Guest Post: Structuring Effective Corporate Pay-Back To Help Fight Corruption

Posted on by
3

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

In recent years, there has been a swelling call for a substantial portion of the fines, disgorged profits, and other payments recovered from corporations in foreign bribery cases to be used to fund anticorruption initiatives, particularly those designed to fight corruption in the “victim” countries. If this recommendation were taken seriously, the potential funding resources could be substantial. While the recoveries from corporate settlements are miniscule (and ad hoc) contributions to national treasuries, they often dwarf what even big donor agencies spend. For example, the UNDP’s 2014-2017 GAIN (Global Anti-Corruption Initiative) had a total budget of $16 million, an amount much less than the fine and disgorgement from the first Deferred Prosecution Agreement (DPA) between the UK’s Serious Fraud Office (SFO) and ICBC Standard Bank in December 2015. Just think how such funds could provide badly-needed resources for anticorruption work, particularly for areas or organizations seeking new sources of funding, or for innovative work, in what is a very competitive environment. Thus while Integrity Action has managed to win competitive funding from soruces as diverse as Google’s Global Impact Challenge and the UK Comic Relief charity, the chair of the Board of Governors of the International Anti-Corruption Academy (IACA) recently bemoaned the fact that IACA’s “last two general budgets never received 90% of the funding that was unanimously agreed upon” by member states, without which there would be no opportunity for the implementation of its ambitious programs.

While corporate settlements would provide a regular and substantial resource beyond the usual multilateral and bilateral donors (and the occasional big private foundation), there are, of course, a number of practical, legal, and political problems with getting countries to agree to divert substantial portions of such settlement funds to support anticorruption efforts. But even assuming these obstacles are overcome, another set of problems remains: Assuming that a given country (say, the US or UK) has decided that a substantial portion of a corporate penalty for bribery should be redirected to fund anticorruption efforts, how should the arrangement be structured? Which entities should be responsible for any settlement funds? Who will make the key decisions? What will be funded, by whom, and for how long? Our limited experience to date illustrates several options that have been attempted so far: Continue reading →

WAGs: What’s the Harm?

Posted on by
6

GAB is pleased to publish this Guest Post by Maya Forstater, well-known analyst on business and sustainable development, on a topic of continuing concern to scholars and activists working on corruption and development matters.

Are unreliable guesstimates  and made-up statistics mildly irritating, indispensably powerful  or potentially dangerous in the public debates on corruption? The topic comes up so often on the Global Anti-Corruption Blog that it has been given its own own three-letter acronym: WAGs (or Wild Ass Guesses).

Those at the sharp end of advocacy maintain, with some justification, that in the battle for attention, an arrestingly big number makes all the difference. But as Rick has argued, overinflated figures can also cause harm.

Something similar happens on the related topic of tax and illicit flows. One example of this is the widespread belief that ‘developing countries lose three times more to the tax avoidance by multinational companies than they receive in aid’. This much quoted WAG gives the impression of huge potential gains for the poorest countries, but is based on a chain of misunderstandings .  In practice the magnitudes of revenues at stake are likely to be several times smaller than aid  for the countries where that comparison matters.

Similarly, broad estimates of illicit flows or the scale of the black economy (“trillions”) are often presented in ways that suggest that the sums to be gained from tackling corporate tax avoidance are larger than any serious analysis supports.

I have written about these big numbers previously in a paper published by the Centre for Global Development here (or here  for the short version).

But what harm do such numbers do, compared to their power at getting people talking about the issues? Is it really worth pointing out misunderstandings and myths in pursuit of a more rigorous and careful approach to evidence? (Or as I have been asked‘ Do you ever wonder how much you help the tax abusers?’)

I see four key dangers from inflated perceptions of the numbers:  Continue reading →

Can a Corporate Settlement that Names Names Be Grounds for a Defamation Suit?

Posted on by
2

A running theme in discussions—and criticisms—of government settlements with corporations in foreign bribery cases is the failure to focus adequately on individuals. Most commonly, this criticism emphasizes the alleged failure of the “supply-side” enforcers (e.g., the U.S. Department of Justice (DOJ), the U.K. Serious Fraud Office (SFO), etc.) to bring charges against the individual corporate officers and employees responsible for the illegal conduct. Additionally, though, some—including some contributors to this blog (see here and here)—have emphasized that settlements with supply-side enforcers should contain enough information on the illegal transactions that enforcement authorities in the demand-side countries (that is, the countries whose public officials took the bribes) can go after individuals under their jurisdiction. Such individuals would include, most obviously, the government officials who took the bribes, but might also include third-party intermediaries and other local agents over whom the supply-side enforcers lack jurisdiction.

The idea that the public documents in these settlement agreements ought to include a detailed discussion of the transactions, including the identities of the individuals involved, sounds like a good idea. Indeed, I think it generally is a good idea (though I confess I haven’t thought through the issue carefully). But recent news reports out of Tanzania last week highlight a potential pitfall that I confess I hadn’t previously considered: The individuals named as wrongdoers in corporate settlement agreements might sue. Are such suits viable? I have no idea. But the problem is worth considering.

Let me first lay out a brief synopsis of the Tanzania case, and then offer a few under-informed speculations about what this all means. Continue reading →

Measurement Brings Action: The Need for a Global Sexual Corruption Index

Posted on by
6

Sexual corruption is a scourge, to varying degrees, in almost every country–from immigration officials demanding sex for green cards, to U.N. soldiers using their power to force themselves on refugees or the local population they are supposed to be protecting, to police officers who demand sex in exchange for not arresting someone. The International Association of Women Judges has been trying to bring attention to this “sextortion” problem, with some limited success: Transparency International (TI) describes sextortion as a form of corruption, and last September’s International Anti-Corruption Conference devoted a high-profile session to discussing this issue.

Yet despite this increasing recognition that this sort of sexual corruption is indeed corruption–the abuse of public power for private gain–the major international indexes used to measure corruption, such as TI’s corruption perception index (CPI) (and the underlying studies used to generate the CPI), focus overwhelmingly on material corruption–principally monetary bribery and embezzlement–not the abuse of public power to extort sexual favors from victims. This is a problem: As we have seen over and over again (both in the corruption context, and in other contexts such as the Millennium Development Goals (MDGs)), for better or worse, national-level country ratings drive action. Right now, a country that wishes to improve its global standing on corruption currently has little incentive to tackle sexual corruption. And there is no separate, easy-to-understand metric that calls attention to how well (or poorly) countries are doing, relative to one another, in addressing that problem.

It is time for that to change. It is time to create a Global Sexual Corruption Index. Continue reading →

CICIG’s Achilles Heel: Suggestions for Reforming the Guatemalan Judiciary

Posted on by
6

In 2015, an innovative institution in Guatemala—the International Commission Against Impunity (CICIG)—got a lot of attention (including from me on this blog). Among CICIG’s triumphs last year were the resignations and arrests of former Guatemalan President Otto Perez Molina and Vice President Roxanna Baldetti on corruption-related charges following a Guatemalan Spring of sorts. Perez was formally charged in December with illicit association, customs fraud, and bribery. He maintains his innocence, claiming to be a scapegoat and arguing that nothing has changed about corruption in Guatemala except that he is now in jail. Unfortunately, without major changes he is likely to be right on the latter point. To be sure, removals of corrupt leaders like Perez and Baldetti are victories. But while Perez’s fall from grace and the general outpouring of public anticorruption sentiment in Guatemala are cause for great optimism, there is reason for trepidation as his case moves toward trial this year.

The reason is a decade-old compromise made during CICIG’s founding based on national sovereignty concerns. A Guatemalan court ruled that CICIG would be unconstitutional if empowered to try cases outside of the Guatemalan judicial apparatus. As a result, the success of CICIG and its proposed spin-offs remains inextricably tied to the strength of domestic institutions. CICIG can investigate and support prosecutorial efforts, but must rely on the domestic judiciary to hear its cases. Unfortunately, domestic governments across Central America remain notoriously corrupt. Even after a decade of CICIG’s efforts toward capacity building, the Guatemalan government is no exception. The Guatemalan court system is largely defined in Guatemalan citizens’ political consciousness by its inability to obtain convictions in important cases. Reform of the judiciary must be a central focus of anticorruption efforts going forward. The following challenges should be prioritized: Continue reading →

Anticorruption Bibliography–March 2016 Update

Posted on by
Reply

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.

What Others Can Take from Anticorruption Litigation in India

Posted on by
3

As Ken Hurwtiz of the Open Society Justice Initiative explained here in February, the Justice Initiative has commissioned a series of papers on civil society and anticorruption litigation to, among other things, alert anticorruption activists and litigators in one country to legal developments in another they can adapt, if not borrow wholesale, for use in cases they are pursuing.

The second paper in the series, Arghya Sengupta’s “Anti-Corruption Litigation in the Supreme Court of India,” just released and now available on the JI web site, fills this bill admirably.   As Sengupta, Founder and Research Director of the Vidhi Centre for Legal Policy in Delhi, explains, there is much in the Indian experience of value to lawyers in other nations.  Since the late 1990s Indian courts have issued a series of extraordinary, precedent setting decisions to address the rampant corruption that infects India’s public sector.  In response to cases brought by civil society, they have ordered law enforcement authorities to investigate grand corruption cases they had been ignoring, appointed civil society monitors to ensure the investigations are faithfully conducted, and invalidated executive actions tainted by corruption.

Sifting through the massive number of precedents to find ones useful elsewhere would be a daunting task for the non-Indian jurist or researcher.  Sengupta’s paper makes it easy.  He organizes the cases by theme and summarizes the holdings of the key decisions.  He notes too where the courts’ decisions have had unintended effects and where critics argue that the cost of a court’s intervention may have exceeded the benefit. While litigators in other common law countries will find the paper an invaluable guide to cases they can lift directly, lawyers in civil law countries will be able to make great use of it as well, suggesting innovative arguments for a judicial solution to the chronic corruption problems affecting their nations.

Does Compulsory Voting Increase or Decrease Corruption? (Preliminary Thoughts)

Posted on by
6

As Courtney discussed in yesterday’s post, Peru’s presidential elections are scheduled for next month, and issues of corruption loom large in the public debate. The role of corruption in Peruvian politics is such a rich and complex topic, one about which I must confess I know very little. But one feature of the Peruvian election system, about which I was previously ignorant, caught my attention during conversations at a fascinating meeting in Lima last month (sponsored by the Peruvian Controller General’s Office): In Peru, voting is compulsory–there are penalties for failing to vote. Compulsory voting requirements, while not exactly common, are enforced in quite a few democracies, including (in addition to Peru) Argentina, Australia, Brazil, Cyprus, Ecuador, Liechtenstein, Luxembourg, Nauru, Singapore, and Uruguay. Some sub-national jurisdictions (such as the Indian state of Gujarat and the Swiss canton Schaffhausen) have compulsory voting, and there are also several countries that had compulsory voting at some point in their history, but have since abolished it (including, for example, Italy, the Netherlands, and Venezuela). In the United States, President Obama himself has suggested that the U.S. should consider some form of compulsory voting.

What does this have to do with corruption? Well, that’s actually the question I want to explore in this post. Although there’s a small political science literature on compulsory voting, there seems to be very little sustained discussion of the implications of compulsory voting for corruption control. (There is a bit, some of which I’ll mention below, but usually the mentions are brief and in passing.)

I’ll readily admit I don’t know much about this topic, but it seems to me an interesting question, and I can see a few arguments cutting both ways. So, without reaching any firm conclusions, let me first sketch out a few reasons why compulsory voting might reduce corruption, and then suggest a few reasons why compulsory voting might increase corruption. Continue reading →

Sins of the Father: Keiko Fujimori’s Presidential Candidacy in Peru

Posted on by
8

Dynastic politics are still strong across the globe. Hillary Clinton seems poised to follow in her husband’s footsteps and become President of the United States. Another Trudeau was elected Prime Minister of Canada last October. Chinese President Xi Jinping is a so-called “princeling.” And, as has been well documented on this blog, dynasties rule the political scene in the Philippines.

The front runner in Peru’s presidential election also has a familiar last name: Fujimori. Congresswoman Keiko Fujimori is the daughter of former president Alberto Fujimori, who held office from 1990 to 2000. Ex-President Fujimori’s regime did some good in Peru; for example, his liberal economic reforms helped to launch a period of economic growth. But his regime was also brutal and plagued by corruption. President Fujimori is in prison today, serving a 25 year sentence for human rights violations. He’s also been convicted of a number of corruption-related offenses, including using his spy chief to bribe journalists, business people, judges, and opposition politicians.

Despite this legacy of corruption, and the fact that Peruvians view corruption as one of the most serious problems facing the country, Congresswoman Fujimori sits atop the polls of the 2016 election. Is this a problem? How much should Peruvian voters consider Alberto Fujimori’s corruption and human rights abuses when they vote next month? And to what extent should the Fujimori family legacy affect their assessment of Congresswoman Fujimori’s approach to corruption?

Continue reading →

Fixing Perpetually Corrupt Institutions—The Philadelphia Story

Posted on by
13

Often in the anticorruption world we grapple with the question of how to deal with perpetually corrupt institutions. One example is the Philadelphia City Commission and its elected commissioners. In recent years, Anthony Clark, the Chair of the City Commission got paid despite not showing up to work, while other commissioners have engaged in overt patronage politics, such as doling out jobs to family members and steering city contracts to businesses and institutions run by family members (leading to the federal indictment of the daughter of the long-serving former Chair on corruption charges). And although credible voter fraud charges in Philadelphia are uncommon, the Commission has not done a particularly good job of administering elections, its primary job. For example, in 2012 more than 27,000 registered voters were somehow left out of the official polling books, and had to cast provisional ballots.

Things with the elected Philadelphia City Commissioners have gotten so bad that some (including the Committee of Seventy, a good governance group in Philadelphia, and the city’s two largest newspapers, the Philadelphia Inquirer and the Philadelphia Daily News) have called for abolishing the elected positions altogether. The Committee of Seventy has called for replacing the elected City Commissioners with an appointed board of professions to administer Philadelphia’s elections, although its plan is short on details.

This proposal relates to a larger issue with which anticorruption reformers in many jurisdictions struggle: which positions should be elected, and which should be appointed? When is democratic accountability the solution, and when is it the problem? There is no one right answer, of course—it all depends on context. Yet in the specific context of the Philadelphia City Commission, the instinct to eliminate the democratic process is premature for two reasons. Continue reading →