India’s Demonetization One Year Later: A Failed Tool to Combat Corruption

One year ago, in an unscheduled live televised address, India’s Prime Minister Narendra Modi announced that within weeks the ₹500 and ₹1000 banknotes would become worthless. Prime Minister Modi framed this so-called “demonetization” policy as part of the battle against corruption and illicitly-obtained “black money,” which had “spread their tentacles” through the India economy. The Prime Minister identified two ways that demonetization would combat corruption. First, the surprise devaluing of currency would leave criminals, including corrupt officials, with millions of rupees’ worth of currency that would suddenly become worthless, and those holding large stashes of black money would be unwilling or unable to exchange it without having to explain where the money came from. Second, going forward, demonetization would make it more difficult to hold, transport, or exchange large quantities of cash (particularly since the Indian government was demonetizing the two largest notes in circulation); as the Prime Minister emphasized, “[t]he magnitude of cash in circulation is directly linked to the level of corruption.”

One year out, it is increasingly clear that India’s demonetization experiment imposed tremendous social and economic costs but failed to achieve either of these objectives (see here, here, and here). A closer examination of the reasons for this failure may help us understand both the potential and limits of demonetization as a tool to combat corruption and the underground economy.

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Fixing Everything But What’s Broken: Malaysia after the 1MDB Scandal

The Malaysian 1MDB scandal sparked the largest investigation in the history of the U.S. Department of Justice Kleptocracy Asset Recovery Initiative and has revealed serious problems with Malaysia’s anticorruption infrastructure. The DOJ has filed civil forfeiture claims for $1.7 billion in assets obtained with funds diverted from 1MDB, a sovereign wealth fund ostensibly intended to promote economic development in Malaysia. The money ended up in a stunning variety of locations around the globe. Nearly $700 million found its way into the Malaysian Prime Minister’s personal bank accounts. His stepson’s production company suddenly had the funds needed to back the Hollywood movie The Wolf of Wall Street. A financier with close ties to the government bought an Australian model jewels worth $8.1 million.

Meanwhile, the Malaysian government insists there is nothing to see here. The newly-installed Malaysian Attorney General cleared Prime Minister Najib Razak of all wrongdoing and put a stop to the investigation by the independent Malaysian Anti-Corruption Commission (MACC). As an earlier post explained, the previous Attorney General, who headed an inter-agency task force investigating the 1MDB scandal, resigned under suspicious circumstances, and Najib appointed his replacement. Najib also replaced several cabinet members who had called for investigations into 1MDB. The breakdown of justice in the 1MDB scandal may seem all the more surprising to outside observers, since Malaysia had appeared to be making strides in addressing its corruption problem, and the MACC—which was founded in 2009 and modeled on Hong Kong’s Independent Commission Against Corruption—had received fairly good reviews (see here, here, and here).

In the wake of the 1MDB scandal, there have been a variety of proposals for improving Malaysia’s anticorruption efforts. Most of these proposals, especially those emanating from the government, involve a flurry of activity and the creation of new anticorruption institutions. For example, the government has recently proposed creating a new National Integrity and Good Governance Department. The Malaysian Bar has called for the establishment of an Independent Anti-Corruption Commission (IACC) to provide oversight for MACC. The MACC itself, despite its inaction on 1MDB, is ramping up other anticorruption campaigns. This all fits an unfortunate pattern in Malaysia: creating lots of new agencies or new structures, or undertaking other actions that make the government “look busy,” but that don’t actually get to the heart of the main problem: the lack of a politically independent anticorruption prosecutor.  Continue reading

Guest Post: Against the “More-Is-Better” Principle in Corruption Survey Design

Frederic Lesne, a researcher at CERDI/Clermont Auvergne University (France), contributes today’s guest post:

A series of recent posts on this blog have addressed a persistent difficulty with corruption experience surveys: the reticence problem–in other words, the reluctance of respondents to give honest answers to questions about sensitive behaviors–which may be caused by fear of retaliation or by “social desirability” bias (fear of “looking bad” to an interviewer—see here, here, and here.) Various techniques have been developed to try to mitigate the reticence problem, leading to a range of different survey designs.

How can we tell if a corruption survey is well-designed? Some researchers, attuned to concerns about social desirability bias, implicitly or explicitly apply what some have dubbed the more-is-better principle. According to this criterion, the best wording for a sensitive question is the one that produces the highest estimates of the sensitive behavior (and the lowest non-response rates).

Yet there are reasons to question the more-is-better principle. Changing the wording of a sensitive question may not only alter its sensitivity but also the respondents’ understanding of the question and ability to answer it. This may lead to a measurement bias that causes the modified wording to produce higher estimates of the behavior, not because of more effective mitigation of social desirability bias, but because of the exacerbation of other forms of bias or inaccuracy. Consider a few examples: Continue reading

Governor Brown’s Missed Opportunity to Promote Political Transparency and Fight Trumpian Corruption

Last month, Republicans announced their plan for a comprehensive overhaul of the United States federal tax code, the first in decades. In characteristic fashion, President Trump promised, “I don’t benefit. I don’t benefit.” To clarify his point, he added, “I think very, very strongly, there’s very little benefit for people of wealth.” Lest those statements left any doubt, Trump later claimed, “I’m doing the right thing and it’s not good for me, believe me.” Notwithstanding the President’s promises, a New York Times analysis found that Trump could save over a billion dollars if his plan were to be passed into law. Seemingly responding to this reality, Trump later amended his sales pitch by claiming that “everybody benefits” from tax reform.

Tax reform fits squarely into the third category of conflicts tracked by this blog: government regulatory and policy decisions that benefit Trump and his family businesses. Americans deserve to know how the President would personally stand to gain if his proposal became law. Yet the extent of Trump’s conflict of interest remains unknown, and unknowable, because of his widely-criticized refusal to release his tax returns.

Unfortunately, California Governor Jerry Brown squandered an opportunity to force Trump to shed some light on his personal finances when he vetoed the Presidential Tax Transparency and Accountability Act, which had passed both houses of the state legislature with overwhelming support. The Act would have required all aspiring Presidential candidates to provide their tax returns to the California Secretary of State (who would then publish them online) before the candidate’s name could appear on the California primary election ballot. In his veto message, Governor Brown explained that while he “recognize[d] the political attractiveness—even the merits—of getting President Trump’s tax returns,” he worried about the “political perils of individual states seeking to regulate presidential elections in this manner.” Brown identified two specific concerns about the bill: its constitutionality and the potential “slippery slope” it might create.

Brown’s arguments ring hollow. They seem particularly unjustified in a time in which state action is one of the few viable bulwarks against Trump’s corruption. Fortunately, other states, including Massachusetts and New York, are considering similar proposals. Those states can do better than California. Here’s why they should: Continue reading

Guest Post: Going Beyond Bribery? Improving the Global Corruption Barometer

Coralie Pring, Research Expert at Transparency International, contributes today’s guest post:

Transparency International has been running the Global Corruption Barometer (GCB) – a general population survey on corruption experience and perception – for a decade and a half now. Before moving ahead with plans for the next round of the survey, we decided to review the survey to see if we can improve it and make it more relevant to the current corruption discourse. In particular, we wanted to know whether it would be worthwhile to add extra questions on topics like grand corruption, nepotism, revolving doors, lobbying, and so forth. To that end, we invited 25 academics and representatives from some of Transparency International’s national chapters to a workshop last October to discuss plans for improving the GCB. We initially planned to focus on what we thought would be a simple question: Should we expand the GCB survey to include questions about grand corruption and political corruption?

In fact, this question was nowhere near simple to answer and it really divided the group. (Perhaps this should have been expected when you get 25 researchers in one room!) Moreover, the discussion ended up focusing less on our initial query about whether or how to expand the GCB, and more on two more basic questions: First, are citizen perceptions of corruption reflective of reality? And second, can information about citizen corruption perceptions still be useful even if they are not accurate?

Because these debates may be of interest to many of this blog’s readers, and because TI is still hoping to get input from a broader set of experts on these and related questions, we would like to share a brief summary of the workshop exchange on these core questions. Continue reading

No Silver Bullet: Why Ukrainian Anticorruption Activists Should Not Fixate on Creating a Specialized Anticorruption Court

Ukrainian civil society activists have been aggressively campaigning for the establishment of an independent anticorruption court (see, for example, here, here, and here), in which international donors and other partners would participate in the selection of judges. Until very recently, President Poroshenko had vigorously resisted this campaign, asserting that “all courts in the country should be anti-corruption,” and proposing instead to have an anticorruption chamber within the current court system as part of his judicial reform plan. Yet in a surprising turn of events, on October 4th President Poroshenko appeared to yield to the demand of activists and international pressure to create such a court.

Poroshenko’s flip-flop seems to be a major victory for anticorruption activists in Ukraine. Yet it might be too early to celebrate. As promising as it sounds, a specialized anticorruption court is unlikely to live up to Ukrainian activists’ expectations. In a country like Ukraine—an oligarchic democracy in which governmental power is not delineated clearly by the constitution or legal framework, the executive is not effectively checked by the judiciary, and businesses are entangled with politics—the creation of a new judicial body is unlikely to be a game-changer. Moreover, in focusing so much on the campaign to create a specialized anticorruption court, domestic and international activists may be diverting energy and resources from more important issues, such as reforming the Prosecutor General’s Office (PGO), strengthening the role of the National Anti-Corruption Bureau of Ukraine (NABU), and adopting more comprehensive political and economic reforms reduce the clout of the country’s oligarchs.

There are two main reasons that the proposed Ukrainian anticorruption court is unlikely to live up to activists’ expectations:

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Some Thoughts on the Trump-Tillerson FCPA Exchange

Dexter Filkins’ terrific New Yorker piece on US Secretary of State Rex Tillerson earlier this month included an anecdote about an exchange between Tillerson and President Trump concerning the Foreign Corrupt Practices Act (FCPA). For those who haven’t seen it, here’s the basic gist: In February 2017, shortly after Tillerson was sworn in as Secretary, he was meeting with Trump about an unrelated personnel matter when Trump launched into a tirade about the FCPA, and how it put US businesses at an unfair disadvantage. (That Trump holds this view is no surprise: He had expressed similar criticisms of the FCPA in public prior to his election.) But Tillerson pushed back, using an anecdote about how, when Tillerson was CEO of Exxon, senior officials from Yemen had demanded a $5 million bribe to close a deal that Exxon was pursuing in that country. Tillerson told Trump that he refused to pay, and made it clear to the Yemenis that this wasn’t how Exxon does business—and in the end Exxon got the deal anyway. According to Mr. Filkins’ source, “Tillerson told Trump that America didn’t need to pay bribes—that we could bring the world up to our own standards.”

Though it’s only a minor part of Filkins’ piece, the alleged exchange about the FCPA has attracted a fair bit of attention and commentary over the past month (see, for example, here, here, here, and here), much of it expressing or implying concern about this further evidence of President Trump’s hostility to the FCPA. It’s slightly puzzling that this anecdote is attracting more attention now, since the alleged exchange (which took place in February) was actually reported in early March—though Filkins’ piece has a little bit more detail (like the name of the country involved). Perhaps it’s because a news item about the FCPA was drowned out in early March by more pressing and immediate matters. (Trump issued the second version of his travel ban two days before the March report about the Trump-Tillerson FCPA exchange, and the federal district judge in Hawaii issued its injunction temporarily blocking enforcement of the ban a week later.) And perhaps the renewed attention to this item also has something to do with recent reports of an increasingly strained relationship between Trump and Tillerson.

Ultimately, though, it’s not so important to figure out why this anecdote is getting more attention now than it did back in March. The more interesting question is what, if anything, it reveals about the state of thinking—in government and the private sector—about the FCPA. There’s only so much that one can or should draw from a single vignette, but I do think it invites a few observations: Continue reading