Category Archives: Commentary

Should Anticorruption Agencies Have the Power to Prosecute?

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One of the main reasons policymakers cite for establishing a standalone, independent anticorruption agency is the need to strengthen the enforcement of their nation’s laws against bribery, conflict of interest, and other corruption crimes.  In the past 25 year some 150 countries have created a specialized, independent agency to fight corruption (De Jaegere 2011), and virtually all have been given the lead responsibility for investigating criminal violations of the anticorruption laws.  But while a broad international consensus exists on the value of creating a new agency with investigative powers, opinion remains sharply divided on whether these agencies should also have the power to prosecute the crimes it uncovers.  As this is written, Indonesian lawmakers are considering legislation to strip its Corruption Eradication Commission (KPK) of the power to prosecute while a bill before the Kenyan parliament would grant its Ethics and Anticorruption Commission (EACC) the power to prosecute the cases it investigates.

No matter the country, debate about whether a single agency should have the power to both investigate and prosecute corruption cases inevitably comes down to a small set of conflicting claims.  Those who oppose giving a single agency both powers raise an argument at the center of the older debate about the relative responsibilities of police and prosecutors — investigator bias.  In the words of a British Royal Commission that studied the relationship between English police and prosecutors, an investigator “without any improper motive . . . may be inclined to shut his mind to other evidence telling against the guilt of the suspect or to overestimate the strength of the evidence he has assembled.” That is, once an investigator hones in on a suspect, confirmation bias sets in, and he or she will interpret all evidence as supporting the suspect’s guilt.  Putting the decision about whether to prosecute a case in an agency wholly separate from the one that investigates provides a strong check against such bias, reducing the chances that the innocent will be put to a trial or weak cases brought to court.

The investigator bias argument has a long and distinguished pedigree, and a 2011 survey of the powers of 50 anticorruption agencies by World Bank economist Francesca Recanatini found that it often carries the day.  Only half of the 50 agencies she surveyed have both investigative and prosecutions powers.  But as the contemporary debates in Indonesia and Kenya suggest, proponents of combing investigation and prosecution in a single agency have a very powerful counter argument in their corner.  Continue reading →

Is China’s Anticorruption Campaign Hurting Its Economy? Some Skeptical Thoughts on Eye-Popping Estimates

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I read a striking claim last week about the impact of China’s anticorruption crackdown. CNBC reported that Chi Lo, a senior economist at the bank BNP Paribas, claimed the anticorruption campaign “has knocked between 1 and 1.5 percent off the [China’s] gross domestic product (GDP) annually over the past two years[.]”

I realize that, despite the widespread belief that corruption is bad for the economy overall (a belief I share), there have been some serious and legitimate concerns raised about whether China’s aggressive approach might be going too far, deterring not only corruption but also legitimate investment projects. But Mr. Lo’s estimate (assuming CNBC reported it accurately) struck me as implausibly high, for two reasons: Continue reading →

To Catch Big Fish, the World Bank’s Integrity Vice Presidency Should Pay for Tips

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The World Bank’s Integrity Vice President (“INT”), responsible for investigating corruption and fraud in World Bank projects, recently released its Fiscal Year 2015 Annual Update. INT had a busy year, opening 323 preliminary investigations, of which 99 were selected for full investigation, and closing 81 investigations, with three-quarters finding evidence of sanctionable conduct. (A primer on how INT conducts external investigations is here.) Some of INT’s recent cases, such as those brought against Alstom SA and SNC-Lavalin, involve large companies. Yet despite these examples, the data in the Annual Report raises questions about whether INT is sufficiently effective in uncovering corruption and fraud by large companies. The evidence suggests not: The firms debarred in FY 2015 are mostly small- and medium-sized enterprises—minnows, not sharks. The longest debarment leveled was for thirteen years on N.C. Sanitors and Service Corporation, essentially for paying public officials in Liberia and falsely claiming it collected trash that it never picked up. The challenged contract was worth about $350,000—not exactly a break-the-bank amount, especially considering the largest contracts the World Bank awarded last year were worth $438 million, $98 million, and $53 million (excluding government-awarded contracts funded by World Bank loans).

Perhaps large corporations with World Bank contracts and governments officials administering large World Bank loans are not engaging in corruption—but I doubt it. It’s much more likely that INT does not have the information that it would need to investigate and seek to sanction large companies. According to people familiar with INT’s intake system, while INT gets thousands of tips a year through its phone and online tip lines, many of which prove valuable (either individually or when aggregated), relatively few tips relate to large contracts where the amount of money at stake enhances the harm from corruption and bribery. INT should therefore develop methods to get actionable information on fraud and corruption related to large projects. My suggestion: pay for information.

One reason why INT may receive few tips about large contracts is that INT currently only offers confidentiality to protect whistleblowers. When it comes to large contracts, the likelihood that a whistleblower will face repercussions if her tip is revealed increases, changing the cost-benefit analysis of reporting. Some potential whistleblowers with actionable information might need some sort of additional material incentive to offset the potential risks. A well-structured system using payments to induce reporting might therefore increase the amount of actionable information INT receives about large-contract corruption.

What would such a system look like? How should it be designed? While this is not the place to lay out the proposal in all its details, the essential elements might work as follows: Continue reading →

Forget FIFA: China Battles Corruption by Banning Golf

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President Xi Jinping has made fighting many different kinds of corruption a priority of his administration, and so far 180,000 party officials have been caught and punished in the government’s wide-ranging anticorruption campaign. As part of this campaign, the Chinese government recently banned golf memberships for Communist Party members — all 88 million of them. The complete ban is part of an anticorruption strategy that involves cracking down on many of the lavish banquets and other types of conspicuous consumption by public officials that have caused widespread public anger in recent years, anger both at corruption, and at the country’s deepening economic inequality. The golf ban comes after months of tightening restrictions on how officials can play golf, following a scandal involving a suspicion that a top member of the commerce ministry allowed a company to improperly pay his golf expenses, as well as reports that some officials were playing golf during working hours.

The golf ban is not an isolated anomaly: A significant part of the Chinese campaign has involved tightening restrictions on various forms of conspicuous consumption by public officials. For example, officials are now prohibited from staying in five star hotels with public money (a move that led 56 hotels to ask to be downgraded to four stars so that they can continue to accept government clients), while lavish banquets, once a mainstay, have been limited to “four courses and one soup.” Golf is the latest luxury activity to fall under government regulation. But while these crackdowns could help the government look like they are taking corruption even more seriously, banning golf and other types of conspicuous consumption may actually serve to worsen the problem.

Continue reading →

At Last, A Good News Corruption Story

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It seems that not a day goes by without some gloomy story about corruption appearing in the popular media or online. “Corruption on the rise in Africa poll as governments seen failing to stop it” says a new TI study.  “In Mexico, 200 million acts of corruption a year” the Mexican Competitiveness Institute reports.  Monday’s Washington Post editorial proclaims that “Mali’s corruption hindered its efforts to fight terror,” and the subtitle of a best-selling book warns that it is not only Malians who are at risk but that corruption “Threatens Global Security as Well.”

With all this bad news it was a surprise to discover a recent good news story about corruption.  The news is doubly surprising as it comes out of three unexpected places: Ghana Kenya, and Uganda.  Even better, rather than broad generalizations drawn from a handful of selected anecdotes, the good news in Professors Rebecca Dizon-Ross, Pascaline Dupas, and Jonathan Robinson’s July 2015 “Governance and the Effectiveness of Public Health Subsidies” paper rests on a careful, clever empirical study that employs rigorous scientific methods.  The only bad news about the paper is that it is on a remote internet site beyond the ken of most web browsers.  For readers whose browsers don’t travel to the National Bureau of Economic Research’s web site, a potted summary follows. Continue reading →

Can the OECD Convention Prevent FCPA Backsliding?

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A little while back I expressed some concern (perhaps excessive) about the possibility that we might be seeing a revitalized movement to “reform” (that is, weaken) the FCPA; I also worried a bit that a greater focus on prosecutions of individuals might lead to judicial rulings that would force the government to substantially narrow its reading of the statute (for example, with respect to the definition of “foreign official,” or what counts as “anything of value,” or the scope of statutory jurisdiction, or other matters where the statute itself is arguably ambiguous). In response to the latter concern, Duke Law Professor Rachel Brewster raised an intriguing possibility (in addition to several other reasonable responses to my worries): The OECD Anti-Bribery Convention, she suggested, might limit the degree to which the U.S. Congress or courts narrow or limit the FCPA. As Professor Brewster succinctly put the point in her comment on one of my earlier posts:

[T]he OECD treaty … is even broader than the FCPA. Moreover, the courts of appeal that have ruled on the meaning of the FCPA (Kay, Esqenazi) have explicitly relied on the more robust OECD treaty provisions to support the government’s position. That gives me some comfort that the US court system is going to continue to support the DOJ/SEC’s current enforcement strategy. Even if the OECD treaty does not explicit answer questions like “who is a foreign official” and “what is anything of value” (although it does help with the narrow interpretation of the facilitating payments), the general tenor of the treaty (and subsequent treaties the US has backed and joined) supports the government’s strong enforcement approach.

This is a valuable point, and to a certain extent I agree. But I am less sanguine than Professor Brewster that the OECD Convention will prove much of a firewall against a potential congressional or judicial backlash against the DOJ and SEC’s aggressive approach to interpreting and enforcing the statute. Continue reading →

Close But No CICIGar… Yet: Replicating Guatemala’s Anticorruption Success

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Guatemala’s international commission against impunity (known by its Spanish acronym, CICIG) played a pivotal role in answering widespread public demand this year for accountability for corruption in the government. CICIG’s investigations led to the resignations and arrests of top government officials—including the former president and vice president—following their involvement in a large-scale customs scandal. CICIG’s perceived success has let to calls in other countries for adopting (or adapting) the CICIG model elsewhere. For example, public outcry in Honduras over a healthcare scandal culminated in a proposal for a Honduran version of CICIG, to be led by the Organization of American States and formally titled the “Support Mission Against Corruption and Impunity in Honduras.” (Like CICIG, this body will also be known by its acronym in Spanish, MACCIH). There have also been calls to replicate CICIG in El Salvador (which thus far have led only to the continuation of a USAID-sponsored anticorruption initiative rather than creation of a full-fledged CICIG clone), most recently, in Venezuela.

These other governments, however, are resisting calls for full-fledged CICIG clones, and the existing or proposed institutions, like MACCIH in Honduras or the USAID initiative in El Salvador–have been met with skepticism. For example, many Honduran critics point to MACCIH’s limited mission as evidence of its limited effect. Indeed, many suspect that the Honduran government agreed to MACCIH precisely because its work is likely to be duplicative and ineffective, mainly focused on study and recommending improvements; the call for further study is seen, probably accurately, as a delaying tactic until the next election rather than a practical step forward. Anticorruption activists in Honduras have therefore introduced a bill that rejects MACCIH, calling it a governmental ploy to placate demand and avoid accountability, and requests a more CICIG-like body in its place.

To a certain extent, this skepticism is justified: both MACCIH and the Salvadoran USAID initiative are watered-down substitutes for CICIG at best. Nonetheless, the outlook may not be as bleak as it seems. CICIG may seem exemplary now, especially in comparison to MACCIH and the USAID initiative, but it was not always perceived this way. Many of the preconditions for CICIG’s recent success developed with its work over time. This is a cause for some optimism regarding the prospects for the “CICIG-lite” initiatives in El Salvador and Honduras, despite their limited mandate and powers. Nonetheless, certain structural problems–mainly related to funding and independence–are more worrisome. Continue reading →

NYU Roundtable on the DOJ Fraud Section’s New “Corporate Compliance Counsel”: The Video and Some Thoughts

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As many readers are likely aware, the U.S. Department of Justice Fraud Section (now headed by Andrew Weissmann), which has responsibility for enforcing the Foreign Corrupt Practices Act (among other things), recently created a new position called the “Corporate Compliance Counsel,” and appointed to the post Hui Chen, a former corporate compliance officer for a number of major firms (including Microsoft, Pfizer, and Standard Chartered). The avowed purpose of the new position is to assist the DOJ in assessing the quality of a company’s internal compliance program and remediation measures. In the FCPA context (and others), these assessments are relevant to the DOJ’s decisions regarding whether to prosecute, what penalties to seek, and what additional remedial measures to pursue, even though there is not a formal “compliance defense” under the FCPA (or other statutes that the Section enforces). Thus, the thinking behind the creation of the new DOJ position seems to be that having someone in the Section with a lot of background in corporate compliance will enable the DOJ prosecutors to do a better job in evaluating the quality of a company’s compliance program and remedial efforts.

The creation of the Corporate Compliance Counsel position has garnered praise in some quarters, but also attracted some criticism; the critics tend to argue that the creation of the new position is, at best, a public relations move with little real consequence, and at worst an indirect effort to weaken the enforcement of corporate criminal laws.

Last week, the NYU Program on Corporate Compliance and Enforcement (PCCE) hosted a public forum where Mr. Weissmann and Ms. Chen discussed the new position and answered some questions posed by NYU Professor (and PCCE co-director) Jennifer Arlen. Because I thought that this might be of interest to some readers, here’s a link to a video of the discussion.

A few additional thoughts about what I thought were the more interesting exchanges: Continue reading →

A Trade-Anticorruption Breakthrough?: The Trans-Pacific Partnership’s Transparency and Anticorruption Chapter

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The full text of the Trans-Pacific Partnership (TPP), released earlier this month, is already generating plenty of discussion. One of the proposed agreement’s most striking features is the full chapter on transparency and anticorruption, Chapter 26. The U.S. Trade Representative (USTR) had earlier stated that its objectives in negotiating the TPP included addressing transparency, accountability, and corruption; at the time I thought this was simply a negotiating ploy or marketing strategy, but it looks like I was wrong. As USTR’s summary of the “good governance” steps of Chapter 26 correctly notes, the TPP “includes the strongest anti-corruption and transparency standards of any trade agreement.” Indeed, Chapter 26–which appears to modeled in part on draft language that Transparency International had proposed for inclusion in a different trade deal, the Transatlantic Trade and Investment Partnership–could mark an important and unprecedented step towards using trade agreements to promoting and harmonize international anticorruption efforts.

Here are a few points that are or could be particularly important features of Chapter 26:

Continue reading →

The Challenge of Police Reform in Developing Nations

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A new volume from CRC press, Police Corruption and Police Reforms in Developing Societies, provides an informative if frustrating look at efforts to combat corruption in the police services of developing countries.  Informative for two reasons: one, because editor Kempe Ronald Hope marshals such powerful evidence in his introduction for the primacy of tackling corruption in the police.  Two, because the authors he has assembled offer such authoritative, in-depth studies of how police corruption has been attacked in eight developing states spread across Africa, the Asia-Pacific region, and Latin America and the Caribbean plus Hong Kong.  Policymakers in developing states no longer have any excuse for not prioritizing police anticorruption reforms.  Nor can they plead ignorance of the ingredients required.

But a list of ingredients does not itself make a stew.  That takes a recipe for how to combine the ingredients: in what proportions and when.  And that is one reason why the volume is so frustrating. It lacks a recipe for police reform. Continue reading →