The Unfulfilled Promise of the UK’s Anticorruption Innovations

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When it comes to the fight against global corruption, the United Kingdom presents a paradox. On the one hand, the UK has long enjoyed a reputation as relatively “clean.” The country gets good marks on Transparency International’s Corruption Perception Index, and the Financial Action Task Force considers the UK a world leader in preventing money laundering. Yet, at the same time, the UK—and London in particular—is well-known as a popular laundromat for dirty money and a haven for kleptocrats.

It would be tempting to say that the UK cares about suppressing corruption at home but is indifferent (or worse) to how its nationals and its policies affect corruption abroad. But that is too simple, because in some respects the UK has been an innovator in the fight against transnational bribery and illicit wealth, and has often taken the lead in enacting new and more powerful anticorruption and anti-money laundering tools. Over the past dozen years, three such innovations are especially notable: the 2010 UK Bribery Act (UKBA), the 2016 legislation mandating a public registry of the beneficial owners of all private companies registered in the UK, and the 2017 Criminal Finances Act authorizing unexplained wealth orders (UWOs)—court orders that require the owners of UK assets to prove that the funds used to purchase those assets came from legitimate sources, with the assets frozen and eventually seized if the owner is unable to do so.

Yet the paradox continues: While the UK received well-deserved praise for enacting these measures, in practice all three have been far less effective than proponents hoped. The reasons for these failures are different, but they share common threads. Continue reading →

Managing Corruption Risk in U.S. Public Pension Funds

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Public pension funds provide retirement benefits for government employees, such as firefighters, teachers, and police officers. In the United States, the pension funds of state employees are typically managed by a board of trustees that is generally comprised of investment professionals, beneficiary representatives, and individuals appointed by state elected officials. (Fund governance structures vary somewhat from state to state.) These trustees then exert tremendous influence over the allocation of pension assets to different investment vehicles, such as private equity and hedge funds. While individual pension funds vary in size, the total amount of money involved is enormous: Public pension fund managers in the United States are responsible for allocating over $5.5 trillion in assets across different investment vehicles.

How pension managers select among different investment opportunities remains a largely opaque process. This lack of transparency—coupled with broad investment discretion—fosters a substantial risk of corruption. Such corruption can take several different forms:

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New Podcast Episode, Featuring Oksana Nesterenko

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A new episode of KickBack: The Global Anticorruption Podcast is now available. During the ongoing emergency in Ukraine, as Russia’s unprovoked military aggression throws the region and the world into crisis, my colleagues at the Interdisciplinary Corruption Research Network (ICRN) and I are going to try as best as we can to feature on KickBack experts who can shed greater light on how issues related to corruption relate to the ongoing crisis. And rather than keeping to our usual schedule of releasing new episodes every two weeks, we will release new episodes as soon as they are available. In the new episode, I was privileged to welcome to the podcast Oksana Nesterenko, Associate Professor of Law at the National University of Kyiv-Mohyla and Executive Director of the Anti-Corruption Research and Education Centre. Professor Nesterenko was forced to leave Kyiv after the Russian attack, and she spoke with me from Poland, where she, like so many of her fellow citizens, is a refugee. In the first part of our conversation, Professor Nesterenko explains why the war between Russia and Ukraine is really a war of values, and why gradual reforms in Ukraine in the direction of liberal democracy and anticorruption threatened the Putin regime, and why this, rather than any actual military or security threat to Russia, is the real underlying reason for the Putin regime’s attempt to topple the current Ukrainian government. She also explains that Putin’s war is also an attempt to deflect domestic attention from his regime’s failures, including the government dysfunction caused by his corrupt approach to governance. She also provides an assessment of Ukrainian President Volodymyr Zelensky’s pre-war anticorruption efforts, emphasizing that from the perspective of anticorruption activists were disappointed in the lack of progress on some issues, but recognizing that as a politician he had to balance interests and demands from different stakeholders. In the final part of our conversation, we turn to the question of Russian (and Ukrainian) dirty money flowing into wealthy Western countries, and what more can and should be done to stop this. You can also find both this episode and an archive of prior episodes at the following locations: KickBack is a collaborative effort between GAB and the Interdisciplinary Corruption Research Network (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.

Summary of Third Annual AML Research Conference. Announcement of Fourth

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Thanks to Jason Sharman of Cambridge University and dodging shopping fame, those who didn’t attend last January’s conference “Empirical Approaches to Anti-Money Laundering and Financial Crime” are in luck. He has produced an excellent summary of the papers presented at this, the now third annual AML conference jointly sponsored by the Bahamas Central Bank and the Inter-American Development Bank.  

There are dozens if not hundreds of other AML conferences held each year. At these, bankers and their lawyers, accountants, and consultants flyspeck the latest rules, court decisions, and other matters germane to complying with AML laws and regulations. As well they should, for as AML Penalties chronicles in their weekly bulletin, fines for violations are beginning to creep upwards. Conference attendees are also constantly on watch for cheaper ways to meet their legal obligations; AML compliance costs for all financial institutions are currently estimated to exceed $200 billion per year.

Like the first two conferences, last January’s had a much different agenda than those devoted to compliance. Rather than asking “what are the rules” and “how can we comply,” it asked more fundamental ones: “Are the current anti-money laundering rules worth cost?” “Are they keeping dirty money out of the system?” “Are there more cost-effective ways of doing so?”

It is now clear that Russian oligarchs have had little trouble evading the current AML regime. Might this suggest the sponsors of the Bahamas conference are on to something? That the questions they are posing deserve at least as much attention as those discussed at the many compliance conferences?

Next year’s conference will be held January 19 and 20 in Nassau. The announcement is here.

A Spirited Discussion of the Proposal To Create an International Anticorruption Court

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As longtime readers of this blog are likely aware, over the years I’ve had the opportunity to participate in debates over the proposal to create an International Anti-Corruption Court (IACC), modeled on but separate from the International Criminal Court. Though sympathetic to the motives behind this proposal, I have been consistently skeptical (see, for example, here and here). Despite skepticism from me and others, dogged and effective advocacy by IACC proponents have convinced some governments to formally embrace the idea. Perhaps most notably, in Canada both the Liberal and Conservative parties have endorsed the idea, and Canada’s Foreign Minister has been formally instructed by the Prime Minister to work with international partners to help establish an IACC.

Inspired by these developments, the Anti-Corruption Law Program at the University of British Columbia’s Allard School of Law held an online webinar two weeks ago on the proposal to create an IACC. I was invited to be a part of this conversation, along with three distinguished co-panelists: Juanita Olaya Garcia (a lawyer and member of the International Expert Panel for the Open Government Partnership), Peter MacKay (former Canadian Minister of Justice in the cabinet of Conservative Prime Minister Stephen Harper), and Allan Rock (former Canadian Minister of Justice in the cabinet of Liberal Prime Minister Jean Chrétien). Although we had quite diverse perspectives–with Mr. MacKay and Mr. Rock advocating for the IACC, and Ms. Garcia and I sounding more skeptical notes–the conversation, ably moderated by Roy Cullen, was, in my humble opinion, respectful and constructive, and I hope readers interested in this debate will find the discussion helpful in clarifying some of the important questions and issues that this provocative proposal raises..

Those who are interested can find a recording of the webinar here. (There are some introductory remarks at the beginning; for those who want to skip right to the substantive debate, that begins at about the 6:10 mark.)

The U.S. Could Learn from the U.K. in the Virgin Islands

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Corruption is a perennial problem in the Caribbean. Although many of the Caribbean islands are independent, many others are held by former colonial powers, including the United States and the United Kingdom, which respectively control adjacent island groups known as the U.S. Virgin Islands (USVI) and the British Virgin Islands (BVI). Encouragingly, over the last six years, the UK has undertaken significant efforts to crack down on corruption in the BVI. Disappointingly, the US has yet to follow suit. The US government—and, once appointed, the new US Attorney for the USVI—should follow the UK’s lead and make anticorruption a top priority.

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Anticorruption Bibliography–March 2022 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. Additionally, the bibliography is available in more user-friendly, searchable form at Global Integrity’s Anti-Corruption Corpus website. As always, I welcome suggestions for other sources that are not yet included, including any papers GAB readers have written.

New Podcast Episode, Featuring Igor Logvinenko

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A new episode of KickBack: The Global Anticorruption Podcast is now available. During the ongoing emergency in Ukraine, as Russia’s unprovoked military aggression throws the region and the world into crisis, my colleagues at the Interdisciplinary Corruption Research Network (ICRN) and I are going to try as best as we can to feature on KickBack experts who can shed greater light on how issues related to corruption relate to the ongoing crisis. And rather than keeping to our usual schedule of releasing new episodes every two weeks, we will release new episodes as soon as they are available. In the new episode, I had the opportunity to speak to Igor Logvinenko, Associate Professor at Occidental College and author of Global Finance, Local Control: Corruption and Wealth in Contemporary Russia. In the first part of our conversation, Igor discusses Russia’s Russia’s historical corruption and current financial integration into world business, and we then turn to the impact of the current sanctions on Russia–including government sanctions on Russia and Russian companies, actions by private companies, and the use of targeted individual sanctions and asset seizures. In addition to discussing these issues in the context of the current war, Igor also discusses more broadly the role of Western financial systems, international financial integration, and the possibility for locally-driven structural changes to fight grand corruption. You can also find both this episode and an archive of prior episodes at the following locations: KickBack is a collaborative effort between GAB and the Interdisciplinary Corruption Research Network (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.

Tackling Corruption While Preserving Judicial Independence: Lessons from India’s Supreme Court 

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In India, Justices of the Supreme Court and judges of India’s 25 regional High Courts are appointed through a process known as the Collegium System. Although the Constitution vests the appointment power in the President of India, the President may only appoint a Supreme Court or High Court nominee recommended by a body called the Collegium, which consists of the Chief Justice, the four other senior-most Supreme Court Justices, and, in the case of High Court nominees, the senior-most judge on the High Court of the prospective appointee.

This system, which developed over the 1980s and 1990s as part of a decades-long tug-of-war between the branches of government, is controversial. Some critics have argued that the Collegium, which operates largely as a black box, leads to the selection of judges based on cronyism and quid pro quos, regardless of a nominee’s merit or scruples. Notably, critics contend, the Collegium System allows for the appointment of corrupt judges because the secrecy of the Collegium’s deliberations prevents accusations of impropriety against those nominees from becoming public. In buttressing this claim, critics point to instances of High Court judges who have been credibly accused of corruption, including one who was formally charged at the end of last year for taking a bribe in exchange for a favorable verdict. Critics also contend that the Collegium System exacerbates judicial corruption through another, more indirect channel: The Collegium’s slow pace has left hundreds of High Court seats vacant, which exacerbates the Indian court system’s extreme case backlog. That backlog, in turn, encourages petty bribery, as many frustrated litigants would prefer to bribe a judge or court official to jump the line or get a case dismissed rather than wait years for a final resolution. Even former Chief Justice V.N. Khare acknowledged that bribes for bail are rampant in the lower courts given the delays litigants may face down the line.

In response to these concerns, the Indian Parliament, led by Prime Minister Narendra Modi, voted overwhelmingly in 2014 to amend the Indian Constitution to replace the Collegium with a National Judicial Appointments Commission (NJAC) composed of representatives from all three branches. But before the law could go into effect, the Supreme Court ruled it an unconstitutional threat to judicial independence. While calls for reform temporarily abated, just last December a member of Modi’s cabinet expressed support for reintroducing the NJAC amendment to replace the Collegium System.

Any such attempt, however, would be misguided. Anti-Collegium reforms like the NJAC would undermine India’s hard-won judicial independence, and the corruption problem these reforms would purport to solve has been greatly exaggerated.

Continue reading →

Corruption, Sanctions, and the War in Ukraine: A Short Interview in Harvard Law Today

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My home institution’s in-house publication, Harvard Law Today, recently interviewed me on some of the topics we’ve been covering on this blog (see, for example, here, here, here, here, and here) and on the KickBack podcast (here and here) related to Russia’s attack on Ukraine. As I tried to emphasize in the interview itself, I am very far from an expert in many of the specific issues at the intersection of corruption and the Russia-Ukraine war, but I tried to pull together succinctly some of what I’d learned from conversations with actual expert over the last couple of weeks. For those who are interested, you can find the interview here.