Is Going Local the Answer? OxFam America’s New Report: “To Fight Corruption, Localize Aid”

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In a new report on U.S. foreign assistance, To Fight Corruption, Localize Aid, OxFam America urges radical changes in the way the United States helps developing nations combat corruption.  Providing funds to strengthen anticorruption agencies, write new laws, and other traditional “top-down, donor-driven methods of fighting corruption” have had little impact on corruption the American member of the international Oxfam confederation asserts.  U.S. aid should thus be redirected to “locally driven approaches” to fighting corruption.  By this the report means U.S. assistance would go directly to “local change agents” so that they could “tackle institutional challenges, including corruption, in their towns, cities, and countries.”

The rhetoric of a community-based, “bottom up” approach to fighting corruption has an appealing ring, and the report showcases successful efforts to combat corruption at the local level in Guatemala, Liberia, and the Philippines to support its claims.  But a closer reading of these stories, and of the report itself, shows that the rhetoric outstrips the reality.

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Why Do People Care So Much About the Proposed FCPA Compliance Defense?

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A while back I posted a commentary on the proposal to add a so-called “compliance defense” to liability under the Foreign Corrupt Practices Act (FCPA). My basic take was that despite all the attention and controversy surrounding this proposal, in fact it would not make very much difference in practice. Without rehashing all the arguments in detail, my reasoning was basically as follows: First, corporate defendants (the only ones who would benefit from a compliance defense) are so reluctant even to be indicted—independent of the likely outcome if a case were actually to go to trial—that the addition of a formal compliance defense to liability would not significantly alter the bargaining game between the government and the corporate defendant. Second, the government already takes compliance efforts into account at several other stages in the process (and believes it is doing so appropriately), so the addition of the formal defense wouldn’t have much of an effect on the government’s position in settlement negotiations (which, as Jordan emphasized in a post from a few months ago, is really where all the action is).

I recently had an opportunity to discuss my hypothesis that the compliance defense wouldn’t actually matter much at a Duke Law School conference, where a bunch of white collar crime and FCPA experts who know much more about this subject than I do—including Duke Law Professor Sam Buell and Richmond Law Professor (and occasional GAB contributor) Andrew Spalding—pushed back against my argument. Among their many cogent criticisms, I wanted to address one in particular: If an FCPA compliance defense would make as little practical difference as I suggest, then why do the interested parties seem to care so much about it? Why (Professor Buell asks) have the Chamber of Commerce and the defense bar made this such a high priority on their FCPA reform agenda? And why (Professor Spalding asks) is the DOJ so dead set against it?

These are fair questions. I don’t have good answers, but in the interest of moving the conversation forward, let me suggest a few possibilities—and maybe folks out there in the blogosphere can react or offer their own explanations. Continue reading →

When Transparency Isn’t the Answer: Beneficial Ownership in High-End Real Estate

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Earlier this month Transparency International UK published a report entitled “Corruption on Your Doorstep: How Corrupt Capital Is Used to Buy Property in the UK.” The Britain-specific recommendations are part of TI’s broader “Unmask the Corrupt” campaign, a call by TI, and echoed by others, to establish public registries of beneficial ownership. A similar call to unveil the individuals behind the shell corporations used to buy luxury condos in Manhattan garnered a lot of attention stateside during last month’s New York Times “Towers of Secrecy” series on the city’s high-end property market (see here, here, here, here, here, and here). The anticorruption rationale for mandating disclosure of real property beneficial ownership seems straightforward: As both the TI-UK report and the NYT series argue, buying real property in New York and London is an appealing way to launder stolen funds, because high-end real estate purchases allow a corrupt actor to inject millions of dollars into the legitimate market without having to deal with pesky anti-money laundering regulations, completing the purchases through shell companies that disguise the true beneficial owner. Requiring public disclosure of the beneficial owners of real property would in theory have two related benefits: First, requiring purchasers to reveal beneficial ownership information up front would dissuade some from using real property as a means of laundering money, and second, if law enforcement authorities have ready access to this information, it will make it easier to instigate and conduct investigations, as well as to seize assets later on.

Indeed, transparency in real property beneficial ownership seems like the kind of thing all anticorruption advocates should support, which is why it may seem a little counterintuitive when I say TI and others are taking the wrong tack. Pushing for central public registries of beneficial ownership of real property will not likely achieve the two objectives, and may have serious drawbacks. Here’s why: Continue reading →

Gecko v. Crocodile, Round Three: Indonesia’s Ongoing Fight between the Police and the KPK

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In recent years, Indonesia has made substantial progress in fighting corruption. Many observers, both inside and outside the country, attribute much of this success to Indonesia’s anticorruption commission, the KPK. Since its establishment in 2002, the KPK has imprisoned hundreds of tainted businessmen, politicians, and government officials. Thus, it is not surprising that the KPK has made many enemies who are continually trying to weaken, and even dissolve, the KPK as an institution. Some of the fiercest resistance to the KPK has come from the Indonesian National Police Force. Unfortunately, for six years now there has been a simmering conflict between the police and the KPK, which has occasionally erupted into dramatic confrontations. Although the KPK has generally prevailed in these conflicts, the most recent confrontation may be the most challenging yet. The history of this conflict suggests some possible lessons for how to manage the tensions that an aggressive anticorruption agency can sometimes produce. Continue reading →

“The Global Movement Against Transnational Corruption” — Panel Discussion at Columbia Law School

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Last month, the Columbia University Center for the Advancement of Public Integrity (CAPI)–a relatively new research and center headed by the superb Jennifer Rogers and Gabriel Kuris–organized a panel on “The Global Movement Against Transnational Corruption,” in collaboration with the Columbia Society of International Law. GAB was well-represented, as both Rick and I were able to appear, along with the distinguished attorney Steven Michaels of Debevoise & Plimpton, on a panel moderated by David Hawkes from the World Bank’s Integrity Vice Presidency. For those who are interested, a video of the event is here. A quick guide to the prepared remarks:

  • Rick discusses the rarely-appreciated good news about the significant progress that has been made in the fight against transnational corruption (3:55-18:20 on the video).
  • Mr. Michaels discusses the existing legal architecture for addressing transnational bribery, along with trends in enforcement and corporate compliance (19:00-34:15).
  • I discuss legal tools that developed countries and international organizations can use for taking or encouraging more aggressive action against bribe-taking public officials (37:15-55:30).

I’m grateful to CAPI and the Columbia Society for International Law for organizing this event, and I hope some readers out there may find the video of the discussion interesting.

New DfID Report: Few Donor-Supported Anticorruption Policies Effective

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The United Kingdom’s Department for International Development released a new report February 25 summarizing the learning on corruption in developing nations and how to combat it.  Why Corruption Matters: Understanding Causes, Effects and How to Address Them was commissioned to help donor agency staff who advise on anticorruption policies and to assist in the design of programs to control corruption.  As its title advertises, the report examines three issues: the causes of corruption; its costs, both financial and non-financial; and what measures reduce it.  Those searching for what developing nations can do to fight corruption will turn immediately to chapter 5, “Anticorruption Measures,” which evaluates a variety of different efforts to control corruption from ratifying UNCAC to reforming customs and tax agencies to conducting public expenditure tracking surveys.

Readers looking for new steps developing countries can take to control corruption or confirmation that the standard approaches are working will be disappointed.  Few interventions have had any effect, and with one exception, the evidence showing these have had an impact is thin.

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Can Universities Teach People Not To Be Corrupt? Reflections on the Poznan Declaration

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Some months back, I came across the Poznan Declaration on “Whole-of-University Promotion of Social Capital, Health and Development,” which its proponents describe as “a formal statement aimed at mainstreaming ethics and anti-corruption in higher education.” (I’d meant to write about it earlier, but I got sidetracked by a relatively peripheral reference in the Declaration to changes in national corruption levels.) In general, I like the idea of promoting anticorruption norms through education, and as a university professor I’m naturally sympathetic to (and flattered by) the idea that university education could make a big difference here. And insofar as the main objective of the Poznan Declaration’s supporters is to promote more discussion among university faculty and administrators in different countries about these issues, I’m all for it.

Yet in reading the Declaration, I couldn’t help but feel a bit of nagging skepticism about some of the implicit premises behind the enterprise. Let me see if I can try to articulate some of the reasons, and perhaps invite some of the proponents of the Poznan Declaration, and the more general push to incorporate “anticorruption education” in the university curriculum, to respond. Continue reading →

Whistling in Chorus: The Potential Impact of the Rise of Parallel Prosecutions on Whistleblower Regimes

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A few months ago, Chinese officials announced a number of new incentives for whistleblowers to come forward to disclose corporate wrongdoing: pledging to develop protection plans for whistleblowers when necessary to “prevent and end acts of retaliation” and increasing the rewards whistleblowers could potentially receive to approximately $33,000 for “actionable information” (with even greater sums available for “significant contributions of information”).  While these policies are fascinating in their own right, they also feed into a larger discussion that has been taking place both on this blog and in other forums, regarding what impact, if any, an increased commitment to anticorruption norms by demand-side countries may have upon the current anticorruption regime. A number of authors have already discussed this phenomenon both in broad strokes and specifically within the context of China’s increased enforcement of anticorruption laws (though some have suggested China’s recent, high-profile corruption prosecutions, including a $490 million fine of GlaxoSmithKline, may serve as a cover for protectionist policies).  One area that may warrant further consideration, however, is the likely impact that the rise of demand-side prosecutions and the resulting potential for parallel enforcement by demand-side and supply-side countries may have upon these states’ whistleblowing regimes.

While the ways in which the increased prevalence of demand-side corruption prosecutions will impact the interactions between supply- and demand-side countries’ anticorruption regimes remains unclear, this phenomenon seems likely to result in one of two possible outcomes with respect to states’ attitudes towards whistleblowers. First, countries may perceive some benefit to ensuring that they are the only–or, at the very least, the first–government to receive a whistleblower’s report.  Second, states may alter their whistleblowing policies to reflect the fact that whistleblowers can potentially report to, and be rewarded by, both demand- and supply-side countries.  While the impact of these different scenarios on the ways in which whistleblowing protections and incentives will develop over time may be quite different, both appear disadvantageous to states’ anticorruption efforts, to the whistleblowers themselves, or both.

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Demand-Side Prosecutions: Be Careful What You Wish For

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Many anticorruption activists and commentators–including many contributors to this blog (see here, here, here, and here)–dream of a world in which acts of transnational bribery would trigger not only an enforcement by the “supply-side” state (that is, the home or listing jurisdiction of the bribe-paying firm) but also parallel enforcement against the bribe-taking public officials by the “demand-side” government. In such a dream world, if a large US multinational were to bribe a public official in a developing country to obtain contracts, two things would happen: the US would prosecute the firm under the Foreign Corrupt Practices Act (FCPA) and the government official who took the bribes would be prosecuted by their domestic authorities. This would create a strong deterrent effect, both for the companies for the government officials.

I, too, support the vision of a truly global fight against corruption. But perhaps some caution is warranted. This is one of those areas where the old adage to “be careful what you wish for” may apply. Continue reading →

Anticorruption Bibliography–March 2015 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.