Category Archives: Commentary

Walking Free on Stolen Time, Najib Sees 1MDB Appeal Prospects Improve

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When $681 million ended up in the personal bank account of then-Prime Minister of Malaysia Najib Razak, he thought it was a political donation from the King of Saudi Arabia. Sure, it’s strange that the King transferred such a large sum directly into Najib’s personal account as opposed to that of a government institution, and yes, such a personal donation to a foreign leader was an unprecedented move by the Saudi royals. But the late King had assured Najib that some sort of donation was coming his way, so why not over half a billion dollars? Perhaps Najib would’ve examined the transfer a little more closely if he wasn’t so accustomed to lavish gifts. Indeed, when the financial anomaly came to light and the police raided his properties, that’s what filled the nearly 300 boxes the police discovered: gifts! The 567 luxury handbags (including a $219,000 Birkin bag) stuffed with $30 million in cash, the 423 designer watches, the 234 pairs of sunglasses, 14 tiaras, and 12,000 pieces of jewelry—all gifts from friends and admirers. So of course Najib was shocked—shocked!—to discover that the $681 million that appeared in his bank account actually came not from the Saudi royals, but from 1MDB, a government-run strategic development company where he served as chairman. Poor Najib was simply the unwitting victim of a network of 1MDB officers who embezzled $4.5 billion from the fund, kept comparatively meager amounts for themselves, and then deviously planted the lion’s share of the loot in Najib’s accounts to implicate him as the mastermind behind their corruption.

Unconvinced? You’re in good company. Neither was the trial court that convicted Najib last July on seven criminal charges including money laundering, criminal breach of trust, and abuse of power for his role in the 1MDB scandal, the world’s largest kleptocracy scheme. Najib faces 12 years in prison and a $49 million fine if this verdict is upheld. (And this is only the first case—he faces another 35 criminal charges in related cases.)

But alas, there is a very real possibility that Najib’s conviction will be set aside on appeal. Not because his account of how the $681 million ended up in his account has gotten any more plausible (despite Najib’s new legal strategy), but because Najib and his party—which is now back in power—are drawing out the process as best they can in order to give themselves sufficient time to subvert the judicial process and manipulate public opinion.

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Why AMLO Won’t Let the Pemex Investigation Clean Up Corruption in Mexico

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The case was expected to be a “blockbuster.” In July 2020, Emilio Lozoya Austin, former director of Mexican state-owned oil giant Petróleos Mexicanos (Pemex), was extradited from Spain to Mexico on charges of bribery, money laundering, and racketeering. The most significant of the charges related to his receipt of $10.5 million in bribes from embattled Brazilian construction firm Odebrecht. Upon his return to Mexico, Lozoya leveled bombshell accusations in a plea for prosecutorial leniency, claiming that former Mexican President Enrique Peña Nieto, along with his former treasury minister, two other former presidents, five former senators, and two former presidential candidates, orchestrated an extensive corruption scheme throughout the government ranging from securing bribes to passing controversial energy reform legislation. Lozoya’s accusations appeared to confirm information that Mexican authorities uncovered years ago. Back in 2017, after Odebrecht admitted to paying millions of dollars in bribes in Mexico, a Mexican special prosecutor determined that in 2012 Lozoya, then the newly-minted Pemex director, awarded Odebrecht several lucrative contracts in exchange for bribes. Then-President Peña Nieto, however, fired the special prosecutor and stalled the investigation.

But Mexico’s current president Andrés Manuel López Obrador (AMLO), who made anticorruption a cornerstone of his 2018 presidential campaign, vowed to reignite the investigation and prosecution of Lozoya. And last year’s extradition of Lozoya to Mexico seemed to be a sign that Mexico was (finally) on the verge of a real reckoning with endemic corruption akin to the Lava Jato (Car Wash) investigation in Brazil. Lava Jato, which began as an investigation into alleged corruption and money laundering by Brazilian state-owned oil company Petrobras, eventually ensnared Odebrecht, exposed the company’s decade-and-a-half long bribery scheme in a dozen countries, and led to the recovery of more than $5 billion in government funds and the conviction of more than 170 people—including several senior politicians. Despite recent setbacks (including the premature disbanding of the Lava Jato Task Force and the judicial invalidation of the operation’s highest-profile conviction), the Lava Jato investigation nonetheless provides a template for how an investigation that starts with one corrupt official at a state-owned country can snowball into a national reckoning that disrupts a long-entrenched corrupt system. The parallels between Lava Jato and investigation into Pemex are obvious, and many anticorruption advocates, both inside and outside of Mexico, were hoping for something similar.

Instead, nearly a year after Lozoya’s arrest, there has been little progress on the case, and it seems increasingly unlikely that this investigation will prompt the same kind of anticorruption reckoning as in Brazil. Indeed, court-watchers now fear that Lozoya and those he named will escape any real consequences. While many factors have contributed to this disappointing result, an apparent lack of enthusiasm and commitment from AMLO and his government has played an important role. Instead of doing everything in his power to move the investigation forward, AMLO slashed the budget of the Mexican Attorney General’s Office (FGR), which is leading the Pemex investigation, condoned soft treatment for Lozoya, and has seemed generally ambivalent about the investigation’s apparent lack of progress.

AMLO’s behavior is this regard seems puzzling, since one would think that AMLO has every incentive to support the investigation. After all, AMLO’s 2018 anticorruption platform was wildly popular, and—especially given that his support is waning—revitalizing this anticorruption narrative might improve the standing of his newcomer political party, Morena, heading into this coming June’s midterm elections. So why has AMLO’s support for the Lozoya investigation been so tepid? There are, I think, two main explanations, both of which cast doubt on the sincerity of AMLO’s commitment to rooting out corruption in Mexico’s government.

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Recovering Damages for Corruption — Bribery Victims

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There is no longer any doubt that corruption does enormous harm – to individuals, businesses, governments, and whole societies.  Nor is there any dispute that those harmed should have a right to recover damages for their injuries.  In drafting the UN Convention Against Corruption, governments agreed quickly and without dissent upon what is now article 35. It requires parties to ensure their domestic law permit any person or entity harmed by corruption to “initiate legal proceedings against those responsible for the damage to obtain compensation.”

Yet what evidence there is shows article 35’s promise remains largely unfulfilled.

For the UN Office on Drugs and Crime and the StAR Initiative, I am examining just how far there is to go for that promise to be met. With their resources and the help of the International Bar Association, I have reviewed the case law in close to one-third of the 187 UNCAC states parties.  The most common victim recovery cases I find are those where a government agency or state-owned corporation has recovered damages when an employee took a bribe. In a few, courts have also awarded damages to third-parties harmed by the bribery. There are in addition a miscellany of actions I am still digesting covering actions by the competitors of a bribe-payer, consumers, and NGOs.

Below are the bribery victim cases I have located to date. A second post will review the other cases. Reader contributions and comments warmly solicited.

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New Zealand’s Discomfort at the Top of the Corruption Perception Index

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Earlier this year, Transparency International released its annual Corruption Perception Index (CPI) and, once again, New Zealand was ranked as the “least corrupt country in the world” – a title it has held thirteen out of the last fifteen years. It may come as something of a surprise, then, that this news was greeted in New Zealand not so much with celebration as with measured caution. Even the most positive New Zealand news outlets led with caveats that New Zealand still faces corruption risks, including “inadequate protection for whistle-blowers, and no register showing who ultimately controls or benefits from companies registered in this country.” Others skipped the congratulatory headlines entirely, preferring headers such as “Government Warned Not to Ruin Corruption-Free Status.” As one New Zealand newspaper succinctly put it: “New Zealand is the least corrupt country in the world, but when that statement is whispered over here it is almost always followed by a ‘however’.”

This near-ubiquitous grimness of New Zealand’s press with regards to anticorruption measures practically begs the outside observer to ask: Why the doom and gloom? What explains the gap between “all major ranking institutions and indexes” and the perception of New Zealand’s citizenry themselves?

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The ComEd Corruption Scandal is a Wake Up Call for Illinois

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In 2020, one of the largest energy companies in America, Commonwealth Edison (ComEd), admitted to bribing “Public Official A” for legislation that allowed the company to increase the utility rates ComEd charged to Illinois citizens. Public Official A is almost certainly former Illinois House Speaker Michael Madigan, the longest-serving House Speaker in a state legislature in American history. Though Madigan denies wrongdoing and has not yet been charged, the evidence indicates that for close to a decade, ComEd bribed Madigan—for example, by giving Madigan’s allies political patronage jobs and “do-nothing consulting” contracts—in exchange for favorable legislation.

Madigan’s tenure as Speaker exemplifies Lord Acton’s adage that absolute power corrupts absolutely. During his time as Speaker, Madigan consolidated power over the legislative process, as well as substantial leverage over how other House members voted. This concentration of influence made him the ideal corruption broker for companies like ComEd. Preventing this sort of corruption from arising in the future will require various reforms, including the empowerment of external watchdogs, such as the currently dysfunctional and ineffective Office of the Legislative Inspector General. But while proposals to reform this office (see here and here) are welcome, genuine structural reform will require addressing the excessive concentration of power in the House Speaker. If Illinois, and similar jurisdictions, hope to tackle the sort of corruption we see in the ComEd scandal, it is essential to ensure greater dispersion of power within the legislature.

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One American Rule for Compensating Corruption Victims Not to Follow

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American law offers victims of corruption several advantages: a range of legal theories on which to bring suit for damages; a low cost procedure for recovering damages in a criminal prosecution; the ability to aggregate many small claims into a class action; rules permitting lawyers to represent claimants in return for a share of any recovery. Each has contributed to a decent corpus of corruption victim compensation law (reviewed here), and each merits consideration by judges and policymakers elsewhere searching for ways to reduce obstacles to the recovery damages for corruption.

One feature of American law should, however, be avoided at all costs. Too often courts demand victims show exactly how much harm they suffered to recover damages. The exercise is inherently imprecise.  Advanced econometric techniques fed the best data imaginable yield nothing but a rough approximation. U.S. courts are beginning to opt for common sense rules of thumbs in some settings, but the demand for precision where precision is not possible still frequently stands in the way of the victim compensation.

The most egregious cases are where an employer seeks damages caused when a supplier bribes an employee.

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India’s Agriculture Reform Bills May Not Be Perfect, But They Can Help Fight Rampant Corruption

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India’s farmers are up in arms, and have been for several months. In the midst of a cold Delhi winter, tens of thousands are braving tear gas, batons, and water cannons to protest a set of three new agricultural bills passed by the Modi government late last year. The government promises that these bills will bring about much needed reform in India’s agricultural sector, eliminating corruption in the state-run system and increasing the payout to farmers. Unfortunately, in its usual fashion, the Modi government opted to set aside federalist principles and run roughshod over democracy in introducing the reforms, contributing to the barrage of protests it now faces. And farmers have good reason to complain: the reforms signal an eventual, although not immediate, end to the government’s price floors (the “minimum support price” or MSP) for select crops. While India’s MSP system needs reform, the new bills offer insufficient protections and oversight, thus potentially enabling big business and middlemen, working with corrupt officials, to drive prices so low as to make small-scale farming impossible.

Despite these genuine and serious problems, the main reforms at the heart of these bills would do a lot of good—not least because these reforms would make major strides in addressing corruption as it exists now. And while the Modi government’s high-handed rollout of the bills has already done a great deal of damage, in terms of substance, a few key modifications to the bills could address the most serious concerns about the corrupt exploitation of farmers that the bill might otherwise foster. 

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Sunday’s Election Will Not Be Peru’s Reckoning with Corruption

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It has been a dramatic five years in Peru since the last presidential election.

A series of standoffs between the executive and legislative branches have seen one dissolution of Congress and three attempts at impeachment of the president. Two former presidents have been arrested for their involvement in the Odebrecht corruption scandal, and a third committed suicide moments before the police arrived to arrest him. Keiko Fujimori, the opposition leader and two-time presidential runner-up, was arrested for corruption, released, and is now running for president once more.

This turbulence came to a head last October, when Peru was engulfed in its biggest political crisis in a generation. Martín Vizcarra, the former president who had served for two and a half years since Pedro Pablo Kuczynski resigned in 2018 in the face of a vote-buying scandal, was himself impeached by Congress following credible but unproven allegations that he had accepted bribes earlier in his career. Congress appointed Manuel Merino, the president of the Congress who spearheaded the campaign to impeach Vizcarra, as interim president. Peruvians, outraged at the abrupt removal of a president who enjoyed considerable public support for his commitment to anticorruption reform, took to the streets to protest. They were met with police violence, and two young Peruvians were killed. Merino relented, resigning the presidency after a five-day tenure, and Congress appointed Francisco Sagasti – a moderate who had voted against impeaching Vizcarra – to serve out the final months of the term until the April 11 election.

The magnitude of the public’s mobilization against Merino’s interim presidency was seen by many observers (myself included) as a decisive turning point in the Peruvian people’s willingness to tolerate a corrupt political class. The country’s public health and economy have been ravaged by Covid-19. If there were a perfect moment for a meaningful anticorruption movement to sweep from the bottom to the top – for Peruvian voters to have a sort of “day of reckoning” with systemic corruption – April 11 seemed like that moment.

But now, on the eve of the election, this reckoning looks doubtful to arrive.

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Commentary on the FACTI Panel’s Report and Recommendations (Part 2)

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This post is the second in a two-part series on the report and recommendations of the UN’s High-Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda (the FACTI Panel). In its report, published this past February, the Panel issued 35 recommendations (grouped into 14 categories) for addressing the problem of illicit financial flows. Of those 35 recommendations, 8 principally concerned tax matters, but the other 27 are directly relevant to corruption—especially though not exclusively grand corruption, which often involves cross-border flows of illicit money. I decided that it might helpfully contribute to the conversation about these topics to respond directly with a bit of commentary on each of those 27 recommendations. My last post covered the first 13, and this post will cover the remaining 14. With that prologue out of the way, let’s dive in. Continue reading →

Wickedly, Willfully, Fraudulently, Knowingly, and Corruptly

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These are the words the court used in convicting Charles Bembridge of the criminal offense of misconduct in public office. Bembridge, an accountant in the receiver and paymaster general’s office of the British armed forces, had failed to report that certain entries in the account books had been omitted. While his conduct didn’t match up with any crime on the statute books, it was, the court said, “contrary to his duty” in an “office of trust,” and thus constituted a crime at common law “misconduct in public office.”

Bembridge appealed, arguing the unfairness of convicting him of the heretofore unknown crime. But with concern about corruption in government growing, then Chief Justice Mansfield had no trouble finding what he had done wrong criminal:

“Here there are two principles applicable: first that a man accepting an office of trust concerning the public, especially if attended with profit, is answerable criminally to the King for misbehaviour in his office: this is true, by whomever and whatever way the officer is appointed […]

Secondly, where there is a breach of trust, fraud or imposition, in a matter concerning the public, though as between individuals it would only be actionable, yet as between the King and the subject it is indictable. That such should be the rule is essential to the existence of the country.”

The 1783 decision in King v. Bembridge creating the offense is a prosecutor’s dream. It is also civil libertarians and human rights defenders’ nightmare.

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