Category Archives: Commentary

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 →

Can “Force Majeure” Be A Justification for Corruption? Russia Believes So.

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In late January of this year, the Russian Justice Ministry proposed draft legislation that would legalize corruption. More specifically, the proposal, which implements one of the recommendations of Putin’s 2018-2020 Anti-Corruption Plan, would decriminalize corruption “when non-compliance with prohibitions, restrictions, and requirements established in order to combat corruption… [is] due to force majeure”—that is, when circumstances beyond the official’s control make corruption unavoidable. Or, as the Russian government puts it, “[i]n certain circumstances, the observance of restrictions and prohibitions, requirements to prevent or resolve conflicts of interest, and the fulfillment of duties established in order to combat corruption are not possible for objective reasons.” The proposed legislation would create a commission to “assess the objectivity of circumstances” to determine if compliance was possible.

What are these alleged “objective reasons” that might establish a force majeure defense to corruption charges? In contract law, force majeure—sometimes known as an “act of God”—covers unforeseen circumstances, like natural disasters or wars, that are totally outside the control of the parties to the contract, and that make it impossible for one of those parties to perform his or her end of the agreement. But what could force majeure possibly mean in the context of corruption? What circumstances, equivalent to a war or natural disaster, could compel a government official to take a bribe, or embezzle public funds? It is difficult to imagine such a scenario. The Justice Ministry did release a preliminary statement with some initial clarification into the type of circumstances that might trigger this force majeure exemption from criminal liability. That statement noted, for example, that it may not be possible for officials to take the usual measures to prevent or resolve conflicts of interest when the officials are posted in small, remote areas. The idea seems to be that is such settings the community is so small and close-knit that it wouldn’t be feasible for an official to recuse from all decisions in which she might have personal relationships with some of the parties affected. The preliminary statement also noted that sometimes former family members (say, ex-spouses) do not agree to provide information on income and expenses of common children (information that officials are usually obligated to disclose), and that sometimes non-performance of certain duties related to anticorruption might be due to a prolonged and serious illness. The Justice Ministry promised that it would provide more specific information on what constitutes force majeure after the proposed rule’s comment period closed on February 8, 2019. The government has not yet done so, however, despite the fact that more than a month has passed.

At least some of the force majeure examples in the Justice Ministry’s preliminary statement sound reasonable, though it’s not clear whether the special exemption is really needed to deal, say, with an official who isn’t performing certain duties because of a debilitating illness. (Presumably, that official would be on indefinite leave anyway?) But the legislation is written much more broadly than these narrow examples would suggest. Would the new legislation allow individual bribe-payers and bribe-takers to assert a force majeure defense on the grounds that they didn’t create the “culture” or “system” of corruption in which they find themselves embedded? If that counts as force majeure, it would open a giant loophole allowing in Russia’s anticorruption laws, allowing anyone accused of corrupt action to argue that they felt pressured by (social) forces beyond their control. The proposed legislation could be read that way, and if it is, it would undermine efforts to combat corruption. Indeed, one cannot help but wonder if that is the exemption’s purpose. Moreover, by taking the position that certain offenses shouldn’t count as corruption at all, the proposal sends a signal that corruption is not a priority for the Russian government, thus providing room for further loosening of corruption legislation.

Now, the Russian government might be sincerely concerned about not over-punishing people who technically violated the law but do not seem sufficiently blameworthy to deserve harsh sanctions. But if that is the worry, there are other ways to address it, ones that don’t risk creating an enormous loophole in anticorruption laws and that don’t send the signal that the government might not take corruption that seriously. Here are three alternatives to decriminalizing corruption that Russia’s Justice Ministry could consider:

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Israel Needs to Fight Official Corruption. That Doesn’t Mean It Should Deprive Elected Officials of Their Right to Silence.

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On April 9, 2019, millions of Israeli citizens will vote in the national legislative elections for the party they wish to represent them in the parliament (the Knesset). Numerous ongoing investigations into corruption allegations against senior officials and various public figures (including Prime Minister Benjamin Netanyahu) ensure that anticorruption will feature prominently on the agendas of most major political parties. One can only hope that the next elected Knesset will manage to pass effective anticorruption legislation. However, one piece of anticorruption legislation that has been repeatedly proposed should not be adopted: a de facto limitation on senior elected officials’ right to silence in criminal interrogations in which the officials are suspects. (The proposed legislation would also de facto limit elected officials’ narrower right of refraining from answering specific questions when doing so may put them at risk of criminal prosecution; for the sake of brevity I will discuss only the broader and more comprehensive right to silence.) Currently, elected officials enjoy the right to silence just like any other suspect in a criminal case in Israel, yet proposals have been repeatedly floated that would require certain high-level elected officials (such as the prime minister, ministers, Knesset members, or mayors) who exercise this right to be removed from office. Most of the bills, which differ from each other in certain respects, would apply to criminal interrogations related to the officials’ duty, but some go even further, with a broader application to any kind of criminal interrogation in which the officials are suspects.

The explicit goals of these bills are strengthening the war on corruption and promoting public trust in the rule of law. So far, none of these bills have been enacted, but Knesset members from across the political spectrum have been flirting with this idea for the last few decades, almost always in response to occasions in which Israeli officials (whose political views typically diverge from those of the proposing Knesset members) chose not to cooperate with the interrogators in corruption investigations. It is very likely that something like this will be proposed again in the next elected Knesset, as some parties have already declared in their official platform that they intend to promote such legislation.

While I agree that an elected official’s refusal to answer interrogators’ questions inspires a great deal of unease, adoption of the aforementioned bills would be unjustified and even dangerous. Although the proposed bills do not technically eliminate elected officials’ right to silence, requiring a public official to give up his or her position as a condition for exercising this right is a sufficiently severe sanction that the bills unquestionably impose a severe practical limitation on this right. If Israel were to adopt such a rule, it would be a significant outlier among peer nations: Research conducted by the Knesset’s Research and Information Center in 2007 found no equivalent limitation on elected officials’ right to silence in numerous legal systems around the world. Taking such a step would therefore be unprecedented, but more importantly, it would be unwise, for several reasons: Continue reading →

To Get Serious About Asset Recovery, Get Serious About the Facts

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The asset recovery provisions of the United Nations Convention Against Corruption make it one of the most consequential international agreements of the past 50 years.  Prior to UNCAC, the law of “finders keepers” applied when the proceeds of a crime committed in one state were discovered in a second.  If the second state caught thieves with a sack of cash stolen from a bank in the first state, the first state could ask that the money be returned.  But the second state had no obligation to return it.

UNCAC repeals “finders keepers” for corruption offenses.  It makes the return of assets stolen from a state party through corruption “a fundamental principle of this Convention” and obliges state parties to “afford one another the widest measure of cooperation and assistance in this regard” (article 51).  When the requesting state’s title to the assets is clear, its courts have issued a final order confiscating them, and that order has been given effect by the holding state’s courts, return is immediate (article 57(3)).  In all other cases, return is made pursuant to “mutually acceptable arrangements on a case-by-case basis” (article 57(5)).

From their first meeting in December 2006, parties to the convention have focused on how well the asset recovery provisions are working in practice.  At that meeting, they created an open-ended working group “to advise and assist” them “in the implementation of [the convention] mandate on the return of proceeds of corruption.”  At every meeting up to and including the most recent one in 2017, the parties have directed the working group to continue investigating the efficacy of the asset recovery articles with an eye on how they can be improved.  Yet at no time have the parties ordered the first and most important step in assessing their effectiveness. Continue reading →

Proposed Changes in Brazil’s Anticorruption Legislation: A Summary and Critique

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Early last month, Brazilian Minister of Justice Sergio Moro (a former judge best known for his role in the so-called Car Wash corruption cases) introduced an extensive anti-crime legislation package. The package includes many measures, including some related to things like violent crime, but it notably includes five measures that are especially relevant to Brazil’s fight against corruption. What are these proposed changes, and what would their implications be?

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Lithuania’s Judicial Scandal Shows Why Public Communication Matters in Corruption Investigations

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This past February 20th, the people of Lithuania awoke to the shocking announcement that the country’s anticorruption body, the Special Investigation Service (STT), and the Prosecutor General’s Office had opened an investigation into alleged bribery, trading in influence, and abuse of power in the Lithuanian judiciary. The scope of the investigation is breathtaking. So far 26 people have been arrested, including a Supreme Court Judge, eight other judges, an assistant to a Supreme Court Judge, and multiple lawyers. The scale of the allegations dominated media coverage in Lithuania and was picked up by news outlets around the world (see, for example, here, here and here). But this was not the only reason that news of this investigation may have come as a shock to many Lithuanians. Before this story broke, it looked like the ongoing efforts to increase Lithuanian citizens’ trust in their courts had finally started to bear fruit. In 2017, for the first time since polling on the issue began in 1996, more Lithuanians trusted than distrusted their judiciary. This increase in trust was due to several factors. It likely helped that the President, Dalia Grybauskaite, made judicial transparency, openness, and efficiency top priorities during her tenure. The judiciary has also worked to reform itself and together these reforms brought a lot of changes, for example by reforming the judicial selection process, introducing rotation of court leadership, increasing openness, introducing an automated system for assigning cases to judges, and a number of other procedural changes. The Council of Judges—a judicial self-governance body—has also promulgated a Courts Anticorruption Program, pursuant to which individual courts (including the Supreme Court) adopt their own concrete anticorruption plans. On top of this, the National Courts Administration (NCA) (the external administrative institution that serves the judiciary and judicial self-government bodies) has worked on increasing communication about the work of the courts by trying to reach out to the explain how the judiciary works, and also encouraging judges to issue explanations about their decisions.

What many now fear, with good reason, is that that the new corruption case will cause the public confidence in the judiciary to collapse. This worry is exacerbated by political dynamics: with elections coming up, many politicians jumped on the bandwagon of attacking corruption in the courts and declaring the need for more reforms—though often without offering any specifics, and sometimes seemingly having no clear understanding of how exactly the judiciary works.

The unfolding drama over judicial corruption in Lithuania highlights the importance of communication between government institutions and the general public—both by the institution under investigation (in this case the judiciary), and by the institutions doing the investigating (in this case the STT and the Prosecutor General). It may seem odd to focus on public relations strategy when the underlying substantive allegations are so serious. But while no one could sensibly claim that better communication is a replacement for, or more important than, substantive action, it would be a serious mistake to underestimate the importance of public communication in a case like this.

Consider each of the dimensions of public communication noted previously—by the courts and by the investigators: Continue reading →

Are Legislative Changes to US AML Rules Finally on the Way? Some Thoughts on Tomorrow’s Subcommittee Hearing

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Although the United States has been a leader in the fight against global corruption in some respects—particularly in its vigorous enforcement of the Foreign Corrupt Practices Act and, at least until recently, its diplomatic efforts—there is widespread agreement in the anticorruption community that the United States has not done nearly enough to address the flow of dirty money, much of it stolen by kleptocrats and their cronies, to and through the United States. Effectively addressing this problem requires updating the US legislative framework, a task made difficult by the checks and balances built into the federal legislative process, coupled with high levels of political polarization. Yet there are reasons for cautious optimism: Thanks in part to skillful lobbying efforts by several advocacy groups, and aided in part by the Democrats taking control of the House of Representatives in the most recent mid-term elections, it looks as if there’s a real chance that the current Congress may enact at least some significant reforms.

Three of the reform bills under consideration are the subject of a hearing to be held tomorrow (Wednesday, March 13, 2019) before the House Financial Services Committee’s Subcommittee on National Security, International Development, and Monetary Policy. That hearing will consider three draft bills: (1) a draft version of the “Corporate Transparency Act” (CTA); (2) the “Kleptocracy Asset Recovery Rewards Act” (KARRA); and (3) a draft bill that currently bears the unwieldy title “To make reforms of the Federal Bank Secrecy Act and anti-money laundering laws, and for other purposes” (which I’ll refer to as the Bank Secrecy Act (BSA) Amendments). The subcommittee’s memo explaining the three proposals is here, and for those who are interested, you can watch a live stream of the subcommittee hearing tomorrow at 2 pm (US East Coast time) here.

For what it’s worth, a few scattered thoughts on each of these proposals: Continue reading →

AMLO Cannot Put a “Final Period” in Mexico’s History of Corruption Without Addressing the Past

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The trial and conviction of the notorious drug lord “El Chapo” has shed new light on the rampant corruption that exists at even the highest levels of the Mexican government. To take just a couple of the most startling examples: During the trial, a witness testified that Mexico’s former president Enrique Peña Nieto accepted a $100 million bribe from El Chapo, while another cartel member testified that he paid at least $3 million dollars to the Public Security Secretary of former president Felipe Calderon and at least $6 million dollars to President Calderon’s head of police. In other countries these accusations would have shaken citizens to their very core. But in Mexico, long perceived as one of the world’s most corrupt countries, citizens have sadly grown accustomed to allegations of this nature, and the revelations from the El Chapo trial were met with little more than a shrug.

That doesn’t mean that Mexicans don’t care about corruption. Quite the opposite. Indeed, frustration at this flagrant culture of corruption was one of the key factors that helped Mexico’s new president, Andrés Manuel López Obrador (AMLO), to capture his constituents’ faith and votes. AMLO has promised to eradicate corruption through a “Fourth Transformation” of Mexico (the previous three were Mexico’s independence from Spain, the liberal reforms of the 1850s, and the 1910-1917 revolution). Yet despite these sweeping promises, AMLO has decided not to investigate the allegations against his predecessors that have emerged in the El Chapo trial. In fact, AMLO’s stance has been not to prosecute any officials for corruption that took place in the past, before he took office. (AMLO has wavered on this position—though only slightly—after receiving backlash during his campaign; he has since stated he would prosecute past corruption offenses only if the administration has no choice due to “internal pressure” from citizens.) AMLO has justified his opposition to investigations and prosecutions of past corruption crimes by using the language suggesting the need for a fresh start. He speaks of a need to put a “final period” on Mexico’s history of corruption, and to “start over” by not focusing the past.

But how can one eradicate corruption by granting numerous “Get Out of Jail Free” cards? AMLO’s support of a de facto amnesty for corrupt ex-Mexican officials’ casts doubt on the seriousness of his pledge to eradicate corruption. Rather than simply saying that it’s time to turn over a new leaf, AMLO should demand accountability for grand corruption, and he should start by ordering a full independent investigation into the veracity of the corruption allegations that came to light during the El Chapo trial. Continue reading →

Reasons for Optimism About Latin America’s Wave of Anticorruption Prosecutions: A Response to Professor Balan

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What are we to make of the ongoing wave of corruption prosecutions sweeping Latin America in the wake of the Odebrecht scandal? Many are optimistic that these prosecutions, several of which have implicated very senior political figures, including current and former presidents, signal a turning point for the region. But in a guest post last September, Professor Manuel Balan suggested that this optimism may be misplaced, for three reasons. First, he argued that the enforcement patterns suggest that anticorruption prosecutions are becoming a weaponized—that these prosecutions are being used as a political tool used to bring down opponents, and consequently they lack credibility with much of the public. Second, Professor Balan questioned whether these prosecutions would ultimately be successful in holding powerful, popular wrongdoers accountable, and he argued that these prosecutions will just take down leaders whose positions have weakened for other reasons (such as Dilma Rousseff in Brazil). Third, Professor Balan worried that these prosecutions show that judicial power is increasing at the expense of citizens’ power—that they represent an erosion of “vertical accountability.”

I remain one of the optimists. Indeed, I think that Professor Balan is far too pessimistic about the role that the current anticorruption prosecutions in Latin American can play—and to some extent have already played—in addressing the region’s longstanding corruption and impunity problems. Yet his three objections are worth taking seriously and deserve a direct response. Here’s why I don’t find any of them sufficiently persuasive to share his pessimism:

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Reforming Procurement Processes: It’s About More than Law

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Last week’s post explained why some Latin American nations’ crackdown on corruption was doing more harm than good.  The law in these countries gives government no choice but to terminate a public contract whenever corruption is detected. Canceling a contract just after the winning bidder has been selected, before the winner has started work, is one thing.  It is quite another to bring the construction of a power plant or road to a screeching halt mid-way through the project. Mandatory termination in these cases can impose enormous costs on those who had nothing to do with the corruption, not least of which are taxpayers stuck with a half-built project.

The post was based a recent Inter-American Development Bank staff paper. The authors showed how costly mandatory termination laws have been in Peru and Colombia and described how several Latin governments were searching for alternatives to address corruption when it is found to have tainted a public contract now underway.  As policymakers do, let’s hope they consider more than just reforming their procurement law. For as Argentine lawyer and law professor Hector Mairal writes in a first-rate analysis of what ails Argentina’s procurement law, law is but one piece of the procurement equation. Continue reading →