Category Archives: Commentary

Congress Should Act to Make US Aid to Ukraine Contingent on Anticorruption Reform

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Since the Maidan Revolution removed former President Yanukovych from power in 2014, anticorruption progress in Ukraine has been uneven at best. Ukraine passed important anticorruption legislation in 2015, yet implementing it has been a challenge. Progress in some areas, including the judiciary and prosecutors’ offices, have met with significant and growing resistance. Many reformers within the government have resigned. For what it’s worth, Ukraine’s Corruption Perceptions Index score has only marginally improved. Still, there has been some progress. A significant portion of Ukraine’s budget is comprised of foreign aid, and donors—who have little patience for having their money stolen or wasted—have pressed the Ukrainian government to take the fight against corruption more seriously. The biggest anticorruption reforms have therefore been the ones on which large donors made their aid contingent.

The United States is one of the most important of these donors. The U.S. sends billions in loan guarantees, military aid, development aid, and State Department spending to Ukraine. During the Obama administration, anticorruption, and political reform more generally, was a high priority for the U.S. in its relationship with the post-Maidan Ukrainian government. Former Vice President Biden emphasized anticorruption during his five visits to Ukraine, and put personal pressure on President Poroshenko to follow through on his commitments in that area. Biden also played a role in delaying one billion dollars in loan guarantees to Ukraine due to corruption concerns—an approach the IMF has also embraced. But the anticorruption strings that the U.S. had attached to foreign aid in the past were imposed as a matter of executive discretion rather than legislative obligation.

Under the Trump administration, perhaps unsurprisingly, ensuring that Ukraine follows through on its anticorruption reforms has not been a foreign policy priority. No highly visible person in the current administration has taken on Biden’s conspicuous role in ensuring Kyiv follows through on its Minsk commitments. If President Trump isn’t willing to use U.S. leverage to continue to push for anticorruption efforts in Ukraine, the U.S. Congress can and should step in by putting anticorruption conditions on at least some American spending in Ukraine.  Continue reading →

The Debate Over Public UBO Registries Continues: A Response to Kenney and Cook

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As our regular readers know, over the past few weeks GAB has had the opportunity to host on what is shaping up to be a lively and interesting debate over the advantages and disadvantages of creating public registries of the ultimate beneficial owners (UBOs) of companies and other legal entities. A UBO, for those not familiar with the lingo, is the real-live flesh-and-blood human being who has a sufficiently strong direct or indirect ownership interest in a company to be considered the “true” owner. Increasing UBO transparency is a top priority for many civil society activists, who argue that anonymous company ownership facilitates grand corruption, as well as money laundering, tax evasion, and other harmful activities. In many jurisdictions, UBO information is not available, and even law enforcement may have difficulty determining a company’s true owners. In other jurisdictions, companies must submit and update validated UBO information to the authorities, but that information is confidential, available only to law enforcement or other regulatory agencies in the context of an investigation, or perhaps to others in a limited set of circumstances (for example, banks performing customer due diligence). Most anticorruption advocates, as well as law enforcement agencies and most experts, agree that a confidential UBO registry is far superior to having no registry at all. The harder question, and the one we’ve been debating here at GAB, concerns whether the UBO registry should be public, so that anyone—not just law enforcement agencies acting pursuant to an investigation—can examine the registry to see who owns what.

The most recent round of discussion and debate was triggered when the UK—one of the few major economies that has implemented a public UBO registry—decided to require the 14 British Overseas Territories, such as the British Virgin Islands (BVI)—to create and maintain public UBO registries. Many in the civil society community celebrated this as a huge triumph, but others denounced the UK’s decision. The denunciation that got the debate going over here at GAB was a provocative piece by Martin Kenney, a BVI asset recovery lawyer, on the FCPA Blog. Mr. Kenney’s piece prompted replies from GAB Senior Contributor Rick Messick (here) and from me (here). Then last week, we were able to publish two more pieces, one from Mr. Kenney and another from Geoff Cook (the CEO of Jersey Finance). Both Mr. Kenney and Mr. Cook took issue with some or all of the arguments that Rick and I advanced, and pressed the claim that the UK’s imposition of public UBO registries on the Overseas Territories was a bad mistake.

Both of their pieces raise important points that deserve a reply. For that reason, and because I think that this issue is important enough that continuing this exchange on GAB for another round or two may be worthwhile for our readership, in this post I’m going to offer a response to Mr. Kenney’s and Mr. Cook’s posts. To lead with the conclusion: While I respect their experience and expertise in these matters, I found most of their arguments unconvincing, or at the very least in need of further explanation before I’m ready to reconsider my (admittedly tentative) view that public UBO registries have sufficient advantages over confidential UBO registries that moving from the latter to the former is desirable. Continue reading →

Mixed Messages from the UK’s First Contested Prosecution for Failure to Prevent Bribery

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In February 2018, the UK secured its first ever contested conviction of a company for “failure to prevent bribery.” Under Section 7 of the UK Bribery Act (UKBA), a company or commercial organization faces liability for failing to prevent bribery if a person “associated with” the entity bribes another person while intending to obtain or retain business or “an advantage in the conduct of business” for that entity. Following an internal investigation, Skansen Interior Limited (SIL)—a 30-person furniture refurbishment contractor operating in southern England—discovered that an employee at its firm had agreed to pay nearly £40,000 in bribes to help the company win contracts worth £6 million. Company management fired two complicit employees and self-reported the matter to the National Crime Agency and the City of London police. The Crown Prosecution Service ultimately charged SIL with failing to prevent bribery under Section 7. Protesting its innocence, SIL argued that the company had “adequate procedures” in place at the time of the conduct to prevent bribery; SIL, in other words, sought to avail itself of the widely-discussed “compliance defense” in Section 7(2) of the UKBA, which allows a company to avoid liability for failing to prevent bribery if the company can show that it “had in place adequate procedures designed to prevent persons associated with [the company] from undertaking” the conduct in question.

The case proceeded to a jury trial. The verdict? Guilty. The sentence? None. In fact, SIL had been out of business since 2014, so the judge had no choice but to hand down an absolute discharge—wiping away the conviction.

The hollow nature of the government’s victory has led some commentators to call the prosecution “arguably unprincipled” or even a “mockery of the UK criminal process.” Indeed, the bribing employee and the bribed individual had already separately pleaded guilty to individual charges under UKBA Sections 1 and 2, respectively, and the remaining shell of a corporation had no assets or operations. Other commentators pointed out that precisely because the company was dormant it would have been unable to enter into a deferred prosecution agreement (DPA), lacking assets to pay financial penalties or compliance programs to improve. Putting aside arguments about the wisdom or fairness of pursuing a prosecution in these circumstances, the SIL case sheds light on Section 7(2)’s “adequate procedures” defense. While the UK government has secured a few DPAs for conduct under Section 7—beginning with Standard Bank Plc in 2015—SIL is the first case in which the Section 7(2) “adequate procedures” defense was tested in front of a jury.

While the government argued that it prosecuted the case primarily to send a message about the importance of anti-bribery compliance programs, the UK government’s actions in the SIL case ultimately sends mixed messages to companies and may have counterproductive effects. Continue reading →

Malaysia’s Anti-Fake News Bill Breaks Dangerous New Ground

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Since at least 2016, complaints about “fake news” have become increasingly common all over the world. But “fake news” refers to two separate phenomena. In some cases, “fake news” means stories that are actually untrue (not just distorted, but fabricated, and deliberately disguised to make it appear that they come from a legitimate media outlet rather than a propagandist or troll). Shanil posted about the dangers that this sort of fake news poses to anticorruption efforts last December. But politicians, notably President Trump, have appropriated the “fake news” label and applied it to any coverage that they deem unfavorable or unfair, even when the news comes from a legitimate media outlet and there is no credible argument that the story is a deliberate fabrication.

The conflation of these two kinds of “fake news” is dangerous, not least because concerns about the former may provide politicians with a pretext for suppressing the latter. Case in point: in April, Malaysia enacted a new law—the Anti-Fake News Bill—that purports to criminalize fake news. The purpose of the new law, which gives the government has the power to prosecute those who create or spread “fake news” with jail terms of up to six years and fines up to about $123,000, seems to be giving the government more authority and discretion to stamp out unflattering news. Other Southeast Asian countries such as Singapore and the Philippines are considering similar measures.

While the anticorruption community should fight against corrupt actors using fake news to spread false stories, it should also resist efforts of governments to misuse the “fake news” label as a pretext for more extensive regulation of legitimate media and free speech. Censorship laws like Malaysia’s reduce transparency and scrutiny, and ultimately hurt anticorruption efforts by entrenching corrupt, illiberal governments.

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Uzbek Civil Society to Swiss Government: Hasty Return of Stolen Assets to Uzbek Government Not Warranted

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GAB readers know that the Government of Uzbekistan has been pressing countries to return some $1.0 billion under their control which Gulnara Karimova, daughter of the late dictator Islam Karimov, stole through corrupt schemes.   They also know that Uzbek civil society has urged a “responsible return,” one that recognizes that despite modest changes since Karimov’s death, Uzbekistan is still ruled by the same close-knit group in charge during Karimov’s time and with the same kleptocratic proclivities.  Responding to reports that the Swiss government, which holds several hundred million dollar of Gulnara’s corrupt monies, may soon send these funds back to Uzbekistan with little guarantee they will to go improve the welfare of the Uzbek people, members of Uzbek civil society living in exile wrote the Swiss government today asking it to refrain from any hasty repatriation. Their request is particularly urgent given the evidence they cite that stolen assets Switzerland returned to Kazakhstan through a World Bank program were misused. The request is joined by members of Kazakh civil society members in exile.

OPEN LETTER OF CIVIL SOCIETY ORGANIZATIONS TO THE SWISS GOVERNMENT

We, the undersigned representatives of civil society organizations advocating for transparent and responsible repatriation of assets stolen from the Uzbek people, are urgently calling upon the Swiss government to ensure that any decision regarding the ill-gotten assets of Gulnara Karimova, currently the subject of litigation in several countries, be made with due consideration to the rights and development prospects of the Uzbek people.

We urge the Swiss government not to act hastily and to consider that the promise of reform by the Mirziyoev regime have not yet materialized in practice. Based on all available information we strongly believe that return of these assets without sound conditionalities developed in consultation with major stakeholders, including civil society – which has been in a stranglehold in Uzbekistan for more than two decades – would only further perpetuate corrupt practices in Uzbekistan, leaving the systemic causes of the original criminal conduct untouched. The Swiss government can and should use these assets as an incentive to promote and support the course of reforms in Uzbekistan in the long-term interests of the Uzbek people. Continue reading →

Revisiting the “Public International Organization” Designation for International Sports Organizations under the FCPA

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Three years have passed since U.S. federal prosecutors rocked the global sports community by indicting roughly 40 individuals in connection with an investigation into corruption at FIFA. Some preliminary commentary suggested that prosecutors in the FIFA case might bring charges under the Foreign Corrupt Practices Act (FCPA). U.S. prosecutors instead pursued cases under money laundering, racketeering, and fraud charges against the individuals—primarily officials at FIFA and other soccer organizations—who accepted the bribes. In December 2017, for example, prosecutors obtained their first convictions from jury trials in this case, as Juan Ángel Napout (former president of South American football’s governing body) and José Maria Marin (the former president of Brazil’s football federation) were found guilty of racketeering, money laundering, and fraud for accepting large sums of money in exchange for lucrative FIFA media rights deals and influence over FIFA tournament hosting decisions.

The reason that the DOJ has only targeted bribe-taking FIFA officials, and has not used the FCPA to prosecute those who paid those bribes, is that bribes paid to FIFA officials fall outside the FCPA’s scope. But that could, and perhaps should, change.

The 1998 amendments to the FCPA expanded the statute’s scope to cover bribes not just to officials of foreign governments, but to officials of “public international organizations.” An organization may be designated as a public international organization either through an executive order pursuant to an existing statute (the International Organizational Immunities Act), or—importantly for present purposes—“any other international organization that is designated by the President by Executive order[.]” Pursuant to this statutory authority, the President has the power to designate international sports governing bodies like FIFA, the International Olympic Committee (IOC) and others as “public international organizations” for FCPA purposes. (The fact that these sports bodies are nominally private does not prevent this; while most of the roughly 80 public international organizations currently covered by the FCPA are intergovernmental organizations like the World Bank and the International Monetary Fund, the list also includes some private, non-profit organizations, such as the International Fertilizer Development Center.) If the President designated international sports organizations like FIFA or the IOC as “public international organizations” for FCPA purposes, then individuals or firms that bribed officials at those organizations could be prosecuted under the FCPA, so long as the U.S. has jurisdiction over the defendants.

This is not a novel or radical idea. For decades, legislators and activists have clamored for designating sports organizations such as FIFA and the IOC as public international organizations under the FCPA. The discussion first surfaced in 1999, when U.S. Senator George Mitchell requested President Clinton to declare the IOC a public international organization following findings of a bribery-ridden culture in the Olympic movement. Senator John McCain later introduced a bill that would bring the IOC under the definition of public international organization under the FCPA, but the bill never made it out of committee. Although these past efforts proved unsuccessful, the time is ripe for revisiting this idea. Indeed, there are at least two compelling arguments for designating FIFA and the IOC as public international organizations under the FCPA.

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The South African Turnover: Anticorruption or Political Consolidation?

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Last February, South African President Jacob Zuma—who has been dogged for years by credible allegations of corruption and other serious malfeasance in office—finally resigned under pressure.  In April, only a couple of months later, Zuma went on trial; he faces 16 counts of corruption, fraud, money laundering, and racketeering related to arms deals that took place in the 1990s (before his election as president). Zuma fought these charges for years, but now it seems as if his political cover has run out.

Yet the story behind Zuma’s corruption trial may go deeper than Zuma’s past bad behavior finally catching up with him. It’s important also to note the political context. Zuma’s resignation came at the urging of his party, the African National Congress (ANC), after Deputy President Cyril Ramaphosa secured the leadership of the ANC in December 2017, igniting a power struggle that led to a planned vote of no confidence, brokered by Ramaphosa. Zuma resigned in order to avoid a vote he was likely to lose, and Deputy President Ramaphosa immediately took over. In his first few months in office, Ramaphosa has been shaking up the political establishment, but is himself also the subject of multiple corruption allegations. This leads one to question: Should the retrial of Zuma be understood principally as part of Ramaphosa strategy for political consolidation? More generally, has South Africa’s recent political shakeup set the country on a course for a better, less corrupt future?

Many have expressed precisely this hope, but I’m more pessimistic. True, President Ramaphosa has acknowledged South Africa’s serious corruption problem and pledged to address it, and that is in some ways welcome news. But Ramaphosa is not an immaculate outsider with the capacity to reform from a position of moral authority. He is a deep insider, enmeshed in the corrupt system he has pledged to reform. He has profited heavily from the relationship between the ANC and the wealthy (mostly white) elites, and his rise to power came not from a landslide toward a new party, but from a successful destabilization of the ANC from within. Moreover, while Ramaphosa’s government is cracking down on corruption, its investigations seem carefully and narrowly targeted, focusing mainly on those who might be a political threat or rival. Therefore, I worry that Ramaphosa may prove to be equally corrupt, and the latest string of crackdowns may be nothing more than a way of securing his position as leader of South Africa for the many years to come.

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Dear American Congress, Please Don’t Destroy Guatemala’s Best Hope for Combatting Corruption

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Unproven, implausible allegations about Russian meddling in Guatemala’s judicial system threaten one of the most innovative and successful efforts to curb grand corruption now underway.  The Commission against Impunity in Guatemala, a hybrid UN-Guatemalan investigative agency known by its Spanish initials CICIG, has made enormous progress taming grand corruption, drug trafficking, the wholesale murder of indigenous people, and other crimes committed by an insular elite who, until the advent of CICIG, operated without fear of prosecution.  CICIG’s success rests on its independence from Guatemala’s corrupt elite, both in the investigators it hires, often from other Spanish-speaking countries with no ties to anyone in Guatemala, and its funding, a significant portion of which is provided by the U.S. Congress.  Thanks to these conditions, it has presented Guatemalan prosecutors with air-tight cases against former presidents, vice-presidents, ministers, and senior military and civil servants.

CICIG’s American funding is now in doubt thanks to a story those most in danger from CICIG sold Wall Street Journal opinion writer Mary O’ Grady.  O’Grady wrote in March that CICIG took money from Russian interests to push the prosecution of Russian dissidents who emigrated to Guatemala.  O’Grady’s story caught the attention of several in Congress who now question whether the U.S. should continue supporting CICIG.  Thankfully, the story has not gone unanswered.  A wave of stories knocking it down and noting its origin among the very elite in CICIG’s cross-hairs has appeared in, among other outlets, the Economist (here), the Washington Post (here), and the Guatemalan media (here and here [Spanish].  The American Bar Association (here) sharply questioned the premises underpinning O’Grady’s claims.

The latest support for CICIG comes from a former Guatemalan vice president and several former foreign ministers and ambassadors in a letter to the U.S. Congress.   The letter itself is a welcome sign that a new elite is rising that is not afraid to counter the old corrupt elite.  In it they write forcefully of CICIG’s critical importance to the well-being of Guatemala’s citizens:

Continue reading →

Public Beneficial Ownership Registries: A Response To Recent Criticisms

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Anticorruption activists and other advocates for greater corporate and financial transparency scored a big win earlier this month when the UK announced that it would require the 14 British Overseas Territories (such as the British Virgin Islands (BVI) and the Cayman Islands) to create public beneficial ownership registers for all corporations and other legal entities registered in those jurisdictions. Many in the pro-transparency community believe that such registers are critical for fighting corruption and money laundering, as they make it harder to use anonymous companies to engage in unlawful transactions and hide the proceeds of crime by requiring information on the actual human beings (the ultimate “beneficial owners”) who own or control these artificial legal entities. At the very least, beneficial ownership information should be verified and kept on file so that it will be available to law enforcement in the event of an investigation, but many in the pro-transparency community believe that public beneficial ownership registers would be even more effective, as they would provide open data that civil society groups, the media, and others could scrutinize and analyze in order to unearth shady transactions and make it harder for kleptocrats and others to hide their loot. The British Overseas Territories are not the only or even the worse offenders when it comes to corporate secrecy—the United States is still struggling to enact laws that would provide for a non-public register, which the BVI and some other Overseas Territories already have—but there’s no doubt that these jurisdictions are often a preferred destination for dirty money.

So when the UK announced that it would require the Overseas Territories to adopt public beneficial ownership registers, many cheered. But not everybody. A couple weeks back, over at the FCPA Blog, Martin Kenney, a lawyer based in the BVI, published an intemperate denunciation of the new policy, lambasting the so-called “transparency brigade” for having a “mob mentality,” for being “naïve,” “hypocritical,” and neo-imperialist (and possibly racist), and of taking advantage of the devastation that many of the Caribbean Islands suffered in Hurricanes Irma and Maria to push their agenda at a time when “they perceive their prey to be weakened.” Indeed, the ad hominem invective in the post is so thick that it’s sometimes hard to discern the serious, substantive objections underneath all the vitriol. Which is a pity, because Kenney actually does advance at least one or two arguments that, while in my view likely incorrect, are worth taking seriously.

Last week, Rick offered a thoughtful, measured response to Mr. Kenney’s piece that got at some, but perhaps not all, of the core issues. I want to pick up where Rick left off, to lay out what I think are the most sensible concerns about the new UK policy (and about public beneficial ownership registers more generally). And, following Rick’s lead, I’ll try to turn the rhetorical temperature down a few notches, as there’s little to be gained in a (virtual) shouting match on a complicated issue like this. Continue reading →

It’s Time for China to Show Its Foreign Bribery Law is Not a Paper Tiger

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In May 2011, China criminalized the bribery of foreign public officials. More specifically, the 8th Amendment to China’s Criminal Law, among other things, added Article 164(2), which prohibits both natural persons and units (i.e. companies and other organizations) under Chinese criminal jurisdiction from giving “property to any foreign public official or official of an international public organization for the purpose of seeking illegitimate commercial benefit.” This legislative action, intended in part to fulfill China’s obligations as a State Party to the United Nations Convention Against Corruption, was considered an accomplishment given the under-criminalization of foreign bribery in Asia Pacific at the time. Many commentators devoted substantial attention to questions about the law’s meaning, including the definition of almost every term in the provision (“property,” “foreign public official,” “international public organization,” “illegitimate commercial benefit,” etc.—for a sampling, see here, here, here, here, here, or just search for “China Criminal Law 164” using any search engine).

However, almost seven years have passed, and nothing substantial has happened, except for some minor movements related to the law as observed by the media and commentators in some official and unofficial statements (see, for example, here, here, and here). Not a single enforcement action has been brought (or at least publicized) under Article 164(2). Even after President Xi Jinping launched in 2013 the most extensive anti-graft campaign China has ever seen, there have been no foreign anti-bribery enforcement actions.

There are several possible explanations for China’s non-enforcement of 164(2). One possibility, discussed previously on this blog, is that China’s traditional “non-interference” foreign policy might make China reluctant to go after transnational bribery; more generally, China might not be interested in devoting resources to fighting forms of corruption that don’t have domestic effects. Some have also suggested that China has little incentive to enforce its foreign anti-bribery law because bribery of foreign officials gives Chinese firms a competitive advantage in certain jurisdictions. It’s also possible that simple inertia is part of the story: It’s worth keeping in mind that although the U.S. Foreign Corrupt Practices Act (FCPA) was enacted in 1977, almost 80% of the FCPA enforcement actions (amounting to 95% of the total FCPA sanctions) occurred after 2007. Similarly, the UK Bribery Act came into force in 2011, but the first foreign bribery case under that act wasn’t resolved until 2014. South Korea enacted its foreign bribery law in 1999 but didn’t prosecute its first case until 2003, while Japan took even longer, enacting a foreign bribery law in 1998 but not bringing its first case until nine years later, in 2007. In fact, Transparency International observed in 2015 that about half of the then-42 countries taking part in the OECD Convention on Combating Foreign Bribery (to which China is not a party) have not yet prosecuted a single foreign bribery case since the Convention came into force in 1999. So China’s inertia is hardly unique.

Yet regardless of the reasons why China has not enforced its foreign bribery law, and regardless of whether this inaction renders China unusual or typical, it is now high time for China to start enforcing this law aggressively. Doing so is in China’s long-term strategic interests, for three reasons: Continue reading →