention to the issue or prompting action, but that sometimes they retard the cause of combating corruption.  Then what?

Below are two ways corruption WAGs can be harmful and a modest proposal for lessening that harm without calling a complete halt to their use. Continue reading →

More on McDonnell: Can We Please Get the Facts Straight?

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As many GAB readers know, we’ve had quite a number of posts over the last year about the ongoing legal drama surrounding the conviction of former Virginia Governor Bob McDonnell on federal corruption charges (see here, here, here, here, here, here, and here). Last week, the U.S. Supreme Court (to my chagrin) announced that it would hear Governor McDonnell’s appeal; the Court will address only the question of whether the “official action” required for a conviction under the federal anti-bribery statutes “is limited to exercising actual governmental power, threatening to exercise such power, or pressuring others to exercise such power, and whether the jury must be so instructed; or, if not so limited, whether [these statutes] are unconstitutional.”

I don’t want to spend too much time repeating my arguments as to why I think that upholding Governor McDonnell’s conviction is both the legally correct answer under existing U.S. law as it stands, and why a contrary conclusion would be a major setback for efforts to combat high-level bribery, particularly of public officials who can wield considerable influence over official decisions even without exercising the formal powers of their offices (for more on my views, see here, here, and here). Yet I continue to find myself somewhere between baffled and outraged by the mischaracterizations of what the jury and lower courts actually found, with respect to what Governor McDonnell (and his wife) did. To read the Court of Appeals opinion (which the Supreme Court will now review), and the briefs filed on Governor McDonnell’s behalf, and the various op-eds written by his supporters, is to be on two different planets. Continue reading →

Broken System: The Failure to Punish High Level Corruption at the UN

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“Is bribery business as usual at the UN?”

So asked U.S. Attorney Preet Bharara, and with good reason. Notwithstanding the UN’s protestations to the contrary, recent years have seen a succession of UN corruption scandals. Among the most infamous is the Iraqi Oil-for-Food case, in which Saddam Hussein, in collaboration with UN staff members, earned billions of dollars through kickbacks and illegal oil smuggling. Corruption in some UN peacekeeping operations is high, with new corruption cases coming to light on a regular basis. And last October, new charges of corruption were brought against (among others) a former UN General Assembly President and another UN diplomat who allegedly were engaged in an important bribery scheme.

Each time a new corruption case is exposed, the UN’s public reaction is the same: the Secretary-General states that the organization is treating the matter with the utmost seriousness and initiates an internal investigation or audit, while at the same time the organization attempts to “sweep the matter under the rug” by claiming that senior UN officials were unaware of the problem, and that this was an isolated incident involving a few bad apples, not the UN system itself. Yet given the frequency of UN corruption scandals, it is about time that the organization stops pretending that this is just a “few bad apples” problem, and try to understand why it faces these situations with such frequency.

The natural place to start is with the UN’s system for investigating and sanctioning corrupt practices, in particular the Office of Internal Oversight Services (OIOS). OIOS performs internal audits and investigations into reported violations of UN regulations, rules, and administrative issuances, and is also authorized to initiate proactive investigations to assess potential fraud risks in “high-risk areas.” OIOS’s mandate is strictly limited to administrative fact-finding; it does not conduct criminal investigations, and indeed the UN has no criminal jurisdiction over its personnel. But as an employer, the UN can impose disciplinary sanctions in response to wrongdoing or take other administrative measures. In the UN context, these administrative sanctions are particularly important because UN staff members, officials, and diplomats are granted immunity from local prosecutions, and therefore domestic prosecutions in the countries where the corruption took place can be difficult unless these immunities are waived. In such circumstances, a strong internal anticorruption system within the UN itself is even more essential to avoid impunity.

Yet although the OIOS looks good on paper, critics both outside the organization (see, for example, here and here) and inside as well, have said that the OIOS is not doing an adequate job investigating corruption and fraud. There are at least three reasons for this: Continue reading →

The Charbonneau Commission’s Underappreciated Contributions to Fighting Corruption in Quebec

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This past November, the four-year saga of the Charbonneau Commission finally drew to a close. Established in 2011, the commission had three main goals: to examine collusion and corruption in Quebec’s construction industry, to identify the ways in which the industry has been infiltrated by organized crime, and to find possible strategies to reduce and prevent corruption and collusion in public contracts. The two thousand page final report (available only in French) was the product of 263 days of testimony from over 300 witnesses, ranging from union bosses to prominent politicians, low-level public servants, and even members of organized criminal syndicates. While the commission had the makings of a potential political bombshell, the final report was met with little acclaim, and commentators have been quick to dismiss the inquiry as an expensive disappointment and a failed mission.

Since the release of the final report, the validity of its findings has even been called into question, with the media seizing on apparent disagreements and infighting between the commissioners. One of the two remaining commissioners (the third had died of lung cancer in 2014), actually dissented from the part of the findings that claimed a link between political party financing and public contracts. Emails subsequently unearthed indicate that the disagreement between the two commissioners on this issue goes beyond simple factual disagreement, with suggestions that the dissenting commissioner had objected to unfavorable portrayals of prominent members of the governing Liberal party. Some sources report that the two commissioners were not even on speaking terms by the conclusion of the inquiry. In light of their fundamental disagreements on such a prominent issue, some critics have called the commission at best dysfunctional, or at worst tainted by political interference.

Given the generally negative coverage of the commission, it would be easy to write off the Charbonneau Commission as yet another failed attempt to stymie corruption. In my view, however, to dismiss the commission entirely would be unreasonable. Certainly, the commission was not perfect, but it did offer meaningful contributions to the promotion of good governance, and there is much that can be learned from it.

Continue reading →

Norway Divests Shares in Telecom Giant ZTE Over Gross Corruption: Will Others Follow?

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On January 7 the manager of Norway’s sovereign wealth fund announced the fund would sell its $15 million holdings in Chinese telecom giant ZTE and make no future investment in the company because of the risk the company would become involved in corruption scandals.  The decision to divest for reasons of corruption is a significant advance in the battle to curb global corruption.  For while the investment community can be a powerful voice for change in corporate behavior, to now its efforts has been confined almost exclusively to entreaties to corporate management to make corruption prevention a priority (see pp. 1127-1130 of this article for a summary of recent efforts).  Divestment puts teeth in these entreaties, particularly when wielded by an investor of the size and influence of the Norwegian fund.

The Government Pension Fund Global, the fund’s formal name, was established in 1990 to invest the nation’s petroleum wealth for the benefit of future generations.  Its current holdings of roughly $825 billion make it not only the world’s largest sovereign wealth fund but one of the largest pools of investment capital in existence.  For comparison, Pimco Total Return, which Forbes ranks as the world’s largest mutual fund, has assets of $263 billion while UK Business Insider reports that Millenium Partners $181 billion in assets make it the globe’s biggest hedge fund.

It is not only the fund’s size that makes it influential, but the careful process it follows to ensure its investments reflect the values of beneficiaries, the citizens of Norway.  The fund’s investment guidelines provide that it may exclude any company where “there is an unacceptable risk that the company contributes to or is responsible for” activities that result in the violation of human rights, lead to severe environmental damage, or further “gross corruption.”  To decide whether disinvestment is appropriate, the fund’s five member Council on Ethics reviews a company’s conduct and issues a recommendation to fund managers. In the case of ZTE, the Council’s June 2015 divestment recommendation was based on an extraordinarily damning report it prepared recounting ZTE’s conduct over the past decade, a report that leaves no doubt the company was responsible for an enormous amount of “gross corruption.”

The only question the report left open is why other investors aren’t fleeing the company’s stock as well.  If not for social reasons — because the company’s repeated, flagrant violations of the corruption laws of so many countries has done so much harm to so many — for economic reasons.   A business model seemingly bottomed on the wholesale corruption of public officials is sure to crash soon in this heightened era of anticorruption enforcement.

Just look at what the Council’s report says about ZTE activities — Continue reading →

Assessing Corruption: Do We Need a Number?

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As GAB readers are aware, I’ve occasionally used this platform to complain about widely-repeated corruption statistics that appear to be, at best, unreliable guesstimates misrepresented as precise calculations—and at worst, completely bogus. (The “$1 trillion in annual bribe payments” figure would be an example of the former; the “corruption costs the global economy $2.6 trillion per year” is an example of the latter.) I recognize that, in the grand scheme of things, made-up statistics and false precision are not that big a deal. After all, the anticorruption community faces 1,634 problems that are more important than false precision, and in any event 43% of all statistics quoted in public debates are completely made up. Yet my strong instincts are that we in the anticorruption community ought to purge these misleading figures from our discussions, and try to pursue not only the academic study of corruption, but also our anticorruption advocacy efforts, using a more rigorous and careful approach to evidence.

But perhaps I’m wrong about that, or at least naïve. A few months ago, after participating in a conference panel where some of the other speakers invoked the “corruption costs $2.6 trillion” figure, I was having a post-panel chat with another one of the panelists (an extremely smart guy who runs the anticorruption programs at a major international NGO), and I was criticizing (snarkily) the tendency to throw out these big but not-well-substantiated numbers. Why, I asked, can’t we just say, “Corruption is a really big problem that imposes significant costs?” We’ve got plenty of research on that point, and—a few iconoclastic critics aside—the idea that corruption is a big problem seems to have gained widespread, mainstream acceptance. Who really cares if the aggregate dollar value of annual bribe payments is $1 trillion, $450 billion, $2.3 trillion, or whatever? Why not just say, corruption is bad, here’s a quick summary of the evidence that it does lots of damage, and move on? My companion nodded, smiled, and said something along the lines of, “Yeah, I see what you’re saying. But as an advocate, you need to have a number.”

We didn’t get to continue our conversation, but that casual remark has stuck with me. After all, as I noted above, this person is extremely smart, insightful, and reflective, and he has lots of experience working on anticorruption advocacy at a very high level (a kind of experience that I, as an Ivory Tower academic, do not have). “As an advocate, you need to have a number.” Is that right? Is there a plausible case for continuing to open op-eds, speeches, policy briefs, and so forth with statements like, “Experts estimate that over $1 trillion bribes are paid each year, costing the global economy over $2.6 trillion,” even if we know that those numbers are at best wildly inaccurate? (This question, by the way, is closely related to an issue I raised in a post last year, that arose out of a debate I had with another advocate about the legal interpretation of the UN Convention Against Corruption.)

I thought I’d use this post as an opportunity to raise that question with our readers, in the hopes of both getting some feedback (especially from our readers with first-hand experience in the advocacy and policymaking communities) and provoking some conversations on this question, even if people don’t end up writing in with their views. And to be clear, I’m not just interested in the narrow question of whether we should keep using the $2.6 billion or $1 trillion estimates. I’m more generally curious about the role (and relative importance) of seemingly precise “big numbers” in anticorruption advocacy work. Do we really need them? Why? And is what we gain worth the costs?