A Low-Cost, No-Tech Solution to Petty Corruption: Stickers

On a recent trip to Myanmar, I was surprised to find that all of my dining receipts came with government stickers on them. It turns out that these stickers are a solution to a tax fraud problem. Restaurants are supposed to charge sales tax, but the government has limited capacity to ensure that the tax collected from patrons actually reaches the government. So the government sells stickers to restaurants that say the price the restaurant paid, and restaurants post these stickers on each receipt for the amount of the tax. Compliance is secured through a combination of direct enforcement and public pressure. This low-cost, low-tech solution ensures the flow of money to the government instead of the pockets of unscrupulous business owners.

The same innovation could be applied to combat petty corruption, helping to ensure that the money from various charges paid by citizens—from license fees to road tolls to other government service charges—flows to official coffers rather than bureaucrats’ pockets. In any situation where an individual has to pay the government – from garbage collection to healthcare to speeding tickets – demanding a stickered receipt could ensure that the government agent doesn’t pocket some (or all) of the payment. Moreover, using these stickers would have a more subtle secondary benefit: fixing the price of government services. Consider a citizen who applies for a driver’s license and has to pay a cash fee. The bureaucrat in charge of processing the application not only has an incentive to not only pocket the cash, but also to exaggerate the size of the license fee in order to have more to steal. The stickers help ameliorate this problem, because a citizen who demands proof of payment in the form of stickers diminishes the incentives of the bureaucrat to inflate the price.

Of course, while the sticker system helps address petty embezzlement, it does not (directly) address the problem of petty bribery. A bureaucrat could demand an additional bribe on top of the official price for a service. Or a government agent could offer to not impose some charge or fine in exchange for a bribe paid directly to the official. The classic example here would be a police officer offering to look the other way on a traffic offense in exchange for a payment. Nonetheless, the sticker system may also help to curb these sorts of petty bribery, for a few reasons: Continue reading

The DOJ China Initiative and the Shifting Policy Goals for the FCPA

Last November, then-US Attorney General Jeff Sessions announced the creation of a new Department of Justice (DOJ) “China Initiative.” The main focus of this initiative is not corruption, but rather the theft of intellectual property by Chinese corporations, as detailed in a 200-page report published by the Office of the U.S. Trade Representative in March 2018, as well as a subsequent report from the White House Office of Trade and Manufacturing Policy. But while most of the DOJ’s China Initiative focuses on this issue, the memorandum describing the initiative listed a number of additional goals, one of which caught the attention of the anticorruption community: “Identify Foreign Corrupt Practices Act (FCPA) cases involving Chinese companies that compete with American businesses.”

This reference to enforcing the FCPA against companies from a particular country is quite unusual. According to Eric Carlson at the FCPA Blog, “No one with whom I have spoken can recall another situation where the DOJ has announced that it would target companies headquartered in a specific country for FCPA enforcement.” This aspect of the China Initiative has provoked a strong and generally negative response from members of the anticorruption community. For example, former State Department attorney Kate Hamann worried that the China Initiative exposed the US government to the accusation of “unfairly targeting Chinese individuals and companies.” This concern was echoed by Professor Stephenson, who argued that the project sets a “bad precedent” by explicitly using the FCPA as a tool to protect U.S. companies from foreign competition.

One largely overlooked aspect of the FCPA component of the China Initiative is the degree to which it contradicts one of the main policy goals of the Congress that enacted the FCPA back in 1977. That Congress viewed the FCPA as a way to improve relations with foreign countries, a policy goal that has largely disappeared in subsequent decades. In its place, enforcement agencies (and Congress, in amendments to the FCPA) have developed a theory in which the primary purposes of the FCPA are to protect businesses that “play fair,” and to promote good business practices more generally. (This shift in policy goals was largely made possible by a revision in the text of the FCPA which allowed US enforcement agencies to bring enforcement actions against a wider range of foreign entities.)

In this post, I trace the changing policy objectives of the FCPA to demonstrate the degree to which the Act has historically served a wide range of sometimes contradictory policy goals. I then draw upon that history to suggest two reasons that the China Initiative’s combative posture may be cause for concern.

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Mozambicans Ask: Will the United Arab Emirates Enforce UNCAC?

The United Arab Emirates faces the first serious test of its commitment the United Nations Convention Against Corruption.  Will it open a case against long-time resident Jean Boustani, who the U.S. Justice Department says masterminded the bribery scheme that robbed the people of Mozambique of some $2 billion.  The “Mozambican hidden debt” scandal pitched the nation into a deep recession, depriving thousands of basic necessities and leaving government without the resources to respond to Cyclone Idai

In its latest submission in its case against Boustani, the Justice Department reveals that much of the bribery scheme was carried out in the UAE. Boustani helped one co-conspirator open an account in a UAE bank to stash bribes, facilitated the travel of others to the UAE to further the bribery scheme, and secured UAE employment permits for three under false pretenses.  Each permit, says the Justice Department, “falsely stated that the [accomplices] professions were ‘petrol engine mechanic,’ ‘diesel engine mechanic,’ and ‘hydraulic mechanic.’”  In fact, the Justice Department told the court in its filing, “all three were members of the conspiracy who would receive millions of dollars of bribes and kickbacks for their roles in the scheme.”

The Justice Department’s charges against Boustani and accomplices are here. To view the Justice Department filing describing Boustani’s alleged violations of UAE law, click on DoJ Boustani filing .  To view the e-mails and other documents that support the Department’s narrative, click on evidence of UAE offenses.

Mozambican citizens have suffered a terrible wrong, one which UNCAC is meant to right.  Will UAE authorities do their part to help right that wrong?  Will the UAE live up to its obligations under the UNODC to prosecute those who pay bribes? Those who flagrantly violate other of its laws as part of a bribery scheme?

New Podcast Episode, Featuring Deltan Dallagnol

A new episode of KickBack: The Global Anticorruption Podcast is now available. This week’s episode features an interview with Deltan Dallagnol, the coordinator of Brazil’s Lava Jato (“Car Wash”) corruption investigation, who discusses the background of this investigation, the challenges that he and his team face, and the implications for the struggle against entrenched corruption in Brazil.

You can find this episode, along with links to previous podcast episodes, at the following locations:

KickBack is a collaborative effort between GAB and the ICRN. If you like it, please subscribe/follow, and tell all your friends! And if you have suggestions for voices you’d like to hear on the podcast, just send me a message and let me know.

How Can India Cleanse Its Politics of Dirty Money?

India’s 875 million voters make it the world’s largest democracy. Yet Indian elections, though generally seen as free and fair, have become the country’s “fountainhead of corruption.”Parties and candidates spend billions getting themselves elected—current forecasts predict $8.5 billion will be spent in the 2019 election, making it the most expensive election globally. Much of that money comes from illegal or at least questionable sources, a problem exacerbated by the fact that campaign financing in India is a black box, with no transparency into donors or income sources. Recent changes by the Modi government have made the process even more opaque. And much of the money raised is spent illegally. For example, up to 37% of Indian voters have received money for votes. 

The massive amount that politicians are willing to raise and spend to win elections is understandable when the payoff to the winning candidate is considered. Putting aside any ideological or egotistical motives for seeking public office, there’s also a material incentive: studies have found that, in the years following an election, winning candidates’ assets increase by 3-5% more than losing candidates’ assets, and this “winner’s premium” is even higher in more corrupt states and for winners holding ministerial positions. The material benefits of office may also partly explain the alarming percentage of Indian politicians with criminal histories. Currently, over a third of Members of Parliament (MPs) in the Lok Sabha (the Lower House of the National Parliament), are facing at least one serious criminal charge, and politicians with cases pending against them are statistically more likely to win elections. Moreover, the ever-greater spending on elections means that winners, in addition to lining their own pockets and saving for the next election, need to repay those who helped them prevail. The more money politicians spend on elections, the more they need to earn back or repay through political favors.

The high payoff to candidates who win elections (often because of the opportunities for corruption) both attracts dishonest individuals to seek office and encourages ever-higher election spending, which in turn inspires corrupt behavior to repay debts, whether through money or political favors. Therefore, any serious attempt to reduce corruption in India has to begin with electoral reform. The constitutional body tasked with administering elections in India is the Election Commission (EC). The EC oversees the election process, and it also can issue advisory opinions (though not binding decisions) regarding the post-election disqualification of sitting MPs and Members of State Legislative Assemblies (MLAs). The EC is also responsible for scrutinizing the election expense reports submitted by candidates. But the EC is in many ways a toothless tiger, able only to recommend actions and electoral reform to Parliament, without any real power to fix the electoral system. 

There are, nonetheless, a few things that the EC could do now, acting on its own, to help address at least some of these problems. But more comprehensive and effective reform will require action by the legislature or the Supreme Court.

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Transparentizing the Commodity Trading Sector: Why Trading Companies Must be Subject to Mandatory Payments Disclosure

Commodity trading companies (CTCs) mainly operate as middlemen in a business model called “transit trade,” where CTCs administer the delivery chain for primary economic products (energy, metals, agriculture, etc.) from the extraction site to the ultimate buyers. Though CTCs rarely have physical possession of these commodities, the CTCs are the ones that typically build connections with foreign officials and politicians, pre-finance extraction activities by indebted governments (often through loans pledged on future commodity deliveries), and sell raw materials across the globe. Because of CTCs’ frequent interaction with foreign governments and state-owned enterprises, their complex structure, and the opacity of the commodities market, the corruption risks—particularly in the markets for “hard” commodities like oil, gas, or minerals—are especially large, as a few recent cases have highlighted (see, for example, here, here, and here). Politically exposed persons (PEPs) also take advantages of the opacity in commodity trading to launder illicit proceeds derived from corruption.

Yet in stark contrast to the focus on the corrupt activities of those companies engaged directly in extractive activities, as well as by the ultimate purchasers “upstream,” corruption by CTCs has not received much attention. This oversight should be corrected, in part by covering CTCs under the “Publish What You Pay” (PWYP) laws of their home countries—laws that usually only mandate payment disclosures relating to exploration, extraction, and processing, and that often explicitly exclude payments related to “commodity trading-related activities.” This exclusion is a mistake, as there are at least two good reasons to apply PWYP rules to CTCs: Continue reading

Guest Post: Whistleblower Protection in Kosovo–An Unlikely Success Story of Civil Society Collective Action and International Support

Today’s guest post is from Nedim Hogic, a PhD candidate at the Sant’Anna School of Advanced Studies in Pisa, Italy, and Arolda Elbasani, Visiting Scholar at New York University. The research on which this post is based was sponsored by Kosovo Open Society Foundation.

In Kosovo, as in the rest of the Balkans region more generally, anticorruption initiatives and institutional solutions have typically been top-down efforts based on templates recommended by international actors and hastily approved by a circle of local political allies. Few of those international initiatives have proved successful, often because the new laws provided enough discretion for political interests to thwart effective implementation. Hence, Kosovo, like much of the rest of the Balkans, seems trapped in a continuous yet futile cycle of international-sponsored institutional- and capacity-building measures, which have not delivered.

The 2018 amendments to Kosovo’s law on the protection of whistleblowers suggests a more promising model of legislative drafting. The amended law stands out for its collaborative and open mode of drafting, involving various international, governmental, and civil society actors, a welcome contrast to the more prevalent pattern of top-down, and largely futile, approach to legal and institutional reform. Continue reading