The Case for State-Level Anticorruption Prosecutions in the U.S.

In the United States, the federal government’s Department of Justice (DOJ) plays a huge role in the prosecution of state-level public corruption: Over the past five years, federal prosecutors have obtained the convictions of approximately 1,700 corrupt state and local officials for corruption-related offenses. Examples range from prominent and powerful figures like Sheldon Silver, the former Speaker of the New York State Assembly, to low-level functionaries like Eloy Infante and Elpidio Yanez, Jr., two former members of the School Board of Donna, Texas.

The federal government’s primacy in prosecuting state and local corruption is no accident. One of the stories of American law enforcement in the 20th century, especially though not exclusively in the anticorruption context, is the expanding role of the federal government, an expansion that was in part a reaction to the perceived deficiencies of state law enforcement. Most states in the U.S. elect both prosecutors and judges, and concerns that these elected officials were under-resourced, incompetent, partisan, or captured by local influence-peddlers contributed to the rise of federal criminal law enforcement. The federal government’s role in prosecuting state and local corruption blossomed in the 1970s, with regional U.S. Attorney’s offices taking the lead, supported by a new DOJ Public Integrity Section in Washington, D.C. The U.S. Attorney’s offices were considered more independent and less vulnerable to capture than local law enforcement, were generally better resourced than their state and local counterparts, and were able to focus those resources on picked cases.

This system has worked well and achieved considerable success. Many argue—with justification—that the federal government’s central role in prosecuting state and local corruption was instrumental in breaking the stranglehold of corrupt political machines at the subnational level. But today, it’s important for state prosecutors to do more to supplement, and in some cases perhaps supplant, federal anticorruption prosecutions. If the story of the 20th century was a distrust of states to police their own politicians, the early 21st century story may be that we can no longer completely trust the feds to do it either. There are three main reasons why, going forward, we may need to rely increasingly on the states:

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Technical Foul: When Anticorruption Enforcement In Sports Goes Too Far

From the U.S. federal government prosecuting FIFA officials in New York City to Transparency International both announcing an organizational initiative on sports anticorruption and publishing a 398-page report on the topic, it seems clear that governments and NGOs alike have deemed sports corruption a high priority. One can debate whether sports corruption is sufficiently important to merit this level of attention, though there’s a case to be made (as Lauren Ross argued on this blog a few years back) that sports’ broad appeal, media coverage, and status as a symbol for fair competition together give anticorruption efforts in sports an importance that exceeds the direct social harm caused by, say, match fixing relative to other forms of corruption (like medicine theft). That said, just because there may be special value to sports-related anticorruption initiatives in general doesn’t mean that all legally viable sports-related anticorruption enforcement opportunities should be pursued. Indeed, over-emphasizing sports can lead to a dubious allocation of government resources, a problem illustrated by a recent US case (United States v. Gatto) in which several defendants were convicted for their roles in a college-basketball bribery scheme.

To understand the Gatto case, it’s important first to understand the underground economy for student-athletes. In the U.S., the non-profit National Collegiate Athletic Association (NCAA) governs the $13-billion college sports industry, with most of the NCAA’s revenue coming from men’s college basketball. (If men’s college basketball programs could be bought and sold like professional sports franchises, the most valuable would be worth $342.6 million.) Critically, however, because of the NCAA’s amateurism rules, the student-athletes whose talent drives this industry can neither receive compensation from their universities (beyond cost-of-attendance athletic scholarships), nor earn money through endorsements, autographs, jersey sales, or any other monetization of their name or likeness. The value generated by the unpaid players is captured by others in this system, such as head coaches (who are the highest-paid public employees in 39 out of 50 states), NCAA executives, and university athletic directors. Given this system, it’s altogether unsurprising that top high-school basketball prospects often receive compensation for attending a given university via an underground economy. The corruption scheme at issue in Gatto was a particularly egregious example of this underground economy in action: Employees at an athletic-shoe company (Adidas), which sponsors a number of men’s college basketball programs, conspired with assistant coaches at those programs, and with an aspiring talent agent, to bribe elite high-school basketball prospects to attend the Adidas-affiliated universities. This deal looked to be win-win-win-win. The athletes benefited because they received compensation that better reflected their market value. Adidas benefited both from having elite college-basketball players wearing their brand on national television and from the increased probability that some of these players would sign an endorsement deal with Adidas if they turned professional. The universities profited from the economic windfall associated with enrolling an elite basketball prospect. And the aspiring talent agent boosted his odds of being formally retained when the player turned professional.

Nonetheless, this scheme was technically illegal, and so the jury was analytically correct in convicting the defendants at trial. But just because the defendants broke the law doesn’t mean that the prosecutors should have brought the case. Indeed, this case is one where, for three policy-related reasons, it would’ve been better if the U.S. Department of Justice hadn’t gotten involved: Continue reading

Why the Recent Recommendations for Reforming College Basketball are a Step in the Right Direction

Last October, the United States was rocked by an FBI and DOJ probe into corruption in college basketball. The resulting report detailed a number of ongoing schemes, including bribes paid to players by shoe and apparel companies and bribes paid to coaches to steer players to certain financial advisers. As a response to the government investigation, the National Collegiate Athletic Association (NCAA) established an Independent Commission on College Basketball, chaired by former U.S. Secretary of State Condoleezza Rice, to make recommendations on “legislation, policies, actions and structure(s) to protect the integrity of college sports.” After six months of research, the committee produced a 53 page report which concluded that “[t]he levels of corruption and deception [in men’s college basketball] are now at a point that they threaten the very survival of the college game as we know it,” and outlined a number of recommendations for changing the college basketball system. It is now up to the NCAA to decide whether it will implement the recommendations.

The proposed reforms by the Commission have been met with great skepticism. Critics argue that the report only tinkers at the margins and fails to get to the root causes of the corruption and other problems in college basketball. (For a sampling of the critical responses, see here and here and here). These criticisms go too far. Fixing the complex problems that permeate college basketball will take some time. The reforms outlined in the report, though imperfect, are a step in the right direction, and the NCAA should embrace and adopt them. Among the many proposals advanced by the Commission, the following reforms, if implemented by the NCAA, will have an immediate impact on decreasing corruption in collegiate athletics:

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The Curious Absence of FCPA Trials

As is well known, enforcement actions brought under the Foreign Corrupt Practices Act (FCPA) have expanded dramatically over the past decade and a half. With all this enforcement activity, someone unfamiliar with this field might suppose that the most important questions regarding the FCPA’s meaning and scope are now settled. But as FCPA experts well know, that is not the case; the realm of FCPA enforcement is a legal desert, with guidance often drawn not from binding case law but from a whirl of enforcement patterns, settlements, and dicta. As a result, many of the ambiguities inherent in the statutory language remain unresolved—even core concepts, such as what constitutes a transfer of “anything of value to a foreign official,” lack concrete legal decisions that offer guidance. While some claim that this ambiguity fades when the FCPA is applied to the facts at hand, past analysis shows that this may not always be the case.

The dearth of binding legal precedent in FCPA enforcement stems directly from the lack of FCPA cases that are actually brought to trial. Of course, most white collar and corporate criminal cases—like most cases of all types—result in settlements rather than trials. But a look at the major cases white collar cases going to trial in 2017, and the pattern of FCPA settlements, shows that FCPA trials are uniquely rare. In fact, FCPA cases are resolved through settlements more often than any other type of enforcement actions brought by the DOJ or SEC.

Why is this? Why are FCPA enforcement cases so rarely brought to trial, even compared to other white collar cases? The answer can help explain why FCPA case law is so sparse, and reveal whether this trend may change in the future.

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

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.

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Why Does the SEC Enforce the FCPA?

Donald Trump’s nomination of Jay Clayton to chair the Securities and Exchange Commission (SEC) has attracted some attention and concern from the anticorruption community. That concern is due mainly to a report issued by a New York Bar Foundation committee, chaired by Mr. Clayton, which criticized the Foreign Corrupt Practices Act (FCPA) for its alleged adverse and asymmetric impact on U.S. corporations. Though it remains to be seen how strongly committed Mr. Clayton is to the views expressed in the report, the concern is understandable given that the SEC is one of the two agencies—along with the Department of Justice (DOJ)—that is responsible for enforcing the FCPA. This controversy also highlights another, broader question that some FCPA critics have raised: Why is the SEC even involved in FCPA enforcement in the first place?

Congress created the SEC in 1934 through the aptly named Securities Exchange Act to enforce federal regulations regarding the trade of securities after they have been issued. The main impetus for the SEC’s creation was the belief that an under-regulated securities market helped drive the 1929 stock market crash. However, over the past 80 years, the SEC has expanded into other areas of enforcement—such as FCPA enforcement—that seem tentatively tied to the SEC’s original mandate. Some have argued that due to resource limitations, it does not make sense for the SEC to pursue vigorous FCPA enforcement at the expense of diverting resources from protecting investors. In pushing this point, some critics also point out that the SEC’s major regulatory fumbles of the past decade coincide with the escalation of FCPA enforcement activity—which perhaps suggests that expanding the SEC’s responsibilities beyond its original mandate has indeed weakened the agency.

The reasons for the SEC’s involvement in FCPA enforcement are partly historical, as explained further below. But beyond that, despite the critics’ complaints, in fact FCPA enforcement remains a valuable use of the SEC’s resources in the 21st century.

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Judge Sullivan Calls Out the DOJ: What Corporate Settlements Reflect About The Broader Criminal Justice System

After the DOJ released the Yates Memo last September, I suggested that the DOJ was probably very serious about focusing attention on prosecuting individuals involved in corporate misconduct (including FCPA violations). This would constitute a significant shift away from the DOJ’s recent practice of resolving most allegations of corporate wrongdoing through deferred or non-prosecution agreements (known as DPAs and NPAs). Some proponents of DPAs and NPAs claim that such settlements—which allow companies to avoid formal legal charges if they cooperate with a DOJ investigation, disclose desired information, improve compliance measures, and perhaps pay a fine—are actually a “a more powerful tool” than convictions in changing corporate behavior. But many critics—such as Judge Rakoff—have argued that settlements usually obscure who is actually responsible for the misconduct, and “ever more expensive” compliance programs may do little to prevent future misconduct. As Judge Rakoff suggested:

“[T]he impact of sending a few guilty executives to prison for orchestrating corporate crimes might have a far greater effect than any compliance program in discouraging misconduct, at far less expense and without the unwanted collateral consequences of punishing innocent employees and shareholders.”

Federal judges, including Judge Rakoff, are responsible for approving the DOJ’s settlements with corporations. The scope of their review is quite limited, and they are required to defer to the prosecution decisions of the DOJ. But even before the Yates Memo, judges had begun reviewing settlements more carefully when individuals were not charged. At least one federal judge is still dissatisfied with the DOJ’s enforcement strategy, and recently took the opportunity—in a corruption case—to urge the DOJ to adhere to the Yates Memo and deal directly with individual wrongdoers. Moreover, he suggested this could have broader significance for how we think about the rest of the criminal justice system.

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