Category Archives: Commentary

A Cultural Defense to Bribery? The Solomon Islands’ Approach

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Gift-giving usually has positive connotations as an expression of love, respect, friendship, gratitude, or celebration. However, when the recipient is a public official, there is always the concern that the “gift” is nothing but a thinly-veiled bribe. For this reason, countries around the world have placed restrictions on the character and value of gifts that public officials are allowed to accept. But in societies where giving gifts – including, perhaps especially, to powerful or influential figures – is an important part of the culture, treating all (sufficiently large) gifts as unlawful bribes is more than usually challenging. Indeed, a recurring question for anticorruption reformers is whether or how anti-bribery law should make allowances for local cultural norms and practices, especially those related to gift-giving. This question – often framed as one of “cultural relativism” – frequently comes up in the context of developing countries (such as Indonesia or various Pacific islands), though it is not exclusive to such countries (see, for example, discussion of this same issue in South Korea).

One country that has recently faced the challenge of regulating cultural gift-giving to and by public officials is the Solomon Islands – a small state in the Pacific Ocean consisting of over nine hundred islands, a population of about 600,000, and a rich and fascinating history. For years, the Solomon Islands has been dealing with pervasive corruption at all levels of government, most notably in natural resources management, which has had disastrous ramifications for the country’s economic development (see here, here, and here). Like other Pacific islands, the Solomon Islands is home to a practice of traditional gift-giving to and by public officials, which in many other jurisdictions could be viewed as legally problematic. According to a local custom (as explained in an official government document), public officials, as members of their community, are “expected to contribute to community events such as weddings, funerals, feasts or church gatherings” and are “obligated to reciprocate with gifts if and when they visit communities and are presented with gifts.”

In July 2018, as part of a comprehensive national anticorruption scheme, the Solomon Islands’ Parliament enacted the much anticipated Anti-Corruption Act (ACA). The ACA is especially notable, and unusual, in its approach towards customary gifts and bribery. Instead of capping the monetary value or limiting the type of gifts which public officials are allowed to accept, the ACA introduced a new cultural defense to the offence of bribery of public officials. According to this defense, a public official who accepts or solicits something of value, as well as the individual who offers or gives it, is not guilty of bribery if the defendants can prove that their respective acts were conducted: (1) “in accordance with custom,” (2) “openly, in the course of a traditional exchange of gifts,” and (3) “for the benefit of a community or group of people and not for an individual.” According to Prime Minister Rick Houenipwela, the ACA’s cultural defense is required as part of the government’s obligation “to respect our customs and traditional cultures” as “a multi-ethnic post conflict country.” However, the cultural defense has been criticized by many, including the Parliament’s Bills and Legislation Committee (see here and here) and Transparency Solomon Islands, which referred to this defense as “a good example of bad law.”

In this post, I do not attempt to answer the question whether the Solomon Islands’ customary gift giving should be criminalized. I do wish to argue, however, that even if we assume that local gift-giving customs are worth protecting, the ACA’s cultural defense to bribery in its current form is highly susceptible to misuse and may undermine the government’s anticorruption efforts. Both the Solomon Islands and other jurisdictions that might be considering a similar cultural defense should take heed of four significant problems with the defense as currently written: Continue reading →

Why (and How) the US Should Use “Sanctions Money” to Help Victims of Corruption 

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Individually-targeted sanctions pursuant to the 2016 Global Magnitsky Act (GMA) have been used to hold individuals responsible for acts of grand corruption and human rights abuse in places like Russia and the DRC (explained here and here). Yet more can and should be done to compensate the victims of those same crimes. Advocates should push the US to use the compensatory mechanisms of other US sanctions regimes to strengthen the power of the GMA to compensate victims.

GMA sanctions, like other individually-targeted sanctions, are administered by a division of the US Treasury Department called the Office of Foreign Assets Control (OFAC). When an individual is placed on the US sanctions list—known as the “specially designated nationals” (SDN) list)—that individual’s US assets are frozen in an interest-bearing account until either the individual is removed from the SDN list or the assets are seized. In the interim, any US-dollar denominated transaction with those accounts is blocked. Moreover, any person subject to US jurisdiction who does business with any individual on the SDN list can be hit with a steep civil fines for every transaction with the blocked assets, which can cumulatively run into the millions, sometimes billions, of dollars.

Those two pots of money—the frozen assets of the individuals on the SDN list, and the fines imposed on those who violate the sanctions imposed on those SDNs—could and should be used to compensate the individuals victimized by the corruption or other wrongful conduct of those SDNs. Here’s how these approaches might work in the US context, given precedent of other sanctions regimes:

Continue reading →

G7 Hypocrisy on Illicit Enrichment Crimes

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Last month, I saw a news report about the international reaction to the Ukrainian Constitutional Court’s decision striking down Ukraine’s criminal offense of “illicit enrichment” as unconstitutional. For those unfamiliar with this topic, the crime of “illicit enrichment” makes it a criminal offense for a public official to realize a significant increase in his or her assets that the public official cannot reasonably explain. The crime of illicit enrichment is related to, but distinct from, civil asset forfeiture systems under which the government may seize—as presumptively the proceeds of unlawful activity—assets that the owner cannot reasonably explain. The main difference is that a civil forfeiture order results in the loss of assets, while a criminal offense can result in fines or incarceration, as well as the other collateral consequences of a criminal conviction. Some anticorruption activists support the criminalization of illicit enrichment on the grounds that it is often difficult or impossible to prove the underlying corruption offenses, but a substantial unexplained increase in a public official’s wealth is sufficient to prove that the official is corrupt. Critics warn that criminalizing illicit enrichment is incompatible with traditional notions of the presumption of innocence. (The UN Convention Against Corruption (UNCAC), perhaps unsurprisingly, fudges the issue, with UNCAC Article 20 calling on States Parties to “consider” adopting an illicit enrichment offense, “[s]ubject to [that country’s] constitution and the fundamental principles of its legal system.”)

In its decision last February 26, Ukraine’s Constitutional Court went with the critics, holding that the criminalization of illicit enrichment a criminal offense was an unconstitutional infringement on the presumption of innocence. This decision met with swift condemnation from the G7, which issued a joint statement with the World Bank declaring that the “recent elimination of the illicit enrichment offence from [Ukraine’s] criminal code is a serious setback in the fight against corruption” that has “weakened the impact of the whole anti-corruption architecture.” Illicit enrichment, the G7 and World Bank admonished, “is not a new offence. In 2010 there were more than 40 countries that criminalized illicit enrichment,” and “[c]ourts around the world have recognized that the criminalization of illicit enrichment is a powerful tool in the fight against corruption, while at the same time respecting fundamental human rights and constitutional principles such as [the] presumption of innocence[.]” The G7-World Bank joint statement closed by calling on Ukrainian authorities to “reinstat[e] criminal liability for illicit enrichment in line with UN, OECD, and [European Court of Human Rights] principles.”

Now, as a policy matter, I tend to agree with the G7-World Bank position here. I think that appropriately tailored and cabined illicit enrichment offenses can be useful tools, and (as others have also pointed out), it’s not true that such offenses have any inherent conflict with the presumption of innocence. Nonetheless, I found the letter an exercise in outrageous, condescending hypocrisy, one that the G7 countries in particular should be ashamed to have written. Continue reading →

A Low-Cost, No-Tech Solution to Petty Corruption: Stickers

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On a recent trip to Myanmar, I was surprised to find that all of my dining receipts came with government stickers on them. It turns out that these stickers are a solution to a tax fraud problem. Restaurants are supposed to charge sales tax, but the government has limited capacity to ensure that the tax collected from patrons actually reaches the government. So the government sells stickers to restaurants that say the price the restaurant paid, and restaurants post these stickers on each receipt for the amount of the tax. Compliance is secured through a combination of direct enforcement and public pressure. This low-cost, low-tech solution ensures the flow of money to the government instead of the pockets of unscrupulous business owners.

The same innovation could be applied to combat petty corruption, helping to ensure that the money from various charges paid by citizens—from license fees to road tolls to other government service charges—flows to official coffers rather than bureaucrats’ pockets. In any situation where an individual has to pay the government – from garbage collection to healthcare to speeding tickets – demanding a stickered receipt could ensure that the government agent doesn’t pocket some (or all) of the payment. Moreover, using these stickers would have a more subtle secondary benefit: fixing the price of government services. Consider a citizen who applies for a driver’s license and has to pay a cash fee. The bureaucrat in charge of processing the application not only has an incentive to not only pocket the cash, but also to exaggerate the size of the license fee in order to have more to steal. The stickers help ameliorate this problem, because a citizen who demands proof of payment in the form of stickers diminishes the incentives of the bureaucrat to inflate the price.

Of course, while the sticker system helps address petty embezzlement, it does not (directly) address the problem of petty bribery. A bureaucrat could demand an additional bribe on top of the official price for a service. Or a government agent could offer to not impose some charge or fine in exchange for a bribe paid directly to the official. The classic example here would be a police officer offering to look the other way on a traffic offense in exchange for a payment. Nonetheless, the sticker system may also help to curb these sorts of petty bribery, for a few reasons: Continue reading →

The DOJ China Initiative and the Shifting Policy Goals for the FCPA

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Last November, then-US Attorney General Jeff Sessions announced the creation of a new Department of Justice (DOJ) “China Initiative.” The main focus of this initiative is not corruption, but rather the theft of intellectual property by Chinese corporations, as detailed in a 200-page report published by the Office of the U.S. Trade Representative in March 2018, as well as a subsequent report from the White House Office of Trade and Manufacturing Policy. But while most of the DOJ’s China Initiative focuses on this issue, the memorandum describing the initiative listed a number of additional goals, one of which caught the attention of the anticorruption community: “Identify Foreign Corrupt Practices Act (FCPA) cases involving Chinese companies that compete with American businesses.”

This reference to enforcing the FCPA against companies from a particular country is quite unusual. According to Eric Carlson at the FCPA Blog, “No one with whom I have spoken can recall another situation where the DOJ has announced that it would target companies headquartered in a specific country for FCPA enforcement.” This aspect of the China Initiative has provoked a strong and generally negative response from members of the anticorruption community. For example, former State Department attorney Kate Hamann worried that the China Initiative exposed the US government to the accusation of “unfairly targeting Chinese individuals and companies.” This concern was echoed by Professor Stephenson, who argued that the project sets a “bad precedent” by explicitly using the FCPA as a tool to protect U.S. companies from foreign competition.

One largely overlooked aspect of the FCPA component of the China Initiative is the degree to which it contradicts one of the main policy goals of the Congress that enacted the FCPA back in 1977. That Congress viewed the FCPA as a way to improve relations with foreign countries, a policy goal that has largely disappeared in subsequent decades. In its place, enforcement agencies (and Congress, in amendments to the FCPA) have developed a theory in which the primary purposes of the FCPA are to protect businesses that “play fair,” and to promote good business practices more generally. (This shift in policy goals was largely made possible by a revision in the text of the FCPA which allowed US enforcement agencies to bring enforcement actions against a wider range of foreign entities.)

In this post, I trace the changing policy objectives of the FCPA to demonstrate the degree to which the Act has historically served a wide range of sometimes contradictory policy goals. I then draw upon that history to suggest two reasons that the China Initiative’s combative posture may be cause for concern.

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Mozambicans Ask: Will the United Arab Emirates Enforce UNCAC?

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The United Arab Emirates faces the first serious test of its commitment the United Nations Convention Against Corruption.  Will it open a case against long-time resident Jean Boustani, who the U.S. Justice Department says masterminded the bribery scheme that robbed the people of Mozambique of some $2 billion.  The “Mozambican hidden debt” scandal pitched the nation into a deep recession, depriving thousands of basic necessities and leaving government without the resources to respond to Cyclone Idai

In its latest submission in its case against Boustani, the Justice Department reveals that much of the bribery scheme was carried out in the UAE. Boustani helped one co-conspirator open an account in a UAE bank to stash bribes, facilitated the travel of others to the UAE to further the bribery scheme, and secured UAE employment permits for three under false pretenses.  Each permit, says the Justice Department, “falsely stated that the [accomplices] professions were ‘petrol engine mechanic,’ ‘diesel engine mechanic,’ and ‘hydraulic mechanic.’”  In fact, the Justice Department told the court in its filing, “all three were members of the conspiracy who would receive millions of dollars of bribes and kickbacks for their roles in the scheme.”

The Justice Department’s charges against Boustani and accomplices are here. To view the Justice Department filing describing Boustani’s alleged violations of UAE law, click on DoJ Boustani filing .  To view the e-mails and other documents that support the Department’s narrative, click on evidence of UAE offenses.

Mozambican citizens have suffered a terrible wrong, one which UNCAC is meant to right.  Will UAE authorities do their part to help right that wrong?  Will the UAE live up to its obligations under the UNODC to prosecute those who pay bribes? Those who flagrantly violate other of its laws as part of a bribery scheme?

How Can India Cleanse Its Politics of Dirty Money?

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India’s 875 million voters make it the world’s largest democracy. Yet Indian elections, though generally seen as free and fair, have become the country’s “fountainhead of corruption.”Parties and candidates spend billions getting themselves elected—current forecasts predict $8.5 billion will be spent in the 2019 election, making it the most expensive election globally. Much of that money comes from illegal or at least questionable sources, a problem exacerbated by the fact that campaign financing in India is a black box, with no transparency into donors or income sources. Recent changes by the Modi government have made the process even more opaque. And much of the money raised is spent illegally. For example, up to 37% of Indian voters have received money for votes. 

The massive amount that politicians are willing to raise and spend to win elections is understandable when the payoff to the winning candidate is considered. Putting aside any ideological or egotistical motives for seeking public office, there’s also a material incentive: studies have found that, in the years following an election, winning candidates’ assets increase by 3-5% more than losing candidates’ assets, and this “winner’s premium” is even higher in more corrupt states and for winners holding ministerial positions. The material benefits of office may also partly explain the alarming percentage of Indian politicians with criminal histories. Currently, over a third of Members of Parliament (MPs) in the Lok Sabha (the Lower House of the National Parliament), are facing at least one serious criminal charge, and politicians with cases pending against them are statistically more likely to win elections. Moreover, the ever-greater spending on elections means that winners, in addition to lining their own pockets and saving for the next election, need to repay those who helped them prevail. The more money politicians spend on elections, the more they need to earn back or repay through political favors.

The high payoff to candidates who win elections (often because of the opportunities for corruption) both attracts dishonest individuals to seek office and encourages ever-higher election spending, which in turn inspires corrupt behavior to repay debts, whether through money or political favors. Therefore, any serious attempt to reduce corruption in India has to begin with electoral reform. The constitutional body tasked with administering elections in India is the Election Commission (EC). The EC oversees the election process, and it also can issue advisory opinions (though not binding decisions) regarding the post-election disqualification of sitting MPs and Members of State Legislative Assemblies (MLAs). The EC is also responsible for scrutinizing the election expense reports submitted by candidates. But the EC is in many ways a toothless tiger, able only to recommend actions and electoral reform to Parliament, without any real power to fix the electoral system. 

There are, nonetheless, a few things that the EC could do now, acting on its own, to help address at least some of these problems. But more comprehensive and effective reform will require action by the legislature or the Supreme Court.

Continue reading →

Transparentizing the Commodity Trading Sector: Why Trading Companies Must be Subject to Mandatory Payments Disclosure

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Commodity trading companies (CTCs) mainly operate as middlemen in a business model called “transit trade,” where CTCs administer the delivery chain for primary economic products (energy, metals, agriculture, etc.) from the extraction site to the ultimate buyers. Though CTCs rarely have physical possession of these commodities, the CTCs are the ones that typically build connections with foreign officials and politicians, pre-finance extraction activities by indebted governments (often through loans pledged on future commodity deliveries), and sell raw materials across the globe. Because of CTCs’ frequent interaction with foreign governments and state-owned enterprises, their complex structure, and the opacity of the commodities market, the corruption risks—particularly in the markets for “hard” commodities like oil, gas, or minerals—are especially large, as a few recent cases have highlighted (see, for example, here, here, and here). Politically exposed persons (PEPs) also take advantages of the opacity in commodity trading to launder illicit proceeds derived from corruption.

Yet in stark contrast to the focus on the corrupt activities of those companies engaged directly in extractive activities, as well as by the ultimate purchasers “upstream,” corruption by CTCs has not received much attention. This oversight should be corrected, in part by covering CTCs under the “Publish What You Pay” (PWYP) laws of their home countries—laws that usually only mandate payment disclosures relating to exploration, extraction, and processing, and that often explicitly exclude payments related to “commodity trading-related activities.” This exclusion is a mistake, as there are at least two good reasons to apply PWYP rules to CTCs: Continue reading →

Asset Repatriation Under UNCAC

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One of the most far-reaching changes the United Nations Convention Against Corruption made to international law was the requirement that states cooperate to return assets stolen through corruption to the country where the crime was committed.  No international convention had ever before required a state where the proceeds or the instruments of the crime were found to return them to the state where the offense was committed.

The overarching principle is straightforward, but translating it into exacting, legally binding language is anything but. The drafters had to account for cases where the state requesting return and the requested state have quite different laws on transferring ownership rights by judicial decree and on the effect a decree in one state has on proceedings in another. The result is series of lengthy, complex provisions laced with a thicket of paragraphs, subparagraphs, and cross-references that may warm some lawyers’ hearts but in which many reader can easily become lost.

I mapped the provisions for a forthcoming asset return conference. As the map isn’t (at least yet!) on Google maps, a copy is below. Two experienced UNCAC guides kindly read and corrected an earlier version (thank you Queensland University Senior Lecturer Radha Ivory and Mat Tromme of the Bingham Centre for the Rule of Law).  Readers spotting any further mis-directions or errors are asked to flag them. Continue reading →

Golden Visa/Passport Programs Have High Corruption Risk and No Demonstrated Economic Benefit. So Let’s Abolish Them.

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We’ve had a couple of posts recently (from regular contributor Natalie Ritchie and guest poster Anton Moiseienko) about the corruption-related problem associated with so-called “golden visa” and “golden passport” programs (GV/GP programs), which grant either residency (golden visas) or citizenship (golden passports) in exchange for “investments” (or sometimes simply direct payments to the government) that exceed a certain threshold. Both Natalie and Anton reference recent reports by Transparency International-Global Witness and the European Commission, both of which focus in particular on the EU, and which are both very useful in documenting the risks associated with these residence/citizenship programs—including though not limited to corruption and money laundering risks. That said, the solutions proposed, while certainly helpful, feel a bit thin, in part because both the TI-GW and EC reports assume that these programs have at least some legitimate uses, or at the very least that it would be overstepping for outsiders (be they international bodies, other countries, or NGOs) to try to coerce states into abandoning these programs altogether.

My inclinations are somewhat different, and a bit more radical: I’d push for abolishing these programs entirely—certainly the golden passport programs, but probably the golden visa programs too. The risks associated with GV/GP programs are well-documented in Natalie and Anton’s posts, as well as the TI-GW and EC reports (and other sources), so I won’t dwell on them here. In short, as these and other sources convincingly demonstrate, GV/GP programs may provide safe havens for wealthy criminals and their money, often produce corruption in the programs themselves, and may also have more diffuse pernicious effects associated with the commodification and marketization of membership in a political community. I acknowledge that the risks associated with well-run programs may not be huge, but they’re not trivial, either. And I can’t for the life of me figure out what benefits these programs could have (to society, not to the governments that run them) that could possibly justify those risks.

The usual story is that these programs attract necessary foreign investment, stimulate the economy, and create jobs and raise government revenue. I’m no macroeconomist, and so I may be about to reveal my ignorance in embarrassing fashion, but I have yet to hear a convincing argument, let alone see a persuasive study, that establishes that these programs indeed have substantial economic benefits. Let me explain my puzzlement, and if I’m obviously misunderstanding some crucial point, either about how the programs work or about the economics, I hope some readers out there will correct me. Continue reading →