Guest Post–Assessing Corruption with Big Data

Today’s guest post is from Enestor Dos Santos, principal economist at BBVA Research.

Ascertaining the actual level of corruption is not easy, given that it is usually a clandestine activity, and much of the available data is not comparable across countries or across time. Survey data on corruption experience can be helpful, but it is often limited to very specific kinds of corruption (such as petty bribery). Researchers and analysts have therefore, quite reasonably, tended to rely on subjective corruption perception data, such as Transparency International’s well-known Corruption Perceptions Index (CPI). (The CPI aggregates corruption perception data from a variety of other sources, mostly expert assessments.) But conventional corruption perception measures (including those use to construct the CPI) have well-known problems, including limited coverage (with respect to both years and countries) and relatively low frequency (usually annual). And they rely on the perceptions of a handful of experts, which may not necessarily be representative. These limitations mean that while traditional perception measures like the CPI may be useful for some purposes, they are not as helpful for others, such as measuring the impact of individual events or news reports on corruption perceptions, or how changes in corruption perceptions affect government approval ratings.

To address these concerns, a recent study by BBVA Research, entitled Assessing Corruption with Big Data, offered an alternative, complementary type of corruption perceptions measure, based on Google web searches about corruption. To construct this index, we examined all web searches classified by Google Trends in the “Law and Government” category for individual countries, and calculated the proportion of those searches that contain the word “corruption” (in any language and including its misspellings and synonyms). Our index, which begins in 2004, covers more than 190 countries and, unlike traditional corruption indicators, is available in real-time and with high-frequency (monthly). Moreover, it can be reproduced very easily and at very low cost.

Here are some of our main findings: Continue reading

Guest Post: The UK’s Compensation Principles in Overseas Corruption Cases–A New Standard for Aiding Victims of Corruption?

GAB is delighted to welcome back Susan Hawley, Policy Director at Corruption Watch, to contribute today’s guest post:

The issue of whether money from foreign bribery settlements should go back to the people of affected countries has generated a fair amount of heat over the years. Back in 2013, the World Bank’s Stolen Asset Recovery Initiative (StAR) asked whether countries whose people were most harmed by corrupt practices were being left out of the bargain in foreign bribery settlements. According to the StAR study, out of the $6 billion in monetary sanctions imposed for foreign bribery in 395 settlements between 1999 and 2012, only 3.3%, or $197 million, had been returned to the countries where the bribes were paid. Those statistics have provoked considerable controversy, as has the question whether the UN Convention Against Corruption (UNCAC) requires states parties to share money from foreign bribery settlements with affected countries. Yet the fact remains that when the huge fines paid by US and European companies for bribing officials in developing countries go into the treasuries of the US and Europe, while the people of those countries affected by that bribery get nothing, this creates a serious credibility and legitimacy problem for the international anticorruption regime.

For that reason, the UK enforcement bodies’ publication, this past June 1st, of joint principles to compensate overseas victims of economic crime is a welcome development, and provides another opportunity to think again about what is possible and what is desirable in terms of compensating the people of affected countries when companies get sanctioned for paying bribes. The UK Compensation Principles were first mooted and drafted at the 2016 London Anti-Corruption Summit; that Summit’s Joint Communique recognized that “compensation payments and financial settlements … can be an important method to support those who have suffered from corruption,” and led nine countries (though only four from the OECD) to commit to develop common principles for compensation payments to be made “safely, fairly and in a transparent manner to the countries affected.” The UK’s new principles are an effort to fulfill that Summit commitment. They commit the UK’s enforcement bodies to:

  • Consider compensation in all relevant cases;
  • Use whatever legal means to achieve it;
  • Work cross-government to identify victims, assess the case and obtain evidence for compensation, and identify a means by which compensation can be paid in a transparent, accountable and fair way that avoids risk of further corruption; and
  • Proactively engage where possible with law enforcement in affected states.

Interestingly, these principles have been in informal operation since late 2015, which helps shed some light on how these principles are likely to operate in practice. Continue reading

Guest Post: More on the Hazards of Public Beneficial Ownership Registries–What Stephenson and Others Miss

Today’s guest post, from Geoff Cook (the CEO of Jersey Finance), continues an ongoing debate an exchange we’ve been hosting here at GAB regarding the desirability of public (as opposed to confidential) registries of the ultimate beneficial owners (UBOs) of companies and other legal entities. This exchange was prompted by a piece that Martin Kenney, a lawyer specializing in asset recovery in the British Virgin Islands, published on the FCPA Blog, which criticized the UK’s decision to mandate that the 14 British Overseas Territories create public UBO registries. Mr. Kenney’s post prompted reactions from Rick Messick and from me. Our critical reactions stimulated another round of elaboration on the critique of the UK’s decision, with a new post from Mr. Kenney and another from Mr. Cook. I subsequently replied, explaining why I did not find Mr. Kenney’s or Mr. Cook’s criticisms fully persuasive. Mr. Kenney responded to that post earlier this month, and in today’s post Mr. Cook contributes his critical reactions to my response: Continue reading

Guest Post: More Transparency Is Needed to Fight Grand Corruption in the Pharmaceutical Sector

Today’s guest post is from Till Bruckner, the founder of TranspariMED:

In the pharmaceutical sector, public agencies are routinely handing over billions in public money to private companies for products whose value they cannot accurately assess, because the vendors control the flow of information generated by clinical trials. (Even the purchasing price is often kept secret, but that is another story.) If we observed this sort of opacity in the public procurement sector, it would immediately raise red flags. If public contractors were taking billions from governments in exchange for products of dubious quality that the governments cannot assess, the anticorruption community would be–rightly–up in arms. But for the pharmaceutical industry, this is business as usual.

Consider, as one particularly egregious example, what can only be described as an $18 billion heist of public money by a pharma company. In 2006, governments around the world began stockpiling Tamiflu, an anti-retroviral drug, due to fears that outbreaks of bird flu (and later swine flu) could turn into a lethal global pandemic. The evidence available at the time suggested that the drug was safe and effective at reducing the symptoms of influenza. In total, 96 counties accumulated enough Tamiflu to treat 350 million people. Then, in 2009, a doctor noticed that the results of eight clinical trials of Tamiflu were missing from the public record. (Worldwide, around half of all clinical trials have never reported their results.) After a struggle lasting four years, independent scientists finally got the company to turn over the relevant data from these trials—and concluded that the drug did little, if anything, to help patients.

This example is especially egregious, but it is not otherwise exceptional. Amazingly, comprehensive information on the safety and effectiveness of drugs is not only inaccessible to independent scientists, but also to government agencies. When a drug company applies for a marketing license, it has to submit detailed documentation from every relevant trial to regulatory agencies such as the U.S. Food and Drug Administration (FDA). Regulators review these submissions, called Clinical Study Reports (CSRs) – and then promptly lock them away in their confidential archives. This is especially frustrating for scientists working for health technology agencies, who are tasked with assessing the cost-effectiveness of different drugs but are often unable to access CSRs. To date, only the European Medicines Agency systematically releases (some) CSRs.

Politicians have tried to bring transparency into the sector, but the laws they pass often remain unenforced. In the United States, the 2007 FDA Amendment Act made it compulsory for companies and universities to publish the summary results of some clinical trials on public registries. (Summary results are a kind of “executive summary” of a clinical trial; they are far shorter and less detailed than CSRs, but still better than nothing). In 2015, an investigation by STAT News found that pharmaceutical companies routinely violated the law. The law stipulates a fine of up to $10,000 for every day a result is overdue. In theory, Big Pharma has already racked up over $25 billion in fines. In practice, the FDA has yet to collect a single cent. In the European Union, a similar regulation exists, but there too it remains unenforced by national agencies. In Britain, a 2013 parliamentary inquiry called for greater transparency, but its recommendations were largely ignored.

Last December, a coalition of four health integrity organisations issuing a wake-up call for governments to finally get serious about clinical trial transparency. Transparency International Pharmaceuticals & Healthcare (PHP), TranspariMED, Cochrane, and the Collaboration for Research Integrity and Transparency (CRIT) released a study that documents in detail how opacity in the sector harms patients, prevents public health agencies from making informed decisions, wastes public health funds, slows down medical progress, and exposes shareholders to substantial risks. The study also shows that clinical trials can be made significantly more transparent without introducing new legislation. Public research funders could demand that grantees report the results of publicly funded trials. Regulators could make continued market access conditional on companies agreeing to make CSRs publicly available. And in many cases, simply enforcing the rules already on the book could make a huge difference – and the costs of enforcement could easily be covered by imposing fines for noncompliance.

The medical research community has long called for greater transparency in medical research. The AllTrials campaign, which calls for all clinical trials to be registered and fully reported, has attracted the support of over 700 groups, including the American Medical Association and dozens of patient groups, and TranspariMED is currently building a broader coalition to push for greater transparency in the sector. It’s high time for the wider anticorruption community to join the fray.

Guest Post: The Taxi Driver Paradox–or How Descriptive Social Norms Shape Corrupt Behavior

Nils Köbis, a post-doctoral researcher at the Center for Experimental Economics and Political Decision-Making (CREED), University of Amsterdam, contributes today’s guest post:

Whenever I am traveling and take a taxi, I try to strike up a conversation with the driver. The beauty of this situation is that both sides can be really candid. The length is typically short, and chances are you will never meet again. The chat usually kicks off with some small talk about sports, weather, and food. Once warmed up, I have often asked: “What do you think is the biggest problem in your society?” So far, the most common answer has been corruption. And my taxi-driver-based anecdotal evidence is consistent with large  international surveys. Notwithstanding the old canard that people who live in corrupt societies generally tolerate corruption as normal and natural, ample empirical evidence (and my taxi drivers) suggests that this is not true: People widely despise corruption, especially in countries riddled with it. Yet on several occasions the very same taxi driver who has been ranting to me about corruption has stopped by a traffic police officer—and willingly paid a bribe to avoid a ticket.

What explains this apparent paradox? The most frequent explanation for why a person outraged by corruption would nevertheless pay a bribe is that “everybody does it”—as the Nigerian novelist Chimamanda Adichie nicely puts it, “If we do something over and over again it becomes normal. If we see the same thing over and over again it becomes normal.” This notion of normality plays an important role in explaining why corruption is sometimes the exception and sometimes the rule. Scholars who research social norms differentiate between injunctive norms, which concern whether a given behavior is acceptable, and descriptive norms, which indicate whether the same behavior is common. This distinction might help to explain the taxi-driver-paradox: People might often bribe because everybody else is doing it, even though they think it’s wrong. Continue reading

Guest Post: Are Public UBO Registers a Good or a Bad Proposition? A Further Reply to Professor Stephenson

Today’s guest post, from Martin Kenney, the Managing Partner of Martin Kenney & Co., a law firm based in the British Virgin Islands (BVI), continues an ongoing debate/discussion we’ve been hosting here at GAB on the costs and benefits of public registries of the ultimate beneficial owners (UBOs) of companies and other legal entities. That debate was prompted by the UK’s decision to mandate that the 14 British Overseas Territories create such public registries, and Mr. Kenney’s sharp criticism of that decision in a post he published on the FCPA Blog. That post prompted reactions from Rick Messick and from me. Our pushback against Mr. Kenney’s criticisms stimulated another round of elaboration on the critique of the UK’s decision, with a new post from Mr. Kenney and another from Geoff Cook (the CEO of Jersey Finance). I subsequently replied, explaining why I did not find Mr. Kenney’s or Mr. Cook’s criticisms fully persuasive. Today’s post from Mr. Kenney continues that exchange:

Public [UBO] registers are rather cheap political playing to the gallery, saying “Aren’t we wonderful to have done this?” – ignoring the fact that what we have established in the UK does not work properly….  It seems to me outrageous that the UK Government, who lack a lot in the area of anti-money laundering, should thus seek to impose on their overseas territories measures – often, where they cannot be afforded economically, that go far beyond what the UK has.

Lord Flight (Conservative), Member of the House of Lords, Speech to the House of 21 May, 2018, Debate on the Sanctions and Anti-Money Laundering Bill [HL] 

The fact that Professor Stephenson welcomes a good discussion and has opened the doors to his blog once again, means it would be impolite of me to not provide a response to his latest observations.

From the outset, I will stress that I will not seek to address every point Professor Stephenson makes. However, having addressed those below, if there are others he wishes me to respond to, I will endeavor to do so. Continue reading

Guest Post: Just Because UBO Data Isn’t Available for Everyone to See, It Doesn’t Make It Secret

Today’s guest post comes from Geoff Cook, CEO of Jersey Finance (a non-profit organization established to promote Jersey as an international financial center of excellence). Mr. Cook’s piece continues a debate over the UK’s recent decision to require British Overseas Territories to adopt centralized public registers with information on the ultimate beneficial owners (UBOs) of legal entities registered in those jurisdictions. The discussion of this issue at GAB was prompted by Martin Kenney’s post on the FCPA Blog, which sharply criticized the UK’s decision. GAB published two replies to Mr. Kenney’s criticisms, the first from Senior Contributor Rick Messick, and the second from Editor-in-Chief Matthew Stephenson. Earlier this week, GAB published Mr. Kenney’s response, and today Mr. Cook continues the discussion by explaining why, from the perspective particularly of a jurisdiction like Jersey, public UBO registers are unnecessary and potentially dangerous.

It is claimed that jurisdictions such as the Crown Dependencies that fail to introduce public registers of company ownership are advocating secrecy and encouraging the laundering of “dirty” money through the financial system. But the call for public registers, which serves a political agenda, is proposed in isolation, ignoring other effective measures for exchanging information that have been implemented during the last few years.

The Common Reporting Standard (CRS), for instance, has been largely ignored in the debate.  Through this OECD inspired agreement, the values of all bank accounts and investments in whatever form are exchanged automatically each year to the owner’s home tax authority. Company ownership details are included in that exchange. Jersey was an early adopter of the system in 2017 and has already swapped information with the other 50 countries that participate. More countries are joining, and will be exchanging data again in September – not a measure that fits with a secrecy agenda.

Jersey has been examined by independent standard setters such as the OECD as recently as 2017, and found to be in the top drawer for the quality of its standards and response to transparency. Jersey is one of only two jurisdictions to have the top rating so far, yet the standards attained by global organizations that truly understand the financial system are rarely quoted in the debate. Instead we are accused by detractors of obstruction and secrecy, with no regard for what is actually taking place. Continue reading