New Podcast, Featuring Irio Musskopf

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.

Improving Brazil’s Whistleblower Regime

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:

CONTINUE READING

The Resignation of Brazilian Justice Minister Sérgio Moro: Reflections on How Key Players Should Handle This Political Crisis

If a global pandemic and a mounting economic crisis weren’t enough, Brazil now faces a political crisis. Last Friday (April 24), Sérgio Moro, the former judge in the Car Wash anticorruption operation who had become Minister of Justice in the administration of far-right President Jair Bolsonaro, resigned his ministerial post and accused President Bolsonaro of multiple improprieties having to do with apparent interference with ongoing federal criminal investigations. In particular, Moro stated that Bolsonaro fired the head of the Federal Police, Maurício Valexio, without Moro’s necessary approval (and, indeed, had forged Moro’s electronic signature on the dismissal papers), because—according to Moro—Bolsonaro “was concerned about investigations underway in the Federal Supreme Court,” which many interpreted as an allusion to ongoing investigations into corruption allegations against President Bolsonaro’s sons. This was not the first time President Bolsonaro had meddled in the  Ministry of Justice—notwithstanding his promise that Moro would have full autonomy—but the firing of Valexio seems to have been the final straw for Moro. In his resignation speech, Moro emphasized his reluctance to resign in the midst of a public health crisis, but declared that Bolsonaro’s actions were beyond the pale. “I could not,” Moro explained, “set aside my commitment to the rule of law.”

It’s hard to exaggerate the significance of Moro’s resignation for Brazilian politics, and for the future of Brazil’s fight against systemic corruption. The resignation of a senior minister on grounds of alleged presidential interference in an investigation would be an enormous scandal under any circumstances, but to appreciate the significance of Moro’s resignation from the Bolsonaro government, one must know a bit more about the larger context. Moro became a nationally prominent figure due to his role in presiding over some of the most high-profile investigations and trials in the Car Wash anticorruption investigation, including the trial of former President Lula of the left-wing Worker’s Party (the PT); the Car Wash investigation also led to the impeachment and removal of Lula’s successor, Dilma Rousseff, though Judge Moro was not directly involved in that political process. Lula’s conviction meant that he was disqualified from running in the 2019 presidential election, which many observers believe he would have won. Thus, while Judge Moro was heralded as a hero by many Brazilian’s for his role in the Car Wash Operation, others—especially those affiliated with the PT—accused him of political bias against the left.

Lula’s disqualification, and the taint of corruption that attached to the PT due to the Car Wash Operation, created a window of opportunity for Jair Bolsonaro in the 2019 presidential election. Bolsonaro, a far-right politician who had long been considered a marginal figure at best, ran on an anticorruption platform, claiming that only he could clean up the corrupt Brazilian political system. This appeal worked: Many Brazilian voters who did not share Bolsonaro’s radical right-wing ideology nevertheless concluded that they couldn’t stomach another presidency with the “corrupt” PT. After Bolsonaro won the election, he appointed Moro to be his Minister of Justice—a move that many saw as intended to bolster Bolsonaro’s claims to be committed to ushering in a new era of anticorruption reform in Brazil. Bolsonaro made explicit and extravagant promises that Moro—an anticorruption hero in the eyes of most Brazilians, including many skeptical of Bolsonaro himself—would have a free hand to run his Ministry without presidential interference. But Moro’s acceptance of a senior position in the Bolsonaro administration drew criticism from the Brazilian left, a line of criticism that only intensified after a series of media stories last summer that suggested, based on leaked text messages, that while Moro was the presiding Judge in the Car Wash cases he may have inappropriately coordinated with prosecutors or exhibited bias against Lula. While some disputed this interpretation of the text messages, they fed into the narrative that Moro was partisan and Car Wash was a witch hunt. Even some of Moro’s supporters expressed concern about the content of the leaks, and about his acceptance of a position in the Bolsonaro government.

Moro’s resignation is a shocking new twist to this ongoing drama. Until recently, he was condemned by the far-left as Lula’s jailer; now he’s condemned by the far-right as a traitor. With some Brazilians, he’s still a popular anticorruption standard-bearer. It’s understandable that there’s considerable speculation both about Moro’s future and about the immediate ramifications of his dramatic resignation for the Bolsonaro government. There are questions about the longer-term impact of these developments on Brazilian politics and the future of anticorruption reform.

How should the various actors in this drama handle the situation going forward? In the remainder of this post, I advance some tentative advice for three principal players—the Brazilian Congress, the investigative agencies (especially the Federal Police), and Moro himself. How these players handle this volatile situation over the coming weeks and months will have far-reaching implications for Brazilian politics and institutions.

Continue reading

The Continuing Controversy Over the Destination of the Petrobras Penalties: The Coronavirus Crisis Has Ended One Debate, But May Start Another

As most readers of this blog are likely aware, the Brazilian state-owned oil company Petrobras has been at the center of a massive bribery scandal in Brazil, and the main focus of Brazil’s so-called Car Wash (Lava Jato) Operation. That Operation uncovered evidence that between 2006 and 2014, corporations paid kickbacks to senior Petrobras officials for inflated contracts, and the Petrobras officials funneled a substantial portion of those illicit proceeds to the political parties in the government’s coalition. These revelations lead to legal actions not only in Brazil, but also in the United States. Because Petrobras issued securities in the U.S., and because U.S. law imposes criminal liability on a corporation for the conduct of the corporation’s employees, Petrobras was potentially liable under the U.S. Foreign Corrupt Practices Act (FCPA), because Petrobras officers had facilitated corruption abroad (that is, in Brazil). In September 2018,Petrobras signed a non-prosecution agreement (NPA) with the United States Department of Justice, according to which the company would pay over US$850 million in penalties. But, crucially, only 20% of that penalty would be paid to the United States; the remaining 80%, according to the terms of the NPA, was to be paid by Petrobras “to Brazil.”

This provision sparked great controversy and debate in Brazil over the destination of that money—a debate that seems to have been ended (for now) by the coronavirus crisis. The root of the problem is that under Brazilian law, Petrobras (the corporate entity) was considered victim of the bribery scheme, not a perpetrator. So, from a Brazilian perspective, it was hard to comprehend why the company should be obligated to pay for crimes that harmed it. Indeed, in many of the Car Wash cases resolved in Brazil, penalties recovered from other entities (such as the firms that paid kickbacks) were transferred to Petrobras. But under the NPA with U.S. authorities, Petrobras was required to pay over US$650 million to Brazil. What Brazilian entity or entities should get that money? And who should decide on the allocation?

CONTINUE READING

The Brazilian Courts’ Indefensible Double Standard: The Disparate Treatment of Harmless Procedural Errors in Corruption and Non-Corruption Cases

Before Brazil’s so-called Lava Jato (“Car Wash”) Operation, almost every attempt to prosecute high-level corruption in Brazil failed. Many cases were never investigated or prosecuted, but even in those cases where prosecutors started investigations, identified crimes, and brought charges, appeals courts ended up nullifying the proceedings, often before trial, on technical grounds for failure to comply with procedural rules (see, for example, here, here, here, and here). The result was a culture of impunity, in which grand corruption thrived. The Lava Jato Operation has been hailed as a historic breakthrough not only because of the breadth of the corruption it uncovered, but also because the convictions secured by prosecutors had, by and large, been affirmed on appeal. Unfortunately, there are troubling signs that the Brazilian judiciary is reverting to its old ways. Last October, for example, the Brazilian Supreme Court issued a procedural ruling  concerning the sequence of closing arguments that the Court held required the nullification of two Lava Jato convictions (so far), and may end up doing more widespread damage. The larger issue here, though, is the double-standard that Brazilian appellate courts seem to have embraced: adopting an (excessively) stringent and unforgiving view of even minor technical procedural noncompliance in corruption cases involving elite defendants, while at the same time relying (properly) on “harmless error” doctrines to excuse similar sorts of procedural noncompliance in cases involving other sorts of crimes, such as drug trafficking. Continue reading

The Shortcomings of the Leniency Agreement Provisions of Brazil’s Clean Company Act

If the CEO of a corporation operating in Brazil learns that her company has committed an unlawful act of corruption, should she order the corporation to self-report and negotiate a leniency agreement with the Brazilian authorities under Brazil’s 2013 Clean Company Act, which authorizes such settlements? In most of the cases, the corporate legal department would probably advise against it. Indeed, the number of leniency agreements based specifically on Brazil’s Clean Company Act has been much smaller than expected.

Several factors drive companies away from cooperating with Brazilian public authorities under the Clean Company Act:

Continue reading

The Continuing Struggle Over Brazil’s Financial Intelligence Unit and Its Contribution to the Anticorruption Fight

The successful investigation and prosecution of high-level corruption crimes often requires access to detailed financial intelligence, which in turn requires close cooperation and information-sharing between law enforcement officials and financial intelligence units. This has certainly been the case in Brazil, where the Lava Jato (Car Wash) investigation—considered the most successful anticorruption operation in Brazilian history—has been made possible in large measure by the reports supplied to federal prosecutors by Brazil’s financial intelligence unit,  known as the Counsel of Control of Financial Activities (COAF). COAF, created in 1998, has provided Brazilian federal prosecutors with suspicious activity reports on potential targets of the Lava Jato investigation, including politicians, high-level public officials, corporations, and business executives. And in the early days of the administration of President Bolsonaro, who positioned himself as an anticorruption champion during the election, there were some signs that COAF’s role in supporting law enforcement efforts would be strengthened. President Bolsonaro, for example, proposed transferring COAF from the Ministry of Economy to the Ministry of Justice—a signal that COAF would continue to work in the support of law enforcement activities—though the Congress rejected this proposal. President Bolsonaro’s Justice Minister, Sergio Moro, also nominated an auditor of the Brazilian Internal Revenue Service who worked in Lava Jato to be the new COAF chief.

But over the course of the last year, the ability of COAF to support anticorruption investigations has been jeopardized, partly by a judicial ruling, but also by other less visible efforts by the administration to undermine the unit’s autonomy.

Continue Reading

Requiring Public Contractors To Have Anticorruption Compliance Programs May Sound Like a Good Idea—But Not When Government Capacity Is Lacking

Five years ago, in a thought-provoking post, Rick Messick proposed that developing states should demand that firms doing business with them have an anticorruption compliance program. At the time Rick wrote his post, he wasn’t aware of any developing state that had imposed any such requirement. A couple of years later, some Brazilian subnational jurisdictions, such as the state of Rio de Janeiro and the Federal District, adopted legislation in this spirit, requiring that companies awarded a public contract, or participating in a public-private partnership, above a certain value must establish an anticorruption compliance program. These initiatives seem to be of a piece with a broader trend in Brazilian anticorruption law, which has sought in various ways to create stronger incentives for companies to adopt effective compliance programs. (For example, Brazil’s 2013 Clean Company Act holds companies strictly liable for corrupt conduct, but companies that have a so-called “integrity program” may get a penalty reduction.)

Nonetheless, despite the importance of corporate compliance policies as a component of any effective anticorruption strategy (see here and here), demanding that contractors to establish such programs as a condition of doing business with Brazilian government entities is unlikely to achieve the intended goals.

Continue reading

Aggressive Criminal Law Enforcement Is Insufficient to Combat Systemic Corruption. But That Doesn’t Mean It’s Not Necessary.

This will be a super-short blog post that makes a super-short point. Here goes:

Let me start by stating the following proposition: Effective enforcement of anticorruption rules, including criminal law enforcement, against individual wrongdoers is necessary but not sufficient to combat systemic corruption.

Both parts of that proposition are important, and I believe correct:

  • Punishing individual wrongdoers is necessary to combat systemic corruption because without individual accountability, it’s not possible to deter those who might be tempted to abuse their entrusted power for private gain, and the absence of individual accountability will likely perpetuate the belief that powerful elites are above the law, feeding the sense of hopelessness or resignation or cynicism that contributes to the vicious cycle that perpetuates systemic corruption.
  • Punishing individual wrongdoers is not sufficient to combat systemic corruption because widespread corruption is generally the product of systems, institutions, and cultures that create the incentives and opportunities to behave corruptly, and without addressing these root causes of corruption, even the most aggressive anticorruption enforcement efforts will be ineffective.

I don’t think either of those claims should be controversial. But I’ve noticed that in debates over anticorruption efforts in various countries, people sometimes commit the logical fallacy—usually by implication rather than expressly—of treating the second claim (that criminal law enforcement is not sufficient to combat systemic corruption) as if it negated the first claim (that criminal law enforcement is necessary to combat systemic corruption). The argument is usually phrased something like this: “Country X is cracking down on corruption and aggressively enforcing its anticorruption laws and putting people in jail. But this is a mistake, because combating systemic corruption actually requires broad-based institutional reforms. The focus should therefore be on institutional reform, not on aggressive criminal law enforcement.”

I agree that criminal prosecutions alone can’t solve the corruption problem, and recent history is littered with examples of anticorruption “crackdowns” that failed to produce lasting change. And there’s certainly an important question as to where the emphasis should be—it’s entirely possible that in many countries there’s too much focus on criminal prosecutions and too little attention to other types of reform. But it’s not an either/or tradeoff, and it troubles me that the (correct) observation that criminal prosecutions are insufficient is so often deployed rhetorically to imply that aggressive criminal law enforcement is not necessary or appropriate. (I noted something like this argument in a previous exchange concerning Ukraine, and more recently encountered it in a discussion of the Car Wash Operation in Brazil, but I’ve heard basically the same line in conversations about many other countries.) Recognizing the importance of structural reform shouldn’t obscure the fact that effective enforcement of anticorruption laws, and the imposition of individual accountability, is also a vital part of the anticorruption agenda. After all, while there are plenty of punishment-focused anticorruption crackdowns that failed to produce systemic change, I can’t think of any successful efforts to get rampant corruption under control that didn’t involve a hefty dose of aggressive enforcement of the laws against corruption, including prosecution and punishment.

Amazonia Is Burning. Corruption Is One of the Reasons.

Amazonia is the largest tropical rainforest in the world, spread over nine South American countries (Brazil, Bolivia, Colombia, Ecuador, Guyana, French Guyana, Peru, Surinam, and Venezuela), with approximately 60% of the forest (over four million square kilometers) located in in the north of Brazil. Brazilian Amazonia is home to around 45,000 different plant and animal species. This rainforest is also crucial to the global environment, especially with respect to climate change. During the past several months, an increase in the number and extent of forest fires in Brazilian Amazonia has triggered great concern, much of it focused on whether the Bolsonaro Administration’s policies are partly to blame for the widespread fires. While that conversation is no doubt important, it is also crucial to recognize that environmental crimes in Amazonia—including those related to the fires—are in part the product of widespread corruption, and that addressing Amazonia’s environmental crisis will require addressing Brazil’s governance crisis as well.

To understand how and why corruption is contributing to the destruction of the Amazon rainforest, a bit of background is in order. The greatest environmental threats in this region are the illegal harvesting of timber and the illegal clearing of land (often through burning) to prepare the land for commercial use for agriculture and livestock. (Between 70% and 80% of the deforested area in Amazonia has been used to create pasture for breeding cattle to produce meat for domestic and international consumption.) To be sure, Brazil has laws in place to protect Amazonia from over-exploitation and other forms of environmental damage. About 80% of the land in Amazonia is publicly owned; on this public land, the forest may not be exploited or burned. The remaining 20% of Amazonia is private land owned by individuals or corporations; even for this privately owned land, Brazilian law requires that the owners keep between 50% and 80% of the area intact and unexploited. The Brazilian government is responsible for enforcing these rules and for regulating and overseeing the extraction, transportation, and commercialization of timber from Amazonia. The regulatory system involves government approval of forest management plans, the issuance of permits for timber harvesting and land clearing, and the tracking of timber to ensure that it was not illegally removed from public lands or from the protected areas of private lands.

That’s how it’s supposed to work. But in practice, private companies collude with corrupt public servants—forest wardens, police officers, and others—to evade these rules. As a result, substantial quantities of timber are illegally extracted from public lands and protected private areas, and agricultural and livestock interests illegally burn and clear irreplaceable forests. The corrupted public servants not only turn a blind eye to these environmental crimes, but they also warn the infringers about possible inspections by other agents.

Continue Reading