Category Archives: Commentary

President Theodore Roosevelt on the Importance of Fighting Corruption

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Last week, I posted some information about a new working paper that I jointly authored with Justice Mariano-Florentino Cuellar on anticorruption reform in the United States over the 1865-1941 period. Although one of our main arguments in that paper is that the process of anticorruption reform in the United States was long, slow, and involved many different actors at all levels (in contrast to the image of the “big bang” reform driven by a single powerful figure, like a Lee Kwan Yew or a Mikheil Saakashvili), there were indeed some periods, and some leaders, who were especially important to the anticorruption fight. One of those leaders was undoubtedly President Theodore Roosevelt. President Roosevelt was a complicated figure with complicated legacy, but with respect to anticorruption, he was a significant leader of the reform movement. Since today (September 14) is the 119th anniversary of President Roosevelt’s assumption of the presidency, I thought I’d use the occasion to share some of my favorite remarks of his on the subject of corruption The specific context of these remarks, which came in a December 1903 address to Congress, concerned his administration’s efforts to secure the extradition of bribe-taking officials who had fled the country, but President Roosevelt’s sweeping rhetoric sounds like it could have come from a modern anticorruption reformer in a particularly fiery mood:

There can be no crime more serious than bribery. Other offenses violate one law while corruption strikes at the foundation of all law. Under our form of Government all authority is vested in the people and by them delegated to those who represent them in official capacity. There can be no offense heavier than that of him in whom such a sacred trust has been reposed, who sells it for his own gain and enrichment; and no less heavy is the offense of the bribe giver. He is worse than the thief, for the thief robs the individual, while the corrupt official plunders an entire city or State. He is as wicked as the murderer, for the murderer may only take one life against the law, while the corrupt official and the man who corrupts the official alike aim at the assassination of the commonwealth itself. Government of the people, by the people, for the people will perish from the face of the earth if bribery is tolerated. The givers and takers of bribes stand on an evil pre-eminence of infamy. The exposure and punishment of public corruption is an honor to a nation, not a disgrace. The shame lies in toleration, not in correction…. If we fail to do all that in us lies to stamp out corruption we can not escape our share of responsibility for the guilt. The first requisite of successful self-government is unflinching enforcement of the law and the cutting out of corruption.

Lebanon Disaster Update: An Excellent and Disturbing OCCRP Report Sheds New Light on the Backstory of the Deadly Explosion

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A couple of weeks ago, I did a short post in reaction to the deadly warehouse explosion in Beirut, which killed at least 182 people, wounded thousands, and left hundreds of thousands homeless. My post wasn’t really about the Lebanon blast per se—especially because the causes of the explosion, and the role that corruption may have played, were unclear—but rather discussed more generally the direct and indirect ways that widespread corruption can increase the risk of deadly accidents. But I continue to wonder whether, with respect to the Beirut tragedy, it will turn out that corruption (rather than “mere” incompetence) will have been a contributing cause.

We still don’t have all the answers—particularly with respect to the decision-making process within Lebanon itself—but thanks to excellent investigative reporting by an international team of journalists with the Organized Crime and Corruption Reporting Project (OCCRP), we now have a great deal more information about the shadowy and highly suspicious backstory of the abandoned ship that brought the ammonium nitrate to Beirut in the first place. I don’t think I can do the report justice, but I highly recommend that everyone read it—it’s available here. And to give you a sense of what’s in it, I’ll just quote the main findings summarized at the beginning of the report: Continue reading →

“The Cyprus Papers”: Al Jazeera Report Sheds New Light on Golden Passport Programs

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Last year, we had a series of posts on so-called “golden visa” and “golden passport” programs—systems in which countries allow foreign nationals to obtain permanent residence (in the case of golden visa programs) or even citizenship (in the case of golden passport programs) in exchange for a sufficiently large investment in the country, or in some cases for a straight-up cash payment to the government. (See here, here, here, and here.) These programs raise three corruption-related concerns:

  • First, in the eyes of some critics, the programs are themselves a form of (legalized) corruption, enabling individuals to use money to purchase something (permanent residence or citizenship) that should not be for sale.
  • Second, even if we adopt a narrower understanding of corruption, golden visa and golden passport programs may make it easier for corrupt officials and their cronies (as well as other wealthy criminals) to find safe havens for themselves and their money.
  • Third, while several countries have rules designed to deal with the preceding problem, these rules can generate considerable corruption in the programs themselves, as individuals who are ineligible for golden visas or passports can bribe or otherwise corrupt those administering the system to skirt the rules.

Data on the extent of these or other problems, though, is a bit thin, in part because information on the operation of golden passport and golden visa programs—especially with regard to the individuals who take advantage of these programs—is generally not publicly available. But those interested in this topic—and concerned about the corruption risks or other problems associated with these programs—might be interested in a recent report from Al Jazeera, dubbed “The Cyprus Papers,” which analyzed leaked documents on the operation of Cyprus’s “golden passport” program between 2017 and 2019. (Golden passport programs in Cyprus and Malta have attracted particular concern because those two countries are EU members, thus making citizens of these countries EU citizens as well.)

Al Jazeera provides a user-friendly interactive webpage for exploring the results of its analysis of these leaked documents, and I recommend that those interested in this subject check it out. A few highlights: Continue reading →

Implicit Corruption in the Chinese Consumer Debt Industry? A Close Look at Recent Evidence

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While many country’s bribery laws require an express quid pro quo—an agreement to exchange a specific benefit for a specific exercise of government power—in practice many corrupt relationships involve implicit quid pro quos, in which the private party provides something of value to government officials, and the government officials use their power to help their private benefactors, but there is never any express agreement, or even any direct connection between any individual official act and a particular benefit conferred by the private party. The context in which such implicit quid pro quos are most widely suspected and discussed is perhaps campaign finance in democracies, but such implicit quid pro quos can occur in many other contexts as well. It is often very difficult—not only for law enforcement agencies, but also for empirical researchers—to find sufficiently clear evidence of an implicit corrupt deal. Yet quantitative empirical researchers have been making important strides in using available data to detect evidence of hidden or implicit wrongdoing—an approach sometimes dubbed “forensic economics.”

A fascinating recent paper by Sumit Agarwal, Wenlan Qian, Amit Seru, and Jian Zhang (forthcoming in the Journal of Financial Economics) illustrates both the potential and limitations of this approach. The paper, entitled “Disguised Corruption: Evidence from Consumer Credit in China,” presents quantitative evidence of an implicit quid pro quo between a large Chinese bank and government officials who wield regulatory authority over the bank. The paper finds that the bank offers unusually favorable lending terms to government employees (the “quid”) and that in those provinces where this practice is more widespread, the bank receives more favorable treatment from governments (the “quo”). While this evidence alone cannot establish that there was an implicit exchange (the “pro”), the authors suggest that this is the most plausible explanation of the data.

The data is certainly susceptible to that interpretation, but there are other, more benign possibilities. I’ll first say a bit more about the main evidence the paper offers for an implicit quid pro quo, and then suggest (though not necessarily urge) a possible alternative explanation.

Continue reading →

Corruption and Deadly Accidents

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After last week’s catastrophic explosion in Beirut—which killed over 150 people, injured thousands, and left hundreds of thousands homeless—Lebanese citizens are rightly demanding a full investigation of the incident and accountability for those responsible. The official reports so far have stated that the source of the blast was an abandoned Russian cargo ship carrying a large quantity of ammonium nitrate; it is not clear why that vessel and its dangerous cargo, which arrived at the port in 2013, were allowed to remain for so long despite repeated warnings about the dangers. Some commentators have expressed skepticism about the official account, and suggested that the blast was caused by illegal munitions being smuggled through Lebanon. We do not yet know, and may never know, the full story.

Much of the coverage of the incident has emphasized the widespread corruption of the Lebanese government, and many Lebanese protestors have emphasized this same theme. It is not yet clear whether corruption had much directly to do with this incident. The official account so far suggests negligence and mismanagement rather than intentional malfeasance. But the instinct to suspect corruption is entirely understandable, because there is ample evidence that corruption is often a significant contributing cause of many deadly accidents. Indeed, while much of the public discussion about the costs of corruption, particularly by donor agencies and international institutions, focuses on macroeconomic outcomes (such as per capita income, GDP growth rates, and economic inequality) or on other measures of human development (such as education, literacy, and health), corruption is also a significant contributing cause of avoidable accidental deaths. Continue reading →

How the European Union Can Work with China To Advance Anticorruption Goals in the Western Balkans and Beyond

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The European Union has traditionally imposed strict anticorruption rules for its lending and development projects. In the Western Balkans in particular, the EU’s Western Balkans Investment Framework attaches transparency and anticorruption conditions to EU investments. Moreover, the EU has made clear that progress on anticorruption reform is a main requirement for attaining EU membership, a core goal of all countries in the region. The EU’s approach, however, is under increasing pressure given competition from China, which has steadily ramped up its investment in Southeastern Europe—especially in the energy, transport, and telecommunications sectors—via its Belt and Road Initiative (BRI). China is willing to invest heavily in the region (largely via loans) without attaching any anticorruption conditions. This approach can be more appealing to many of the region’s (corrupt) public officials, who would like to build infrastructure quickly and under less scrutiny.

Because of competition from China and its demonstrated negative effects on local anticorruption efforts, the EU needs to reevaluate its approach. While last year the EU published a strategic outlook paper labeling China a “systemic rival” and toughened its overall approach to the country, the EU should actively pursue more cooperation with China when it comes to investment in Southeastern Europe. This does not mean that the EU should relax its strict anticorruption and governance conditionalities. The EU still retains considerable leverage in the region, and can and should continue to use this leverage to push an anticorruption agenda. But the EU’s efforts would be more effective if the EU directly engaged with China on this topic. Indeed, the EU may even be able to work with Chinese companies in ways that raise the latter’s integrity standards and safeguards. Continue reading →

How the EBRD Can Help Fight Structural Corruption in the Western Balkans

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The European Bank for Reconstruction and Development (EBRD), created in 1991 to help former Eastern bloc countries undergoing economic transitions, is a multilateral bank that uses investment as a way to build market economies and integrate them into regional and global systems. The EBRD started out primarily investing in private enterprises with commercial partners, but its focus has since expanded to the public sector, which now accounts for over 50% of its portfolio in about a third of its countries of operation. The EBRD, like other international financial institutions, recognizes the risks that corruption and other forms of misconduct pose to the effectiveness of its projects and to its own credibility, and has taken extensive precautions to prevent misconduct by project clients and the EBRD’s own staff.

While the EBRD has worked hard to guard against corruption in the bank’s investment projects, the EBRD can and should do more to explicitly promote anticorruption reform—particularly in regions like the Western Balkans, where corruption is widespread and reforms have stalled. The EBRD, by virtue of being one of the region’s biggest lenders, and one with a good reputation, has considerable leverage and legitimacy. Of course, sustainable reform ultimately needs to come from domestic agents, and EBRD officials are understandably cautious about what they can realistically accomplish (a point that Sergei Guriev, the EBRD’s former chief economist, noted in a KickBack podcast last fall). All that said, the EBRD can and should do more to shape domestic anticorruption agendas in the countries it assists, beyond simply insisting on integrity and regulatory compliance for EBRD grants and loans.

To its credit, the EBRD has explicitly recognized and emphasized the importance of good governance to economic development, and has started to look at ways to promote lasting governance-related reforms and structural change. In pursuing this agenda in the Western Balkans, the EBRD should apply lessons learned from its more aggressive anticorruption efforts in Ukraine, and in particular should push for reforms in three main areas: Continue reading →

There’s No Panacea for Corruption. So We Can All Stop Pointing That Out.

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I’m taking another one of my periodic breaks from semi-serious commentary to make a mostly frivolous, slightly snarky point about the way we talk and write about corruption. Here’s my plea for today:

Every sensible person would presumably agree that there’s no panacea (that is, no single cure-all) for corruption. But our community appears to have developed—perhaps as a kind of reflexive, semi-defensive verbal tick—the tendency to declare that whatever anticorruption measure we happen to be talking about is “not a panacea” for corruption. Thus we are told repeatedly, for example, that:

  • Transparency is not a panacea for corruption (see here, here, here, and here);
  • Anticorruption agencies are not a panacea for corruption (see here, here, here, and here);
  • New technologies are not a panacea for corruption (see here, here, here, and here);
  • Democracy is not a panacea for corruption (see here, here, and here);
  • Privatization is not a panacea for corruption (see here and here).

Other things that the literature has declared “not a panacea” for corruption include higher public sector salaries, international courts, more women in the public sector, EU membership, codes of corporate ethics, unexplained wealth orders, and economic sanctions.

Since we all agree (or should agree) that there is no panacea for corruption, we probably don’t need to keep saying that any individual measure is not a panacea. Of course it isn’t. There isn’t one. Done.

While this post is mainly meant as a gentle admonition (with the finger pointed at myself as much as anyone else) to be more mindful about trotting out tired clichés and banal statements of the obvious, I do think there’s something intriguing about how many of us working in this field (again, very much including myself) so frequently feel the subconscious compulsion to add what would seem to be an unnecessary caveat when discussing this or that anticorruption measure. Why do we do this? Perhaps we recognize the all-too-frequent tendency of advocates to make exaggerated claims on behalf of their preferred reform, and we want to reassure our audience that we are more nuanced and sophisticated? (I imagine, for example, that those advocating for greater use of modern information technology don’t want to be mistaken for naïve techno-utopians.) Or perhaps we worry, perhaps with justification, about managing the expectations of our audience, lest the failure of a proposed reform to eradicate the corruption problem be treated as evidence that the reform didn’t help, leading to greater cynicism and frustration?

Then again, maybe there’s no subject-specific explanation. Maybe it’s just a bad habit. In any event, I propose that we retire the phrase. Please allow me to be so bold as to officially declare in this blog post, on behalf of the anticorruption community, that there is no panacea for corruption. So, going forward, we don’t need to say it anymore. Just throw in an unexplained hyperlink to this post as soon as you introduce the anticorruption measure you want to discuss, without feeling the need to insert the “not a panacea” qualification. You’re welcome.

Anticorruption Court Rulings as a Gentle Reminder to Voters: Candidates’ Integrity Is Important

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One of the great paradoxes in the research on corruption in democracies—and one of the great sources of frustration for anticorruption activists—is that while large majorities of voters consistently claim that they detest corruption and would be less likely to support corrupt politicians, nonetheless politicians credibly accused of corruption regularly win elections. There are many possible explanations for this, including the possibilities that voters lack sufficient information about corruption allegations against candidates, or that voters ultimately prioritize other factors. Yet another possibility—similar to yet distinct from these familiar explanations—is that even if voters are generally aware of corruption allegations against certain politicians, when the time comes to vote, other issues are more salient in many citizens’ minds, and integrity concerns fade into the background.

That last explanation implies that if concerns about politicians’ integrity were made more salient shortly before the election—even if the focus was on political corruption generally, or on corruption in some other jurisdiction—then voters would be less inclined to support politicians suspected of corruption. In a recent article, titled Can Institutions Make Voters Care about Corruption?, Omer Yair, Raanan Sulitzeanu-Kenan, and Yoav Dotan find that this may indeed be the case, and further suggest that if high-profile institutions—such as courts—take actions that raise the salience of corruption and integrity issues shortly before an election, this can lead voters to place more weight on such considerations when casting their ballots. Continue reading →

The U.S. Qualified Opportunity Zone Program Is Vulnerable to Corrupt Manipulation by Politically-Connected Investors. Here’s How To Fix It.

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The U.S. federal government’s Qualified Opportunity Zones Program, a program established as part of the 2017 Tax Cuts and Jobs Act, is supposed to drive investment to certain low-income neighborhoods (so-called “qualified opportunity zones,” or QOZs) by allowing investors to defer (or, in the case of sufficiently long-term investments, to avoid) capital gains taxes on their investments in these areas. The process of designating QOZs works as follows: First, the U.S. Department of the Treasury provides each state with a list of eligible “economically distressed” neighborhoods. This list is based on census data, but, importantly, it includes not only neighborhoods located in poor census tracts, but also neighborhoods that are adjacent to poor neighborhoods, or that overlap (even slightly) with areas designated as “empowerment zones” under a Clinton-era redevelopment initiative. Next, each state governor has the authority to nominate up to 25% of these eligible neighborhoods for designation as QOZs. The governors’ lists are then submitted to the Treasury Secretary, who has the final authority to certify these neighborhoods as QOZs. As of July 2020, 8,700 neighborhoods had been designated as QOZs.

Many have questioned the wisdom and efficacy of the QOZ program on a variety of grounds, with some characterizing the program as little more than a new form of tax avoidance for the wealthy that fails to address structural poverty. Even if one puts those concerns to the side, there are serious concerns that the existing QOZ program—and in particular, the process for selecting QOZs described above—has been corrupted by wealthy interests, who are able to exploit their political connections to get certain areas designated as QOZs, even when professional staff deem such designations inconsistent with the established program criteria. Consider just a few high-profile examples: Continue reading →