More on the “News from Nowhere” Problem in Anticorruption Research

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One of my all-time favorite academic papers — which should be required reading not only for those who work on anticorruption, but on any topic where people casually throw around statistics — is Marc Galanter‘s 1993 article News from Nowhere: The Debased Debate on Civil Justice. Professor Galanter’s paper doesn’t have anything directly to do with international corruption. Rather, he sets out to debunk a series of widely-held but mostly-false beliefs about civil litigation in the United States, and in the process he traces the origins of many of the statistics often cited in debates about that topic. He finds that many of these statistics come from, well, nowhere. Here’s my favorite example: Around the time Professor Galanter was writing, it was common to hear claims that the civil justice system costs $80 billion in direct litigation costs; indeed, that figure appeared in an official report from the President’s Council on Competitiveness. The report’s only source for that estimate, however, was an article in Forbes; Forbes, in turn, had drawn the figure from a 1988 book by Peter Huber. But Huber himself hadn’t done any direct research on the costs of the system. Rather, Huber’s only source for the $80 billion figure was an article in Chief Executive magazine, which reported that at a roundtable discussion, a CEO claimed that “it’s estimated” (he didn’t say by whom) that insurance liability costs industry $80 billion per year. So: A CEO throws out a number at a roundtable discussion, without a source, it gets quoted in a non-scholarly magazine, repeated (and thus “laundered”) in what appears to be a serious book, and then picked up in the popular press and official government reports as an important and troubling truth about the out-of-control costs of the US civil justice system.

I thought about Galanter’s book the other day when I was reading the Poznan Declaration on “Whole-of-University Promotion of Social Capital, Health, and Development.” The Declaration itself is about getting universities to commit to integrating anticorruption and ethics into their programs; I may have something to say about the substance of the declaration itself in a later post. But the following assertion in the Declaration caught my eye: “Despite the relative widespread implementations of anti-corruption reforms and institutional solutions, no more than 21 countries have enjoyed a significant decrease in corruption levels since 1996, while at the same time 27 countries have become worse off.” Wow, I thought, that seems awfully precise, and if it’s true it’s very troubling. Despite the fact that I spend a fair amount of time reading about the comparative study of corruption, that statistic is news to me. It turns out, though, that it’s news from nowhere. Continue reading →

National Anticorruption Strategies: Lessons from the Asia-Pacific Region

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The 173 nation that have ratified the U.N. Convention Against Corruption are obliged by article 5 to “develop and implement or maintain effective, coordinated anticorruption policies . . . .”  Many meet this requirement by adopting a national anticorruption strategy, and such strategies are so common that the World Bank, the U4 Anticorruption Resource Centre, and Transparency International have all published works advising how to develop and implement them.  The latest, and most useful entry, comes from the Bangkok office of the U.N. Development Program.   Released December 9,  Anticorruption Strategies: Understanding What Works, What Doesn’t and Why — Lessons from the Asia-Pacific Region draws on the experience of 14 countries in the region  to  help guide policymakers wanting to promulgate a national strategy or revise an existing one. Continue reading →

Updated Anticorruption Bibliography – December 2014 Update

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An updated version of my anticorruption bibliography is available from my faculty webpage.  A direct link to the pdf is here.  (And, if you only want to see the new additions in this update, you can find those sources here.) As always, I welcome suggestions for other sources that are not yet included, including any papers GAB readers have written.

Whistling in the Dark: The Potential Benefits of Withdrawing Anti-Retaliation Protection from Foreign Whistleblowers

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When the US Congress enacted the Dodd-Frank Act in 2010, it provided the Securities and Exchange Commission (SEC) with two powerful tools to encourage whistleblowers to report violations of the Foreign Corrupt Practices Act (FCPA) and other federal securities laws. First, whistleblowers can potentially receive a “bounty” of 10-30% of the monetary damages assessed against a company. Second, whistleblowers are shielded from their employers’ ire via an “anti-retaliation” provision, which affords whistleblowers a private cause of action for wrongful termination, harassment, or other discrimination associated with their report.

While many observers initially believed that these measures applied equally to all whistleblowers, the U.S. Court of Appeals for the Second Circuit recently held in Liu v. Siemens AG that the Dodd-Frank Act’s anti-retaliation provision does not have extraterritorial effect–it cannot be invoked by a foreign whistleblower against a foreign corporation (even though the corporation is listed on a US exchange), if none of the relevant conduct took place in the United States. The Second Circuit is the first Court of Appeals to adopt this position and, as some commentators have noted, this ruling creates an odd imbalance in the Dodd-Frank Act’s whistleblower provisions: in certain cases involving foreign whistleblowers and foreign companies, although whistleblowers might be eligible to receive significant monetary rewards under the Dodd-Frank Act’s bounty provision, they will nonetheless not be able to invoke the Act’s anti-retaliation provisions if their employer takes action against them.

Putting aside the question of whether the Second Circuit’s legal analysis was sound, as a matter of policy this may, at first glance, seem like a perverse result. Yet this seeming disconnect between the reach and scope of the Dodd-Frank Act’s bounty and anti-retaliation provisions may result, paradoxically, in an improvement in both the volume and content of whistleblower reports.  Continue reading →

Crowdsourcing the Fight Against Fake Drugs

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Producing and selling falsified medicines—fake drugs deliberately labeled as real and sold to consumers—has been described by the Institute of Medicine as “the perfect crime.” The industry tops $200 billion annually and in Africa alone is responsible for 100,000 deaths each year. The WHO identifies corruption as one of the biggest challenges to keeping these drugs off the market, but the number of access points all along the supply chain—at the point of manufacturer, in customs offices, at distribution centers or individual pharmacies—make reining in corruption a gargantuan task. Governments may squeeze one area—say stricter regulation of customs offices—only to find distribution centers being turned into drug swap shops.

We may, however, be witnessing a shift in how governments approach these issues, moving from confronting corruption head on—which has met with mixed results—to simply circumventing it. The Nigerian experience is noteworthy. Nigeria’s National Agency for Food and Drug Administration (NAFDAC) has teamed up with Sproxil, a product verification company, to allow consumers to individually verify the authenticity of their drugs. NAFDAC is effectively crowdsourcing its falsified medicines anti-corruption efforts, and with some very positive results. Continue reading →

Guest Post: Global Shell Games — Experimenting with Untraceable Shell Companies

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GAB is delighted to welcome back guest contributor Professor Jason Sharman of Griffith University, Australia, who contributes the following post:

Among the various mechanisms for hiding and laundering large sums of money associated with corruption, shell companies that cannot be linked with their real owners have proved one of the most troublesome. A 2011 Stolen Asset Recovery Initiative report on laundering the proceeds of grand corruption noted that from a total of 213 cases, 150 involved the use of shell companies (or, more rarely, trusts) to launder $56.4 billion. Since 2003, all those governments bound by the standards of the Financial Action Task Force (FATF) have promised to ensure timely access to information on identity of those owning shell companies, and FATF rates member countries according to their compliance and the overall level of risk they present. Despite (or perhaps because of) a renewed stress on tracing shell companies’ beneficial (i.e. real) owners, most recently at the G20 leaders’ summit in my home state of Brisbane, there are good reasons to be skeptical about whether the standards are really enforced.

Frustrated with the poor measurement of policy effectiveness in this area, Michael Findley, Daniel Nielson, and I decided to try a new approach. We ran a real-world experiment to see whether corporate service providers would comply with the rules on client screening, particularly in cases where the client profile raised “red flags.” Our findings, reported in our book Global Shell Games, were both worrying and counter-intuitive. Continue reading →

Corruption Risks in the Criminal Justice System

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The U4 Anti-Corruption Resource Center has just published the introductory chapter to a new U4 issue paper, Corruption Risks in the Criminal Justice Chain and Tools for Assessment.  The forthcoming paper has separate chapters that examine where corruption is most likely to arise in the 1) investigation, 2) prosecution, and 3) trial of a criminal case and in 4) the detention of suspects and incarceration of convicted defendants.  The chapters also describe what tools exist to to assess these risks.  The introductory chapter, co-authored by this writer, summarizes the four chapters.

U4 will release the other four chapters one by one in January 2015.  Join U4’s linked-in group for updates and to interact with the authors who will answer questions and respond to comments in these weeks:

Happy International Anti-Corruption Day!

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As some readers of this blog already know, today (December 9th) is International Anti-Corruption Day. Other readers may be wondering, “Huh? International Anti-Corruption Day? What’s that?”

I’m glad you asked. When the UN Convention Against Corruption (UNCAC) was opened for signature in 2003, the General Assembly’s resolution included a specific plank “decid[ing] that, in order to raise awareness of corruption and of the role of [UNCAC] in combating and preventing it, 9 December should be designated International Anti-Corruption Day.” (And you thought the UN General Assembly never decided anything important. Shame on you.)

So what should you do to celebrate International Anti-Corruption Day? It’s easy to make fun of things like this — and as should be clear, that’s a temptation I can’t entirely resist. But at the same time, I do think that raising awareness of the issue is important. And though I can’t find much about attention-raising activities in conjunction with this year’s International Anti-Corruption Day, apparently last year the UN tried to take the opportunity to launch a campaign — with slogans, Tweets, etc. — to get more attention to the issue. You can check out their website on how to “celebrate” International Anti-Corruption Day here.

One last Anti-Corruption Day thought: As I said, I’m all for raising more awareness. But at the risk of sounding like a Grinch, I think it’s fair to raise the question whether publicity gambits like this are starting to outlive their usefulness. Many in the anticorruption community–particularly those who started working on these topics in the 1990s or earlier, when it was definitely treated as marginal in many quarters–have spent a lot of time and energy trying to raise awareness about the issue. And the thing is, they’ve succeeded. The international community is aware of the problem, and takes it seriously (at least in the sense of acknowledging corruption as a legitimate concern). As I see it, the anticorruption movement is now in a tricky transitional phase: The first generation won an important battle, by getting corruption on the international agenda. The new generation needs to make more progress on figuring out what exactly to do about it. So by all means, use the International Anti-Corruption Day gimmick as a way to raise awareness. But at the same time, let’s recognize that we’re reaching the point where raising awareness isn’t really a central issue anymore.

Sunlight and Secrecy: Whistleblowing, Corruption, and the NSA

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While press coverage of the US National Security Agency (NSA) has been dominated by revelations, and concerns, regarding the scope of the NSA’s surveillance programs, recently this organization has been in the news for an altogether different reason. A number of recent articles have highlighted the remarkably porous nature of the relationship between the NSA and the private sector as well as potentially improper conduct on the part of a number of NSA officials. In October alone, several stories emerged regarding the fact that: (1) the husband of a high-ranking NSA official was registered as the resident agent of a private signals intelligence consulting firm located at the pair’s residence while the official herself served as the resident agent for an office and electronics business, also headquartered at her home; (2) the NSA’s Chief Technical Officer had been permitted to work for up to 20 hours a week for a private cybersecurity firm while still holding his post; and (3) the former head of the NSA had founded a private consulting company shortly after his retirement in spite of the fact that many commentators have questioned the degree to which he will be able to set aside confidential information he learned during the course of his time as the head of this organization.

To be clear, while a few commentators have thrown around the term “corruption” when discussing the apparent impropriety of some of these arrangements, there have been no allegations that the officials involved broke any laws or otherwise acted in a manner that can be deemed “corrupt” in any formal sense. Nonetheless, this cluster of incidents provides an opportunity to pause and reflect upon the inherent difficulties of identifying and addressing instances of corruption within the context of an organization which is extremely insular and unavoidably secretive. More specifically, the crucial part that whistleblowers and the media have played in bringing these incidents to light raises the question of what role, if any, we believe that greater transparency may play in exposing instances of corruption within the NSA. Sunlight may be the best disinfectant, as Justice Brandeis famously noted, but can or should it play a role when the organization in question is, by necessity, shrouded in secrecy?

Continue reading →

Policing Private Parties: How to Get Kleptocrats’ Seized Assets to their Citizens

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As Rick has pointed out, it is exciting to see the successful forfeiture of U.S.-based assets owned by sitting Vice President of Equatorial Guinea, kleptocrat and international playboy Teodoro Nguema Obiang Mangue (“Obiang”). The Department of Justice estimates that the assets are worth an estimated $30 million. Also encouraging is the fact that the bulk of the settlement funds will be returned to the people of Equatorial Guinea. This is the first case in which the assets of a current leader’s cronies will be seized and repatriated to the country of origin by the U.S. Disbursing millions of dollars transparently in country that ranks 163/177 on Transparency International’s Corruption Perception Index will be challenging.

In stolen asset repatriation cases, the debate over disbursement typically boils down to whether to channel reclaimed cash through the government or through private actors. In Equatorial Guinea, returning the money directly to the government is a non-starter: the Obiang family has an extensive record of human rights and corruption abuses and a tight grip on power. The DOJ settlement accordingly cuts the government and its henchmen out of the forfeiture proceeds and channels repatriated funds through a private charity. But simply relying on private actors will not eliminate corruption challenges; there are pitfalls in channeling aid through private NGOs as well.

The DOJ should keep the following risks in mind as works out a disbursement plan for the Obiang settlement funds: Continue reading →