Category Archives: Commentary

Who Can Commit Honest Services Fraud? The U.S. Supreme Court Will Soon Decide

Posted on by
2

One of the most potent anticorruption tools for U.S. prosecutors is the “honest services” fraud statute. In essence, the statute makes it illegal for someone to violate their fiduciary duty to the public by participating in a bribery or kickback scheme. The idea behind this law is that when someone owes a fiduciary duty to the public, engaging in corruption deprives the public of their right to “honest services” and thus constitutes a violation of that duty.

Yet while it is relatively clear what activities violate this statute, it is less clear who can violate it. Some cases are obvious: Public officials, for instance, hold a position of power that has been entrusted to them by the public, and in turn must act on behalf of the public when wielding that power. They clearly are the sorts of public fiduciaries to whom the honest services fraud statute can apply. At the other end of the spectrum are ordinary private citizens who have no connection whatsoever to government office. Such people may have a general moral responsibility to behave honestly, but they do not owe fiduciary duties to the public. But between those easy cases at either end of the spectrum are more challenging cases. Consider a person who does not formally hold office but who, by virtue of some relationship to public office or to a public official, have significant influence over government decisionmaking. Do those people owe a fiduciary duty to the public? Are they subject to conviction under the honest services fraud statute? This is the difficult problem that the U.S. Supreme Court will soon address in Percoco v. United States.

Continue reading →

Preventing Corruption in the Reconstruction of Ukraine

Posted on by
3

It is clear Russia’s attempt to break Ukrainians’ will to fight by attacking the nation’s critical infrastructure is failing. No matter how much destruction its constant bombardments wreak on power plants, district heating systems, and the other facilities that support daily life, Ukrainians remain determined to recover every inch of territory the invaders now hold.

Helping to shore up Ukraine’s determination is the commitment its Western partners have made to financing its reconstruction. But as donors pledge their support, concerns are being raised about corruption. It is no secret that at the time Russia attacked, Ukraine was still struggling with the ingrained corruption it inherited from Soviet rule and the post-Soviet oligarchs who grabbed money and power in the first years of independence still retained a grip on the levers of power..

The Ukrainian government must the lead the fight against corruption during reconstruction; draft legislation now circulating in Kyiv recognizes this. All funds would be channeled through an independent government entity with a 20-person board of directors of which 15 would be drawn from donor organizations and five would be Ukrainian officials. That the majority will be drawn from outside Ukraine is a critical provision, one that should reassure donors that oversight will not be wanting.

A second critical provision is that the entity would have a strong internal audit department reporting directly to the board of directors. The proposed bill provides the department would conduct financial audits, ensure the fund operates within the law, that information the board requested was supplied, and that managers did not act beyond their authorized duties.

As important as these provisions are, they are mainly backwards looking, aimed at identifying where corruption has occurred. More important is preventing it in the first place.

Ukrainian officials and their partners should thus include strong prevention measures in the final draft. All contractors should have an anticorruption compliance program that has been independently certified to be compliance with the standards for an antibribery management system found in ISO 37001. The legislation should also create a prevention department. One model is the one the Millennium Challenge Corporation has. Its unit trains grantees responsible for overseeing construction projects in the creation of a risk register and development of an action plan to reduce if not eliminate corruption in both the award and execution of construction contracts. Regular field visits monitor how well grantees are doing in implementing their action plan.

Current estimates are that rebuilding Ukraine will run upwards of $350 billion, a number sure to grow as Russian bombs continue to fall. That Western nations are prepared to invest such an extraordinary sum in rebuilding a victim of aggression is the most reassuring sign to date that despite economic turmoil, social upheaval, and the election of demagogues, there is indeed a broad and deep global consensus on the value of a liberal, democratic order. Every step possible should be taken to ensure corruption does not undermine it.

Chile’s Way Forward: Corruption and Disqualification:

Posted on by
8

Many democracies have sought to preserve the integrity of their governments by prohibiting individuals who have been convicted of corruption-related offenses (or other serious crimes) from holding public office, either for a period of time or permanently. Such a prohibition was on the ballot this past September in Chile, when citizens voted on whether to adopt a new constitution. That proposed constitution included, among its many provisions, a specific article (Article 172) that would have disqualified from public office any person who had been convicted of a corruption offense. The provision did not become law, however, because Chilean voters overwhelmingly rejected the proposed constitution for reasons that had almost nothing to do with the relatively obscure Article 172.

The inclusion of that article in the proposed constitution does, however, invite the consideration of two distinct but related questions: First, should Chile—or another similarly situated democracy—adopt a law disqualifying those convicted of corruption from holding public office? Second, if the answer to the first question is yes, should that disqualification rule appear in the constitution (as opposed to an ordinary statute), which is, by design, much harder to change?

The answer to the first question, at least for Chile, is probably yes. The answer to the second question, though, is no. Chile should experiment with a disqualification law, but should not constitutionalize it.

This conclusion arises from a careful consideration of the advantages and disadvantages of disqualification laws and, perhaps more importantly, the conditions that must obtain for those laws to be beneficial:

Continue reading →

Curbing Corruption in India’s Healthcare System

Posted on by
5

The Indian healthcare system is rife with corruption, and much of this corruption arises from the way that healthcare is regulated (or not). Because healthcare in India is inexpensive, at least by Western standards, private health insurance is relatively rare, and a sizeable majority of total health expenditures are made out-of-pocket. With little regulation, and without much meaningful price negotiation by either the government or private insurance companies, India’s healthcare system has become a vast “network of unregulated private sector hospitals.” This lack of regulation, coupled with intense competition, encourages doctors (who are often under substantial financial pressure) “to enter a happy axis of corruption where they routinely prescribe expensive investigations and perform operations which a patient might not need” in order to increase their profit margins. Doctors have also been known to take bribes from other healthcare entities in return for patient referrals, or to accept kickbacks from pharmaceutical companies disguised as “professional fees” in order to outcompete other private hospitals. As a recent WHO-Eurohealth publication concluded, health sector corruption in India includes not only “collusion, bribes and kickbacks in procurement which may result in overpayment for goods and contracted services” and doctors’ willingness to accept “payments in exchange for special privileges or treatment,” but also “distort[ions in] medical professionals’ prescribing practices.” 

Prime Minister Narendra Modi’s government has sought to address some of these concerns through a healthcare initiative known as PMJAY. The main objective of this program is to increase access to healthcare for the poorest 50% of the population—approximately 700 million people—who are given biometric government “smart cards” to purchase eligible inpatient healthcare services at both private and public hospitals. But while PMJAY is principally designed as a system for subsidizing healthcare for low-income people, it also serves as an anticorruption tool by bringing under government oversight millions of previously unregulated out-of-pocket healthcare transactions, requiring enrolled physicians to acquire digital pre-authorization before administering nonemergency services to PMJAY beneficiaries, and giving the government more power to negotiate with private hospitals participating in the program over healthcare rates. PMJAY’s computerized billing platform also serves a surprising secondary role as an AI-powered “comprehensive fraud analytics solution” for millions of transactions that were previously beyond the government’s reach. The program has already detected over 18,000 fraudulent insurance transactions, leading to penalties against hundreds of healthcare entities so far. The government has even made a list of “corrupt” hospitals available on the PMJAY website. Given PMJAY’s early successes, the government should expand the program. Not only would this increase healthcare access in general—a worthy aim in its own right—but it would further reduce corruption in the healthcare system. This is more easily said than done, however, in light of several practical obstacles to further expansions.

Continue reading →

A U.S. Court Just Opened a Huge Loophole in Anticorruption Campaign Finance Laws

Posted on by
7

A New Jersey election law prohibits any “corporation carrying on the business of a bank” from donating to political parties. The New Jersey Bankers Association (NJBA), a trade group representing the interests of 88 banks in the state, challenged that law as unconstitutional. For those who follow disputes over U.S. campaign finance law, one might have expected that this case would be decided within a familiar framework: Under the Supreme Court’s well-established principle that campaign contributions are a constitutionally protected form of political speech, the restriction would only be permitted if it is narrowly tailored to advance the government’s compelling interest in preventing corruption or the appearance of corruption.

The federal appeals court’s surprising decision in this case, though, sidestepped that usual inquiry entirely. Instead, the court determined that the law in question did not apply to the NJBA in the first place. The court reasoned that the law applies only to “corporation[s] carrying on the business of a bank,” and because the banks’ trade association (the NJBA) does not itself make loans and receive deposits, the NJBA is not a “bank,” meaning the law does not prohibit the NJBA (as distinct from its member banks) from making political donations.

That reasoning is at least questionable as a purely linguistic matter. To “carry[] on” a business activity can mean both “to engage in or conduct” business oneself and “to develop [a business] beyond a stage already attained.” While a bank trade association does not do the former, it arguably does do the latter—for example, by lobbying against capital constraints that would impede the loan-making capacity of banks. But more importantly, the court’s narrow, literalist reading of the statute is inappropriate in light of its dangerous consequences for New Jersey’s efforts to restrict corruption and the appearance of corruption in the campaign finance system. The court’s ruling permits (at least for now) New Jersey to restrict banks’ campaign contributions, but allows the representative of those banks to make contributions on their behalf. That’s like saying your child isn’t allowed to reach in the cookie jar, but his friend can grab the cookie for him. This misguided decision has thus created a potentially gaping loophole, one allowing affluent industry groups to engage in campaign-related spending that would ordinarily be deemed to present such a high risk of corruption (or its appearance) that government regulation is justified.

Continue reading →

OECD Denounces Italy’s Failure to Enforce the Antibribery Convention

Posted on by
Reply

GAB readers know that Italy has repeatedly failed to meet its obligations under the OECD Antibribery Convention (here. here, and here). That in recent high-profile cases where evidence Italian companies bribed officials of foreign governments was overwhelming, the companies, their executives, and accomplices were all acquitted.  And that civil society organizations in Italy, Nigeria, and the United Kingdom have urged the OECD in no uncertain terms to condemn the Italian government’s blatant violation of its obligation to levy “effective, proportionate, and dissuasive criminal penalties” on those who bribe foreign public officials (here).  

Last Friday, the OECD did exactly that. In a comprehensive, well-reasoned report, a model for future compliance reviews, its Working Group on Bribery in International Business Transactions fingered both the legislature and the judiciary for Italy’s noncompliance. The legislature because the sanctions for foreign bribery are too low to deter anyone or any company from paying a bribe, the judiciary for interpreting the rules of evidence in ways that almost invariably end in acquitting defendants.

Indeed, it is hard to read the Working Group’s analysis of the decisions in recent cases without concluding as I have that underneath the strained reasoning in the recent acquittals is some mix of bribery, favoritism, or threats.

Continue reading →

When it Comes to Corruption, Lula is Toxic, but Bolsonaro is Lethal

Posted on by
14

The second round of Brazil’s presidential election—which pits incumbent right-wing President Bolsonaro against left-wing former President Lula—is a no-win situation for those who principally care about anticorruption. Both candidates have been embroiled in corruption scandals, and though both have deployed corruption allegations against their opponent, neither has articulated anything resembling a meaningful anticorruption agenda. For those voters whose top priority is increasing integrity and accountability within the Brazilian government, the question at the ballot box on October 30 will be: which candidate is the lesser of two evils?

Though painful, that question has a clear answer: Bolsonaro poses by far the greatest threat to anticorruption efforts in Brazil, and to the integrity of Brazilian democratic institutions as a whole. Lula is by no means an ideal candidate, and it is entirely understandable that many Brazilian voters are deeply concerned about the numerous corruption scandals involving his party, the PT (see here, here, and here). But Bolsonaro’s administration has been ripe with scandals as well (see here, here, here, and here). Ultimately, whatever Lula’s personal ethical failings may be, he is far more likely than Bolsonaro to preserve the institutional accountability mechanisms that are necessary to address corruption over the longer term.

To get an idea of why, it is useful to take a look at Bolsonaro and Lula’s track records:

Continue reading →

Pictures are Worth More than a Thousand Words: Especially in Financial Crime Cases

Posted on by
2

That fount of all wisdom (the internet) attributes the saying that a picture is worth a 1,000 words to Napoleon (here). The self-crowned emperor was many things, but a harried anticorruption investigator or prosecutor trying to explain the links between a criminal’s wrongdoing and a corporation to a judge of less than genius caliber or a jury after the lunch break he was not. Had he ever been in such a situation, he would have realized he vastly understated a picture’s value.

The diagrams below show why. Created by Targeting Natural Resource Corruption, they explain to those responsible for enforcing laws against poaching, illegal logging, and other crimes against the earth’s resources how a corporation obscures the relationship between these crimes and those behind them. For those like me, with no visual imagination or skill whatsoever, they are a godsend. Because they are easily reproducible and not copyrighted. Thanks to Targeting Natural Resources for making them readily available.

Continue reading →

Brazil’s Presidential Election: No Matter the Outcome, Corruption Wins (and Everyone Loses)

Posted on by
8

On October 2, the first round of Brazil’s presidential election failed to produce a single winner, and the two front-runners—Jair Bolsonaro, the far-right incumbent, and Luiz Inácio Lula da Silva (“Lula”), the former president and leader of the Workers Party (PT)—will face each other in the second round on October 30.

For many, particularly those in the anticorruption community, the fact that Brazil’s next president will be either Lula or Bolsonaro is a source of despair and deep concern. One only needs to take a cursory look at the corruption scandals that have mired both candidates to understand why:

Continue reading →

Will the OECD Whitewash Italy’s Flagrant Violations of the OECD Antibribery Convention?

Posted on by
4

Italy’s compliance with the OECD Antibribery Convention will reportedly be reviewed this week by the OECD’s Working Group on Bribery in International Business Transactions.  The Convention’s review mechanism has been called “the gold standard” for evaluating compliance with an international agreement (here). Whether it deserves that billing will depend on what the Working Group says about Italy’s compliance.

As with all compliance reviews, the Working Group has before it a report prepared by experts from two other Convention parties documenting whether Italy has lived up to its promise to investigate foreign bribery by its nationals. From the public record alone, on which the experts were well informed (here, here, here, here, and here), it is impossible to believe their report is anything but strongly critical.

Continue reading →