Category Archives: Commentary

Ukraine’s Fight Against Corruption: Whistleblowing

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Last Friday, July 7, some 50 civil society representatives, media personnel, and government policymakers spent the day discussing the law and practice of whistleblowing in Ukraine. They heard from among others National Anticorruption Prevention Committee (NAPC) officials explain how whistleblowing fit into the government’s anticorruption efforts, Anticorruption court Judge Oleksiy Kravchuk on measures for fostering respect for whistleblowers, and how the law protected Oleh Polishchuk after he blew the whistle on his employer’s corruption.

I spoke at the closing panel with TI Ukraine head Andrii Borovyk and Serhiy Derkach, Deputy Minister for Community, Territories and Infrastructure Development of Ukraine. The English version of the program is here and the slides I spoke from here. Minister Derkach’s closing remarks are below —

“Whistleblowing during the recovery process in Ukraine is even more important. It is not only about corruption but also about the security and efficiency of how funds and resources are used.

“There are three key conditions for whistleblowers to report wrongdoing:

✔️ Official channel for reporting
✔️ Confidence that the reports will be reviewed and the perpetrators brought to justice
✔️ Protection from retaliation by management

“At the Ministry of Renovation, we support a zero-tolerance culture towards corruption and are actively working to implement an effective compliance system.

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How Open Data Will Prevent Corruption in Ukraine Reconstruction

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Ukraine is creating the world’s most transparent system for the procurement of public works. To assure citizens and donors that the billions needed to reconstruct the nation’s infrastructure will be wisely and honestly spent, it has developed DREAM, the Digital Restoration EcoSystem for Accountable Management. DREAM will provide citizens, investors, and donors access to microlevel data on every single reconstruction project — from the initial feasibility study through the procurement process to the completion of construction.

Analysis of DREAM data will show when bills of quantity are unbalanced, when bids were likely collusively prepared, and suggest if not reveal other signs of project-level corruption.  Analysis of DREAM data across all procurements will disclose if cost estimates vary too much from the bid price and the final price, suspicious patterns in initial versus actual completion date, variation orders, or subcontracting, and similar indicators of possible weaknesses in the procurement and oversight of projects.

In a talk next week I will recommend the Ukrainian government use DREAM data to conduct the analyses listed below. Surely there are more I am missing. Comments/additions welcome.

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Trump Indictment’s Lesson for Prosecutors Charging Senior Political Figures

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At long last federal prosecutors have filed charges against former President Donald Trump for crimes arising from his unlawful possession of classified documents. The charges are contained in what is called an indictment in the United States.

One aspect of the indictment merits the attention of prosecutors everywhere. Or at least for those considering charging senior government officials or ex-officials who, like Trump, can be expected to try to sway public or elite opinion by any means to escape convictions.

The Trump indictment is what American prosecutors call a “speaking indictment.”

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Supreme Court to Congress: Your Fault Corrupt Officials Getting Off

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Two recent unanimous Supreme Court decisions overturning federal convictions for blatantly corrupt conduct again emphasize the need for Congressional action. The one case arose from bid rigging on a New York state contract, the second from the acceptance of a $35,000 “fee” by the manager of then Governor Andrew Cuomo’s reelection campaign to “fix” a problem the payor had with a state agency.

In both prosecutors charged defendants under the statute making it a federal crime to use the mail or telephones or other means for communicating across state lines to cheat an individual of money or property.* For, by my count, the fifth time in recent years (here), the Court rejected prosecutors’ efforts to stretch a law originating in claims “eastern city slickers” were using the mail system to swindle naïve Midwesterners to cover state and local corruption.

The Court also again put the blame for allowing corruption to go unpunished on Congress, reiterating that if it wants federal prosecutors to police the conduct of state and local officials, it must write a law that says so in clear and uncertain terms. Congress took a stab at doing so once, making it an offense to deprive citizens of the “honest services” of a public official.  But as the Court held in acquitting the Cuomo aide, legislators forgot the term “clear” in the Court’s injunction, failing to provide any definition of what conduct was honest and what dishonest. The law was thus unconstitutionally vague, for it did not, as all criminal statutes must, give defendants fair notice of the conduct that was unlawful.

Justice Gorsuch summed up the current situation in a concurring opinion in the Cuomo aide case.  Because Congress won’t say with the precision required of all criminal statutes what conduct by state and local officials violates federal law, it: 

“leaves prosecutors and lower courts in a bind. They must continue guessing what kind of fiduciary relationships this Court will find sufficient to give rise to a duty of honest services.” 

Every time a prosecutor and a court guess wrong, as they did in the New York cases, we get a highly publicized acquittal, leaving citizens to wonder why, if their government is serious about curbing corruption, it is letting crooked pols and their pals off the hook. For reasons to obvious to state, this is no time to be undermining citizen confidence in the government’s commitment to fighting corruption. Isn’t it time Congress seriously considered the metes and bounds of federal power to prosecute state and local corruption?

  • *The law is found in title 18 of the United States Code, sections 1343 and 1346. The operative language: “Whoever … devise[s] any scheme… to defraud… for obtaining money or property … causes to be transmitted by means of wire, radio, or television communication …any writings… for the purpose of executing such scheme… shall be … imprisoned not more than 20 years….” In 1988 Congress added “The term ‘scheme or artifice to defraud’ includes a scheme or artifice to deprive another of the intangible right of honest services.”

Anticorruption Strategies for Small Population Countries

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As I discussed in a prior post, countries with very small populations face distinct challenges when it comes to detecting and fighting corruption. In places where everyone knows everyone, personal ties between decision-makers and stakeholders are practically unavoidable. This not only makes it more difficult to avoid conflicts of interest, but also fosters a culture of informality that may inhibit efforts to impose stricter procedures and requirements for public decision-making. Furthermore, in small, close-knit communities it is harder to ensure anonymity of whistleblowers, and to detect corruption that takes the form of inappropriate long-term reciprocity rather than explicit quid pro quo exchanges.

The distinct challenges posed by corruption in small populations may call for distinct solutions. While there may not be any single solution to these challenges, there are a few approaches that may help:

  • Calling corruption by its name: When a person in a position of public trust prioritizes particular familial or social loyalties over those owed to the public, she is engaged in a form of corruption—abusing her entrusted power to benefit her friends and family. But such corruption may be perceived as benign or even salutary when it takes place in a community characterized by a high degree of close familial and social ties. The fact that these corrupt relationships often do not involve exchange of money may further help to camouflage them as a social interactions rather than as transactions involving the abuse of public trust. Unless corruption is identified and perceived as such, no anticorruption effort is going to succeed. Therefore, there needs to be constant and systematic education within the community to raise awareness about the causes and manifestations of kinship corruption, as well as the harms caused by it, in order to de-normalize this form of corruption (see here, here and here).
  • Leveraging the power of public opinion: In tight-knit communities, informal social sanctions (social exclusion, ostracism, and stigmatization) may be much more powerful in these communities and can be a meaningful constraint on corruption (see here). This is, of course, a double-edged sword: As noted above, unless kinship corruption is recognized as such, those involved are unlikely to be shamed by their peers and may actually be socially punished if they decline to do favors for friends and family. Similarly, social pressure can be used to reinforce clientelism and nepotism (see here and here). But anticorruption reformers can and should try to find ways to leverage the power of shaming, and other social sanctions, to promote integrity.
  • Depersonalize decision-making: As noted above, in small communities, it is harder to enforce the sorts of strict conflict of interest rules that are feasible in larger communities. Furthermore, even where there is no “formal” conflict of interest, in small countries there is an increased likelihood that public decisionmakers will have personal relationships or connections with some of the people who would be affected by their decisions. In a hiring process, for example, those responsible for the hiring will very often have some connection with at least one of the applicants. Therefore, small-population countries should place an even greater emphasis on removing the personal element as much as possible. For example, anonymizing administrative procedures and implementing “blind” decision making not only makes nepotism and clientelism harder, but also reduces the risk of unconscious bias (see here and here).
  • International assistance: Another, potentially more controversial way for small countries to overcome the inherent difficulties in aggressively applying anticorruption laws within a close-knit community is to seek the assistance of the international community, for example by relying more heavily on international assistance to fight corruption. This is not only because outsiders may be less likely to have conflicts of interest. It is also because small population countries may simply have fewer talented people to devote to any single matter, including anticorruption (see here and here). International assistance, for example in the form of manpower with suitable expertise, may help to alleviate such issues.

As we are often reminded, there is no one-size-fits-all approach to anticorruption, and it is also true that there is no one anticorruption recipe for all small countries. Nevertheless, when designing anticorruption strategies for very small jurisdictions, it is useful to recognize some of the common challenges that such jurisdictions face, and to design anticorruption strategies that leverage some of the advantages of smallness while ameliorating some of its drawbacks.

Reforming Corporate Criminal Liability in South Africa: Deferred Prosecution Agreements

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Although South African law allows corporations to be held criminally liable for the misconduct of their directors and officers, in practice holding companies liable for corruption and other crimes can be a protracted process due to backlogs, delays, and an under-resourced prosecutorial agency. In recognition of this problem, as well as the prominent role corporations have had in facilitating corruption and state capture, South Africa’s Judicial Commission of Inquiry into State Capture has recommended, among other things, reforming South Africa’s corporate criminal liability laws to allow prosecutors to negotiate deferred prosecution agreements (DPAs) to resolve corporate criminal cases. (Currently, South African prosecutors may negotiate and conclude plea and sentencing agreements with corporations, but this prosecutorial authority does not extend to DPAs.) The South African Law Reform Commission (SALRC) has been tasked to consider the introduction of DPAs as part of its review of South Africa’s criminal justice system; the SALRC’s report and recommendations are expected to be finalized by 2024.

This issue has garnered considerable discussion among South African commentators. While many welcome the introduction of DPAs as a much-needed reform, a number of commentators have raised concerns, most prominently the concern that introducing DPAs in South Africa will enable prosecutors and corporations to strike secret deals and fail to hold corporations accountable (see here, and here, and here). Fortunately, there are a number of ways to mitigate this potential problem, which the SALRC can and should include in its report and recommendations. Continue reading →

Comments on Sri Lanka Proposed Anticorruption Bill

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Sri Lanka is known for the quality of its legal scholarship, and the draft anticorruption bill the government gazetted April 6 leaves little doubt the reputation is warranted. It contains many thoughtful, well drafted provisions other nations looking to reform their laws will want to borrow. Too bad for the drafters they can’t copyright their work.

At 162 pages I did not have time to give it the the intensive review the legislature will want to conduct before approving it. But I did find several provisions that I would urge legislators should examine as part of that review —

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Where Everyone Knows Everyone: The Distinct Anticorruption Challenges of Small Population Countries

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Compared to most of the rest of the world, Iceland has a strong reputation as a clean country. In the most recent version of Transparency International’s Corruption Perception Index (CPI), Iceland ranks in 14th place—quite impressive overall, though behind Iceland’s Nordic neighbors Denmark, Finland, Norway, and Sweden. Yet Iceland’s high CPI score obscures a number of incidents over the last several years, where public officials in Iceland were involved in conduct that seems to raise concerns about potential conflicts of interest. Consider a few of the most high-profile examples:

  • In 2017, Iceland’s Minister of Justice was criticized in connection with the appointment of judges to the newly-established Court of Appeals. Notably, at least three of the fifteen judges appointed had personal ties to the Minister: one was a partner at a law firm where the Justice Minister had worked prior to her appointment, another was the spouse of a partner at the same law firm, and a third was the spouse of her fellow party member and colleague in parliament (see here and here).
  • In 2019, after revelations of allegations that a major Icelandic fishing company had been involved in bribing Namibian government officials (the so-called Fishrot scandal), demonstrators called for the resignation of the Minister of Agriculture and Fisheries. The reason was his connections to the company, where he had once served as chairman of the board, and his longtime personal friendship with the company’s CEO. Indeed, the Minister said publicly that his first reaction to the scandal had been to phone his CEO friend to ask him how he was feeling (see here, here and here).
  • In 2022, the Minister of Finance found himself in hot water after it became known that his own father was among a select few allowed to bid for valuable holdings in a state-owned bank (see here and here).
  • In December 2022, the Finance Committee of the Parliament proposed adding to the government’s budget a 100 million ISK grant (approximately US$ 727,000) to a media company, whose CEO was the sister-in-law of one of the committee members. (The proposal was promptly withdrawn when this was disclosed.)

To be clear, none of these incidents necessarily involves corruption. But they all raise concerns about potential conflicts of interest, and the appearance of impropriety. And while each of these incidents arose out of its own distinct set of circumstances, there is a common underlying factor that may have contributed to all of them, and that generally poses challenges to effectively preventing corruption and regulating conflicts of interest: Iceland is very small, with a population of only 370,000 people. Although Iceland is in many ways most similar—culturally and politically—to its larger Nordic neighbors, with respect to population size and the distinct anticorruption challenges it presents, Iceland may turn out to share some common features with other small-population jurisdictions, such as Belize, the Bahamas and Vanuatu. Consider some of the ways in which fighting corruption and conflict of interest may be more challenging—or at least pose different sorts of challenges—in very small countries: Continue reading →

The Hidden System of Legal Kickbacks Shaping the U.S. Prescription Drug Market

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In the United States, as in most other countries, it is illegal for pharmaceutical companies to bribe doctors or hospitals to prescribe their products. Those who get caught engaging in this sort of corruption can suffer severe penalties. For example, in 2020, the pharmaceutical giant Novartis agreed to pay the U.S. government almost $700 million to settle a case involving allegations that the company had violated the federal Anti-Kickback statute by offering “cash payments, recreational outings, lavish meals, and expensive alcohol” to doctors to induce them to prescribe Novartis drugs. Yet when pharmaceutical companies offer financial inducements worth billions of dollars to Pharmacy Benefit Managers (PBMs)—not the meager thousands spent on doctors—to promote use of their drugs, the conduct is entirely legal.

What, you may ask, are PBMs? Good question. Most laypeople outside the health care field are unfamiliar with PBMs, and may not even know they exist. But PBM’s play a crucial, if underappreciated and extremely complex role in determining prescription drug prices and insurance coverage decisions. Simplifying somewhat, PBMs’ primary function is to manage insurance companies’ prescription drug plans, a role that includes, among other things, negotiating with drug companies to determine which drugs insurance will cover, and which will be favored. Given that just three PBMs control over 80% of the prescription drug market, PBMs can have an enormous effect on pharmaceutical sales, as drugs that lack insurance coverage are significantly less attractive to consumers than those with coverage. Additionally, PBMs also reimburse pharmacies on behalf of insurance providers for the costs of filling beneficiaries’ prescriptions.

In short, PBMs, which stand in between many of the transactions in the pharmaceutical supply chain, play a major role determining the prices paid by insurers, pharmacies, and patients for prescription drugs. And although kickbacks to doctors, hospitals, insurance companies, and other actors in the system are strictly prohibited, drug companies can and do take advantage PBMs’ complex payment structures to discreetly offer financial inducements in order to gain PBMs’ favor during insurance coverage determinations. There are two main ways in which this de facto bribery occurs: Continue reading →

Nearly 20 Years in Legal Limbo: Egypt’s Illicit Gains Framework

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Criminal laws against “illicit enrichment” or “unexplained wealth” are among the more potent tools in the anticorruption toolbox. Though details vary across countries, typically an illicit enrichment law criminalizes a public official’s failure to provide a legitimate explanation for their possession of assets in excess of their lawful sources of income. The advantage, from an anticorruption perspective, of criminalizing illicit enrichment is the alleviation of the burden on the prosecution to gather evidence sufficient to prove bribery or embezzlement, which can often be difficult or impossible. Corruption can be inferred, the logic goes, from the government official’s possession of unusual and unexplained wealth. A further advantage is the law’s ability to capture instances of “influence peddling,” where a public official’s conduct might not have violated the specific laws on bribery and embezzlement, but still involves exploitation of authority to obtain gratuitous favors or preferential treatment that may show up in the form of unexplained wealth. 

Illicit enrichment laws, however, have proved controversial because they seem to shift the burden of proof from the prosecution to the defendant, thus violating the bedrock principle of the presumption of innocence. Many experts disagree with this criticism, and constitutional courts in many countries have rejected it. However, some governments, and some constitutional courts, continue to maintain that illicit enrichment laws are incompatible with constitutional guarantees related to the presumption of innocence.

Reasonable people can disagree about whether illicit enrichment laws in any given country are constitutional, but one would think that the issue would be settled one way or the other. In Egypt, however, this constitutional controversy has led to a bizarre legal limbo that has persisted for nearly two decades. Continue reading →