Category Archives: Commentary

Just How Damning Are the Lava Jato Leaks? Some Preliminary Reflections on The Intercept’s Bombshell Story

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[Note: My thinking on the issues discussed in this post has evolved somewhat. For the update, see here.]

Two days ago, The Intercept published a collection of dramatic reports (here, here, and here) regarding the long-running Brazilian investigation into high-level corruption. That investigation, known as the Lava Jato (Car Wash) operation, which began as in inquiry into money laundering and associated offenses at the Brazilian state-owned oil company Petrobras, has led to the prosecutions and convictions of scores of powerful business leaders and senior politicians—including, most notably, the conviction and imprisonment of former President Luiz Inacio Lula da Silva (known as Lula). That conviction prevented Lula from competing in the presidential election in 2018, an election that was one by far-right candidate Jair Bolsonaro. Anger on the Brazilian political left over Lula’s conviction, as well as the impeachment and removal of his successor Dilma Rouseff, has provoked accusations that the Lava Jato operation is really a right-wing conspiracy, and that the Lava Jato task force—the special team of prosecutors led by Deltan Dallagnol—and Sergio Moro, who presided over the most significant Lava Jato trials, including Lula’s, are politically biased enemies of the Left who are engineering a kind of coup d’etat through the judicial system. Many people, both in Brazil and internationally (me included), have pushed back against these accusations.

The Intercept’s recent reports assert that the critics were right all along. The evidence for this consists mainly of a huge quantity of data (texts, emails, and video and audio recordings) from a cell phone—almost certainly Mr. Dallagnol’s, based on the fact that all of the reported exchanges involve him. The Intercept has published a set of stories (some in English, some in Portuguese) based on a small portion of this material, mainly text message exchanges; the reporters emphasize that more is likely to emerge as they and other journalists review more of the leaked/hacked data. The big story here is that, according to the Intercept’s reporting, these text messages provide evidence of serious ethical breaches, particularly by then-Judge Moro, as well as evidence that the prosecutors knew their case against Lula was not strong, and, most damningly, that the task force prosecutors were motivated by partisan antipathy toward Lula and his party (the Worker’s Party, or PT), despite their claims to the contrary.

What to make of this? The news is clearly bad for the Lava Jato operation, the task force, and those of us who have supported the operation and defended it against various accusations and attacks. The question I want to address here is: Just how bad is it? My tentative answer is that, while the Intercept’s reports reveal some very upsetting, disappointing, and in some cases likely unethical conduct, the leaked text messages quoted in these first reports are not as damning as either the Intercept or other preliminary reports have made them appear. In this post (which will be longer than usual), I’ll try to work through the various allegations and associated texts and do my best to assess which revelations are most serious, which least so, and where we really need more evidence before making even a preliminary judgment. Continue reading →

“Ghost Money”: Assessing the Risks of State-Sponsored Bribery

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Back in 2014, the New York Times reported that the Central Intelligence Agency had been paying the office of then-President of Afghanistan Hamid Karzai tens of millions of dollars in cash for more than a decade. Afghan officials termed these payments “ghost money,” a convenient term that I adopt here—though some might simply call it bribery. This case was hardly unique. Indeed, the practice of engaging in state-sponsored bribery in the interests of national security appears to be a longstanding and global one: Over last half-century or more, the CIA has reportedly made cash payments to heads of state from Angola to Zaire in exchange for favors.

U.S. officials have defended this controversial practice. One former CIA operations officer even went so far as to say that state-sponsored bribery serves a productive role in the anticorruption fight: where the CIA is asked “to monitor the level of corruption in a place like Afghanistan,” “it only makes sense that U.S. operatives would have to talk to, and if necessary, bribe those involved in the corruption to find out what is going on.”

Yet even if one sets aside the question of whether ghost money itself presents the same normative concerns as regular bribery by private parties (an issue previously discussed on this blog), ghost money raises more problems than it solves for the anticorruption fight. In particular, the U.S. practice of making ghost money payments in places like Afghanistan likely has three significant adverse collateral consequences: Continue reading →

The OECD Convention’s Article Prohibiting the Politicization of Foreign Bribery Enforcement Is in Desperate Need of Clarification

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Article 5 of the OECD Anti-Bribery Convention provides that the policing of foreign bribery by Convention Parties shall not be influenced by (1) “considerations of national economic interest,” (2) “the potential effect upon relations with another State,” or (3) “the identity of the natural or legal persons involved.” Collectively, these mandates are known as the “Article 5 factors.” Article 5 is intended as a safeguard against the politicization or instrumentalization of foreign bribery laws. It is therefore vital to impartial foreign bribery enforcement, as well as to the integrity of foreign bribery enforcement generally.

The most well-known instance of an alleged Article 5 breach is the United Kingdom’s decision in 2006 to stop investigations into bribes paid by BAE Systems to public officials in Saudi Arabia. Then-Attorney General Peter Goldsmith argued that this decision was justified because the investigation could have damaged national security interests, as Saudi Arabia had threatened to end counterterrorism cooperation with the UK if the investigation continued. Goldsmith expressly denied that terminating the investigation for this reason constituted a breach of Article 5 because, as he put it, the decision to join the OECD Convention didn’t mean that the UK had “agreed to abandon any consideration of national security. [The Convention] certainly doesn’t say that and I don’t believe that’s what we could have intended or any other country could have intended.” The UK’s decision to suspend the BAE investigation, though challenged in court, was ultimately upheld.

More recently, the OECD has called attention to two other potential Article 5 breaches. First, an OECD news release stated that Turkey’s Article 5 compliance was in doubt due to inexplicably low level of foreign bribery enforcement, which the release suggested might be partly due to improper economic or political considerations. Second, another OECD news release raised concerns that Canada may have breached Article 5 by cancelling investigations into allegations that SNC Lavelin had bribed Libyan officials—a decision that observers believed was motivated by a desire to protect Canada’s national economic interests.

While it is encouraging to see the OECD adopt a more assertive approach to recognizing Article 5 breaches than it has in the past, these statements serve as stark reminders that there is not really an effective means for enforcing Article 5. And unfortunately, the uncertainty surrounding the meaning of Article 5 complicates the task of achieving Article 5 compliance. Continue reading →

Managing Anticorruption Compliance Under the EU’s General Data Protection Regulation

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Lawyers and businesses today are concerned with data privacy issues like never before—not only because of the mounting number of data privacy scandals, but also because of new regulations, most importantly the EU’s General Data Protection Regulation (GDPR). The GDPR, which was adopted in 2016 and became applicable in May 2018, reformed the entire personal data protection system in the EU by setting new rules of data protection and privacy. Moreover, the GDPR applies not only to entities that operate within the EU, but also to all entities established in the EU when operating outside the EU, as well as to entities established outside the EU when they are offering their goods and services inside the EU or monitoring individuals from the EU. The GDPR thus has global reach, as well as stringent penalties for violations.

The GDPR has implications for many different fields, and anticorruption is no exception. This is especially true for corporations conducting internal investigations of possible bribery by firm employees or agents, and when conducting due diligence on potential partners. Much of the data collected in these corporate investigations will include “personal data” as defined and regulated by the GDPR. For this reason, some commentators have warned that the effect of the GDPR on traditional corporate anticorruption investigations will amount to “a collision of galactic proportions.”

That may by hyperbole, but it is certainly the case that the GDPR will impose important new obligations that influence how companies handle anti-bribery compliance issues, both in the context of internal investigations and in the context of due diligence. Continue reading →

The Orban Effect, or Why the EU Needs to Take a Hard Line on Anticorruption Backsliding

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After Viktor Orban’s election to the Hungarian premiership in 2010, he set Hungary on a course to become an “illiberal democracy.” As part and parcel of that vision, Orban began to increase corruption in Hungary, building a new class of oligarchs (including his family and friends) dependent on crony capitalism. Indeed, Orban’s Hungary is now one of the most corrupt states in Europe (see here, here, and here), with government and EU funds regularly misappropriated, wasted, or flat-out stolen. And while one must always be careful about drawing strong conclusions from changes in a country’s Corruption Perception Index (CPI) score, it’s certainly notable that Hungary has dropped 10 spots on the CPI ranking since 2011, the first full year of Orban’s rule. These developments are not only worrisome in and of themselves, but many worry that Orban’s approach—not only his far-right politics, but the entrenched oligarchic corruption he has fostered—might become normalized not only in Hungary but throughout the region.

That worry is well-founded. Orban’s ideas have not been contained to Hungary. The spread of the “illiberal state” and of corrupt quasi-authoritarian oligarchy has precipitated a crisis across Europe. What should international actors—particularly the EU—do in response? Two things:

Continue reading →

Corruption Damages: Options UNCAC Offers Mozambique to Recover “Hidden Debt” Losses

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Mozambique continues to suffer from the “hidden debt” scandal, loans a U.S. indictment alleges employees of Credit Suisse, Lebanese shipbuilder Privinvest, and others foisted off on it for dodgy projects through bribery.  Damages include not only the several billion dollars that, thanks to accrued interest and penalties, the government now owes on the original loans of $2.2 billion, but the enormous harm caused by a halt in donors’ disbursements and the resulting slowdown in growth when the scandal was revealed. The whole sorry affair could cost the people of Mozambique upwards of $10 billion, a staggering sum for a country with a total GDP in 2017 of little more than $12 billion. 

Fortunately, Mozambique does not have to absorb the loss. As party to the United Nations Convention Against Corruption, the government can directly recover much if not all of it through article 53.  Article 53(a) requires the other 185 Convention parties to grant it the right to file a civil action to recover property acquired through the offences defined in the Convention.  Article 53(b) directs the other 185 to establish procedures permitting their courts “to order those who have committed offences [established in accordance with the Convention] to pay compensation or damage” to another party injured by the offence.  

Based on the allegations in the U.S. indictment, Mozambique could likely initiate or prompt proceedings to recover assets or recover damages in at least six nations, all parties to UNCAC: France, Lebanon, the Netherlands, Switzerland, the United Kingdom, and the United States. Indeed, thanks to a precedent setting decision by its highest court, Mozambique civil society might itself be able to recover damages in a French case independent of any action by the Mozambican government.  

These options were discussed at a May 14 conference sponsored by the Centro de Integridade Pública.  They are elaborated on in this follow up paper I prepared for CIP after the conference.   

Why the WTO Should Tackle Border Corruption

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When a state systematically fails to suppress bribery in its customs service, should that be an actionable violation of international trade law? More broadly, to what extent do anticorruption provisions have a place in the law of the World Trade Organization? In a 2014 post on this blog, Colette van der Ven squarely addressed these questions and concluded that the answer is no: the WTO, in her view, is not well suited to handling complaints of corruption.

I disagree with Colette’s well-reasoned analysis. While she is right to point out substantial challenges to grappling with anticorruption through the WTO, these challenges are surmountable—and the importance of a WTO remedy counsels in favor of surmounting them. Continue reading →

Incorporating Anticorruption Measures in the African Continental Free Trade Agreement (AfCFTA)

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On April 2, 2019, The Gambia became the 22nd country to ratify the African Continental Free Trade Agreement (AfCFTA), which was the minimum threshold to approve the deal among the 55-member states of the African Union (AU). The AfCFTA aims to provide a single continental market for goods and services, as well as a customs union with free movement of capital and business travelers. Although the agreement will enter into force one week from tomorrow (on May 30, 2019), the negotiations for the Protocols and other important matters such as tariff schedules, rules of origin, and sector commitments are still being negotiated. However, once the treaty is fully in force, it is expected to cover a market of 1.2 billion people and combined gross domestic product of $2.5 trillion, which would make it the world’s largest free trade area since the creation of the World Trade Organization. This could be a game-changer for Africa. Indeed, the U.N. Economic Commission on Africa predicts that the AfCFTA could increase intra-African trade by as much as 52.3%, and that this percentage will double when tariff barriers are eliminated. The AfCFTA promises to provide substantial opportunities for industrialization, diversification, and high-skilled employment. And the AU’s larger goal is to utilize the AfCFTA to create a single common African market.

Yet there are a number of challenges that could thwart the effectiveness of this new treaty in promoting free trade and economic development. Corruption is one of those challenges. International indexes indicate that Sub-Saharan Africa is perceived as the most corrupt region in the world, with North Africa not much better. The current version of the treaty, however, does not address corruption directly. It should. Continue reading →

Mozambique’s Hidden Debt Scandal: Noose Tightening Around Credit Suisse and Privinvest?

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Mozambique has sustained enormous damage thanks to the “hidden debt” scandal.  The 2016 revelation the government had guaranteed $2.2 billion in loans for projects of little or no value led donors to freeze disbursements, slamming the brakes on the economy and leaving many stuck in poverty.

Press accounts and indictments issued in Mozambique and the United States blame the scandal on Jean Boustani, an executive with Privinest, a Middle Eastern shipbuilding firm; three now ex-employees of Swiss banking giant Credit Suisse; and Mozambican officials Boustani and the bankers allegedly bribed. Privinvest has denied involvement in the scheme as has Boustani. Credit Suisse claims the employees evaded its elaborate controls meant to keep it from becoming enmeshed in such schemes.

Thanks to a surprise development Monday, Privinvest and Credit Suisse may find it harder to continue ducking responsibility for the corrupt, fraudulent scheme and the massive harm it inflicted on Mozambique.  Continue reading →

To Advance its Anticorruption Agenda, Brazil Must Reform its Conflict of Interest Laws

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In the past five years, Brazil made significant advances in its anticorruption agenda, including both an aggressive effort to prosecute high-level politicians and business executives, and also a series of legislative reforms. But Brazil has not yet done enough to regulate conflicts of interest within the public administration.

One good example of the weakness of current regulation is the controversy involving the appointment of Leticia Catelani—a businesswoman who supported President Bolsonaro’s election campaign—to the Executive Board of Apex, the Brazilian Trade and Investment Promotion Agency. Apex is a state-owned entity in charge of promoting Brazilian exports. Ms. Catelani owns a company with a significant export business, raising concerns that she might use her Apex position to improperly favor her own business. (A group of Apex employees have filed a lawsuit challenging her nomination, and a formal complaint has also been filed with the Ethics Commission of the Presidential Office (CEP) asking for her removal.) Though this is but one recent illustration; the issue is much more general, and indeed it is likely that under the Bolsonaro administration concerns about conflicts of interest will increase.

Unfortunately, the existing mechanisms for controlling conflicts of interests in the federal administration—principally the 2013 Conflicts of Interest Act (COI Act) are inadequate and must be reformed. The COI Act applies to senior officials and ministers of state within the federal government. The Act lists a number of situations that trigger conflict-of-interest concerns, and it also requires public officials to file annual reports about their private assets and activities. The Act empowers the CEP to investigate cases, issue guidelines, clarify doubts, and grant waivers. But the current system is inadequate in several respects, and the overall system for dealing with conflicts of interest is in urgent need of reform. Three points in particular should receive special attention:

Continue reading →