Category Archives: Guest Commentary

Guest Post: The 2017 World Development Report’s Embrace of Anticorruption Incrementalism

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GAB is pleased to welcome back Finn Heinrich, from Transparency International’s research team, who contributes the following guest post:

In January, the World Bank published its latest World Development Report (WDR)– this time focused on “Governance and the Law” and their role in effective development policies. The annual World Development Reports typically receive significant attention from the wider development community, and indeed there have already been a number of events (see here, here, and here) and reviews (see here and here) dedicated to the 2017 WDR. The reviewers generally agree that the report’s key points—that governance matters a lot for many development outcomes, that what matters are governance functions rather than specific institutional forms, and that effective governance often depends more on underlying power dynamics than on institutional forms or capacities—are important insofar as the World Bank’s explicit acknowledgement of them represents a big step for the bank, but otherwise nothing new. After all, initiatives such as Thinking and Working Politically and Doing Development Differently have propagated these insights for a while.

None of the existing reviews, however, engages with the question of the 2017 WDR’s implications for the anticorruption community specifically. Yet the report repeatedly emphasizes three dysfunctionalities of a governance system—exclusion, capture, and clientelism—all of which are “negative manifestations of power asymmetries,” and all of which can be thought of as forms of corruption. While these terms (especially “capture,” which ends up being the one the WDR uses most frequently) is still conceptually underdeveloped, the term helpfully focuses on systemic forms of corruption in public institutions (broadly defined), rather than on corruption as an individual exchange between two actors (such as bribery). Thus, the WDR emphasizes that combatting the corruption of policies and governance processes (i.e. corruption in its political, grand, and systemic forms, rather than a focus on street-level bribery) is at the heart of making development policies work. That the World Bank is taking this position in its flagship publication is no small accomplishment, especially given that 25 years ago the Bank shied away from even using the word corruption.

Where the WDR falls short, however, is to put forward operationally relevant insights on how to address the problem of capture of public institutions by private interests. It starts off well with acknowledging the importance of expanding participation in governance (“contestability”) and of changing the relevant actors’ incentives and belief systems. Yet the WDR’s real-life examples of anti-capture interventions, scattered throughout the report, largely refer to cases where minor nudges or other incremental adjustments slightly shifted preferences and therefore behavior. To be clear, many of these examples of anticorruption interventions are not widely known to the anticorruption community, making the WDR a treasure trove of empirical nuggets on accountability, transparency, and participation interventions. Nonetheless, the report is frustratingly silent on the question of how to proceed when fundamental dysfunctional power asymmetries need to be changed.

Perhaps, though, that aspect of the report is a feature rather than a bug: Maybe it is a reflection of a new humility on the part of the World Bank and other external development actors in terms of what role they can be expected to play in governance and anticorruption. Mushtaq Khan, for example, embraced the WDR as “the incrementalist’s manifesto,” arguing that external development agencies should focus on fixing those problems where the interests of reformers and powerful actors within the society align (see also here). Could it be that this incremental approach to anticorruption will yield more results over time than the many grand and ambitious initiatives which unfortunately have often fallen short of their marks?

France’s New Anticorruption Law — What Does It Change?

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GAB is pleased to welcome back Frederick Davis, a lawyer in the Paris office of Debevoise & Plimpton, who contributes the following guest post:

The ineffectiveness of French efforts to combat overseas bribery is well-known if not entirely understood. Put most simply, in the 17 years since France adopted comprehensive anti-bribery legislation, essentially similar to the U.S. Foreign Corrupt Practices Act (FCPA), France has not convicted a single corporation of classic overseas bribery under that legislation. This shortfall has been regularly documented in periodic reports by the OECD, and by NGOs such as Transparency International and others. Its causes are complex. They may include a simple deficit in willpower, but as others as well as I have pointed out, French criminal procedures, and in particular the difficulty of demonstrating corporate responsibility under French criminal law, impede effective prosecution.

Stung by the fact that four very large French companies entered into a variety of guilty pleas or deferred prosecution agreements (DPAs) with US authorities, pursuant to which these companies paid well over $2 billion in fines and other payments to the US treasury, in December 2016 the French legislature finally adopted a long-pending law, known as the Loi Sapin II, which progressively goes into effect during 2017. The law is unmistakably a reaction to US success in prosecuting French companies under the FCPA: it only applies to corporations, and only to allegations of overseas corruption or other crimes very similar to those prosecutable under the FCPA.

Several of new law’s provisions are unexceptional: it creates a new Anticorruption Agency, called the AFA, to replace an existing agency, known as the SCPC, which was widely viewed as ineffective; the law requires medium- and large-sized companies to adopt compliance programs pursuant to criteria to be developed by the AFA. (While the AFA can impose administrative sanctions for absent or deficient compliance programs, it will have no criminal investigative authority). The new law also slightly extends the territorial reach of French anti-bribery laws to make them applicable to companies that “carry out all or part of their economic activity on French territory,” and enhances whistleblower protection available under existing laws. But the Loi Sapin II’s most ambitious innovation by far is a series of amendments to the French Code of Criminal Procedure to permit negotiated outcomes generally similar to DPAs as practiced for many years in the United States, and since 2014 in the United Kingdom, that result in the payment of fines and other penalties but not in a criminal judgment. Under the new provisions, a French corporation may enter into an agreement, known as a “Judicial Convention in the Public Interest” (JCPI), under which the firm admits facts sufficient to show the commission of a relevant crime, and agrees to a fine that may be as high as 30% of the company’s annual turnover for the prior three years. The company may also agree to the imposition of a corporate monitor, to be supervised by the AFA. Continue reading →

Guest Post: Anticorruption Enforcement Is the Key to Democratic Consolidation–Not the Other Way Around

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GAB is delighted to welcome Cristina Nicolescu-Waggonner, visiting professor of Political Science at Pomona College and Scripps College, Claremont, to contribute the following guest post, drawn from material in her new book, No Rule of Law, No Democracy:

It is fashionable to argue that the only way to root out systemic corruption is to establish a political system characterized by genuine democratic accountability and the rule of law. Unfortunately, corruption – specifically the conflicts of interest of political and judicial leaders – does not allow for this sort of development. True, there may be democracy, but in the presence of widespread corruption it will remain in a perpetual state of unconsolidated democracy, without true rule of law. And in such weak democracies, the electoral process stimulates rather than discourages corruption: Eager to win and short on cash, politicians make deals with businesses and misappropriate public funds to finance campaigns, a vicious cycle that starts political tenure with illicit means. Different from lobbying, this illegal activity puts the breaks on rule of law reform. Corrupt politicians, afraid of retribution, do not reform or establish enforcement mechanisms: supervisory commissions, integrity agencies, anticorruption institutions, genuinely independent courts, whistleblower protection, etc. This dilemma is exemplified by the Czech Republic, which does well on various international democracy and rule-of-law indexes, but in fact is a corruption hotbed, with politicians, members of the judiciary, and business people involved in a web of misappropriation of public funds—partly for personal enrichment, but more importantly for election and re-election. The same vicious cycle is prevalent in new democracies all over the world, from Brazil to Romania to South Korea to Mexico to Tunisia: Corruption negatively affects the process of democratization and stalls it before democracy can have a chance to fight corruption.

So, what can we do? Continue reading →

Guest Post: A Breakthrough in Guatemala’s Fight Against Judicial Corruption

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GAB is honored to welcome Judge Claudia Escobar, who contributes the following guest post:

Guatemala usually does not get a lot of attention from the international media, and when it does it is usually because of widespread violence or political instability. But lately the country is gaining recognition for its serious efforts to fight corruption and impunity. Partly due to the legacy of 36 years of internal armed conflict, Guatemala has been plagued by a culture of impunity, as well as a legacy of criminal structures that infiltrated government institutions—structures that are still operating today, more than a decade after the 1996 Peace Accords. In response to this problem, the Guatemalan government to ask the United Nations for help in rebuilding the rule of law, and in response, the International Commission against impunity in Guatemala—CICIG—was created in December 2006 when the Guatemala Government and the UN signed the agreement. This new institution was conceived as an independent body to support the Public Prosecutor’s Office, the National Police, and other state law enforcement institutions. The ultimate goal of CICIG is to strengthen institutions within the judicial branch so that they will be able to confront illegal groups and organized crime.

CICIG has already been hailed as a major success and a potential model for other countries in the region to follow. Its most well-known impact to date is that its investigation into systemic corruption in the government of President General Otto Perez Molina and Vice President Roxana Baldetti ultimately forced both of them to resign. Another, more recent development has gotten much less attention in the international press, but is also a crucial step forward in Guatemala’s struggle to build the rule of law: On October 2016, as a result of a CICIG investigation that commenced two years earlier, former Congressman Godofredo Rivera and attorney Vernon Gonzalez were found guilty on corruption-related charges for attempting to influence a judge. Sentencing two white-collar defendants, with strong political connections, to lengthy prison terms for attempting to influence a judge is unprecedented in Guatemala, and a major step forward. This case was the first case of corruption to be presented against a high official in power by the office of the Attorney General Attorney and CICIG since the Commission was established. It is also the first sentence handed down under the anticorruption law approved in 2012 (which, coincidentally, Congressman Rivera signed into law when he was president of Congress).

The sentence also has a great deal of personal meaning for me, because I was the judge who Rivera and Gonzalez tried to corrupt, and I was the one who filed the case with CICIG. Continue reading →

Guest Post: The Case for Greater US Deference to Foreign Anticorruption Prosecutions–A Response to Maruca

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GAB is pleased to welcome back Frederick Davis, a lawyer in the Paris office of Debevoise & Plimpton, who contributes the following guest post:

Last fall, I published two posts in which I raised concerns about overlapping jurisdiction in foreign bribery cases, and about the appropriate role of US enforcement authorities in such cases. My first post noted that the US is not bound by the outcome of criminal processes in other countries, but can—and sometimes does—bring FCPA cases against foreign companies that have already resolved investigations for the same conduct brought initiated by their home countries. (As I also observed, the absence of any such constraint on US authorities creates an asymmetry with respect to countries that endorse an international ne bis in idem/double jeopardy bar, which can block such countries from pursuing a corporation or person that has already been pursued in the US.) My second post urged that the US Department of Justice (DOJ) should be more transparent in articulating when it will defer to non-US prosecutions in the corruption area.

A few weeks back, Michael Maruca posted an interesting critical commentary on my posts. The main thrust of Mr. Maruca’s very thoughtful comment was that the DOJ should not unnecessarily defer to non-US counterparts, partly because he worries about downgrading the effectiveness of US FCPA enforcement efforts, and partly because he envisions competition among national authorities as encouraging a “race to the top” in achieving optimal enforcement of foreign bribery laws. He proposes that the DOJ, rather than being more deferential to foreign resolutions of conduct that might violate the FCPA, the DOJ should go further in sharing the monetary outcomes of multinational investigations, and he provides commonsense principles for how it might do so.

Mr. Maruca’s intervention usefully advances the discussion on a very important issue. I agree with much of what he says. Nonetheless, I continue to view the lack of sufficient US deference to foreign resolutions of foreign bribery cases as a problem, and I have the following concerns about the points Mr. Maruca’s makes: Continue reading →

Why the Repeal of the U.S. Publish-What-You-Pay Rule Is a Major Setback for Combating Corruption in the Extractive Sector

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Bonnie J. Palifka, Assistant Professor of Economics at Mexico’s Tecnológico de Monterrey (ITESM) contributes today’s guest post:

Last Friday, following the U.S. House of Representatives, the Senate voted to repeal a Securities and Exchange Commission (SEC) regulation that required oil, gas, and minerals companies to make public (on interactive websites) their payments to foreign governments, including taxes, royalties, and “other” payments. The rule was mandated by Section 1504 of the 2010 Dodd-Frank Act, but had only been finalized last year. President Trump’s expected signature of the congressional resolution repealing the rule will represent a major blow to anticorruption efforts, and a demonstration of just how little corruption matters to his administration and to Congressional Republicans.

The extractive industry had lobbied against this rule, arguing that having to report such payments is costly to firms and puts them at an international disadvantage. Some commentators have supported their efforts, arguing, for example, that the Section 1504 rules are unnecessary because the Foreign Corrupt Practices Act (FCPA) already prohibits firms under SEC jurisdiction—including extractive industry firms—from paying bribes abroad. This argument misses the mark: The extractive sector poses especially acute and distinctive corruption risks, which the FCPA alone is unlikely to remedy if not accompanied by greater transparency. Continue reading →

Guest Post: The Finnish Paradox–Anticorruption Success Without Anticorruption Policy

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GAB is pleased to welcome back Alan Doig, Visiting Professor at Newcastle Business School, Northumbria University, who contributes the following guest post:

In its January 2017 Inclusive Growth and Development report, the World Economic Forum listed five countries as the best of the advanced economies in addressing corruption: New Zealand, Singapore, Sweden, Norway, and–heading the list–Finland. Finland, along with its fellow Scandinavian countries, is often held out as a model of clean and effective government, toward which other countries should aspire. Yet 50 years ago, Finland’s reputation was quite different. As Niklas Jensen-Eriksen has documented, for example, senior British policymakers in the 1950s and 1960s viewed corruption in the upper strata of Finnish politics as an issue, and warned that it might not be possible for British companies to do business there without paying bribes. What changed over the course of that half-century? The Finnish Ministry of Justice’s delightfully-smug official report, as well as a limited number of other similar publications, suggest a number of micro- and macro-level changes, some planned for and some accidents of social and political evolution, that are assumed (although there’s no real proof) to have denied the opportunity and incentive for corruption.

These include long-term and stable legal and administrative environments that also engaged members of society at all levels, the absence of strata of bureaucracy and devolved public (and public-focused) spending that promoted local engagement, transparent decisionmaking and the right of citizen redress, universal education, adequate official salaries, state funding of political parties, access to all public records (including tax records), access to funds (legal aid) to challenge state decisions. Yet among these changes Finland never did much of anything specifically about corruption (and indeed the country still attracts disapproving comments from GRECO and the OECD for not doing more even now).

This, then, is the Finnish Paradox: a country that didn’t decide to “fight corruption” over the last 50 years is now held up as an exemplar of effective anticorruption control. It is a model to which other countries should aspire (and that donors should have in mind as a target) when designing anticorruption strategies and interventions.

This Finnish paradox highlights two possible lessons that challenge much of the thinking behind current approaches championed by the “anticorruption industry” (including many donors, activists, and other reformers): Continue reading →

Guest Post: Living in a Kleptocracy–What to Expect Under President Trump

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Bonnie J. Palifka, Assistant Professor of Economics at Mexico’s Tecnológico de Monterrey (ITESM) contributes today’s guest post:

The news regarding President Donald Trump appointments and nominations, and the increase in foreign governments’ business at Trump properties, has caused considerable concern regarding possible conflicts of interest, nepotism, insider trading, and other types of grand corruption. Many are worried about what this means—if President Trump’s tendencies toward crony capitalism, or quasi-kleptocracy, are as serious as his critics fear, what can we expect will happen over the next four or eight years?

While grand corruption among the political elite may be new for US citizens, this challenge is all too familiar in many other parts of the world. As a long-time resident of Mexico and corruption scholar, I have some insight regarding life in a relatively corrupt environment, which might be relevant to what the US is about to face: Continue reading →

Guest Post: Using Animated Videos to Change Children’s Attitude Toward Corruption

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Robert Clark, Legal Research Manager at TRACE International, contributes today’s guest post:

Although corruption is a broadly entrenched social ill, each corrupt act is a decision made in its own specific place and time. To address the global problem of corruption, we need to focus our attention locally and join together in our individual acts of resistance. That dynamic is concisely expressed in the phrase “United Against Corruption”—the official slogan of 2016’s International Anti-Corruption Day (officially observed this past December 9th). The associated “United Against Corruption” campaign focuses on corruption as an impediment to development, and offers a wide range of suggestions for what governments, media, businesses, and individuals can do to participate in the ongoing struggle. The campaign’s website includes a series of powerful videos illustrating the dire effects of corruption.

Children are often the ones that suffer the effects of corruption, but they can also play a key role in changing a society’s tolerance of it. The United Against Corruption campaign encourages individuals to “[e]ngage the youth of your country about what ethical behavior is, what corruption is and how to fight it.” In that spirit, TRACE International has created a series of short animated stories featuring the “Bribe Busters”—an elite young team of corruption fighters who fight corruption around the world with the help of a time travel teleportation super-computer. Their mission: to ensure that children everywhere have a fair future. Each episode focuses on a different aspect of corruption, and shows the viewer that although the world is full of unfairness, things don’t have to be that way. (For example, in episode two, the team is able to convince a government safety inspector not to look the other way at building code violations by showing him—with the help of their time-traveling computer friend—the devastation of a consequent building collapse. In another episode, the team helps an underserved remote village organize to get rid of a kleptocrat whose greed has prevented an important road project from being completed.) These videos, which have already been viewed in 44 different countries, are available on YouTube in English, French, and Spanish, with Arabic coming soon. Additionally, comic versions of the episodes (in PDF form) can be downloaded here.

TRACE is working with anti-corruption networks around the world–including Anti-Corruption International (ACI), the Economic and Financial Crimes commission (EFCC) / Creative Youth Initiative against Corruption, the Global Youth Anti-Corruption Network (GYAC), and ZERO Tolerance-Wise Youth Trust –to distribute the videos. If you are interested in distributing the Bribe Busters series in your anticorruption network, please contact us here. We hope that this series can not only help teach children about the harms of corruption (as if they didn’t already know), but also help them develop a sense that they can do something about it. We believe that’s also the basic message of the United Against Corruption campaign, and it’s one we are happy to endorse.

Guest Post: Why Disclosures in Foreign Settlements Don’t Spur Domestic Prosecutions in Argentina

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Natalia Volosin, a doctoral candidate at Yale Law School and clerk in the Asset Recovery Unit at Argentina’s Attorney General’s Office, contributes the following guest post (adapted and from an op-ed previously published in Spanish in the Argentine newspaper Infobae):

The so-called “Lavo Jato” investigation into bribery and money laundering at Brazil’s state-owned oil company Petrobras led to the biggest transnational bribery settlement in history: In December 2016, the Brazilian construction conglomerate Odebrecht reached a settlement with law enforcement authorities in the United States, Brazil, and Switzerland; in exchange for its guilty plea, Odebrecht and its affiliate Braskem agreed to pay the three countries a total of $3.5 billion, of which the first firm alone will pay $2.6 billion. (Odebrecht agreed that the total criminal penalty amounts to $4.5 billion, but the final number will be determined according to its ability to pay, though it will be no less than $2.6 billion.) According to the agreement, Brazil will get 80 per cent of the penalty, while the United States and Switzerland will get 10 per cent each.

Some hope that the Odebrecht settlement will provide a boost to anticorruption investigations in other countries. After all, in the settlement documents, the firm acknowledged to having made illegal payments worth $788 million between 2001 and 2016, not only in Brazil, but in a dozen countries including Angola, Argentina, Colombia, Mexico, and Venezuela. In Argentina specifically, Odebrecht admitted that between 2007 and 2014, in three separate infrastructure projects, it paid intermediaries a total of $35 million knowing that they would be partially transferred to government officials. These criminal practices earned the company a $278 million benefit—a return on “investment” of over 694% (the highest among all the recipient countries). Will these revelations have significant consequences for the prosecution of corruption cases in Argentina?

The answer is probably no, at least not in the short term. Continue reading →