Category Archives: Commentary

Top-Notch Advice from the Inter-American Development Bank on Combatting Corruption

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To say I opened a copy of Report of the Expert Advisory Group on Anticorruption, Transparency and Integrity in Latin America, the Inter-American Development Bank’s latestadvice to Latin American and Caribbean governments on fighting corruption, with low expectations would be an overstatement. What specific, detailed, actionable and therefore useful measures could a report directed at 45 governments contain? Particularly given the diversity of the region’s governments, which range from prosperous, thriving middle-income democracies to desperately poor, repressive authoritarian regimes.  I thus assumed the report would follow the tiresome formula of so many previous attempts to spur developing nations to take meaningful steps to curb corruptions: a hodgepodge of obvious but vague generalizations wrapped around pleas for greater political will.

My subterranean expectations were only lowered given its institutional sponsor. Like the other regional development banks and the World Bank, the IDB exists to loan money and therefore strives to stay on the good side of the region’s governments to ensure they will continue to borrow.  In reports past from other development banks that consideration has often ruled out even the hint of politically controversial measures or criticism levelled at any government’s faltering anticorruption efforts.

The third strike against the report is its authors.  A distinguished collection of mostly Latin American “names” in the anticorruption field, all are busy experts whose main job is delivering high-profile lectures, authoring academic papers, and advising private sector entities and governments.  Devoting time and effort to an IDB publication that neither burnishes one’s academic credentials nor services clients was probably not high on their list of priorities. Most likely, I thought, they were asked to bless a precooked series of bromides assembled by interns and junior staff.

Boy, were my expectations off base.  Rather than a strike out, the report is a home run.  Or at least a stand-up triple. Continue reading →

Sometimes Motives Don’t Matter: The Establishment’s Impulse to Protect (Allegedly) Corrupt Politicians Can Create Opportunities for Criminal Justice Reform

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Since 2016, Israeli Prime Minister Benjamin Netanyahu has been investigated for a number of corruption allegations (see here and here). In apparent response, David Amsalem, a member of the Knesset (Israel’s parliament) from Netanyahu’s Likud Party, has proposed several bills which, if enacted, would help to protect the Prime Minister from these investigations (see here and here). Most recently, in June 2018 Amsalem presented a bill that would change Israel’s system of criminal appeals. Currently, the prosecution can appeal criminal verdicts, including acquittals; according to Amsalem’s so-called Appeal Bill, such appeals would require an appellate court’s permission, and this permission could only be given under special circumstances, and only for crimes punishable by ten or more years in prison. Amsalem, who denied that the Appeal Bill has anything to do with the investigations of Netanyahu, claimed that he proposed this bill because “[a] moral state doesn’t have to persecute a citizen who has received a sentence too light for its taste.” However, opposition Knesset members and commentators – many of whom usually support defendant-protective reforms to criminal procedure – have harshly attacked the Appeal Bill. The critics’ main (sometimes only) argument against the Appeal Bill has been that its purpose is to prevent the prosecution from appealing a possible acquittal of Netanyahu. As Tamar Zandberg, Chair of the opposition Meretz Party put it, “[t]his [government] coalition’s obsessive preoccupation with the legal authorities to protect a prime minister immersed in investigations is a mark of Cain for Israeli democracy.”

The hostility to bills that appear to be devised specifically to protect politicians from corruption prosecutions is definitely understandable, and the wide opposition in Israel to the Appeal Bill is therefore a natural reaction. Nevertheless, this impulse should be overcome when considering bills proposing criminal justice reforms with general application, and in particular bills strengthening individual rights in the criminal process. I do not claim that the Appeal Bill should be enacted into law, and I acknowledge that there may be some legitimate reasons to oppose limitations on prosecutorial appeals. However, generally speaking, we should not refrain from supporting criminal justice reforms just because their initiators may have had bad motives. Instead, every proposal of systemic reform should be considered on its merits, and, if found justified, be enthusiastically supported, despite its tainted origin. Continue reading →

Senator Warren’s Proposed Anticorruption Agency Should Be Headed By a Multi-Member Commission, Not a Single Director

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Last August, Senator Elizabeth Warren introduced a sweeping bill that, if enacted, would substantially reform the current ethics systems in place in the U.S. government. The bill includes a broad range of substantive reforms, including stricter conflict of interest rules, much stronger lobbying restrictions (such as a lifetime ban on lobbying by former members of Congress, Presidents, and agency heads), and new judicial ethics rules. But in addition to these and other changes to substantive law, the bill is striking in its call for a quite drastic institutional change: the creation and empowerment of a single anticorruption agency called the U.S. Office of Public Integrity. The proposed Office would not only consolidate the functions of the U.S. Office of Government Ethics (OGE) and the agency Inspectors General under one roof, but would also have broad investigative authority (including subpoena power), as well as the ability to impose civil and administrative penalties, and to refer criminal violations to the Department of Justice. Moreover, the Office of Public Integrity would have the responsibilities to ensure agency compliance with the Freedom of Information Act (FOIA), create and maintain a central FOIA database, and maintain a separate online database containing financial disclosures, lobbyist registrations, lobbyist disclosures of meetings and materials, and all ethics records (including recusals and waivers). A division within the Office of Public Integrity, known as the Office of the Public Advocate, would represent the “public interest” in executive branch rulemaking.

In addition to its broad powers, the proposed Office of Public Integrity is notable for its distinctive leadership structure. The bill proposes that the office be headed by a single Director, appointed for a renewable five-year term. The Director would have “for-cause” removal protection, meaning that the President could only remove the Director for good cause, defined as “inefficiency, neglect of duty, or malfeasance in office.” The Office would therefore be an “independent agency,” which is a term typically (at least in the U.S.) referring to an agency whose leaders have this sort of for-cause removal protection. But most U.S. independent agencies are headed by a multi-member commission, rather than a single director. (This is true, for example, for the National Labor Relations Board and the Federal Communications Commission.) The commissioners at such agencies typically serve staggered terms and make decisions by majority vote. It’s rare for an independent agency in the U.S. federal government to be headed by a single director rather than by a commission. (The most notable exception is the Consumer Financial Protection Bureau—perhaps not coincidentally an agency based on a proposal by Senator Warren.)

While there is much to be said in favor of Senator Warren’s proposed Office of Public Integrity, this leadership structure is a mistake. While it makes sense for an agency devoted to enforcing ethics rules and fighting corruption to be independent from the President, it would be better for such an agency to be governed by a multi-member commission rather than a single director.

There are three reasons for this:

Continue reading →

Holding Relatives Hostage: China’s Newest Way of Pressuring Fugitives to Return to Face Corruption Charges

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China’s latest tactic in Operation Fox Hunt, its campaign to force those who have fled abroad to return to face corruption charges, has had the extraordinary, if unintended, consequence of uniting America’s bitterly divided political elite.  Last June, the American wife and children of accused fraudster Liu Changming were detained in China after a brief visit; his wife held in a “black site” and his children barred from leaving.  The ostensible the reason for holding them is because they are being investigated for “economic crimes,” but almost surely, as the family claims, the real reason is to pressure paterfamilias Liu to return to China to stand trial for corruption offenses.  Trump National Security Advisor John Bolton, avowed Trump opponents Senator Elizabeth Warren and Congressman Joseph P. Kennedy III, and leaders of Harvard and Georgetown universities are all demanding the Americans be permitted to leave China at once (accounts here and here).

Holding family members hostage to force a relative to surrender to authorities is a species of collective punishment, a patent human rights’ violation universally condemned by the world community. No wonder the Boltons, Warrens, Kennedys, Harvards and Georgetowns find themselves on the same side of the issue.

Reporting by the New York Times, however, suggests that there could be more to the case than appears at first glance.  That there may be reason for both the Chinese government and the strange bedfellows its policy has created in opposition to examine their actions in view of the global fight against corruption. Continue reading →

Getting State Anticorruption Commissions to Work

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In the elections last November 6, citizens in New Mexico and North Dakota voted to amend their state constitutions to establish state anticorruption commissions. In doing so, they joined the vast majority of American states (currently 44 out of 50) that have created similar (or at least similarly-named) commissions—starting with Hawaii back in 1968. The impulse to create a special commission to deal with a significant problem like public corruption is certainly understandable. Indeed, many state commissions were created immediately after a major public corruption scandal, when public frustration was running high. At the same time, though, the record of such state-level anticorruption commissions in the US is mixed at best (see, for example, here, here, and here). And despite the similarities in their names, many of these commissions actually do quite different things—with some functioning like ethics commissions that publish quasi-legislative standards and others functioning more like mini-prosecutors’ offices. Indeed, it’s not entirely clear that voters in New Mexico or North Dakota knew exactly what they were voting for when they went to the ballot boxes. In New Mexico, the referendum measure left to it to the state legislature to determine how the commission would operate, while the language in the North Dakota referendum suggested that the commission’s duties would be largely optional.

Despite their diversity and admittedly mixed track record, state anticorruption commissions have many potential benefits. They can provide clear reporting channels for individuals who have witnessed corruption; they can evaluate systemic corruption risks by sector and recommend more targeted reforms to state legislators; and they can enhance accountability by investigating ethics complaints and corruption allegations, and referring appropriate cases to state prosecutors’ offices. But in order to be effective, state commissions need to have certain institutional features and safeguards.

Continue reading →

The Case for Abolishing Police Commissioners’ Extendable Terms in Israel

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The investigations into corruption allegations against Israel’s Prime Minister Benjamin Netanyahu have received massive attention from the media in Israel and around the world ever since they began in late 2016. In one of the most recent developments, last September Israel’s Minister of Public Security, Gilad Erdan, officially announced his decision not to extend the three-year term of the current head of the Israeli Police, Commissioner Roni Alsheich, by an additional year. Therefore, Alsheich is expected to complete his tenure at the end of this year. Erdan ascribed his decision not to extend Alsheich’s tenure to “differences of opinion and divergent approaches on various issues, some of them substantial and weighty, and which had a significant impact on the public’s trust in the police.” Opposition members and commentators, however, claimed that this decision was driven by the fact that Alsheich has been (or has been perceived as) leading the investigations into Prime Minister Netanyahu. According to the critics, Erdan, a member of Netanyahu’s Likud Party, was acting to please influential senior members of the Likud, as well as Netanyahu himself – an allegation that Erdan denied.

The facts of this particular case are murky. There is no solid evidence to show that Erdan’s decision not to extend Alsheich’s term was related to the latter’s involvement in the Prime Minister’s corruption probe. (In fact, even critics of Erdan’s decision do not seem to claim that Alsheich’s commissionership was flawless.) Nevertheless, this incident highlights a larger institutional flaw in Israel’s current practice of appointing police commissioners for three years with the option for extension.

Israeli law does not actually specify a fixed length for a police commissioner’s term, nor does it mention anything about the potential for term extension. In fact, Israel’s Police Ordinance says only that the commissioner is to be appointed by the government, per the recommendation of the Minister of Public Security. However, over the years it has become an accepted practice (though not without exceptions) that the police commissioner is appointed for a term of three years, and toward the conclusion of that term, the Minister of Public Security decides whether to recommend that the government extend the commissioner’s term by approximately one additional year. This practice should be abolished. Instead, the law should be amended such that the commissioner would be appointed for a fixed, non-extendable term (except in certain emergency situations) – a proposal that has been advocated by commentators and some members of the Knesset (Israel’s parliament), but so far has gone nowhere.

There are three strong arguments, from the perspective of anticorruption policy, for giving the police commissioner a fixed non-extendable term (at this point, regardless of its exact duration): Continue reading →

Myanmar Should Adopt Formal User Fees To Displace Petty Bribery

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Corruption is part everyday life in Myanmar. While the wealthy can use bribery to get around the law, for the vast majority of Burmese citizens, bribery is necessary to get things done even when the law is on your side. The term “tea money” exists in common parlance to describe the small bribes necessary to obtain even the most basic of services—bribes that are so ubiquitous that many people don’t think they count as corruption. The imposition of unofficial, discretionary and discriminatory “fees” means that formally public services are in practice “privatized.”

One explanation for the persistence of this petty corruption is that both the national government and the regional governments lack the revenue necessary to provide the public services that, under Myanmar’s Constitution, the government is supposed to provide. According to the Asia Foundation, “Decades of deliberate neglect of Myanmar’s tax-administration system have left the country with one of the lowest tax takes in the world [….] Myanmar’s tax revenues in 2016–17 were only 6–7% of GDP. This compares to 10–20% of GDP for countries at similar levels of income.” The country does earn significant revenue from natural resources, but these rents have gone into the pockets of military elites; other revenue sources are severely limited. When the demand for government services and benefits outstrips the supply, people become willing to pay extra for the promised public goods. The idea that these extra fees are acceptable is exacerbated by the fact that Myanmar’s lower-ranking public servants earn very low official salaries. But allocating public services on the basis of bribe payments is not fair, equitable, transparent, or efficient.

In an ideal world, Myanmar would reform its tax system, collect adequate revenue, pay its public servants decent salaries, and be able to provide all of the goods and services to which its citizens are legally entitled. But while we can all hope Myanmar works toward that goal, nothing like that is going to happen anytime soon.

A more practical short-term solution is to raise the official administrative fees—or “user fees”—for public services. Continue reading →

Complying with Antibribery Laws: Mike Koehler’s Strategies for Minimizing Risk Under the FCPA and Related Laws

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Professor Mike Koehler is perhaps the leading critic of the Foreign Corrupt Practices Act – or at least of how the U.S. Justice Department and Securities and Exchange Commission currently enforce it.  On his FCPA Professor Blog, he regularly bemoans the way the enforcement agencies have stretched a law its authors wrote to outlaw hard core bribery to make donations to foreign charities, internships for relatives of business associates, birthday gifts to business partners, and other seemingly innocuous  conduct a serious felony under American law. Such broad interpretations of the law’s antibribery stricture could never withstand judicial review he argues, but because the costs, reputational and otherwise, of challenging an FCPA enforcement action are so great, companies facing FCPA charges quickly settle rather than contest the agencies’ interpretation in court.  The result is the agencies not only enforce the law but their interpretations in effect make it as well.

So what advice does Professor Koehler proffer businesses wanting to avoid running afoul of the FCPA or the similar laws of other nations in his new book Strategies for Minimizing Risk Under the Foreign Corrupt Practices Act and Related Laws?  Does he urge a corporation threatened with an enforcement action based on an overly broad reading of a law to fight back?  Has he produced a polemical guide to compliance?  One written for the risk-taking corporate maverick?  Is this how he separates his book from the many other compliance guides flooding the market?

Not at all. To the contrary, what distinguishes Professor Koehler’s book from many of its competitors is its straightforward, easy to read exposition of what any firm should do to minimize the chances that, thanks to the wayward act of an employee or consultant, it will face allegations it has bribed a government official. In eight tightly-written chapters, he brings his encyclopedic knowledge of FCPA cases, pre-trial settlements of enforcement actions, and the commentary on antibribery law to bear to explain how to develop and implement a sound, reasonable, cost-effective antibribery compliance program. Along the way he chucks the jargon that has grown up around antibribery compliance programs, opting instead for clearly written prose that demystifies rather obscures the process all firms should follow to develop and implement preventive measures.

Take his account in chapter six on how to conduct a risk assessment. Continue reading →

Part-time Legislatures Should Use Disclosure, Not Recusal, To Regulate Conflicts of Interest

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For most state legislators in the United States, public service is a part-time gig; forty U.S. states have part-time or hybrid legislatures. These part-time state lawmakers have regular jobs, and while some are conventional—law or business—some are less so. (There’s the pizza delivery guy in Arkansas, the boxing and mixed martial arts judge in Nevada, the hula dancer in Hawaii, and the alligator hunter in Louisiana.) Part-time legislatures are popular because they’re cheap—New Hampshire pays its legislators just $100 per year—and also because of distrust of professional politicians and a romantic notion that the legislature should instead be a forum for citizens of varied professional backgrounds to bring their unique perspective to the lawmaking process.

But part-time legislatures also entail significant corruption risks for three reasons. First, when legislators have private sector jobs, it may be easier for them to conceal bribe payments as legitimate outside income. Second, part-time legislators’ low public salaries may make them more inclined to accept bribes or otherwise abuse their office than better-paid full-time legislators. These two factors have been discussed previously on this blog. Here, I want to consider a third factor: the potential conflicts of interest between an official’s public and private work.

A part-time legislator’s dual responsibilities will often, perhaps inevitably, conflict. Teachers will vote on education issues, doctors on health care bills, and business owners on tax plans. Lawyers, lobbyists, and insurance agents may vote on legislation that directly affects their clients. Part-time legislators may even introduce bills advancing their private professional interests. Take the Missouri legislator who introduced and secured passage of a bill prohibiting cities from banning plastic bags at grocery stores—and who also happened to be the director of the Missouri Grocers Association. Similarly egregious, lawyers serving as part-time legislators have sponsored bills raising the salaries or pensions of judges before whom they had cases. One might worry too that part-time legislators, especially those who are lawyers or lobbyists, will implicitly or explicitly use their public positions as a way to drum up business, precisely because potential clients might think that hiring a part-time legislator will increase the odds of favorable legislative treatment. And even if a part-time legislator is not influenced in the slightest by her private professional interests, conflicts like those just described still risk creating the appearance of corruption. What can be done about this?

Continue reading →

It’s in China’s Interest to Fight Corruption on the Belt and Road

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The Belt and Road Initiative (BRI), first proposed by Chinese President Xi Jinping in 2013, is a program through which China will spearhead the funding and construction of new infrastructure and trade networks across Eurasia and Africa. The centerpiece of the BRI is hard infrastructure: roads, railroads, ports, pipelines, and power plants. The scale of the proposed investment is immense: $1 trillion for projects spanning 75 countries.

The risk of corruption in such large-scale infrastructure is also immense, but at least initially, the BRI ignored corruption. When China’s National Development and Reform Commission (NDRC), the powerful government organ in charge of economic planning, issued the first comprehensive statement of the principles and framework undergirding the BRI back in March 2015, anticorruption principles were nowhere mentioned, nor did the published framework include any anticorruption measures. A later, more detailed policy document, published in 2017, also failed to include any mention of anticorruption. This posture is generally consistent with China’s traditional “non-interference” foreign policy, which makes Chinese authorities reluctant to go after overseas corruption.

More recently, though, Beijing has begun to respond to the BRI’s corruption risks. President Xi himself urged greater international cooperation on anticorruption at the June 2017 Belt and Road Forum. In September 2017, China’s Central Commission for Discipline Inspection helped organize a symposium called “Strengthening International Cooperation for a Clean Belt and Road.” And last December, the NDRC and other regulatory bodies issued new rules governing overseas investment by private Chinese companies, including a prohibition on “brib[ing] local public officials, or personnel from international organizations or related enterprises.” That same month, China’s State-Owned Assets Supervision and Administration Commission issued new guidance that requires state-owned enterprises to strengthen their anticorruption compliance procedures.

These are steps in the right direction. The question is whether the government’s newfound focus on corruption in the BRI is serious. Skeptics point out that Chinese authorities have never prosecuted a Chinese company or official for foreign bribery. Others suggest that the new regulations are more about controlling Chinese outbound investment than combating overseas corruption. I’m somewhat more optimistic, though, that Chinese authorities are serious about tackling corruption in the BRI. In my view, taking BRI corruption seriously is in the Chinese government’s interest for four reasons:

Continue reading →