Category Archives: Commentary

The Many Uses of Xi Jinping’s Anticorruption Campaign

Posted on by
12

Since Chinese President Xi Jinping launched his anticorruption campaign in 2012, much of the foreign commentary has debated the extent to which the campaign is a genuine effort to root out corruption or a means for purging or undermining President Xi’s political opponents. This simple framing, however, obscures the other uses and objectives of the anticorruption campaign. Better understanding these motivations is important to understanding the dynamics of the campaign and the role that anticorruption plays in modern Chinese politics. Three political and policy objectives are particularly notable:

Continue reading →

Peace and Profiteers: Corruption in the Libyan Process

Posted on by
13

This past February, delegates from the UN-led Libyan Political Dialogue Forum (LPDF) seemed to do what a slate of other diplomatic tracks had yet to achieve: give Libyans hope for peace. On February 5, under the auspices of the UN Mission to Libya (UNSMIL), the 74 Libyan delegates making up the LPDF elected businessman Abdulhamid Debeibah to lead a transitional Parliament as its Prime Minister, vesting him with the responsibility of ferrying Libya to free and fair elections this coming December. With all the main warring parties appearing to come to the table in good faith, it seemed UNSMIL had engineered a transformational breakthrough in a conflict that has torn Libya apart at the seams for the past decade. As the process unfolded, the international community watched with baited breath. A joint statement by the United States, United Kingdom, France, Germany, and Italy blessed the process, giving the LPDF its “full support.” The UN Security Council called the election an “important milestone.” The stage was set, at long last, for a successful consolidation of power into one transitional government.

The only problem? The vote electing Debeibah was rigged.

On March 2, a leaked UN report written by the Panel of Experts, an investigatory UN body, revealed that Debeibah had bribed several LPDF delegates to elect him Prime Minister. According to the report, two participants “offered bribes of between $150,000 to $200,000 to at least three LPDF participants if they committed to vote for Debeibah.” One delegate reportedly exploded in anger in the lobby of the Four Seasons hotel hosting the LPDF when he heard that some delegates received $500,000 for their bribes. Apparently, he only received $200,000.

Just hours after the news dropped, UNSMIL issued a strong response. It threw its full support behind Debeibah, distanced itself from the UN Panel of Experts, and urged the newly elected Parliament to confirm Debeibah’s election at its first scheduled session on March 8. And while outside observers can only speculate as to UNSMIL’s motives, this see-no-evil response to the Panel’s bombshell revelations may well reflect a frantic attempt to salvage a peace process the entire international community has rallied behind. Indeed, proponents of UNSMIL’s position have argued that the long-term stability of moving ahead with Debeibah at the helm and keeping December’s election schedule on track is worth any short-term scandal, as further disruption of the process could lead to its unraveling. This position—which has been endorsed by experts and fellows from the Brookings Institution, the European Council on Foreign Relations, and others—may seem like hard-headed realism. But in fact, UNSMIL’s refusal to hold Debeibah and his co-conspirators accountable through an open and transparent process is a mistake. UNSMIL has chosen, as one Libyan lawyer and LPDF delegate put it, to “priorit[ize] expediency above all else and at the expense of due process,” and by doing so, UNSMIL risks undermining both the LPDF’s legitimacy and Libya’s long-term peace prospects.

Continue reading →

Actions for Damages Caused by Corruption: American Law

Posted on by
4

American law allows corruption victims to recover damages under a variety of legal theories, and its class action procedures are well suited for recovery in certain cases.  This post discusses who the law deems a victim and what damages they are entitled to recover.  A second post will suggest where countries developing their own corruption victim law might follow American practice, and where American practice should be avoided at all costs.

In the United States, the party that most often recovers damages for corruption is a company whose employee accepted a bribe. The bribe will have been paid in return for awarding the bribe-payer a contract or for approving poor performance or overpayment on a contract the payer already holds with the employer. Most cases have arisen from one firm bribing an employee of another, but the same law applies when the victim is a government agency whose employee was bribed. U.S. agencies (here), cities (here and here) and counties (here), local police forces (here) and the United Nations (here) have all collected damages in these circumstances. So have foreign governments when the bribe was paid in violation of the Foreign Corrupt Practices Act (chapter 10 here). 

The basis of the employer’s damages is in taking a bribe the employee breached the duty of loyalty owed the employer. The duty of loyalty is also grounds for recovery in conflict of interest cases.  The most well-known public conflict of interest case is from the early 20th century. In United States v. Carter, Army Captain Oberlin Carter had awarded dredging contracts to a company in which he had a secret interest. The court ruled that not only was the Army entitled to Carter’s share of the company’s profits but to any money he had earned from investing those profits.

Continue reading →

A Mandatory Reporting Requirement in Israel: Maybe Not a Lost Hope?

Posted on by
8

In my last post, I discussed and critiqued a proposal, advanced in a policy paper published by the Israel Democracy Institute (IDI), for a mandatory reporting requirement in Israel’s public sector. Under the IDI paper’s proposal, a public official who, acting in his or her official capacity, formed a “substantial suspicion” that corruption has taken place or will take place could face disciplinary sanctions for failing to report this suspected corruption “as soon as possible.” I criticized this proposal on the grounds that it would both discourage reporting in those cases where a potential whistleblower is reluctant to report right away and so delays for a period of time, and would also deter employees from cooperating with investigators by sharing relevant information that they had not previously disclosed. In both of these cases—the employee who didn’t report right away but might be willing to report later, and the employee who didn’t voluntarily report but might be willing to share information when questioned by investigators—the threat of disciplinary sanctions for failure to report immediately may actually induce employees to keep silent, especially since the chances they will be caught and punished if they never reveal what they suspected are generally quite low. Instead of imposing a mandatory reporting requirement, I argued, Israel (and similarly situated countries) should strengthen positive incentives for whistleblowers, offering them more generous rewards and more effective protections against retaliation.

While many readers broadly agreed with my critique of the IDI paper’s mandatory reporting proposal in its current form, several colleagues suggested that a modified version of the mandatory reporting requirement might be effective and appropriate. In this post, I consider what seem to me the most plausible and promising revisions to the original IDI proposal, and evaluate whether these modifications would overcome my principal critiques: Continue reading →

Why Do So Few Corruption Victims Seek Compensation?

Posted on by
4

The United Nations Convention Against Corruption requires state parties to open their courts to those damaged by corruption.  Under article 35, states that have ratified UNCAC must provide victims of corruption a right to “initiate legal proceedings against those responsible for that damage … to obtain compensation.” According to the United Nations Office on Drugs and Crime, virtually all 187 states parties do. Its 2017 review of the convention’s implementation found article 35 was “one of the least problematic provisions of the entire convention.” “All but seven of the reviewed states,” it reported, “have adopted measures to fully or partly implement article 35.”

The UNODC’s conclusion comes from a reading of the parties’ laws.  While only a handful of states have enacted special legislation governing recovery of damages for corruption, in the remainder national authorities assured UNODC that corruption victims could recover damages “under the general principles of civil (contract or tort) law.”  But research by UNODC, the UNCAC Civil Society Coalition, Transparency International, and surveys of practitioners belies these assurances. It finds that in most nations few if any corruption victims have sought damages for injuries suffered.

For a UNODC/Stolen Asset Recovery Initiative project, I seek answers to two questions.  One, is the research correct? Are there really only a few cases where corruption victims have been awarded damages?  My preliminary analyses of U.S. data shows only some 30 arising from public, as opposed to private, corruption; given its size, the amount of corruption, and low barriers to suit, one would expect more. What about other states, especially larger, wealthier ones?

Two, if indeed there are few corruption damage actions in any jurisdiction, what explains the paucity? Why, despite the prevalence of corruption, the damage it has wreaked, and the worldwide attention it has drawn, have so few corruption victims sought redress. I hypothesize three factors are to blame: courts’ narrow reading of legal doctrine, especially that governing causation for harm (here); shortcomings in procedure, and in some countries the threat violent retaliation.

But these are my guesses, based largely on my experience as a lawyer in a wealthy common law jurisdiction and second hand reports from those in other nations. Readers’ thoughts and comments solicited. Cases and commentary in any language Google translate reads most welcome.

Why Mandatory Corruption Reporting Requirements May Prove Counterproductive

Posted on by
14

Whistleblowers who report on and expose illegal acts in their workplaces are invaluable to fighting corruption. In Israel, as I stressed in a previous post, the recognition of the importance of whistleblowers has led to the adoption of several (unsatisfactory) legal instruments which are designed to encourage whistleblowers to step forward. These instruments are mainly about rewarding or protecting those employees who have dared to report on illegalities despite the personal and professional risks associated with their coming forward. An important example of such a positive instrument is Israel’s Protection of Workers (Exposure of Offenses and of Harm to Integrity or to Proper Administration) Law,  which establishes a whistleblower-friendly mechanism for seeking damages from employers who engage in unlawful retaliation .

But some argue that positive incentives are insufficient. In 2019, the Israel Democracy Institute (IDI), one of the country’s leading research institutes, published a policy paper in which the authors (Professor Mordechai Kremnitzer and Yazid Ershied) argued that negative incentives—that is, the threat of sanctions for those who fail to report corruption in their workplaces—should also be employed. More specifically, the authors propose that Israel’s disciplinary law include a provision that requires any public employee who, in his or her official capacity, has formed a “substantial suspicion” that an act of corruption has taken place to report on it “as soon as possible” to a newly established governmental unit which would address corruption in the public sector. The authors claim that adoption of such a mandatory reporting requirement, if backed by the credible threat of sanctions, would increase the number of reports by public officials who observe corruption. (The sanctions recommended by the authors would be disciplinary rather than criminal, as criminal sanctions in their view would be disproportionate and consequently ineffective.)

The IDI paper is the most thorough and impressive piece written on proposals to adopt a mandatory reporting requirement on corruption in Israel. But while the authors list some good reasons for adopting such a requirement, they fail to consider how their proposal would interact with the phenomenon of “delayed reporting.” Employees are often reluctant to report suspected corruption right away, but eventually become willing to report it. In other words, for entirely understandable reasons, it often takes whistleblowers some time and contemplation before they are finally ready to report on illegalities. When one takes this fact into account, it becomes apparent that the IDI paper’s proposed mandatory reporting requirement might prove counterproductive, for two reasons: Continue reading →

Principles for Victim Remediation in Foreign Bribery Cases

Posted on by
9

There is a broad consensus that foreign bribery harms the citizens and governments of developing nations. But in most cases where enforcement agencies in a “supply side” jurisdiction (that is, the home jurisdiction of the companies that paid the bribes) reach a settlement with a company accused of bribing foreign officials, the settlement does not provide for any remedial payments to the government or citizens of the “demand side” country where the bribery took place. Given the inherent difficulties in setting right the harm corruption causes, this is hardly surprising. Nevertheless, scholars and activists have increasingly called for settlement agreements between supply side enforcers and bribe-paying companies to include requirements that the companies make such remediation to the victims of the foreign bribery scheme, and some prosecutorial agencies, like the U.S. Department of Justice (DOJ) and the U.K. Serious Fraud Office (SFO), have occasionally done something along these lines. They have done so, however, only intermittently, and as an exercise of prosecutorial discretion, without any overarching policy agenda or conceptual framework.

In a recent article, I proposed a framework that could achieve more consistent outcomes and be used as a benchmark for developing best practices. I do not focus on grand designs for a private right of action for the foreign victims of corruption, or on obligations under international law. Because the action is happening on the ground, through the exercise of prosecutorial discretion in negotiating settlements, that’s where I focus. In this post, I outline the factors that enforcement agencies should take into account when deciding whether to pursue remediation in any given case. Continue reading →

Let’s Talk About Monaco

Posted on by
8

Monaco, the sovereign city-state on France’s Mediterranean coast, is many things. It is the second smallest country in the world, following only Vatican City. It boasts the highest GDP per capita of any country. It is a constitutional monarchy, ruled by the same family for over 700 years. It is known for its opulent casino, expensive real estate, and swaggering F1 drivers.

It is also willfully resistant to the Council of Europe’s anticorruption transparency recommendations – or any transparency measures at all, for that matter.

Perhaps due to its small size, Monaco has flown somewhat under the radar in international corruption monitoring. The city-state doesn’t feature in Transparency International’s annual Corruption Perceptions Index, and TI’s web page for Monaco is quite blank. Despite being an international tax haven and banking center, Monaco is conspicuously missing from both the World Bank’s Doing Business rankings and the Heritage Foundation’s index of economic freedom. It’s not that Monaco is a corruption-free paradise. In the few lists in which it does appear, Monaco does not score particularly well: In the RAND Corporation’s Business Bribery Risk Assessment, for instance, Monaco ranked 72nd out of 192 jurisdictions. And a number of recent corruption scandals have involved Monaco, either directly or indirectly. Last year, for example, two brothers who ran a Monaco-based consultancy called Unaoil pleaded guilty in the United States to charges involving millions of dollars in bribes paid between 1999 and 2016. Corruption alarms were also raised in July 2019, when Monaco’s justice minister abruptly blocked term renewal for a judge leading a corruption inquiry that involved a Russian billionaire, a former Monaco justice minister, senior Monaco police officials, and others. More recently, in late November 2020, former French president Nicholas Sarkozy went on trial for attempting to bribe a French magistrate with a prestigious job in Monaco.

These incidents have largely come to light because of involvement outside of Monaco: international companies, legal battles that cross borders, and foreign politicians. Monaco itself remains something of a black box. As a 2017 report from the Council of Europe’s Group of States Against Corruption (GRECO) noted, there are no records whatsoever of criminal or disciplinary proceedings related to corruption in Monaco’s parliament. This lack of reported cases, GRECO concluded, is likely due not to an absence of corruption, but to a lack of oversight. As the report noted, Monaco has “few mechanisms to ensure satisfactory transparency of parliamentary work and consultations,” and lacks a “code of conduct that would govern, among other things, the acceptance of gifts and other benefits, the management of conflicts of interest, or relations with lobbies and other third parties seeking to influence parliamentary processes and decisions.” The GRECO report further observed that although judicial proceedings are typically public, there is a carve-out for holding court behind closed doors where public proceedings “might cause a scandal or serious inconvenience.” Cases “concerning the internal operation of courts” are also not public. In practice, there is even less transparency than the official policies would indicate, as most criminal cases are in fact dealt with in France, behind closed doors.

Without a code of conduct against corruption-related activities, with no mechanisms to provide oversight, with any corruption scandals that do occur likely to be tried in secret, and with little international attention on the issue beyond infrequent GRECO reports, Monaco can keep its corruption well hidden. Although occasional scandals might pop up around Monaco, the country makes it difficult to know the nature and extent of its corruption.

Continue reading →

Fighting Corruption in Nigeria’s Forestry and Fishery Industries

Posted on by
6

Although Nigeria is known mainly for oil and gas production, Nigeria’s agriculture sector, including forestry and fisheries, now accounts for over 21% of the country’s GDP. Despite the benefits of the forestry and fisheries industries to Nigeria’s development, corruption-fueled illicit activities in these sectors threaten to destabilize local communities and damage the environment. Two areas of illicit activity are of particular concern:

Continue Reading

Kleptocracy in Mongolia: Deutsche Bank As Batbold’s Enabler

Posted on by
9

To the left is a document showing how Deutsche Bank helped Mongolian politician Sukhbaatar Batbold hide assets offshore (full-size copy here). Written by Deutsche Bank executives in Hong Kong, it asks the bank’s Guernsey Island office to “establish and manage the offshore trust structure The Quantum Lake Trust on [Batbold’s] behalf.” The authors assure their Guernsey colleagues that there no reason to be suspicious about the request:

“We are unaware of any activities in which the above client [Batbold] engages which leads us to suspect that the client is involved in money laundering.” In fact, on the day the letter was written Batbold was a Member of Parliament and between 2004 and 2006 was Cabinet Minister of Trade and Industry (here). In money laundering terms he was a “politically exposed person.” As a consequence, Deutsche Bank was required to scrutinize his past activities before creating the trust and to closely monitor all future transactions with the bank or the trust to ensure they were lawful. There is no evidence Deutsche Bank ever conducted what the money laundering law terms this “enhanced due diligence.”

Two weeks ago Batbold denied ever having “any open or hidden accounts, money, apartments or property in the offshore zone” (here), but as the letter and other documents made public last Friday show, he is at least prevaricating if not lying. He has or has had numerous accounts and properties offshore. Batbold’s representative ducked questions GAB has asked (here) about the trust and Batbold’s offshore properties, issuing a short, blanket denial reprinted below.

Continue reading →