“NGOs with Foreign Support”: A New Draft Law Threatens Ukraine’s Anticorruption NGOs

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In May, Ukrainian Member of Parliament Oleksandr Dubinsky, a controversial member of the Servant of the People Party (Ukraine’s ruling party, headed by President Volodymyr Zelensky), registered a draft law that would label certain civil society organizations as “foreign agents.” More specifically, this legislation—which resembles Russia’s 2012 “foreign agent” law—would:

  • Oblige NGOs receiving at least 50% of their financial support from foreign entities to include the term “foreign support” in their organization’s name, and to include in any materials published by the NGO a disclaimer stating that the materials are published by an organization that functions with foreign support;
  • Initiate the creation of a central register of such NGOs, requiring the Ministry of Justice to publicize a list of these NGOs on its official website and to publish annual reports of foreign-funded NGO activity in Ukraine;
  • Require the management of these NGOs to undergo annual polygraph interviews in order to review whether or not these individuals have committed treason; and
  • Prohibit any individuals in NGO management positions from working in the civil service or holding membership on supervisory boards or in the leadership of state enterprises for five years after working in a foreign-funded NGO.

While Dubinsky’s proposed legislation poses a serious threat to all NGOs that receive foreign funding (except for a few categories that the draft law specifically exempts, such as NGOs that work in the sphere of culture, arts, science, prevention and health of citizens, social protection, social support for the disabled, and environmental protection), this legislation would have a particularly adverse impact on the work of anticorruption NGOs.

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Anticorruption Bibliography–June 2020 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. As always, I welcome suggestions for other sources that are not yet included, including any papers GAB readers have written.

Review of Søreide and Makinwa “Negotiated Settlements in Bribery Cases: A Principled Approach”

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The resolution of foreign bribery cases through some type of out-of-court agreement has spread from the United States to other OECD nations.  The latest figures show that close to 80 percent of foreign bribery prosecutions by OECD nations have been settled short of a full trial on the merits.  Settlements free prosecutors to pursue additional violations, but there is the ever-present risk the defendant will get off too easy, that the settlement terms will not deter the defendant or others from continuing to bribe officials of a foreign government.

The OECD’s Working Group on Bribery in International Business Transactions is now developing standards to ensure that settlements will provide the “effective, proportionate, and dissuasive criminal penalties” the OECD Antibribery Convention mandates. As it proceeds, it will find Negotiated Settlements in Bribery Cases: A Principled Approach, a new volume from Elgar edited by anticorruption scholars Tina Søreide and Abiola Makinwa, an invaluable guide.  In 12 chapters, the cross-disciplinary, multinational group of experts the editors assembled review the use of settlements in the United States, the experience of other nations and the World Bank with settlements, ways to judge whether a settlement serves the public interest, and recommendations for gauging whether a particular settlement passes the public interest test. Continue reading →

New Podcast, Featuring Irio Musskopf

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A new episode of KickBack: The Global Anticorruption Podcast is now available. In this week’s episode, my collaborators Nils Köbis and Christopher Starke interview Irio Musskopf, a Brazilian software engineer who co-founded and developed an open-data anticorruption project called Operation “Serenata de Amor, which uses artificial intelligence algorithms to analyze publicly available data to identify and publicize information about suspicious cases involving potential misappropriation of public money. Mr. Musskopf discusses the background of the project,the basic statistical approach to detecting suspicious spending patterns,the reasons for relying exclusively on public data (even when offered access to non-public information), and some of the challenges the project team has encountered. The conversation also discusses more general questions regarding the role that intelligent algorithms can play in anticorruption efforts, including questions about whether and where such algorithms might be able to supplant human analysis, and when human decision-making will remain essential..

You can find this episode here. 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.

The Art World is Rife with Corruption, But Suspicious Activity Reporting Requirements Aren’t the Answer

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Customs officials at JFK airport didn’t have a reason to be suspicious. After all, the package wasn’t anything special—just a regular shipping carton with an unnamed $100 painting inside. Only later did it emerge that the $100 unnamed painting was, in fact, Hannibal, a 1981 painting by Jean-Michel Basquiat valued at $8 million. Authorities across three different continents had spent years trying to track down Hannibal, along with other famous works by Roy Lichtenstein and Serge Poliakoff, that Brazilian banker Edemar Cid Ferreira had used to launder millions of funds he illegally obtained from a Brazilian bank. It wasn’t until 2015, nearly ten years after Edemar’s conviction for money laundering, that US authorities managed to return Hannibal to its rightful owner, the Brazilian government. Meanwhile, thousands of other paintings move across borders with few questions asked about who owns them, who’s buying them, and for what end.

The art world is readymade for corruption. Paintings—unlike real estate—are readily portable. Their true value, as Hannibal illustrates, is readily disguisable. And the law does not require disclosure of the buyer or seller’s true identity. Unlike real estate, where ownership can be traced to a deed, the only available chain of title for most artwork is its “provenance”—which is commonly vague, falsified, or not readily verified. Recognizing that money laundering in the art world is a big (and growing) problem, there’s been a flurry of recent proposals to address that problem. In the United States, Congressman Luke Messer proposed a new law called the Illicit Art and Antiquities Act, which, if enacted, would amend the Bank Secrecy Act (BSA) to require art and antiquities dealers to develop an internal compliance system, report cash payments of more than $10,000, and file the same sorts of “suspicious activity reports” (SARs) with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) that the BSA currently requires of financial institutions and money service businesses. And in Europe, the EU’s Fifth Anti-Money Laundering (AML) Directive dramatically expanded suspicious transaction reporting requirements for art dealers.

These developments show that legislators on both sides of the Atlantic are taking the challenge of art corruption seriously, which is an encouraging development. Unfortunately, expanding SAR requirements, while appropriate in other contexts, is misguided when it comes to the art world, for two reasons:

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Improving Brazil’s Whistleblower Regime

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Because corruption is usually conducted in secret, without readily identifiable victims, effectively tackling corruption often requires evidence from insiders. Therefore, providing adequate protections and incentives to whistleblowers is crucial. Brazil, like many countries, does not have a strong tradition or culture of whistleblowing, making it all the more important that the legal system provides sufficient protections and incentives for insiders to provide material information about corrupt schemes. In the past few years, Brazil has made important progress in this area, but much remains to be done.

Two years ago, a specific statute introduced the practice of rewarding people who furnished information about criminal conduct. This legislation provided that Brazilian states could establish telephone hotlines for reporting unlawful activities, and also authorized all levels of government to establish rewards for whistleblowers who provide information that lead to the prevention, detection, and punishment of crimes and administrative offenses. That statute, while a good first step, was vague and incomplete. Near the end of last year, Brazil took another important step in the direction of modernizing its whistleblower laws with the enactment of the 2019 Anti-Crime Act. This Act requires that national, state, and local governments, as well as their agencies and companies, establish an ombudsman office to ensure that all people can report crimes against public administration (including corruption), administrative offenses, and any action or omission damaging to the public interest. The law further provides that whistleblowers cannot be held criminally or civilly liable for the report (as long as the information was not provided falsely and maliciously), that whistleblowers are entitled to the protection of their identities, and that whistleblowers are entitled to the same protections against retaliation as are witnesses and victims. Violation of the prohibitions on retaliation against whistleblowers can entitle the whistleblower to double damages and punitive damages. The new law also includes a clearer provision on financial rewards for whistleblowers, expressly providing that if a whistleblower who provides information leading to the recovery of proceeds from crimes against public administration, the corresponding government can grant to whistleblowers financial rewards of up to 5% of the recovered assets.

Despite this progress, though, the legal framework on whistleblowers in Brazil still suffers from a number of important deficiencies, and needs further improvements:

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Guest Post: Special Journal Issue on Corruption in the Developed World

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Today’s guest post is from Fabrizio Di Mascio, Associate Professor of Political Science at the University of Turin.

Much of the discussion of the corruption problem focuses on developing countries. This focus is understandable, given that corruption is a much more pervasive, or at the very least more visible, in the developing world. Indeed, some have suggested that corruption will tend to disappear as countries become wealthier and as democratic institutions are consolidated. Yet while it may well be that (crude) corruption tends to decline as countries develop, the evidence suggests that corruption remains widespread in developed countries, including mature democracies. To better understand both the characteristics of corruption in the developed world, and the mechanisms that might help combat that corruption, the open-access academic journal Politics & Governance recently published a special issue (which I co-edited) on “Fighting Corruption in the Developed World: Dimensions, Patterns, Remedies.”

After an introductory editorial, the special issue includes eight articles, all of which are available for download for free:

Barring Corrupt Officials from Entering the United States: A Guide to the Process

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Since 2004 it has been American policy to deny entry into the United States of corrupt foreign officials and their immediate families. President George W.  Bush initiated the policy by presidential order, and in 2008 Congress added its voice, enacting legislation barring “foreign kleptocrats involved in the extraction of natural resources” from entering the United States.  Beginning in 2012, the Congressional ban was extended to include all those involved in “significant corruption,” and in 2014 the provision was expanded again to cover foreign officials involved in “a gross violation of human rights.” The following year Congress clarified that designations may be made publicly or privately.

The first public designation was made in 2018 (Albanian judge and prosecutor Adriatik Llalla), and since then more than 150 individuals from over 30 countries have been publicly barred from entry — either for corruption or human rights violations.  Although the State Department web site does not keep a running list of those who have been barred, the NGO Human Rights First does. A spreadsheet available on its website can be sorted by country, crime, date, and other fields and includes links to each State Department sanctions announcement. It is updated whenever new sanctions are announced

The Department encourage civil society activists, foreign diplomats, and others with information relevant to the designation process to contact it. The best way is through its personnel in the field as designations typically arise from recommendations made by U.S. embassy staff.

Two excellent descriptions and discussions of the visa denial policy by analysts at the Library of Congress’ Congressional Research Service are here and here.

The Human Right First spreadsheet, “U.S. Government Public Section 7031(c) Sanctions Designations to Date,” can be accessed here.

GAB contributor Daniel Binette’s recommendations for greater clarity in how visa denial decisions are made is here.

Are There Common Features of Dysfunctional Organizational Cultures? Corruption and Police Brutality

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For the second time in the last several months, I’m finding it extremely difficult to blog about corruption due to a more urgent crisis. A few months ago, it was the Covid-19 pandemic, which is still very much with us. But now, in addition to the ongoing public health emergency, my home country (the United States) is in the midst of widespread social and political unrest triggered by the murder of an unarmed black citizen at the hands of police officers, as well as several other similar incidents. The underlying problems—systemic racism and misconduct by law enforcement agencies—are, sad to say, longstanding problems with deep roots. But the protests have given them new urgency and salience. And while there have been instances of rioting and looting—acts that the vast majority of peaceful protestors have roundly condemned—we have also seen what can only be described as a grossly disproportionate response by far too many law enforcement agencies and officers. In multiple cases, police have used unnecessary force not only against rioters and looters, but against peaceful protestors and members of the media who clearly identified themselves as such. And multiple senior elected officials, including President Trump and Senator Tom Cotton, have advocated the use of military force to suppress what they would characterize as civil unrest.

Suffice it to say that, given all this, it’s hard for me to think of something interesting or worthwhile to say about global corruption. But as I’ve been doing more to educate myself about the root causes of police misconduct (a mild term for a category that includes, among other things, brutality and racially discriminatory enforcement), I’ve noticed some intriguing similarities to some of the prevailing theories regarding the roots of organizational corruption (in both government agencies, including but not limited to police departments, and in private firms). Perhaps this shouldn’t be so surprising, because in both cases the ultimate issue concerns the reasons for widespread rule-breaking within an organization. To be clear, I don’t want to overstate the similarities, either with respect to the severity of the misconduct (I condemn bribery as strongly as anyone, but I wouldn’t dream of equating it with systemic racism or police brutality) or with respect to all of the causes and characteristics. I should also emphasize that I’m by no means an expert in police misconduct, and I suspect that many of my observations here will have already been made, or possibly already refuted, in the existing research literature with which I am not yet familiar. With those caveats, let me highlight some potentially intriguing similarities between the characteristics of police departments prone to racism and violence, on the one hand, and firms or divisions that engage in bribery, embezzlement, and other forms of financial malfeasance. These similarities may suggest some common features of ethically dysfunctional organizations. Continue reading →

Why Western Accounting and Consulting Firms Are Facilitating Global Corruption, and How To Stop Them

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In 2016 the then-president of Angola, José Eduardo dos Santos, appointed his daughter, Isabel dos Santos, as chairwoman of Sonagol, Angola’s struggling state oil company. Ms. dos Santos quickly recruited the management consulting firms Boston Consulting Group (BCG) and McKinsey and Company to help restructure the company. BCG and McKinsey were not paid directly by Sonangol, however, but rather by a holding company controlled by Ms. dos Santos, Wise Intelligence Services. On paper, Wise Intelligence Services oversaw the consulting firms’ work, but in reality this payment plan enabled Ms. dos Santos to embezzle millions of dollars from the Angolan treasury by overcharging for the consultants’ work and then pocketing the difference. The firms, of course, still received enormous fees, and do not appear to have raised any concerns or objections regarding the highly unusual and suspicious payment arrangements. BCG and McKinsey were not the only Western professional services firms to profit from working with Ms. dos Santos. The accounting firms PwC, Deloitte, KPMG, and Ernst and Young all audited some of the companies owned by Ms. dos Santos and signed off on those companies’ contracts with the Angolan government. In January 2020 Angolan prosecutors announced that they would charge Ms. dos Santos—whose personal wealth is estimated at around $2 billion—with embezzlement of state funds in connection with her business relationships with the Angolan government.

This is far from the first corruption scandal that has implicated the same cohort of large professional services firms. McKinsey has received enormous criticism for its partnership with a company connected to the kleptocratic Gupta family in a $700 million contract with the South African government to resuscitate the country’s failing state-owned power company. Deloitte, Bain, and KPMG have also faced scrutiny for their respective roles in facilitating or otherwise enabling South Africa’s myriad corruption scandals. In Mongolia, McKinsey partnered with a firm owned by a top government official in a contract to reshape the country’s rail system; Mongolian officials ultimately levied corruption charges against three different Mongolians involved in brokering that deal.

These and numerous other scandals illustrate that, far too often, professional services firms have either facilitated, or at best been passively complicit in, the theft of massive sums from state coffers. Why have professional services firms been repeatedly implicated in corruption scandals involving their public sector work? Part of the explanation is simply the inherent risk associated with settings in which developing-country governments, where corruption risks are high to begin with, are handing multi-million dollar contracts to Western firms in an effort to modernize their national infrastructure. But in addition, two structural issues help to explain why accounting and management consulting firms are particularly susceptible to these sorts of problems.

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