How Much Should We Worry That Trump’s Top Economist Is “Looking Into” Weakening the FCPA?

As regular GAB readers have likely figured out, I’m not terribly good at providing timely “hot take” reactions to news items—I’m too slow and get too distracted with other things, and by the time I weigh in on some recent development that caught my eye, I’m usually a couple of news cycles behind. So it will be with this post. But I did want to say a bit about the mini-controversy over comments a couple weeks back from Larry Kudlow, the Director of the White House National Economic Council, about the Trump Administration’s views on the Foreign Corrupt Practices Act (FCPA). For those who might have missed the reports, here’s the basic gist:

A forthcoming book about the Trump Administration includes the story (which had already been reported multiple times) that back in 2017, President Trump had vigorously complained to then-Secretary of State Rex Tillerson that the FCPA put U.S. companies at an unfair disadvantage and ought to be scrapped or drastically altered. (Tillerson, to his credit, pushed back, and no action was ultimately taken.) Several pre-release commentaries on the book focused on this anecdote (see here and here), and a couple weeks back a reporter asked Kudlow about it. Kudlow responded, “We are looking at [the FCPA], and we have heard some complaints from our companies…. I don’t want to say anything definitive policy-wise, but we are looking at it.” When pressed for details, Kudlow said, “I don’t want to say anything definitive policy-wise…. Let me wait until we get a better package [of reforms].”

Kudlow’s comments triggered a great deal of critical reaction, including statements supporting the FCPA from civil society organizations like Transparency International and the Coalition for Integrity. These statements were forceful but measured, mainly emphasizing the benefits of the FCPA. Some other media reactions were more impassioned, playing up the narrative that the Trump Administration was planning to push for the legalization of (foreign) bribery (see here and here). That latter strain in the commentary, in turn, provoked pushback from other analysts, who saw Kudlow’s remarks (and perhaps also the President’s own statements and actions in this area) as no big deal (see here and here).

My own take is somewhere in the middle. On the one hand, we shouldn’t exaggerate the significance of Kudlow’s remarks. But neither should we dismiss them as meaningless or harmless. Continue reading

Dershowitz is Wrong: What Trump Did Was a Crime

Desperate to acquit Donald Trump of impeachment charges, Senate Republicans have seized on Harvard Law Professor Alan Dershowitz’ two part defense. That conviction requires Trump to have committed a crime and that it was no crime for Trump to condition aid to Ukraine and a meeting with its president on Ukraine investigating Trump political rival Joseph Biden.  There is but one flaw in Dershowitz’ argument.  It is flat wrong.  Section 201 of title 18 of the United States Code makes it a crime for a public official to solicit a bribe.  And that is exactly what Trump did. Continue reading

Picking the Wrong Targets: Tirana Mayor Erion Veliaj’s Crackdown on Street Vendors Punishes the Victims of Corruption, Not the Perpetrators

These days if you Google “Tirana,” Albania’s vibrant capital city, you will find a plethora of articles highlighting the city’s rapid transformation and reinvigoration, with much of this positive change attributed to the vision of its young, Western-educated mayor Erion Veliaj. Mr. Veliaj, who took office in 2015 after a career in the NGO world, was a political outsider and rose to power on a wave of hope that he would introduce a new brand of governance—one that included cleaning up entrenched, systemic corruption. Mr. Veliaj frequently emphasized this theme, together with the need for greater accountability more generally. He represents a cohort of young politicians in the region who promise radical change to voters craving leaders truly dedicated to fighting for everyday people instead of special groups and political machines.

Yet despite his professed commitment to clean government, Mr. Veliaj hasn’t been terribly vocal about high-level corruption (including the scandals within his own Socialist party), nor has he done much to address concerns about a lack of transparency in public procurement. Instead, he has focused on going after some of his municipality’s most vulnerable populations, like street vendors (see here). Yes, it’s true that these vendors typically do not have the requisite licenses, and some pay bribes in order to be able to operate. However, these street vendors, who work in the informal economy out of necessity, are hardly the engine of corruption in Tirana and wider Albanian society. Rather than treating the street vendors as criminals, Mr. Veliaj would do better to adopt an alternative strategy that would both protect this vulnerable population by integrating them into the formal economy, and tamp down the associated corruption problems. Continue reading

The Continuing Struggle Over Brazil’s Financial Intelligence Unit and Its Contribution to the Anticorruption Fight

The successful investigation and prosecution of high-level corruption crimes often requires access to detailed financial intelligence, which in turn requires close cooperation and information-sharing between law enforcement officials and financial intelligence units. This has certainly been the case in Brazil, where the Lava Jato (Car Wash) investigation—considered the most successful anticorruption operation in Brazilian history—has been made possible in large measure by the reports supplied to federal prosecutors by Brazil’s financial intelligence unit,  known as the Counsel of Control of Financial Activities (COAF). COAF, created in 1998, has provided Brazilian federal prosecutors with suspicious activity reports on potential targets of the Lava Jato investigation, including politicians, high-level public officials, corporations, and business executives. And in the early days of the administration of President Bolsonaro, who positioned himself as an anticorruption champion during the election, there were some signs that COAF’s role in supporting law enforcement efforts would be strengthened. President Bolsonaro, for example, proposed transferring COAF from the Ministry of Economy to the Ministry of Justice—a signal that COAF would continue to work in the support of law enforcement activities—though the Congress rejected this proposal. President Bolsonaro’s Justice Minister, Sergio Moro, also nominated an auditor of the Brazilian Internal Revenue Service who worked in Lava Jato to be the new COAF chief.

But over the course of the last year, the ability of COAF to support anticorruption investigations has been jeopardized, partly by a judicial ruling, but also by other less visible efforts by the administration to undermine the unit’s autonomy.

Continue Reading

Will an IMF Loan End Equatorial Guinea’s Grand Corruption? Part II

Part I of this post reported that last December the International Monetary Fund approved a $282 million loan to Equatorial Guinea to pull the economy out of recession and restore growth. Equatorial Guinea’s government is by any measure one of the world’s most corrupt, and the Fund determined that if it did not reduce corruption, the loan would have little or no impact. It therefore made addressing corruption a condition for extending the loan. IMF conditionality could be a potent weapon in the struggle to contain corruption. If Equatorial Guinea is held to the anticorruption condition, other governments will be on notice that to qualify for an IMF bailout, they too must combat corruption.

The loan requires Equatorial Guinea not only to enact new anticorruption legislation but to enforce it as well.  The loan will be disbursed in tranches over three years; the Fund can suspend or terminate it at any time if the government fails to comply with the anticorruption conditions.  Assessing whether a law has been passed is straightforward. Deciding whether it is being enforced is not.  It requires considerable judgement, and thus the IMF will have significant discretion to determine whether Equatorial Guinea is complying with the loan conditions.

Vigorous enforcement of the IMF-mandated anticorruption legislation could put many senior government officials in prison, and they will thus do everything possible to blunt enforcement. The Fund must insist the government make steady, measurable progress on enforcement, and if it does not, suspend loan disbursements until it does. Continued disbursements in the face of perfunctory enforcement would defeat anticorruption conditionality, neutralizing a powerful new weapon in the corruption fight.

The measures the anticorruption community can take to help prevent this outcome are detailed below. Continue reading

India’s New Electoral Bond Scheme Won’t Reduce Electoral Corruption. It Will Make the Problem Worse.

Indian elections have long been celebrated as a festival of democracy—in part for their sheer and increasing scale, with over 900 million voters and thousands of political parties registered. Election expenditures have also been on the rise. India’s last national elections were the most expensive elections ever held anywhere in the world, with an estimated expenditure of Rs. 55,000 crores ($7.74 billion)—much of which was financed through private donations. In India as elsewhere, all this private money in politics raises concerns about corruption, both legal and illegal. This problem is exacerbated by a lack of transparency.

Under the rules as they existed until two years ago, individuals and domestic for-profit companies could contribute to political parties via cash, check, or demand drafts. Political parties are required to file an annual income statement, listing both sources of income and expenditures, with the Election Commission, a constitutional oversight body. These statements are publicly accessible under India’s Right to Information law. However, contributions below Rs. 20,000 ($280) could be anonymous, and political parties traditionally exploited this loophole to avoid disclosure of donors. The total share of income from unknown sources has been steadily increasing for all six major political parties, and in the last returns filed for 2017-18, income from unknown sources was over half (51.38%) of these parties’ collective income.

Over the past two years, there have been several reforms to campaign finance. The most significant reform has been the replacement of cash donations with a new mechanism for political donations, so-called “electoral bonds.” Under this system, the threshold for anonymous cash donations was reduced by a factor of ten, but private parties can now make anonymous donations via a bond with the State Bank of India (a public sector bank) in fixed denominations ranging from Rs. 1,000 ($15) to Rs. 1 crore ($1.5 million), during allotted windows. These donations remain anonymous not only to the general public, but also to the recipient political party.

The stated objective of these reforms is to target the practice of money laundering in campaign finance and increase transparency. In a previous post on this blog, written shortly after the new scheme was introduced, Abhinav Sekhri argued with cautious optimism that this tool, though imperfect, was indeed a step in the right direction. I disagree. In fact, the electoral bond system has decreased transparency and increased the potential for corruption, for several reasons: Continue reading

Requiring Public Contractors To Have Anticorruption Compliance Programs May Sound Like a Good Idea—But Not When Government Capacity Is Lacking

Five years ago, in a thought-provoking post, Rick Messick proposed that developing states should demand that firms doing business with them have an anticorruption compliance program. At the time Rick wrote his post, he wasn’t aware of any developing state that had imposed any such requirement. A couple of years later, some Brazilian subnational jurisdictions, such as the state of Rio de Janeiro and the Federal District, adopted legislation in this spirit, requiring that companies awarded a public contract, or participating in a public-private partnership, above a certain value must establish an anticorruption compliance program. These initiatives seem to be of a piece with a broader trend in Brazilian anticorruption law, which has sought in various ways to create stronger incentives for companies to adopt effective compliance programs. (For example, Brazil’s 2013 Clean Company Act holds companies strictly liable for corrupt conduct, but companies that have a so-called “integrity program” may get a penalty reduction.)

Nonetheless, despite the importance of corporate compliance policies as a component of any effective anticorruption strategy (see here and here), demanding that contractors to establish such programs as a condition of doing business with Brazilian government entities is unlikely to achieve the intended goals.

Continue reading