Category Archives: Commentary

The Assad Family’s (Anti)Corruption Playbook: Patronage and Pruning

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The Syrian civil war is an unfathomable and ongoing tragedy. In addition to the direct destruction and loss of life, the war has plunged Syria’s already troubled economy into an even  deeper crisis. A shocking 90% of the Syrian population lives in extreme poverty, and roughly 60% of the country does not have adequate food. Since 2010, the economy has contracted by 60%, while inflation has increased by over 300% and the value of the Syrian lira has depreciated by over 700%. Yet President Bashar al-Assad and his loyal networks of regime insiders and elite businessmen continues to profit, thanks in large part to rampant corruption. Assad and his friends have diverted tens of millions in humanitarian aid, forced families of detainees to pay bribes to visit them or win their release, and pocketed and re-sold rationed wheat on black markets. Most recently, the Syrian regime and its business partners have turned the country into a narcostate. In a damning investigation released at the end of 2021, the New York Times found that the Fourth Armored Division of the Syrian Army—commanded by Assad’s younger brother, Maher al-Assad—is behind the production and distribution of the amphetamine captagon.

This story sounds depressingly familiar: In all too many countries, a tiny elite of privileged insiders gets rich from corrupt practices, while ordinary people suffer extreme deprivation. But in Syria there is a twist: In the last two years, the Assad regime has also been carrying out a ruthless anticorruption campaign, one that has targeted some of his own loyalists. For example, in 2020 Assad went after his cousin and close friend Rami Makhlouf, a once-untouchable business tycoon who at one point was estimated to control 60% of the Syrian economy. More recently, Assad detained and seized the assets of five loyal executives at Syria’s second-largest cellphone company.

This seems like a paradox: Assad’s anticorruption campaign is unfolding alongside his circle’s ongoing abuses of power. But in fact this is true to form. Starting during the reign of Bashar al-Assad’s father, Hafez Al-Assad (henceforth Hafez), the Assad regime has followed a pattern of “patronage and pruning” to manage the inherent tension between, on the one hand, cultivating elite support by allowing loyal elites to exploit public power for private gain, and, on the other hand, preventing public discontent with corruption from getting so out of hand that it threatens the regime’s stability and authority. Continue reading →

The Corruption of Italian Democracy: Russian Influence Over Italy’s League

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Italy’s largest far-right policy, La Lega (“the League”), has long had close ties with Putin’s regime in Russia. The League’s leader, Matteo Salvini, has been a vocal supporter of Putin for years (see also here, here, and here), and in 2017 the League signed a formal cooperation agreement with Putin’s United Russia party. Even before then, the League (then known as Lega Nord, the “Northern League”) often advocated within Italy and the EU for Russian interests. Notably, while the EU imposed sanctions on Russia after Russia’s illegal annexation of Crimea in 2014, the League opposed sanctions and tried (unsuccessfully) to upend the solidarity necessary to keep EU sanction in place. That opposition to sanctions only intensified after the 2017 cooperation agreement: At a 2018 conference in Moscow, Salvini—then Italy’s Interior Minister–insisted that Italy would work “day and night” to repeal the 2014 sanctions. Salvini’s efforts proved unsuccessful, as he was unable to convince his coalition partners to change Italy’s stance. But the Kremlin still benefitted from the League’s vocal opposition to sanctions, as it showed that Russia wasn’t isolated diplomatically and that the West is internally divided.

The League’s long history of cooperation with Moscow could be chalked up to shared ideology and policy goals. But it appears that corruption, not policy, might explain why the party is so close with Putin.

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Populism and Pragmatism: How the New Honduran President Can Advance Her Anticorruption Agenda

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Like its Central American neighbors, Honduras is a country with a long history of endemic corruption and enduring institutional decay. This past January, Xiomara Castro—the leader of the leftist LIBRE party and the wife of former President Juan Manuel Zelaya, who was ousted in a 2009 military coup—won a landslide victory, becoming the country’s first female President and ending the right-wing National Party’s twelve-year rule. Castro’s presidential campaign combined progressive and anti-elite discourse with strong anticorruption messages. Indeed, she asserted that rampant government corruption is one of the main reasons 70% of Hondurans live in poverty. Her message resonated with an electorate that was increasingly outraged at the seemingly endless parade of egregious corruption scandals that characterized the previous administration (see, for example, here, here and here). Castro’s victory seems to be part of wider global trend of populist leaders capitalizing on a wave of anticorruption sentiment and a generalized feeling of distrust towards the political elite.

The challenge that President Castro and her administration now face concerns how to deliver on her ambitious promise to dismantle the corruption that is so deeply embedded in Honduran government operations. Encouragingly—and in contrast to far too many politicians who campaign on vague “anticorruption” rhetoric—Castro has articulated a clear and ambitious legislative agenda that includes nine concrete actions specifically focused on anticorruption. These include reforming the Criminal Code and related laws, seeking support from the United Nations to establish an international body comprised of foreign experts tasked with investigating high level corruption crimes (modeled on Guatemala’s International Commission Against Impunity (CICIG)), and pursuing an overhaul of the civil service. But achieving these goals will not be easy, especially in light of the current composition of the legislature and the entrenched opposition of numerous private and public sector stakeholders. Accordingly, to advance her anticorruption agenda, Castro will have to find the right blend of pragmatism and populism. Continue reading →

Reforming the Indian Judiciary from the Bottom Up

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“Corruption is as old as society. Corruption has become a way of life, [an] acceptable way of life. And judges don’t drop from heaven.” 

This was former Chief Justice Ranjan Gogoi’s reply when a journalist asked him about corruption in India’s courts. Such a statement may seem extraordinary coming from a former Chief Justice, but he is not alone in holding this belief. Two other former Chief Justices have acknowledged the pervasive corruption problem facing India’s judiciary, particularly in the lower courts where most Indians interact with the judicial system. And this perception is backed up by quantitative evidence: according to Transparency International, 32% of Indians who used the courts in 2020 had paid a bribe that year, while 38% resorted to personal connections to navigate the system. 

Much of the public outrage over India’s judicial corruption has understandably been directed toward individual corrupt judges (see here, here, and here), but the problem reflects deeper systemic issues—perhaps most importantly, the massive case backlog. There are currently forty million pending court cases in the country’s District Courts and Subordinate Courts, and every year that number grows by millions more. By some estimates, it would take 400 years for the judiciary to clear the backlog at its current rate (and that’s assuming no new cases are filed in the meantime). It takes an average of 35 months to resolve a legal issue in India, the longest in the world according to one report. And many cases take much longer: over half a million cases have been pending for over twenty years.

This case backlog, and the glacial pace of Indian justice, is not only a crisis for the administration of justice but also a breeding ground for corruption. Given the extraordinary delays, those litigants who can afford to do so have strong incentives to pay bribes or use connections to get a faster verdict. (Most bribes are paid to court officials or middlemen, including lawyers, rather than directly to judges.) And, without excusing those judges who violate their oaths of office, it’s not that surprising that overworked, underpaid judges dealing with crushing caseloads would be tempted to accept these under-the-table payments. In essence, then, the extreme case backlog in the lower courts has created something of a two-track system, one for those that can pay the price to skip the line, and one for everyone else.

As the number of pending cases continues to balloon, this problem is only going to get worse. While punishing those judges (and their staff) who are caught requesting or receiving bribes—and those litigants and facilitators who offer those bribes—may be morally and legally justified, cracking down on individual wrongdoers is not enough to address the structural roots of India’s judicial corruption problem. 

What can be done? Though there are no easy solutions, India needs to adopt reforms to increase both the quantity and the quality of its lower court judges:

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NGOs Call Italian Judiciary to Account for Not Enforcing the Antibribery Law

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The Italian judiciary is threatening to upset the global norm against bribing officials of another nation.  As party to both the OECD Antibribery Convention and the UN Convention Against Corruption, Italy is obliged to sanction Italian companies and nationals that bribe the public servants of other nations.  Yet despite overwhelming evidence that oil and gas giant Eni S.p.A, the country’s largest company, bribed Nigerian officials to secure a lucrative oil block, a Milan trial court recently acquitted Eni and codefendant Royal Dutch (decision here.)

Acknowledging the prosecution had presented strong circumstantial evidence of bribery — what it termed “conduct implementing the agreement” to pay Nigerian officials in return for “the unlawful act of the public official” — the court nonetheless held this was not enough. Following earlier appeals court decisions in foreign bribery cases, it ruled the prosecution must also show an actual “agreement between clearly identified parties” Hence, it concluded, “even the proof of the bribe or the unlawfulness of the act committed by the official” is not enough to warrant conviction.

Officials from the U.S. Department of Justice and Germany’s Ministry of Justice will shortly review Italy’s compliance with its obligations under the OECD Antibribery Convention. The Italian NGO ReCommon, Nigeria’s Human and Environmental Agenda, and Corner House from the United Kingdom have prepared this thorough and damning critique of the decision in the ENI case and earlier ones where Italian courts have held that absent an express agreement to pay a bribe to a foreign official, defendants must be acquitted.

As the three NGOs explain in their analysis, those negotiating the OECD Convention recognized that requiring the prosecution to show an express agreement to bribe set an impossibly high hurdle. They settled instead on allowing courts to infer an agreement from the surrounding circumstances, circumstances such as those the prosecution presented in the ENI-Shell case. Indeed, American courts long ago recognized that requiring the prosecution to produce an express, written agreement to pay a bribe rendered the antibribery law a nullity.

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The Unfulfilled Promise of the UK’s Anticorruption Innovations

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When it comes to the fight against global corruption, the United Kingdom presents a paradox. On the one hand, the UK has long enjoyed a reputation as relatively “clean.” The country gets good marks on Transparency International’s Corruption Perception Index, and the Financial Action Task Force considers the UK a world leader in preventing money laundering. Yet, at the same time, the UK—and London in particular—is well-known as a popular laundromat for dirty money and a haven for kleptocrats.

It would be tempting to say that the UK cares about suppressing corruption at home but is indifferent (or worse) to how its nationals and its policies affect corruption abroad. But that is too simple, because in some respects the UK has been an innovator in the fight against transnational bribery and illicit wealth, and has often taken the lead in enacting new and more powerful anticorruption and anti-money laundering tools. Over the past dozen years, three such innovations are especially notable: the 2010 UK Bribery Act (UKBA), the 2016 legislation mandating a public registry of the beneficial owners of all private companies registered in the UK, and the 2017 Criminal Finances Act authorizing unexplained wealth orders (UWOs)—court orders that require the owners of UK assets to prove that the funds used to purchase those assets came from legitimate sources, with the assets frozen and eventually seized if the owner is unable to do so.

Yet the paradox continues: While the UK received well-deserved praise for enacting these measures, in practice all three have been far less effective than proponents hoped. The reasons for these failures are different, but they share common threads. Continue reading →

Managing Corruption Risk in U.S. Public Pension Funds

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Public pension funds provide retirement benefits for government employees, such as firefighters, teachers, and police officers. In the United States, the pension funds of state employees are typically managed by a board of trustees that is generally comprised of investment professionals, beneficiary representatives, and individuals appointed by state elected officials. (Fund governance structures vary somewhat from state to state.) These trustees then exert tremendous influence over the allocation of pension assets to different investment vehicles, such as private equity and hedge funds. While individual pension funds vary in size, the total amount of money involved is enormous: Public pension fund managers in the United States are responsible for allocating over $5.5 trillion in assets across different investment vehicles.

How pension managers select among different investment opportunities remains a largely opaque process. This lack of transparency—coupled with broad investment discretion—fosters a substantial risk of corruption. Such corruption can take several different forms:

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Summary of Third Annual AML Research Conference. Announcement of Fourth

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Thanks to Jason Sharman of Cambridge University and dodging shopping fame, those who didn’t attend last January’s conference “Empirical Approaches to Anti-Money Laundering and Financial Crime” are in luck. He has produced an excellent summary of the papers presented at this, the now third annual AML conference jointly sponsored by the Bahamas Central Bank and the Inter-American Development Bank.  

There are dozens if not hundreds of other AML conferences held each year. At these, bankers and their lawyers, accountants, and consultants flyspeck the latest rules, court decisions, and other matters germane to complying with AML laws and regulations. As well they should, for as AML Penalties chronicles in their weekly bulletin, fines for violations are beginning to creep upwards. Conference attendees are also constantly on watch for cheaper ways to meet their legal obligations; AML compliance costs for all financial institutions are currently estimated to exceed $200 billion per year.

Like the first two conferences, last January’s had a much different agenda than those devoted to compliance. Rather than asking “what are the rules” and “how can we comply,” it asked more fundamental ones: “Are the current anti-money laundering rules worth cost?” “Are they keeping dirty money out of the system?” “Are there more cost-effective ways of doing so?”

It is now clear that Russian oligarchs have had little trouble evading the current AML regime. Might this suggest the sponsors of the Bahamas conference are on to something? That the questions they are posing deserve at least as much attention as those discussed at the many compliance conferences?

Next year’s conference will be held January 19 and 20 in Nassau. The announcement is here.

The U.S. Could Learn from the U.K. in the Virgin Islands

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Corruption is a perennial problem in the Caribbean. Although many of the Caribbean islands are independent, many others are held by former colonial powers, including the United States and the United Kingdom, which respectively control adjacent island groups known as the U.S. Virgin Islands (USVI) and the British Virgin Islands (BVI). Encouragingly, over the last six years, the UK has undertaken significant efforts to crack down on corruption in the BVI. Disappointingly, the US has yet to follow suit. The US government—and, once appointed, the new US Attorney for the USVI—should follow the UK’s lead and make anticorruption a top priority.

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Tackling Corruption While Preserving Judicial Independence: Lessons from India’s Supreme Court 

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In India, Justices of the Supreme Court and judges of India’s 25 regional High Courts are appointed through a process known as the Collegium System. Although the Constitution vests the appointment power in the President of India, the President may only appoint a Supreme Court or High Court nominee recommended by a body called the Collegium, which consists of the Chief Justice, the four other senior-most Supreme Court Justices, and, in the case of High Court nominees, the senior-most judge on the High Court of the prospective appointee.

This system, which developed over the 1980s and 1990s as part of a decades-long tug-of-war between the branches of government, is controversial. Some critics have argued that the Collegium, which operates largely as a black box, leads to the selection of judges based on cronyism and quid pro quos, regardless of a nominee’s merit or scruples. Notably, critics contend, the Collegium System allows for the appointment of corrupt judges because the secrecy of the Collegium’s deliberations prevents accusations of impropriety against those nominees from becoming public. In buttressing this claim, critics point to instances of High Court judges who have been credibly accused of corruption, including one who was formally charged at the end of last year for taking a bribe in exchange for a favorable verdict. Critics also contend that the Collegium System exacerbates judicial corruption through another, more indirect channel: The Collegium’s slow pace has left hundreds of High Court seats vacant, which exacerbates the Indian court system’s extreme case backlog. That backlog, in turn, encourages petty bribery, as many frustrated litigants would prefer to bribe a judge or court official to jump the line or get a case dismissed rather than wait years for a final resolution. Even former Chief Justice V.N. Khare acknowledged that bribes for bail are rampant in the lower courts given the delays litigants may face down the line.

In response to these concerns, the Indian Parliament, led by Prime Minister Narendra Modi, voted overwhelmingly in 2014 to amend the Indian Constitution to replace the Collegium with a National Judicial Appointments Commission (NJAC) composed of representatives from all three branches. But before the law could go into effect, the Supreme Court ruled it an unconstitutional threat to judicial independence. While calls for reform temporarily abated, just last December a member of Modi’s cabinet expressed support for reintroducing the NJAC amendment to replace the Collegium System.

Any such attempt, however, would be misguided. Anti-Collegium reforms like the NJAC would undermine India’s hard-won judicial independence, and the corruption problem these reforms would purport to solve has been greatly exaggerated.

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