Category Archives: Commentary

A Breaththrough in Recognizing Who is a Corruption Victim

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A decision of the U.S. District Court for the Eastern District of New York ruling shareholders of a company damaged by bribery are “corruption victims,” and its order affirming $135 million in damages establish an important precedent. The decision and order were handed down in a case arising from the prosecution of OZ Africa Management for violating the Foreign Corrupt Practices Act. OZ, a subsidiary of a U.S. hedge fund, had pled guilty to participating in a bribery scheme Israeli billionaire Dan Gertler engineered to gain control of the Democratic Republic of the Congo’s mineral resources.  As the case was about to close, shareholders in Africo, a Canadian company whose mining rights had lost value thanks to the bribery, filed a claim for damages under the Mandatory Victim Restitution Act, a statute requiring criminal defendants to compensate victims of their crimes.    

OZ and the prosecutors in the case both opposed the shareholders’ claim. Under the act, those claiming they were injured by a criminal offense must show they were “directly and proximately harmed” by it. Several events occurred between OZ’s bribes and the injury Africo’s shareholders sustained that blurred the causal link between the two. Both the government and OZ asserted that these intervening events made the shareholders at best indirect victims of corruption. And in any event the injuries were so far removed from the bribery that it could not be said the bribery proximately caused them.  Finally, OZ argued the damage the shareholders suffered, loss of the chance to develop the mine, could not be readily quantified, making any award “speculative” and “hypothetical.”

The difficulty in showing the harm from corruption is “direct” and “proximately” caused, and the challenge of precisely calculating the damage are not just hurdles to those seeking compensation for corruption under American law. They are commonly cited as reasons why, though virtually all nations permit corruption victims to sue for damages in accordance with article 35 of the UN Convention Against Corruption (here), virtually no one has (here, here [21ff], and here). While the court in OZ Africa Management was only construing a U.S. law, its reasoning offers courts in other jurisdictions precedent for awarding damages when their citizens are injured by corruption.  

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What Made Alexei Navalny an Anticorruption Icon?

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On August 20, 2020, former Russian presidential candidate Alexei Navalny fell ill while on a flight from Tomsk to Moscow. He slipped into a coma and was immediately evacuated to Berlin, where doctors discovered that Navalny had been poisoned by a Soviet-era nerve agent. While the Kremlin has denied any involvement, the chemical nerve agent used on Navalny was similar to the one that Russia was accused of using to poison former Russian spy Sergei Skripal and his daughter in 2018.

A Kremlin-orchestrated attempt on Navalny’s life was hardly surprising. For the past decade, Navalny has been making a name for himself as one of the leading figures opposing Russian President Vladimir Putin and his United Russia party. Navalny has denounced United Russia as a “party of crooks and thieves” and has organized campaigns to unseat Putin-affiliated politicians across the country. Furthermore, Navalny’s investigative journalism has uncovered government corruption, and he has used these exposés to advocate for political reform and to bolster his own popularity, especially among the younger generation. Navalny’s success in exposing corruption highlights several interesting and unique tactics and personal attributes that allowed him to be an effective advocate in a country that routinely punishes government opposition.

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Fast-Tracking Justice: India’s New(ish) Strategy to Curb Corruption

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How do you deal with the problem of more than 6,000 corruption cases and nearly 5,000 criminal cases pending against politicians, some dating back almost 40 years? The answer, according to India’s Supreme Court: put a one-year time limit on cases involving politicians.

This decision, which was issued this past September in a “public interest litigation” case, seeks to increase public confidence in the judicial process and to make the legal system more effective in addressing India’s pervasive political corruption. Corrupt politicians in India are typically able to slow down legitimate prosecutions, for example by exploiting India’s complex court filing procedures, leading the cases to drag on for years or even decades. This delay increases the chances that key evidence will be lost or obscured—a process that corrupt defendants can and do help along by bribing, threatening, or even killing witnesses. By preventing cases from ending in conviction, corrupt politicians have created a de facto culture of impunity. The problem is particularly acute in the current parliament, where 43% of new members elected in 2019 had pending criminal charges. The Supreme Court’s order seeks to address this and other problems.

This isn’t the first time that the Supreme Court has ordered fast-tracking. The Supreme Court previously called for time-bound trials against politicians back in 2011, during the tenure of the corruption-riddled Congress Party, yet the case backlog remained. There is reason to believe, though, that this time is different. The current ruling Bharatiya Janata Party (BJP) swept into power in part by making anticorruption efforts a priority, and there are signs that the BJP’s general commitment to anticorruption may be having a meaningful impact in the context of the one-year order. Following the Supreme Court’s ruling, the highest courts in (most) states submitted action plans for dispatching cases, and India’s Solicitor General said that he is “100% serious” about completing trials within a year. Despite certain serious challenges to effective implementation of this new fast-tracking program, India’s renewed commitment to moving the wheels of justice more quickly could prove powerful in holding corrupt politicians accountable and restoring public confidence in the judiciary.

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Kleptocracy Strikes Mongolia? The Batbold Case

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Offshore Alert yesterday revealed the Mongolian government has charged former Prime Minister Batbold Sukhbaatar with receiving hundreds of millions of dollars from kickbacks and fraudulent and illegal transactions in deals involving the nation’s two largest mines. The case against the former prime minister, senior member of the ruling Mongolian People’s Party, and the party’s likely 2021 presidential candidate, is spelled out in a November 23 filing in a New York court.  The New York case together with similar ones in Hong Kong and London seeks a freeze on assets Batbold holds until the main case, brought in Mongolia, is decided.  There plaintiffs — the agency responsible for overseeing Mongolia’s natural resources and the state-owned companies that operate the two mines – ask that agreements between the two operating companies and shell companies they say Batbold secretly owns be invalidated and Batbold and accomplices disgorge all profits made on secret deals and as well as pay damages. The total could run into the hundreds of millions if not billions of dollars.  

Documents submitted in the New York case paint a picture familiar to students of kleptocracy.  With assistance from lawyers, accountants, and other enablers, Batbold allegedly established some 100 shell companies in at least ten countries to conceal his actions and hide his wealth.  Two things make the case worthy of careful study by all seeking to end the massive theft of a nation’s assets by its rulers:

i) the political will the governing party has shown in pursuing one of its own, and

ii) the quantum of information on an alleged kleptocrat’s wrongdoing that can be gleaned from a painstaking search of the public record.

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Fighting Police Corruption in Nigeria: Learning from SARS’ Alleged Dissolution

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In 1992, the Nigerian police force created the Special Anti-Robbery Squad (SARS) to combat violent crimes such as armed robbery, kidnapping, murder, and hired assassination. In each state, SARS operates under the criminal investigations department of the state’s police command. Alas, SARS developed a reputation for corruptly extorting money from the targets of its investigations. To offer one example, a local software engineer alleged that heavily-armed SARS officers stopped him and ordered that he withdraw one million Naira (approx. $2,607.56 USD) for his release. Such allegations are not unusual, as demonstrated by an online Twitter campaign, labeled #EndSARS, in which numerous Nigerians recounted their personal experiences with SARS. These allegations were serious enough that the Inspector General of Police (IGP) recently released an order to dissolve SARS altogether.

One might reasonably suppose that this dissolution order will result in the elimination of SARS and the corrupt practices that pervaded its department. However, such conclusion would be incorrect, or at least premature, for a couple of reasons. First, the dissolution may turn out to be little more than a publicity gambit that does not have lasting effect. This most recent order is actually the fourth IGP order in four years that has sought to restrict, reorganize, or ban SARS’ operations. In the previous three directives the restrictions were not implemented, and the current order may not be either. Second, even if SARS is dissolved, the root causes of the corruption that pervaded its units are not unique to SARS. If left unaddressed, those same underlying causes can be expected to give rise to similar sorts of extortive corruption in other police units.

So, what factors contributed to the widespread corrupt practices within SARS? Part of the problem may be general systematic inadequacies—factors that contribute to corruption throughout the Nigerian government—but we can also identify three specific factors that made SARS particularly prone to extortive corruption. Continue reading →

Combating Money Laundering in Africa: John Hatchard’s Latest Guide for African Corruption Fighters

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The war on corruption is being fought on many fronts. One where victory is especially critical is the battle to prevent leaders of poor countries from robbing their citizens blind, and nowhere will a victory be more welcome or more hard-fought than in Africa.   Seventy percent of the world’s poor live on the continent while, thanks first to colonialism and then to Cold War machinations, Africans are saddled with governments ill-equipped to keep greedy leaders in check.  Courts, legislatures, and other accountability institutions are weak; the media and civil society hobbled by repressive, non-democratic measures.

Not that in recent years there have not been promising developments. South Africa’s once powerful leader Jacob Zuma was forced to resign the presidency over corruption allegations for which he is now on trial.  Former Guinea Minister of Mines Mahmoud Thiam forfeited $8.5 million and was sentenced to seven years in prison for corruptly granting virtually the whole of his nation’s mineral sector to a Chinese conglomerate.  The son of former Mozambique President Armando Guebuza is one of over a dozen members of the country’s ruling circle facing trial for his role in the “hidden debt” scandal.

What will be required to continue this progress is the theme of John Hatchard’s latest book,  Combating Money Laundering in Africa: Dealing with the Problem of PEPs. Like his earlier ones on African anticorruption laws and institutions (here, here, and here), it’s a must have for African corruption fighters.

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When Anticorruption Begets Corruption: A History Lesson from the Roman Republic

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Most readers of this blog are likely to support rigorous anticorruption laws. But a modicum of caution is necessary: If poorly designed, even anticorruption laws adopted with the best of intentions can be weaponized by bad-faith actors. This is not only a modern problem. Indeed, a troubling illustration of how overly ambitious anticorruption laws can spectacularly betray their core purposes can be found some two thousand years ago, in the dying days of the Roman Republic.

The Roman Republic had a comprehensive and complex legal code, with multiple statutes (lex) prohibiting the general crime of ambitus. It is frustratingly unclear what precisely constituted ambitus, but at its core, ambitus (which shares the same linguistic root as modern-day “ambition”) covered electoral bribery and other forms of electoral fraud and corruption. That said, the line between legal electioneering and illegal ambitus was often blurry, and ambitus was sometimes used as a general pejorative accusation for when a candidate’s ambition “went too far.” (In that sense, Roman debates over the definition of ambitus may parallel modern debates over the definition of “corruption.”)

A handful of ambitus laws were passed during the Middle Republic. For example, an ambitus law from 358 BC prohibited political candidates from canvassing on market days, and a 314 BC law created a commission to investigate election rigging. Yet such laws were relatively rare, and ambitus does not seem to have been a prominent concern during this period. During the Late Republic, however, the problem of rampant electoral bribery prompted the Senate to enact a flurry of new ambitus legislation. Many of these laws were direct responses to specific incidents of ambitus, and exhibited a pattern of increasingly harsh punishments and prosecution-friendly procedural changes. Despite addressing a very real problem, these reforms to the ambitus laws of the Late Republic ended up being not only ineffective, but actively exacerbated the decline of the Republic.

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Will Donald Trump Put Vanuatu on the Map?

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Few Americans could find the Pacific island nation of Vanuatu on a map. Fewer still know anything of its constitutional jurisprudence. Donald Trump could change all that if he exercises the right he claims to have to pardon himself (here). Vanuatu is the only country whose courts have ruled on the validity of a presidential self-pardon, and the merits of their ruling would surely be fodder for editorials, op-eds, and cable television’s blabbers  learned commentators.

Vanuatu’s courts had the unprecedented case thrust upon them thanks to the action of Marcellino Pipite. Speaker of the Vanuatu legislature, in accordance with the country’s constitution he served as acting president whenever the sitting president was abroad. During one period of service a long running trial where he and 13 other parliamentarians were on trial for bribery ended in a guilty verdict against all fourteen.  Pipite then promptly exercised the president’s constitutional pardon power, excusing himself and the other defendants from any criminal wrongdoing. 

The validity of a Trump self-pardon would surely come before the Supreme Court, and it has long looked to decisions of foreign courts when deciding its cases (here). Indeed, one of the most influential justices of the 20th century, whose acolytes include the current Chief Justice, was a firm believer in looking to decisions of foreign courts for guidance when deciding constitutional issues. Nor did then Chief Justice Rehnquist limit what foreign court decisions should be examined. 

“Now that constitutional law is solidly grounded in so many countries, it is time that the United States courts begin looking to the decisions of other constitutional courts to aid in their own deliberative process” (here).

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The OECD Rightly Rejects Claims that U.S. FCPA Enforcement Is Improperly Politicized

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Earlier this month, the OECD Working Group on Bribery released its Phase 4 Report on U.S. compliance with the OECD Anti-Bribery Convention. For those readers unfamiliar with the process, this report is part of the peer monitoring system that the OECD Convention establishes for promoting adherence to the Convention. (The Convention lacks “hard” sanctions, though in extreme cases it’s possible a country could be expelled. Rather, the Convention relies on “soft” peer pressure, facilitated through the extensive and detailed investigations and reports carried out by the Working Group.) The lengthy and detailed report, produced under the leadership of experts from the UK and Argentina, assesses U.S. performance on a range of issues related to the prevention and prosecution of foreign bribery. For purposes of this post, I want to zero in on one narrow but important issue, which gets just over a couple of pages in the report: whether U.S. enforcement of the Foreign Corrupt Practices Act (FCPA) is improperly influenced by national political or economic interests.

This question is important, both legally and politically. As a legal matter, Article 5 of the OECD Convention explicitly states that decisions regarding the investigation and prosecution of foreign bribery offenses “shall not be influenced by considerations of national economic interest, the potential effect upon relations with another State or the identity of the natural or legal persons involved.” The OECD has in the past raised concerns about Article 5 violations by other member states, including the United Kingdom, and, more recently, Turkey and Canada. More broadly, as a political matter critics have alleged that the U.S. government’s enforcement of the FCPA is biased against foreign companies, and have sometimes gone so far as to accuse the U.S. of deliberately designing FCPA enforcement actions so as to secure economic advantages for U.S. companies at the expense of foreign rivals. A particularly sensationalistic version of the claim appeared in a book written by a French executive who was convicted and jailed on FCPA charges; that book became a best-seller in China, where the view that U.S. prosecutorial decisions are made to advance national economic interests is widespread. But the notion has been around for a while. (To give one personal example, last year I had a conversation with a journalist from a leading Brazilian news organization who asked for my views on the claim, which he’d apparently heard from several Brazilian sources, that the U.S. FCPA prosecution against Odebrecht was motivated by a desire to eliminate or cripple a company that competed with U.S. firms.) The U.S. government may have further contributed to this narrative in a 2018 press release on the Department of Justice’s “China Initiative”; that press release listed, as one component of the initiative, the “identif[ication of FCPA] cases involving Chinese companies that compete with American businesses.”

While it may be that the U.S. officials charged with enforcing the FCPA have their own biases and blind spots, the strong claim that the FCPA was some kind of a neo-mercantalist/neo-protectionist tool always struck me as far-fetched. (And this is true notwithstanding the FCPA passage in the China Initiative press release, which seemed more like something that got thrown in without much thought or vetting, rather than a substantive change in policy.) And it seems that the OECD Bribery Working Group’s review team came to the same conclusion. As the report states, “the lead examiners … have found no basis to consider that any FCPA decisions have been made for improper reasons.” Continue reading →

It’s Time for the United States to Mandate Enhanced Scrutiny of Domestic Politically Exposed Persons

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In February, former Baltimore mayor Catherine Pugh became the latest in the long line of Maryland politicians sentenced to prison for corruption-related crimes. According to the Department of Justice, Pugh sold copies of a self-published children’s book series to a variety of local organizations that already had or were attempting to win contracts with the city and state governments. Over eight years, Pugh and her longtime aide failed to deliver, re-sold, and double-counted the orders, squirrelling away nearly $800,000 into bank accounts belonging to two shell corporations registered to Pugh’s home address. Pugh, who did not maintain a personal bank account, used the funds to purchase and renovate a private home as well as fund her re-election campaign, among other activities.

These facts are classic red flags in the anti-money laundering (AML) world. Pugh would have had more difficulty executing this corrupt scheme, and might have been brought to justice much earlier, if the banks handling her illicit revenues had conducted the sort of enhanced customer due diligence and monitoring that financial institutions are required to perform on so-called “politically exposed persons” (PEPs), as well as their immediate family and close associates. While there is no uniform definition, PEPs are typically understood to be someone who holds a powerful government position, one that provides greater opportunities for engaging in embezzlement, bribe-taking, and other illicit activity. (Defining a PEP’s “close associates” is more challenging, but the category is generally thought to include someone like Pugh’s aide, who has the requisite status and access to carry out transactions on behalf of the PEP.) But U.S. financial institutions were not required to subject Pugh or her aide to enhanced scrutiny, because under the U.S. AML framework, such scrutiny is only obligatory for foreign PEPs, not domestic PEPs.

For many years, that was the standard approach internationally. But a new consensus is emerging that financial institutions should subject all PEPs, both domestic and foreign, to enhanced scrutiny. This position has been embraced by the Financial Action Task Force (FATF), the international body which sets standards for combating corruption in the international financial system, by the Wolfsberg Group, an association of the world’s largest banks, and by the European Union’s Fourth AML Directive. But far from joining the growing tide of domestic PEP screening, the United States seems to be swimming against it. The United States is one of the few OECD countries that does not require domestic PEP screening, and this past August, the Financial Crimes Enforcement Network (FinCEN), the primary U.S. agency tasked with investigating financial crimes, reiterated that it “do[es] not interpret the term ‘politically exposed persons’ to include U.S. public officials[.]”

This is a mistake. It’s time that the United States joined the international consensus by formally requiring enhanced scrutiny of domestic PEPs as well as foreign PEPs. Continue reading →