Category Archives: Commentary

Anticorruption Enforcement Policy: Insights from the Deterrence Scholarship

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Over the past three decades much empirical work has appeared on the effect of the criminal law on crime rates.  Usefully summarized in review articles by, among others, Professors Daniel Nagin of Carnegie Mellon University and Michael Tonry of the University of Minnesota (click here and here for examples), this research offers several insights for those engaged in the fight against corruption.

The first is that the criminal justice system can make a difference.  Save for acts committed in the heat of the moment, crime is a cost-benefit proposition.  Would-be criminals tote up the (usually) monetary gains of violating the law against the risks of being caught and punished and, when the benefits exceed the costs, commit an offense.  Thus policies that drive up the cost of crime by increasing the chances an offender will be caught, prosecuted, and appropriately punished reduce the crime rate.  Recent studies confirm that corruption crimes are no exception.  Putting more resources into to prosecuting corruption in the United States and ensuring corruption in the construction of roads is detected both reduced corruption.

But if the good news from the deterrence literature is that the criminal law can make a difference, the bad news is that that the difference is not easy to realize and that the logic of deterrence can lead policymakers astray.  One of the more striking findings is that what would seem to be the easiest way to enhance deterrence, sharp increases in the penalties for corruption crimes, may actually lead to more corruption.  Continue reading →

Private FCPA Enforcement: Some Troubling Trade-Offs

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In my last post, I suggested that one possible drawback to dramatically ramping up enforcement of the Foreign Corrupt Practices Act against individuals (from the perspective of those who, like me, favor aggressive FCPA enforcement) is that individual defendants are relatively more likely to litigate than are corporate defendants. This not only might entail a greater drain on the resources of the government enforcement agencies—a familiar and well-understood concern—but it could also lead to adverse appellate rulings on the meaning of key FCPA provisions (particularly if the targeting of more individuals also entails the targeting of relatively more sympathetic individuals). In this post, I want to raise a similar concern in connection with a prominent proposal for increasing the FCPA’s deterrent effect: the addition of a private right of action under the statute.

The FCPA in its current form does not authorize private individuals to sue defendants for alleged violations of the statute. Although some other statutes might authorize certain forms of private FCPA enforcement—for example, in the form of shareholder derivative suits, or suits alleging violations of the antitrust laws or the RICO Act—these forms of private recourse are quite limited in their availability. (I won’t go into all the reasons in this post—Professor Gideon Mark has a nice discussion in his paper on the topic.) Yet many people (including Professor Mark) have advocated the addition of an express FCPA private right of action which, in the view of its proponents, would substantially enhance FCPA deterrence. This idea has attracted at least some interest in the U.S. Congress, though the proposed bills to add an FCPA private right of action have not yet gone anywhere.

My natural instincts are to support a proposal along these lines, both because I’m more of a “hawk” when it comes to FCPA enforcement, and because I’m generally an enthusiast for the “private attorney general” model for enforcing public law. And I could still be persuaded that a private FCPA action is a good idea. But I have concerns similar to those I raised in my last post about greater targeting of individuals, as well as some additional, closely related worries. Here are the main worries, as I see them: Continue reading →

Institutions, Not Heroes: Lessons from Nigeria’s EFCC

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Nigeria has a corruption problem. Whether described as misuse of public office for private gain, trading in influence, money laundering, or the theft of public funds, this problem is rife, and we know it. There is also a list of scandals that is as long as it is depressing: that fuel subsidy fraud, those egregiously inflated prices for the purchase of vehicles, the disappearing treasury, and a bewildering pardon for an infamous corrupt convict.

Between 2003 and 2007, it looked as if Nigeria had found a solution to the corruption problem, and that solution had a name: Mallam Nuhu Ribadu. As Chair of the Economic and Financial Commission (EFCC), Mallam Ribadu led successful prosecutions of financial crimes, bringing thousands of indictments, over 270 convictions and double that number in arrests. Described by the UN Office of Drugs and Crime as “a crime-buster made of the hardest steel alloy every manufactured”, Ribadu’s work was filled with fearless firsts. Under his leadership, the EFCC conducted investigations leading to the indictment and conviction of the Inspector General of Police (Ribadu was a policeman). The EFCC indicted five governors and secured two convictions – feats previously thought impossible. The EFCC also arrested and prosecuted hundreds of confidence scammers, and served as an effective deterrent to financial crimes. It was also largely due to the EFCC’s efforts that Nigeria was removed from Financial Action Task Force’s list of non-cooperative jurisdictions. Ribadu put a face to the previously mythical dependable and trustworthy law enforcement.

Yet for all his well-deserved praise, Ribadu’s tenure at the EFCC, and what happened afterwards, illustrates the limits of strong individuals in weak institutions. While anticorruption heroes are great, institutions matter more.

Continue reading →

Individual FCPA Liability: A Risky Proposition for FCPA Enforcement Proponents?

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Both supporters and skeptics of aggressive enforcement of the Foreign Corrupt Practices Act have criticized the fact that the act is enforced much more often against corporations than against individuals. Some critics of FCPA enforcement often assert that it is unfair for the government to insist on corporations acknowledging criminal liability when the government is unwilling or unable to prosecute the individuals who committed the actual crimes. At the same time, supporters of aggressive FCPA enforcement argue that the failure to hold individuals personally liable, and to impose criminal penalties (including prison time) on those culpable actors undermines the FCPA’s deterrent effect. And they have a point: many doubt that fines and other monetary sanctions on corporations—at least at the levels that can be imposed under the FCPA—are sufficient to deter bribery, and there is evidence to support this claim.

Of course, individual FCPA liability is hardly novel; a number of past FCPA cases have included criminal convictions of individual company employees. But many have called for dramatically ramping up focus on individuals, and there are some signs that the U.S. Department of Justice may be heeding those calls. For someone like me, who tends to think that FCPA enforcement needs to be even more robust, this would seem like welcome news. And for the most part it is… but I do have a nagging worry, which may be entirely groundless, but that I want to try to flesh out in this post. The worry goes something like this: Continue reading →

Making Anticorruption Education Work: The To Do List

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In a previous post, I discussed how in Indonesia, entrenched cultural norms make corruption hard to eradicate, and I argued that because of this anticorruption reformers should promote educational curricula–at the elementary, junior high school, and high school levels–as a long-term mechanism to change the corruption culture. While my earlier post focused on Indonesia, many other countries–such as the Philippines, India, China, and others–are also beset by an entrenched culture of corruption. These countries, therefore, should also adopt anticorruption education initiatives to help change this culture.

But what goes into the design of effective anticorruption education programs? What factors must be considered? How can we ensure that anticorruption education is genuinely effective? While the issues are complex and many are country-specific, I want to highlight six important components of a successful anticorruption education program. Continue reading →

Greece’s Golden Opportunity: Economic Crisis and Corruption

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Greece’s struggles with corruption are longstanding. Greece has perennially been viewed as one of, if not the, most corrupt countries in the European Union (EU). (In 2014, for example, Greece was tied, along with Italy and Romania, for last among EU countries in Transparency International’s Corruption Perception Index). Recently, however, coverage of Greece’s ongoing battle with corruption has increased dramatically due to two interrelated factors: (1) the election of the Syriza party, which has never before held political power and ran in part on an anticorruption platform; and (2) ongoing negotiations with other members of the EU to receive additional, vitally important bailout funds as Greece continues to struggle to rebound from an economic crisis that first began in 2010 (in which some have suggested that Greece’s receipt of any additional loans should be conditioned on its ability to make “credible progress in boosting [its] tax take and fighting corruption”).

Transparency International and others are (admittedly somewhat reservedly) hopeful that the election of the Syriza party will signal a renewed focus on combating corruption by the Greek government, calling its campaign platform “music to our ears as long as [its] commitments remain strong and unwavering” and noting that the “new government seems more committed to addressing corruption than past ones.” And there have been some promising early indications of the new government’s willingness to combat corruption.  For example, its new anticorruption chief recently announced he will be investigating 80,000 of the wealthiest individuals in Greece who are believed to have funds in foreign bank accounts for tax evasion. Nonetheless, there have been some rumblings of discontent from both anticorruption activists and the broader international community. Other members of the EU have accused the government of “wasting important time” in instituting anticorruption measures and commentators have noted that too little has been done to make good on campaign promises of “tackl[ing] the corrupt oligarchical business elites that dominate the economy.”

It is likely premature to judge the Syriza govenrment’s commitment or ability to combat corruption.  Yet as Greece continues to grapple with an economic crisis that has left the country reeling – and dependent upon significant loans from the International Monetary Fund and the EU – it seems an appropriate time to draw attention to the fact that this crisis has presented both the Syriza government and broader anticorruption community with a rare opportunity to make significant strides in addressing corruption in Greece, an opportunity that prior administrations have failed to appropriately capitalize on.

Continue reading →

The OECD Report on Corruption in Sectors: Will it Hurt the Brand?

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Consequences of Corruption at the Sector Level and Implications for Economic Growth and Development is the OECD’s latest report on corruption. Released March 25, it was written at the request of G-20 governments and follows an earlier one the organization did for the G-20’s September 2013 meeting.  Whereas that report examined the impact of corruption on rates of economic growth and levels of development, this one adopts a micro perspective, analyzing the effect of corruption and suggesting ways to fight it for four sectors of national economies: i) extractive industries, ii) utilities and infrastructure, iii) health, and iv) education. Among its more striking conclusions:

  • ”independent, competent and better regulatory and law enforcement systems” are critical for combating corruption;
  • “transparency should be an integral component of all anti-corruption strategies;” and
  • “anti-corruption measures must . . . be targeted and tailored.”

Additional examples of focused, cutting edge policy recommendations can be found by clicking “Continue reading.” Continue reading →

The Golden Handshake: Background Rules and the Choice of Restoring Money or Doing Justice

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The anticorruption community has recently put more emphasis on freezing, seizing, and repatriating the assets of corrupt kleptocrats. But while this move is in many ways welcome, it is still the case that essentially none of the most infamous kleptocrats have ended up behind bars. Even when governments go after the illicit assets of these kleptocrats, their cronies, and other “politically exposed persons” (PEPs), the governments seeking asset recovery often find themselves put to an uncomfortable choice: either to accept the return of only a part (sometimes a small part) of the looted wealth in a settlement, or to continue to pursue their attempts, often in vain, to seize and repatriate all (or at least most) of the stolen assets.

Sophisticated PEPs know this, and usually take advantage of the slowness of the asset recovery process (as well as their ability to use their ill-gotten wealth to hire top-notch legal talent to wage a protracted legal battle), to the point where the governments are willing to allow the PEP to secure the “golden handshake” of a favorable settlement. Nothing illustrates this better than the attempts to recover the assets of former Nigerian President Sani Abache and of former Kenyan President Daniel Arap Moi. Abache’s family’s lawyers stiff resistance to asset recovery efforts eventually led to a settlement whereby the Abache family returned $1 billion–but got to keep $300 million. In the latter case, the Kenyan authorities insisted on recovering the full amount–and have ended up with nothing. The Kenyan experience has served as a cautionary tale, inducing for example many of the Arab Spring countries to accept settlements they would have never accepted two years ago. This result frustrates the foundational principle of penology that a criminal who gets caught should end up worse off than he would have been if he did not commit the crime. A corrupt official who knows that the worst that can happen is that he might have to give back half or two-thirds of the money he stole is unlikely to be deterred.

At the moment, it does not seem realistic to expect more severe criminal punishment for many kleptocrats, so reliance on settlement will continue for a while. Accordingly it is important to figure out how to use settlements to guarantee the maximum restoration of assets. The two most important factors that shape the content of a settlement are national and foreign justice. Consider each in turn. Continue reading →

Cells for Suites: Why Corruption in Prison Matters, and What To Do About It

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In the latest chapter of Philippine corruption drama, a police raid of a large prison complex revealed the lavish accommodations enjoyed by several drug lords. The luxury cells included jacuzzis, strip bars, and marble-tiled bathrooms. Police also uncovered methamphetamines, inflatable sex dolls, and a small concert stage, complete with strobe lights and a disco ball. The prisoners involved were found with over $40,000 each in their pockets, which they had kept on hand in order to pay off prison officials. It is incredible that such a blatant abuse of the system took place under the watch of government officials. As one anticorruption advocate noted, the scandal highlighted the frustrating truth that, due to widespread corruption in the prison system, even a conviction does not guarantee that justice has been done.

The Philippine example may be extreme, but the issue of prison corruption is an important one, and it receives far less attention from the anticorruption community than it should. To be sure, there have been a few studies about this topic, including the U4 Issue Report on Detention and Corrections, released in January 2015. But the U4 Report, while helpful in some ways, contains only broad, general assessments about the possible causes of corruption among prison officials. Moreover, the report considered the issue of prison corruption in isolation—it focused only on the effects of such corruption on the prison itself, without addressing the effects on the broader fight against corruption in society at large. While prosecutorial efforts and institutional reforms are crucial to anticorruption efforts, it is also extremely important that prison officials act in accordance with the law, and ensure that justice is, in fact, done. Continue reading →

Corruption is BOTH a “Principal-Agent Problem” AND a “Collective Action Problem”

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Let me admit right up front that this is going to be kind of a nerdy post, focused mostly (though not entirely) on questions of terminology.  But there’s a particular meme that seems to have emerged in much of the discussion of anticorruption strategy, which I think is just wrongheaded and misleading.  The meme goes something like this:

“Although some people describe corruption as a principal-agent problem, corruption is actually a collective action problem.”

(I hate to point fingers, but just so you know I’m not making this up, examples of this meme appear here, here, here, here, here, here, here, and here.  Most depressingly, the not-very-good Wikipedia entry on corruption also includes this claim.)

This statement uses sophisticated-sounding social science jargon, but to anyone who knows what the terms “principal-agent problem” and “collective action problem” actually mean, in their technical economic context, it doesn’t make much sense–at least insofar as it implies that “principal-agent problem” and “collective action problem” are mutually exclusive alternatives. In fact, corruption is both a principal-agent problem (always) and a collective action problem (often).  Recognizing the latter claim need not and should not entail rejecting the former claim; the assumption that it does not only reflects conceptual confusion, but also entails the risk that we will neglect the many insights that principal-agent theory has to offer the study and practice of anticorruption.

I am certainly not the first to make this point. Heather Marquette and Caryn Peiffer have a very nice U4 Issue Paper developing many of the same themes (in greater depth). But because this has been bugging me for a while, let me offer my take on this issue:

Continue reading →