In my last post, I explained how loopholes in India’s legal system have enabled self-proclaimed “godmen” to amass fortunes by facilitating money laundering. But these corrupt godmen could not build their illicit empires without protection from politicians. After all, the government could crack down on godmen’s activities by changing the laws, or even by ensuring adequate enforcement of the flawed laws that currently exist. The government has not done so in part because of a corrupt relationship between godmen and politicians. The politicians provide the godmen with political favors, special privileges (including sweetheart deals for the godmen’s business ventures), patronage appointments, and, perhaps most importantly, the preservation of the system of legal loopholes and minimal oversight that enables the godmen to amass their fortunes. In return, godmen provide politicians with a number of services. These services include the same money laundering services that godmen provide to businessmen. But the godmen also provide politicians with three other services in exchange for the politicians’ complicity.
In the past two decades, India has witnessed the rise of so-called “godmen” (and “godwomen”), charismatic religious leaders who have amassed enormous fortunes. To take just a few of the most eye-popping examples: when the godman Sathya Sai Baba died in 2011, his holdings were valued at more than $9 billion. Another godman, Asaram Bapu, has a trust with an annual turnover of $49 million—which may seem like a lot, but pales in comparison to the over $1.6 billion in annual revenue earned by a company called Patanjali, controlled by yet another godman, Baba Ramdev. It would not be hard to supply many other examples. The godmen and their supporters will tell you that these empires are built on a combination of legitimate contributions and business savvy, and that the funds are used to support spiritual and charitable activities. But in fact there is ample evidence that the fortunes of these supposedly religious figures are tainted by extensive corruption, tax evasion, and money laundering.
One of the most common functions that godmen perform in the illicit economy is the conversion of so-called “black money” (unaccounted off-book money, often from illegal sources) into “white money” (or goods or services), in exchange for a hefty fee. Godmen are able to get away with this due to unfortunate features of India’s religious trust laws, which are opaque and riddled with loopholes, and leave religious trusts largely unchecked and unsupervised. Here’s how some of the godmen’s illicit schemes work:
In 2011, India witnessed the largest anticorruption uprising in its history, as hundreds of thousands of people mobilized to protest against entrenched corruption and to push for the passage of national anticorruption legislation that had been stuck in parliament for decades. The movement failed to achieve that objective, but out of its ashes was born a new political party, the Aam Aadmi Party (AAP). The AAP, founded in 2013, made anticorruption its main focus, choosing as its symbol a broom to represent its goal of cleaning up Indian government. The AAP achieved its first major victory in 2015, when it won a landslide victory in the state elections in Delhi, India’s capital city. Many inside and outside of India naturally wondered: Would the AAP achieve its goals? Could it effectively govern a city of 19 million people, and succeed in curtailing entrenched corruption? After all, the challenges are enormous, and the international track record of anticorruption parties is rather mixed.
The AAP’s journey wasn’t smooth, and its first few months in office were marked by significant infighting and a general perception of dysfunction. But the AAP managed to turn things around, and in the February 2020 elections, the AAP won handily, gaining a decisive majority for the next five years. The AAP’s success is partly due to its popular policies on things like increasing spending on education and reducing the cost of electricity and water. But the AAP also succeeded in the polls because it followed through on its anticorruption agenda. Although it’s always hard to gauge the success of anticorruption efforts, there are two major pieces of evidence that indicate that the AAP really has taken major steps to clean up politics:
As I discussed in my last post, India’s Right to Information (RTI) law has proven to be a remarkably effective anti-corruption tool, for two main reasons. First, the law makes it easy for ordinary citizens to submit information requests. Second, the law creates a system of review by independent Information Commissions, at both the central and state levels, to ensure compliance. Citizens can appeal a government agency’s failure to provide information, or an insufficient or incomplete response to an information request, to the appropriate Information Commission, which are endowed with both autonomy and strong enforcement powers. But last July, the Indian parliament amended the RTI law—over the objections of both the opposition and civil society organizations—in ways that undermine the effectiveness of the law by giving the central government more control over the functioning of the Information Commissions.
My last post focused on criticizing these amendments, and I will not restate those criticisms here. Instead, I will take up another question: How should the government improve the RTI law? For while the law has indeed had a positive impact—as an anti-corruption tool among other things—its effectiveness is hampered by a number of important problems. Among the most serious is the risk of retaliation against RTI users. Such retaliation can take the form of harassment, threats, physical assault, and in some cases even murder. To take just one egregious example, this past December the activist Abhimanyu Panda was murdered in the state of Odisha, allegedly in connection with his vigorous use of the RTI law to expose corruption. (According to news reports and a fact-finding report by a civil society network, days before Abhimanyu’s murder he had filed multiple RTI applications asking for information concerning a subsidized food program intended for the poor. His requests sought information about the recipients and the grain stocks at particular locations; if there is corruption in the program, these are the sorts of documents that would be altered or made to disappear.) Sadly, Abhimanyu is far from the only victim. There have been over 442 documented attacks and over 80 murders of citizens directly related to the information they have sought under the RTI law. These cases end up being treated as criminal matters and investigated by the police—as they should be—but the institutions associated with implementing the RTI law should have a more active role in addressing and preventing the retaliation problem.
In particular, there are two measures the government could take—possibly under the existing legal framework—that would improve transparency and diminish the incentive to use the threat of retaliation to keep incriminating or embarrassing information out of the public eye. Continue reading
India’s Right to Information (RTI) law, originally passed in 2005, gives all citizens the right to submit a request for information (in person, in writing, or online) to any public authority at the national, state, or local level; the request may concern any information related to the functioning and affairs of that authority. If the request is denied or unduly delayed, or if the information provided is incomplete, applicants may appeal, first to a designated Public Information Officer at the public authority to which the request was made, and then to special bodies called Information Commissions, established at both the state and national levels. These Information Commissions are designed to be autonomous and have the power not only to order timely production of requested information, but to levy penalties on public authorities for noncompliance and to award compensation to citizens whose requests were wrongfully denied or ignored.
India’s RTI law—which is one of the strongest such laws in the world, used by an estimated 4-6 million people annually—has proven to be a particularly effective anti-corruption tool. There are hundreds of examples of ordinary citizens using the RTI law to expose local government corruption, and the law has also unearthed some major national-level corruption scams. For instance, an RTI request filed by a civil society activist group revealed that a housing society on prime land in South Bombay, meant for war widows, was wrongfully given out to politicians, bureaucrats, and military officers; this so-called “Adarsh Society Scam” led to the eventual resignation of the Chief Minister, as well as criminal charges against several officials. Another civil society group used the RTI law to expose the “Commonwealth Games Scam,” in which funds associated with the Commonwealth Games in Delhi, earmarked for the social welfare of marginalized communities, had been wrongfully diverted. The exposure of this malfeasance led to an official investigation that ultimately resulted in the arrest and suspension of the responsible minister.
This past July, the Indian parliament amended the RTI law for the first time, despite resounding opposition. While there are indeed aspects of the RTI law’s implementation that need to be addressed—including the numerous vacancies at Information Commissioner posts, which has led to long delays and backlogs in RTI appeals—the amendments do not address any of these genuine pressing issues. Instead, the amendments focused on the appointment, tenure, and salary of the Information Commissioners. Proponents of the changes claimed that these amendments were minor technical fixes, designed to streamline the appeals process and improve functioning. In fact, the amendments pose a serious threat to the autonomy of the Information Commissions, and thus to the efficacy of the RTI law in exposing wrongdoing that could embarrass or incriminate powerful political figures and their cronies. Continue reading
Indian elections have long been celebrated as a festival of democracy—in part for their sheer and increasing scale, with over 900 million voters and thousands of political parties registered. Election expenditures have also been on the rise. India’s last national elections were the most expensive elections ever held anywhere in the world, with an estimated expenditure of Rs. 55,000 crores ($7.74 billion)—much of which was financed through private donations. In India as elsewhere, all this private money in politics raises concerns about corruption, both legal and illegal. This problem is exacerbated by a lack of transparency.
Under the rules as they existed until two years ago, individuals and domestic for-profit companies could contribute to political parties via cash, check, or demand drafts. Political parties are required to file an annual income statement, listing both sources of income and expenditures, with the Election Commission, a constitutional oversight body. These statements are publicly accessible under India’s Right to Information law. However, contributions below Rs. 20,000 ($280) could be anonymous, and political parties traditionally exploited this loophole to avoid disclosure of donors. The total share of income from unknown sources has been steadily increasing for all six major political parties, and in the last returns filed for 2017-18, income from unknown sources was over half (51.38%) of these parties’ collective income.
Over the past two years, there have been several reforms to campaign finance. The most significant reform has been the replacement of cash donations with a new mechanism for political donations, so-called “electoral bonds.” Under this system, the threshold for anonymous cash donations was reduced by a factor of ten, but private parties can now make anonymous donations via a bond with the State Bank of India (a public sector bank) in fixed denominations ranging from Rs. 1,000 ($15) to Rs. 1 crore ($1.5 million), during allotted windows. These donations remain anonymous not only to the general public, but also to the recipient political party.
The stated objective of these reforms is to target the practice of money laundering in campaign finance and increase transparency. In a previous post on this blog, written shortly after the new scheme was introduced, Abhinav Sekhri argued with cautious optimism that this tool, though imperfect, was indeed a step in the right direction. I disagree. In fact, the electoral bond system has decreased transparency and increased the potential for corruption, for several reasons: Continue reading
India’s 875 million voters make it the world’s largest democracy. Yet Indian elections, though generally seen as free and fair, have become the country’s “fountainhead of corruption.”Parties and candidates spend billions getting themselves elected—current forecasts predict $8.5 billion will be spent in the 2019 election, making it the most expensive election globally. Much of that money comes from illegal or at least questionable sources, a problem exacerbated by the fact that campaign financing in India is a black box, with no transparency into donors or income sources. Recent changes by the Modi government have made the process even more opaque. And much of the money raised is spent illegally. For example, up to 37% of Indian voters have received money for votes.
The massive amount that politicians are willing to raise and spend to win elections is understandable when the payoff to the winning candidate is considered. Putting aside any ideological or egotistical motives for seeking public office, there’s also a material incentive: studies have found that, in the years following an election, winning candidates’ assets increase by 3-5% more than losing candidates’ assets, and this “winner’s premium” is even higher in more corrupt states and for winners holding ministerial positions. The material benefits of office may also partly explain the alarming percentage of Indian politicians with criminal histories. Currently, over a third of Members of Parliament (MPs) in the Lok Sabha (the Lower House of the National Parliament), are facing at least one serious criminal charge, and politicians with cases pending against them are statistically more likely to win elections. Moreover, the ever-greater spending on elections means that winners, in addition to lining their own pockets and saving for the next election, need to repay those who helped them prevail. The more money politicians spend on elections, the more they need to earn back or repay through political favors.
The high payoff to candidates who win elections (often because of the opportunities for corruption) both attracts dishonest individuals to seek office and encourages ever-higher election spending, which in turn inspires corrupt behavior to repay debts, whether through money or political favors. Therefore, any serious attempt to reduce corruption in India has to begin with electoral reform. The constitutional body tasked with administering elections in India is the Election Commission (EC). The EC oversees the election process, and it also can issue advisory opinions (though not binding decisions) regarding the post-election disqualification of sitting MPs and Members of State Legislative Assemblies (MLAs). The EC is also responsible for scrutinizing the election expense reports submitted by candidates. But the EC is in many ways a toothless tiger, able only to recommend actions and electoral reform to Parliament, without any real power to fix the electoral system.
There are, nonetheless, a few things that the EC could do now, acting on its own, to help address at least some of these problems. But more comprehensive and effective reform will require action by the legislature or the Supreme Court.
A recent series of brutal rape cases in India, which attracted international media coverage and provoked domestic protests, seems to have finally prompted India’s government to take more seriously the problem of sexual violence. For instance, India’s Parliament has created a number of new sex-related crimes—stalking, disrobing, voyeurism—and is now considering an executive order introducing the death penalty for rapists of children under the age of 12. Strikingly, even India’s new anticorruption legislation—the Prevention of Corruption (Amendment) Act, 2018 (Amendment)—tries to address the sexual violence problem as well. The Amendment, passed in July 2018, introduced a number of changes to the country’s thirty-year-old anticorruption legislation (the PCA), which criminalizes bribery involving public officials. Among the changes is an expansion of what corruption and bribery can entail, to include not just money or material goods, but also sexual favors. Previously, the PCA had defined bribery as providing a “financial or other advantage” to public officials, but in response to criticism that this language was too narrow, the Amendment replaced this phrase with the term “undue advantage,” and further specified that “undue advantage” is not restricted to those advantages that are “pecuniary” or “estimable in money.” This means that the law, while not explicitly mentioning sex, now apparently covers the offer, request, or extortion of sexual favors as something covered by the criminal prohibition on bribery of or by a public official.
On its face, expanding the scope of the anticorruption legislation to include corrupt sexual extortion, or “sextortion,” seems to be a move in the right direction. And indeed there’s a good case to be made that recognizing the extortion of sexual favors not only as a crime of sexual assault, but also as a form of public corruption, is compelling. But in fact, by implicitly treating sextortion as essentially the same as the extortion of monetary bribes, the Amendment will do little to combat sextortion as a form of corruption, and in fact is likely to do more harm than good. There are three interrelated reasons for this: Continue reading
Last month, the Indian legislature passed sweeping amendments to the Prevention of Corruption Act. If accepted in their present form, those amendments portend a major shift in India’s antiquated legal regime pursuing corporate criminal liability, making it much easier to go after corporations on corruption charges. (The amendments make other changes as well, which I have discussed elsewhere. Here, I only focus on the changes that would pertain to corporate liability for corruption offenses.) The amendments do make some welcome changes, but they do not go far enough to update India’s antiquated legal regime for corporate criminal liability. I’ll touch on three features of this regime and discuss how the new amendments do or do not effect significant changes. Continue reading
Legislation just approved in both Ireland and India create a powerful incentive for businesses to establish anticorruption compliance programs. Both give firms a defense to criminal charges if one of their employees or agents is caught paying a bribe. Section 18 of the Irish Criminal Justice (Corruption Offences) Act 2018 provides that a “body corporate” can avoid liability if it can prove that “it took all reasonable steps and exercised all due diligence to avoid the commission of the offence.” Under section 9 of India’s Prevention of Corruption (Amendment) Bill 2018, a “commercial organization” escapes liability if it proves it “had in place adequate procedures in compliance of such guidelines as may be prescribed [by the Attorney General] to prevent persons associated with it from undertaking such conduct.”
The compliance provisions differ, as the quoted language shows, in two respects. India imposes liability on any “commercial organization,” which includes not only corporations but partnerships and business associations “of any kind,” whereas the Irish law is limited to corporations alone. Second, while the Irish Minister for Justice and Equality has the discretion to issue guidance on what constitutes “all reasonable steps” and “all due diligence” to prevent employee bribery, the Indian Central Government must, “in consultation with the concerned stakeholders . . . prescribe such guidelines as may be considered necessary which can be put in place for compliance by [commercial] organizations.”
The Indian requirement follows a report of the Indian Law Commission on an earlier version of the bill. Noting the “immediate and significant impact” the bill would have on corporations, particularly smaller ones, and that both the U.K. Bribery Act and the U.S. Foreign Corrupt Practices Act require law enforcement authorities to issue compliance guidance, the Commission recommended that the liability provision cum compliance defense be effective only once the Central Government published guidance on what was expected of companies wanting to assert a compliance defense. An earlier post noted the burgeoning literature on compliance programs by governments, international organizations, and commentators alike evidences a broad consensus on what constitutes an effective compliance program. Hence in practice the requirement shouldn’t lead to any real difference between what will be required under Indian law and what other nations with a compliance law already require.
The Nations with Anticorruption Compliance Laws table shows Ireland and India are now the fourteenth and fifteenth nations to enact legislation creating a defense to a criminal charge for businesses that have a compliance program. (Readers are asked to submit a comment if I missed any country.) With the six countries plus Quebec that require certain firms to have a compliance program, and with the United States, which both tempers corporate liability for firms with an “effective” compliance program and requires those winning public contracts of any appreciable size or duration to have one, the number of jurisdictions with some type of compliance program law now stands at 23.
What are the other 163 parties to UNCAC waiting for? Why aren’t they enlisting their private sector in the fight against corruption? Do they really think they can win the fight on their own?