Social Distancing Reduces Corruption Too

Together with a trio of Chinese scholars, Boston University Professor Raymond Fisman offers the latest evidence on the value of social distancing. Their research, in the July issue of the American Economic Journal: Applied Economics (here, prepublication version here), is the first rigorous, quantitative test of a result suggested by case studies of small countries (Guatemala), small towns (Fall River, Massachusetts), and small professional circles (Chicago judges). The greater the distance between those who enforce the anticorruption laws and those likely to violate them, the more likely it is the laws will be enforced.

“Social distance” to public health authorities means the actual physical space that individuals should maintain between on another (six feet for Americans, two meters for everyone else) to prevent the spread of Covid-19. Applied to the findings of Fisman and colleagues and the case studies, it means more than how far apart investigators, prosecutors, auditors, and others responsible for enforcing anticorruption laws stand physically from those whom they police. It means too the absence of school and neighborhood ties, different circles of friends, and the lack of other relationships that would make an individual hesitant to question another’s conduct let alone investigate or arrest them. In short, when evaluating social distance in the anticorruption world, “social” comes with a capital S.

Consider what Professors Fisman and his colleagues Professors Chu, Tan, and Wang found in their study of Chinese auditors.

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Corruption Should Be a Laughing Matter

Corruption is a serious matter—it sucks away public finances, undermines good governance, ends livelihoods, and consumes lives. It’s therefore understandable that many anticorruption activists center much of their work on getting people to take corruption seriously. But despite the underlying gravity of the problem, sometimes a surprisingly effective way to fight against corruption is to make people laugh about it.

Consider Alexei Navalny, the Russian activist whose attempted assassination, arrest, and imprisonment underscore just how much Moscow has recognized his power. One of the striking things about the explosive videos that Navalny has released to expose the Putin regime’s corruption is that the videos aren’t just shocking—they’re funny. People enjoy watching them because of their biting humor—and while they’re laughing, they also learn about Putin’s siphoning of public funds for his own benefit.

There are plenty of other examples of anticorruption activists effectively using humor as part of their campaigns. To mention just a few:

  • Last summer, Lebanese activists staged a fake—and deliberately comical—“funeral” for the Lebanese currency (the lira), as a protest against the cronyism and mismanagement that “killed” the Lebanese lira and tanked the country’s economy. A video of the “funeral” gathered over 10,600 views on Twitter and brought renewed international attention to an anticorruption protest movement that at that point was approaching its seventh month without much success.
  • A Chinese artist known as Badiucao has used satirical art to bring attention to the ruling party’s political corruption, including a famous “promotional poster” for the TV series House of Cards, with Xi Jinping sitting on the throne instead of series villain Frank Underwood. His art helped spark renewed criticism of the regime and is credited with inspiring political cartoons throughout Hong Kong’s democratic uprising against China’s controversial 2019 extradition bill.
  • In Ukraine, Volodymyr Zelensky was elevated from comedian to President of Ukraine by campaigning on an anticorruption platform. Comedy was a key part of his 2018 campaign—instead of traditional rallies, he held performances by comedy troupes skewering the corruption of the incumbent regime.
  • Back in 2004, the then-mayor of Bogota Antanas Mockus pushed back against the city’s petty corruption through antics like inducting 150 “honest” taxi drivers into a fictional club called the “Knights of the Zebra.”

These and other examples illustrate an important lesson for anticorruption activists: Notwithstanding the seriousness of corruption and the harm that it causes, humor can be a powerful tool in spreading an anticorruption message. As a rhetorical device, humor has a few distinctive strengths:

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Why Are the Architects of China’s Anticorruption Campaign (Mis-)Reading Tocqueville?

Back in 2013, senior Chinese Communist Party (CCP) official Wang Qishan, who was then head of the CCP’s Central Commission for Discipline Inspection (CCDI), and is widely considered the architect of President Xi Jinping’s anticorruption campaign, instructed party officials to read Alexis de Tocqueville’s L’Ancien Régime et la Révolution (The Old Regime and the Revolution). This is notable in part because the Xi regime has a reputation for rejecting Western thinking, particularly with respect to governance. The timing is also intriguing, in that Wang’s advice that CCP officials should read Tocqueville’s text occurred right as the anticorruption drive was getting underway.

It’s tempting to dismiss Wang’s apparent interest in and enthusiasm for Tocqueville is a minor idiosyncratic biographical detail, with little connection to his or the CCP’s approach to governance generally, or anticorruption more specifically. But I think his interest in Tocqueville’s work is more significant, and more revealing, about the thinking shaping China’s anticorruption strategy today.

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The Many Uses of Xi Jinping’s Anticorruption Campaign

Since Chinese President Xi Jinping launched his anticorruption campaign in 2012, much of the foreign commentary has debated the extent to which the campaign is a genuine effort to root out corruption or a means for purging or undermining President Xi’s political opponents. This simple framing, however, obscures the other uses and objectives of the anticorruption campaign. Better understanding these motivations is important to understanding the dynamics of the campaign and the role that anticorruption plays in modern Chinese politics. Three political and policy objectives are particularly notable:

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Is the Global Magnitsky Sanctions Program Working?

The 2016 Global Magnitsky Human Rights Accountability Act (GMA), inspired by the imprisonment and death of Sergei Magnitsky in Russia after his discovery of $230 million in tax fraud orchestrated by the Russian government, stands as the boldest authorization of U.S. economic sanctions in the fight against corruption. Executive Order 13818, issued in December 2017, designated the first sanctioned parties under GMA, enabling asset freezes and travel bans.

Since then, approximately 150 individuals and entities worldwide have been sanctioned for corruption under the GMA. (The GMA also allows for sanctions against human rights violators, and such authority was exercised to target 75 more individuals and entities.) The list includes current and former government officials—or those acting on their behalf—in Cambodia, China, Cyprus, Democratic Republic of the Congo, Dominican Republic, Equatorial Guinea, Gambia, Iraq, Latvia, Lebanon, Mexico, Nicaragua, Serbia, South Africa, South Sudan, Uganda, and Uzbekistan, among others. The designations include familiar names in the anticorruption community such as Gulnara Karimova, former Uzbek first daughter convicted of embezzlement and other corruption totaling more than $1.3 billion, Dan Gertler, the Israeli billionaire who earned millions of dollars through underpriced mining contracts in the Democratic Republic of the Congo, and Angel Rondon Rijo, a Dominican lobbyist central to Brazilian construction firm Odebrecht’s $4.5 billion Latin America-wide bribery-for-contracts scheme. Other sanctioned parties include the former Gambian president and first lady for misappropriating $50 million in state funds, a former Mexican judge and a former Mexican governor who took bribes from drug cartels, and a Sudanese businessman who, along with senior South Sudanese government officials, embezzled millions of dollars from a government food program.

The GMA represents a new era of so-called “smart sanctions.” Instead of limiting transactions with an entire country—as in the case of U.S. sanctions programs targeting Cuba, Iran, North Korea, and Syria—these individualized sanctions are designed to maximize harm and minimize collateral economic damage by restricting only bad actors’ access to global commerce, not that of entire populations. This approach is catching on outside the United States, with Canada, the United Kingdom, and the European Union recently announcing their own GMA-esque sanctions, while other countries, like Australia and Japan, are actively considering adopting similar programs.

Yet, a fundamental question remains: is the GMA working?

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Implicit Corruption in the Chinese Consumer Debt Industry? A Close Look at Recent Evidence

While many country’s bribery laws require an express quid pro quo—an agreement to exchange a specific benefit for a specific exercise of government power—in practice many corrupt relationships involve implicit quid pro quos, in which the private party provides something of value to government officials, and the government officials use their power to help their private benefactors, but there is never any express agreement, or even any direct connection between any individual official act and a particular benefit conferred by the private party. The context in which such implicit quid pro quos are most widely suspected and discussed is perhaps campaign finance in democracies, but such implicit quid pro quos can occur in many other contexts as well. It is often very difficult—not only for law enforcement agencies, but also for empirical researchers—to find sufficiently clear evidence of an implicit corrupt deal. Yet quantitative empirical researchers have been making important strides in using available data to detect evidence of hidden or implicit wrongdoing—an approach sometimes dubbed “forensic economics.”

A fascinating recent paper by Sumit Agarwal, Wenlan Qian, Amit Seru, and Jian Zhang (forthcoming in the Journal of Financial Economics) illustrates both the potential and limitations of this approach. The paper, entitled “Disguised Corruption: Evidence from Consumer Credit in China,” presents quantitative evidence of an implicit quid pro quo between a large Chinese bank and government officials who wield regulatory authority over the bank. The paper finds that the bank offers unusually favorable lending terms to government employees (the “quid”) and that in those provinces where this practice is more widespread, the bank receives more favorable treatment from governments (the “quo”). While this evidence alone cannot establish that there was an implicit exchange (the “pro”), the authors suggest that this is the most plausible explanation of the data.

The data is certainly susceptible to that interpretation, but there are other, more benign possibilities. I’ll first say a bit more about the main evidence the paper offers for an implicit quid pro quo, and then suggest (though not necessarily urge) a possible alternative explanation.

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How the European Union Can Work with China To Advance Anticorruption Goals in the Western Balkans and Beyond

The European Union has traditionally imposed strict anticorruption rules for its lending and development projects. In the Western Balkans in particular, the EU’s Western Balkans Investment Framework attaches transparency and anticorruption conditions to EU investments. Moreover, the EU has made clear that progress on anticorruption reform is a main requirement for attaining EU membership, a core goal of all countries in the region. The EU’s approach, however, is under increasing pressure given competition from China, which has steadily ramped up its investment in Southeastern Europe—especially in the energy, transport, and telecommunications sectors—via its Belt and Road Initiative (BRI). China is willing to invest heavily in the region (largely via loans) without attaching any anticorruption conditions. This approach can be more appealing to many of the region’s (corrupt) public officials, who would like to build infrastructure quickly and under less scrutiny.

Because of competition from China and its demonstrated negative effects on local anticorruption efforts, the EU needs to reevaluate its approach. While last year the EU published a strategic outlook paper labeling China a “systemic rival” and toughened its overall approach to the country, the EU should actively pursue more cooperation with China when it comes to investment in Southeastern Europe. This does not mean that the EU should relax its strict anticorruption and governance conditionalities. The EU still retains considerable leverage in the region, and can and should continue to use this leverage to push an anticorruption agenda. But the EU’s efforts would be more effective if the EU directly engaged with China on this topic. Indeed, the EU may even be able to work with Chinese companies in ways that raise the latter’s integrity standards and safeguards. Continue reading

New Podcast Episode, Featuring David Barboza

A new episode of KickBack: The Global Anticorruption Podcast is now available. In this episode, I interview Pulitzer Prize winning New York Times correspondent David Barboza, best known (at least in anticorruption circles) for his investigative reporting on the vast wealth accumulated by the Chinese elite, especially his 2012 expose on the wealth held secretly by members of the family of then-Premier Wen Jiabao (see here and here). Our interview begins with a discussion of how Mr. Barboza and his colleagues were able to uncover the information they needed to substantiate this blockbuster story, and the various ways that the Chinese government attempted to block its publication. We then turn to a discussion of the broader implications of this and similar investigations, as Mr. Barboza explains why the wealth held by the families of the political elite is such a sensitive topic in China, how norms relating to the business activities of these families has changed since the end of the 1980s, and the role that Western companies played in facilitating the corrupt accumulation of hidden wealth by these elite Chinese families. At the conclusion of the interview, Mr. Barboza discusses the current anticorruption drive headed by President Xi Jinping, and whether this crackdown represents a serious effort to get at the sorts of problems that Mr. Barboza’s reporting helped to reveal, or whether the current crackdown is more of a politically motivated effort to weaken rival factions without fundamentally changing the system.

You can find this episode, along with links to previous podcast 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 DOJ China Initiative and the Shifting Policy Goals for the FCPA

Last November, then-US Attorney General Jeff Sessions announced the creation of a new Department of Justice (DOJ) “China Initiative.” The main focus of this initiative is not corruption, but rather the theft of intellectual property by Chinese corporations, as detailed in a 200-page report published by the Office of the U.S. Trade Representative in March 2018, as well as a subsequent report from the White House Office of Trade and Manufacturing Policy. But while most of the DOJ’s China Initiative focuses on this issue, the memorandum describing the initiative listed a number of additional goals, one of which caught the attention of the anticorruption community: “Identify Foreign Corrupt Practices Act (FCPA) cases involving Chinese companies that compete with American businesses.”

This reference to enforcing the FCPA against companies from a particular country is quite unusual. According to Eric Carlson at the FCPA Blog, “No one with whom I have spoken can recall another situation where the DOJ has announced that it would target companies headquartered in a specific country for FCPA enforcement.” This aspect of the China Initiative has provoked a strong and generally negative response from members of the anticorruption community. For example, former State Department attorney Kate Hamann worried that the China Initiative exposed the US government to the accusation of “unfairly targeting Chinese individuals and companies.” This concern was echoed by Professor Stephenson, who argued that the project sets a “bad precedent” by explicitly using the FCPA as a tool to protect U.S. companies from foreign competition.

One largely overlooked aspect of the FCPA component of the China Initiative is the degree to which it contradicts one of the main policy goals of the Congress that enacted the FCPA back in 1977. That Congress viewed the FCPA as a way to improve relations with foreign countries, a policy goal that has largely disappeared in subsequent decades. In its place, enforcement agencies (and Congress, in amendments to the FCPA) have developed a theory in which the primary purposes of the FCPA are to protect businesses that “play fair,” and to promote good business practices more generally. (This shift in policy goals was largely made possible by a revision in the text of the FCPA which allowed US enforcement agencies to bring enforcement actions against a wider range of foreign entities.)

In this post, I trace the changing policy objectives of the FCPA to demonstrate the degree to which the Act has historically served a wide range of sometimes contradictory policy goals. I then draw upon that history to suggest two reasons that the China Initiative’s combative posture may be cause for concern.

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Holding Relatives Hostage: China’s Newest Way of Pressuring Fugitives to Return to Face Corruption Charges

China’s latest tactic in Operation Fox Hunt, its campaign to force those who have fled abroad to return to face corruption charges, has had the extraordinary, if unintended, consequence of uniting America’s bitterly divided political elite.  Last June, the American wife and children of accused fraudster Liu Changming were detained in China after a brief visit; his wife held in a “black site” and his children barred from leaving.  The ostensible the reason for holding them is because they are being investigated for “economic crimes,” but almost surely, as the family claims, the real reason is to pressure paterfamilias Liu to return to China to stand trial for corruption offenses.  Trump National Security Advisor John Bolton, avowed Trump opponents Senator Elizabeth Warren and Congressman Joseph P. Kennedy III, and leaders of Harvard and Georgetown universities are all demanding the Americans be permitted to leave China at once (accounts here and here).

Holding family members hostage to force a relative to surrender to authorities is a species of collective punishment, a patent human rights’ violation universally condemned by the world community. No wonder the Boltons, Warrens, Kennedys, Harvards and Georgetowns find themselves on the same side of the issue.

Reporting by the New York Times, however, suggests that there could be more to the case than appears at first glance.  That there may be reason for both the Chinese government and the strange bedfellows its policy has created in opposition to examine their actions in view of the global fight against corruption. Continue reading