Category Archives: Commentary

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

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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.

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

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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:

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

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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.

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Accountability Time for Sri Lanka’s Rajapakse Clan?

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In a groundbreaking order issued October 7, Sri Lanka’s Supreme Court ordered five members of the Rajapakse family and accomplices to answer for driving the once prosperous nation into bankruptcy.  

While Gotabaya was president and three brothers and a nephew ministers, the government took on ever greater levels of foreign debt while recklessly cutting taxes and pursuing unsustainable monetary policies. The result: the economy is expected shrink by 8.7 percent this year, inflation recently exceeded 60 percent, and an additional 2.7 million Sri Lankans will likely fall into abject poverty (here and here).

As economic conditions deteriorated in late spring, the four Rajapkse ministers resigned, and Gotabaya later fled the country as protesters stormed the presidential residence (here). But though out of office, the Rajapakses are not out of power. They still control parliament, and it picked a Rajapkse crony to serve the remainder of Gotabaya’s term as president.

With parliament unlikely to hold the Rajapkses accountable for economic mismanagement and the corruption that underlay it, civil society turned to the one institution in the country that remained largely untouched during the Rajapakse’s misrule: the judiciary.  Last June Transparency International Sri Lanka and three prominent Sri Lankans asked the nation’s highest court to hear their claim that the result of the Rajapakses’ economic mismanagement their constitutional rights to equal treatment, freedom to pursue gainful work, and access to government information had been denied. The petition further asks that:

  • the Central Bank, Finance Ministry, and other agencies be required to produce documents chronicling the mismanagement,
  • a committee be empaneled to examine the documents and compile a report, and
  • the Attorney General be directed to investigate and prosecute any wrongdoing disclosed.

For those fortunate enough to live in functioning democracies, this action would be extraordinary.  A request that a court assume the powers of a legislature and hold those in charge of the government accountable for their actions.

But given the power the Rajapakses accumulated during their long period in office, it appears to be the only path to accountability.  And to the restoration of the democratic freedoms Sri Lanka’s constitution promises all citizens.  Citizen activists, believers in the rule of law, and democrats everywhere will be hoping Sri Lanka’s judiciary can meet this unprecedented challenge.

Prompting Procurement Law Reform: The World Bank’s Benchmarking Public Procurement Series

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No government activity is as vulnerable to corruption as public procurement. The procedures governments employ when deciding what to buy, how much of it to buy, and from whom to buy it provide countless opportunities for greedy officials and their private sector accomplices to profit at citizens’ expense. No serious effort to curb corruption can therefore avoid a careful scrub of a nation’s procurement law.

The best scrubbing tools are found in the World Bank’s series Benchmarking Public Procurement.  As the name proclaims, each report in the series provides standards against which the quality of a nation’s or even a province or local government’s procurement law can be gauged. Begun with a 2015 pilot examining public-private partnership contracts in a handful of countries, the most recent volume, published in 2020, assays the rules for letting PPPs in 140 jurisdictions and the rules in 40 for the award of infrastructure contracts from public funds (a 2017 report covers publicly-funded procurement contracts in 180).

Procurement is a devilishly complex area of policy. Untutored anticorruption advocates looking for corruption-reducing reforms can quickly find themselves stymied by the maze of rules governing procurement decisions and the status quo-bias of procurement staff and government suppliers. Benchmarking offers a way around these obstacles. A way to open a discussion about procurement policy and where laws or practices need changing between anticorruption reformers and the procurement community.

The 2020 edition examines how countries fare against standard practice on 160 plus areas. Not everyone will agree that all 160 plus benchmarks are best practice, and many will wish for explicit anticorruption benchmarks like those described here were included. But the critical step is to begin a dialogue on reforming a nation’s procurement law, and the Bank’s Benchmarking series is the best vehicle yet for sparking one. I hope a new updated and expanded edition is in the cards.

Accountability Key Words

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No other word is associated more with fighting corruption than “accountability.”  Google turns up 43 million references to the phrase “accountability corruption references” in less than a second (!). There are 177 articles with the word accountability in the title in the latest version of Matthew’s bibliography.

Thanks to Andreas Schedler, we know accountability is not unidirectional. It can go from down to up, as when voters hold politicians to account, and side-to-side, as when a government audit agency reports on the performance of another government entity. As Dale Brinkerhoff explains, the meaning of accountability ranges from nothing more than having to provide information, as when an agency must fille an annual report on its activities, to a politician or administrator having to explain why something is being done or not done, to the imposition of sanctions on someone or some agency for doing or not doing something.

The failure to curb corruption is almost always attributed to a lack of accountability, and prescriptions for reducing corruption inevitably recommend strengthening accountability. But as Schedler, Brinkerhoff, and many others have shown, “accountability” is really a complex of ideas. And that is before trying to parse what ideas lie behind its rough equivalents in other languages: rendición de cuentas in Spanish; bibinka in Filipino; and tanggung gugat sosial in Bahasa. To name but a few

Thanks to American University’s Accountability Research Center, we now have a guide to the many concepts buried in the English term “accountability” and similar ones in Arabic, Chinese, Hindi, and a half a dozen other major tongues. Its title is Accountability Keywords; it’s a web site with a monograph of the same name and some 40 posts to date that expound on how the term is used in different ways in different circumstances in different places. An invaluable resource for advocates, policymakers, and scholars.    

Greasing the Wheels: How Norway’s Sovereign Wealth Fund Ended Up Financing Russian Corruption

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Norway’s Government Pension Fund Global (GPFG) is one of the largest sovereign wealth funds in the world. Established in 1990 to diversify Norway’s oil wealth and minimize negative consequences associated with fluctuations in commodities markets, GPFG has amassed close to $1.3 trillion in assets. In keeping with Norway’s sterling reputation for integrity, GPFG has embraced anticorruption as one of the fund’s guiding principles. In fact, GPFG requires the companies in which it invests “to identify and manage corruption risk, and to report publicly on their anti-corruption efforts.” The fund’s Council of Ethics has also declared that the fund will keep “gross corruption” out of its portfolio, and GPFG has been widely praised for its social responsibility (see here and here).

Yet despite all this, GPFG has not avoided corruption-related scandals, particularly with respect to its investments in Russia. Understanding how things went wrong offers more general lessons for how sovereign wealth funds can strengthen their safeguards against investing in corrupt companies and supporting corrupt regimes. Continue reading →

South African NGO to U.S. Department of Justice: Please Investigate Bain and Company for FCPA Violations

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In a Guest Post Monday, Nicole Fritz of South Africa’s Helen Suzman Foundation recounted Boston consulting guru Bain and Company’s role in the massive corruption that infected her country during the reign of its now deposed president Jacob Zuma. Today, she asks the Department of Justice to investigate the Company for “potential breaches of the U.S. Foreign Corrupt Practices Act of 1977.”

As she explains in a letter sent to the head of the FCPA unit, the evidence of violations is “not mere opinion.” Rather, it is drawn

from reports produced by two separate judicial commissions of inquiry, chaired by eminent South African judges: first, the Judicial Commission of Inquiry into State Capture Report (“State Capture Report”); second, the final report of the Commission of Inquiry into Tax Administration and Governance at the South African Revenue Services, colloquially referred to in South Africa as the ‘Nugent Commission Report.’  

The full text of her letter is here.

Sri Lanka Should Cancel Not Renegotiate Corrupt Loans 

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It will be years if not decades before the once prospering nation of Sri Lanka recovers from the financial and humanitarian crisis brought on by the fiscal profligacy of the Rajapaksa family. During the 10-year rule presidential rule of Mahindra (2005 -2015), the government began borrowing ever larger sums, principally from China, to build ports, roads, and other infrastructure. Younger brother Gotabaya continued the family tradition when elected president in 2019, borrowing more and more to keep the project pipeline full and the business community happy.

For many projects, the terminus of the pipeline was the Rajapaksa’s home district. A herd of white elephants poured forth: an unused airport (Mattala Rajapaksa International Airport), a deserted cricket stadium (Mahinda Rajapaksa International Cricket Stadium), and a useless international conference center. Whether the loans for these projects were the result of corrupt dealings has been much discussed but never investigated. Same with many other loans taken out during Mahinda and Gotabaya’s reigns.

The Rajapaksa’ reckless borrowing was accompanied by other equally irresponsible fiscal policies: state-owned enterprises that bled resources, a regressive, poorly enforced tax code. Gotabaya’s 2019 cuts in personal and corporate taxation and its almost halving the VAT (from 15% to 8%) put an economy headed over the cliff into overdrive. The inevitable result of borrowing too much and taking too little in: last May the government announced it could not pay its debts, the sovereign equivalent of a corporation or person declaring bankruptcy.

The International Monetary Fund has now come to the rescue, offering to lend the government $2.9 billion while it renegotiates the some $35 billion it owes the Asian Development Bank, China, India, Japan, the World Bank, and private lenders.

But not all Sri Lanka’s debts should be renegotiated. Where a loan was taken out because a government official was bribed, Sri Lanka has a clear right to cancel or rescind it. That right to walk from a loan procured through corruption is recognized under international law (article 8(2) of the Council of Europe’s Civil Law Convention Against Corruption, article 34 of the UN Convention Against Corruption, UNICTRAL Principles of International Contracts 3.3.1) and the domestic laws of most legal systems. Indeed, it is a part of the common law of Sri Lanka (Review Sri Lanka UNCAC Compliance) and article 52 of China’s contract law expressly states “A contract is void [if] 1. either party enters into the contract by means of fraud. . ..”

Sri Lankans will suffer for years for the wrongs done to them by the Rajapaksas and accomplices. They should not have to bear the burden of paying off one single dollar, yuan, rupee, or yen of a loan taken out corruptly. Where there are suspicions that a loan, as those to support the elephant herd in the Rajapaksas’ home district, was tainted with corruption, an investigation should be opened. And during loan renegotiations, Sir Lanka should make it clear that no matter the terms, it reserves the right to cancel or rescind any contract procured through corruption.

State Capture: A “How to” Guide

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The Democratic Alliance, South African’s principle opposition party, has brought suit seeking a declaration a policy of the African National Congress, the nation’s ruling party, is “inconsistent with the Constitution. . . and the Public Service Act” and hence invalid.

The policy at issue is the ANC’s Cadre Deployment and Development Policy. It sets out how the party selects who will serve in the national, regional, and local levels of South Africa’s government, either in an elected position or as a member of the career service.  The DA alleges that the effect of the policy is to give the ANC “control over the functioning of critical institutions of government. . . blurr[ing] the lines between the ANC and the State and facili[tating] state capture. . . . .” The case’s founding affidavit, equivalent to a complaint in common law jurisdictions, asserts the policy has “inhibited the ability of the State to function effectively in order to promote the rights in the Bill of Rights [and that it] has eroded South Africa’s democratic founding. . . . “

Evidence developed by the Judicial Commission of Inquiry into Allegations of State Capture, established after ANC leader Jacob Zuma was forced to resign as South African president, is cited throughout the affidavit to show how he and ANC cronies implemented the policy and what its effect has been.* The policy reads as a “how to” manual for capturing the state in a weak or developing democracy. One can only hope this will be how the South Africa’s judges read it as well.

A copy of the policy is here for readers’ information. And more importantly, for those working on prevent state capture elsewhere, to help them thwart similar efforts.

*Earlier today South African Chief Justice Raymond Mnyamezeli Mlungisi “Ray” Zondo, the commission chair, spoke to the failure of the ANC to come to grips with Zuma’s behavior and expressed the fear the state could be re-captured were another Zuma-like figure elected president. Click here to listen to his to warning to South Africans of all parties. Thanks to a South African reader for alerting me to his extraordinary and powerful remarks.