Category Archives: Commentary

How to Make the Iraqi Commission of Integrity More Effective in Fighting High-Level Corruption

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Last fall, anti-government protests broke out in Iraq. The protests started in Baghdad before spreading to other cities from Najaf to Nassiriya, rocking the country through the beginning of this year. High on the list the protestors’ demands: rooting out pervasive government corruption. The protestors are more than justified in making this demand. Systemic embezzlement, kickbacks, and bribery schemes pollute Iraqi politics and government services, and seemingly little has been done to get the problem under control.

Iraq’s chief anticorruption body is an entity called the Federal Commission of Integrity (CoI), an independent commission originally created in 2004, and recognized under Article 102 of the 2005 Iraqi Constitution as an independent body subject to monitoring by the Iraqi Parliament. CoI is tasked with investigating corruption cases, recovering stolen government assets, proposing anticorruption legislation, and overseeing mandatory financial disclosures for Iraqi government officials. With respect to its investigative functions, CoI has a mixed track record. On the one hand, despite the extraordinarily challenging environment in which it operates, CoI has achieved some successes. For example, last November a CoI investigation led to the arraignment of a Member of Parliament, Ahmed al-Jubouri, on  corruption charges for misappropriating government funds. A month later, in December 2019, a previous CoI investigation into former MP Shadha al-Abousy culminated in her conviction. More generally, official statistics indicate that in 2017, CoI handled 8,537 criminal cases, and of the 1,221 cases completed that year, 753 resulted in convictions—including seven convictions of ministerial-level government officials. The 2018 data reveal 1,218 convictions, including four ministerial-level officials. (Official 2019 statistics are not, to my knowledge, available yet.)

On the other hand, CoI has had difficulty securing the convictions of powerful, influential figures. For example, only days after Ahmed al-Jubouri’s arrest, he was released following the intervention of Iraq’s Parliament Speaker, Mohammed Halbusi. Furthermore, of the high-level convictions CoI has achieved, most have been handed down in absentia, with defendants remaining at large. And CoI has had limited success recovering stolen public funds. Statistics for the first quarter of 2018 reveal that CoI had recovered $131.8 million in stolen funds. In all of 2017, $111.7 million previously lost to corruption made it back into government coffers. That may seem like a lot, but keep in mind that in 2019 alone, CoI estimated that $15.6 billion of Iraqi state funds had been lost to corruption. Since 2003, estimates put total state funds lost to corruption at upwards of $300 billion. So CoI’s recovery efforts have barely made a dent in the amount of money embezzled. Moreover, most of the cases handled by CoI that involved stolen funds have been against relatively low-level government employees.

So, while COI has brought thousands of corruption cases to courts and secured hundreds of low-level convictions, it has been less successful in tackling high-level corruption. But this is no reason to give up on the commission. A few key changes could make CoI a much more effective anticorruption body.

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Corruption Risks in Infrastructure Projects Using Design-Build Contracts

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For over a decade, state and local governments in the United States have been moving to streamline the procurement of roads, bridges, and other public works.  Traditionally, they contracted with one firm to design the project, and then, through competitive bidding, let a contract to a second firm to build it. For many projects, public authorities are now replacing this design-bid-build method of contracting with the design-build method of contracting.  One contract is awarded, competitively, to a single firm both to design and to build the facility.

Design-build contracts offer several advantages over a design-bid-build contract.  Three are most important for public procurements. One, accountability is centralized. Whereas if a problem arises during construction of a design-bid-build project, the builder can claim the fault lies not with it but with the firm that designed the project, there is no one else to blame in a design-build contract.  Two, design-build contracts are usually fixed-price, meaning the price is set before work begins.  With a design-bid-build contract, the cost varies both with the amount of materials used and as a result of problems arising during construction.  Finally, design-build projects take less time to complete.  With design-bid-build, no work begins until after the design is finished.  With design-build, preliminary construction work – clearing the site, levelling the terrain – can begin while the project is being designed.

These advantages have not been lost on less developed nations and donor organizations.  The number and size of public infrastructure projects the World Bank, the Asian Development Bank, and the other development banks are financing that use design-build are on the rise.  According to its 2018 Annual Review of Procurement Activities, the largest contract the European Bank for Reconstruction and Development funded in 2017 was a € 274 million design-build contract for an ore enrichment project in Kazakhstan.

But donors and developing countries should not ignore the major disadvantage of design-build contracts compared to design-bid-build contracts: corruption.  Blame for what many consider the most egregious public corruption scandal in American history has been attributed to the abuses that arose from a design-build contract, and indeed, corruption concerns spurred the United States to replace design-build contracts for public works with the more transparent contracting method today known as design-bid-build. Continue reading →

Checking the Spread of Criminal Corruption Is Necessary to Protect Italian Democracy

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Author’s Note: The following piece was originally drafted back in February, before the massive coronavirus outbreak in Italy. The post was supposed to have been published in early March, but I put it on hold, because I was unsure whether it would be appropriate to publish a piece on criminal corruption in Italy at a time when Italian society has been so devastated by this public health crisis. After considering the issue, I decided to post this piece, in part because it deals with issues that have plagued Italian society in the run-up to the coronavirus outbreak, and that could prove to have significant implications for the handling of coronavirus. In particular, criminal corruption has been linked to the development of inadequate infrastructure, which threatens to have serious consequences in the face of a major public health crisis. To be clear, I have not yet seen any evidence that corruption has played a major role in Italy’s handling of the coronoavirus epidemic. While such evidence might emerge in the future, neither this introductory note or the post that follows should be construed as arguing that corruption is responsible for Italy’s current situation. I encourage all readers of this blog to keep the people of Italy in their hearts as they continue to combat the threat of coronavirus.

Last December, in an operation called Rinascita-Scott, Italian police arrested over 300 suspected members and associates of the ‘Ndrangheta, a mafia-type network based out of the Calabria region. These arrests spanned twelve Italian regions, and were coordinated with arrests in Switzerland, Germany, and Bulgaria. Among the accused were a large number of corrupt public officials—demonstrating the depth of the ‘Ndrangheta’s ties to the Italian political world. For example, Gianluca Callipo, the mayor of the town of Pizzo Calabro and president of the Calabrian branch of the National Association of Italian Municipalities, is accused of leveraging his position to secure provisions favorable to the ‘Ndrangheta’s interests, or to prevent the adoption of measures harmful to those interests, in exchange for electoral support. Similarly, Nicola Adamo, the former regional assessor of Calabria, is under investigation for influence trafficking as a result of his involvement in diverting funds to ‘Ndrangheta affiliates in exchange for votes. And these are not isolated cases. Previous operations in 2019, in the provinces of Val d’Aosta and Emilia Romagna, led to the arrest of several ‘Ndrangheta-connected city counselors, including city council president Giuseppe Caruso, who is accused of using his position in the Customs Agency to fraudulently divert EU funds to members of the ‘Ndrangheta. These operations have demonstrated that the ‘Ndrangheta, which was long considered a somewhat localized Calabrian organization, has entrenched itself in Italian politics, not only penetrating municipal governments throughout Italy and across party lines, but even extending its influence to national politics.

The rise of the ‘Ndrangheta highlights mafias groups’ ongoing ability to corrupt politicians, as well as the importance of developing a national strategy to combat this corruption. The exchange of votes for money and influence trafficking distorts Italian democracy and jeopardizes the provision of public goods to which the Italian people are entitled; moreover, mafia-affiliated businesses that benefit from corrupt public procurement often produce subpar goods that put public safety at risk. And while the successes of Rinascita-Scott and other operations highlights the professionalism and effectiveness of Italy’s antimafia legal institutions—particularly the investigators and prosecutors who specialize in mafia cases—checking the spread of this group will require a multifaceted approach. Both the government entities responsible for regulating elections and the political parties themselves have an important role to play, and could to more to address this clear and present danger to Italian democracy. Continue reading →

The Continuing Controversy Over the Destination of the Petrobras Penalties: The Coronavirus Crisis Has Ended One Debate, But May Start Another

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As most readers of this blog are likely aware, the Brazilian state-owned oil company Petrobras has been at the center of a massive bribery scandal in Brazil, and the main focus of Brazil’s so-called Car Wash (Lava Jato) Operation. That Operation uncovered evidence that between 2006 and 2014, corporations paid kickbacks to senior Petrobras officials for inflated contracts, and the Petrobras officials funneled a substantial portion of those illicit proceeds to the political parties in the government’s coalition. These revelations lead to legal actions not only in Brazil, but also in the United States. Because Petrobras issued securities in the U.S., and because U.S. law imposes criminal liability on a corporation for the conduct of the corporation’s employees, Petrobras was potentially liable under the U.S. Foreign Corrupt Practices Act (FCPA), because Petrobras officers had facilitated corruption abroad (that is, in Brazil). In September 2018,Petrobras signed a non-prosecution agreement (NPA) with the United States Department of Justice, according to which the company would pay over US$850 million in penalties. But, crucially, only 20% of that penalty would be paid to the United States; the remaining 80%, according to the terms of the NPA, was to be paid by Petrobras “to Brazil.”

This provision sparked great controversy and debate in Brazil over the destination of that money—a debate that seems to have been ended (for now) by the coronavirus crisis. The root of the problem is that under Brazilian law, Petrobras (the corporate entity) was considered victim of the bribery scheme, not a perpetrator. So, from a Brazilian perspective, it was hard to comprehend why the company should be obligated to pay for crimes that harmed it. Indeed, in many of the Car Wash cases resolved in Brazil, penalties recovered from other entities (such as the firms that paid kickbacks) were transferred to Petrobras. But under the NPA with U.S. authorities, Petrobras was required to pay over US$650 million to Brazil. What Brazilian entity or entities should get that money? And who should decide on the allocation?

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Congressional Corruption During the Coronavirus Crisis: The U.S. Must Do More to Eradicate Insider Trading in Congress

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Four U.S. Senators have been accused of trading stocks based upon non-public information about the coronavirus outbreak. The most disturbing cases appear to be Republican Senators Richard Burr and Kelly Loeffler. Senator Burr, who as Chair of the Senate Intelligence Committee attended a daily confidential briefing on the pandemic, divested between $628,033 and $1.72 million from industries hardest hit by coronavirus restrictions, including two major hotel chains. Senator Loeffler, who attended a confidential meeting about the coronavirus on January 24th, divested $1.275 million to $3.1 million from industries most hit, while also purchasing stock in teleconferencing companies. (Two other Senators, Democrat Dianne Feinstein and Republican Jim Inhofe, both also made significant stock sales during this time, but Senator Feinstein’s funds are in a blind trust, and Senator Inhofe has said his financial decisions are made by his financial advisors without consulting him.)

This is not the first time that concerns have been raised about Members of Congress corruptly taking advantage of their privileged access to inside information to enrich themselves, though the fact that Senator Burr engaged in these transactions shortly after having co-authored a piece claiming that “the United States today is better prepared than ever before to face emerging public health threats, like the coronavirus” makes his case particularly egregious. In 2004, a quantitative study found that the investment portfolios of U.S. Senators consistently outperformed the market, a result that at least suggests that Senators were using non-public information to inform their investment decisions. In response to this concern, in 2012 Congress enacted a bipartisan bill called the Stop Trading on Congressional Knowledge (STOCK) Act. (Senator Burr, it should be noted, was one of only three Senators to vote against it.) The main purpose of the STOCK Act was to expressly affirm that Members of Congress and their staffers were covered by the general prohibition on insider trading. The Act also increased transparency by requiring that Members of Congress and senior staff release financial disclosures within 45 days of major trades.

The STOCK Act was a step in the right direction, but it does not do nearly enough to prevent federal legislators from using their privileged positions to enhance their own wealth. To eliminate this form of corruption, the law should impose much more aggressive, prophylactic restrictions.

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An Inside View of Corruption in a Tax and Customs Agency

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Information derived from the direct observation of corrupt behavior provides insights no other source can match.  From first-hand reports of the number and amount of bribes Indonesian truck drivers paid to traverse different provinces, Barron and Olken reached important conclusions about centralized versus decentralized bribery schemes. Data Sequiera and Djankov gathered from South African and Mozambican clearing agents on bribery at their nations’ ports and border posts allowed the two to show how differences in tariff rates and uncertainties over the expected bribe amount affected firms’ behavior. The resourcefulness these and other researchers displayed in compiling direct evidence of corruption and the thoughtful, sometimes counter-intuitive conclusions their analysis yielded are summarized in this first-rate review essay by Sequiera.

As rich a source of learning on corruption as it is, collecting direct observation data is no mean feat.  Those committing corruption crimes don’t generally invite nosy observers to watch and record their actions. That is why it was especially welcome when a friend and colleague shared the parts of an interview with the head of a Latin American customs and tax agency that touched on corruption. The agency head’s insider view, though informed by training as a professional economist and a background in academia, offers nothing close to what readers can take from Barron and Olken, Sequiera and Djankov, and other full-blown academic studies.  Nonetheless, what he reports raises interesting, provocative issues of use to reformers and to those looking for hypotheses worth testing.

The portion of the interview dealing with corruption, anonymized to protect the source, is below.  Would other insiders please come forward?  Again, it is doubtful your observations will be anywhere near as valuable as the data the Barrons, Olkens, Sequieras, and Djankovs of  the world have so cleverly and painstakingly collected, but in an information scarce environment, all contributions are welcome. GAB would be more than happy to publish what you have observed about corruption in your organization with safeguards to protect your identity. Continue reading →

Why Hasn’t the IACC Meeting Been Postponed Yet?!?!

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As many readers of this blog are likely aware, one of the biggest international anticorruption conferences, aptly named the International Anti-Corruption Conference, scheduled its 2020 meeting for June 2-5 in Seoul, South Korea. It should be patently obvious to anybody that’s been paying attention that this conference absolutely must be postponed in light of the COVID-19 situation. Even if, three months from now, most of the hardest-hit countries have succeeded in “flattening the curve” to some degree, hosting a major international conference–one that will bring together people from all over the world, to meet and interact at close quarters for four days in a country that’s been a COVID-19 hotspot (albeit one that has done a good job getting the outbreak under control) before dispersing back to their countries of origin–is the height of irresponsibility.

So it came to me as a something of a shock that the IACC meeting has not (yet) been postponed. Indeed, just yesterday the IACC sent around an announcement encouraging young journalists to apply for the conference’s Young Journalist Program (offering those selected air travel and accommodations for the Seoul meeting). On the IACC website, the most recent COVID-19 update is from March 11 (over two weeks ago), and says:

We are very mindful of the current situation regarding the Coronavirus (COVID-19) outbreak and we understand that many of you are concerned on how it will affect the 19th International Anti-corruption Conference (IACC) in Seoul, Korea, from 2-5 June.

While our strong wish is to get together in early June for the IACC2020 in Seoul to learn from each other and join forces to be more effective in our efforts to end corruption in the coming years, our priority is the safety of all the participants and our staff.

The IACC team is regularly monitoring the global health situation and is in dialogue with the IACC Council and our partners in Korea. A decision to hold the conference, postpone to a later date or any other decision will be made in coming weeks. In the meantime, we will continue our planning.

We appreciate your understanding and recommend caution when making any financial commitments, like purchasing non-refundable flight tickets, until a final decision is reached. We will be updating you as soon as an informed and collectively [sic] decision is taken.

That’s all fine and good, but I think by now and informed decision to postpone the conference can and should be taken (and at the very least, the IACC shouldn’t be posting announcements encouraging people to apply). Come on guys! If the IOC can finally get its act together and postpone the Tokyo Olympics until 2021, surely the IACC can reach a similar decision without further deliberations. After all, shouldn’t the anticorruption community be at the forefront of emphasizing the importance of prioritizing the public welfare over other concerns?

How Can Ukraine’s High Anti-Corruption Court Succeed?

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Following more than two years of advocacy efforts by Ukrainian civil society and pressure from the international community, Ukraine established a specialized High Anti-Corruption Court (HACC) to try high-level officials accused of serious corruption offenses. The HACC, which was authorized in June 2018 and began operating this past September, is rightly seen as a major victory for Ukrainian anticorruption activists, and the first round of judicial selection for this court (a process that entailed special procedures, including the participation of a foreign expert panel in assessing candidates’ integrity) appears to have gone well. But the HACC faces daunting challenges—it is a brand-new institution, operating in an uncertain but pervasively corrupt environment, tasked with addressing extremely complicated and sensitive cases under intense public scrutiny. Its success is by no means guaranteed.

Some of the factors that will affect the HACC’s performance are external to the court itself. For example, the HACC’s success depends in part on the quality of the work done by Ukraine’s anticorruption investigative and prosecutorial bodies, the National Anti-Corruption Bureau (NABU) and Specialized Anti-Corruption Prosecutor’s Office (SAPO). And given the history in Ukraine of political interference with the courts (despite the constitution’s guarantee of judicial independence), one must always worry about whether the HACC will face similar threats. But even if we put those concerns aside, there are several additional steps that can and should be taken to help ensure that the HACC lives up to its potential. Continue reading →

A Welcome Analysis of Where Mozambique’s Goats Eat

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To say that a successful attack on corruption begins with a political economy analysis is commonplace.  To declare that absent such an analysis of the political, economic, and social conditions that foster a particular type of corruption, an anticorruption policy has little chance of succeeding is hardly remarkable.  What remains noteworthy is in the two decades plus since the global war on corruption began how few such analyses have been done.

Of the more than 7500 entries in Matthew’s corruption studies bibliography, titles of fewer than 50 indicate a political economy focus. The corruption and development “gray literature,” reports on corruption in developing nations commissioned by donor organizations, is little better.  Perhaps a larger number of studies, but few quality ones, and perhaps surprisingly, a real dearth of analyses of petty corruption, the kind that citizens of developing nations, most often the poor, regularly encounter in their daily life.

That’s why it was a pleasure to discover Inge Tvedten and Rachi Picardo’s recent study of where Mozambican goats eat.  The Mozambican expression cabrito come onde está amarado (“goats eat where they are tied up”’) refers, as they explain, to the two-legged species rather than the four-legged one.  The kind that exploit their place in government to enrich themselves, friends, and supporters.  The two draw upon years of accumulated research to show how, in a variety of thickly described situations, “a set of structuring principles and common schemes” lead to the “internalization” or “embodiment” of corruption.  (Others might term the principles and schemes “institutions” and internalization or embodiment a “Nash equilibrium.”) An especially thought-provoking example is how traditional norms of deference to authority figures interacts with the way the District Development Fund, a program to help the poorest, is managed to keep beneficiaries marginalized.

Whether hunting for how to deprive a greedy Mozambican goat of nourishment or for a first-rate example of political economy analysis of petty corruption, readers will profit from perusing Tvedten and Picardo’s article.

The Swiss U-Turn on Asset Return Explained

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Historically, a Swiss bank has been the bank of choice for corrupt leaders wanting to hide money. The reality is quite different today.  Just ask Tunisia’s ousted strong man Ben Ali, deposed Ukrainian president Victor Yanukovich, or the relatives of deceased former Haitian president Jean-Claude Duvalier, of the late Nigerian dictator Sani Abacha, or of Hosni Mubarak, the recently passed Egyptian president.  All believed money stolen from their nations’ citizens was safe in a Swiss bank.

At the time, they were not wrong. Dating back to when its secrecy rules protected the wealth of France’s Catholic kings from the prying eyes of nosey Protestant journalists, Swiss law permitted banks to take money with few questions asked and sanctioned those disclosing information about an account or its holder. Strict bank secrecy laws gave the Swiss financial industry an enormous advantage over other financial centers; it’s one reason why today financial services plays an outsized role in the Swiss economy — accounting for 10 percent of the GDP, twice the average of other OECD nations.

As the Duvaliers, Abachas, and Murabanks of the world learned to their chagrin  however, over the past decade Swiss policy has made a sharp U-turn.  Despite the weight of history and tradition, and the economic interest of so many Swiss citizens, current Swiss policy not only no longer condones the deposit of stolen assets in its banks, it now demands that banks and others in the financial services industry come to the aid of governments searching for money stolen by former rulers and cronies.  No other nation today goes to such lengths to help countries recover stolen assets.

Swiss lawyers François Membrez and Matthieu Hösli document this extraordinary change in Swiss policy in How To Return Stolen Assets: The Swiss policy pathway. Just published by the Geneva Centre for Civil and Political Rights, the two explain how Swiss  asset recovery law has turned Switzerland from the destination of choice for stolen funds into the least hospitable jurisdiction in the world.  The paper is an essential guide to Swiss law on asset recovery and provides a blueprint for other nations wanting nothing to do with stolen assets.