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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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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Prosecuting Public Officials for their Mistakes

In July 2011, Yingluck Shinawatra became Prime Minister of Thailand after her party (founded by her brother, former Prime Minister Thaksin Shinawatra) won a decisive electoral victory. One of her principal campaign promises was to establish a program to purchase rice from farmers at above-market prices then store the rice to reduce supply. The hope was that doing so would increase world prices—because of Thailand’s position as the leading global rice exporter—ultimately allowing the government to sell at a profit. Shortly after the election, Yingluck’s government implemented this program, and it worked well for a few months—until other global players increased their supply of rice, causing Thailand to lose billions of dollars in the process. This economic debacle was entirely predictable—and indeed was predicted by many experts. And the program itself was beset by allegations of fraud and corruption in its implementation.

But should the failure of the rice-buying program be the basis of a criminal charge of corruption and a prison sentence against Yingluck herself, in the absence of evidence that she was directly involved in any embezzlement, bribery, or other more conventional forms of graft? Section 157 of Thailand’s Penal Code allows for just such a prosecution, as this section makes it a crime for a public official to either dishonestly or “wrongfully discharge or omit to discharge a duty so as to expose any person to injury.” And last month, the Thai Supreme Court found Yingluck (out of power since she was deposed by a military coup in 2014) guilty and sentenced her to five years in prison. She fled the country before the verdict.

Thailand is not alone in adopting anticorruption laws that criminalize not only dishonest conduct (bribery, embezzlement, conflict of interest, etc.), but also negligence or incompetence. When India updated its anticorruption law in 1988, it added a new provision that makes it a criminal offense for a public official to “obtain for any person any valuable thing or pecuniary advantage without any public interest.” This broad offense was interpreted by a state High Court to not require any proof of dishonesty or criminal intent, and the Central Bureau of Investigation (India’s premier anticorruption agency) has routinely employed the provision in grand corruption cases to avoid the problem of having to prove corrupt intent. In perhaps the most high-profile such prosecution, the agency went after an ex-Prime Minister, Dr. Manmohan Singh. Dr. Singh was the Minister of Coal at a time when the Government decided to liberalize allocation of coal-blocks and to sell mining rights to private parties. In 2014, the Comptroller and Auditor General’s office reported the policy had caused losses worth billions of dollars because the rights had been sold for too little, through a process that was too ad hoc to be considered legal. Dr. Singh was subsequently charged under India’s broad law, though his trial has currently been stayed while his challenge to the constitutionality the law is pending before India’s Supreme Court. (There are clearly concerns in other quarters about the breadth of this statute: In 2016 a Select Committee of the Upper House of India’s Parliament submitted a report that suggested India eliminate this offense. Parliament hasn’t yet acted on this recommendation, but there are signs that it has some support.)

Is it appropriate to enact broad anticorruption laws that allow government officials to be convicted for dereliction of duty, acting in a manner contrary to the public interest, and the like? Anticorruption activists and prosecutors may find such statutes appealing: It is easier to secure convictions of elected officials who are suspected of corruption, but where it is too difficult to prove the specific intent necessary for traditional corruption offenses. But in fact these broad laws are likely to do more harm than good, and countries like Thailand and India would be better off without them. There are three main reasons for this: Continue reading

State-Level Anticorruption Commissions: What the U.S. Can Learn from Australia’s Model

Australia does not currently have a dedicated national-level anticorruption agency (ACA), though the question of whether to create one has been on the table since 2014 (see here, here, and here). Yet Australia has plenty of experience with ACAs—at the state level. Australia’s first, and still most prominent, state-level ACA was the Independent Commission Against Corruption (ICAC) in New South Wales (the state including financial capital Sydney), which will mark its thirtieth anniversary next year. The ICAC, led by an independent commissioner, has independent investigatory powers over almost all state-level government officials and is charged with both exposing public sector corruption and educating the public about corruption. Queensland and Western Australia followed suit with their Corruption and Crime Commissions, established in their current forms in 2001 and 2003 respectively. The states of Victoria, South Australia, and tiny Tasmania all instituted independent agencies in recent years as well. Even the 250,000-strong Northern Territory resolved to start its own ACA after several high-profile scandals, and the Australian Capital Territory (the Canberra-sized equivalent of Washington, DC) has discussed creating its own anticorruption body. The permeation of Australia with state-level agencies is essentially complete.

Thus, in true laboratories-of-democracy fashion, Australian states have tried, solidified, and publicized the model of creating an independent investigatory group focused on the issue of corruption. Could U.S. states do the same? Easily. Should they? Yes, for at least three reasons:

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China’s Anticorruption Campaign Adds Popular Culture Entertainment Into its Toolbox

A TV series called In the Name of the People, featuring China’s current fight against high-level government corruption, has gone viral in China. Dubbed the Chinese House of Cards, the show reached an 8% TV viewing rate (the highest in 12 years) and by the end of April 2017, had been watched over 20 billion times across major Chinese online video platforms. The show is widely acclaimed for its quality production, intriguing storylines, and, more importantly, for its bold, vivid depiction of the ugly side of China’s political and social reality. Shows like this are not merely entertainment: popular culture, including TV shows, can be an important tool in the fight against corruption.

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Is China’s Anticorruption Crusade Reaching a Turning Point? Towards What?

In April 2014, a post on this blog claimed that the People’s Republic of China’s anticorruption campaign was reaching a turning point, and suggested that the campaign might be “significantly curtailed” in light of troubling signs of economic slowdown and strong pushback from other senior Party leaders. This prediction seemed reasonable at the time, yet more than three years later, the campaign shows no signs of winding down: Reports on senior government officials’ downfalls or corrupt fugitives’ repatriation from overseas still hit headlines on an almost daily basis. A recent development, however, does suggest that China’s anticorruption campaign might be reaching a different sort of turning point—turning from a near-exclusive emphasis on aggressive enforcement to institutional reforms that address the root causes of corruption.

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When and Why Do Corrupt Politicians Champion Corruption Reform? A Character Study

Can corrupt leaders enact effective anticorruption reform? The brief answer seems to be yes: Leaders who are (perceived as) corrupt can initiate and support effective anticorruption reform efforts. For example, as this blog has previously discussed, President Peña-Nieto (who has repeatedly been accused of corruption and graft) supported constitutional anticorruption reforms in Mexico. Egypt’s current President, Abdel Fattah al-Sisi, has similarly launched various anticorruption campaigns, even while fending off numerous corruption allegations.

But why do corrupt leaders institute anticorruption reforms? While there’s no universal explanation, there appear to be at least three archetypes that might help anticorruption activists identify and push unlikely reformers: The Power Player, The Top-Down Director, and The Born-Again Reformer. Continue reading