Category Archives: Commentary

Venezuelans Out Kleptocrats’ Kids

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Those cursed to live in a country where leaders are stealing the nation’s resources wholesale are rarely able to stop them.  Calling the police, complaining to the prosecutor, or appealing to the legislature is pointless: in a kleptocracy the thieves control the machinery of the state.  Speaking out is futile.  Those who do are quickly silenced — imprisoned if they not become the victim of state-sponsored assassination.

So it is particularly welcome to report that the citizens of Venezuela, the latest nation to become victim of massive, “grand” corruption by its leaders, recently hit upon a way to strike back. Even better is how they are doing it: using the social media posts of the kleptocrats’ kids. The Twitter account VVsincensura (“Venezuelans uncensored”) scours the internet collecting posts by the children of Venezuela’s kleptocrats showing them living the high life in Paris, Hong Kong, Sydney, and the like while the nation sinks ever deeper into a state of penury.  From videos of the Caracas mayor’s daughter surfing in Australia to pictures of a former state official’s offspring helicoptering around the Middle East, VVsincensura regularly, indeed sometimes hourly, tweets out evidence of how well one’s kids can vacation, dine, and tour when the government picks up the tab.  Particularly galling are photos of an ex-Minister of Health’s children sightseeing in China while the country experiences a medical emergency because it has no money to pay for basic medicines and hospital supplies.

Venezuela’s kleptocrats are yelping over the outing of their kids (example here).  More significantly, the steady stream of snapshots showing them, drink in hand, languishing by a fancy pool or on white sands beach while the mass of Venezuelans scrounge for life’s basic necessities is starting to have an impact — both in Venezuela and abroad.

Within in Venezuela VVsincensura has stripped the last shred of legitimacy from the thieves ruling the country.  Their claim to power is that they speak for Venezuela’s poor.  But as more and more pictures of their kids in private jets, on luxurious beaches, or in five star restaurants circulate, that claim has become a dark national joke.  It has also pumped new life to Venezuela’s beleaguered domestic opposition.  The only thing now keeping the kleptocrats in power is the security forces, and one has to ask how many pictures of generals’ sons and daughters living it up in Madrid, Buenos Aires, and Sao Paulo will it take before front-line soldiers begin deserting en masse.

Outside Venezuela the vulgar display of wealth by kids of kleptocrats has become so revolting that it has begun to spark action. At this writing some 30,000 Australians have signed a petition demanding that their government revoke the student visa of Lucía Rodríguez, daughter of Caracas’ mayor and niece of the Foreign Minister.  Rodríguez, ostensibly a student at a pricey Sydney University (tuition $18,000), is shown riding the waves off a Sydney beach in one VVSincensura post and enjoying a lifestyle far removed from that of an ordinary student in others. In the meantime, her father earns less than a $1,000 a year as mayor while preaching the virtues of an austere life to his constituents.

The Australian government should heed its citizens’ plea and send Rodríguez home, and that civil society in other nations hosting the kids of Venezuela’s kleptocrats should file similar petitions.  Denying kleptocrats the ability to send their kids abroad would remove one incentive for them to rob their nation blind.  More importantly, perhaps if the kids are penned up in Venezuela they will begin to realize just how hard life is for the great majority and how much responsibility their parents bear for making it so. Who knows, a few uncomfortable conversations around the family dinner table might prompt some of the thieves to go straight? For if a parent craves anything, it is their child’s love and respect.

While a single Twitter account might seem a feeble weapon to fight kleptocracy, VVSincensura shows that this is not so.  That when aimed at the right target, it can be a powerful weapon for combatting grand corruption. The ostentatious, revolting display of wealth by kleptocrats’ kids VVSincensura features reveals in a dramatic way the evil of grand corruption.  It is a tactic deserves widespread emulation — by citizens of other kleptocracies and anticorruption activists everywhere.

Wake Me Up When the Walmart Case Actually Settles

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Big news in the world of Foreign Corrupt Practices Act Enforcement! According to a report earlier this month in Bloomberg, the U.S. government’s investigation into allegations that Walmart’s subsidiaries abroad (particularly in Mexico, India, Brazil, and China) engaged in extensive bribery of public officials, is about to wrap up! “People familiar with the matter” report that the settlement is nearing finalization, and that Walmart will end up paying penalties that are much smaller than the U.S. government originally sought. All of us FCPA nerds should be on pins and needles awaiting the imminent announcement of the settlement, which should come out any day now…

… or maybe not. Maybe this time the news is for real, and we’re about to see a settlement announcement, in which case there will certainly be something important to write about. But at the moment, what I find more interesting is the succession of stories, spread out over a nearly two-year period, that suggested that a Walmart settlement was just around the corner. To recap:

  • In October 2015, the Wall Street Journal reported that, according to unnamed “people familiar with the probe,” the Walmart matter was about to be wrapped up–and the fine was going to be much smaller than originally predicted, because it turned out (according to the WSJ’s sources) that the FCPA violations were not as serious or widespread as had been previously reported.
  • Almost exactly one year later, in October 2016, Bloomberg reported (on the basis of conversations with “three people familiar with the matter”) that, contrary to the previous WSJ report, although the US government encountered difficulties making out the FCPA violations in Mexico (not so much because of lack of evidence of misconduct, but rather because the most egregious conduct was outside of the statute of limitations), the government had evidence of misconduct elsewhere, and was seeking a penalty of around $600 million. According to that report, Walmart was still resisting, but the report nonetheless indicated that the administration was “working to wrap up an agreement before a new administration takes over in January [2017].”
  • Approximately nine months later, Bloomberg’s latest report states that, “according to people familiar with the matter,” Walmart is preparing to settle the case for $300 million – about half of what the government sought.

Now, though my initial reaction, given this history, is to take reports of imminent settlement with a grain of salt, I hasten to add that none of these reports are inconsistent with each other, or with the claim in the most recent report that a settlement announcement is imminent. Indeed, one could reconstruct roughly the following timeline of events, which I think is probably the best way to understand what’s going on: Continue reading →

Entrepreneurs Care About Corruption – Here’s How to Help Them Fight It.

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A friend of mine has been trying to start an artisanal liquor business in a small Latin American country. He learned to ferment fruit, crafted a logo, scrounged for and sanitized several hundred glass bottles, registered his corporation with all the various agencies, and paid all of his initial taxes. After producing his first batch and selling it to a number of small shops, he decided it was time to expand. Unfortunately, when he began to negotiate sales to larger restaurants and grocery stores he ran into a major complication: liquor taxes. The high level of liquor taxation made his business model completely unprofitable. Trying to understand how any other liquor business stayed afloat, he discovered that one liquor manufacturer and importer dominated the market, and didn’t pay any taxes. How? Corruption. In order to stay in business, my friend had a choice: (A) he could stay small, fly under the radar, and avoid paying taxes, or (B) he could navigate the perilous and uncertain process of bribing his way out of paying taxes. He ended up choosing a third option: he closed up shop and went back to his day job.

Ultimately, the fate of one small liquor business is not that important. But my friend’s experience illustrates a much more general phenomenon, one that is likely familiar to readers with experience in countries where corruption is widespread: corruption protects incumbent firms, undermines entrepreneurship, and constrains growth and job creation—particularly by small and medium-sized enterprises (SMEs), which are often the primary drivers of economic growth, employment, and innovation. Corruption can be a critical roadblock to entrepreneurs and small business owners who can’t bribe their way out of regulation. In fact, pervasive corruption can shift business incentives to such a significant extent that it can impact the shape of an economy dramatically. Continue reading →

Nigeria’s Whistleblowing Policy: A Good Start, But Not Enough

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On December 21, 2016, Nigeria’s Federal Ministry of Finance approved a whistleblowing program as part of the Nigerian government’s continued efforts to fight corruption. Key features of the program include the launch of an online portal for submission of tips and the establishment of a reward for “information that directly leads to the voluntary return of stolen or concealed public funds or assets” (the reward is 2.5 to 5% of the amount recovered, with the percentage decreasing as the amounts recovered increases). As over $176 million in stolen funds was recovered within the first two months of the program, the whistleblowing policy appears to be an overnight success story. Nevertheless, although stolen funds are indeed being recovered, the existing policy does not do enough to offset the risks that whistleblowers face when they come forward with information, and this deficiency may limit the long-term effectiveness of the program. In particular, there are three aspects of the program that the government ought to reform in order to encourage individuals to assume the risks associated with becoming a whistleblower, and consequently to ensure the policy’s continued success. Continue reading →

Ceiling Prices: A Second Best Method for Attacking Bid Rigging

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The procurement laws of all countries provide that with a few, narrowly drawn exceptions public contracts are to be awarded on the basis competition.  As the drafters of the UN model procurement law explain, the reason is straightforward. A competitive procurement gives all those seeking the government’s business an equal chance to win the contract while at the same time maximizing the chance that government will receive quality goods, services, or civil works at the lowest price.

The problem comes when would-be suppliers do not compete for government’s business.  When instead of each one preparing its bid independently, based on what price the firm can charge and still make a reasonable profit, the bidders sit together and agree which one will “win” the contract and at what price, a price that can sometimes be twice what it would have been were there competition.

How can a government reap the benefits of competition when bidders have rigged the bid? The answer is that it cannot.  At least not immediately.  It can, as both the U.S. Department of Justice and the OECD recommend, institute procedures that make it harder for firms to collude, and it can, again as both these agencies regularly urge, vigorously enforce laws that outlaw bid rigging.  But these measures take time to have an effect; in the meantime, a government cannot halt all procurements.  It still needs to buy computers, desks, and other goods, to contract with cleaning, fumigation, and other service providers, and it must continue to build and repair roads, damns, and other civil works.

So in the face of collusion or cartel-like behavior by its suppliers, is government powerless in the short-run?  Must it accept whatever price the bid riggers offer? No matter how high it might be? Continue reading →

Reforming FIFA: Why Recent Reforms Provide Reason for Hope

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Over a year has passed since Gianni Infantino was elected President of FIFA. When elected, Infantino promised to reform the organization and win back the trust of the international football community following the numerous incidents of corruption that preceded his tenure as President (see here and here). Corruption not only existed at the executive level of FIFA, but also permeated down to the playing field, where incidents of match fixing and referee bribery were widespread. On the day he was elected, Infantino remarked, “FIFA has gone through sad times, moments of crisis, but those times are over. We need to implement the reform and implement good governance and transparency.”

Yet despite some reforms in the past year, a recent Transparency International report–which surveyed 25,000 football fans from over 50 countries—showed that the public still lacks confidence in the organization, with 97% of fans still worried about corruption, especially match fixing and bribery of officials. While the results show some improvement compared to the previous year, the numbers should worry both Infantino and FIFA: 53% of fans do not trust FIFA, only 33% of fans believe FIFA is actively working against corruption in football, and only 15% of fans have more confidence in FIFA now than they did during last year’s corruption scandal.

The public’s distrust of FIFA is certainly understandable, as is a degree of cynicism regarding Infantino’s promise to clean up the organization. After all, Sepp Blatter ran on a similar platform to Infantino when he elected President in 1998, also claiming that he was going to reform FIFA. Yet despite the lack of confidence in Infantino and FIFA, there are a few reasons to believe that change may be occurring within the organization, and that FIFA, under Infantino’s leadership, may be making strides in the right direction. Since Infantino’s election, FIFA has undertaken the following steps to curb corruption within football and the organization:

Continue reading →

The US Navy’s “Fat Leonard” Scandal: How the Virtuous Fall

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Last March, the U.S. Department of Justice unsealed the latest indictment in the so-called “Fat Leonard” corruption scandal that has haunted the Navy since 2014 and continues to grow. “Fat Leonard” is Leonard Glenn Francis, a Malaysian citizen and the owner of Glenn Defense Marine Asia (GDMA), which provided support to the Navy’s Seventh Fleet in Southeast Asia from 2006-2014. When Navy ships pull into foreign ports, local companies are contracted to provide marine husbanding, port security, refueling and waste management services, ground transportation for sailors and Marines in port, etc. GDMA offered these services, but also much more: for a number of senior Navy officials, Francis paid for prostitutes, extravagant meals, luxury hotel stays, and other travel expenses, and provided gifts of both cash and goods. All he asked for in return was assurances that Seventh Fleet ships would use ports Francis controlled, classified information about Navy operations (including ships’ schedules), sensitive information on the business practices of his competitors, and assistance in facilitating a price gouging scheme that yielded GMDA excess profits of $35 million over eight years. The total number of people charged in the “Fat Leonard” scandal now comes to 27, including two admirals, fifteen other senior active duty naval officers, an NCIS special agent, and two contracting supervisors; another 200 additional individuals remain under scrutiny by prosecutors. This was a full-fledged cultural problem, not just a case of a few bad apples.

The details of what these men got up to in port are quite salacious, but my focus in this post is instead on what this scandal exposes about how corruption can spread among decorated public servants and what can be done to prevent similar scandals in the future. Every single one of the senior officers charged had been trained to be self-disciplined and to put mission and country above self—it’s what those of us who serve in the military vow to do. Each officer had a long and distinguished career before becoming entangled with Francis and his lurid scheme. Yet each sold his integrity, and sold out his country, for immediate gratification. Why? Continue reading →

The Trump Legacy: A Gladstonian Finale?

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For a man whose biographer describes him as obsessed “with protecting his image,” President Donald Trump seems oblivious to how flouting conflict of interest norms is blackening that image.  Perhaps he thinks that the criticisms leveled (examples from GAB: here and here, major media: here, here, and here) are just the carpings of Clinton supporters that will fade over time. And that his presidential accomplishments will overshadow whatever he may do to grow the Trump patrimony while holding the office.

He might want to consider how conflict of interest charges have sullied the image of one of Britain’s finest leaders since he left office 123 years ago.  So great has the fuss been that that no biographer, no matter how sympathetic, and no history of 19th century Britain can ignore the charges. Continue reading →

Is It a Crime To Promise To Support a Legislator Who Votes the Way You Want?

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Last March, while President Trump and House Speaker Paul Ryan were trying—ultimately unsuccessfully—to muster enough votes for the first version of their proposed Obamacare replacement, the American Health Care Act (AHCA), the Koch brothers’ political organizations announced that they would set up a fund to provide substantial campaign support to all Republicans who voted against the AHCA (which the Koch brothers opposed on the grounds that it didn’t go far enough in repealing the health insurance expansions brought about by the Obamacare). Stripped to its essence, the Koch brothers said to Republican House Representatives: “If you vote the way we want on this bill, we’ll donate (more) money to your campaigns; if you don’t, we won’t.”

Was that offer a violation of the federal anti-bribery statute? In a provocative essay, Louisiana State University Law Professor Ken Levy says yes, it was. Professor Levy reasons as follows: The anti-bribery statute, codified at 18 USC § 201(b), prohibits any person from “giv[ing], offer[ing] or promis[ing] anything of value to any public official … with intent to influence any official act.” The Koch brothers certainly “offered” or “promised” campaign donations, and campaign donations indubitably count as a “thing of value.” Moreover, the Koch brothers made this promise in order to influence a vote in the legislature, clearly an official act. Moreover, as Professor Levy points out, although many people seem to think that the Supreme Court has ruled that providing campaign donations in exchange for votes is constitutionally protected, in fact the Court has held the opposite: promising campaign donations in exchange for an “official act” does qualify as an unlawful bribe, so long as there’s a quid pro quo; in the absence of a quid pro quo, Congress’s power to regulate campaign donations or expenditures is more limited. Thus, all the elements of a §201(b) violation are present, and at least in principle, the Koch brothers could be prosecuted, convicted, and sentenced to a prison term of up to 15 years and/or a fine of up to three times the value of the thing of value offered (which this case could run into the tens of millions of dollars).

Professor Levy’s legal analysis seems, at least on a first reading, to be correct. At the same time, I find it unthinkable that any federal prosecutor—not just Jeff Sessions, but even someone like Preet Bharara—would bring criminal charges in this case, or that any judge would allow a conviction to stand. Professor Levy’s provocative essay has forced me to think a bit harder about why that is. The fact that I can’t imagine a federal bribery case could or should be brought against the Koch brothers for their announced campaign support plan, despite the fact that the conduct seems clearly to violate the letter of the law, suggests that something has gone seriously awry with how U.S. law, and U.S. political culture, think about the relationship between campaign donations, political speech, and criminal bribery. Continue reading →

Shareholder Proposals as a Response to Trump’s Conflicts of Interest

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Donald Trump’s continuing failure to place his assets in a blind trust creates an opportunity for him to abuse the public office of the Presidency for private gain—his own and his family’s. The Trumps have shown themselves willing to work with blatantly corrupt business partners in the past; now, with the awesome power of the Presidency, Trump is in a unique position to do significant damage to the anticorruption agenda. People who, like me, are bothered by the conflicts of interest have sought ways to fight back. While my last post discussed the viability of the Trump anticorruption boycotts, here I discuss a different but potentially complementary approach: shareholder proposals.

What is a shareholder proposal? Every year, each shareholder receives a long booklet of information, called a proxy statement, from every company in which he or she holds stock. These proxy statements are compiled by corporate leadership and distributed to shareholders, who are asked to vote on certain matters: electing directors to the board, hiring the corporate accounting firm, and approving executive compensation. At the end of the proxy statement come the shareholder proposals, short recommendations for the board of directors. Shareholders are asked to vote for or against those proposals.

Under SEC Rule 14a-8, any shareholder (or group of shareholders) who holds $2,000 or 1% (whichever is less) of the company for at least one year may submit a proposal. (There are a few other procedural requirements as well, but they are not too onerous.) Although shareholder proposals are merely advisory—the directors and management retain their power to make decisions on behalf of the corporation—shareholder proposals in the past have been used to advance social and political goals. For example, social activists used shareholder proposals to urge divesting from South Africa during the apartheid era. Last year Exxon Mobile included shareholder proposals to place a climate expert on the Board and to report on compensation for women. A shareholder proposal for Coca-Cola asked the company to report on its operations in high-risk regions with poor human rights records.

In this vein, anticorruption activists who hold stock in corporations that do business with the Trump family brands (such as Amazon, Macy’s, or Zappos) could submit shareholder proposals urging those companies to report on or cease all such business. To be sure, shareholder proposals are merely recommendations to the board. But shareholder proposals are nonetheless a low-cost tool in the anticorruption advocate’s toolbox that can help keep public attention on the issue and prevent the normalization of Trump’s conflicts.

An anti-Trumpian-conflicts-of-interest shareholder proposal, cast in the formalistic style typical of such proposals, might look something like the following:

Continue reading →