Category Archives: Commentary

Why Firms Contracting With Developing Nations Should be Required to Disclose Evidence of Corruption

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An earlier post urged developing states to require firms doing business with them to have procedures in place to prevent their employees and agents from bribing government officers, making false claims, or committing other corrupt or fraudulent acts during the execution of a government contract.  Mandating that government contractors institute anticorruption compliance programs is an American innovation that works reasonably well there and is spreading to other nations.  Here I advocate a second American effort to curb corruption in government contracting that has not worked well in the United States but can in developing states.

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UN, Heal Thyself: The UN’s Embarrassing Failure to Protect Whistleblowers

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The United Nations has positioned itself as one of the leading global voices against corruption, principally through the UN Convention Against Corruption (UNCAC). Among the many vital topics covered by UNCAC is the protection of whistleblowers. UNCAC Article 33 provides:

Each State Party shall consider incorporating into its domestic legal system appropriate measures to provide protection against any unjustified treatment for any person who reports in good faith and on reasonable grounds to the competent authorities any facts concerning offences established in accordance with this Convention.

Though this provision is framed in non-mandatory terms, the UN and associated advocacy bodies clearly treat whistleblower protection as critical, both for countries and for the private businesses that the UN has pushed to join the UN Global Compact.

But what about the United Nations itself? Secretary General Ban-Ki Moon has declared that the UN has “developed a strict system of internal controls” and that the UN will “continue to remain vigilant and work hard to set an example.” And the UN’s Ethics Office promises to “protect[] staff from being punished for reporting misconduct or for cooperating with an official audit or investigation.” Providing protection to staff, the Ethics Office explains, “strengthens accountability and maintains the integrity of [the UN’s] operations and programmes.”

Sounds good.  But the actual UN practice is much more troubling–indeed, it should be downright embarrassing.  This was driven home most clearly in a decision that the United Nations Appeals Tribunal handed down this past September concerning the whistleblower James Wasserstrom, but the issue goes beyond any one individual case to the entire UN system–or lack thereof–for protecting internal whistleblowers from retaliation. I’m frankly surprised that this issue hasn’t gotten more press in the anticorruption community. Continue reading →

Controlling Corruption in Afghan Aid as the U.S. Withdraws

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Foreign aid has flooded into Afghanistan over the past decade and a half, including over $104 billion in US aid dollars alone; indeed foreign aid currently comprises 60% of Afghanistan’s budget expenditures. But despite—or perhaps because of—these immense expenditures, corruption still plagues the Afghan government and economy (Afghanistan ranks 175/177 on Transparency International’s Corruption Perception Index)–and this greatly concerns the Afghan people. Since 2008, the American effort to address corruption in Afghanistan has been overseen by the Special Inspector General for Afghanistan Reconstruction (SIGAR). SIGAR, currently headed by attorney John Sopko, conducts audits and investigations, and issues recommendations and reports to reduce fraud, waste, and inefficiency. SIGAR’s unique approach—centralized, independent oversight over all agencies involved in Afghan reconstruction—has yielded tangible benefits, including saving almost half a billion dollars through a single audit. Reform efforts by the United States and the international community have improved Afghan legal structures, including by crafting comprehensive anticorruption laws and strategies, though serious problems remain.

Yet maintaining accountability and oversight over foreign aid will be even more challenging as U.S. troops leave. In SIGAR’s most recent quarterly report, Sopko points out that “[l]arge areas of the country . . . will soon be off limits to U.S. personnel due to base closures and troop withdrawals.” Nonetheless, the U.S. will continue providing external financial assistance as Afghanistan even as America’s footprint shrinks, and the United States will continue to foot the bill for much of Afghanistan’s public sector even as the US withdraws all but 9,800 troops by December 2014. What can American policymakers to do address the problem of corruption in development aid to Afghanistan during and after the withdrawal?

At first blush, perhaps not much. The US has struggled to stem misallocation of American funds previously, and its levers will weaken as its presence diminishes. Nevertheless, the US will retain significant influence in the near future, and there are a number of concrete steps the US can and should take to limit the extent of corruption in US development aid to Afghanistan, and to support anticorruption efforts in Afghanistan more generally: Continue reading →

“The Whole World Can Commit Corrupt Acts” : Petrobras and the Brazilian Election

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“There are corrupt people everywhere,” said Brazilian President Dilma Rousseff. “In my opinion, the whole world can commit corrupt acts.” Brazil’s presidential election is neck and neck, the closest in a generation. As both candidates accuse each other of corruption, two questions come to mind: First, is corruption influencing the outcome of this race? Second, should it? Continue reading →

U.S. Department of Justice/Civil Society — 1; Kleptocrats — 0

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October 10, 2014, deserves mention in any future history of the anticorruption movement, for it was on this date that a ruling kleptocratic family (colloquially known as thugs in power) conceded the obvious: that the money to fund a kleptocratic lifestyle — in this case a mansion in Malibu, a Ferrari 599 GTO, and Michael Jackson memorabilia – did not come from the family’s hard work on behalf of the citizens they rule.  Rather, it came the easy way: from the wholesale theft of the nation’s patrimony.

This startling, if obvious, concession came in the settlement of a civil suit filed by the U.S. Department of Justice, with the support and encouragement of civil society, against an unlikely group of defendants.  In the order listed in the complaint, they are: 1) One White Crystal Covered Bad Tour Glove and Other Michael Jackson Memorabilia, 2) One Gulfstream G-V Jet Airplane Displaying Tail Number VPCES, 3) Real Property Located on Sweetwater Mesa Road In Malibu California, 4) One 2007 Bentley Azure, 5) One 2008 Bugatti Veyron, 6) One 2008 Lamborghini Murcielago, 7) One 2008 Rolls Royce Drophead Coupe, 8) One 2009 Rolls Royce Drophead Coupe, 9) 2009 Rolls Royce Phantom Coupe, and 10) the Ferrari 599 GTO.

Although defendants stood mute before the court, their owner, Teodoro Nguema Obiang Mangue, Second Vice President of Equatorial Guinea and (surprise?) son of the country’s president, was anything but.  Through the mouths of expensive American legal talent he complained loudly and bitterly that the ten named defendants were innocent.  But in settling the case, he agreed in effect that three – the mansion, the Ferrari, and some of the Michael Jackson memorabilia, were indeed guilty.  Guilty? Of what? Continue reading →

Is Corruption Partly Responsible for the Ebola Crisis?

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There’s been an interesting mini-debate over at the FCPA Blog about whether, or to what extent, corruption is partly responsible for the severity of the Ebola crisis in West Africa. Richard Cassin, the publisher and editor of the FCPA Blog, argued that it is. He made this argument initially in a post from this past August entitled “Ebola tragedy is also a story of graft.” He offered as evidence the following observations: (1) the WHO and other observers estimate that a very high percentage–perhaps up to 25%–of global spending on public health is lost to corruption; (2) the very high Ebola fatality rates in West Africa have been attributed in part to the lack of adequate intensive care facilities to administer the treatments; and (3) the countries hardest hit by the Ebola outbreak–Guinea, Liberia, Sierra Leone, and Nigeria–are reputed to be highly corrupt, as indicated by their very poor scores on Transparency International’s Corruption Perceptions Index.

Many critics who commented on Cassin’s initial post complained that the evidence offered did not in fact support the strong claim in the title that corruption has contributed significantly to the Ebola outbreak. In particular, the critics pointed out that: (1) the fact that a great deal of public health spending generally is lost to corruption does not actually tell us whether corruption was a major factor in the particular case of the Ebola outbreak, and (2) the low ranking of the affected countries on the CPI likewise–even if we concede that the CPI is a decent measure of actual corruption–does not indicate that corruption caused (in any significant way) the Ebola outbreak to be as lethal as it has been; at most it shows a correlation that might be explained by any number of other factors.

Cassin responded with a second post last month in which he rebutted the critics. He acknowledged that while one can never establish with “scientific certainty” that corruption has a causal effect on the severity of the Ebola outbreak, there is powerful circumstantial evidence that corruption is a “gateway” to this and other public health crises (as well as other problems like terrorism and crime), because it siphons off public resources. Cassin cites to a couple of research papers that purport to show that corruption in general has adverse impacts on public health, in particular because it adversely affects access to clean water and sanitation.

While I’m generally sympathetic to Cassin’s larger point, I think that the criticisms are fair ones. Here’s my take. Continue reading →

An (Un)Appealing Argument: Why Bob McDonnell Shouldn’t Get His Hopes Up

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If former Virginia Governor Robert McDonnell is certain of anything, it’s that he never actually abused the powers of his office for the benefit of Jonnie Williams. Forget about the $170,000 or so in loans and gifts Williams extended to Virginia’s first family; “McDonnell’s last line of defense,” as Rick has noted, “[is] that the favors he did for Williams were not part of his official duties as governor.”  In other words, McDonnell believes that his influence peddling on behalf of Williams — in return for Williams’s financial “assistance” — did not amount to “the performance of an official act,” as required by federal bribery law.

Unfortunately for McDonnell, the judge overseeing his trial disagreed and refused to instruct the jury — as McDonnell had requested — that “merely arranging a meeting, attending an event, hosting a reception, or making a speech are not, standing alone, ‘official acts.’”  Instead, Judge Spencer adopted the prosecution’s understanding that federal bribery law encompasses quid pro quo arrangements involving the performance of either (1) a public official’s statutory duties or (2) those settled practices “‘that a public official customarily performs’ even if they are not prescribed in law.”  Not to be deterred, the former Governor thinks he has a strong case for challenging this instruction on appeal.  Here’s why he’s wrong.

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Some Encouraging Signs from the Recent White House Statement on Global Anticorruption

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A couple of weeks ago, the White House published a “Fact Sheet” on the U.S. Global Anticorruption Agenda. Though I don’t normally ascribe all that much importance to documents like this — they’re mostly for PR, after all — there were a few things about this particular release that caught my eye, and that I found fairly encouraging.

Perhaps most notably, although the release includes some obligatory–and deservedly self-congratulatory–discussion of the U.S. leadership role in enforcing the Foreign Corrupt Practices Act and pushing for stronger enforcement of anti-bribery laws through the OECD Convention, most of the Fact Sheet focuses on what many in the anticorruption community have emphasized as important, cutting-edge issues that go beyond traditional anti-bribery law, including:

  • Asset recovery and anti-money laundering as a top priority (including the recognition of the need to close loopholes in U.S. law and strengthen international cooperation in this area);
  • Closely related to this, the Fact Sheet emphasizes the importance of preventing the abuse of anonymous shell companies–including a discussion of recent regulatory initiatives on this front that we’ve noted elsewhere on this blog.
  • A special focus on the extractive sector
  • Emphasizing the importance of engagement and cooperation with the private sector, in particular the announcement of an intention to develop a “National Action Plan to promote and incentivize responsible business conduct, including with respect to transparency and anticorruption, consistent with the UN Guiding Principles on Business and Human Rights and the OECD Guidelines on Multinational Enterprises.”

Of course, concrete action matters more than high-minded general statements, and I know many in the anticorruption activist community have reasonable concerns about whether the U.S. is prepared to do what it takes to make good on these pledges. Still, one must give credit where credit is due–not only to the U.S. government, but to the civil society activists and others that have succeeded in changing the conversation about global anticorruption in ways that are reflected by the White House document.

One other quick thing to note about the Fact Sheet: At one point it declares that the U.S. government “will hold responsible governments that tolerate or commit corrupt practices in contravention of international norms, including by adjusting our bilateral relations and advising our businesses and investors accordingly.” It’s not clear what, exactly, this means. Maybe it means nothing significant. But if the U.S. is serious about “adjusting [its] bilateral relations” with countries that tolerate or contravene international anticorruption norms, that might actually represent a significant departure from past practice. After all, though the U.S. routinely condemns corruption, I’m not aware of any cases in which another country’s failure to adhere to anticorruption norms has had broader collateral consequences for U.S. foreign policy toward that country. Again, maybe this doesn’t really mean much–what does “adjusting” relations mean, anyway?–but it would be interesting to see whether the U.S. (or perhaps some in the U.S. who had a hand in drafting the Fact Sheet’s language) want corruption concerns to start to play a role perhaps more similar to concerns related to human rights abuses.

Developing States Should Demand that Firms Doing Business with Them Have an Anticorruption Compliance Program

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In December 2008 the U.S. federal government instituted its Contractor Code of Business Ethics and Conduct program.  Since then, any firm awarded a contract of $5 million or more requiring at least 120 days to perform must establish within 90 days of the award an anticorruption compliance program that i) contains a written code of business ethics and conduct, ii) trains employees on ethics and compliance periodically, and iii) has an internal control system able to discover improper conduct.  The rules also require that the program be overseen by someone of “sufficiently high level [with] adequate resources to ensure [its] effectiveness.”  When a review found government agencies were not systematically checking their contractors for compliance, the regulations were amended to require the government employee responsible for contract execution to verify that the contractor had an anticorruption compliance program in place.

No developing state now imposes any similar requirement on those with which it contracts — at least according to interviews with development agency procurement staff and internet searches.  But there is no good reason why developing countries should not mandate such a program and good reasons why they should. Continue reading →

Post-2012 CPI Scores Can’t Be Compared Across Time, Either

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In post last week, I emphasized what lots of others have already tried (without much apparent success) to point out: Prior to 2012, Transparency International’s Corruption Perception Index (CPI) scores are not comparable over time.  The fact that a country’s score from one year to the next goes up or down might reflect an actual change in perceived corruption, but might be due to a whole host of other factors (changing aggregation methodology, changing scope of country coverage, change in perceived corruption of other countries, etc.), such that simple year-to-year comparisons are unreliable.  In making this point, I was not criticizing TI itself, which has been quite clear that the pre-2012 CPI scores cannot be compared across years.

But what about 2012 and after?  In 2012, TI announced, with much fanfare, that starting with the 2012 CPI and henceforth, scores across years would be comparable, due to changes in methodology (described here).

Is this right?  If it were, it would be a huge benefit both to scholars and policy reformers who want to evaluate changes over time–and the impact of various interventions.  Alas, after reading through TI’s discussion of the revised methodology, I regret to say the answer is probably no.

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