Category Archives: Commentary

Equitable Sharing, Not Deference: How US FCPA Enforcers Should Accommodate Foreign Interests

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Frederick Davis recently published two guest posts (see here and here) emphasizing some of the risks that arise when the US government pursues FCPA prosecutions against foreign corporations. He notes that European anticorruption administrators are regularly irritated by aggressive US action in this field and by the apparent discrepancy in the treatment of US and non-US corporations. He also notes that foreign corporations are reasonably worried about being charged twice for the same transgression: While European countries have addressed this concern through an international version of the double jeopardy bar (also known as ne bis in idem), that bar does not protect a corporation against a subsequent US prosecution. Moreover, as Mr. Davis notes, US enforcement agencies (as compared to their counterparts in Europe) have wider authority to charge, are more willing to assert power abroad, wield more procedural tools, and are less subject to judicial supervision in their charging and settlement decisions. To address these problems, Mr. Davis recommends, among other measures, that the US DOJ issue guidelines for when to defer to foreign judgments.

However, US deference to foreign judgments may not be the best solution. It could be true, as Mr. Davis worries, that US prosecutors are “becoming the ultimate arbiters” of foreign bribery cases (at least those involving multinational corporations). But if the US standard is indeed more stringent, then US hegemony could lead to more aggressive anticorruption prosecution across the board, a boon for anticorruption advocates. Since in certain situations competition among administrative and enforcement agencies can create a de facto “race to the top” in terms of standards, it might not be such a good idea for the US to adopt a more deferential posture toward foreign judgments in transnational bribery cases.

That’s not to ignore the significant problems that Mr. Davis describes. Given that the fines and other monetary penalties for corrupt business behavior can be enormous, US FCPA counterparts in other nations would be rightly dismayed if they lost out on the potential recoveries. If a Danish corporation listed on a US exchange bribes an official in Gambia, all three countries should be able to penalize the wrongdoers and share—though not necessarily equally—in the fines and other penalties recovered. If the penalties are appropriately distributed, we need not sacrifice the aggressive anticorruption regime of US hegemony. My response to Mr. Davis is that we need guidelines for distribution of recoveries, not necessarily guidelines for deferral to foreign judgments operating under differing, and less aggressive, standards.

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Are Better Principals the Answer to the Corruption Problem?

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Those in the business of giving policy advice know the surest way to guarantee a policymaker ignores their counsel is to say the problem is “complicated” or “there are no easy solutions” and that the best way to see the advice is accepted is to cast it in the form of a simple, straightforward solution that fits easily onto a single power point slide. World Bank economists have learned this lesson well as their recent report on how developing countries can cure corruption and related governance ills demonstrates.  Making Politics Work for Development: Harnessing Transparency and Citizen Engagement manages to state the solution to the corruption problem in one sentence: Give citizens more information about politicians so they will know which ones to vote out and which ones to keep at the next election.

The authors are able boil the complex problems of corruption and bad governance down into such a neat solution thanks to application of principal-agent theory.  But in avoiding the “it’s complicated”/“no easy solution” Scylla have they veered into the Charybdis of oversimplification?

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Why Did Trump’s Anticorruption Rhetoric Resonate? Three Hypotheses

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OK, I know I said in last week’s post that I would eventually get back to blogging about topics other than Trump, but not yet. After all, Trump’s election—a political and moral crisis on so many dimensions—poses distinctive challenges for the anticorruption community, in at least two different (though related) respects. The first concerns the consequences of a Trump Administration for US anticorruption efforts, both at home and abroad, a topic I’ve already blogged about (see here and here). The second issue concerns the role that anticorruption sentiments and rhetoric played in Trump’s victory. After all, Trump positioned himself (ironically, outrageously) as an anticorruption candidate, denouncing Secretary Clinton as “crooked Hillary” and pledging to “drain the swamp” of Washington corruption.

It’s no surprise that the mainstream anticorruption community are perturbed, to put it mildly, by the effective deployment of anticorruption rhetoric by a racist xenophobic ultra-nationalist bully. While this is hardly a new phenomenon—see, for example, Katie King’s post on Hungary last year—the Trump victory has forced the anticorruption community to confront it head on. Indeed, at the International Anti-Corruption Conference (IACC) in Panama a couple of weeks back, the appropriation of anticorruption rhetoric by right-wing populists—especially though not exclusively Trump—was a constant subject of hallway conversation, even if relatively little of the IACC’s formal program dealt directly with this issue. (In fairness, many of the IACC speakers did find a way to raise some of these concerns in their presentations, and the organizers also managed to add a last-minute session, in which I was able to participate, discussing this topic.) What are we to make of this? What lessons should the anticorruption community—as well as others aghast at the success of Trump and other right-wing demagogues—take away from Trump’s successful appropriation of anticorruption rhetoric?

I wish I knew the answer to that question. I don’t, and won’t pretend to. But I do think it would be helpful to lay out what I view as the three main competing hypotheses: Continue reading →

Corruption’s Gendered Double Standard

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On November 8, 2016 the United States almost elected Hillary Clinton as its first female president. But, if Donald Trump and many of his supporters were to be believed, Secretary Clinton was also one of the most corrupt politicians of all time. This argument appears to have swayed many American voters, who ended up electing Donald Trump (who might actually be the most corrupt person recently elected to the presidency, see here, here, and here). That Trump’s unprecedented accusations of corruption were leveled against the first female presidential candidate nominated by a major political party was not a coincidence.

A great deal of commentary has considered whether women (and especially female politicians and public officials) behave less corruptly than men. (For some prior discussion on this blog, see here.) But I’d like to focus on a different question: Are female politicians accused of corruption treated differently—and judged more harshly—than male politicians? Existing research suggests that they are, which in turn may explain both why allegations of corruption can be more damaging to female politicians, and why female public officials are on the whole less corrupt. Continue reading →

How Prisons Corrupt – And What To Do About It

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In May 2014, Kelvin Melton orchestrated a kidnapping scheme. The perpetrators assaulted the victim with a stun gun, took him from his home, and sent texts to his family demanding ransom. Throughout this time, Melton continued to give instructions to the kidnappers via cell phone. Fortunately, law enforcement was able to thwart the plot and recuse the victim. These facts alone make for a gripping crime. But the story had an extra twist: Melton, the mastermind behind the kidnapping, was in a prison cell the entire time, serving a life sentence for assault with a deadly weapon with intent to kill; the target of the kidnapping scheme was the father of the prosecutor who put Melton behind bars. Melton was able to orchestrate the crime while behind bars because he had been able to obtain a contraband cell phone from a guard.

While the facts of this case are sensational, the phenomenon of inmates corrupting prison guards in order to obtain contraband is far from unusual. In the wake of Melton’s crime, the FBI launched a new program—Operation Ghost Guard—to root out corruption by correctional officers. The first major case out of the program came in 2016, when the FBI indicted nearly 50 former and current correctional officers for accepting bribes from inmates in exchange for contraband. Over the course of a two-year undercover investigation, federal officials learned how inmates and guards in Georgia formed their own crime syndicate. Guards would bring in liquor, tobacco, and cell phones in exchange for thousands in bribe money. Inmates, in turn, would use the cell phones to commit wire fraud, money laundering, and identity theft. Outside of the prison, guards were using their badges to facilitate drug deals. The United States Attorney for the Northern District of Georgia called the levels of corruption “staggering.” And Georgia is not alone; New York state prison officials are currently under investigation by the FBI as well.

The issue of prison corruption is not unique to the U.S. Prior posts on this blog have explored how Brazilian inmates were able to bribe guards in order to facilitate large-scale drug and weapons trading within the complex, and how incarcerated drug lords in the Philippines bought off guards in order to live in comparative luxury behind bars. In the United Kingdom, the widespread practice of bribes in exchange for drugs or cell phones led the penal system to be called “institutionally corrupt” by a report issued by the country’s own Metropolitan police. How do these acts of corruption come about in the first place? And what can we do about them? In her earlier post on prison corruption in the Philippines, Bea Paterno focused on the need for better monitoring and oversight. That’s surely part of the solution, but we also need to pay attention to other aspects of the prison environment, including the guards’ working conditions and the ways in which they interact with inmates. Continue reading →

The Lawyers’ Role in Perpetuating Corruption in Nigeria

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Nuhu Ribadu, the former head of Nigeria’s Economic and Financial Crimes Commission, spoke to lawyers in Abuja on December 1 on his experience fighting corruption in Nigeria and the role the bar played.

Ribadu came to international attention in the mid-2000s for his audacious efforts to combat the high level corruption then rampant in the country, a fight that led to attempts on his life and ultimately his illegal removal from office despite protests from Nigerian civil society and the international community.  Although Ribadu remains active in Nigerian public life, chairing a high level commission on corruption in the Nigerian oil industry and running twice (unsuccessfully) for public office, he has been relatively silent on the obstacles he faced as head of the EFCC.  In his December 1 speech, unfortunately at this writing still not available online, he explains how some of Nigeria’s most prestigious lawyers, known as SANs or Senior Advocate Nigeria, collaborate with some of Nigeria’s most corrupt actors to frustrate the country’s effort to eradicate corruption at the highest levels of government.

For the benefit of his friends in the international community (of which this writer is one) as well as for a useful insight on one of the challenges of tackling grand corruption, below are excerpts from that speech as reported in the Nigerian press. Continue reading →

What Can Young Lawyers Do To Fight Corruption Now that Trump Is President?

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I promise that eventually I’ll go back to blogging about things other than Trump, but that seems to be the most important challenge facing the anticorruption community right now. Also, I wanted to contemplate a question that a friend and recent law school graduate (who is currently working for the US government, and so cannot be identified by name) put to me in response to the “cry of despair” I posted in the immediate aftermath of the election. This young lawyer asks:

What can people do in the face of all this? Is there anything young lawyers who care about anticorruption policy can do? If we can expect a drop in enforcement and weakening of the FCPA, where can people concentrate their efforts?

This is a great set of questions, and I wish I had good answers. I don’t, but in the interests of contributing to these important conversations, let me offer a few preliminary thoughts (which are probably worth approximately what you’ve paid for them): Continue reading →

Community Development Agreements: A New Anticorruption Tool?

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Projects in the extractive industries are often enormous, long-lasting, multi-billion dollar affairs. Given the disruption, potential for environmental disaster, and permanent changes in the state of the land, these projects tend to generate conflict and controversy, especially in low-income countries, where citizens may enjoy fewer legal protections. As a way to mitigate these risks, some nations require extractive firms to enter into “Community Development Agreements” (CDAs) with local communities. (CDAs—which are also sometimes known as Benefit Sharing Agreements, Impact Benefit Agreements, or Community Joint Ventures—are sometimes voluntary corporate social responsibility initiatives, but my focus here is on CDAs that are required by, and incorporated into, national regulatory frameworks.) At the most general level, CDAs are created through a process that engages local populations in important decision-making about the project and its profits. The process varies, but usually includes the following steps:

  • Identify the people who will be affected
  • Allow those identified to determine what the community could gain from the project (whether that be jobs, money, education, infrastructure, long-term benefits, etc.)
  • Write a CDA that encompasses the demands of the community and aligns with regulatory requirements
  • Provide monitoring tools to the affected population
  • Set up dispute resolution systems
  • Strategize for how to prepare the population for the end of the project’s lifespan.

This process takes time and can be expensive. But extractive projects typically last for decades, and so building a sustainable relationship with the local population is vital to the project’s success. After all, many corporations fund similar stakeholder engagement processes without being required by law to do so. That is because CDAs can be a good business decision: empowering the community allows the company to avoid violent conflict and signaling that the firm is a good corporate citizen.

For those countries that do require a CDA for extractive projects, the law also regulates the substantive terms, requiring CDA contracts to contain certain clauses–typically monitoring components, dispute resolution mechanisms, and local spending or employment quotas. However, one thing that is never included in a CDA is an anticorruption clause. The words “bribery” or “corruption” appear nowhere in the World Bank’s model CDA agreement, and the Columbia Center on Sustainable Investment (CCSI) is silent on the issue. Building on recent work by Abiola Makinwa and James Gathii, I posit that CDAs should include anticorruption clauses, to empower private citizens in fighting corruption in public contracts. The basic idea is to allow the recognized community members—those covered by the CDAs—as “third party beneficiaries” to the contract between the government and the extractive company. The community members would then be entitled to sue if there was corruption in the making or execution of the contract.
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The Crucial Role of Corporate Boards in Ensuring Corporate Integrity

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Volkswagen’s diesel emissions cheat has cost the company dearly. Last October, Volkswagen reached a US$16.5 billion dollar settlement with the US government, and the value of Volkswagen’s stock today is worth about 50% of what it was before the scandal – a US$60 billion drop in the company’s valuation. Criminal charges against several senior managers, including chairman Hans Dieter Poetsch, are still pending. Countless customers are furious, while many employees fear for their jobs as Volkswagen scrambles to cut its costs. (Some background on the scandal, as well as a regularly updated timeline, can be found here.)

What started as a “simple cheat” became a slippery slope for the whole company. Volkswagen failed to create a culture of corporate integrity; the institutional checks and balances that are supposed to prevent something like this from happening were purposefully or ignorantly subverted, and the company created all the wrong incentives. As Alison Taylor has argued on this blog, these are the perfect ingredients for a corrupt corporate culture.

Who to blame for this mess (and, similarly, many other corporate messes)? Just as “a fish rots from the head down,” a company’s board of directors must take responsibility for creating or allowing a toxic corporate culture that permits cheating and other unethical and illegal behavior. Continue reading →

Will Leaving His Business “Completely” Solve Trump’s Conflict of Interest Problems?

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President-elect Trump tweeted early November 30 “that legal documents are being crafted which take me completely out of business operations.”  Will this suffice to resolve concerns about the potential conflicts of interest that could arise during his presidency?  While the answers of the anti- and pro-Trump camps are predictable (a heated, vitriolic “no” and an equally heated, vitriolic “yes” respectively) for others the answer will turn on two issues:

1) What conduct they understand the conflict of interest rules prohibit, and

2) Whether they think Trump’s removing himself “completely” from his businesses is enough to prevent it.

Media coverage about conflict of interest since Trump’s election has been so colored by opposition to Trump generally that those trying to fairly evaluate Trump’s plan are likely confused about both issues.  Herewith a guide to both to help fair-minded citizens evaluate the Trump plan.    Continue reading →