Tag Archives: asset and income disclosure

New Research on the Effect of Income and Asset Disclosures

Posted on by
8

GAB readers have recently been treated to a vigorous back-and-forth on the efficacy of anticorruption laws. Gothenburg University Professor Rothstein sharply questions their value whereas GAB editor-in- chief Matthew Stephenson and Sussex Professor and anticorruption practitioner Robert Barrington take issue with such a sweeping claim, Professor Barrington pointing to the U.K. 2010 Bribery Act as an example of an effective legal reform.

In today’s Guest Post, George Washington University Assistant Professor David Szakonyi offers additional evidence that anticorruption laws make a difference — and in a surprising place: the Russian Federation. Exploiting a 2015 change in law that required those running for local office to disclose their income and assets (the kind of natural experiment the Nobel committee lauded when awarding this year’s prize in economics), he shows how disclosures affected different individuals’ willingness to seek office.

Professor Szakonyi is also a co-founder of the Anti-Corruption Data Collective. His academic research focuses on corruption and political economy in Russia, Western Europe, and the United States. He is a Research Fellow at the Higher School of Economics in Moscow.

There are few anti-corruption reforms as widespread as mandating officials submit income and asset disclosures. According to the World Bank, 161 out of 176 countries surveyed have some sort of disclosure system in place. Yet there still is deep skepticism that forcing public officials to disclose their personal wealth makes much of an impact. Officials have every incentive to lie on their forms, and many fail to submit them entirely. Others stash their assets in the names of relatives or cloak their ownership in offshore chains out of the reach of those tasked with oversight. In brief, verification is tough. Given all the opportunities for evasion, are disclosures anything more than an anti-corruption paper tiger?

My forthcoming paper at the American Journal of Political Science provides some encouraging evidence: requiring income and asset disclosures deters those prone to corruption from seeking office. The case studied is Russia, which perhaps surprisingly has one of the most comprehensive anti-corruption disclosure laws on the books anywhere in the world. Each year over 2 million public officials must submit detailed reports to oversight commissions about their income and assets, as well as those of their spouses and dependent children. A portion of every official’s disclosure is posted online for the general public to access.

Continue reading →

Guest Post: The Ukrainian Constitutional Court’s Invalidation of Anticorruption Laws Has Plunged the Country into a Double Crisis

Posted on by
1

Today’s guest post is from Kyrylo Korol, a judicial clerk at the High Anti-Corruption Court of Ukraine.

This past fall, between August and October, the Constitutional Court of Ukraine (CCU) ruled that several of Ukraine’s most important anticorruption laws and institutions are unconstitutional.

  • The CCU first ruled unconstitutional the Decree of the President of Ukraine on the appointment of the director of the National Anti-Corruption Bureau of Ukraine (NABU), which is responsible for anticorruption investigations; the Court also invalidated the President’s powers to appoint NABU’s head, a decision that created uncertainty regarding the legitimacy of the current director of NABU. The Court reasoned that the because the power to appoint the NABU director was not included in the list of presidential powers specified in the Constitution, the President could not exercise this power. The CCU also ruled unconstitutional the external commission that evaluates NABU’s performance.
  • In a subsequent case, the CCU declared unconstitutional the powers of the National Agency on Corruption Prevention (NACP) to check the public official’s declarations of assets. The Court reasoned that the NACP’s powers to review asset declarations extended to asset declarations submitted by judges, and that this arrangement would give an executive body impermissible control over the judiciary. The CCU further ruled that the law that imposes criminal liability for knowingly submitting a false asset declarations was unconstitutional, on the grounds that the penalties (which can include fines of up to $1,700, community service, or, imprisonment and disqualification from certain offices) was unconstitutionally disproportionate to the damage caused by the crime. These decisions led to the closure of hundreds of criminal cases for false declaration and the acquittals of public officials who had been found guilty of this crime. Going forward, the elimination of penalties for public officials who fail to file asset declarations, or who file false declarations, essentially nullifies the financial declaration system.

Continue reading →

Universal Asset Declarations Will Not Solve Kazakhstan’s Corruption Problem

Posted on by
Reply

In March 2019, Kassym-Jomart Tokayev replaced long-serving President Nursultan Nazarbayev to become independent Kazakhstan’s second head of state. Apparently recognizing the scope and scale of Kazakhstan’s corruption problem, President Tokayev made combatting corruption a central focus of his agenda from the get-go. And he has continued to emphasize that the fight against corruption is a top priority.

Although it’s not unusual for heads of state to deploy anticorruption rhetoric, often without action to back it up, there are indications that President Tokayev is serious. Over the past year and a half, the Kazakh government has implemented several concrete anticorruption measures—both large-scale and quotidian. Perhaps most prominently among the former category, in January 2020 Kazakhstan joined the Group of States against Corruption, a corruption-monitoring organization run by the Council of Europe. Additionally, a law enacted in December 2019 provides for the dismissal of public officials in managerial roles if their subordinates are convicted of corruption-related charges. Most recently, President Tokayev himself announced a new policy under which high-ranking officials and their family members will be barred from keeping bank accounts abroad. Among the more “everyday” measures, the government has created “anticorruption centers” where citizens can speak directly with employees of Kazakhstan’s anticorruption agency. And to prevent price-gouging during the COVID crisis, the government has required pharmacies to post QR codes that allow customers to easily check the legal prices of medicines.

It remains to be seen whether these measures will be effective in helping to address Kazakhstan’s corruption problem. One additional measure, however, appears unlikely to make much difference: a new system of “universal” property and income declarations that the Kazakh government is beginning to implement (see here, here, and here). Kazakhstan has required public officials to declare their assets and income since 1996, but the new initiative will extend this requirement to all citizens and foreign permanent residents of Kazakhstan in a phased rollout over the next several years. By 2025, all Kazakhstanis will be required to file, in addition to their standard income tax return, a declaration listing the value of their assets and liabilities, including real estate, cars, bank accounts, and jewelry. According to the government, this new system of universal asset declarations will help counteract the shadow economy, increase compliance with tax laws, and reduce corruption.

The new disclosure regime may well be justified as a matter of tax policy or as a measure to combat the shadow economy. However, evaluated purely as an anticorruption measure, the policy is misguided, for two main reasons: Continue reading →

Are Financial Declaration Systems Creating Opportunities for Corrupt Extortion?

Posted on by
2

One of the most popular reform measures for combating public corruption is the establishment or strengthening of requirements that public officials regularly file declarations of assets and income sources. Mandatory financial disclosure rules are not exclusively about fighting corruption, of course, but anticorruption is certainly one of their principal justifications. Requiring public officials to formally submit and update income and asset declarations, and attaching meaningful penalties for false or misleading declarations, is thought to help suppress corruption in at least three ways:

  • First, identifying assets and income sources makes it easier to identify, and hopefully to avoid, conflicts of interest.
  • Second, public officials who report suspicious asset growth during their time in office might attract unwanted scrutiny from law enforcement investigators—and also, if the declarations are public, from journalists and activists. Submitting false reports or finding clever ways to hide assets are of course possible, but are costly and risky.
  • Third, precisely because corrupt public officials will often lie on their financial declarations in order to avoid scrutiny, these mandatory disclosure laws can sometimes provide the hook to hold corrupt officials legally or politically accountable even when it is impossible to prove the underlying corruption. We might not be able to nail the corrupt official for bribe-taking or embezzlement, but if we can show that he owns substantial undeclared assets, we can still nail him for lying on his financial declarations.

There are important ongoing debates about the appropriate design of financial disclosure systems, including questions about whether the disclosures should be public or kept confidential, who should be required to submit disclosures (and how often), what sort of information should be required (and at what level of detail), whether and how declarations should be independently verified, the appropriate institution to manage the system, and the appropriate penalties for noncompliance (see also here). And the efficacy of mandatory financial disclosures in reducing corruption is still unsettled (see here, here, here, here, and here). Nevertheless, the basic anticorruption case for some form of mandatory financial disclosure system seems strong. Both domestic anticorruption activists and the international community therefore regularly push for the creation of such systems where they do not already exist, as well as for the strengthening and expansion of existing systems.

While acknowledging the uncertainties and complexities of the issue, I find the basic case for some form of (strong) mandatory financial declaration system persuasive. That said, I’ve recently had some interesting conversations with a couple of experts who have highlighted a potential problem that I confess I hadn’t previously thought about or seen discussed in the published literature: In countries where corruption is widespread and institutional checks are weak, the government agents who administer the financial disclosure system could abuse their power to extort bribes from the public officials who are subject to the declaration requirements. Continue reading →

An Amazing Database: DIGIWHIST Strikes Again

Posted on by
Reply

DIGIWHIST has struck again.  It has just released the latest version of its extraordinary data set covering political financing, disclosure of officials’ finances, conflict of interest, right to information, and public procurement in 34 European states plus the European Union.  With the laws on each subject along with an assessment of how thoroughly they address area, it is a real treat.

At least for the kind of people who read GAB (that means you, dear reader).

The database is part of an EU-funded digital whistleblowing project (DIGIWHIST).  The project’s aim is to improve trust in governments and the efficiency of public spending across Europe by providing civil society, investigative journalists, and civil servants with the information and tools they need to both increase transparency in public spending and enhance the accountability of public officials.  For those working in developing states, it is an invaluable resource, showing how different developed countries and those making the transition to a market economy deal with critical issues involving public integrity and transparency.  Thanks to the EU for supporting such a great project and congratulations to those whose hard work produced such a useful resource.

CliffsNotes for Implementing an Income and Asset Disclosure System for Public Servants

Posted on by
1

CliffsNotes are what American students pressed for time turn to at exam time.  Rather than reading the whole of Macbeth or the Iliad or sweating through their entire Physics text, students can breeze through the 20-page or so CliffsNotes on the topic, learning enough to at least pass the test.  Lawmakers are often in the same position during a session of parliament as these students are on the eve of an exam.  They must grasp enough of a subject to write legislation guiding how policy should be implemented but do not have the time to delve deeply into the subject matter.

One topic where this is the case is legislation introducing or revising a policy requiring public servants to disclose information about their personal finances.  Thanks to StAR,  the Council of Europe, the OECD, and indeed this writer and this blog (sample here and here), a diligent lawmaker could spend weeks if not months perusing volumes on how to create and operate a system for administering a personal financial disclosure law.  But like the student who would very much like to read all of Macbeth but has two other tests in the next three days, the legislator’s time is short and the demands on it high.

Hence, a need for a CliffsNotes on financial disclosure systems.  Continue reading →

TNI’s Gold Mine: Corruption and Military-Owned Businesses in Indonesia

Posted on by
1

The Grasberg Mine, located close to the highest mountain in West Papua, Indonesia, is the world’s largest gold mine and third-largest copper mine. The mine, owned by the corporation Freeport-McMoRan Copper & Gold, has been the site of strings of grave human rights abuses, linked to Indonesia’s own National Armed Forces (Tentara National Indonesia/TNI). TNI’s presence in the territory is ostensibly to protect the mine, and Freeport’s Indonesian subsidiary acknowledges having made payments of as much as US$4.7 million in 2001 and US$5.6 million in 2002 for such government-provided security. A report by Global Witness, however, revealed numerous other payments ranging from US$200 to US$60,000 that Freeport Indonesia allegedly made to individual military officers.

The TNI’s sale of security services to companies like Freeport is only one of the many business ventures conducted by the TNI and its officers. As Human Rights Watch has reported, the Indonesian military has been supplementing its income through both its formally established companies, and through informal and often illicit businesses such as black market dealing. Moreover, the military’s business activities (both lawful and unlawful) are largely shielded from public scrutiny: budgeting for military purposes is generally kept secret, and TNI members generally refuse to answer questions about institutional spending.

Military-owned business in Indonesia are problematic, not only because this private-sector activity impedes military professionalism and distorts the function of the military, but also because it also contributes to crime, human rights abuses, and especially corruption. This problem is greatly compounded by the fact that TNI officers generally enjoy immunity from corruption charges brought by civilian institutions. In fact, the Transparency International’s Defense and Security Program has deemed Indonesia one of the countries most prone to corruption in its defense and security institutions. It is therefore appalling that this issue has not been addressed more seriously by the Indonesian government. Although a 2004 law mandated the transfer of control over TNI businesses to the civilian government within five years, the law did not clearly specify which types of business activities were covered, and this legal loophole enabled the TNI to preserve many of its moneymaking ventures, including TNI’s infamous security services—to say nothing of already-illegal criminal enterprises and illicit corporations. Moreover, despite the five-year timetable in the law, the government has been notably reluctant to enforce the transfer of ownership, making repeated excuses alluding vaguely to the need for the TNI to compensate for the lack of budgeting for security purposes. As a result, despite some efforts to reform the way the TNI is allowed to handle its businesses, military-owned businesses in Indonesia continues to flourish, with the Indonesian people of Indonesia having to pay the price.

The government’s weak response towards the military’s non-compliance with the 2004 law is merely one of the many indicators of how impervious the TNI’s power and seeming impunity. There are factors that contribute to this impunity, along with the corresponding corruption and abuse of power in the operations of military-owned businesses: Continue reading →

#Ley3de3 and the Power of Mexican Civil Society

Posted on by
5

As I discussed in an earlier post, Mexico enacted a series of constitutional anticorruption reforms last spring. I praised those reforms for their comprehensiveness and their potential to resolve problems of corruption at the state and local levels. However, I also noted that they required secondary enabling laws to actually go into effect. Until recently, the likelihood of enacting those laws on time looked slim, as the late-May deadline approached with considerable foot-dragging by the legislature. But Mexican civil society has risen to the challenge in an exciting way. Thanks to a 2012 constitutional reform that allows citizens to introduce bills to the legislature with 120,000 signatures (or 1.3 percent the voter rolls), an anticorruption bill has now been delivered to and is being debated by the Mexican Senate.

Called Ley 3de3, the initiative is an extraordinary example of civic engagement. Leading civil society groups have spearheaded the campaign, and universities and even for-profit businesses have gotten involved (see here and here). When the law was first delivered to the Mexican Senate on March 17th, it had over 300,000 signatures. A second installment of almost 325,000 more signatures was delivered nineteen days later. The legislation works to fill a number of important holes in the Mexican anticorruption landscape. For example, it requires public servants to disclose their assets, private interests, and tax returns (the 3-out-of-3 which gives the law its title) and proposes protection for whistleblowers who report corruption. The law faces a number of obstacles before it is passed, and other laws will be necessary to fully enact the National Anticorruption System promised by the constitutional reforms. However, the Ley 3de3 effort should be cause for, at least tempered, optimism. Continue reading →

Guest Post: A New Additional Indicator for Measuring Progress Toward SDG 16

Posted on by
3

GAB is delighted to welcome back Dieter Zinnbauer, Programme Manager at Transparency International, who contributes the following guest post:

A very interesting discussion has evolved on this blog (see here, here, here, and here), and in the wider world (for example, see here), on about the indicators that should be used to measure progress toward the Sustainable Development Goals (SDGs) goals for improving governance and reducing corruption (Goal 16). There are already some very good suggestions on the table, including the use of Transparency International’s Global Corruption Barometer (GCB) to measure progress toward Target 16.5, on reducing corruption and bribery in all their forms. (TI has used the GCB since 2005 to compile one of the largest data troves on the detailed experience with corruption of households and individuals around the world. Using a GCB-type indicator for the bribery dimension of SDG 16.5 is supported by a wide variety of stakeholders, including the World Bank, UNDP, and Save the Children.)

Yet most of the indicators proposed so far, including the GCB, speak to very specific aspects of corruption (such as bribery) and don’t quite do justice to Goal 16’s broad ambitions and its emphasis on public accountability. So to spice up this stew a bit, let me suggest another possible indicator, one that complement to some of the ideas that are already on the table. My proposed indicator of progress toward SDG 16 is as follows:

What percentage of national-level parliamentarians (and perhaps top level members of the executive) have made assets, income, and interest disclosures (AIIDs) in a format that is publicly accessible online at sufficient level of detail, in timely manner, and in a machine-readable data format.

Using AIID as an additional SDG 16 indicator might at first seem to be a step backwards, since such an indicator measures “outputs” rather than “outcomes.” But let me try to convince you that in fact AIID would be an extremely useful complementary indicator for progress toward SDG 16: Continue reading →