Category Archives: Commentary

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 →

Trump Administration Backs Broad Reach of FCPA –UPDATE

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(Two days after this post appeared Washington Post columnist David Ignatius offered an important insight into where the Trump Administration policy on the FCPA is likely to end up in his March 10 column on former Exxon chief and now Trump Secretary of State Rex Tillerson:

“An example of the role Tillerson could play is an exchange in February about the Foreign Corrupt Practices Act. During a White House meeting, Trump complained that the anti-bribery statute cost the United States billions of dollars in lost sales overseas and millions of jobs. According to one insider, Tillerson dissented and described how he had walked away from an oil deal in the Middle East after a leader there demanded a payoff — but later was invited back. “You’re Exxon!” Trump countered, but the former chief executive dissented again. “No, people want to do business with America.”)

Presented with a first opportunity to narrow the reach of the Foreign Corrupt Practices Act, the Trump Administration refused, choosing instead to back the Obama Administration’s view that the act reaches those who help bribe an official of a third country no matter whether the defendant ever steps foot in the United States or works or acts for a U.S. company.  In endorsing this broad reading of the act, the Administration rejected pleas from FCPA defense lawyers that such a reading was an “unwarranted” and “unprecedented attempt to … ensnare foreign individuals who fall outside the carefully-delineated categories of principals covered by the FCPA.”  To the contrary, its lawyers told an appeals court, if the act were read to exclude these individuals, executives of non-U.S. companies could orchestrate foreign bribery schemes involving American companies with impunity.

The case arose from allegations that executives of the American subsidiary of the French firm Alstom had bribed Indonesian officials to win a $118 million contract to build power plants for the government.  Among those the Justice Department charged with FCPA violations was Lawrence Hoskins, a citizen of the United Kingdom working for the Alstom parent in Paris. His role, if any, in the bribe scheme remains to be established at trial, but one possibility is he orchestrated or facilitated it from his Paris perch though never traveling to the U.S. nor working or acting for the American subsidiary. If these facts are proved at trial, the Department asserts Hoskins is guilty of violating the FCPA as an accomplice, either because he aided and abetted those who actually paid the bribe or conspired with them to do so.

The trial court rejected both theories, however.  It ruled that an accomplice to an FCPA violation is beyond the act’s reach if the accomplice remained outside the U.S. while the act was violated and did not work or act directly for the U.S. entity that violated it.   The Department appealed and written arguments were submitted before the Trump Administration took office.  The appeals court did not hear the case until March 2, giving the Trump Administration time to ask for a delay to reconsider the Obama Administration’s position.  It could have also backed away from the Obama Administration’s interpretation of the law at the March 2 hearing (as it has done twice in hearings involving civil rights cases) and endorsed the trial court’s narrow reading of the act.

That it did not pursue either option is another signal, like that recently sent by the Trump official immediately responsible for FCPA enforcement, that whatever changes the Administration has planned elsewhere, a more relaxed view of the reach of U.S. antibribery laws is not one of them.

(The FCPA Professor Blog excerpts the appeal briefs of the Justice Department and Hoskins as well as the friend of the court brief by FCPA defense counsel arguing the view of the act the Trump Administration is defending is “unwarranted” and “unprecedented” here.)

Further Thoughts on Government Size and Corruption: Why Do Patterns Across U.S. States Look So Different from Patterns Across Countries?

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In a couple of posts (here and here) last fall, I discussed the relationship between government size (usually measured by the ratio of government expenditures to GDP, or occasionally by public sector employment rates) and corruption. The main takeaway from the cross-country data is that, in apparent contradiction to the “big government causes corruption” hypothesis, government size is, if anything, negatively correlated with perceived corruption, as measured by the Corruption Perceptions Index (CPI) or similar sources. While that evidence does not decisively refute the claim that larger governments are more prone to corruption—the relevant studies have important limitations, and it’s at least possible that the result is due to reverse causation—it certainly seems to suggest that, when it comes to fighting corruption, too-small governments are probably a more significant problem than too-large governments.

Most of the research on the relationship between government size and corruption relies on international comparisons. But some work has performed single-country studies, attempting to identify the relationship between government size and corruption across sub-national jurisdiction. Some of this work reaches results that are largely consistent with the international research. For example, a recent analysis of 290 Swedish municipalities found that those municipalities with higher public expenditure levels had lower corruption, as reported in an anonymous survey of senior politicians and civil servants. But other research—particularly research on the United States—has found the opposite result: Within the U.S., when controlling for a number of other economic and demographic factors, states with larger public sectors seem to have higher corruption. What’s going on here? Continue reading →

State-Level Responses to Trump’s Corrupt Mix of Business and Politics: Some Preliminary Proposals

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In my last post, I suggested that legal responses to concerns about corruption in the Trump Administration—in particular, concerns about Trump’s use of the presidency to enrich his family—might be more successful at the state level than at the federal level, and might be more viable if they do not attempt to target Trump directly, but rather deploy state law tools to limit the Trump family’s ability to leverage Trump’s position for commercial gain. My last post noted two proposals for lines of legal attack that could be initiated by state attorneys general (or possibly by private parties) under existing bodies of state law: state unfair competition laws (some of which are framed very broadly) and state corporate laws (which give states considerable power to regulate corporations, and possibly limited liability companies (LLCs), operating pursuant to state charters).

These proposals are attractive because they do not require any changes in existing laws. At the same time, and for that same reason, the laws in question are not necessarily well-tailored to the specific and unprecedented corruption/conflict-of-interest problems at issue in the Trump Administration. For that reason, it might be worth exploring potential changes to state law that would give state enforcement agencies, and possibly private litigants, more effective tools to rein in some of the most egregious sorts of potential conflicts, and thereby to enforce a more rigid separation between the Trump Administration and the Trump family’s business interests. Even though Republicans control the large majority of state governments, there are several states where Democrats and sympathetic Republicans might well have enough clout to pass such legislation—including, perhaps most importantly, California, New York, and Delaware. (Many other states have popular ballot initiative processes that might enable the passage of legislation even over the objections of Republican-controlled state legislatures.)

What might such state-level legislative reforms look like? This is a topic I hope to explore in a series of future posts, but here let me throw out a few relatively simple preliminary ideas: Continue reading →

Should We Lament Trump’s Nixing Greater Transparency in Oil and Gas?

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President Trump’s February 14 approval of the Joint Resolution repealing the rule that American companies disclose publicly all payments to governments for extracting oil and gas from their lands has provoked much lamenting.  The lamenters see it as a major setback to the fight against corruption, taking it as a given that greater transparency in the oil and gas industry leads to less corruption.

Rather than assuming that this is true, I decided to look at the evidence. The best place I could find to look was the Extractive Industries Transparency Initiative.  The 49 governments who along with their civil society groups and private sectors have committed to EITI regularly publish two things: 1) all significant (“material”) oil, gas, and mining payments made by companies, whether state-owned or privately-held, to the government and 2) all material revenues the government receives from these companies.  EITI requires that this information be widely distributed in an accessible, comprehensive and understandable manner, and indeed EITI requires more than simple transparency.  The total amount companies report paying and the total government says it receives must be reconciled annually by an independent administrator which must then report any discrepancies.  No better a formula for ensuring that transparency leads to less corruption would seem on offer.

So what effect has EITI had in the decade plus it has been in operation?  Does the transparency engendered by the EITI actually result in better governance and development outcomes in EITI compliant countries? How well do EITI countries perform, or improve over time, compared to other countries on selected political and economic indicators?

As luck would have it, these are precisely the questions Professors Benjamin Sovacool, Götz Walter, Thijs Van De Graaf, and Nathan Andrews address in a 2016 article in World Development.  Their answers should bring cheer to those lamenting repeal of the U.S. rule.  Continue reading →