FinCEN’s Beneficial Ownership Proposal: Invitation to Evasion

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GAB welcomes this guest post by Gary Kalman, Executive Director of Transparency International U.S.

The Financial Crimes Enforcement Network (“FinCEN”), the bureau charged with implementing our nation’s anti-money laundering laws, is underfunded. They do not have enough staff and significant staff turnover has left the bureau with less institutional knowledge and memory. On top of this, the agency has an Acting rather than permanent Director, undercutting its leaders’ ability to set a clear vision and direction for the bureau.

None of that, however, can explain the agency’s remarkable lapse in judgement in publishing  this proposal to collect beneficial ownership information from U.S. companies.

Let me explain.

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Nearly 20 Years in Legal Limbo: Egypt’s Illicit Gains Framework

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Criminal laws against “illicit enrichment” or “unexplained wealth” are among the more potent tools in the anticorruption toolbox. Though details vary across countries, typically an illicit enrichment law criminalizes a public official’s failure to provide a legitimate explanation for their possession of assets in excess of their lawful sources of income. The advantage, from an anticorruption perspective, of criminalizing illicit enrichment is the alleviation of the burden on the prosecution to gather evidence sufficient to prove bribery or embezzlement, which can often be difficult or impossible. Corruption can be inferred, the logic goes, from the government official’s possession of unusual and unexplained wealth. A further advantage is the law’s ability to capture instances of “influence peddling,” where a public official’s conduct might not have violated the specific laws on bribery and embezzlement, but still involves exploitation of authority to obtain gratuitous favors or preferential treatment that may show up in the form of unexplained wealth. 

Illicit enrichment laws, however, have proved controversial because they seem to shift the burden of proof from the prosecution to the defendant, thus violating the bedrock principle of the presumption of innocence. Many experts disagree with this criticism, and constitutional courts in many countries have rejected it. However, some governments, and some constitutional courts, continue to maintain that illicit enrichment laws are incompatible with constitutional guarantees related to the presumption of innocence.

Reasonable people can disagree about whether illicit enrichment laws in any given country are constitutional, but one would think that the issue would be settled one way or the other. In Egypt, however, this constitutional controversy has led to a bizarre legal limbo that has persisted for nearly two decades. Continue reading →

Why We Should be Afraid – Very Afraid – of Corruption in the Reconstruction of Ukraine

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Today’s Guest Post is from Donald Bowser. Don has worked on governance and anticorruption programs for over two decades for various donor organizations. In July he founded Support to Ukrainian Recovery Initiative, an NGO focused on implementing early recovery and stabilization projects in formerly occupied communities across Ukraine.

In “Why We Shouldn’t Be Overly Concerned About Corruption in the Reconstruction of Ukraine,” her January 9 post on GAB, Catherine Katz makes three points to back up her claim:

  1. First, the baseline level of corruption in pre-invasion Ukraine was likely overstated.
  2. Second, not only do measures like the CPI tend to overstate the baseline level of corruption in Ukraine, but they do not adequately reflect the significant strides Ukraine has made with its more recent anticorruption efforts, including several that have taken place since Russia’s February 2022 invasion.
  3. Third, backsliding on Ukraine’s recent anticorruption progress is unlikely—and further progress is expected—given Ukraine’s long-term interest in joining the EU and continuing need to receive support from the international community.

Like Katz, I hope the war ends in a Ukrainian victory soon and that the international community commits the resources required to help Ukraine repair the damage Russia has wreaked on the country’s infrastructure. But as the title of my post asserts, I sharply disagree with her about the spectre of corruption during reconstruction. Indeed, I think the international community should be very afraid of how it might compromise reconstruction and should begin immediately to take measures to combat it.  

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New Podcast Episode, Featuring Luís de Sousa

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A new episode of KickBack: The Global Anticorruption Podcast is now available. In latest episode, host Robert Barrington interviews Luís de Sousa, who serves as the the Deputy Director of the Institute of Social Sciences (ICS) at the University of Lisbon, as well as Professor of Anticorruption Practice at University of Sussex’s Centre for the Study of Corruption. The wide-ranging interview covers a variety of topics, including the reasons that some anticorruption agencies have been more successful than others, concerns about the politicization of anticorruption measures, the role that external international actors can play in the reform process, and the importance of pursuing anticorruption at the municipal/local level. The discussion covers examples from around the world, and focuses in depth on Professor de Sousa’s home country of Portugal. 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!

The Fishrot Files: Clean Countries and Fishy Business

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The Nordic countries are often seen as world leaders when it comes to anticorruption, ranking at the top of Transparency International’s Corruption Perceptions Index (CPI). Yet critics have pointed out that while the Nordic countries have a sterling reputation for suppressing corruption at home, they have a much spottier record when it comes to dealing with exported corruption. This has been the case in Sweden and Denmark, and most recently, in Iceland, which has been widely criticized for its handling of the country’s first high-profile foreign bribery scandal.

The case in question was first exposed in November 2019 when three media outlets published joint investigative findings alleging that an Icelandic fishing company had paid millions of dollars in bribes to Namibian officials in order to gain access to the country’s valuable fishing zones (see here, here, and here). The reporting relied on thousands of leaked documents, which were dubbed the “Fishrot Files,” as well as first-hand testimony provided by a whistleblower, a former manager of the company’s operations in Namibia who admitted that he himself had played a role in bribing Namibian officials.

Though the scandal triggered public protests by Icelandic citizens, senior government officials in Iceland have sought to shift the blame to Namibia’s “weak” and “corrupt government.” Yet whatever governance weaknesses in Namibia may have contributed to the wrongdoing in the first place, it is notable that Namibian authorities moved swiftly to prosecute officials implicated in the scandal, including two high-level government ministers. These ministers were forced to resign and were subsequently arrested; they and eight other defendants now face charges of corruption, fraud, money laundering and tax evasion. In contrast, Icelandic authorities have yet to make any arrests or issue indictments in the case, more than three years after the initial revelations. To date, the executives implicated in the scandal have escaped official sanctions and have remained in their roles at the company.

In this instance, then, we see something rather unusual in foreign bribery cases: A strong response by a demand-side country in the global South (in this case Namibia), and a weak response by the supply-side country. Better understanding Namibia’s unusually strong response to the scandal is important in its own right, but for now, let’s focus on the question of why Iceland—which was one of the first signatories to the OECD Anti-Bribery Convention in 1998 and has readily available the legal framework necessary to handle the matter adequately—has been so ineffective in enforcing its laws against foreign bribery offences. Consider several possible explanations: Continue reading →

UNODC Statistical Framework to Measure Corruption: Comments Requested

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Within the global anticorruption community, no topic has generated as much discussion as the measurement issue. Start with the most basic of questions. Is there an agreed upon definition of corruption? Get by the heated objections to claim there is none, and next consider: are there ways to measure something that by its nature is clandestine? Take for granted clever social scientists can, then ask if these measures are comparable. Across time? Different nations?

The methodological and epistemological debates over such questions have raged in the academy for millennia. But as corruption has gained ever more salience as a policy issue, the debate has ranged far beyond the academy. Just ask any political leader forced to explain to citizens why his or her country scored poorly on some corruption-rating scale.

The United Nations Office on Drugs and Crime has now brought needed clarity to the debate. At the request of the 189 state parties to the U.N. Convention Against Corruption, it has published the first draft of a comprehensive statistical framework to measure corruption (here) with a form for providing comments (here).

Bearing in mind my bias, I contributed (very slightly and with more comments promised), I think the draft is a first class piece of work.  Two of many reasons why.

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The FDA Drug Approval Process Has Problems—But It Is Not Corrupt

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Is the US drug approval process corrupt? Many critics say that it is, leveling the charged rhetoric of corruption at the Food and Drug Administration (FDA) (see, for example, here, here, and here). Yet there have been few, if any, credible allegations of illegal bribery or the exchange of quid pro quo benefits in relation to FDA drug approvals. Rather, when critics speak of “corruption” at the FDA, they are alluding to a perhaps all-too-cozy relationship between the FDA and the pharmaceutical companies it regulates. That is indeed a source of concern: Big business likely has too much sway in Washington, D.C. on a whole range of issues, and the FDA is not immune to the powerful influence of powerful lobbies like Big Pharma. Yet the casual deployment of the rhetoric of “corruption” in this context, though offering attractive click-bait, is both misleading and potentially counterproductive. Continue reading →

Guest Post: ChatGPT in Anticorruption Research–You Cannot Make This Up!

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Today’s guest post is from Dieter Zinnbauer of the Copenhagen Business School’s Sustainability Center:

Jim Anderson over at the World Bank blog and Matthew Stephenson on this blog kicked of an interesting discussion about how the new era of artificial intelligence—particularly the natural language chat-bots like OpenAI’s revolutionary ChatGPT—will affect the anticorruption field. As Matthew suggested, the ability of ChatGPT to generate plausible-sounding (if a bit bland) summaries and speeches on corruption-related topics should inspire all of us real humans to aim to do more creative and original—and less bot-like—writing and speaking on anticorruption topics. And both Jim and Matthew suggested that in this field, as in many others, ChatGPT can also be a valuable aid for researchers and advocates, performing in seconds research and drafting work that might take a human being several hours.

Yet while ChatGPT may be able to assist in some tasks, we shouldn’t get too excited about it just yet, especially when it comes to research. Some of its limits as a research tool are already well known and widely discussed. But I wanted to call attention to another problem, based on a couple of recent experiences I had trying to use ChatGPT as a research aid. Continue reading →

Making Corruption a National Security Issue: How Will it Change Enforcement Dynamics?

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Today’s Guest post is by Nedim Hogic. Nedim advises clients in the private and public sector on environmental, social, and governance issues. Author of many articles on corruption, international law, and the rule of law and development, he is currently writing a book on judicial anti-corruption campaigns.

Since becoming an important policy goal in the 1990s, global anticorruption efforts have gone through three phases. In the first, anti-corruption policies were considered important for economic development, driven by the belief that successful anticorruption programs would make global borrowing and spending and financial aid more efficient. In the second, spanning the first two decades of this century, it was central to the protection of the rule of law and democracy.

The current phase, and particularly that part denominated “kleptocracy,” is animated by the threat it poses to global security. The Biden Administration’s national security strategy, which followed its memorandum calling the fight against corruption a core U.S. security interest, is not the first American or indeed international document to suggest corruption is a national security threat. But it is the first to state the premise clearly and straightforwardly, thus marking a sharp change in thinking about transnational corruption. Indeed, in my view the change is significant enough to be labelled a paradigm shift.

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Another Annual CPI Is Out. Yet Again, Here’s a Gentle Public Service Reminder Not to Focus on Year-to-Year Changes in Individual Countries’ Scores

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Every year for the last umpteen years (I’ve lost count), shortly before or shortly after Transparency International releases its annual Corruption Perceptions Index (CPI) and associated reports and press releases, I’ve done a blog post reminding everybody that we should not attention to year-to-year changes in individual countries’ CPI scores, and we certainly should not construct elaborate narratives about how well countries are doing in fighting corruption based on those changes. And every year, TI itself and pretty much all the media coverage of the CPI basically ignores this and does it anyway. If anything, TI seems to have gotten worse about this in the last couple of years.

Still, it seems like this admonition bears repeating, so now that TI has released its 2022 CPI, I’ll do it again. Rather than repeat, yet again, all the reasons that looking at year-to-year changes in an individual country’s CPI score is uninformative and counterproductive, I’ll just supply links to posts from prior years explaining why this is so. See here, here, here, here, here, here, here, and here.

As I’ve also said many times, I like the CPI! I’m not one of those academics who likes to trash it. I think it provides a lot of relevant information, and is very useful for many research and advocacy purposes. But really, frustrating as it is to keep hammering on this same message, these scores cannot be used as indicators of progress or backsliding, and should not be so employed.