Tag Archives: conflicts of interest

The U.S. Qualified Opportunity Zone Program Is Vulnerable to Corrupt Manipulation by Politically-Connected Investors. Here’s How To Fix It.

Posted on by
Reply

The U.S. federal government’s Qualified Opportunity Zones Program, a program established as part of the 2017 Tax Cuts and Jobs Act, is supposed to drive investment to certain low-income neighborhoods (so-called “qualified opportunity zones,” or QOZs) by allowing investors to defer (or, in the case of sufficiently long-term investments, to avoid) capital gains taxes on their investments in these areas. The process of designating QOZs works as follows: First, the U.S. Department of the Treasury provides each state with a list of eligible “economically distressed” neighborhoods. This list is based on census data, but, importantly, it includes not only neighborhoods located in poor census tracts, but also neighborhoods that are adjacent to poor neighborhoods, or that overlap (even slightly) with areas designated as “empowerment zones” under a Clinton-era redevelopment initiative. Next, each state governor has the authority to nominate up to 25% of these eligible neighborhoods for designation as QOZs. The governors’ lists are then submitted to the Treasury Secretary, who has the final authority to certify these neighborhoods as QOZs. As of July 2020, 8,700 neighborhoods had been designated as QOZs.

Many have questioned the wisdom and efficacy of the QOZ program on a variety of grounds, with some characterizing the program as little more than a new form of tax avoidance for the wealthy that fails to address structural poverty. Even if one puts those concerns to the side, there are serious concerns that the existing QOZ program—and in particular, the process for selecting QOZs described above—has been corrupted by wealthy interests, who are able to exploit their political connections to get certain areas designated as QOZs, even when professional staff deem such designations inconsistent with the established program criteria. Consider just a few high-profile examples: Continue reading →

New South Wales Anticorruption Commission’s Excellent Guide to Conflict of Interest

Posted on by
Reply

Conflict of interest is a critical element of any government ethics program.  It is also perhaps the most difficult to implement.  The challenge comes in determining when friendships, kinship ties, and other personal relationships affect, or appear to affect, a government employee’s duty to put the interest of the public above his personal interest.  Was the contract awarded because the bidder lived in the same neighborhood as the procurement official making the award or because the bidder offered the best value? Was the individual hired because the hiring manager came from the same tribe or because she was the most qualified? Even if there were no actual conflict in the two cases, is there an appearance of one?

Rules that produce sensible answers to such questions are not easy to write, and as I have suggested in earlier posts (here and here), much well-meaning advice on how to do so is either counterproductive or impossible to implement.  A recent publication by the New South Wales Independent Commission Against Corruption is thus a welcome addition to the literature. In 26 clear and crisply written pages, Managing Conflicts of Interest in the NSW Public Sector provides a road-map for writing and enforcing practical, workable conflict of interest rules.

It offers a short, easily understandable definition of conflict of interest followed by a commonsensical approach to applying it.  The touchstone for determining when there is a conflict or an appearance of a conflict” is not the disappointed bidder or applicant or the government’s political opposition.  It is instead a “fair-minded and informed observer,” otherwise known as “a reasonable person.”  How to apply the reasonable person standard and the other standards and rules that make for a sound conflict of interest regime is illustrated throughout with real-world examples.

Written for agencies of Australia’s most populous state, a much broader audience will find the guide a valuable resource.

To Advance its Anticorruption Agenda, Brazil Must Reform its Conflict of Interest Laws

Posted on by
Reply

In the past five years, Brazil made significant advances in its anticorruption agenda, including both an aggressive effort to prosecute high-level politicians and business executives, and also a series of legislative reforms. But Brazil has not yet done enough to regulate conflicts of interest within the public administration.

One good example of the weakness of current regulation is the controversy involving the appointment of Leticia Catelani—a businesswoman who supported President Bolsonaro’s election campaign—to the Executive Board of Apex, the Brazilian Trade and Investment Promotion Agency. Apex is a state-owned entity in charge of promoting Brazilian exports. Ms. Catelani owns a company with a significant export business, raising concerns that she might use her Apex position to improperly favor her own business. (A group of Apex employees have filed a lawsuit challenging her nomination, and a formal complaint has also been filed with the Ethics Commission of the Presidential Office (CEP) asking for her removal.) Though this is but one recent illustration; the issue is much more general, and indeed it is likely that under the Bolsonaro administration concerns about conflicts of interest will increase.

Unfortunately, the existing mechanisms for controlling conflicts of interests in the federal administration—principally the 2013 Conflicts of Interest Act (COI Act) are inadequate and must be reformed. The COI Act applies to senior officials and ministers of state within the federal government. The Act lists a number of situations that trigger conflict-of-interest concerns, and it also requires public officials to file annual reports about their private assets and activities. The Act empowers the CEP to investigate cases, issue guidelines, clarify doubts, and grant waivers. But the current system is inadequate in several respects, and the overall system for dealing with conflicts of interest is in urgent need of reform. Three points in particular should receive special attention:

Continue reading →

Can “Force Majeure” Be A Justification for Corruption? Russia Believes So.

Posted on by
7

In late January of this year, the Russian Justice Ministry proposed draft legislation that would legalize corruption. More specifically, the proposal, which implements one of the recommendations of Putin’s 2018-2020 Anti-Corruption Plan, would decriminalize corruption “when non-compliance with prohibitions, restrictions, and requirements established in order to combat corruption… [is] due to force majeure”—that is, when circumstances beyond the official’s control make corruption unavoidable. Or, as the Russian government puts it, “[i]n certain circumstances, the observance of restrictions and prohibitions, requirements to prevent or resolve conflicts of interest, and the fulfillment of duties established in order to combat corruption are not possible for objective reasons.” The proposed legislation would create a commission to “assess the objectivity of circumstances” to determine if compliance was possible.

What are these alleged “objective reasons” that might establish a force majeure defense to corruption charges? In contract law, force majeure—sometimes known as an “act of God”—covers unforeseen circumstances, like natural disasters or wars, that are totally outside the control of the parties to the contract, and that make it impossible for one of those parties to perform his or her end of the agreement. But what could force majeure possibly mean in the context of corruption? What circumstances, equivalent to a war or natural disaster, could compel a government official to take a bribe, or embezzle public funds? It is difficult to imagine such a scenario. The Justice Ministry did release a preliminary statement with some initial clarification into the type of circumstances that might trigger this force majeure exemption from criminal liability. That statement noted, for example, that it may not be possible for officials to take the usual measures to prevent or resolve conflicts of interest when the officials are posted in small, remote areas. The idea seems to be that is such settings the community is so small and close-knit that it wouldn’t be feasible for an official to recuse from all decisions in which she might have personal relationships with some of the parties affected. The preliminary statement also noted that sometimes former family members (say, ex-spouses) do not agree to provide information on income and expenses of common children (information that officials are usually obligated to disclose), and that sometimes non-performance of certain duties related to anticorruption might be due to a prolonged and serious illness. The Justice Ministry promised that it would provide more specific information on what constitutes force majeure after the proposed rule’s comment period closed on February 8, 2019. The government has not yet done so, however, despite the fact that more than a month has passed.

At least some of the force majeure examples in the Justice Ministry’s preliminary statement sound reasonable, though it’s not clear whether the special exemption is really needed to deal, say, with an official who isn’t performing certain duties because of a debilitating illness. (Presumably, that official would be on indefinite leave anyway?) But the legislation is written much more broadly than these narrow examples would suggest. Would the new legislation allow individual bribe-payers and bribe-takers to assert a force majeure defense on the grounds that they didn’t create the “culture” or “system” of corruption in which they find themselves embedded? If that counts as force majeure, it would open a giant loophole allowing in Russia’s anticorruption laws, allowing anyone accused of corrupt action to argue that they felt pressured by (social) forces beyond their control. The proposed legislation could be read that way, and if it is, it would undermine efforts to combat corruption. Indeed, one cannot help but wonder if that is the exemption’s purpose. Moreover, by taking the position that certain offenses shouldn’t count as corruption at all, the proposal sends a signal that corruption is not a priority for the Russian government, thus providing room for further loosening of corruption legislation.

Now, the Russian government might be sincerely concerned about not over-punishing people who technically violated the law but do not seem sufficiently blameworthy to deserve harsh sanctions. But if that is the worry, there are other ways to address it, ones that don’t risk creating an enormous loophole in anticorruption laws and that don’t send the signal that the government might not take corruption that seriously. Here are three alternatives to decriminalizing corruption that Russia’s Justice Ministry could consider:

Continue reading →

Part-time Legislatures Should Use Disclosure, Not Recusal, To Regulate Conflicts of Interest

Posted on by
16

For most state legislators in the United States, public service is a part-time gig; forty U.S. states have part-time or hybrid legislatures. These part-time state lawmakers have regular jobs, and while some are conventional—law or business—some are less so. (There’s the pizza delivery guy in Arkansas, the boxing and mixed martial arts judge in Nevada, the hula dancer in Hawaii, and the alligator hunter in Louisiana.) Part-time legislatures are popular because they’re cheap—New Hampshire pays its legislators just $100 per year—and also because of distrust of professional politicians and a romantic notion that the legislature should instead be a forum for citizens of varied professional backgrounds to bring their unique perspective to the lawmaking process.

But part-time legislatures also entail significant corruption risks for three reasons. First, when legislators have private sector jobs, it may be easier for them to conceal bribe payments as legitimate outside income. Second, part-time legislators’ low public salaries may make them more inclined to accept bribes or otherwise abuse their office than better-paid full-time legislators. These two factors have been discussed previously on this blog. Here, I want to consider a third factor: the potential conflicts of interest between an official’s public and private work.

A part-time legislator’s dual responsibilities will often, perhaps inevitably, conflict. Teachers will vote on education issues, doctors on health care bills, and business owners on tax plans. Lawyers, lobbyists, and insurance agents may vote on legislation that directly affects their clients. Part-time legislators may even introduce bills advancing their private professional interests. Take the Missouri legislator who introduced and secured passage of a bill prohibiting cities from banning plastic bags at grocery stores—and who also happened to be the director of the Missouri Grocers Association. Similarly egregious, lawyers serving as part-time legislators have sponsored bills raising the salaries or pensions of judges before whom they had cases. One might worry too that part-time legislators, especially those who are lawyers or lobbyists, will implicitly or explicitly use their public positions as a way to drum up business, precisely because potential clients might think that hiring a part-time legislator will increase the odds of favorable legislative treatment. And even if a part-time legislator is not influenced in the slightest by her private professional interests, conflicts like those just described still risk creating the appearance of corruption. What can be done about this?

Continue reading →

Lessons from the Trump Administration’s Conflicts of Interest

Posted on by
6

In May 2017, this blog began tracking corruption and conflicts of interest in the Trump Administration, in order to identify and document the myriad ways that the President, his family, and his closest advisors may “use the presidency to advance their personal financial interests.” This includes payments directly from the U.S. government to the Trump Organization (e.g. the Secret Service renting out space in the Trump Tower); use of the presidency to promote Trump brands (e.g. numerous Republican re-election campaigns held in Trump owned businesses); regulatory and policy decisions that benefit the Trump family and close advisors (e.g. the General Services Administration approving a lease for the Trump International Hotel); and private and foreign interests dealing with Trump businesses (e.g. Trump hotel, resort, and other development projects around the world). Keeping track of all these various conflict and corruption risks is important at a time when the news of yesterday gets drowned out and forgotten amid the drama of today.

After working for over a year as one of several contributors to this tracking project, I think that there are also some broader lessons and themes that have emerged from these efforts, which are worth highlighting:

Continue reading →

Tracking Corruption and Conflicts of Interest in the Trump Administration–July 2018 Update

Posted on by
Reply

Since May 2017, GAB has been tracking credible allegations that President Trump, as well as his family members and close associates, are seeking to use the presidency to advance their personal financial interests, and providing monthly updates on media reports of such issues. Our July 2018 update is now available here.There are not too many substantive updates since last month–the most notable concerns revelations that Commerce Secretary Wilbur Ross appears to have misled Congress and the public about potential financial conflicts of interest.

Jared Kushner, Ivanka Trump, Anti-Nepotism, and Conflicts of Interest

Posted on by
6

On the same day as President Trump’s swearing in, the Department of Justice’s (DOJ) Office of Legal Counsel (OLC) released a memorandum elaborating upon why President Trump’s appointment of his son-in-law Jared Kushner as a Senior White House Advisor did not violate the federal anti-nepotism statute (5 U.S.C. § 3110). That statute prohibits a public official (including the President) from appointing or employing a relative (which the statute defines as including a son-in-law or daughter-in-law). The OLC reasoned that despite the seemingly clear prohibition in 5 U.S.C § 3110, another federal statute, 3 U.S.C. § 105(a), exempted positions in the White House Office from the anti-nepotism law. The OLC recognized this conclusion was a departure from its own precedent, but with the aid of some selective reading of legislative history, the OLC argued that lawmakers intended to allow the president “total discretion” in employment matters when it passed 3 U.S.C. § 105(a). (For non-specialists, see this primer for an explanation of these and other federal laws and regulations which could be relevant for addressing corruption in the Trump Administration.)

Somewhat predictably, the OLC memo generated debate among legal commentators (see here, here, here, and here). Yet even if the legal arguments were not entirely convincing, the OLC ended with a practical point that was echoed by many of the commentaries: given that President Trump will seek Mr. Kushner’s advice, regardless of whether he is a formal employee, it would be better for Mr. Kushner to be formally employed as a White House advisor, and thus subject to the applicable conflict-of-interest (COI) and financial disclosure rules. The same argument applies to Ivanka Trump, who also recently became an employee of the White House.

Some anticorruption advocates, myself included, were persuaded at the time by the OLC’s practical point. It would be best if the President did not make major policy decisions on the advice of radically unqualified relatives. But unfortunately, he is going to turn to them for advice. Given that baseline, we should prefer those family members occupy formal appointments, where at least they will be constrained by the COI statute and disclosure rules. However, with the benefit of hindsight, we should never have been persuaded. The COI statute and the disclosure rules turn out to be ineffective devices for preventing corruption in the Trump era. While the disclosure rules did encourage Mr. Kushner to make some divestments, they do not contain enough details to identify potential conflicts. And when there are conflicts, the COI statute is unlikely to be enforced, either because Attorney General Jeff Sessions will choose not to, or because the White House will grant a waiver.

Continue reading →