Tracking Corruption and Conflicts of Interest in the Trump Administration–June 2018 Update

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Since May 2017, GAB has been tracking credible allegations that President Trump, as well as his family members and close associates, are seeking to use the presidency to advance their personal financial interests, and providing monthly updates on media reports of such issues. Our June 2018 update is now available here. The most troubling new items included in this update are the following:

  • First, there is evidence suggesting that the Chinese government may have provided financial benefits to Trump-affiliated businesses in order to influence the President to take steps to lift sanctions on ZTE, a Chinese telecommunications company that has been sanctioned by the U.S. government for illegally transferring U.S. high-technology components to Iran and North Korea. In particular, shortly before President Trump announced that his administration would seek to lift the sanctions on ZTE, a Chinese state-owned company had provided a $500 million loan for a Trump Organization development project in Indonesia, and around the same time the Chinese government had granted several trademarks to Ivanka Trump’s company.
  • Second, investigations of Trump’s personal attorney Michael Cohen have revealed that Cohen’s consulting company, which he formed shortly before the election, had received substantial payments from several clients, including a firm closely tied to a Russian Oligarch, as well as several large firms with strong interests in pending U.S. government decisions (including AT&T and Novartis). It is not clear what, if any, consulting services Mr. Cohen’s firm provided, nor is it clear what happened to the money that the firm received from these corporate clients, raising the possibility that the firm may have been a “slush fund” for Trump, or, worse, as a means for funneling bribes to Trump or his close associates in exchange for favorable policy decisions. At this point, this is all speculation, though more information may become available as the investigations into Cohen’s activities proceeds.

As always, we note that while we try to include only those allegations that appear credible, we acknowledge that many of the allegations that we discuss are speculative and/or contested. We also do not attempt a full analysis of the laws and regulations that may or may not have been broken if the allegations are true. For an overview of some of the relevant federal laws and regulations that might apply to some of the alleged problematic conduct, see here.

Why the Recent Recommendations for Reforming College Basketball are a Step in the Right Direction

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Last October, the United States was rocked by an FBI and DOJ probe into corruption in college basketball. The resulting report detailed a number of ongoing schemes, including bribes paid to players by shoe and apparel companies and bribes paid to coaches to steer players to certain financial advisers. As a response to the government investigation, the National Collegiate Athletic Association (NCAA) established an Independent Commission on College Basketball, chaired by former U.S. Secretary of State Condoleezza Rice, to make recommendations on “legislation, policies, actions and structure(s) to protect the integrity of college sports.” After six months of research, the committee produced a 53 page report which concluded that “[t]he levels of corruption and deception [in men’s college basketball] are now at a point that they threaten the very survival of the college game as we know it,” and outlined a number of recommendations for changing the college basketball system. It is now up to the NCAA to decide whether it will implement the recommendations.

The proposed reforms by the Commission have been met with great skepticism. Critics argue that the report only tinkers at the margins and fails to get to the root causes of the corruption and other problems in college basketball. (For a sampling of the critical responses, see here and here and here). These criticisms go too far. Fixing the complex problems that permeate college basketball will take some time. The reforms outlined in the report, though imperfect, are a step in the right direction, and the NCAA should embrace and adopt them. Among the many proposals advanced by the Commission, the following reforms, if implemented by the NCAA, will have an immediate impact on decreasing corruption in collegiate athletics:

Continue reading →

Congress Should Act to Make US Aid to Ukraine Contingent on Anticorruption Reform

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Since the Maidan Revolution removed former President Yanukovych from power in 2014, anticorruption progress in Ukraine has been uneven at best. Ukraine passed important anticorruption legislation in 2015, yet implementing it has been a challenge. Progress in some areas, including the judiciary and prosecutors’ offices, have met with significant and growing resistance. Many reformers within the government have resigned. For what it’s worth, Ukraine’s Corruption Perceptions Index score has only marginally improved. Still, there has been some progress. A significant portion of Ukraine’s budget is comprised of foreign aid, and donors—who have little patience for having their money stolen or wasted—have pressed the Ukrainian government to take the fight against corruption more seriously. The biggest anticorruption reforms have therefore been the ones on which large donors made their aid contingent.

The United States is one of the most important of these donors. The U.S. sends billions in loan guarantees, military aid, development aid, and State Department spending to Ukraine. During the Obama administration, anticorruption, and political reform more generally, was a high priority for the U.S. in its relationship with the post-Maidan Ukrainian government. Former Vice President Biden emphasized anticorruption during his five visits to Ukraine, and put personal pressure on President Poroshenko to follow through on his commitments in that area. Biden also played a role in delaying one billion dollars in loan guarantees to Ukraine due to corruption concerns—an approach the IMF has also embraced. But the anticorruption strings that the U.S. had attached to foreign aid in the past were imposed as a matter of executive discretion rather than legislative obligation.

Under the Trump administration, perhaps unsurprisingly, ensuring that Ukraine follows through on its anticorruption reforms has not been a foreign policy priority. No highly visible person in the current administration has taken on Biden’s conspicuous role in ensuring Kyiv follows through on its Minsk commitments. If President Trump isn’t willing to use U.S. leverage to continue to push for anticorruption efforts in Ukraine, the U.S. Congress can and should step in by putting anticorruption conditions on at least some American spending in Ukraine.  Continue reading →

July 9 –13 Course on Combatting Corruption in Local Government

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The International AntiCorruption Academy, an international organization and post-secondary educational institution based in the Vienna suburbs, is offering a week-IACA buildinglong course on combatting corruption in local government this July 9 – 13. The course will examine the various types of corruption commonly found in municipal and regional governments, what can be done to prevent their occurrence, and measures for strengthening the integrity of public employees.  Instructors are Professor Robert Klitgaard of the Claremont Graduate University, Jeroen Maesschalck of the Leuven Institute of Criminology, and this writer.

The deadline for enrolling is fast approaching.  More information on the course and  scholarships available here.

The Debate Over Public UBO Registries Continues: A Response to Kenney and Cook

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As our regular readers know, over the past few weeks GAB has had the opportunity to host on what is shaping up to be a lively and interesting debate over the advantages and disadvantages of creating public registries of the ultimate beneficial owners (UBOs) of companies and other legal entities. A UBO, for those not familiar with the lingo, is the real-live flesh-and-blood human being who has a sufficiently strong direct or indirect ownership interest in a company to be considered the “true” owner. Increasing UBO transparency is a top priority for many civil society activists, who argue that anonymous company ownership facilitates grand corruption, as well as money laundering, tax evasion, and other harmful activities. In many jurisdictions, UBO information is not available, and even law enforcement may have difficulty determining a company’s true owners. In other jurisdictions, companies must submit and update validated UBO information to the authorities, but that information is confidential, available only to law enforcement or other regulatory agencies in the context of an investigation, or perhaps to others in a limited set of circumstances (for example, banks performing customer due diligence). Most anticorruption advocates, as well as law enforcement agencies and most experts, agree that a confidential UBO registry is far superior to having no registry at all. The harder question, and the one we’ve been debating here at GAB, concerns whether the UBO registry should be public, so that anyone—not just law enforcement agencies acting pursuant to an investigation—can examine the registry to see who owns what.

The most recent round of discussion and debate was triggered when the UK—one of the few major economies that has implemented a public UBO registry—decided to require the 14 British Overseas Territories, such as the British Virgin Islands (BVI)—to create and maintain public UBO registries. Many in the civil society community celebrated this as a huge triumph, but others denounced the UK’s decision. The denunciation that got the debate going over here at GAB was a provocative piece by Martin Kenney, a BVI asset recovery lawyer, on the FCPA Blog. Mr. Kenney’s piece prompted replies from GAB Senior Contributor Rick Messick (here) and from me (here). Then last week, we were able to publish two more pieces, one from Mr. Kenney and another from Geoff Cook (the CEO of Jersey Finance). Both Mr. Kenney and Mr. Cook took issue with some or all of the arguments that Rick and I advanced, and pressed the claim that the UK’s imposition of public UBO registries on the Overseas Territories was a bad mistake.

Both of their pieces raise important points that deserve a reply. For that reason, and because I think that this issue is important enough that continuing this exchange on GAB for another round or two may be worthwhile for our readership, in this post I’m going to offer a response to Mr. Kenney’s and Mr. Cook’s posts. To lead with the conclusion: While I respect their experience and expertise in these matters, I found most of their arguments unconvincing, or at the very least in need of further explanation before I’m ready to reconsider my (admittedly tentative) view that public UBO registries have sufficient advantages over confidential UBO registries that moving from the latter to the former is desirable. Continue reading →

Mixed Messages from the UK’s First Contested Prosecution for Failure to Prevent Bribery

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In February 2018, the UK secured its first ever contested conviction of a company for “failure to prevent bribery.” Under Section 7 of the UK Bribery Act (UKBA), a company or commercial organization faces liability for failing to prevent bribery if a person “associated with” the entity bribes another person while intending to obtain or retain business or “an advantage in the conduct of business” for that entity. Following an internal investigation, Skansen Interior Limited (SIL)—a 30-person furniture refurbishment contractor operating in southern England—discovered that an employee at its firm had agreed to pay nearly £40,000 in bribes to help the company win contracts worth £6 million. Company management fired two complicit employees and self-reported the matter to the National Crime Agency and the City of London police. The Crown Prosecution Service ultimately charged SIL with failing to prevent bribery under Section 7. Protesting its innocence, SIL argued that the company had “adequate procedures” in place at the time of the conduct to prevent bribery; SIL, in other words, sought to avail itself of the widely-discussed “compliance defense” in Section 7(2) of the UKBA, which allows a company to avoid liability for failing to prevent bribery if the company can show that it “had in place adequate procedures designed to prevent persons associated with [the company] from undertaking” the conduct in question.

The case proceeded to a jury trial. The verdict? Guilty. The sentence? None. In fact, SIL had been out of business since 2014, so the judge had no choice but to hand down an absolute discharge—wiping away the conviction.

The hollow nature of the government’s victory has led some commentators to call the prosecution “arguably unprincipled” or even a “mockery of the UK criminal process.” Indeed, the bribing employee and the bribed individual had already separately pleaded guilty to individual charges under UKBA Sections 1 and 2, respectively, and the remaining shell of a corporation had no assets or operations. Other commentators pointed out that precisely because the company was dormant it would have been unable to enter into a deferred prosecution agreement (DPA), lacking assets to pay financial penalties or compliance programs to improve. Putting aside arguments about the wisdom or fairness of pursuing a prosecution in these circumstances, the SIL case sheds light on Section 7(2)’s “adequate procedures” defense. While the UK government has secured a few DPAs for conduct under Section 7—beginning with Standard Bank Plc in 2015—SIL is the first case in which the Section 7(2) “adequate procedures” defense was tested in front of a jury.

While the government argued that it prosecuted the case primarily to send a message about the importance of anti-bribery compliance programs, the UK government’s actions in the SIL case ultimately sends mixed messages to companies and may have counterproductive effects. Continue reading →

Malaysia’s Anti-Fake News Bill Breaks Dangerous New Ground

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Since at least 2016, complaints about “fake news” have become increasingly common all over the world. But “fake news” refers to two separate phenomena. In some cases, “fake news” means stories that are actually untrue (not just distorted, but fabricated, and deliberately disguised to make it appear that they come from a legitimate media outlet rather than a propagandist or troll). Shanil posted about the dangers that this sort of fake news poses to anticorruption efforts last December. But politicians, notably President Trump, have appropriated the “fake news” label and applied it to any coverage that they deem unfavorable or unfair, even when the news comes from a legitimate media outlet and there is no credible argument that the story is a deliberate fabrication.

The conflation of these two kinds of “fake news” is dangerous, not least because concerns about the former may provide politicians with a pretext for suppressing the latter. Case in point: in April, Malaysia enacted a new law—the Anti-Fake News Bill—that purports to criminalize fake news. The purpose of the new law, which gives the government has the power to prosecute those who create or spread “fake news” with jail terms of up to six years and fines up to about $123,000, seems to be giving the government more authority and discretion to stamp out unflattering news. Other Southeast Asian countries such as Singapore and the Philippines are considering similar measures.

While the anticorruption community should fight against corrupt actors using fake news to spread false stories, it should also resist efforts of governments to misuse the “fake news” label as a pretext for more extensive regulation of legitimate media and free speech. Censorship laws like Malaysia’s reduce transparency and scrutiny, and ultimately hurt anticorruption efforts by entrenching corrupt, illiberal governments.

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

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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 →

Uzbek Civil Society to Swiss Government: Hasty Return of Stolen Assets to Uzbek Government Not Warranted

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GAB readers know that the Government of Uzbekistan has been pressing countries to return some $1.0 billion under their control which Gulnara Karimova, daughter of the late dictator Islam Karimov, stole through corrupt schemes.   They also know that Uzbek civil society has urged a “responsible return,” one that recognizes that despite modest changes since Karimov’s death, Uzbekistan is still ruled by the same close-knit group in charge during Karimov’s time and with the same kleptocratic proclivities.  Responding to reports that the Swiss government, which holds several hundred million dollar of Gulnara’s corrupt monies, may soon send these funds back to Uzbekistan with little guarantee they will to go improve the welfare of the Uzbek people, members of Uzbek civil society living in exile wrote the Swiss government today asking it to refrain from any hasty repatriation. Their request is particularly urgent given the evidence they cite that stolen assets Switzerland returned to Kazakhstan through a World Bank program were misused. The request is joined by members of Kazakh civil society members in exile.

OPEN LETTER OF CIVIL SOCIETY ORGANIZATIONS TO THE SWISS GOVERNMENT

We, the undersigned representatives of civil society organizations advocating for transparent and responsible repatriation of assets stolen from the Uzbek people, are urgently calling upon the Swiss government to ensure that any decision regarding the ill-gotten assets of Gulnara Karimova, currently the subject of litigation in several countries, be made with due consideration to the rights and development prospects of the Uzbek people.

We urge the Swiss government not to act hastily and to consider that the promise of reform by the Mirziyoev regime have not yet materialized in practice. Based on all available information we strongly believe that return of these assets without sound conditionalities developed in consultation with major stakeholders, including civil society – which has been in a stranglehold in Uzbekistan for more than two decades – would only further perpetuate corrupt practices in Uzbekistan, leaving the systemic causes of the original criminal conduct untouched. The Swiss government can and should use these assets as an incentive to promote and support the course of reforms in Uzbekistan in the long-term interests of the Uzbek people. Continue reading →

Guest Post: The UK Order on UBO Registries in Overseas Territories–A Reply

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Earlier this month, Martin Kenney, the Managing Partner of Martin Kenney & Co. Solicitors (a specialized investigative and asset recovery practice based in the British Virgin Islands (BVI)) posted a widely-read piece on the FCPA Blog that criticized the UK Parliament’s decision to require that British Overseas Territories create public registries of the ultimate beneficial owners (UBOs) of legal entities registered in those jurisdictions. Mr. Kenney’s post provoked two critical responses here on GAB, the first from Senior Contributor Rick Messick, the second from Editor-in-Chief Matthew Stephenson. GAB is delighted that Mr. Kenney has chosen to continue the debate over this important topic by providing the following rebuttal to those criticisms:

Matthew Stephenson wrote in his recent response to my FCPA Blog, about the futility of the UK Parliament’s proposed changes to open company UBO registers in the British Overseas Territories, that: “At the very least, beneficial ownership information should be verified and kept on file so that it will be available to law enforcement in the event of an investigation.”

In my piece, I had explained: “The fact is that the BVI already has its house in order. The island’s systems now include the Beneficial Ownership Secure Search system (BOSS System). A database that is searchable, with the information being available to UK law enforcement agencies within 24 hours. In addition, the BVI has signed up to no fewer than 28 Tax Information Exchange Agreements, with countries that include the UK, USA, Canada, Germany, France, Australia, Japan, Netherlands, etc. So what part of this is secret?” Continue reading →