Guest Post: Corporate Transparency Is Easy

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Today’s guest post is from Gary Kalman and Annalise Burkhart, who are, respectively, Executive Director and Program & Research Associate for Transparency International U.S.

Readers of this blog know well that anonymously owned companies are the go-to vehicle for laundering illicit funds. From the revelations of hidden assets exposed in the Panama Papers to the search for sanctioned assets of Russian oligarchs, anonymous corporate structures enable corrupt and criminal actors to steal, hide, launder and benefit from illicit proceeds with impunity. The anticorruption community therefore cheered when the U.S. Congress passed the Corporate Transparency Act (CTA), requiring the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to collect beneficial ownership information for U.S. companies and align with international standards.

As the Treasury Department is finalizing its rules for implementing the CTA, the law’s opponents have been engaged in a campaign of scaremongering aimed particularly at small businesses, with various memos, articles, and notices warning of a burdensome reporting process, uncertain or unclear disclosure requirements, and the risks of hefty fines and possible jail time for business owners who might inadvertently fail to file the appropriate information.

These claims are exaggerated, inaccurate, and misleading. Instead of providing helpful guidance to small businesses, these alarmists are stoking fear among business owners, likely to mobilize political opposition to the effective implementation of the CTA. Here are the facts: Continue reading →

The More You Know About Chief Prosecutors, the Less You Trust Their Office?

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Prosecuting elected officials for corruption is often an uphill battle. The power and resources of the defendants, combined with the general difficulty of proving corrupt deeds (which usually happen behind closed doors), make it difficult to secure convictions. Moreover, prosecutors who bring charges against elected officials frequently face accusations that the decision to prosecute was politically motivated or biased. Such accusations, which are often fueled by the politicians themselves, have potential grave consequences. Not only can they result in public distrust in particular criminal proceedings against politicians, but also—and perhaps more importantly—these accusations can undermine the legitimacy of the legal system more broadly.

Some public criticism—fair or unfair—of prosecutors is inevitable. However, prosecutors can (and should) try to minimize the harmful effects such criticism might have on the overall legitimacy of the institutions of justice. How can they do so? In a recent and highly recommended article, Ori Aronson, Julia Elad-Strenger, Thomas Kessler, and Yuval Feldman suggest that one way prosecutors can increase the perception that their offices and investigations are objective and unbiased is by refraining from highlighting the personal traits or biographical details of the individuals who lead those offices. To use the jargon of the authors, “non-personalization” of prosecutors’ offices is superior to their “personalization,” at least in terms of offices’ perceived objectivity. The authors base this conclusion on a series of experiments involving reactions to decisions made by Israel’s head of prosecution—former Attorney General Avichai Mandelblit—concerning the corruption allegations against Prime Minister Benjamin Netanyahu (a topic that was featured on the blog numerous times; see, for example, here, here, and here).

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UNCAC Coalition to UNCAC State Parties: Ensure Corruption Victims Can Recover Damages

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As Carlos Guerrero explained here last week, corruption is anything but a victimless crime. Citizens are injured or killed when corruptly constructed buildings collapse on them. Others are denied the right to education, life saving medical treatment, and the fair resolution of their disputes thanks to bribery, embezzlement, and conflicts of interest.

The drafters of the United Nations Convention Against Corruption were not blind to the tremendous damage corruption does to identifiable persons or groups of persons. That is why they included a specific provision making it absolutely clear that all parties must grant victims of corruption an opportunity to seek compensation for any injuries sustained. In no uncertain terms article 35 requires state parties to open their courts to any individual or entity injured “as a result of an act of corruption.”

But UNCAC state parties have yet to take article 35 seriously. Academics, civil society organizations, and the UN Office on Drugs and Crime all report that only a few victims in a handful of states have recovered damages. In the vast majority of the 190 countries that have ratified the Convention, not a single person injured by corruption has been compensated for their loss.

The UNCAC Coalition‘s Working Groups, a global network of over 350 civil society organizations in 100 countries, is demanding change. The parties to UNCAC meet this December in Atlanta to review each other’s progress in complying with the convention. Below is the Coalition’s letter to them urging that compliance with article 35 by all 190 be a priority.

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New Podcast Episode: In the 101st Episode, Hosts Reflect on the 100th Episode!

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A new episode of KickBack: The Global Anticorruption Podcast is now available.In the previous episode (the 100th episode of the series), the KickBack hosts invited a dozen leading anticorruption experts (plus me) to offer their reactions to one or both of two big-picture questions about the field: (1) What is one thing about corruption that you’ve changed your thinking on in the past 10 years?, and (2) What is the most significant development — positive or negative — in relation to corruption and corruption studies over the past thirty years? In the most recent episode (the 101st), KickBack hosts Liz David-Barrett, Robert Barrington, Dan Hough, and Sam Power (all with the Sussex University Centre for the Study of Corruption) reflect on the wide range of answers that the various respondents gave to these questions, and more generally use this as an occasion to thing more broadly about the present and future of anticorruption–both as a practical reform agenda and as a field of study and research. You can also find both this episode and an archive of prior episodes at the following locations: KickBack was originally founded as a collaborative effort between GAB and the Interdisciplinary Corruption Research Network (ICRN). It is now hosted and managed by the University of Sussex’s Centre for the Study of Corruption. If you like it, please subscribe/follow, and tell all your friends!

Pakistanis Are Sick of Hearing About Anticorruption

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Anticorruption experts have long grappled with the enduring puzzle of why voters continue to support allegedly corrupt politicians. Why is it that the same people who point to corruption as a significant problem in their societies nevertheless cast their votes for candidates who have been credibly accused, or even indicted or convicted for, corruption offenses? Consider, as a particularly striking example of this paradox, the case of former Pakistani Prime Minister Imran Khan. At the time of writing, Khan continues to languish behind bars in the high-security Adiala Jail, incarcerated on charges stemming from one of the more than 200 cases that have been filed against him in various courts around the country. Many (though not all) of these cases allege corruption or related forms of financial impropriety. Khan’s incarceration might prevent his candidacy in Pakistan’s upcoming elections. But if he is permitted to run, he is expected to win easily. If Pakistanis detest corruption—as all evidence suggests that they do—then what explains Khan’s overwhelming popularity, notwithstanding the numerous and serious graft-related investigations ongoing against him?

The answer—which may shed light on this puzzle in other contexts as well—is rooted in the politicization of judicial proceedings and the long-term effects of recurrent corruption allegations in politics. Continue reading →

Guest Post: Forcing States to Grant Corruption Victims Legal Standing

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Today’s guest post is by Carlos G. Guerrero Orozco, a Mexican litigation lawyer and partner at López Melih y Estrada Abogados. He chairs the non-profit Derechos Humanos y Litigio Estratégico Mexicano and heads the International Database Taskforce at the Working Group on Victims of Corruption of the UNCAC Coalition.

Corruption is what social scientists call a “wicked problem,” one extraordinarily difficult to solve because of its complex and interconnected nature. Governments thus need all the help they can muster to tackle it. But too many sideline a critical ally, those harmed by corruption.

Corruption’s victims are many and their injuries diverse. Journalists threatened, and too frequently murdered, for revealing corrupt schemes. Whistleblowers attacked for denouncing corruption. Citizens injured or killed when corruptly constructed buildings collapse; those denied access to education, health care, and fair courts thanks to bribery, embezzlement, and other corruption crimes.

All are victims and all have real claims for damages and strong incentives for joining with governments to fight corruption.

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Guest Post: The Brazilian Supreme Court’s Erroneous Nullification of the Car Wash Evidence

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Today’s guest post is from Eduardo Carvalho, a Brazilian prosecutor from the State of Rio de Janeiro.

There has been a great deal of commentary in the Brazilian and global anticorruption community – including on this blog (see here, here, and here) – on a recent decision by Supreme Court Justice Dias Toffoli concerning important evidence on which Brazilian prosecutors relied in securing numerous convictions in the so-called Lava Jato (Car Wash) Operation. The evidence in question—principally files stored on computer disks—was obtained from the Odebrecht company as part of settlement agreements with Brazilian, Swiss, and US authorities. Justice Toffoli, expanding on a previous ruling by Justice Lewandowski, found that this evidence was obtained in violation of Brazilian laws on international cooperation and evidence handling, and therefore could not be used in court. As a result, an enormous number of Car Wash convictions are likely to be nullified. From an anticorruption perspective, this is a disaster, undoing years of hard work and allowing scores, perhaps hundreds, of corrupt politicians to go free.

But according to Adonis Brozoza’s post last week on this blog, the responsibility for this lies with the prosecutors, not the Justices. Mr. Brozoza argues that the prosecutors, in their zeal to secure corruption convictions, ignored relevant laws and procedures on international cooperation and evidence handling. This sloppiness, he maintains, so compromised the reliability of this crucial evidence that the Justices were obligated, under the relevant Brazilian laws, to rule this evidence inadmissible.

Respectfully, this assertion is both legally questionable and factually incorrect. While I do not impugn the good faith of either the Justices or Mr.Brozoza, careful attention to the relevant laws, and to what the relevant authorities actually did, demonstrates that Justice Toffoli’s ruling ought to be overturned by the full Court. Continue reading →

Institutionalizing People Power: How Switzerland Overcame Systemic Corruption

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How do states escape pervasive corruption? Expanding the small set of success stories, a burgeoning line of research (see here, here, here, here, or here) seeks answers to this question through the study of polities that have achieved control of corruption before Second World War. This group of so-called “early achievers” mostly consist of Western and Northern European countries as well as territories that seceded from them. One lesson that has been drawn from the study of early achievers is that the gradual depoliticization of governance is an essential step on a society’s path to becoming free from endemic corruption. Indeed, some have suggested that transitioning to a robust democracy before building a sufficiently effective and clean state is a recipe for corruption and state capture, as political parties will organize on clientalist lines and focus mainly on capturing rents. The key to combating systemic corruption, on this account, is building a strong and professional class of civil servants and judges who are insulated from politics.

The case of Switzerland, which has received little attention so far, presents a puzzle in this regard. Now a textbook example of effective (domestic) corruption control, early nineteenth century Switzerland shared many of the klepocratic governance patterns we find in low- and middle-income countries today. Long dominated by a handful of wealthy families, from the 1830s onwards Swiss state institutions fell under the sway of a group of entrepreneurs involved in the financing and organization of railway construction. These “Railway Barons” dominated Swiss politics through a web of patronage networks and used the captured institutions of the state to assert their individual interests. But by the beginning of the twentieth century, Switzerland was free from such systemic corruption. Remarkably, and contrary to conventional thinking about early achievers, Switzerland accomplished this not by limiting democracy, but by doubling down on it. Continue reading →

The Perils of Taking Shortcuts: How Brazilian Prosecutors Alleged Carelessness with Evidence May Undo Years of Hard Work 

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Brazil’s so-called Lava Jato (Car Wash) Operation, launched in 2014, exposed one of the largest corruption schemes ever. The investigation resulted in over 361 convictions (for corruption, money-laundering, procurement fraud, and other crimes); among those convicted were numerous prominent members of the Brazilian business and political elite, including the current President, Luiz Inacio Lula da Silva (known as Lula). In building its cases against these defendants, Brazilian federal prosecutors made extensive use of “leniency agreements,” offering some companies lighter penalties in exchange for evidence against other parties. One of the most important of these leniency agreements was the one Brazilian prosecutors, working in conjunction with U.S. and Swiss prosecutors, reached with the Odebrecht company, a major Brazilian infrastructure conglomerate at the center of the corruption scheme.

But over the last few years, the Car Wash operation has started to unravel, with several of its most important achievements reversed. In 2019 a Brazilian hacker publicized text messages allegedly exchanged between Sergio Moro, the presiding judge in many of the Car Wash cases (including Lula’s), and the Car Wash prosecutors, prompting allegations of bias. The specialized Car Wash prosecutorial task force was disbanded in February 2021, and the Brazilian Supreme Court annulled Lula’s conviction on procedural grounds in April 2021, paving the way for his re-election to a third presidential term in October 2022. The most recent setback to the Car Wash Operation, already discussed and debated on this blog (see here, here, and here), is a decision by the Supreme Court Justice Dias Toffoli this past September. In that decision, Justice Toffoli declared that, due to procedural errors, none of the evidence acquired in the leniency agreement with Odebrecht could be used in any judicial proceeding. This ruling puts numerous Car Wash convictions at risk: Defense attorneys may now seek to annul convictions in cases in which their clients were convicted primarily on the Odebrecht evidence.

Many in the anticorruption community, in Brazil and abroad, have denounced Justice Toffoli’s ruling, and have suggested that it may have been improperly influenced by political or personal considerations. But as a technical legal matter, Justice Toffoli’s decision was probably correct. While it is understandably frustrating to see so much hard work wiped away and the prospect of convicted corrupt actors going free, the responsibility here appears to lie more with the Car Wash prosecutors than with the Supreme Court. Indeed, the recent developments in the Car Wash saga should serve as a cautionary tale for investigators and prosecutors. In their understandable zeal to catch and convict bad actors, law enforcement authorities must be careful to scrupulously and rigorously observe all legal requirements. Continue reading →

Lankan Civil Society and IMF Staff: Allies in Sri Lanka’s Fight Against Corruption

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Sri Lanka is recovering from one the worst bouts of kleptocratic rule in modern times. That recovery crucially depends of course on ending its rulers’ wholesale theft of the nation’s resources, an effort where the International Monetary Fund staff and Sri Lankan civil society have wittingly or unwittingly joined forces.

The alliance has Its roots in events of 2022. That spring citizens had had enough. With the economy cratering and poverty skyrocketing, they joined to force the latest in a string of kleptocrats from office (pictured here). That summer the replacement government pledged to fight corruption. That fall IMF staff recommended approval of a $2.9 billion loan to help the country dig out of the hole corruption dug.

Sri Lanka’s corruption was so blatant, and the link between it and the economy’s free fall so clear that IMF’s staff insisted that in return for the loan the government promise to enact a program “reducing corruption vulnerabilities through improving fiscal transparency and public financial management, introducing a stronger anti-corruption legal framework, and conducting an in-depth governance diagnostic, supported by IMF technical assistance.”   

One year on, as the IMF board considers whether to release a second tranche of the loan, that promise remains unfulfilled.  The evidence is in two reports released in September, one by Sri Lankan civil society (here) and the other by the IMF staff (here). Both chronicle the government’s numerous failures to implement promised reforms. Both point the same underlying problem: the impunity high level officials continue to enjoy.

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