Private Law Suits for Corruption:  Am I Missing Something?

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As explained in earlier posts (here and here), I am working with the Open Society Justice Initiative on a project to examine how civil society can prompt more corruption-related litigation  — either by stimulating criminal prosecutions or filing civil suits itself.

One area that remains a puzzle is why businesses are not filing more civil suits for damages caused by bribery.  At common law, if a merchant could show it lost a customer to a bribe-payer, it could sue the briber for tortuous interference with contractual relations and the bribe-taking employee for breach of fiduciary duty.  A merchant that discovered it had paid higher prices or bought goods of a lesser quality because the seller had bribed one of its employees likewise had an action for damages, against the employee for breach of fiduciary duty and for fraud against the bribe-payer.  The Civil Law Consequences of Corruption, a 2009 volume edited by Professor Olaf Myer, describes similar doctrines that corruption victims in countries governed by the civil law can invoke to recover damages.  Moreover, regardless of legal heritage, parties to the United Nations Convention Against Corruption are required by article 35 —

“to ensure that entities or persons who have suffered damage as a result of an act of corruption have the right to initiate legal proceedings against those responsible for that damage in order to obtain compensation.”

Am I missing something?  Or is there only one country where businesses that are victims of corruption are heeding the invitation to sue for damages?  And if so, why is this case?  Why aren’t businesses in other nations besides this one seeking compensation for the losses bribe-paying has caused them? Continue reading →

Malaysia’s Anticorruption Credibility Problem

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The biggest anticorruption news last week was almost certainly the announcement by Malaysia’s new Attorney General clearing Prime Minister Najib Razak of any wrongdoing in connection to the approximately $781 million that mysteriously appeared in his personal bank account. Early reports suggested that the money might have been embezzled from a state investment fund called 1MDB – and the controversy over this matter caused substantial political upheaval (and ended up being a major focus of last year’s International Anti-Corruption Conference, which was held in Malaysia at the height of the scandal). But last week, Attorney General Mohamed Apandi Ali, following up on an earlier statement by the Malaysian Anti-Corruption Commission (MACC), announced that the money was not in fact from 1MDB, but was instead a “political donation” from the Saudi royal family. Attorney General Apandi further stated that the money was given “without any consideration,” that Prime Minister Najib had not done anything unlawful, and that he’d returned $620 million of unused money to the Saudi royal family.

Is this true? Is it really the case that Prime Minister Najib did nothing wrong (or at least nothing illegal)? Of course, I have no idea (though Swiss investigators announced earlier this week that there is indeed evidence of massive misappropriation from 1MDB). I’m not privy to any of the evidence that the MACC and the AG investigated, and I’m at best a casual, intermittent outside observer of Malaysian politics. And it would be nice to live in a world in which, when the most senior justice official in a country announces that allegations of corruption are unfounded, I could simply believe those assertions. After all, not all allegations of corruption are true. Yet in this case, my reaction to the AG’s announcement (even before I read the news about the ongoing Swiss investigations) was cynical disbelief. I may not ever know what actually happened in this case, but what I do know is that pretty much everything that’s happened since news of the scandal broke has shattered any faith that I may once have had that Malaysian institutions undertook a genuine, impartial, investigation of this matter. Indeed, the Malaysian government’s handling of this matter is a textbook example of how a system can damage its credibility, perhaps irreparably.

Just to recap some of the highlights: Continue reading →

The Reform of the One-Child Policy Will Help Reduce Corruption in China

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Imagine being pregnant with a second child in a country with a one-child-per-family limit. The penalties for violating the policy are severe-forced abortions, sterilizations, and crippling fines. This was, of course, the grim reality for many Chinese citizens before October 30, 2015. That day, China’s Central Communist Party issued a short announcement that all Chinese couples will be allowed to have two children, ending 35 years of the notorious one- child policy.

The official reason for ending this policy lies in its troubling effects on China’s demographics: After decades of successfully curbing population growth, the one-child policy has caused China to become a country with a rapidly aging population (that is enjoying more longevity) and a corresponding shrinking young work force, which together put enormous pressure on the country’s labor industry and public service resources. Commentators have overlooked the fact that the new two-child policy may also have important implications for President Xi Jinping’s anticorruption crackdown (covered from different perspectives here, here, and here ). The one-child policy (perhaps inadvertently) fostered at least two forms of corruption, and the end of that policy will therefore make a non-negligible contribution to reducing corruption in China.

Continue reading →

A “Paradigm Shift” in Mexican Anticorruption Law?

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Problems of corruption and graft are not new in Mexico. Recently, the Mexican elite political class has been implicated in a series of real estate scandals that reached all the way to President Peña Nieto. Most notably, President Nieto and his wife have been accused of impropriety in their purchase of a 7 million dollar mansion—dubbed by the press “la Casa Blanca” (“the White House”)—from a wealthy government contractor. While not directly related, Nieto’s presidency has also been rocked by protests surrounding the disappearance and presumed death of 43 students in Guerrero. Local officials appear to have been involved in the disappearances, and the official investigation is widely viewed to have been botched.

But in the midst of all this (and arguably because it), Mexico managed to pass one of the most sweeping anticorruption reforms in recent memory. In April and May of last year, the Mexican legislature passed and the state legislatures approved reforms to 14 articles of the Mexican Constitution. Conceived of and spurred on by Mexican civil society groups, these reforms bolstered existing anticorruption institutions and created whole new ones.

The reaction to these reforms has ranged from excitement and enthusiasm, to cautious optimism, to cynical dismissal. (President Nieto, for his part, has hailed them as a “paradigm shift” in the Mexican fight against corruption.) These changes to Mexico’s constitution are only the first step in the country’s much needed systemic reform. Their success will depend substantially on secondary enabling laws to be enacted sometime before June 2016. But it’s worth stopping now to analyze what these reforms get right, and what they fail to address.

Continue reading →

Guest Post: A New Additional Indicator for Measuring Progress Toward SDG 16

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GAB is delighted to welcome back Dieter Zinnbauer, Programme Manager at Transparency International, who contributes the following guest post:

A very interesting discussion has evolved on this blog (see here, here, here, and here), and in the wider world (for example, see here), on about the indicators that should be used to measure progress toward the Sustainable Development Goals (SDGs) goals for improving governance and reducing corruption (Goal 16). There are already some very good suggestions on the table, including the use of Transparency International’s Global Corruption Barometer (GCB) to measure progress toward Target 16.5, on reducing corruption and bribery in all their forms. (TI has used the GCB since 2005 to compile one of the largest data troves on the detailed experience with corruption of households and individuals around the world. Using a GCB-type indicator for the bribery dimension of SDG 16.5 is supported by a wide variety of stakeholders, including the World Bank, UNDP, and Save the Children.)

Yet most of the indicators proposed so far, including the GCB, speak to very specific aspects of corruption (such as bribery) and don’t quite do justice to Goal 16’s broad ambitions and its emphasis on public accountability. So to spice up this stew a bit, let me suggest another possible indicator, one that complement to some of the ideas that are already on the table. My proposed indicator of progress toward SDG 16 is as follows:

What percentage of national-level parliamentarians (and perhaps top level members of the executive) have made assets, income, and interest disclosures (AIIDs) in a format that is publicly accessible online at sufficient level of detail, in timely manner, and in a machine-readable data format.

Using AIID as an additional SDG 16 indicator might at first seem to be a step backwards, since such an indicator measures “outputs” rather than “outcomes.” But let me try to convince you that in fact AIID would be an extremely useful complementary indicator for progress toward SDG 16: Continue reading →

Will Honduras’ MACCIH Become Another CICIG?

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After a several month negotiation with the Organization of American States, the ruling party, the opposition, and civil society, the Government of Honduras agreed to form a new anticorruption body that offers the Central American nation the hope that the endemic corruption blamed for making it one of the poorest, most unequal, and most violent societies in the Western Hemisphere can be brought to heel.  On January 19, Honduran President Juan Orlando Hernández signed an international accord with the OAS establishing the Mission to Support the Fight against Corruption and Impunity in Honduras (known as MACCIH, its initials in Spanish).  MACCIH was inspired by the success of a similar body in neighboring Guatemala, the International Commission Against Impunity (known too by its Spanish initials, CICIG), which, as readers of this blog (here, here, and here) or of a June 2015 Washington Office on Latin America report know, has made significant inroads in taming corruption in that country.

Like CICIG, MACCIH is a hybrid international-domestic agency.  Its staff will be international civil servants paid for, and accountable to, the OAS and immune from Honduran law, yet MACCIH’s staff is tasked with the same mission as Honduran law enforcement agencies, to ferret out corruption in the Honduran body politic.  As with CICIG, in creating MACCIH the hope is to establish an independent, incorruptible body of investigators, prosecutors, and judges able to pursue cases where, thanks to corruption, incompetence, or intimidation, their Honduran counterparts have not.  But important differences between the powers granted MACCIH and those CICIG enjoys make observers wonder whether, as Washington College Professor Christine Wade recently wrote,  MACCIH isn’t a “ruse designed to appease domestic and international critics” of the government.

For MACCIH to be something more than a way to buy time until the furor over the recent corruption scandals that spawned it fades from view, it must overcome three challenges. Continue reading →

More Phony Numbers–This Time on the Anticorruption Impact of Open Data

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OK, I know I’m beating a dead horse. Within the last month I’ve already posted several times (see here, here, and here) about bogus anticorruption statistics, as has Rick. And I promise that after this post, I’ll move on to other topics. But I can’t help commenting on this latest release from Transparency International, criticizing the recent World Economic Forum (WEF) meeting for not explicitly addressing corruption. As its lead example, TI faults the WEF for not addressing issues like open data (and openness more generally). I’m sympathetic to TI’s policy position, but in making the case, TI asserts, “One study suggests that open data could reduce the costs of corruption by about 10 percent.”

I was curious (and, admittedly, skeptical) about yet another seemingly precise estimate of something that’s inherently hard to measure. So I clicked on the link to the “one study” that “suggests” that open data technologies would reduce the costs of corruption by 10%. This “study” is actually a report (really, an advocacy document) from an Australian consulting firm (Lateral Economics), commissioned by a philanthropic fund (the Omidyar Network) that invests in open data initiatives. How does this “study” reach its conclusion that open data could reduce the costs of corruption by 10%? I will now quote in full the entirety of the evidence and analysis supporting that conclusion: Continue reading →

What Does China’s Anticorruption Campaign Mean for Africa?

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In advance of Chinese President Xi Jinping’s attendance at a China-Africa summit in Johannesburg last December, a flurry of news articles in African outlets—especially in Zimbabwe—optimistically highlighted the role China could play in helping African countries curb corruption. As previously discussed on the blog, in the first three years of his tenure, President Xi has made a crusade against corruption an important rhetorical part of his presidency, and backed up those words with actions (though some have questioned his techniques). It’s equally well-established that China has become very involved with Africa.  China increasingly depends on Africa’s mineral resources to feed China’s growing industries, and Chinese businesses see Africa as a potentially lucrative export market. Many African countries seeks partners, like China, that are willing to invest in infrastructure and business development. Though there has been recent pushback to China’s actions, and even a decline in Chinese investment in Africa, President Xi’s $60 billion pledge at the summit indicates China will continue to be an important player in the region for the foreseeable future.

Many commentators hope that the combination of these two factors—China’s anticorruption campaign and its substantial economic engagement with Africa—will give a boost to anticorruption efforts in Africa. Alas, those hopes are overstated.

Continue reading →

Is Corruption an Emerging Cause of Action in Investor-State Arbitration?

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The Trans-Pacific Partnership Agreement (TPP) has attracted unprecedented public interest in investor-state arbitration—also known as investment treaty arbitration, investor-state dispute settlement, or ISDS. Sovereign nations and foreign investors may choose this process as an alternative to ordinary litigation in domestic courts, by submitting their claims before a panel of expert judges applying international law. Though some critics seem to suggest that ISDS imposes a static list of economic rules, arbitration actually applies a complex system of legal principles which balance investor security against the sovereign autonomy of host states. Over time, investor-state arbitration has proven to be an emerging space for enforcing international norms—including transparency and anticorruption. Indeed, the TPP demonstrates this growing influence of anticorruption norms in ISDS. Not only is the TPP the first multilateral trade agreement to explicitly require anticorruption commitments from its members, its ISDS chapter will also commit members to the anticorruption rules emerging in investor-state arbitration.

Since long before the earliest discussions of the TPP, arbitral panels have sometimes used anticorruption norms to interpret treaties and contracts that made no mention of anticorruption or transparency. Indeed, although no previous trade or investment treaty has obligated host states or investors to observe anticorruption standards, ISDS panels have increasingly considered corruption relevant, and even dispositive, in determining liability. This process has enabled the development of what is effectively a common law of anticorruption principles. (Although there is no doctrine of stare decisis in investor-state arbitration, arbitral decisions provide persuasive authority in future disputes, and particular decisions may gain influence and recognition comparable to precedent. An arbitral panel has discretion to consider other public international law authorities, including previous investor-state disputes, international commercial arbitration between two private companies, public international courts, and ad hoc bodies such as the Iran-US Claims Tribunal. All of these systems have helped contribute to the emerging anticorruption norms in ISDS.)

Arbitral panels considering corruption have most often treated it as a “shield”—that is, as a defense against liability. But while recent panels and commentators have questioned the merits of a “corruption defense,” recent cases hint at the emergence of a freestanding cause of action for corruption—as a sword rather than a shield. This potential shift suggests that, in addition to the the TPP’s express transparency and anticorruption terms, the ISDS chapter may offer hidden tools for anticorruption enforcement.

Continue reading →

Guest Post: Time to Go Beyond Anti-Corruption Agencies in Sub-Saharan Africa

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Njoya Tikum, United Nations Development Programme Regional Anti-Corruption Advisor for Africa and Yale University World Fellow, contributes the following guest post:

To achieve the aspiration for an inclusive and sustainable human development in Africa, as articulated in the Africa Union’s (AU) Agenda 2063 and reiterated in the Common Africa position on post 2015, African countries must reconsider their approach to the fight against corruption. In the last 15 years, the international community of anticorruption practitioners and advocates have induced African countries to establish anticorruption laws and bodies. With few exceptions, almost every African country—sometimes of their own volition and at times under immense pressure from international financial institutions—has embarked on wide-ranging reforms aimed at strengthening state accountability and eradicating corruption. However, these interventions have not resulted in any noticeable decline in corruption in most parts of Africa. Indeed, multiple indexes such as Transparency International’s Corruption Perception Index (CPI), the Mo Ibrahim Foundation’s Governance in Africa Report, and the Afrobarometer, indicate that corruption has been on the steady rise in Africa. The critical question, then, is why the legion of interventions aimed at combating corruption have not yielded positive outcomes.

With monumental trust deficit between the state and citizens in Africa, relying on Anti-Corruption Agencies (ACAs) to fight corruption can only yield limited results. For many countries, the establishment of an ACA was just another box to tick in order to get the next round of development assistance; the agencies themselves are mere window dressing, often suffering from institutional weaknesses and a lack of sufficient human and material resources. In several African countries, for example, ACA funding is tied to presidential benevolence instead of allocation through a transparent national budgetary processes. They are staffed by people with no technical expertise, sometimes including retired public servants who have no real zeal to rock the boat. In these countries, the modus operandi is to fight corruption in areas earmarked by the ruling political regime. In some countries, leaders have used the ACAs to further witch-hunts against political opponents.

How does Africa navigate itself out of this quagmire? To win the battle against corruption, Africa must move beyond offices and notepads to pragmatism and action, exploring new and innovative solutions:

  • To begin with, anticorruption strategies must be comprehensive, and must include governance innovations such as open data, transparency and accountability in business, procurement, construction, etc. As part of this comprehensive approach, resources from the national budget must directly be allocated for anticorruption capacity building as part of national development plans (NDPs). As with other parts of NDPs, annual and biannual benchmarks and targets must be established to track the progress of anticorruption initiatives.
  • In addition, African governments can and should make use of new information and communication technologies (ICTs) and citizen social accountability tools. For instance, a number of web based applications have been developed to report instances of corruption in real time, providing an opportunity for cheap, affordable solutions to citizens and quick responses/actions by anti-corruption agencies and integrity institutions. See, for example, the Huduma, Ushahidi in Kenya and Frontline SMS campaigns on drug stock outs in the region.
  • Civil society organisations (CSOs) must play an increased role as the true watchdogs of the people. Given these responsibilities, and the need for CSOs to be autonomous and sensitive to local needs, it is unfortunate that almost 90% of anticorruption CSOs in Sub-Saharan Africa are funded by international donor agencies. The funding strategy must be adjusted, with national governments and other non-state actors taking up more responsibility for supporting anticorruption CSO activities.
  • Speaking of the international community, development partners must switch from playing a hypocritical role where they condemn corruption in the public sector in Africa but do little to stop corruption by private sector groups from their countries. They must embrace a new form of partnership where the private sector, including banks and transnational companies, are held to the same standards as public institutions.