The Flawed and Flimsy Basis for the American Bar Association’s Opposition to Anonymous Company Reform

In last week’s post, I raised the question of why the American Bar Association (ABA), which represents the U.S. legal profession, so strenuously opposes even relatively modest measures to crack down on the use of anonymous companies for money laundering and other illicit purposes. In particular, the ABA has staked out a strong, uncompromising opposition to the bills on this topic currently under consideration in the U.S. House (the Counter Terrorism and Illicit Finance Act) and in the Senate (the TITLE Act). As I noted in my last post, the substance of the ABA’s objections (summarized in its letters here and here) appear, at least on their surface, unpersuasive as a matter of logic, unsupported by evidence, or both. This, coupled with the fact that many ABA members strongly disagree with the ABA’s official position on this issue, made me wonder how the ABA’s President and Government Affairs Office had come to take the position that they had.

After doing a bit more digging, and talking to several knowledgeable people, I have a tentative answer: The ABA’s opposition to the currently-pending anonymous company bills is based on an aggressive over-reading of a 15-year-old policy—a policy that many ABA members and ABA committees oppose but have not yet been able to change, due to the ABA’s cumbersome procedures and the resistance of a few influential factions within the organization.

Why does this matter? It matters because the ABA’s letters to Congress deliberately give the impression that the ABA speaks for its 400,000 members when it objects to these bills as against the interests of the legal profession and contrary to important values. But that impression is misleading. There may be people out there—including, perhaps, members of Congress and their aides—who are instinctively sympathetic to the anonymous company reforms in the pending bills, but who might waver, for substantive or political reasons, if they think that the American legal profession has made a considered, collective judgment that these sorts of reforms are undesirable. The ABA’s lobbying documents deliberately try to create that impression. But it’s not really true. The key document setting the policy—the one on which the ABA’s House of Delegates actually voted—was promulgated in 2003, hasn’t been reconsidered or updated by the House of Delegates since then, and doesn’t really apply to the currently-pending bills if one reads the document or the bills carefully.

I realize that’s a strong claim – one could read it as disputing the ABA President’s assertion, in her letters to Congress, that she speaks “on behalf of” the ABA and its membership in opposing these bills. And I could well be wrong, and remain open to correction and criticism. But here’s why I don’t think the ABA’s current lobbying position should be read as reflecting the collective judgment of the American legal profession on the TITLE Act or its House counterpart: Continue reading

Regulatory Discretion and Corruption in the FDA

In the United States, the regulatory agency responsible for ensuring safe food and medicine, the Food and Drug Administration (FDA), has been marred by numerous scandals – from a 2016 insider trading prosecution to a 2009 politicized medical device approval to a 2013 ProPublica investigation that found the FDA overlooked fraudulent research and let potentially unsafe drugs stay on the market. These scandals have, understandably, undermined public confidence in the FDA. What’s the explanation for these problems? Why is there such a large public perception of corruption, and so many questionable incidents, at the FDA?

Much of the explanation has to do with institutional design: Corruption blooms where transparency and accountability are lacking, yet the FDA has vast discretion over the regulations it sets, incredibly loose restrictions on the money it can receive from industry, and little public accountability. The following steps can be taken to reform the FDA, in the interest of rooting out corruption and restoring public confidence in the agency:

Continue reading

Why Did Trump’s Anticorruption Rhetoric Resonate? Three Hypotheses

OK, I know I said in last week’s post that I would eventually get back to blogging about topics other than Trump, but not yet. After all, Trump’s election—a political and moral crisis on so many dimensions—poses distinctive challenges for the anticorruption community, in at least two different (though related) respects. The first concerns the consequences of a Trump Administration for US anticorruption efforts, both at home and abroad, a topic I’ve already blogged about (see here and here). The second issue concerns the role that anticorruption sentiments and rhetoric played in Trump’s victory. After all, Trump positioned himself (ironically, outrageously) as an anticorruption candidate, denouncing Secretary Clinton as “crooked Hillary” and pledging to “drain the swamp” of Washington corruption.

It’s no surprise that the mainstream anticorruption community are perturbed, to put it mildly, by the effective deployment of anticorruption rhetoric by a racist xenophobic ultra-nationalist bully. While this is hardly a new phenomenon—see, for example, Katie King’s post on Hungary last year—the Trump victory has forced the anticorruption community to confront it head on. Indeed, at the International Anti-Corruption Conference (IACC) in Panama a couple of weeks back, the appropriation of anticorruption rhetoric by right-wing populists—especially though not exclusively Trump—was a constant subject of hallway conversation, even if relatively little of the IACC’s formal program dealt directly with this issue. (In fairness, many of the IACC speakers did find a way to raise some of these concerns in their presentations, and the organizers also managed to add a last-minute session, in which I was able to participate, discussing this topic.) What are we to make of this? What lessons should the anticorruption community—as well as others aghast at the success of Trump and other right-wing demagogues—take away from Trump’s successful appropriation of anticorruption rhetoric?

I wish I knew the answer to that question. I don’t, and won’t pretend to. But I do think it would be helpful to lay out what I view as the three main competing hypotheses: Continue reading

Troubling Signs of a Resurgent Anti-FCPA Lobbying Campaign

One of the biggest stories in anticorruption enforcement over the last two decades is the surge in enforcement of the U.S. Foreign Corrupt Practices Act. This development has not only been greeted with enthusiasm by anticorruption advocates, but has had bipartisan political support, at least within the executive branch (the enforcement surge began under President George W. Bush, and has continued through President Obama’s administration). But not everyone has been happy about aggressive FCPA enforcement. About five years ago, the U.S. Chamber of Commerce and its allies launched a coordinated lobbying assault on the statute and on the U.S. government’s enforcement practices. The Chamber not only published a report (“Restoring Balance”) advocating significant limitations on the FCPA’s scope, but it convinced (and/or paid) a number of other “experts” to take up the cause, writing op-eds, testifying before Congress, and lobbying in other forums. (The Chamber seemed to deliberately prefer to hire ex-DOJ officials to make its case, most notably former Attorney General Michael Mukasey.) These editorials and presentations, perhaps not surprisingly, tended to recite the same Chamber of Commerce talking points.

But this concerted, coordinated lobbying effort basically went nowhere. Why not? Well, there were probably a number of reasons, including the vigorous resistance of the Department of Justice, the intrinsic weakness of many of the Chamber’s arguments, and the difficulty of getting anything through the U.S. Congress. But another major factor was the Walmart corruption story, which the New York Times broke in 2012 (see here and here.) The allegations involving Walmart’s conduct in Mexico were so shocking that any appetite there might have been in Congress for “reforming” (that is, weakening) the FCPA quickly dissipated. Although FCPA critics continued to advocate changes to the statute and current enforcement practices, the concerted, orchestrated push for FCPA “reform” faded away.

But now there are signs that it’s back. Maybe I’m over-reading the limited evidence, but I think a new campaign for FCPA reform may well be underway—and anticorruption advocates should may attention and be ready to fight back. Continue reading

The Perry Indictment: Not So Farfetched

Texas Governor Rick Perry was indicted August 15 for engaging in what most Americans think of as politics as usual — or at least usual as practiced in Texas.  Perry was charged with abuse of office and coercing a public servant because he threatened to veto funding for an anticorruption unit attached to the Travis County District Attorney’s office unless DA Rosemary Lehmberg resigned.  Lehmberg, a Democrat, had been convicted of drunk driving and a video of her inebriated while in police custody had gone viral.  As Perry explained in vetoing the legislation after she refused to step down, he could not “in good conscience support continued State funding for an office . . . at a time when the person charged with ultimate responsibility of that unit has lost the public’s confidence.”

While Democrats saw a darker motive in Perry’s threat, the chance to replace a Democrat who had been a thorn in Republicans side, few think his threat was illegal.  The Washington Post and New York Times editorial pages, neither enthusiastic backers of Perry’s firebrand Texas conservatism, both sharply questioned the indictment as did President Obama’s former top political adviser David Axelrod.  Veto threats are part of the everyday give-and-take between governors and state legislatures and between Presidents and the Congress.  Indeed, as recently as the 2013 confrontation over the shutdown of the federal government President Obama used the threat of a veto to get his way with the  Republican Congress.  How can that be illegal?   And if it wasn’t, why is Perry’s?

But before politicians write the Perry indictment off as farfetched, they best consult a lawyer.  Continue reading

When Hedge Fund Managers Put Their Mouths Where Their Money Is

Over the last few months the business press has written many stories about hedge fund manager William A. Ackman’s billion-dollar short of nutritional supplement company Herbalife. Ackman is betting that the price of the stock will fall because the company (in his view) is nothing more than an immoral and illegal pyramid scheme. The New York Times has noted, however, that Ackman isn’t leaving anything to chance. He has successfully lobbied members of Congress to call for an investigation of Herbalife, pressured the Federal Trade Commission (FTC) to investigate the company, paid civil rights organizations to help him organize against it, and generally conducted an “extraordinary attempt to leverage the corridors of power” to crush Herbalife. The campaign seems to be making progress: the FTC and FBI recently announced that they have begun investigations into Herbalife, and the company’s stock has plunged as much as 32% this year from its recent high. The New York Times has painted Ackman’s tactics as an extreme (and unusually public) form of an increasingly common phenomenon: financiers “frequently” ask regulators to investigate and punish companies they’re betting against, making “Washington [increasingly] a battleground of Wall Street’s financial titans.”

Whether or not we want to call this sort of influence activity “corruption” (which, as Matthew pointed out in a previous post, is the subject of a longstanding debate), it raises difficult questions about how to regulate the influence of wealth on the political, regulatory, and — recently — law enforcement processes. Although Ackman’s concerns about Herbalife may very well be legitimate, the opportunity to abuse government resources and manipulate the market exists if investors push for investigations in bad faith — for no other reason than to make a buck and use law enforcement to do it.

Should we be worried about this conduct? And if so, should government agencies police against possible abuses of the law enforcement process? Continue reading

Revolving Doors and Corruption

I recently came across a couple of interesting blog posts about corruption and the “revolving door” in the U.S. government (the cycling of individuals from the private sector to government and back again—often as representatives of the same industries they used to regulate while in government).

First, last month Chandu Krishnan (who served as Executive Director of Transparency International UK from 2004-2012) published an insightful post on the Safra Center’s blog, noting how the revolving door—and in particular the promise of lucrative post-government employment—may lead government officials to make laws that reflect the preferences of “industry lobbies” rather than the “will of the people.” Mr. Krishnan adds his voice to the chorus of calls for reform; in particular, he recommends lengthening the legally-required “cooling off” period (during which former government officials are prohibited from lobbying) from one to three years (or longer for positions involving especially high risk, such as procurement).

Around the same time, Mike Koehler, who runs the FCPA Professor Blog, posted a comment on Charles Duross’s recent departure from his position as head of the DOJ’s FCPA enforcement division to take up a position at the law firm Morrison & Foerster. In this post, Professor Koehler reiterated his earlier calls for extending and expanding the “cooling off” period, so that former government FCPA lawyers could not provide any FCPA defense or compliance services for five years after leaving government service.

What struck me about reading these two posts in rapid succession was the fact that although Mr. Krishnan and Prof. Koehler seem in agreement on the problem and the solution, in fact their hypotheses about the effect of the revolving door on government officials’ incentives are not only different, but polar opposites. Mr. Krishnan worries that the prospect of future employment at private sector firms will cause government officials to go too easy on those firms—leading to overly passive or timid enforcement of U.S. law. (He views this as a kind of “institutional corruption.”) Prof. Koehler worries that the prospect of future private sector employment causes government officials to be too aggressive in their enforcement of the law—creating or augmenting the demand for the defense & compliance services these ex-government officials then provide.

Continue reading