Curbing Corruption in Development Projects: Memo for the World Bank Board of Governors

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The wAnnual meetingsorld’s finance ministers serve as the governors of the World Bank and meet this weekend to review the Bank’s activities over the last year and set policy for the coming one.  The annual meeting is the first since the OECD released a remarkable document, one that subtly but unmistakably  damns the development community for failing to curb corruption in the projects it finances. In skillfully-crafted prose that points the finger at no one miscreant while charging all with dereliction of duty, the OECD’s Council for Development identifies weaknesses large and small in the corruption prevention efforts of both bilateral and multilateral development organizations and urges major reforms.  Corruption in development projects not only defeats the reason development aid is provided but, as the council stresses, many times leaves the recipient worse off than had no aid been extended in the first place.

The Bank’s Board of Governors should make the report and its recommendations the focus of their meeting. For two reasons. Continue reading →

Another Way To Improve the Accuracy of Corruption Surveys: The Crosswise Model

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Today’s post is yet another entry in what I guess has become a mini-series on corruption experience surveys. In the first post, from a few weeks back, I discussed the question whether, when trying to assess and compare bribery prevalence across jurisdictions using such surveys, the correct denominator should be all respondents, or only those who had contact with government officials. That post bracketed questions about whether respondents would honestly admit bribery in light of the “social desirability bias” problem (the reluctance to admit, even on an anonymous survey, that one has engaged in socially undesirable activities). My two more recent posts have focused on that problem, first criticizing one of the most common strategies for mitigating the social desirability bias problem (indirect questioning), and then, in last week’s post, trying to be a bit more constructive by calling attention to one potentially more promising solution, the so-called unmatched count technique (UCT), also known as the item count technique or list method. Today I want to continue in that latter vein by calling attention to yet another strategy for ameliorating social desirability bias in corruption surveys: the “crosswise model.”

As with the UCT, the crosswise model was developed outside the corruption field (see here and here) and has been deployed in other areas, but it has only recently been introduced into survey work on corruption. The scholars responsible for pioneering the use of the crosswise model in the study of corruption are Daniel Gingerich, Virginia Oliveros, Ana Corbacho, and Mauricio Ruiz-Vega, in (so far) two important papers, the first of which focuses primarily on the methodology, and the second of which applies the method to address the extent to which individual attitudes about corruption are influenced by beliefs about the extent of corruption in the society. (Both papers focus on Costa Rica, where the survey was fielded.) Those who are interested should check out the original papers by following the links above. Here I’ll just try to give a brief, non-technical flavor of the technique, and say a bit about why I think it might be useful not only for academics conducting their particular projects, but also for organizations that regularly field more comprehensive surveys on corruption, such as Transparency International’s Global Corruption Barometer.

The basic intuition behind the crosswise model is actually fairly straightforward, though it might not be immediately intuitive to everyone. Here’s the basic idea: Continue reading →

Prosecuting Public Officials for their Mistakes

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In July 2011, Yingluck Shinawatra became Prime Minister of Thailand after her party (founded by her brother, former Prime Minister Thaksin Shinawatra) won a decisive electoral victory. One of her principal campaign promises was to establish a program to purchase rice from farmers at above-market prices then store the rice to reduce supply. The hope was that doing so would increase world prices—because of Thailand’s position as the leading global rice exporter—ultimately allowing the government to sell at a profit. Shortly after the election, Yingluck’s government implemented this program, and it worked well for a few months—until other global players increased their supply of rice, causing Thailand to lose billions of dollars in the process. This economic debacle was entirely predictable—and indeed was predicted by many experts. And the program itself was beset by allegations of fraud and corruption in its implementation.

But should the failure of the rice-buying program be the basis of a criminal charge of corruption and a prison sentence against Yingluck herself, in the absence of evidence that she was directly involved in any embezzlement, bribery, or other more conventional forms of graft? Section 157 of Thailand’s Penal Code allows for just such a prosecution, as this section makes it a crime for a public official to either dishonestly or “wrongfully discharge or omit to discharge a duty so as to expose any person to injury.” And last month, the Thai Supreme Court found Yingluck (out of power since she was deposed by a military coup in 2014) guilty and sentenced her to five years in prison. She fled the country before the verdict.

Thailand is not alone in adopting anticorruption laws that criminalize not only dishonest conduct (bribery, embezzlement, conflict of interest, etc.), but also negligence or incompetence. When India updated its anticorruption law in 1988, it added a new provision that makes it a criminal offense for a public official to “obtain for any person any valuable thing or pecuniary advantage without any public interest.” This broad offense was interpreted by a state High Court to not require any proof of dishonesty or criminal intent, and the Central Bureau of Investigation (India’s premier anticorruption agency) has routinely employed the provision in grand corruption cases to avoid the problem of having to prove corrupt intent. In perhaps the most high-profile such prosecution, the agency went after an ex-Prime Minister, Dr. Manmohan Singh. Dr. Singh was the Minister of Coal at a time when the Government decided to liberalize allocation of coal-blocks and to sell mining rights to private parties. In 2014, the Comptroller and Auditor General’s office reported the policy had caused losses worth billions of dollars because the rights had been sold for too little, through a process that was too ad hoc to be considered legal. Dr. Singh was subsequently charged under India’s broad law, though his trial has currently been stayed while his challenge to the constitutionality the law is pending before India’s Supreme Court. (There are clearly concerns in other quarters about the breadth of this statute: In 2016 a Select Committee of the Upper House of India’s Parliament submitted a report that suggested India eliminate this offense. Parliament hasn’t yet acted on this recommendation, but there are signs that it has some support.)

Is it appropriate to enact broad anticorruption laws that allow government officials to be convicted for dereliction of duty, acting in a manner contrary to the public interest, and the like? Anticorruption activists and prosecutors may find such statutes appealing: It is easier to secure convictions of elected officials who are suspected of corruption, but where it is too difficult to prove the specific intent necessary for traditional corruption offenses. But in fact these broad laws are likely to do more harm than good, and countries like Thailand and India would be better off without them. There are three main reasons for this: Continue reading →

The Link Between Corruption and the Global Surge of Populism

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“Populism” has been defined in many different ways, but the context in which the term is most frequently used today aligns with the definition proposed by Cas Mudde in The Populist Zeitgeist: “an ideology that considers society to be ultimately separated into two homogeneous and antagonistic groups, ‘the pure people’ versus ‘the corrupt elite.’” This formulation certainly captures the political style of the leaders discussed at last month’s Harvard Law School conference on “Populist Plutocrats: Lessons from Around the World,” including Silvio Berlusconi in Italy, Thaksin Shinawatra in Thailand, Joseph Estrada in the Philippines, and (perhaps to a somewhat lesser extent) Alberto Fujimori in Peru and Jacob Zuma in South Africa. And it certainly captures the rhetoric of Donald Trump.

A couple of previous posts have provided an overview of the Populist Plutocrats conference agenda and information about the video recording (see here, here and here). In this post, I want to use the conference discussions as a jumping-off point for thinking more generally about how populism relates to systemic corruption—both as a consequence and as a cause.

Continue reading →

Tracking Corruption and Conflicts of Interest in the Trump Administration–October 2017 Update

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Last May, we launched our project to track 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.Just as President Trump’s son Eric will be providing President Trump with “quarterly” updates on the Trump Organization’s business affairs, we will do our best to provide readers with regular updates on credible allegations of presidential profiteering. Our October update is now available here.

There were relatively few new developments this month, though the list of existing conflicts and related concerns is still plenty long.. We will continue to monitor and report on allegations that Trump, or his family and close associates, are seeking to profit from the presidency.

As we are always careful to note, while we try to sift through the media reports to include only those allegations that appear credible, we acknowledge that many of the allegations discussed 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.

Ferreting Out Kleptocrats’ Buddies: The Ukrainian Solution Part I

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Every kleptocrat needs a buddy.  Someone to serve as an intermediary between the corrupt official and the bankers, real estate agents, and others in London, New York, and elsewhere happy to profit from handling dirty money.  A kleptocrat can’t just walk into a bank or real estate office in the United Kingdom, the United States, or other preferred offshore haven with a pile of money to invest.  As a public official, the antimoney laundering (AML) laws would oblige the banker or real estate agent to ask searching questions about how the kleptocrat came into the money and the law would likely also require them to report the transaction or proposed transaction to the authorities.  A buddy, particularly one who has remained out of the public limelight, is the perfect solution.  So long as they don’t know a potential customer is close to a senior public official, the banker or real estate agent meets their obligation to ascertain the source of the would-be customer’s funds by asking a few pro forma questions.

To plug the buddy loophole, the AML laws require banks and real estate agents to determine if anyone wanting to do business with them is a “close associate” of a senior official — a “politically exposed person” in the inelegant term coined by AML specialists.  If a potential customer is a PEP, the bank or real estate agent must ask the same searching questions about the origins of the individual’s funds that they must ask of a senior official.  Recognizing that bankers and real estate agents can’t be expected to know whether a foreign national wanting to do business with them is a close associate of a senior official in 190 plus countries, AML regulators allow them to rely on one of the several PEP lists peddled by commercial firms.  So long as the potential customer doesn’t appear on whatever PEP list they use, the banker or real estate agent need not conduct a detailed inquiry (“enhanced due diligence” in AML-speak) into where their money came from.

So how well do these commercial PEP lists do at identifying kleptocrats’ buddies?  Continue reading →

Using the Unmatched Count Technique (UCT) to Elicit More Accurate Answers on Corruption Experience Surveys

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With apologies to those readers who couldn’t care less about methodological issues associated with corruption experience surveys, I’m going to continue the train of thought I began in my last two posts (here and here) with further musings on that theme—in particular what survey researchers refer to as the “social desirability bias” problem (the reluctance of survey respondents to truthfully answer questions about sensitive behaviors like corruption). Last week’s post emphasized the seriousness of this concern and voiced some skepticism about whether one of the most common techniques for addressing it (so-called “indirect questioning,” in which respondents are asked not about their own behavior but about the behavior of people “like them” or “in their line of business”) actually works as well as is commonly assumed.

We professors, especially those of us who like to write blog posts, often get a bad rap for criticizing everything in sight but never offering any constructive solutions. The point is well-taken, and while I can’t promise to lay off the criticism, in today’s post I want to try to be at least a little bit constructive by calling attention to a promising alternative approach to mitigating the social desirability bias problem in corruption experience surveys: the unmatched count technique (UCT), sometimes alternatively called the “item count” or “list” method. This approach has been deployed occasionally by a few academic researchers working on corruption, but it hasn’t seemed to have been picked up by the major organizations that field large-scale corruption experience surveys, such as Transparency International’s Global Corruption Barometer (GCB), the World Bank’s Enterprise Surveys (WBES), or the various regional surveys (like AmericasBarometer or Afrobarometer). So it seemed worthwhile to try to draw more attention to the UCT. It’s by no means a perfect solution, and I’ll say a little bit more about costs and drawbacks near the end of the post. But the UCT is nonetheless worth serious consideration, both by other researchers designing their own surveys for individual research projects, and by more established organizations that regularly field surveys on corruption experience.

The way a UCT question works is roughly as follows: Continue reading →

Bribery in College Basketball: What the Corruption Ring Means for the Future of Collegiate Athletics

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Last Tuesday, the U.S. Attorney for the Southern District of New York, Joon H. Kim, shined light onto the “dark underbelly of college basketball” by charging a number of individuals with violating federal bribery, fraud, and corruption statutes. Among those charged were James Gatto, Director of Global Sports Marketing for Adidas, and assistant basketball coaches at the University of Arizona, Auburn University, Oklahoma State University, and the University of Southern California. Additional investigations are currently ongoing at the University of Louisville and the University of Miami.

U.S. Attorney Kim outlined two distinct schemes that were uncovered during FBI investigations. The first involved Adidas executive James Gatto, who allegedly bribed high school basketball stars to sign with certain colleges that were sponsored by Adidas. The second scheme involved financial advisers and agents bribing assistant coaches at universities in exchange for convincing their players to hire those advisers when they became professional athletes.

For those who follow college sports, particularly football and basketball, the illicit activity is not surprising. As longtime collegiate sports journalist Pat Forde explained, “Every basketball program in America is running scared right now, because this is how business gets done. A lot of people knew it, but nobody was able to lay it out with proof like the feds did on Tuesday. It’s a dirty sport, and today we know how dirty.”

It’s nevertheless a bit surprising that the Department of Justice decided now was the time to get involved, as if the corruption has not been going on for decades. The recent charges raise two questions: First, given the longstanding history of bribes in college basketball, why did the Department of Justice finally decide to get involved? Second, what does this mean for the future of collegiate athletics?

Continue reading →

Populist Plutocrats Conference–Video Available

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Last Saturday, on September 23, Harvard Law School organized (in collaboration with the Stigler Center at the University of Chicago) a conference on “Populist Plutocrats: Lessons from Around the World,” which I previously advertised on this blog (see here and here). The event was video-recorded for those who are interested but were not able to attend in person. At the moment, the available video is a full, unedited recording, which you can find here (on the Stigler Center’s YouTube channel). We’re hoping to get the video edited and uploaded in a more convenient format soon, but for those who are interested, I’ll provide in this post the time locations for different sessions of the event:

I hope and expect that we’ll have some more posts in the coming weeks that reflect and engage substantively with some of the discussions at the conference, and in particular how they relate to issues of corruption and related topics, but for now I hope some of you will check out some of the video recording.

 

Anticorruption Bibliography–September 2017 Update

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An updated version of my anticorruption bibliography is available from my faculty webpage. A direct link to the pdf of the full bibliography is here, and a list of the new sources added in this update is here. As always, I welcome suggestions for other sources that are not yet included, including any papers GAB readers have written.