Category Archives: Commentary

Do People Care More About Corruption Than They Used To? Evidence from the US and Germany

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Sometimes it feels like corruption has become the topic of the year: We’ve heard repeatedly that it is (the perception of) corrupt elites that has fueled the rise of populists, nationalists, and new socialist parties and politicians. The most prominently of these, though not the only one, is Donald Trump, who promised in his campaign to take back power from the corrupt elites (see here and here).

But has the topic of corruption actually become increasingly prominent in popular and media discourse over the last two years? To investigate this question, I did a simple search on the Factiva database within the eight most widely-circulated American newspapers (USA Today, the New York Times, the Wall Street Journal, the Los Angeles Times, the New York Post, the Chicago Tribune, the Washington Post, and Newsday) for the term “corruption.” I did a similar search for Germany, using the term “Korruption” and the eight most widely-circulated German newspapers (BILD, BILD am Sonntag, Süddeutsche Zeitung, Frankfurter Allgemeine Zeitung, Die Zeit, Westdeutsche Allgemeine Zeitung, Rheinische Post, Welt am Sonntag and Rheinische Post). Surprisingly (at least to me), over the last two years there was no growth in U.S. newspaper reporting on corruption. As the following graph shows, reporting on corruption in the U.S. has been rather stable over this period, with between 500 and 750 articles a month. A slightly different picture emerges for Germany, where newspaper reports on corruption, which were substantially less frequent than in the U.S. to begin with, have actually declined over the past two years. (A side note, though perhaps an interesting one: The most reported corruption topic in both countries, with about 2.5 times more stories than the next-most-mentioned topic, was FIFA.): Continue reading →

How to Combat Match Fixing, the International Corruption Problem in Sports

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The recent rise and prevalence of corruption in sport has drawn the attention of the international community. As Transparency International highlights in their 2016 report, professional sports not only engage billions of people worldwide, but also involve significant amounts of money. Such corruption thus creates tremendous societal and economic burdens. Match fixing is one form of corruption that has impacted a wide range of sports, including tennis, cricket, soccer, boxing, basketball, and baseball all within the last year. This problem not only permeates low-level games, but also impacts high-profile events such as World Cup qualifiers, European Championship qualifiers, and even Champions League Games.

On the surface, it may seem as though match fixing is a victimless crime, or at least one that’s not sufficiently serious to attract the attention of anticorruption advocates. Yet because match fixing scandals have implications that stretch far beyond the playing field, the anticorruption community should care about this problem for at least two reasons. First, as previously discussed on this blog, corruption scandals in sports are highly visible, and corruption in sports can attract public attention in ways that other corrupt activities cannot. Second, match fixing facilitates organized crime and other corrupt activities. Organized criminals engage in match fixing because it is a low-risk enterprise with the potential for large rewards from unregulated betting markets.

A recent report by the United Nation Office on Drugs and Crime investigated match fixing and tried to understand some of its underlying causes. The report cites a number of factors that have allowed this threat to grow, including “personal greed, weak governance structures of sport as a sector, easily accessible global betting markets that are open to exploitation, low prioritization of match fixing as a threat by law enforcement agencies and the use of sport by organized criminals to advance their own interests.” In attempting to address these causes, 28 countries have proposed, adopted, or enacted specific legislation criminalizing match fixing. Yet even in those jurisdictions where such sanctions exist, regulations have been ineffective. Unfortunately, the complicated transnational nature of sports betting makes it difficult for regulations to prevent match fixing in an effective way. Proving that match fixing occurred requires collection and analysis of a substantial amount of betting evidence, which is particularly difficult to obtain in unregulated betting markets. Furthermore, despite the presence of regulations, significant financial incentives continue to pressure athletes to participate in match fixing.

Therefore, given the inherent difficulties with controlling such behavior, there are two things that can be done to more effectively deter match fixing.

Continue reading →

The Bayesian Corruption Index: A New and Improved Method for Aggregating Corruption Perceptions

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As most readers of this blog are likely aware, two of the most widely used measures of corruption perceptions—Transparency International’s Corruption Perceptions Index (CPI) and the Worldwide Governance Indicators (WGI) corruption index—are composite indicators that combine perceived corruption ratings from a range of different sources (including private rating agencies, NGOs, international development banks, and surveys of firms and households). The CPI takes a simple average of the available sources for each country; the WGI uses a somewhat fancier “unobserved component model” (UCM) which assumes that each source’s score is a noisy signal of the “true” level of perceived corruption; the UCM differs from a simple average in a few ways, perhaps most notably by giving less weight to “outlier” sources, though in practice the WGI and CPI are highly correlated, and the WGI’s creators report that the results for the WGI turn out not to change very much if one takes a simple average rather than using the WGI.

These composite indicators have a number of well-known problems, which I won’t bother going into here. Rather, the main purpose of this post is to introduce readers to an alternative index, developed by Samuel Standaert at Ghent University, which he calls the “Bayesian Corruption Index” (BCI). Standaert introduced the BCI in a 2015 article, but so far as I can tell it has not attracted much attention. The BCI certainly doesn’t solve all the problems of the traditional aggregated corruption perceptions indicators (more on this below), but it’s definitely an improvement, and deserves wider use. Let me first say a bit about how the BCI differs from the WGI, why I think it’s an advance over the WGI and CPI, and what some of its limitations are. Continue reading →

Cracking Down on Corruption in Haitian Customs

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Billions of dollars in international aid to Haiti has been lost due to corruption, and this corruption epidemic has hindered many of the good-faith efforts to provide assistance in the wake of disasters. Of the many layers of bribery, fraud, and deceit that plague aid delivery, the one that interests me the most concerns the front-line Haitian Customs officers.

My interest stems in part from personal experience: In August 2016, I was part of a small project to engineer and build a clean water system in Haiti, which required importing equipment and supplies. As a matter of law, the items we were attempting to bring into Haiti were exempt from tax on account of their use in a non-commercial setting and our association with an NGO. Yet despite the fact that this was clearly stated on the Customs form, the Customs officials insisted that we had to pay tax on the goods, told us further that we had to pay in cash directly to the Customs officer, and reduced the tax payment we engaged in bargaining. It seemed like a bribery racket, especially with the insistence on cash payment without giving us an option to make a payment to a government agency officially. Our experience was, alas, typical: Over the past few years, there have been multiple reports of individuals being extorted for cash at Haitian Customs, with officials often unwilling to follow their own guidelines, a situation that seriously hinders the timely provision of non-profit aid.

The Haitian government is aware of the problem, and in 2013 launched a general crackdown. Yet despite a handful of successes—such as the arrest of a prominent Haitian businessman who was involved with multiple Customs officers in a corruption ring that involved contraband and trafficking—the crackdown doesn’t seem to have led to a meaningful reduction of inconsistent and corrupt Customs practices. While additional reforms to the anticorruption laws and improved internal auditing would help, there are a few other steps that the Haitian government could take that would help to combat the sort of corruption that many importers, including my own team, have encountered in Haitian Customs: Continue reading →

Framing the Campus Sexual Assault Epidemic as an Issue of Systematic Corruption

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Over the past few years, in the United States, the issue of sexual assault on university campuses has become increasingly prominent—the subject of student protests across the country, exposés in the mainstream press, and widely-released documentary films (see here and here). The issue is not simply that such assaults happen, but that universities are failing in their basic duties to protect students and to discipline those who commit assaults. There are many theories as to why universities are reluctant to more aggressively investigate and sanction offenders, but many assert that a root cause is the university administrators’ concern about losing public face and, worse, money. This fear is especially acute among those universities with large, renowned varsity sports teams: College athletes are disproportionately responsible for sexual assaults, but expelling or otherwise sanctioning them would cost the university money and public support.

This phenomenon—university administrators’ worries over the financial and reputational success of athletics programs leading to improper or insufficient responses to sexual assault allegations against athletes—can and should be framed as a form of systemic institutional corruption. I recognize that framing this as a problem of corruption——rather than one of negligence or callousness—is unconventional and perhaps controversial, even for people who are outraged at universities’ inadequate response to sexual assault. After all, using the language of “corruption” implies insidious motives. Yet the label is not only an apt description of the problem, but using that vocabulary, and that diagnosis, suggests alternative approaches for fixing the problem.

Continue reading →

A Sad Tale of Corruption in a World Bank Project –UPDATE

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(Professor Ensminger’s testimony is here.)

Caltech Professor Jean Ensminger will today tell a Congressional panel a depressing story of corruption in a World Bank project in Kenya.  At a hearing on Bank accountability for its projects’ performance, she will document how money destined for the poorest of Kenya’s poor was siphoned off wholesale into the pockets of influential Kenyans and their cohorts.  At the same time, she will describe how, thanks to vigorous, extensive prevention measures, a similar Bank program in Indonesia brought significant benefits to those in poor communities with minimal “leakage.”

As she explained in a 2014 interview, the research underlying her testimony is the result of fortuitous circumstances.  A long-time student of the Orma, a semi-nomadic community found today in eastern Kenya, Dr. Ensminger was visiting the region shortly after several Orma villages had begun receiving funds from the World Bank’s Arid Lands Project.  Arid Lands is a “community driven development” project, meaning one where monies are distributed directly to local communities for projects they consider priorities.

Her Orma friends recounted hair-raising tales of corruption in the project, prompting her to shift focus to the impact of corruption at the village level. She presented her initial findings to the Bank’s research staff, where to protect her sources she did not reveal sufficient details to identify the project.  Bank staff determined on their own what the project was and opened an investigation.

In a brief interview before testifying Professor Ensimnger stressed that the point of her testimony is not that the Bank should refuse to fund community driven development projects. Rather it should, as was the case in the Indonesian project, provide sufficient oversight to ensure monies aren’t stolen.  And that doesn’t come cheap. While Congressional budget cutters may try to use her testimony to justify sharply reducing U.S. funding for the Bank, the real message of her testimony is that the oversight necessary to curb corruption can’t be had at bargain basement prices.

Her testimony and those of the other witnesses will be broadcast live starting 10:00 AM, US East Coast time, here.  Their written statements will likely be posted here at some point during or shortly after the hearing.  (Full disclosure: while drafting an internal “lessons learned” paper on the Arid Lands project for the World Bank, I came to know and admire Professor Ensminger and her work.)

Did the Trump Organization’s Azerbaijan Deal Violate the FCPA?

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Adam Davidson’s New Yorker piece from earlier this month, “Donald Trump’s Worst Deal,” has been getting a lot of attention, and deservedly so. The article, which focuses on the Trump Organization’s involvement in a hotel deal in Baku, Azerbaijan, does a very nice job highlighting the troubling background of the Trump Organization’s Azeri business partners and the Trump Organization’s casual approach (to put it charitably) to due diligence. However, the piece also suggests that the Trump Organization’s involvement with the Baku hotel deal may have violated the Foreign Corrupt Practices Act (FCPA), and many of the follow-up discussions of Mr. Davidson’s piece have repeated this claim (see, for example, here and here). On this point, not everyone agrees. Professor Mike Koehler, for example, wrote a lengthy critique of Mr. Davidson’s discussion of the FCPA issues, concluding that nothing in the facts as reported in the article suggests that the Trump Organization violated the FCPA – and that many of the article’s assertions to the contrary are based on incomplete and misleading representations of the statute and prior case law.

After having finally had a chance to read Mr. Davidson’s article carefully, it seems to me that Professor Koehler has the better of the argument—mostly. Much of the discussion of potential FCPA violations in Mr. Davidson’s article is confused and potentially misleading. That said, I do think there’s at least one plausible basis for the claim that the Trump Organization may have violated the FCPA in this case.

Here’s my take: Continue reading →

Targeting Trump Businesses as a Response to Conflicts of Interest

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Many people, myself included, believe Donald Trump’s failure to place his assets in a blind trust is more than just problematic. The full extent to which President Trump may be abusing public power for private gain—that is, engaging in corruption—is unknowable, so long as his business empire remains opaque and his tax returns stay buried. Even where Trump’s business interests are out in the open, a “shadow of corruption” hangs over the actions he takes as an ostensible public servant.

Some of the people who share these concerns are exploring ways in which they might engage in consumer activism as a response to Trump’s conflicts of interest. Consider two organizations that are leading broad boycotts against the Trump Administration. Don’t Pay Trump is a web browser extension that allows one to, in their words, “keep your money out of Trump’s tiny hands.” It alerts the consumer when he or she is making an online purchase from a business that sells Trump products. A second initiative, #grabyourwallet, is a more established and exceedingly low-tech enterprise which also calls for “flexing consumer power.” #grabyourwallet maintains what looks like an excel spreadsheet that displays companies ripe for a Trump boycott. It provides the necessary tools to the activist consumer: name and number of the company, reason it should be boycotted, suggested sample of what to say, and updates on successes. #grabyourwallet received credit for the recent Nordstroms decision to drop Ivanka Trump’s produces from its stores, which earned Nordstroms a Presidential tweeted complaint on February 8th.

Both of these organizations attempt to decrease the profitability of Trump businesses, albeit for different reasons. Don’t Pay Trump seeks to weaponize consumer power to affect administration policy, while #grabyourwallet is explicitly motivated by the Trump family’s conflicts. It is difficult to say how effective the anti-Trump boycotts might be, given the absence of direct analogies to the current situation. Nonetheless, we might be able to draw some lessons from past corporate boycott efforts:

Continue reading →

Lifting the Resource Curse: Beyond Potions, Incantations, and EITI

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Thanks to Google those who have had a curse put on them can find numerous ways to lift it: from drinking a special potion on the first night of the waxing moon to repeating a certain incantation 13 times while holding a rabbit’s foot.  (Here, here and here for useful sources.)  But Google is not nearly so helpful for policymakers looking to lift the resource curse: the corruption, violence, and misgovernment that befall a poor country with plentiful quantities of hydrocarbons or other natural resources.

The best Google does for them is tout the Extractive Industry Transparency Initiative, a voluntary compact where the government agrees to disclose the monies it receives from the companies that produce its resource and the companies agree to report the monies they pay government.  As the 300,000 plus “hits” on EITI in Google explain, the theory is that civil society will use the disclosures to hold government and the companies accountable. Unfortunately for the policymaker looking for solutions to the resource curse, Google will also pull up a long list of studies (here and here for examples) showing that so far it has had little to no effect on corruption and governance in resource rich poor countries and that at best the relief it promises is many years away.

With this post I hope to persuade Google’s powers that be to modify the search algorithm so that when a user enters “resource curse – how to lift” something besides “EITI” is returned.  That something is Continue reading →

When and Why Do Corrupt Politicians Champion Corruption Reform? A Character Study

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Can corrupt leaders enact effective anticorruption reform? The brief answer seems to be yes: Leaders who are (perceived as) corrupt can initiate and support effective anticorruption reform efforts. For example, as this blog has previously discussed, President Peña-Nieto (who has repeatedly been accused of corruption and graft) supported constitutional anticorruption reforms in Mexico. Egypt’s current President, Abdel Fattah al-Sisi, has similarly launched various anticorruption campaigns, even while fending off numerous corruption allegations.

But why do corrupt leaders institute anticorruption reforms? While there’s no universal explanation, there appear to be at least three archetypes that might help anticorruption activists identify and push unlikely reformers: The Power Player, The Top-Down Director, and The Born-Again Reformer. Continue reading →