Time-Sensitive Announcement: Call for Civil Society Organization To Join Letter on Corporate Transparency Act Implementation

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Today’s announcement is meant specifically for readers affiliated with civil society organizations that work on anticorruption, anti-money laundering, and related issues (especially, though not exclusively, in the United States). As most of you are likely aware, last year the United States enacted the Corporate Transparency Act (CTA), and the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) is in the process of developing rules to implement that act. The formal period for public comment on the proposed rules has already passed, but in light of the recent revelations concerning the Pandora Papers–which highlighted, among other things, how trusts have been abused to hide illicit assets–a coalition of civil society organizations, led by Transparency International’s US chapter, is submitting a letter to FinCEN urging the adoption of appropriately vigorous rules. In particular, the letter urges FinCEN (and here I am quoting directly from the letter) to:

  • Maintain the comprehensive definition of “beneficial owner” expressly included in the CTA;
  • Provide for broad coverage of the types of entities required to register, including, but not limited to, all non-exempted trusts;
  • Limit the interpretations of the exemptions, as best as possible, to include only those that file beneficial ownership information elsewhere with authorities or are truly low risk for money laundering, terrorist financing, and other harms; and
  • Allow for timely and complete access to beneficial ownership information for all law enforcement and those with legal obligations to protect our financial system.

The deadline for signing onto the letter is tomorrow, October 13th. As noted above, the letter is intended to be from a coalition of organizations, rather than individuals, but if any of you out there are affiliated with civil society organizations that have not yet signed onto the letter, I urge you to do so.

In Pari Delicto & Parens Patriae: Latin All Corruption Fighters Should Know

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In pari delicto, Latin for “of equal fault,” is a legal doctrine that prevented the government that succeeded Saddam Hussein’s from recovering hundreds of millions of dollars in damages from those involved in Saddam and cronies’ corruption. It has deterred other governments taking power after a kleptocrat’s fall from attempting to recover damages as well. Parens patriae, Latin for another legal doctrine, is one way around the result in pari delicto dictates in kleptocracy cases.

Corruption hunters thus have good reason to learn Latin. At least enough to ensure that those who profit from a kleptocrat’s reign don’t escape reckoning when there is a regime change.

The barrier in pari delicto raises to a government recovering damages from a kleptocrat’s accomplices was first revealed in a suit the post-Saddam government filed in 2008.

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New Podcast Episode, Featuring Fernanda Odilla and Anwesha Chakraborty

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A new episode of KickBack: The Global Anticorruption Podcast is now available. In this week’s episode, my colleague Nils Köbis interviews Fernanda Odilla and Anwesha Chakraborty, two researchers studying how technology can be used to assist bottom-up anticorruption efforts–particularly, though not exclusively, in Brazil and India. The interview covers a range of initiatives in this category, discussing their strengths, limitations, and future possibilities. 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 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.

Current and Former Mozambican Presidents, Other Higher Ups “Cleared” in Hidden Debt Scandal

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Last week the presiding judge in Mozambique’s hidden debt trial made it plain that the country’s current and former presidents and other senior members of the country’s ruling party would not have to answer for their role in the hidden scandal. The massive corruption scheme has cost the impoverished nation billions and ended any hope millions of its citizens could escape a life of abject poverty.

Nineteen middle-level officials and accomplices are on trial in Maputo for accepting bribes to approve $2.1 billion in contracts to the Middle East shipbuilding company Privinvest and then taking more bribes to have the government secretly borrow the money to finance the projects. The economy tanked and poverty rates skyrocketed when the secret loans were revealed.

As he was finishing his testimony last Thursday, the General Director of the State Intelligence and Security Services, the highest ranking official on trial, complained to trial judge Efigénio Baptista, “I am here alone.” He said he was the only member of the Joint Command and the Operation Command, the inter-agency groups that cooked up the scheme, to be prosecuted.

“The former Minister of National Defense, Filipe Nyusi, and the former Minister of the Interior, Alberto Mondlane, should be answering. They were also part of the Joint Command.”

The judge explained that Nyusi, now the country’s president, and Mondlane, governor of an important province, were not charged because the prosecution had no evidence they had taken bribes.  He also helpfully went on to add that for the same reason Armando Guebuza, president when the contracts were let and the loans taken out, was not on trial. 

The above comes from the Centro para Democracia e Desenvolvimento reports on the trial. This one, recounting the state security director’s testimony, also helpfully reminded readers of the testimony of Jean Boustani at a 2018 trial in New York. There the Privinvest senior executive provided details about the bribes Privinvest paid Nyusi, Guebuza, and other officials not among the 19 on trial in Mozambique. Perhaps Judge Baptista and the Mozambican prosecutor have overlooked something?

Guest Post: Corporate Criminal Liability and Corruption in Italy — Early Findings from an Ongoing Research Project

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In Italy, as in many other countries, little data is available to evaluate the effect of the corporate liability regime — on deterring corporate crime and on the companies themselves. A research project supported by the Milan-based Fondazione Centro Nazionale di Prevenzione e Difesa Sociale (the National Center for Social Protection and Defense Foundation or CNPDS) has set out to fill the void. Coordinated by Professors Stefano Manacorda and Francesco Centonze, the project has enlisted Italian judicial institutions and the private sector in the collection of empirical data.

For the first time the Ministry of Justice, the Office of the General Public Prosecutor of the Supreme Court of Cassation, and two business associations, — Confindustria, which represents more than 150,000 Italian companies, and Assonime, representing the Italian companies listed on the Italian stock market, — are collaborating to gather information on the impact of a law.  Below Marco Colacurci of the Università della Campania and Pierpaolo Astorina of the Università di Bergamo, two assistant Professors involved in the project, explain the data they are gathering and summarize what they have learned so far about corporate liability for corruption.

Their findings will likely be of great interest not only to GAB readers but to the OECD, which will soon assess Italy’s compliance with the Anti-Bribery Convention. Thanks to Professors Colacurci and Astorina for sharing their work with GAB and to Professor Stefano Manacorda for facilitating it.

Twenty years have passed since Italy introduced liability for companies (the liability is formally administrative but modelled on the criminal features). Possible reforms to the legislation are now a matter of intense debate.. Anniversaries indeed represent valuable occasions to reflect on what works and what does not, and the same goes for Legislative Decree n. 231/2001. Conferences and seminars are underway in Italy both to celebrate the law that introduced the direct liability of corporations for crimes committed by individuals acting for them, and, at the same time, to highlight the critiques that have emerged over the years.

These latter have several aspects, such as the under-use of international standards in the creation and judicial evaluation of compliance programs, the intense discretionary powers of public prosecutors and criminal judges, the lack of recognition of pretrial diversion mechanisms apt to stimulate effective forms of corporate cooperation, the failure to consider the size and organizational complexity of companies, and the list could go on.

Most of all, and despite the growing attention which scholars (and law firms) have been directing towards liability over the last two decades, the praxis seems to show that prosecutions for corporate crimes are rare. Consequently, judgments too are rare, and decisions acknowledging the adequacy of the compliance programs adopted by indicted companies are scarce. This could reflect a degree of indifference in this area, on the part of the public prosecutors’ offices or, alternatively, could be interpreted as a sign of the preventive effects of the Decree 231.

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Three Reasons Anticorruption Academics Fail: A Commentary on Rothstein

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Last week, Professor Bo Rothstein, one of the most influential senior researchers in the anticorruption field, published a blog post entitled “Three Reasons Anti-Corruption Programs Fail.” The post (which draws from Professor Rothstein’s earlier writings and his new book) sets out to explain why the anticorruption efforts sponsored by a combination of domestic reformers and the international development community have been a “huge policy failure.” The three reasons for this purported failure laid out in the post are (1) use of the wrong definition of corruption (2) use of the wrong social science theory to frame and analyze corruption, and (3) locating corruption “in the wrong social spaces.”

I am disappointed to report that I find little in the post that is correct. Professor Rothstein’s post does illustrate some important and ongoing failures in anticorruption thinking—just not in the way that he intended. Rather, the post inadvertently illustrates certain tendencies that afflict a certain strain of academic work on the corruption topic—tendencies that render scholarship on corruption far less useful to the world than it could or should be. I’m particularly troubled when I encounter bright young up-and-coming researchers who appear to be misled by these tendencies. So with all due respect to Professor Rothstein, I will use his post as a framing device to highlight the problems I see and to urge the new generation of anticorruption researchers to be mindful of them.

Before proceeding, an important note: Despite what I just said, and what I’m going to say in the remainder of the post, I like and respect Professor Rothstein. We have met on several occasions, and he has always treated me graciously. He was the driving force behind the founding and development of the University of Gothenburg’s Quality of Government Institute, which consistently produces excellent research and researchers. He is a prolific writer, and by all accounts a generous and supportive mentor, coauthor, and teacher. My objective in this post is most definitely not to entertain readers with the gratuitous academic blood-sport that is unfortunately too popular in some quarters. Yet at the same time, precisely because Professor Rothstein is such an influential figure in the field, his writings ought to be subjected to rigorous critical scrutiny, especially given the importance of the topic. This isn’t a game, and we must hold one another to very high standards, even when this means assessing harshly the work of people we generally like and respect. I suspect Professor Rothstein would agree with that last sentiment, though probably not with anything else in this post.

With that important note out of the way, let me highlight the three common tendencies in academic writing on corruption that Professor Rothstein’s post illustrates: (1) an unhealthy and unhelpful obsession with definitions; (2) misunderstanding and misuse of social science concepts, particularly a fixation on capital-T “Theories”; and (3) sweeping and uncharitable dismissiveness of prior work and thinking on the topic.

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Guest Post: Ensuring Integrity in U.S. Infrastructure Spending

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Today’s guest post is from Shruti Shah, the President and CEO of the Coalition for Integrity (C4I), and Taylor Cerwinski, a consultant for C4I on various anticorruption and ethics issues.

The biggest item on the U.S. Congress’s legislative agenda right now is infrastructure. Last month, the Senate voted to pass a $1 trillion infrastructure bill focused on surface infrastructure and broadband projects, including $550 billion in funding for new projects. That bill is set for a House vote on Thursday, though the politics are complicated by the debates within the Democratic Party over the proposed $3.5 trillion federal budget bill that includes investment in “human infrastructure” via support of child care, education, healthcare, and other projects. While all eyes on Washington are focused on whether the Democrats will be able to hold together their progressive and centrist wings to pass both of these bills, there’s another important concern regarding the proposed infrastructure investment that ought to receive attention: the need for more effective oversight of how the money is spent.

While strong infrastructure is vital to ensure a healthy economy and thriving communities, the scope, complexity, and cost of the proposed infrastructure projects make it vital to ensure that there is clear and robust oversight, so that these projects are carried out in a fiscally responsible manner. Without such oversight, there is a substantial risk that infrastructure projects at the federal and state level will fall victim to waste, fraud and other abuses. Internationally, estimates of losses to bribery in construction are as high as 10 to 30 percent of construction costs. And the United States is not impervious to mismanagement and corruption in infrastructure projects. A review of prior high-profile projects such as the California High Speed train, the Central Artery Project in Boston (The Big Dig), and the awarding of contracts related to disaster relief and clean-up efforts in the aftermath of Katrina reveals cost overruns, fraud, and incidents of bribery and other forms of public corruption.

The infrastructure bill now pending before the House incorporates several measures to combat potential corruption. These include requirements that federal agencies award grants on a competitive basis, regularly publish reports on the implementation of grant programs, and fund oversight functions. While a good start, these measures do not go far enough. Assuming the infrastructure bill passes, agencies must—through implementing regulations and actual practice—go further to ensure transparency, accountability, and integrity in infrastructure spending. As a new Coalition for Integrity’s report on Oversight of Infrastructure Spending, there are a number of useful measures that would be helpful, including the following: Continue reading →

Anticorruption Bibliography–September 2021 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 from 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.

Will FRELIMO Betray the Mozambican People to Protect Its Own?

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FRELIMO, Mozambique’s governing party, is at a historic crossroads. A party once known for the integrity of its leaders and its commitment to the welfare of all Mozambicans must choose: Pursue a lawsuit to recoup damages from the “hidden debt scandal” that will expose the role of Felipe Nyusi, its leader and the country’s president, in the corruption. Or scrap the suit to protect him.

The scandal arose from some $150 million Dubai-based shipbuilder Privinvest paid Mozambican officials to approve $2.1 billion in contracts to supply it with coastal patrol vessels, tuna boats, and a shipyard to maintain them. Privinvest kicked back $50 million from the deal to Credit Suisse executives in return for their arranging financing for the purchases. The loans they secured were not disclosed: either to the Mozambique parliament, as required by law, or to the IMF, as required under the terms of an IMF bailout loan. When the Wall Street Journal revealed them, donors cut funding, foreign investors pulled out, and the economy tanked.  

This hidden debt scandal may well go down as the most damaging corruption scam in modern history. According to a recent estimate by a team from Mozambique’s Centro de Integridade Pública and Norway’s Chr. Michelsen Institute, the damages from the scandal over the 2016-2019 period alone equals $11 billion, $403 for every man, woman, and child in Mozambique. At the same time, the World Bank ranks it as the world’s third poorest nation with a GDP per capita for 2020 of a little over $1200.

Mozambique’s only chance to recover the enormous damage the scandal has done is a civil law suit the government filed against Privinvest, Credit Suisse, and many of the individuals involved.  Privinvest has now countered. At paragraph 22.5 of its defense, the shipbuilder claims Nyusi was “fully aware of, and/or participated, in [the corruption], and indeed was at the heart of the matters now complained of by the Republic.”

The threat is now on the table. If Mozambique continues to press the suit, Privinvest will produce in excruciating detail evidence of Nyusi’s involvement. The only way to avoid the likely discrediting of the party’s ruling elite is for Mozambique to scrap the suit.

Will a party once led by the likes of Eduardo Mondlane and Samora Machel sell out the Mozambican people to maintain its grip on power? Will those party members who were their colleagues and those whom they inspired with their dream of a free and prosperous Mozambique stand up?

New Podcast Episode, Featuring Kate Bateman

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A new episode of KickBack: The Global Anticorruption Podcast is now available. In this week’s episode, I interview Kate Bateman, currently a senior expert at the United States Institute of Peace’s Afghanistan Program, and previously the Project Lead for the “Lessons Learned” program with the Special Inspector General for Afghanistan Reconstruction (SIGAR). Our conversation, which in many ways complements our previous episode’s interview with Jodi Vittori, focuses on the role that corruption played in the failure of the U.S.-led mission in Afghanistan and the collapse of the Afghan government that the U.S. and its allies supported, as well as the lessons that can be learned both from the overall experience and, more specifically, from SIGAR’s work. 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 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.