Category Archives: Commentary

Cleaning up Corruption in Lebanon’s Central Bank

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Riad Salameh, the governor of Lebanon’s Central Bank (the Banque du Liban, or BdL), was once hailed as a “financial wizard” for his stewardship of the Lebanese banking system. But a flurry of recent investigations, led mainly by French and Swiss prosecutors, have implicated Salameh in a variety of corruption schemes. These investigations found, among other things, that Salameh illicitly moved over $300 million of public funds from the BdL into his brother’s company, Forry Associates, between 2002 and 2015 and that Salameh laundered millions in Europe through luxury real-estate purchases. And in March 2022, after Swiss prosecutors asked Lebanese authorities to carry out a separate investigation into embezzlement and money laundering by Salameh and his associates, a Lebanese district court judge charged Salameh and his brother with illegal enrichment and money laundering.

Though Salameh denies all allegations, many Lebanese citizens consider the accusations against him unsurprising. Indeed, if anything is surprising about the case against Salameh, it’s that he is being prosecuted in Lebanese courts. Government elites in Lebanon—including the BdL’s leaders—have long benefited from a culture of impunity. It is encouraging to see Lebanese prosecutors and courts taking steps to hold corrupt actors at the BdL accountable. But cleaning up the BdL, and ensuring that in the future cases like Salameh’s are detected early or prevented altogether, will also require more structural reforms to address the institutional and regulatory problems at the BdL that have enabled such corrupt practices. Three reforms to the BdL are especially important:

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The U.S. Supreme Court Has an Appearance Problem: What FEC v. Cruz Got Wrong

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According to the U.S. Supreme Court, campaign contributions are a form of political “speech” and are therefore protected by the First Amendment of the U.S. Constitution. As a result, the government may restrict such contributions only if doing so serves a compelling state interest. Currently, the only interests that the Court has recognized as sufficiently compelling to justify restrictions on political spending are preventing corruption or the appearance of corruption.

Though sometimes presented as a single interest, the prevention of actual corruption and the prevention of the appearance of corruption are not the same. The reason the government has an interest in preventing actual corruption is obvious. The Court has explained the related but distinct interest in preventing the appearance of corruption by appealing to the importance of maintaining public confidence in the electoral process. If a certain campaign finance activity creates the appearance of corruption, then ordinary citizens may start to view their political participation as futile, and may lose faith in the integrity of elections. Because Congress has an interest in preventing this erosion of public trust, the government can regulate campaign finance activities that the public perceives as corrupt, even when those activities are not associated with actual corruption.

At least that’s what the Court has said. In practice, however, the Court has often failed to apply the appearance of corruption standard in a way that serves these objectives. This is nowhere clearer than in the Court’s recent decision in Federal Election Commission (FEC) v. Cruz. The case concerned a federal law that prohibited a candidate from using post-election campaign donations to repay more than $250,000 of personal loans that the candidate made to his or her campaign prior to the election. The government justified this law partly on the grounds that it prevented the appearance of corruption. After all, when a candidate uses donations to repay personal loans, the donor’s contributions go straight into the candidate’s pockets; the public could easily view such payments as fostering corruption. In support of this argument, the government pointed to a public opinion poll in which 81% of respondents thought it was “likely” or “very likely” that donors who make post-election contributions expect a “political favor” in return. Additionally, the government cited an academic study that found—on the basis of over three decades of empirical evidence—that politicians with campaign debts are “significantly more likely” than debt-free politicians to switch their votes after receiving contributions from special interests.

This evidence, on its face, would seem to support the government’s claim that the limit on using post-election donations to repay a candidate’s large personal loans furthers its compelling interest in preventing the appearance of corruption. However, the Court’s majority opinion dismissed the government’s appearance-based argument in a brief passage with relatively little sustained analysis, apparently treating the flaws in the government’s arguments as self-evident. The Court’s dismissive attitude to the government’s evidence in this case indicates a worrisome approach to the appearance-of-corruption issue more generally.

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Hard Truths/Sound Advice: UNDP’s Strategic Programming for Anti-Corruption Agencies

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The United Nations Development Programme’s mission is to help poor countries become wealthy. As evidence that corruption is a, if not the, major obstacle blocking the way, the agency has devoted a growing share of its budget to finding ways combat it. Not all its investments have met with success — as its underpaid staff and consultants (compared to other international agencies) would be the first to admit.

One clear success is a little heralded guidance note for anticorruption agencies in Southeast Asia UNDP released in May. The region is beset with corruption problems large and small, and in response governments have established anticorruption agencies.  But TI’s Corruption Perception Index, the World Governance Indicators, and other cross-national measure of corruption have registered little or no improvement in country scores since the agencies came into existence, and disillusionment has taken hold as policymakers and citizens across the region now sharply question the agencies’ worth.  

Strategic Programming for Anti-Corruption Agencies: Regional Guidance Note for ASEAN makes it clear that the problem starts at the top. That agency leaders have let others set the terms for judging their agency’s success. Echoing advice to criminal justice agencies by the closest student of bureaucracy since Weber, the report explains that until anticorruption agencies define success in realistic, measurable, achievable objectives that will make a difference in citizens’ lives, their standing will not improve and continued support will remain at risk.

Along the way the UNDP report doesn’t gloss over the challenges agencies face while offering sound advice on how to overcome them.  Some especially important hard truths and good examples of sound advice –

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Bribe to Survive: Sextortion and LGBTQ Discrimination

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In February 2019, a gay man from Krasnodar, Russia named Stanislav arranged to go on a date with a young man he had met on a dating app. When he arrived at their agreed-upon location, however, the young man was nowhere to be seen. Instead, Stanislav was greeted by police officers, who later beat him and threatened him with criminal prosecution unless he paid a bribe. Just a year earlier, another man, Fedor, similarly found himself on a “fake date” with a man he had met on the same dating app, which ended with him being forced to pay police a US$2,500 bribe after also being beaten and threatened with prison. In both cases, Russian prosecutors refused to carry out any investigations of extortion or police misconduct.

It isn’t just in Russia that police have begun turning to online dating sites and other forms of technology to entrap their victims. By arbitrarily seizing cell phones or creating profiles to set up “fake dates,” law enforcement officers around the world (including in Lebanon, Azerbaijan, Egypt, and Moldova, just to name a few places) have been able to obtain screenshots and photographs to blackmail LGBTQ people into paying them bribes. Not only are victims coerced into paying these bribes to end their torture and humiliation, but they also do it in response to threats of having their arrests publicized on national television, or revealed to their family and employers. In this way, laws criminalizing homosexual activity are imposed not only, or even primarily, to enforce moral ideologies, but rather to expand opportunities for the corrupt extraction of money from vulnerable communities.

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The U.K. Must Legislate to Combat Money Laundering in Its Universities

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Parents from developing countries have long sought to provide their children with a world-class university education in wealthy Western countries, such as the US and the UK. There is nothing inherently wrong with this—indeed, universities ought to take pride in their ability to provide an elite education to talented young people from around the world. There is, however, a dark side. In 2021, media reports revealed that nearly fifty UK universities had accepted upwards of £52 million in direct cash payments for tuition and fees from students hailing from countries known to be “high risk” for money laundering—most notably the West African countries of Ghana and Nigeria. A Carnegie Endowment Report on this topic observed that although “[t]he overwhelming majority of West African students in the United Kingdom pose little or no corruption risk, … many West African [politically exposed persons (PEPs)] appear to be using unexplained wealth to pay for UK school and university fees.” Indeed, many of West Africa’s nouveau riche made their money through illicit channels, and they may view an elite UK education for their children as a way to launder their reputations as well as their wealth. As Matthew Page, the author of the Carnegie Report, explained, any university that accepts tuition and fee payments in cash—especially from PEPs in countries with high corruption risk—is essentially “putting out a welcome mat for the world’s kleptocrats and money launderers.”

Although most UK universities acknowledge that they have basic anti-money laundering (AML) responsibilities under Sections 327 and 329 of the 2002 Proceeds of Crime Act, universities are not clearly covered as “regulated entities” under the UK’s Money Laundering Regulations. And while some universities have responded to recent high-profile scandals and government warnings by adding basic AML provisions to their fee-collection and admissions policies, this is not the sort of problem that is likely to be solved through unilateral action on the part of universities. The incentives to turn a blind eye to the provenance of tuition and fees from international students—which many UK universities have come to rely on as a revenue stream—are simply too strong. (It’s worth noting here that international students typically pay more than three times the fees paid by students from the UK or the European Union, and many UK universities encourage advance cash payments by offering international students discounts of 20-30% if they can pay their fees in advance.) Solving this problem will therefore require the UK to amend its AML legislation to address the particular vulnerabilities in the university sector. Three such reforms would be particularly prudent: Continue reading →

Corruption’s Queer History: Stonewall’s Seedy Underside

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A little after midnight on June 28, 1969, New York City police officers raided the Stonewall Inn, a seedy bar in Greenwich Village known for catering to a mostly LGBTQ crowd. Such raids were not uncommon—in fact, the Stonewall Inn had already been raided just four days prior to that now historic evening. But for some reason, that particular raid on that particular night had touched off violent clashes between police and Stonewall’s patrons, becoming a watershed moment for the LGBTQ civil rights movement in the United States. Indeed, the Stonewall Inn is now a national monument, and the anniversary of Stonewall is commemorated every year with Pride parades around the world.

In the days following the riots, however, the Stonewall Inn was in utter disarray: graffiti sprawled on its boarded-up windows read: “GAY PROHIBITION CORRUPT$ COP$ / FEED$ MAFIA.” That brief and blunt statement captures an important truth about Stonewall, one that is important for understanding both the historical context of the Stonewall uprising, as well as the intersection between anti-LGBTQ discrimination and corruption that persists today: The riots weren’t only about police discrimination—organized crime and corruption also played a fundamental role.

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U.S. States Have Failed to Address Charter School Corruption. It’s Time for Federal Intervention.

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In the United States, charter schools are publicly-funded, tuition-free institutions that operate largely independent from the traditional public school system. Charter schools are established through a contract, or charter, between the school and an “authorizer,” which is the school district, state education agency, or other entity that a state has sanctioned to approve these charters. Once approved, charter schools do not have to follow the same regulations as traditional public schools but instead are required to operate under the terms and academic standards set by their authorizing contract.

Proponents tout charter schools’ autonomy and flexibility: free from burdensome education laws and local regulations, these schools can be innovative in their curricula and management, and can compete with one another and with traditional public schools in the education “market.” Parents will then have the opportunity to “vote with their feet,” and they—along with the public funding designated for their children—will flow into better schools, leaving the poorly performing charter schools to shut down.

Or so the argument goes. In reality, thanks to rampant corruption that has come to plague the charter school industry, this public funding often flows not into the best schools but rather into the pockets of dubious school officials and their affiliates. There have been numerous charter school corruption scandals: self-dealing real estate leases, exorbitant salaries for school executives, and kickbacks from inflated purchases of school equipment and supplies, to name a few.

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Antibribery Policy: A Checklist

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That a law against bribery is the keystone of any serious fight against corruption goes without saying. What isn’t said is that an antibribery law is only the keystone. That just as an arch consists of more than its center stone, a robust, effective antibribery policy takes more than a law criminalizing bribery.  Below is my checklist of what else is required. Reader comments solicited.

My list starts with a careful review of the antibribery law itself. For as the United Nations Office on Drugs and Crimes reported in 2017, many nations’ law have gaps that make it easy for bribe takers and payers to maneuver around it unscathed; others contain ambiguities that leave it to the courts to say what is and isn’t a bribe.

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The Financial Weapon: Expanding Magnitsky Sanctions to Attack Corruption

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Economic sanctions targeted at individual wrongdoers can be a potent weapon in the fight against global corruption. The United States’ 2016 Global Magnitsky Human Rights Accountability Act (GMA) authorizes the President to impose targeted sanctions on corrupt foreign officials and their associates. And the GMA has had successes in deterring corruption: As earlier posts on this blog have highlighted, the GMA has prompted countries to strengthen their anticorruption laws and has prompted businesses to cut ties with corrupt individuals. Yet despite these successes, Magnitsky sanctions remain a relatively underused anticorruption tool. The U.S. Treasury Department’s Office of Foreign Asset Control (OFAC) has only sanctioned around 200 people as part of its Magnitsky programs, and most of these individuals have been sanctioned for human rights abuses rather than corruption per se.

GMA sanctions can and should be scaled up by an order of magnitude, with a greater focus on targeting corrupt actors. The U.S. should be imposing GMA sanctions on several thousand people, not just a couple hundred. As the Biden Administration has recognized, global corruption increasingly threatens national and international security. In light of this, the Administration should use the GMA to impose sanctions on not only the most egregious of kleptocrats but those who engage in more modest—but still significant—forms of corruption. Continue reading →

“Municipal Takeovers”: Failing to Address Corruption While Threatening Democratic Self-Government 

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The town of Mason is a small, majority-Black community in the State of Tennessee. For two decades, Mason’s municipal government has been afflicted with serious corruption and financial mismanagement, leading to the resignation a few years ago of almost all of Mason’s elected leadership following allegations of fraud and embezzlement. In the wake of these persistent problems, this past February the Tennessee State Comptroller, Jason Mumpower, sent a dramatic request to every property owner in Mason: vote to dissolve your town (in which case Mason would be absorbed into majority-White Tipton County, thus ending Mason’s 153 years of independent governance), or else the state government will exercise its legal authority to step in and take financial control of Mason’s town government—which would likely lead to drastic layoffs and cuts to municipal benefits. (Mumpower’s ultimatum may well have been influenced not only by Mason’s history of municipal corruption, but also by the fact that Ford Motors is set to open up a massive manufacturing plant nearby, which will bring in significant tax revenue that Mumpower claimed Mason’s town government can’t handle responsibly.)

The situation in Mason may seem extraordinary, but it is far from unique. Roughly twenty U.S. states have laws that permit the state government to take over municipal governments, although the specifics of the laws differ. (Municipal takeovers are often preceded, as in Mason, by presenting the municipality with the option to dissolve and be absorbed into the surrounding county.) Though municipal takeovers come in various forms, they generally entail the appointment of an “intervenor,” such as a state official, emergency manager, or financial control board. In some states, the intervenor’s powers are limited to financial oversight and technical assistance, but in other states (including Tennessee), the intervenor can take steps as radical as entirely dissolving a locality.

Municipal takeovers are, unsurprisingly, controversial. While pursuing a takeover is an extreme step, one can understand why some people might find it warranted, especially when corruption is so deeply embedded in a municipality that it seems inconceivable that the local government can clean itself up. But this view is misguided, at least in the U.S. context. (Municipal dissolution has been deployed and endorsed by some anticorruption advocates in other countries, such as Italy. While some of my arguments may apply in other contexts, this post focuses on the United States.) First, the costs of municipal takeovers are substantial and are often underestimated. Second, the purported benefits of municipal takeovers—at least with respect to addressing the underlying corruption and misgovernance problems in a given community—rarely materialize.

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