Category Archives: Commentary

Rescission of Contracts and Revocation of Licenses As Means to Combat Corruption

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Article 34 of the UN Convention Against Corruption (UNCAC) generally requires that each State Party “take measures … to address the consequences of corruption.” In recognition of the fact that government contracts and licensing processes have been among the areas most prone to corruption and bribery–and of the fact that the threat of criminal punishment may not be a sufficient or even viable deterrent to such corruption–UNCAC Article 34 further declares that “States Parties may consider corruption a relevant factor in legal proceedings to annul or rescind a contract, withdraw a concession or other similar instrument or take any other remedial action.” Although that second sentence of Article 34 is not mandatory, State Parties–particularly demand-side countries with an unfortunate reputation for corruption in government contracting (such as Kenya, Guinea, Indonesia and Philippines) should adopt that principle into their national laws.

Law providing for the nullification of contracts or concessions procured through corruption would be a strong deterrent to bribe-paying by firms. Although such bribery is already illegal, in some cases criminal punishments are simply insufficient to deter corrupt practices conducted in demand-side countries. Often the threat of sanctions is low, and even though some companies have been hit with substantial sanctions, this loss has been mitigated by the profits acquired by the operation of the tainted contract or license. And a company might think twice before acceding to a bribe demand from a lower-level public official (or even a high-level official) if the company knows that, by paying the bribe, they may be putting the whole contract in jeopardy if the government later decides it wants to reneg on the deal. Moreover, if a demand-side country were to adopt a law that allows for nullification of any government contract or concession procured through corruption, it would send strong signals to that international community that this country will no longer tolerate these corrupt practices. Continue reading →

Corruption in Turkey Poised to Worsen

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A year ago, a spate of corruption allegations leveled at high-ranking officials in Turkey’s ruling Justice and Democracy Party (AKP) placed the country’s graft problem and political tumult squarely in the international spotlight. Prosecutors alleged misconduct involving over $100 billion by more than 90 top officials, including then-Prime Minister (now President) Recep Tayyip Erdogan’s son. AKP supporters believe the charges were politically motivated, pursued by supporters of Islamic cleric Fethullah Gulen in an effort to undercut the AKP. (Gulenists, whose marriage of convenience with the AKP dates back to the early 2000s, had secured key positions in the bureaucracy, police, and judiciary. But Erdogan’s growing power and disagreements over foreign policy strained the alliance, and tensions between the two grew.) In a swift response many believe was led by Erdogan, thousands of police were removed from the corruption probe. Prosecutors and judges were likewise dismissed, and the AKP-dominated Parliament passed a bill restructuring the Supreme Council of Judges and Prosecutors (HSYK) to give the political branches greater control over the judiciary.

Erdogan’s government put the nail in the corruption investigation’s coffin last month with a bill that bolsters executive police powers at the expense of the judiciary’s oversight function. In brief, the new law reduces the power of incumbent judges in two top courts through a restructure and proscribes broader search and seizure power to police. Both moves are designed to give the AKP the upper hand in future disputes with the judicial branch.

The erosion of judicial independence will make anticorruption prosecutions more difficult in the future. But Turkey’s problems run deeper. In short, these recent developments are merely an extension of a corrosive pattern of governance and weakening rule of law: (1) a steady expansion of executive power and (2) infringements on freedom of expression–developments that have been countered, if at all, by (3) an illiberal counterweight, in the form of the Gulen movement. Getting corruption in Turkey under control will require tackling each of these three underlying causes.

Continue reading →

Can Giving a Benefit to a Third Party Count as Bribing a Foreign Official? Yes, No, or Maybe So?

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One of the things I enjoy most about participating in the anticorruption blogosphere is the opportunity to engage in serious, substantive debates with smart people who think differently about these issues than I do. The exchanges are helpful, even when they fail to eliminate the disagreement. Case in point: My friendly sparring with Professor Andrew Spalding about the investigation of the JP Morgan “Sons & Daughters” program in China, which raises the question about whether offering a job to a foreign official’s child (or other friend or family member) can violate the anti-bribery provisions of the Foreign Corrupt Practices Act. Professor Spalding, in a four-part series of posts on the FCPA Blog last summer (see here, here, here, and here), says no. (He further claims that the US government already took that position in a couple of DOJ Opinion Releases from the early 1980s, and that a DOJ reversal of that position would therefore be an affront to the rule of law). In my post last week, I disagreed, and argued that–depending on the facts of the case–it’s at least possible (perhaps even likely) that JP Morgan’s activities violated the FCPA, and more generally that offering something to a third party can, under some circumstances, count as offering an improper benefit to a foreign official under the FCPA.

Professor Spalding has now posted a thoughtful reply on the FCPA blog. While I continue to disagree with his analysis, the exchange has been helpful (at least for me) is elucidating an important distinction in how we analyze potential FCPA violations–that between conduct that may violate the FCPA (under the right factual circumstances) and conduct that always or never violates the FCPA. Appreciating this distinction is key–in my view–to understanding where Professor Spalding goes wrong (though I suspect he will continue to disagree!). While I don’t want to go round and round in circles on the same issues, let me take one more crack at what I view as the key point: Continue reading →

Combating Corruption in Uganda or Merely Displacing it: The World Bank’s Public Expenditure Tracking Survey

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A World Bank-initiated effort to reduce corruption in school funding in Uganda is widely, and rightly, celebrated for its results (click here and here for background).  In the early nineteen nineties on average 87 percent of the monies the Ugandan central government budgeted for textbooks and other school supplies “leaked out” somewhere between departing the Finance Ministry and arriving at the school house front door.  Yearly data revealed that 73 percent of the schools received less than five percent of the monies to which they were entitled, and only ten percent received more than half.  The 1996 Bank project had an immediate effect on the rate of losses.  By 1999 the government found schools were receiving on average 95 percent of what they were supposed to receive, and a 2002 World Bank study likewise showed a sharp drop in fund leakage.

The dramatic improvement is attributed to the enormous publicity the data on losses garnered.  Parents were outraged and the government and donor agencies embarrassed.  Within the development community, the Uganda Public Expenditure Tracking Survey, as the work to dig out and publicize the loss data became known, has been enormously influential, the story becoming a parable for how to fight corruption.  A Uganda-like PETS project is now routinely prescribed for attacking corruption in public expenditures, and a Google search on “Uganda PETS” yields over 100,000 hits and returns some 20,000 citations on Google scholar.

But for all the attention the effort has generated, there is evidence that it may not have had any impact on the level of corruption in Uganda.  It is possible that all it did was force those raking funds off the school fund program to turn elsewhere.  The Uganda PETS thus may simply have displaced the corruption in the school funding program rather than ending it. Continue reading →

The Giving Trees: Fighting Corruption in the Timber Industry with Technology

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The 3-hour drive from the port city of Douala, Cameroon to the capital, Yaoundé, is unsettling–and not just because drivers hurtle down the road, careening around blind curves into oncoming traffic. What is more worrying is that the oncoming traffic is comprised largely of huge lorries on their way to the shipyards transporting some of the biggest trees I’ve ever seen. After passing 10-15 trucks on my first trip, I started to wonder where the trees were coming from and how they could possibly be arriving in such a steady stream. Perhaps this large-scale lumber harvesting is not by itself all that unusual. But the facts that Cameroon ranks 144/177 on Transparency International’s Corruption Perception Index, and that nearly two-thirds of these round logs leave the country destined for China–the world’s largest importer of illegally-sourced timber–raise red flags.

Indeed, illegal logging in southern Cameroon and the rest of the Congo Basin is a serious problem, contributing to the destruction of 2.5% of the world’s second largest rainforest over a single decade. Studies show that in two of Cameroon’s nearest neighbors, Gabon and the Democratic Republic of Congo (DRC), illicit logging could account for as much as 70% of the timber market. In fact, the entire greenbelt envelops countries where corruption is rife – India, China, Brazil, Peru, Indonesia, Ethiopia, DRC, Nigeria – and the links between corruption and over-logging have been widely studied by the likes of TI, U4, UNODC, and the World Bank.

Current efforts to address poor governance of the timber industry are admirable but insufficient. The EU FLEGT Action Plan and the US Lacey Act regulate trade in wood and ban the importation of illegally sourced goods. Under the FLEGT Plan, Cameroon and the EU agreed to a licensing scheme to promote proper forest management. But no such regulation exists in China, a market that has boomed over the past 15 years largely in response to American demand for manufactured wood products. Furthermore, as the US Environmental Investigation Agency has shown in the Peruvian market, transparent trade depends on formal paperwork – export permits, certificates of origin, etc. – that are easily forged and exchanged on the black market. As a result, the same study points out, American importers often remain culpable, despite regulations.

We need a coordinated global response that can be effective independent of manipulable documents. What might this answer look like? A major component might well be the deployment of new technologies and scientific techniques to verify the origin of timber and timber products. Continue reading →

Beyond Sextortion: How Corruption Uniquely Affects Women

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A teenage girl at a refugee camp in Sierra Leone applies to the camp administrator for the food, soap, and medicine she’s entitled to and needs to survive. He falsely tells her that “your name is not on the list” but, instead of demanding money – the classic corruption scenario — he demands sex and she has no choice but to comply.

Corrupt sexual extortion (dubbed “sextortion” by the International Association of Women Judges) is not hypothetical and it is not rare. For example, a report from Human Rights Watch last September found that sexual exploitation by Burundian and Ugandan soldiers in Somalia is “routine and organized.” A refugee in Sierra Leone said “If you do not have a wife or a sister or a daughter to offer the NGO workers, it is hard to have access to aid.” Another refugee said “In this community no one can have access to CSM [a soya nutrient] without having sex first.” According to Transparency International, “the perception that women do not have the money to pay bribes may mean that they are not asked for payments… Instead, compensation may take the form of sexual favours.” This corrupt sexual exploitation often has a far greater adverse effect on victims than monetary corruption, not only because of the act itself–which can be extremely violent and is always a violation of personal dignity and human rights–but also because of the possibility of disease, pregnancy, and, all too frequently, social ostracization, victim blaming, and loss of prospects in the marriage market.

Yet despite occasional references to corrupt sexual exploitation by anticorruption activists, most major anticorruption groups have neglected this topic, focusing instead on monetary corruption. This is a mistake. The anticorruption community should recognize sextortion and other forms of corrupt sexual coercion as a distinctive and devastating form of corruption, deserving of special attention and appropriately-tailored responses. Continue reading →

The Political Will to Fight Corruption: Lessons from Nigeria

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“Political will” is often said to be the sine qua non of a successful anticorruption policy (click here, here, and here for some examples), yet the term remains, as Linn Hammergren complained almost two decades ago, one of “the slipperiest concepts in the policy lexicon.”  Derick Brinkerhoff tried to pin down what those advising on anticorruption meant by it in a 2010 U4 policy brief.  He concluded that most used the term to refer to some combination of commitment by controlling corruption by top-level political leaders together with the ability to do something about it.

While a reasonable definition, a moment’s reflection will show that advising developing countries that to fight corruption they must have political will is empty advice.  If a country’s leadership had the commitment to deal with corruption and the tools for doing so, it wouldn’t need advice on what to do, it would be in the heat of the battle.  The reason most countries remain on the sidelines is that their leaders lack the necessary commitment and capacity.  So telling developing countries that a successful anticorruption effort begins with political will assumes away the problem.

What would help is advice on how to create the commitment and ability to fight corruption.  Continue reading →

JP Morgan, Sons & Daughters, and the Rule of Law

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One of the more interesting ongoing Foreign Corrupt Practices Act investigations involves allegations that the investment banking giant JP Morgan’s “sons and daughters” program in China. According to media reports, JP Morgan’s China and Hong Kong offices offered jobs, and in some cases consulting contracts, to the children of well-connected officials in China (including the heads of state-owned enterprises and senior party officials) in return for lucrative business opportunities in the Chinese market (see, for example, here and here). The case is still under investigation, the facts are still in dispute, and the government enforcement agencies have not yet accused JP Morgan of any of its executives of any wrongdoing. Yet there have been hints that if the facts turn out to be as bad as they look, the U.S. government will consider JP Morgan’s so-called “sons & daughters” hiring program to have violated the FCPA’s anti-bribery provisions. That conclusion would depend crucially on the premise that providing a job to the (adult, non-dependent) child of a foreign official counts as providing “anything of value” to the official. (Things would be different if there were evidence that the officials’ children funneled some of the money back to their parents, but at the moment no such evidence has come to light.)

About six months ago, Professor Andrew Spalding (who has also contributed a number of insightful posts to this blog – see here, here, and here) published a provocative four-part series at the FCPA Blog (see here, here, here, and here) raising serious concerns about this legal theory, and suggests that applying it in JP Morgan’s case would be not only inappropriate, but a serious affront to fundamental legal principles. Somewhat unusually, I find myself in disagreement with Professor Spalding. Indeed, if the facts turn out to be as bad as early media reports suggest, I think that this is an easy case. To my mind, it’s straightforward that offering a benefit to a third party can count as offering “anything of value” to a foreign official under the FCPA, and nothing in the DOJ’s prior opinion releases would constrain the U.S. government from applying that principle in this case. Continue reading →

Crowdsourced Anticorruption Reporting, 2.0

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Crowd-based reporting tools have garnered tremendous attention for their role in anticorruption efforts all around the world. Deservedly so: these platforms harness rapidly increasing internet and mobile access in the developed world to tackle the age-old problem of corruption. Perhaps the best known of this new wave of crowdsourced reporting tools, iPaidABribe (which started in India and has been successfully recreated in other parts of the world), allows any citizen with a smartphone or other access to the internet to report bribery incidents nearly-instantaneously. Citizens can report the amount of a bribe, the recipient of the bribe, the institution that took or demanded the bribe, and so on — all anonymously. Visitors can read the reports as well as view a sort of “heat map” that aggregates the reports to demonstrate where bribery is most prevalent. The very act of broadcasting one’s own experiences with corrupt officials, and the commensurate naming-and-shaming effect this has when many such reports are aggregated, is proving to be extremely powerful.

To be sure, not all attempts to use modern internet and mobile technology to crowdsource anticorruption reporting have been as successful. Some (perhaps most) platforms never really get off the ground. Observers on this blog and elsewhere have pointed out that this may be due to a mismatch between local social conditions and the platform itself. These challenges are real, but I want to focus for now on platforms that have managed to gather and report significant data on corruption. Even in these cases, some commentators have pointed out, the full potential of crowd-based corruption reporting platforms has yet to be realized. The data they are gathering is still relatively “raw” and unprocessed by entities that could really use it — such as government anticorruption agencies. Thus it is important to highlight how these platforms can improve, and how they can avoid having their efforts thwarted by unwanted side-effects. As platform developers move past their early obstacles and start achieving real success in their primary goal — getting people to use their reporting system — the need now is to direct the platforms and their potential partners in such a way as to enhance their effectiveness and to avoid the possibility that their data will be misused. Continue reading →

Conflict of Interest and Democratic Theory: Lessons from Bruce Cain’s Democracy More or Less

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Although written for Americans worried about what ails their democracy, non-Americans will profit from a close study of Stanford Professor Bruce Cain’s new book Democracy More or Less: America’s Political Reform Quandary as well.  Cain’s thesis is that different views about the role of citizen participation, representative institutions, interest groups, and apolitical experts in governing the United States produce sharply different prescriptions for reforming its political system.  Non-Americans will recognize that these same views inform reform in their countries, from community driven-development programs that bypass representative institutions to the replacement of elected governments with a cabinet of technocrats.  What makes Cain’s book so valuable, to Americans and non-Americans alike, is that he shows when and why reforms inspired by these competing views improve governance and when and why they make matters worse.

GAB readers will find particularly instructive his analysis of how different theories of government influence the ongoing effort in the United States to police conflicts of interest by elected officials, civil servants, and judges

Continue reading →