Category Archives: Commentary

Does an FCPA Violation Require a Quid Pro Quo? Further Developments in the JP Morgan “Sons & Daughters” Case

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One of the Foreign Corrupt Practices Act cases we’ve been paying relatively more attention to here on GAB is the investigation of JP Morgan’s hiring practices in Asia (mainly China), in connection to allegations that JP Morgan provided lucrative employment opportunities to the children of powerful Chinese officials–both in the government and at state-owned enterprises (SOEs)–in exchange for business. A couple weeks back the Wall Street Journal published a story about the case, indicating that the government and JP Morgan were likely to reach an agreement soon in which the firm would pay around $200 million to settle the allegations. (The WSJ story is behind a paywall, but Thomas Fox has a nice succinct summary of both of the case generally and of the recent developments reported by WSJ.)

I’ll admit that my first reaction, on seeing the WSJ report, was skepticism that we were actually on the verge of seeing a settlement announcement. After all, the last time the WSJ broke a story about an imminent settlement of an FCPA case we’ve been following here on GAB, it was a story about the Walmart investigation last October; that report said that “most of the work had been completed,” and hinted that the announcement of a (smaller-than-expected) settlement was imminent. It’s now nine months later… and still no settlement. Apparently the Walmart case may have gotten more complicated since the WSJ‘s October report, but still, I think there are sometimes good reasons to season these inside scoops with the appropriate grains of salt. But, back to the reports on JP Morgan’s Asian hiring practices.

To me the most interesting feature of the recent report concerns the legal issue that is reportedly the sticking point between the government and JP Morgan. That issue is not the question whether an SOE official is a “foreign official” for FCPA purposes: According to the WSJ report, JP Morgan is not disputing the government’s position that SOE executives, at least in this case, are foreign officials, even though that issue is a major focus of critics who believe the government’s interpretation of the FCPA is too broad. And, the question whether a job for a relative counts as “anything of value”–the question that provoked the extended blog debate between Professor Andrew Spalding and me, as well as a good chunk of the other commentary on the case–also does not seem to be something that JP Morgan is contesting. Rather, at least according to the WSJ report, the big question seems to be whether an offer of a job to an official’s relative, given with the intent to influence that official’s exercise of her duties, is a violation of the FCPA even if there is no quid pro quo–at least if the conduct takes place in a country where preferential hiring for official’s relatives is “standard business practice.”

This seems to be to be a legitimately hard legal question, and one where I’m not yet sure what I think. As our regular readers may know, I’m generally fairly “hawkish” on FCPA enforcement, usually sympathizing with the government’s broad reading. And the text of the FCPA can certainly be read not to require any quid pro quo–indeed, that might be the more natural reading. But in contrast to some of the other accusations of alleged overreach lodged against the US FCPA enforcement agencies, here (if the reports are to be believed) the argument on the other side is fairly strong, both as a matter of law and as a matter of policy. In the end, I think I still come down on the government’s side, both on the legal question and the policy issue. But I’m genuinely conflicted, and would very much like to hear what others think on this one. Continue reading →

Visa Denial as an Anticorruption Tool: The Need for Clarity and Communication

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This past April, the U.S. Department of State denied an entry visa to the Vice President of Afghanistan, Abdul Rashid Dostrum, a notorious warlord and a key regional leader in the broad kleptocratic network of corruption that dominates Afghanistan. (In response, and seeking to avoid an embarrassing public spectacle, the Afghan government cancelled the trip, citing ostensible “security” issues at home.) This is but one recent example of an emerging element of anticorruption strategy: the denial of visas to corrupt officials (along with those who have abused human rights). This strategy is attractive for officials like Dostrum, who are beyond the jurisdiction of U.S. and other nations’ anticorruption statutes. This sort of diplomatic tool is a subtle way of controlling and manipulating working relationships with corrupt officials, and can act as both a sanction and disincentive for corrupt behavior. High-level, publicized meetings and trips to Western countries enhance the status of leaders in developing countries. More broadly, visas for officials’ family members to study in the West are also highly prized in the developing world. Restricting these visas can thus be an effective way of deterring corrupt behavior in lieu of actual jurisdictional authority.

Using visa denials as a tool to fight corruption has received a fair amount of attention in recent years among NGOs and international groups like the G20 (see here, here and here), with discussion focusing on two broad concerns: fairness and effectiveness. In my view the fairness concern—the idea that denying an entry visa absent a formal conviction or fair trial violates basic notions of due process–is overblown. A ban on travel does not implicate the same due process concerns that would arise with, for example, freezing of assets held in a foreign country. States have broad discretion in immigration matters, and no foreign citizen has a pre-existing “right” to enter any country at will. And the due process concerns in the visa denial context could be assuaged fairly easily, for example by establishing procedures by which those denied visas are informed of reasons and offered the possibility to respond.

The more complicated issue is whether visa denials can be made more effective in deterring corrupt behavior. Here, the effectiveness of this promising tool depends on improvements in two areas: clarity and coordination.

Continue reading →

Watching the Watchmen: Should the Public Have Access to Monitorship Reports in FCPA Settlements?

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When the Department of Justice (DOJ) settles Foreign Corrupt Practices Act (FCPA) cases with corporate defendants, the settlement sometimes stipulates that the firm must retain a “corporate monitor” for some period of time as a condition of the DOJ’s decision not to pursue further action against the firm. The monitor, paid for by the firm, reports to the government on whether the firm is effectively cleaning up its act and improving its compliance system. While lacking direct decision-making power, the corporate monitor has broad access to internal firm information and engages directly with top-level management on issues related to the firm’s compliance. The monitor’s reports to the DOJ are (or at least are supposed to be) critically important to the government’s determination whether the firm has complied with the terms of the settlement agreement.

Recent initiatives by transparency advocates and other civil society groups have raised a question that had not previously attracted much attention: Should the public have access to these monitor reports? Consider the efforts of 100Reporters, a news organization focused on corruption issues, to obtain monitorship documents related to the 2008 FCPA settlement between Siemens and the DOJ. Back in 2008, Siemens pleaded guilty to bribery charges and agreed to pay large fines to the DOJ and SEC. As a condition of the settlement, Siemens agreed to install a corporate monitor, Dr. Theo Waigel, for four years. That monitorship ended in 2012, and the DOJ determined Siemens satisfied its obligations under the plea agreement. Shortly afterwards, 100Reporters filed a Freedom of Information Act (FOIA) request with the DOJ, seeking access to the compliance monitoring documents, including four of Dr. Waigel’s annual reports. After the DOJ denied the FOIA request, on the grounds that the documents were exempt from FOIA because they comprised part of law enforcement deliberations, 100Reporters sued.

The legal questions at issue in this and similar cases are somewhat complicated; they can involve, for example, the question whether monitoring reports are “judicial records”—a question that has caused some disagreement among U.S. courts. For this post, I will put the more technical legal issues to one side and focus on the broader policy issue: Should monitor reports be available to interested members of the public, or should the government be able to keep them confidential? The case for disclosure is straightforward: as 100Reporters argues, there is a public interest in ensuring that settlements appropriately ensure future compliance, as well as a public interest in monitoring how effectively the DOJ and SEC oversee these settlement agreements. But in resisting 100Reporters’ FOIA request, the DOJ (and Siemens and Dr. Waigel) have argued that ordering public disclosure of these documents will hurt, not help, FCPA enforcement, for two reasons:  Continue reading →

Are Anticorruption and Prodemocracy Policies Antithetical?

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That is the question Pennsylvania State University Political Scientists Vineeta Yadav and Bumba Mukherjee leave readers to ponder at the conclusion of their fine new book, The Politics of Corruption in Dictatorships.  But not before the authors provide a plethora of new insights on anticorruption policy and political change in authoritarian states.

They begin with the well-known finding that non-democratic states are more corrupt than democratic ones and continue with a review of the standard explanations for why this is so.  Authoritarian states lack a free press, separation of powers, and the other means democracies have for holding corruption in check.  Furthermore, corruption is many times the glue that holds a dictatorial government together.  It’s the way rulers buy the support of the security services, business elites, and others that might be tempted to overthrow them.  It also provides leaders an insurance policy in the event supporters don’t stay bought as they can siphon off a bit (okay often a lot) into a rainy day fund somewhere offshore.

If the story were that simple, an examination of non-democratic states’ scores on cross-national measures of corruption would reveal two things:  first, the scores would all cluster at the “most corrupt” end of the measures; second, absent the rare political upheaval, the scores would remain relatively stable over time.  Here is where the story gets interesting – and where Yadav and Mukherjee go to work. Continue reading →

Is the Resource Curse a Myth?

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Perhaps one of the most surprising and influential findings in development economics research is the so-called “resource curse”: the idea that a large natural resource endowment (and, consequently, a significant role for natural resource exports in the national economy) actually leads to slower economic growth, and lower per capita incomes (at least in the long term). The resource thesis has the appealing feature that although it’s initially counter-intuitive (and so people like me can seem and feel clever when we point it out), one can immediately think of many salient examples that seem to corroborate the idea, and it’s fairly easy to construct plausible stories as to why it would be true. Although such stories originally focused on exchange rate appreciation (so-called “Dutch Disease”), contemporary research (see, e.g., here and here) tends to focus more on the impact of natural resource abundance on institutional quality, governance, and corruption. The hypothesized causal chain (at least one version) runs roughly as follows: Natural resource wealth creates opportunities for massive economic rents for those who control the government; the competition for these resources fosters corruption, and makes currying favor with the government more important than entrepreneurship or productive investment. Furthermore, and perhaps even more importantly, natural resource wealth enables corrupt or otherwise inefficient governments can use their control over resource rents to secure their power, alleviating pressure that these governments might otherwise feel to reform their institutions and govern more fairly and effectively. And indeed, many studies (see here and here) show a strong negative correlation between natural resource wealth (especially oil wealth) and various measures of institutional quality (including accountability, checks & balances, and control of corruption). The bad institutional environment that natural resource wealth fosters, the argument continues, has adverse effects on long-run economic performance that outweigh the boost to economic performance associated with natural resource wealth. This, the causal chain runs from resource wealth to bad institutions to poor(er) economic performance; absence of resource wealth tends to generate incentives for institutional improvements that ultimately lead to better performance.

The resource curse thesis grows mainly out of quantitative cross country research that finds a negative correlation between resource wealth and GDP growth (controlling for a range of factors). Some more recent research has refined or qualified the thesis in important ways. For example, (see here and here) suggests that the “curse” is only associated with particular sorts of resources, particularly “point source” resources (such as oil or certain minerals). Other research (see here and here) has suggested that countries that already have relatively good institutions prior to the discovery of resource wealth seem immune from the curse. Still, even with these qualifications, the core idea remains: If a relatively poor country, with less robust governance institutions, discovers oil, its economic prospects over the longer term are actually worse—largely because of the relationship between resource wealth and corruption.

But what if that’s all wrong? What if there is no “resource curse”? What if resource wealth—even from point source resources, even in countries with lower levels of transparency and accountability—is, on average, associated with higher rather than lower economic growth? And what if natural resource wealth actually has no consistent discernable impact on institutional quality? For many years I’d been entirely convinced of the resource curse thesis (at least in qualified form). But I recently read an excellent 2009 paper by the economists Michael Alexeev and Robert Conrad which has forced me to reconsider. I’m still not sure exactly what I think, and I hope to spend the next few months delving more into this research (so I may eventually do a follow-up post), but I thought it would be worth discussing the essence of Alexeev & Conrad’s critique and reassessment of the resource curse thesis. Continue reading →

The Right Amount of Legislative Immunity

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It many ways, legislative or parliamentary immunity seems an anathema to the fight against public corruption. Legislative immunity shields legislators from prosecution for acts taken within their legislative ambit, sometimes even shielding them when those actions are corrupt. As my earlier post on Senator Menendez hints, even when it seems clear that legislators’ actions are not protected, the very existence of legislative immunity gives legislators room to argue and prolong their court cases – all the while continuing to serve in the legislature. Legislative immunity can undermine public confidence in lawmaking and perpetuate a sense of impunity in public officials.

That said, there is a reason most democracies have some form of legislative immunity: not because individual legislators should be shielded from prosecution, but because the legislature as an institution should be protected from intrusion and second-guessing by prosecutors and the judiciary. Of particular concern are politically-motivated prosecutions brought by the government against legislators from opposing parties. Turkey provides a recent example. This past May, Turkey’s legislature voted to lift parliamentary immunity and pave the way for prosecution of pro-Kurdish legislators accused of supporting terror (see here). While concerns about terrorism are very real in Turkey, this move falls clearly within President Erdogan’s broader efforts to consolidate power and move away from democratic rule.

Ultimately, both concerns about impunity and legislative independence are valid. The question is how to strike the appropriate balance. Legislative immunity can take many forms, and there is likely no single “best” model. The most appropriate form of legislative immunity will likely depend instead on a range of contextual factors. Here I consider several critical ones:

Continue reading →

Sextortion Victims Are Not Guilty of Bribery

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On this blog, I have repeatedly called for the anticorruption community to put greater emphasis on fighting sexual corruption around the world. I have argued that a police officer demanding sex in order to perform (or not perform) an official function is a form of bribery; in a few cases, officials have been charged with and convicted of bribery or official misconduct for sexual corruption.

Characterizing this sort of sexual coercion as bribery, however, raises a potential problem: In typical monetary corruption cases, it is possible to prosecute the bribe giver as well as the bribe receiver. Does that mean that the private citizen (almost always a woman) from whom sexual favors are extorted by a public official could be deemed to have “paid” an unlawful bribe? Unfortunately, the idea of charging victims of sexual corruption with bribery is not too far-fetched. In one New York case, two police officers demanded sex from a female motorist if she wanted to avoid arrest (for drugs found in her car); at the officers’ trial, the jury was instructed that the woman was an accomplice as a matter of law to bribe receiving. The appellate court wrote that the test for whether the woman can be considered an accomplice is whether she “theoretically could have been convicted of any crime based on at least some of the same facts that must be proven in order to convict the defendant.” And because the woman in this case acquiesced to the officers’ demands, she met the definition of an accomplice to bribe receiving. (She was not charged, but according to the court she could have been.)

Thus one potential concern with heeding the call to treat so-called “sextortion” as a corruption offense (that is, soliciting a bribe) is that it could lead to greater use of anti-bribery laws to charge the women from whom sex is extorted. (For example, suppose an American businesswoman had sexual relations with a foreign procurement officer as a quid pro quo for receiving a government contract; the businesswoman in this case could conceivably be charged with violating the Foreign Corrupt Practices Act.) It will be crucial to ensure that this never happens. This can be accomplished through a generous interpretation of coercion as a defense to bribery, informed by the existing American jurisprudence on sexual harassment in the employment setting.

Continue reading →

ສໍ້ລາດບັງຫຼວງ’: The Laotian Approach

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The American Supreme Court’s recent decision that confusion over what constitutes corruption entitles former Virginia Governor Robert McDonnell to a new trial again illustrates how critical it is that “corruption” be precisely defined.  As Matthew explained yesterday, the Court in McDonnell ruled that the definition the jury was given to decide whether the former governor had broken the law was too broad.  The justices feared that were such a definition allowed to stand, public servants would shy away from doing their duties for fear they could be accused of “corruption.”  While Matthew argues that in McDonnell this fear was misplaced, there are instances where it is not.  Take Indonesia.  Bureaucrats there are refusing to spend billions of dollars on legally approved projects ranging from schools and hospitals to garbage trucks and parking meters because they fear it would open them to investigation for vaguely defined corruption crimes such as “abuse of office.”

As I have argued on this blog, the problem begins with the term “corruption.”  As passed down from Latin to Old French and into English, the word carries the idea of something that has spoiled or become impure.  Milk left in the heat too long sours or is “corrupted.” But while there is no mistaking when milk has gone sour, the endless debates over whether such (lawful) practices as private donations to political candidates are “corrupt” shows that when applied to politics and government, “corruption” is in the eye of the beholder.

But not all languages derive their expression for “corruption” from Latin, and thus not all languages are saddled with the subjective meaning the Latin imparts to the modern-day term.  Take ສໍ້ລາດບັງຫຼວງ‘ – the Laotian term for corruption. Continue reading →

The Supreme Court’s McDonnell Opinion: A Post-Mortem

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I’m a bit late to the party, but I thought I should perhaps say something about last month’s unanimous U.S. Supreme Court decision to vacate the conviction of former Virginia governor Bob McDonnell, on the grounds that the trial judge had not properly instructed the jury on the meaning and scope of the term “official act” in the relevant anti-bribery statutes. (As readers of this blog are likely aware, I thought that McDonnell’s conviction ought to be affirmed. This is not the first time the U.S. Supreme Court’s views differ from my own, nor will it be the last.) There has already been a spate of helpful commentary on the decision—including a succinct summary of the opinion’s likely impact from the Center for the Advancement of Public Integrity, and an insightful commentary from Daniel Richman and Jennifer Rodgers on the NYU Compliance & Enforcement Blog (a new blog that’s worth following). I’m not sure I have all that much new to add, but let me throw in my two cents.

While it would have been satisfying to see McDonnell get his just desserts, what happens to McDonnell himself is less important that the broader impact of the decision on the enforcement of anti-bribery laws more generally. So what does the Supreme Court’s opinion portend for anti-bribery enforcement in the U.S. going forward? After reading the opinion, my reaction is mixed. On the one hand, the decision rests on fairly narrow grounds, which might well cabin its impact on the mine-run of federal bribery prosecutions. On the other hand, the Court’s opinion both bespeaks an unrealistic view of how senior politicians exert influence over policy, and places undue weight on concerns about chilling (allegedly) desirable conduct. Continue reading →

When Should We Put Anticorruption Agencies in the Constitution?

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To fight corruption more effectively, many countries have created specialized government institutions that focus primarily on corruption issues. Most common are specialized anticorruption agencies (ACAs) with investigative and/or prosecutorial functions, although some countries have also created specialized anticorruption courts, special coordinating bodies, or other entities. This trend has generated a great deal of debate, both about whether to create such specialized bodies at all and about how they should be designed (for example, whether ACAs should combine prosecutorial and investigative power). Absent from much of this debate, however, is a discussion of the means countries should use to create these specialized bodies—in particular, whether these specialized anticorruption bodies should be enshrined in the nation’s constitution, or should be created by ordinary law.

Anticorruption bodies vary quite a bit on the extent to which they are constitutionalized. Most existing ACAs and other anticorruption institutions—including many considered highly successful—are not mandated by the constitution. For example, Indonesia’s anticorruption agency (the KPK) and its anticorruption courts (the Tipikor courts) were created by ordinary legislation, as was Belgium’s anticorruption investigation body and Spain’s anticorruption prosecutor’s office. However, in other countries specialized anticorruption bodies are explicitly established (or required) by the constitution. For example, the Philippines’ anticorruption court, the Sandiganbayan, is enshrined in that country’s 1987 constitution. Indeed, the trend (if one can be discerned) seems to be in the direction of constitutionalization. Tunisia’s new constitution, adopted in 2014, includes a specialized anticorruption investigation body. Egypt’s 2014 constitution similarly includes a specialized anticorruption prosecutor. Mexico’s 2015 amendments constitutionalized three types of anticorruption agencies (investigative, prosecutorial, and judicial), as well as a coordinating body.

But should these agencies be constitutionalized? And if so, when? Continue reading →