Category Archives: Commentary

India’s 2G Spectrum Case: The Scam That Wasn’t?

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It all started in May 2009 with a report filed by an NGO, Telecom Watchdog, with India’s Central Vigilance Commission. The NGO claimed that there were gross irregularities, likely due to corruption, in the allocation of licenses to operators for the 2nd Generation mobile communication standard spectrum (2G spectrum for short). By October 2009, India’s premier investigating agency, the Central Bureau of Investigation (CBI), had opened an investigation into the allegations, and in November 2010, the Comptroller and Auditor General of India estimated the losses to the government from the alleged misconduct at a whopping US$29 billion. Indian media called it the “biggest scam in the history of Independent India.” Time Magazine put it just behind Watergate as the second worst case of abusing executive power.

Petitions were filed in the Supreme Court of India pressing for cancelling the allocation and making sure that those behind the corruption would be held responsible. In 2012, the Supreme Court obliged, canceling all 122 licenses and imposing huge fines. The Court declared that the then-Minister for Communications and Information Technology, A. Raja, had used an inappropriate allocation procedure (first-come-first-served rather than an auction) to “favor some of the applicants … at the cost of the exchequer.” In an unprecedented move, the Court also ordered the creation of a “Special Court” to try the cases, and modified regular criminal procedure by curbing intermediate challenges, in order to ensure a speedy trial. The first case was instituted against the former Minister, senior bureaucrats, and prominent businessmen for conspiring to rig the allocation process and cheat the government of revenue.

On December 21, 2017, the Special Court announced its verdict—and it was not what many had expected: The Special Court acquitted all the accused, declaring that “a huge scam was seen by everyone when there was none,” and that “some people created [the perception of] a scam by artfully arranging a few selected facts and exaggerating things beyond recognition to astronomical levels.” The Court also found that, notwithstanding the earlier 2010 report (which others had already suggested was methodologically problematic), the actual losses to the government were marginal at most.

Many commentators were stunned and dismayed by the Special Court’s decision, denouncing it as “shocking” and “flawed.” But after reading the Special Court’s decision, I find myself in agreement with the Special Court’s reasoning. While it’s impossible, in a short blog post, to wade through the merits of the Special Court’s analysis for each of its conclusions, here I want highlight some of the most important arguments in support of the Special Court’s controversial decision. Continue reading →

Asset Recovery and Fair Trials: The European Court of Human Rights Jurisprudence

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Article 54 of the UN Convention Against Corruption requires state parties to have procedures “to give effect to an order of confiscation issued by a court of another State Party.”  Once a party receives a request to return assets backed by a confiscation order issued by a court in the requesting state, the process is simple.  The requested party brings the order before a domestic court, and the court orders the assets forfeited.  The requested state then hands over the money, securities, title to the property, or whatever is required to transfer the assets from their current owner to the requesting state.

What if the asset’s owner contests the transfer, however?  What if the owner asserts the court proceedings that led to the confiscation order issuing in the requesting state were not fair?  Does the requested state have an obligation to entertain the complaint? Continue reading →

Unfriended: Should Facebook be Required to Enforce US Sanctions Against its Users?

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Late last year, Facebook abruptly shut down the accounts of Ramzan Kadyrov, the despotic leader of the Chechen Republic. The social media giant claimed that it had a “legal obligation” to disable Kadyrov’s Facebook and Instagram accounts because of new sanctions imposed by the United States government under the Magnitsky Act. Among other things, Kadyrov has been accused of ordering the assassination of a political opponent, personally torturing another, and leading a violent purge of gay men. He’s also an active social media user: four million people followed his Facebook and Instagram profiles, and 400,000 continue to follow him on Twitter. Kadyrov had become famous for posting videos of himself wrestling a crocodile, praising Russian President Vladmir Putin, and—perhaps ironically—mocking what he saw as the ineffectiveness of American sanctions.

As many journalists noticed, Facebook hasn’t disabled the accounts of other sanctioned individuals, including Venezuelan President Nicolas Maduro, Russian Deputy Prime Minister Dmitry Rogozin, and Israeli billionaire Dan Gertler. Facebook explained this seeming inconsistency with an unhelpful truism that it “operate[s] under the constraints of US laws, which vary by circumstance.” Its statements have led observers to speculate that Facebook is using the sanctions as a pretextual reason to cut off a user it already disliked, or that it’s “picking and choosing compliance” in an attempt to please the government. Although those explanations seem plausible at first glance, a careful look at the relevant laws suggests an even simpler (albeit more mundane) one: Facebook may actually be correct that it had a legal obligation to suspend Kadyrov’s accounts but not those of others targeted by American sanctions.

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Argentinians Cry Out “Cambiemos,” But Can They?

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In early January 2018, five prominent Argentinian officials were arrested on corruption charges, including Amado Boudou, Argentina’s former vice president. These arrests come on the heels of President Mauricio Macri’s landslide victory on a “Cambiemos,” or “Let’s Change,” platform—a promise to root out public corruption. Late last year, Argentina’s Congress passed a new anticorruption law, which punishes companies for corruption by blacklisting them from public contracts and levying fines of up to five times the amount companies have obtained by illegal means. The new law also requires corporate compliance programs for the first time. But, while these reforms are welcome, the Argentinian judiciary remains an obstacle to genuine progress in eradicating the rot of corruption.

While the Macri government should be praised for making steps in the right direction, its efforts will fall short unless something is done about Argentina’s judicial system. More specifically, Argentina’s judicial institutions suffer from three problems that impede effective anticorruption efforts: Continue reading →

Returning Assets to Governments Run by Kleptocrats

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The return to the victim country of assets stolen by a corrupt official has been much commented upon on this blog (here, here, here, here, and here).  The discussion centers around whether governments holding the stolen assets must return them when the government requesting the return continues to be dominated by thieves.

Not surprisingly, the asset recovery provisions of the UN Convention Against Corruption provide little guidance.  It was written at a particular moment in history — just after Ferdinand Marcos of the Philippines, Sani Abacha of Nigeria, and Suharto of Indonesia had fallen.  These kleptocrats, whose massive theft of their nation’s resources inspired the UNCAC asset recovery chapter, had been replaced by democratically inclined leaders committed to the rule of law and the welfare of their citizens.  The question then occupying UNCAC’s drafters was how to return the money to such rulers as quickly and inexpensively as possible.

But in hindsight, the replacement of these kleptocrats by enlightened rulers seems more an accident of history than a harbinger of future events.  It is all too rare for a kleptocrat to be replaced by a democratically chosen successor of the likes of the Philippines’ Cory Aquino or South Africa’s Nelson Mandela. Far more common is the replacement of one kleptocrat by another — or by a gang of kleptocrats.  When this is the case, must nations holding the fallen kleptocrat’s assets return them to another thieving government?  Knowing chances are slim the assets will ever benefit those the thieves rule?

Although UNCAC offers no answer to these questions, in a paper delivered at a conference organized by Geneva Center for Civil and Political Rights I argue that UNCAC is not the only treaty governing states’ obligation to return stolen assets.  There are as well provisions in the International Covenant on Civil and Political Rights and the International Covenant on Economic, Social and Cultural Rights that states must observe.  And these point decidedly against returning stolen assets to a kleptocracy. Thye dictate instead that the assets be returned directly to citizens.

My paper is here.  Comments welcome.  Other papers presented at the conference’s rich and stimulating discussion on human rights and corruption are here.

Thoughts from the Menendez Trial: Preventing Corruption from the Start

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Last fall’s corruption trial of U.S. Senator Robert Menendez (D-NJ) ended rather anticlimactically, with the presiding judge declaring a mistrial after the jury announced that it couldn’t reach a decision, and the Department of Justice eventually deciding not to retry him. Senator Menendez had been accused of taking donations and gifts from Florida ophthalmologist Salomon Melgen in exchange for advocating for visas for Melgen’s foreign girlfriends, the award of a government contract, and the resolution of a Medicare billing dispute. Plenty of digital ink has already been spilled on the broader implications of the Menendez case for other bribery prosecutions (on this blog here, and elsewhere here and here).

But putting aside the specifics of the case, what caught my eye about the allegations against Senator Menendez was a background feature of U.S. law that seems to have gone largely undiscussed: It’s perfectly legal (and normal) for non-constituents to contribute to political candidates. In other words, even if you are barred from voting for a candidate because you live outside that candidate’s district, you can still express your support by pulling out your checkbook. That lack of constraint on donations seems to invite the very kind of corruption the government alleged in the Menendez case, because it allows a wealthy donor to find and purchase his or her own “personal United States senator.”

I’m certainly not the first person to voice the concern that allowing non-residents to contribute to political candidates may facilitate corruption. Two states—Alaska and Hawaii—have recognized the risk posed by allowing non-residents to contribute to political candidates. They’ve responded by limiting those donations. But in the Lower 48 and in all federal elections, there are no differential limits on contributions from people residing outside the state, so long as they are American citizens or permanent residents. (Alaska’s law is currently facing a First Amendment challenge from an aspiring donor whose gift was returned because the candidate he supported had already reached the out-of-state contribution limits. A federal judge upheld the law as a “closely drawn” effort by the state to prevent “quid pro quo corruption or its appearance,” but the would-be donor has appealed.) Putting aside the constitutional defenses of the sorts of laws that Alaska and Hawaii have adopted (which you can find in the amicus briefs filed in the Alaska case here, here, and here), there are strong policy reasons for limiting contributions by people living outside a state or district—not least because such limits, as the judge in the Alaska case noted, can be a useful tool for preventing corruption or its appearance:

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The Flawed and Flimsy Basis for the American Bar Association’s Opposition to Anonymous Company Reform

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In last week’s post, I raised the question of why the American Bar Association (ABA), which represents the U.S. legal profession, so strenuously opposes even relatively modest measures to crack down on the use of anonymous companies for money laundering and other illicit purposes. In particular, the ABA has staked out a strong, uncompromising opposition to the bills on this topic currently under consideration in the U.S. House (the Counter Terrorism and Illicit Finance Act) and in the Senate (the TITLE Act). As I noted in my last post, the substance of the ABA’s objections (summarized in its letters here and here) appear, at least on their surface, unpersuasive as a matter of logic, unsupported by evidence, or both. This, coupled with the fact that many ABA members strongly disagree with the ABA’s official position on this issue, made me wonder how the ABA’s President and Government Affairs Office had come to take the position that they had.

After doing a bit more digging, and talking to several knowledgeable people, I have a tentative answer: The ABA’s opposition to the currently-pending anonymous company bills is based on an aggressive over-reading of a 15-year-old policy—a policy that many ABA members and ABA committees oppose but have not yet been able to change, due to the ABA’s cumbersome procedures and the resistance of a few influential factions within the organization.

Why does this matter? It matters because the ABA’s letters to Congress deliberately give the impression that the ABA speaks for its 400,000 members when it objects to these bills as against the interests of the legal profession and contrary to important values. But that impression is misleading. There may be people out there—including, perhaps, members of Congress and their aides—who are instinctively sympathetic to the anonymous company reforms in the pending bills, but who might waver, for substantive or political reasons, if they think that the American legal profession has made a considered, collective judgment that these sorts of reforms are undesirable. The ABA’s lobbying documents deliberately try to create that impression. But it’s not really true. The key document setting the policy—the one on which the ABA’s House of Delegates actually voted—was promulgated in 2003, hasn’t been reconsidered or updated by the House of Delegates since then, and doesn’t really apply to the currently-pending bills if one reads the document or the bills carefully.

I realize that’s a strong claim – one could read it as disputing the ABA President’s assertion, in her letters to Congress, that she speaks “on behalf of” the ABA and its membership in opposing these bills. And I could well be wrong, and remain open to correction and criticism. But here’s why I don’t think the ABA’s current lobbying position should be read as reflecting the collective judgment of the American legal profession on the TITLE Act or its House counterpart: Continue reading →

Depoliticizing the Removal of Heads of Anticorruption Agencies

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In December 2017, a civil society organization that aligns itself with Philippine President Rodrigo Duterte made good on its threat to submit an impeachment complaint against Conchita Carpio Morales, head of the Philippines’ independent anticorruption agency (ACA), known as the Office of the Ombudsman. This came after President Duterte himself called for the impeachment of Ombudsman Morales, publicly accusing her of engaging in “selective justice” and of being part of a “conspiracy” to oust him. Notably, President Duterte leveled these accusations at a time when the Office of the Ombudsman had opened an investigation into the Duterte family’s alleged hidden wealth, and into a multi-billion peso illegal drug trafficking case that implicates President Duterte’s son. This is hardly a unique case. In Nigeria, Nepal and Ukraine, among other places, conflicts between politicians and ACA heads have resulted in the latter’s actual or threatened removal.

Unfortunately, most countries place the decision whether to remove an ACA head in the hands of their politicians (see here and here). The Chief Executive often plays a key role in removals—sometimes on his or her sole authority (as in Afghanistan, Brazil, Botswana, South Korea, Mexico, Singapore, and Tanzania), or in conjunction with the legislature (as in Uganda and Lithuania) or a judicial body (as in Ghana and Kenya). In most other cases, the power of removal is exercised by parliament or any of its members or ministers, often through an “impeachment” process of some kind. Only Barbados, Bangladesh, and Yemen have removal procedures for ACA heads that are strictly and purely judicial in nature.

While there are, at present, no universally-accepted standards against which ACAs are measured, the non-binding 2012 Jakarta Statement on Principles for Anti-Corruption Agencies lays out principles for states to follow in establishing or maintaining effective ACAs. The Jakarta Statement’s position on appropriate procedures for removing an ACA head may be influential in shaping how at least some countries address this issue. And because the Jakarta Statement is currently being revisited (see here and here), now is an opportune time to consider revising its provision regarding the removal of ACA heads.

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Offshore Tax Havens: Whose Fight Is It Anyway?

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By the end of 2017, offshore tax havens were (again) in the spotlight. This was largely thanks to the International Consortium of Investigative Journalists (ICIJ), which helped release the “Paradise Papers”, a trove of documents primarily concerning the clientele of Appleby, a prestigious law firm with offices in the Cayman Islands and the Bahamas. These documents illustrated how firms like Appleby help wealthy individuals use offshore tax havens to avoid or evade paying taxes in their home jurisdictions; this is possible because tax havens offer significantly lower tax rates compared to the home jurisdiction, and also offer a measure of secrecy surrounding financial transactions. (Tax havens often have little to offer but these discounts; they rarely have good governance, and opportunities outside the finance industry are difficult to find for the locals.)

The movement to crack down on offshore tax havens has gathered much support from anticorruption activists. Pointing to leaks like the Paradise Papers (and the Panama Papers before them), anticorruption activists argue that the secrecy associated with offshore tax havens exacerbates the problems of kleptocracy and corruption. While I agree that offshore tax havens pose serious problems, I’m skeptical whether this issue should be a focal point for anticorruption activists (rather than, say, advocacy groups concerned primarily with tax justice or global wealth inequality). There are two reasons for this: Continue reading →

Why Does the American Bar Association Oppose Beneficial Ownership Transparency Reform?

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Right around the same time that this post appears on the blog, the U.S. Senate Judiciary Committee will be holding a hearing on “Beneficial Ownership: Fighting Illicit International Financial Networks Through Transparency.” The main focus of the hearing will be on a pending bill, the True Incorporation for Transparency for Law Enforcement Act (TITLE Act). That bill’s major provisions do two main things:

  • First, subject to certain limited exceptions, the Act would require that every applicant wishing to form a corporation or limited liability company (LLC) in a U.S. State must provide that State with information on the true or “beneficial” owners of the company—that is, the live human beings who actually exercise control over, and/or receive substantial economic benefits from, these entities—and to keep this information updated. This information could then be requested by a law enforcement or other government agency, or by a financial institution conducting due diligence on a customer. Those applicants who don’t have a U.S. passport or driver’s license who want to form a corporation or LLC would have to apply through a U.S.-based “formation agent”; this agent would be responsible for verifying, maintaining, and updating information on the identity of the legal entity’s beneficial owners.
  • Second, the bill would also subject these “formation agents” to certain anti-money laundering (AML) rules applicable to financial institutions, including the requirements for establishing AML programs and filing suspicious activity reports (SARs) with the Treasury Department. However, the TITLE Act expressly exempts attorneys and law firms from this provision—provided that the attorney or law firm uses a separate formation agent in the U.S. when helping a client form a corporation or LLC. (The idea, as I understand it, is that the bill would avoid putting attorneys in the position of potentially having to file SARs on their own clients—but in order to avail themselves of this exemption, an attorney helping a client form a corporation would have to retain a separate formation agent, and it would be this latter agent that would be subject to the AML rules. More on this in a moment.)

Compared to the more aggressive beneficial ownership transparency reforms touted by anticorruption/AML advocates, and adopted in some other countries, the proposed U.S. legislation is fairly mild—but it is still, as prior commentators on this blog have emphasized (here and here), a welcome step in the right direction. After all, while the U.S. record on fighting global corruption and international money laundering is good in some respects (Foreign Corrupt Practices Act enforcement and the Kleptocracy Asset Recovery Initiative come to mind), when it comes to addressing the facilitators of corruption, such as corporate secrecy, the U.S. is a laggard (as illustrated by poor U.S. score on the Tax Justice Network’s 2018 “Financial Secrecy Index,” released last month). So it’s indeed encouraging that the TITLE Act, and its counterpart in the U.S House of Representatives (the less-cleverly-named “Counter Terrorism and Illicit Finance Act”) have received both bipartisan support and the endorsement of a wide range of interest groups—including not just anticorruption, AML, and tax justice advocacy groups, but also representatives of law enforcement, the finance industry and other business interests (here and here). Many are cautiously optimistic that some version of these bills might actually become law this year.

But some opposition remains. The sources of that opposition are, in some cases, predictable: the Chamber of Commerce, for example, opposes these reforms, as does FreedomWorks, the lobbying group sponsored by the libertarian billionaire Koch brothers. One of the major opponents of the legislation, though, was more surprising, at least to me: the American Bar Association (ABA), which represents the U.S. legal profession. The ABA has come strongly against this legislation, sending letters to the responsible committees in both the House and Senate expressing strong opposition to even these relatively mild reforms.

What’s the explanation for this uncompromising opposition? Do the objections make sense on the merits? How did the ABA decide to take such a strong stand, despite the fact that I’m sure many ABA members support greater beneficial ownership transparency? I don’t know the answers to any of these questions yet, and I may try to do a few more posts over this month as I try to work through these issues. But for now, let me offer some preliminary thoughts: Continue reading →