National Digital Currencies Raise New Risks of Grand Corruption

In 2017, you may have heard of this thing called blockchain. The technology, which works by creating a decentralized, encrypted, and independently verifiable ledger of transactions distributed over a network of computer systems, has allowed innovations in the design of secure systems for recording votes, registering land ownership, and confirming digital identity. The most famous application of the blockchain, however, has been the creation of digital currencies such as Bitcoin, Ethereum, and Ripple. Many private individuals consider these currencies to be the way of the future, and the death knell of the central banker: universal, transparent, and valued according to mathematical laws rather than political preferences, cryptocurrencies—according to their proponents—will bring with them immeasurable benefits, among them making the fight against corruption easier by allowing all interested parties to “see the entirety of any transaction instantly and accurately.”

But private citizens aren’t the only ones who have heard of the blockchain: the same central bankers who are meant to be rendered irrelevant by the advent of cryptocurrencies have also taken notice. Several governments, including those of Israel, Russia, China, Estonia, Sweden, and Venezuela, have announced plans to create their own national digital currencies (NDCs) based on blockchain technology. While there are several sound economic reasons for introducing an NDC, governments frequently cite the same anticorruption benefits mentioned above.

However, there are crucial differences between NDCs and cryptocurrencies like Bitcoin. Rather than open architectures enabling full financial transparency, most NDCs currently plan to use some form of centralized ledger, giving government authorities (and only them) the ability to see and police transactions. While such centralized transparency will give honest governments a much-needed boost in the fight against corruption, it will also give oppressive and kleptocratic regimes another tool with which to steal from and oppress their populations. Continue reading

Is Trump Administration Corruption a Winning Issue for Democrats this November?

The corruption of the Trump administration is bad news for the United States—will it also prove to be bad news (politically) for Trump’s Republican Party allies? A number of astute political commentators have recently argued that the answer is yes. Most notably, Jonathan Chait published an article last week making the case that “corruption … is Trump’s greatest political liability,” and that even though Trump himself is not on the ballot in the 2018 midterm elections, it would be wise politics for the Democrats to focus on the corruption of the Trump administration in their quest to retake one or both chambers of Congress.

Chait notes, as an initial matter, that despite Trump’s historic unpopularity, Democrats face two interrelated challenges: First, there’s just so much negative news about Trump—from the Russia investigation to his racism and misogyny to the lurid revelations regarding his crude attempts to cover up an affair with an adult film actress—that it’s hard to focus on any one thing. Second, and more importantly, the majority of Trump’s supporters already knew back when they voted for him that he was a crass, crude, adulterous bully and bigot–which means that pointing out his infidelity, his bullying, and his bigotry now isn’t likely to have much impact. (The Russia investigation is another matter, but Chait suggest that it’s too abstract and complex for most voters.) Corruption, according to Chait, is the one story that could move the needle, even with Trump supporters. Chait’s reasoning (presented in a somewhat different order from his original article) runs as follows: Continue reading

Legalized Sports Betting in the United States: Analyzing the Impact of Legalization on Corruption Risk

The rise of corruption in sport has captured the attention of many anticorruption groups, including Transparency International and the United Nations Office on Drugs and Crime. Sports corruption takes many forms, but one of the most prevalent is match fixing, which occurs when players or officials alter the outcome of a sporting event in a way that benefits those who bet money on those “fixed” games.

In the United States, concerns about match fixing, among other things, led Congress to enact the Professional and Amateur Sports Protection Act (PASPA) in 1992. The Act prohibits most states from legalizing sports gambling, with only Nevada allowed to offer betting on single games. Yet PASPA failed to curb gambling on sports, mainly because bettors turned to the black market; each year, Americans gamble an estimated $150 billion-$400 billion in illegal sports betting.

PASPA appears to be in legal jeopardy: Last December, the U.S. Supreme Court heard oral arguments in the case of Christie v. National Collegiate Athletic Association (NCAA), and while a decision in the case is not expected until later this year, legal experts believe that the Supreme Court will invalidate PASPA. This would provide all 50 states with the opportunity to legalize and regulate sports betting in their state. With that in mind, it is important to consider the effects that legalized sports gambling may have on bribery in professional sports.

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Defending Those Who Expose Corruption: Defamation Safe Harbor Legislation to Protect Investigative Journalists

In May 2017, Russian journalist Dmitry Popkov, who investigated corruption in local governments, was shot five times and found dead in his backyard. The perpetrators were never identified. In October 2017, a car bomb killed Maltese journalist Daphne Caruana Galizia, who had been investigating possible corruption by Maltese Prime Minister Joseph Muscat. Although three suspects were charged with carrying out the attack, the masterminds behind the plot were never found. And in February 2018, an unidentified hitman killed Slovak journalist Ján Kuciak and his fiancée, both 27, in the couple’s newly-purchased home. Kuciak was in the middle of an investigation of the Italian organized crime group ’Ndrangheta and its corrupt ties to Slovakia’s governing political party SMER. Slovak officials arrested seven suspects allegedly connected to the ’Ndrangheta and the murder, but did not find enough evidence to file charges and released them 48 hours later. Although weeks of mass demonstrations led to the resignation of the Slovak Prime Minister, the perpetrators of Kuciak’s murder were never held accountable.

Sadly, these are not the only such incidents. Reporters Without Borders states that last year 39 journalists were murdered because “their reporting threatened political, economic, or criminal interests.” And in many of these cases, despite government assurances of a thorough investigation—and despite a 2013 United Nations Resolution that urges Member States to conduct “impartial, speedy and effective investigations” of journalist murders—the perpetrators are never brought to justice. Perhaps this is not surprising. After all, these murders are often associated with sophisticated crime syndicates that leave few traces for investigators to follow, and an effective investigation would require significant resources and expertise beyond the capacity of many governments. (In some cases, such as Caruana Galizia’s murder, assistance from Dutch forensic experts and the FBI enabled local authorities to arrest suspects linked to the attack, but this is not regular practice.) Perhaps more importantly, resolving the murders of journalists who expose public corruption is not always in the interest of government officials, at least when doing so might provide further evidence of the government’s corrupt acts and expose officials implicated in the journalist’s work.

Given these weaknesses, many corrupt officials and associated criminal networks may conclude that killing a journalist before a story is published may be an effective way to eliminate it altogether. Sadly, this is indeed often the case. But not always: One of the striking things about the recent case in Slovakia is the decision of Kuciak’s employer, the news website Aktuality, to publish his unfinished article. And it appears that this decision to publish, not just the murders themselves, contributed to the massive public outcry and political backlash that has already forced the Prime Minister and several other high-level officials to resign.

Publishing a journalist’s unfinished article is not common practice for newspapers; it was likely done in the Kuciak case because the investigation was almost finished. Usually newspapers are hesitant to publish due to fear of defamation lawsuits, which are a drain on the publication’s resources and reputation. So-called SLAPPs (Strategic Lawsuits Against Public Participation) are filed in jurisdictions with strong defamation laws in order to intimidate journalists and media outlets, and prevent them from publishing certain articles. Some members of the European Parliament have been pushing the European Commission to protect investigative journalism by adopting anti-SLAPP measures.

Another reform measure, which hasn’t yet been part of the conversation, would be to create a special exception to defamation laws that would apply when a media outlet publishes a story, on a matter of public concern, by a journalist who was murdered before the story was complete. In other words, countries should enact a “safe harbor” from the ordinary operation of defamation laws in these special circumstances—one that would allow for the expedient dismissal of defamation suits against media outlets that publish the incomplete work of a murdered journalist.

Creating such a safe harbor would have a number of important advantages, and only very limited downsides:  Continue reading

The Trump Administration’s Ethical Conduct: An Appreciation

Whatever else one might say about corruption and the Trump Administration, it has been a godsend for those who teach ethics and integrity courses.  Recent, real-world examples can spice up otherwise dry, abstract presentations while helping drive home key points, and Trump officials’ habit of skating at the edge of permissible conduct never fails to provide headline grabbing fodder for classroom discussion.  The most recent debt of gratitude ethics instructors owe the Trump Administration arises from the Environmental Protection Agency chief’s choice of a D.C. landlord.  In one fell swoop agency head Scott Pruitt’s actions illustrate the finer points of not one but two key ethical norms, the receipt of gifts and the duty to appear impartial.

The story begins with Pruitt’s decision after appointment as chief regulator of American environmental protection laws to not move to Washington, D.C. but instead to rent a place just for the nights spent in the nation’s capital.  He found the spare bedroom in a two-bedroom apartment located in a tony part of town whose owners agreed to rent the extra bedroom for $50 for each night Pruitt spent in Washington.

Real estate agents told the New York Times that Pruitt got quite a bargain: $50 a night was less than one would expect to pay on the open market.  Pruitt’s ethical travails begin here. Continue reading

An Encouraging, Albeit Limited, Development in the Emoluments Clause Litigation Against Donald Trump

Sometimes it feels great to have been wrong. Last week, a United States District Judge ruled that a lawsuit brought by the District of Columbia and the State of Maryland against Donald Trump for alleged violations of the Constitution’s Foreign and Domestic Emoluments Clauses could go forward (at least for now). More specifically, the judge rejected President Trump’s argument that the plaintiffs lacked “standing,” as well as various related but distinct challenges to the court’s jurisdiction to hear the case.

When the first Emoluments Clause suits were filed against Trump (three have been brought so far, in different courts by different plaintiffs), I was one of many commentators who predicted that the cases would be dismissed on jurisdictional grounds. That prediction seemed borne out when the first of these cases, brought by the Citizens for Responsibility and Ethics in Washington (CREW) was dismissed on jurisdictional grounds last December. While some of the legal reasoning of that decision was questionable, I’d assumed that other courts would follow suit, on the logic that most judges would want to avoid having to decide these cases on the merits, and the jurisdictional doctrines are sufficiently malleable that a competent judge would be able to write a defensible opinion dismissing the cases for want of jurisdiction. (Initially I also fretted that a jurisdictional dismissal could be exploited by Trump and his allies to imply that the courts had rejected the merits of the argument that Trump’s mixture of his business affairs and his public office crosses a constitutional line, but on further reflection I now tend to think no development in these cases short of a Supreme Court ruling on the merits—and possibly not even that—would have a measurable impact on public opinion.) So it came as a welcome surprise that the ruling last week held that the Emoluments Clause suit can proceed.

There’s already been a fair bit of coverage of the ruling (see, for example, here, here, here, and here), and I’m not sure if I have that much to add, but since I’ve been commenting fairly regularly on developments in the Emoluments Clause cases, I’ll make a few additional observations: Continue reading

The Missing Piece in UK’s Unexplained Wealth Order Mechanism

All of a sudden politicians, public figures, and oligarchs – such as Russian First Deputy Prime Minister Ignor Shuvalov and former Nigerian Oil Minister Diezani Alison-Madueke – have to explain how they are able to afford the swanky apartments in London’s posh Mayfair neighborhood on their modest official salaries. This is due to the UK’s new Criminal Finances Act (CFA), which came into force in February and is meant to crack down on the flow of dirty money into the UK—a flow that has given London in particular a reputation as a “Death Star” of global kleptocracy. Most notably, the CFA adds a new investigative tool, the Unexplained Wealth Order (UWO), into the civil recovery regime. Originally proposed by Transparency International UK a few years ago, a UWO is an order granted by the High Court in cases where there are reasonable grounds to believe (1) the respondent owns some property worth more than £50,000; (2) either the respondent is a politically exposed person (PEP), or the respondent or a person connected to the respondent has been involved in a serious crime; and (3) respondent’s lawfully earned income would not be sufficient to obtain the property in question. If there are reasonable grounds to believe that each of these three conditions is satisfied, the High Court may issue an order requiring the respondent to provide information regarding the nature of her interests in the property in question and how she was able to lawfully obtained such property. If the respondent is unable to provide a reasonable explanation, the UK Government can subsequently initiate the civil forfeiture process and seize these assets.

Lauded as “a powerful new weapon in[] the anti-corruption arsenal,” UWOs are expected to be particularly helpful when there is no conviction against the respondents in their countries of origin, or when efforts to get a corrupt foreign government to cooperate with investigations have led to naught. Moreover, even though UWOs are a civil enforcement mechanism, the information they uncover may be useful in pursuing criminal investigations, and if respondents recklessly or knowingly make false statements or mislead the enforcement body in responding to an order, they may be criminally prosecuted. There’s already some evidence that the new law will make a difference: In March, a month after the promulgation of the CFA, two UWOs were issued requiring a tycoon in Central Asia to explain how he is able to afford real properties in the UK totaling £22 million.

Yet notwithstanding the enthusiasm for UWOs in some quarters, the effectiveness of the UFO mechanism is likely to be hampered by an important missing piece in the UK’s anticorruption framework, namely an effective means for ensuring genuine transparency regarding the beneficial ownership of real and movable property. Without knowing who really owns what, the new law is unlikely to realize its full potential, and indeed may not make much difference outside of a handful of cases involving particularly careless criminals.

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Report on the OECD’s 6th Global Anti-Corruption and Integrity Forum

For the sixth year running the Organization for Economic and Cooperation is hosting a two-day conference on ethics and corruption.  This year’s theme is how corruption has eroded trust in government and is helping advance what Secretary General Gurria termed in his opening remarks the three destructive “isms” haunting the world today: populism, nationalism, and protectionism.

The organization’s members are 35 of the world’ s richest nations (all save Russia and the PRC), and despite extraordinary levels of wealth by any historical measure, and recent upbeat economic news, citizens across the 35 have soured on their governments.  Trust in government across the 35 is at a record low while cynicism and distrust in elected leaders is at an all-time high, and though the Secretary General put much of the blame for the current funk on the 2008 economic crisis and the still uneven and unbalanced recovery, corruption, he stressed, has done its part.  Revelations of wrong-doing at the highest levels of government coupled with the petty corruption that frustrates the delivery of basic government services has only deepened citizens’ suspicions in their government.  If OECD member states are to win back citizens’ confidence, and avoid those destructive “isms,” they cannot, he argued, ignore the corruption question.

For those unable to fund a trip to Paris or with a sponsor or client willing to foot the bill, the conference home page with the agenda is here.  Four things I found useful on day one: Continue reading

More on the 2017 Corruption Perceptions Index, and the Relationship Between Media/Civil Society Freedom and Corruption

The rest of the anticorruption commentariat (and the mainstream media) may have already moved on from the publication of Transparency International’s 2017 Corruption Perception Index (CPI), but I wanted to follow up on my other posts from earlier this month (here and here) to discuss one other aspect of the new CPI. The general overview, press release, and other supporting materials that accompanied the latest CPI stress as their main theme the importance of a free press and a robust, independent civil society in the fight against corruption. As TI states succinctly in the overview page for the 2017 CPI, “[A]nalysis of the [CPI] results indicates that countries with the least protection for press and non-governmental organisations (NGOs) also tend to have the worst rates of corruption.” And from this observation, TI argues that in order to make progress in the fight against corruption, governments should “do more to encourage free speech, independent media, political dissent and an open an engaged civil society,” and should “minimize regulations on media … and ensure that journalists can work without fear of repression or violence.” (TI also suggests that international donors should consider press freedom relevant to development aid or access to international organizations, a provocative suggestion that deserves fuller exploration elsewhere.)

Speaking in broad terms, I agree with TI’s position, and I’m heartened to see TI making an effort to use the publicity associated with the release of the CPI to push for concrete improvements on a particular area of importance, rather than simply stressing the bad effects of corruption (such as the alleged adverse impacts on inequality and poverty), or devoting undue attention to (statistically meaningless) movements in country scores from previous years. Whether TI succeeded in leveraging the CPI’s publicity into more attention to the freedom of the media and civil society is another story, but the effort is commendable.

That said, I spent a bit of time digging into the supporting research documents that TI provided on this issue, and I find myself in the uncomfortable position of finding the proffered evidentiary basis for the link between a free press/civil society and progress in the fight against corruption problematic, to put it mildly—even though my own reading of the larger academic literature on the topic makes me think the ultimate conclusion is likely correct, at least in broad terms. That latter fact, coupled with my recognition that the materials I’m evaluating are advocacy documents rather than academic research papers, makes me reluctant to criticize too harshly. Nonetheless, on the logic that it’s important to hold even our friends and allies accountable, and that in the long term promoting more careful and rigorous analysis will produce both more suitable policy prescriptions and better advocacy, I’m going to lay out my main difficulties with TI’s data analysis on the press freedom-corruption connection: Continue reading

Are Jury Trials the Solution to Corruption in Armenian Courts?

Judicial corruption should be a priority for anticorruption efforts in nearly every country, since so much anticorruption work relies on the judiciary. Yet many countries struggle to address judicial corruption. Armenia is one such country, as its citizens well know. In 2015, Transparency International reported that “70 percent of citizens in Armenia do not consider the judiciary free from influence.” The practice of bribery is so open and notorious that in 2013, Armenia’s human rights ombudsman published a “price list” that judges used to set the price required to obtain various outcomes. One official estimated that most bribes add up to 10% of the cost of the lawsuit, but could be higher for higher-level courts. And in 2017, four judges were arrested for taking bribes that ranged between $1,200 and $30,000. Corruption is not the only problem with Armenian courts—Armenia’s judiciary is weak and generally subservient to the executive branch, and the courts often struggle with institutional competence and public distrust—but all of these problems are compounded by corruption.

Some advocates, including the American Bar Association, have proposed that one solution to judicial corruption in Armenia is to introduce jury trials. In fact, the first post-Soviet Armenian constitution explicitly allowed jury trials, though in the end no jury trials were ever held due to the absence of implementing legislation and lack of political will. When the constitution was amended in 2005, the language allowing jury trials was removed. Nonetheless, there has been some recent public debate in Armenia about whether introducing jury trials would be a good idea (see, for example, here and here).

Could juries be part of the solution to judicial corruption? There are several reasons to think juries can fight judicial corruption in Armenia, and elsewhere as well:

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