Mozambicans To Credit Suisse: Make Good on Crooked Debt

Credit Suisse’s complicity in the $2.4 billion corruptly lent to the Mozambican government dampened festivities at its April 26 annual shareholders’ meeting.  While shareholders celebrated receipt of a fat dividend, a representative from Mozambique reminded them that some of this money comes at the expense of the citizens of Mozambique – 28 million persons, most desperately poor, saddled with repaying loans foisted off on their government through corruption.  Three senior Credit Suisse employees have been indicted for their role in the scheme, one Credit Suisse management (rewarded with a hefty pay hike at the meeting) claims cleverly circumvented its controls preventing unlawful deals.

The statement to shareholders, delivered by a representative of the civil society organization Fórum de Monitoria do Orçamento (FMO, budget monitoring forum in English), asks Credit Suisse to support restorative justice to atone for its role in the Mozambican debt crisis.  To this end, Credit Suisse is asked to: i) accept accountability for its actions in the debt issue;  ii) commit to return to Mozambique all proceeds from the Mozambican Illegal debt scandal; iii) collaborate with authorities to ensure that all responsible parties are held accountable for their roles in the scandal; iv) write off outstanding debt arising out of debt crisis; and v) help ensure the people of Mozambique do not have to make good on debts they had no part in incurring and which did nothing to benefit them.

Full text below; video here (at 2:18:50 –  2:28).

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The Economic Benefits of Golden Visa and Golden Passport Programs: A Response to Professor Stephenson

In the past few months, there has been a healthy debate on this blog about “golden visa” and “golden passport” (GV/GP) programs, following reports by Transparency International-Global Witness and the European Commission on the corruption risk associated with these programs. In his post a few weeks ago, Professor Stephenson goes even further, contending that such programs carry no economic benefit and should therefore be abolished. I respectfully disagree. Even taking the status quo as is, the $28 billion these programs have brought in over the past decade make them a savvy tool for nations seeking to attract investment. All GV/GP programs are not equal, and there are vast differences in the transparency and potential for abuse across countries. Reforming GV/GP programs with high degrees of risk, as discussed previously on this blog, is a better answer than abolishing them, since the concerns raised are straightforward and addressable.

Professor Stephenson’s post focused only on the economic aspect of GV/GP programs, so my response will do the same, but it is worth noting that a lot of the criticism of these programs comes from the ethical questions they raise over whether one should have the “right to buy citizenship.” Though this objection is not my main focus here, I can’t help but point out the irony of worrying about the unfairness of a system that allows the wealthy to buy citizenship against the background of a system that confers the privileges of citizenship simply by an accident of birth, and in which immigration systems are so badly broken that, for example, immigrants to the US face a 150 year-long waiting time for a green cardthrough routine channels. But my main focus here is on Professor Stephenson’s argument that GV/GP programs lack a sufficient economicbenefit to justify the corruption risk, and on this question, I believe he is mistaken. 

Let’s start with some top-line numbers: The sale of EU passports accounted for as much as 5.2% of Cyprus’s GDP in 2017. Portugal’s scheme has delivered close to €4 billion to the economy. Malta enjoys a budget surplus because of its growing trade in residency and citizenship. Over in the Caribbean, income from GV/GP programs has contributed up to 25% of the GDP, and even the majority of government revenue. The outsized impact of these programs is hard to deny. Professor Stephenson does not contest the accuracy of these or similar statistics, but he denies their significance for several reasons, each of which is flawed:

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Presidential Power Grab: Corruption and Democratic Backsliding in Mongolia

Mongolian democracy is in trouble. On March 26, President Khaltmaa Battulga proposed emergency legislation that would grant the presidency unprecedented powers to dismiss members of the judiciary, the prosecutor general, and the head of the state anticorruption agency (the Independent Authority Against Corruption, or IAAC). One day later, parliament approved this legislation by a vote of 34-6 (with 36 members of parliament either absent or abstaining), despite the fact that President Battulga hails from the Democratic Party (DP) while the rival Mongolian People’s Party (MPP) controls parliament. Technically the law doesn’t grant the dismissal powers directly to the president, but rather to a three-member National Security Council (NSC) composed of the president, prime minister, and speaker of parliament, and an oversight body called the Judicial General Council. But President Battulga dominates the NSC and personally appoints the members of the Judicial General Council, giving him effective authority to remove Mongolia’s judges and chief law enforcement officials at will. Sure enough, promptly after the law was passed, Battulga dismissed the head of the IAAC, the Chief Justice of the Supreme Court, and the prosecutor general.

This new legislation, a crippling blow to Mongolian democracy, has its origins in corruption, and corruption is likely to be its effect. President Battulga induced parliament to grant him such extraordinary powers by claiming that he alone can really take on Mongolia’s severe corruption problem. In his statement to parliament introducing the new legislation, Battulga alleged that the country’s law enforcement leaders were “part of a conspiracy system” that “fabricat[ed] criminal cases with a political agenda” while covering up others. The president pointed to Mongolia’s numerous unresolved corruption scandals to argue that the institutions of justice were “serving the officials who nominated and appointed them” rather than the public, and he argued that reducing the independence of the judiciary, the prosecutorial apparatus, and the IAAC would make those institutions more responsive to the popular will to fight corruption.

President Battulga is correct when he asserts that Mongolia has a corruption problem of serious, perhaps epidemic, proportions. Mongolians regularly list corruption as one of the country’s biggest issues (second only to unemployment in a 2018 survey) and political institutions such as parliament and political parties as among the most corrupt entities. The past few years have been especially scandal-plagued. During the 2017 presidential campaign, all three candidates faced accusations of corruption; most egregiously, the MPP candidate—who, until January 2019, served as speaker of the Mongolian parliament—was caught on video discussing a plan to sell government offices in a $25 million bribery scheme. Further, late in 2018, journalists discovered that numerous politically-connected Mongolians, including somewhere from 23 to 49 of the 75 sitting members of parliament, had been treating a government program designed to provide funding for small- and medium-sized enterprises (SMEs) as a personal piggy bank, taking out over a million dollars in low-cost loans. Beyond these scandals, Mongolia’s poor enforcement record compounds its corruption problem. For example, in 2015, only 7% of cases investigated by the IAAC resulted in convictions, and in 2018 public approval of the IAAC reached an all-time low.

But is there any reason to believe that President Battulga is right that giving him greater personal control over law enforcement and the judiciary will lead to less corruption? All the evidence points to no:

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Will the United States Please Admit It has an Illicit Enrichment Law

United States officials have asserted for at least two decades that a law would make it a crime for a public servant to hold wealth he or she cannot show was honestly acquired would be unconstitutional. Officials say “illicit enrichment” laws reverse the burden of proof in a criminal trial, violate the presumption of innocence, and therefore infringe a criminal defendant’s right to a fair trial.  The State Department made the claim during negotiations for the 1997 Inter-American Convention Against Corruption; it surfaced most recently in a February 26 decision of the Ukrainian Constitutional Court where a majority cited the U.S. position in striking down Ukraine’s illicit enrichment statute.

The assertion is wrong. Or at best highly misleading.  Americans can be prosecuted for holding wealth greater than what their tax return shows they can afford. Like an illicit enrichment prosecution, a defendant in a tax evasion case who cannot produce evidence showing how the wealth was acquired risks conviction for a serious crime, one that today carries a fine of up to $100,000, imprisonment for five years, or both.

U.S. courts have developed a rich body of case law applying this American version of an illicit enrichment law that shows how prosecutors can convict defendants of living beyond their means without violating their fair trial rights. Prosecutors and courts in nations where illicit enrichment laws are recent additions to the statute books would find this jurisprudence instructive in obviating human rights concerns about their nations’ statute. If only they knew about it.

Would an authoritative American spokesperson please correctly state U.S. law? Or at least publicize the web site where U.S. illicit enrichment jurisprudence can be consulted? Continue reading

Whatever Happened with that Charity That the Obiang Settlement Was Supposed to Fund?

When a country seizes assets that a foreign public official stole from his or her own government, the usual next step is to return those assets to the foreign government from which they were stolen–in much the same way that if I were to steal a computer belonging to Harvard University, and the police caught me and recovered the computer, they should give it back to Harvard (assuming it wasn’t needed as evidence in my trial). But of course in the context of countries beset by systemic corruption–or outright kleptocracies–things are not so simple. Returning the money that the corrupt foreign official stole from the national treasury back to that national treasury may be tantamount to giving the money back to the person who stole it in the first place. So what to do?

One possibility, increasingly popular in some quarters, is to use the money to fund charitable activities in the country where the public funds were stolen, on the logic that doing so does return the money to the “victim country,” but does not return it to that country’s government (which is most certainly not a “victim,” whatever its formal legal claim on the assets in question). This mechanism was employed in the 2014 settlement between the U.S. Department of Justice and Teodoro Nguema Obiang Mangue, the son of Equatorial Guinea’s (extremely corrupt and dictatorial) President Teodoro Obiang Nguema Mbasogo. According to the settlement agreement, the proceeds from the sale of the illicit assets the US had seized would go to a charity that would use the funds to benefit the people of Equatorial Guinea. The charity was to be jointly selected by the US and Obiang, or, if they could not agree on a charity within 180 days of the sale of the assets, the proceeds would be controlled and disbursed by a three-person panel, rather than an existing charity. That panel would consist of one member selected by the US government, one member selected by the government of Equatorial Guinea, and a chair jointly selected by the US and Obiang. As a backstop, the settlement stated that if, 220 days after the sale of the assets, the US and Obiang could not agree on a chair, the court that approved the settlement could force the parties to enter mediation or simply appoint a panel chair itself.

My post today is not a commentary on this arrangement, but a question about it: What ever ended up happening with this? I spent a fair amount of time searching online, and I couldn’t find any information about whether a charity had been selected, or whether a panel was formed, and if so how it was formed and who was/is on it. I also can’t find any information about how the charity or panel disbursed the money from the proceeds of the sale of Obiang’s assets. It’s been over five years since the settlement, so I assume whatever was going to happen has happened already. But strangely, though there are lots of references in various recent publications and articles to the provision of the 2014 settlement that calls for the money to be used for charitable purposes in Equatorial Guinea rather than returned to the government, I can’t find any sources that discuss what actually ended up happening. This is not a trivial question, since several people (including on this blog) expressed skepticism that it was possible for a model like this to work in a country like Equatorial Guinea, where there isn’t much/any space for a genuinely independent civil society to operate.

I’m sure there’s a simple answer to my factual question, and I’m probably just not looking in the right place. So I’m hoping someone out there in reader-land can help me. What ended up happening to the proceeds recovered from the sale of Obiang’s assets? Did the parties agree on a charity? If so, which one, and what did it do with the money? Or was the three-person panel formed to handle the money? If so, how was it formed, who was on it, and what did it do with the money? Anyone have any idea?

Mexico’s National Guard: The Wrong Response to Police Corruption

In September 2018, Mexican federal and state authorities disarmed the entire police force of the city of Acapulco because of suspicion that the police had been corrupted by drug cartels. Federal authorities certainly had reason to take action: partly due to the corruption of the police, murders in Acapulco surged to 2,316 in 2017, and police officers themselves were implicated in some of those murders. Yet rather than institute a plan to reform the local police to address this problem, the Mexican government had the military assume local police functions.

It now appears that Mexico’s popular new President, Andres Manuel Lopez Obrador (AMLO), is poised to adopt a similar solution for all of Mexico, in the form of proposed legislation that would create to create a 60,000-strong National Guard. This proposal, which has already been approved by Mexico’s congress and by a majority of the state legislatures, is not accompanied by any proposal for comprehensive police reform; rather, AMLO wants to simply replace the police by utilizing the National Guard to fight the war on crime. His justification for this approach is that the police force is simply too corrupt to do its job.

This argument is not without some merit, nor is it unprecedented. In fact, many governments around the world have opted to militarize domestic security when organized crime infiltrates the police, because of the military’s greater discipline, more hierarchal structure, and (supposed) lower susceptibility to corruption. (See here for an example from the Philippines.) AMLO has advanced similar arguments in favor of the National Guard. He has also emphasized additional safeguards: the top commander of the National Guard will report to a civilian boss, civil courts rather than military tribunals will have jurisdiction over National Guard members alleged to have violated the law, moving detainees to military installations is prohibited, and National Guard members will receive human rights training.

But despite all this, and despite the evident need to address the police corruption that contributes so much to the outrageous violence in Mexico, a National Guard is not the solution, for several reasons: Continue reading

Brazil’s Supreme Court May Have Ended the Lava Jato Operation as We Know It

This past March, Brazil’s Supreme Court (the Supremo Tribunal Federal, or STF) issued an opinion that is considered one of the most significant defeats yet to the anticorruption effort known as the Car Wash (or Lava Jato) operation (see here and here). The case involved allegations that the former mayor of Rio de Janeiro and his campaign manager received roughly USD 4 million from the construction firm Odebrecht that was used for a campaign slush fund, in exchange for business advantages in connection with certain construction projects. The particular legal claim on which the defendants prevailed concerned not a substantive issue, but rather a jurisdictional question: whether the case was brought in the wrong court. In Brazil, the ordinary federal courts adjudicate ordinary federal crimes, but there are also special electoral courts that handle violations—including criminal violations—of Brazil’s Electoral Code. The use of slush funds, though not expressly listed as one of the actions criminalized under the Electoral Code, could be prosecuted under the Electoral Code’s prohibition on false statements, because doing what the former mayor allegedly did would entail failure to report funds used in an election campaign. Such charges would ordinarily be heard by the specialized electoral courts. But taking illegal contributions to a campaign slush fund in exchange for political favors could also be charged as bribery (or associated crimes like money laundering) under Brazil’s Criminal Code—crimes that would typically be adjudicated by the regular federal courts. Given that the same wrongful transaction might entail violations of both the Electoral Code and the Criminal Code, which court (or courts) should hear the case?

This is the question that the STF had to resolve, and it had, roughly speaking, three options. First, the STF could have ruled that the whole case (both the electoral crimes and the ordinary crimes) should be heard by an ordinary court. The second option would be to require that the special electoral court adjudicate the whole criminal case, including the ordinary criminal charges. Third, the STF could have held that the case should be split, with an electoral court dealing with the alleged violations of the Electoral Code and an ordinary court handling all the other charges. In a 6-5 decision, the STF went with the second option, holding that whenever an ordinary crime is committed in connection with an electoral crime, the whole criminal case must be decided by an electoral court.

This is hugely significant for the Lava Jato operation, because many of the cases the operation has uncovered involve potential violations of the Electoral Code, in the form of illegal or undisclosed campaign contributions made in exchange for political favors. (The newspaper Folha de Sao Paulo estimates  that almost 30% of Lava Jato’s rulings touch discussions of illegal campaign finance.) But although some cases related to Lava Jato have gone to the electoral courts, most of the cases, including all of the main criminal cases, have been prosecuted in the ordinary courts. Federal prosecutors, especially the Lava Jato task force, are very concerned about the STF’s decision and have criticized it as a significant blow to Brazil’s anticorruption efforts.

They are right to be worried. Although some have maintained that there is no serious cause for concern, in fact the STF’s decision poses a very serious problem, for several reasons.

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