Are Financial Declaration Systems Creating Opportunities for Corrupt Extortion?

One of the most popular reform measures for combating public corruption is the establishment or strengthening of requirements that public officials regularly file declarations of assets and income sources. Mandatory financial disclosure rules are not exclusively about fighting corruption, of course, but anticorruption is certainly one of their principal justifications. Requiring public officials to formally submit and update income and asset declarations, and attaching meaningful penalties for false or misleading declarations, is thought to help suppress corruption in at least three ways:

  • First, identifying assets and income sources makes it easier to identify, and hopefully to avoid, conflicts of interest.
  • Second, public officials who report suspicious asset growth during their time in office might attract unwanted scrutiny from law enforcement investigators—and also, if the declarations are public, from journalists and activists. Submitting false reports or finding clever ways to hide assets are of course possible, but are costly and risky.
  • Third, precisely because corrupt public officials will often lie on their financial declarations in order to avoid scrutiny, these mandatory disclosure laws can sometimes provide the hook to hold corrupt officials legally or politically accountable even when it is impossible to prove the underlying corruption. We might not be able to nail the corrupt official for bribe-taking or embezzlement, but if we can show that he owns substantial undeclared assets, we can still nail him for lying on his financial declarations.

There are important ongoing debates about the appropriate design of financial disclosure systems, including questions about whether the disclosures should be public or kept confidential, who should be required to submit disclosures (and how often), what sort of information should be required (and at what level of detail), whether and how declarations should be independently verified, the appropriate institution to manage the system, and the appropriate penalties for noncompliance (see also here). And the efficacy of mandatory financial disclosures in reducing corruption is still unsettled (see here, here, here, here, and here). Nevertheless, the basic anticorruption case for some form of mandatory financial disclosure system seems strong. Both domestic anticorruption activists and the international community therefore regularly push for the creation of such systems where they do not already exist, as well as for the strengthening and expansion of existing systems.

While acknowledging the uncertainties and complexities of the issue, I find the basic case for some form of (strong) mandatory financial declaration system persuasive. That said, I’ve recently had some interesting conversations with a couple of experts who have highlighted a potential problem that I confess I hadn’t previously thought about or seen discussed in the published literature: In countries where corruption is widespread and institutional checks are weak, the government agents who administer the financial disclosure system could abuse their power to extort bribes from the public officials who are subject to the declaration requirements. Continue reading

CliffsNotes for Implementing an Income and Asset Disclosure System for Public Servants

CliffsNotes are what American students pressed for time turn to at exam time.  Rather than reading the whole of Macbeth or the Iliad or sweating through their entire Physics text, students can breeze through the 20-page or so CliffsNotes on the topic, learning enough to at least pass the test.  Lawmakers are often in the same position during a session of parliament as these students are on the eve of an exam.  They must grasp enough of a subject to write legislation guiding how policy should be implemented but do not have the time to delve deeply into the subject matter.

One topic where this is the case is legislation introducing or revising a policy requiring public servants to disclose information about their personal finances.  Thanks to StAR,  the Council of Europe, the OECD, and indeed this writer and this blog (sample here and here), a diligent lawmaker could spend weeks if not months perusing volumes on how to create and operate a system for administering a personal financial disclosure law.  But like the student who would very much like to read all of Macbeth but has two other tests in the next three days, the legislator’s time is short and the demands on it high.

Hence, a need for a CliffsNotes on financial disclosure systems.  Continue reading

Anticorruption Tools in the Anti-Trump Toolkit: A Primer

[Kaitlin Beach provided helpful research and thoughtful contributions to this post.]

Since Donald Trump’s election, critics have asserted that his presidency presents unprecedented risks of corruption, cronyism, and conflict of interest. Many argue that President Trump and members of his administration are already engaging in conduct that is not only unethical, but also illegal. Because it can be hard for non-specialists to keep track of the myriad rules that have been referenced in the context, this post provides a brief, non-technical overview of the most important federal laws and regulations that are designed to prevent corruption, conflict-of-interest, and self-dealing in the U.S. government, focusing on those that have been most widely or most creatively discussed in relation to fighting a purportedly corrupt Trump administration.

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Guest Post: A New Additional Indicator for Measuring Progress Toward SDG 16

GAB is delighted to welcome back Dieter Zinnbauer, Programme Manager at Transparency International, who contributes the following guest post:

A very interesting discussion has evolved on this blog (see here, here, here, and here), and in the wider world (for example, see here), on about the indicators that should be used to measure progress toward the Sustainable Development Goals (SDGs) goals for improving governance and reducing corruption (Goal 16). There are already some very good suggestions on the table, including the use of Transparency International’s Global Corruption Barometer (GCB) to measure progress toward Target 16.5, on reducing corruption and bribery in all their forms. (TI has used the GCB since 2005 to compile one of the largest data troves on the detailed experience with corruption of households and individuals around the world. Using a GCB-type indicator for the bribery dimension of SDG 16.5 is supported by a wide variety of stakeholders, including the World Bank, UNDP, and Save the Children.)

Yet most of the indicators proposed so far, including the GCB, speak to very specific aspects of corruption (such as bribery) and don’t quite do justice to Goal 16’s broad ambitions and its emphasis on public accountability. So to spice up this stew a bit, let me suggest another possible indicator, one that complement to some of the ideas that are already on the table. My proposed indicator of progress toward SDG 16 is as follows:

What percentage of national-level parliamentarians (and perhaps top level members of the executive) have made assets, income, and interest disclosures (AIIDs) in a format that is publicly accessible online at sufficient level of detail, in timely manner, and in a machine-readable data format.

Using AIID as an additional SDG 16 indicator might at first seem to be a step backwards, since such an indicator measures “outputs” rather than “outcomes.” But let me try to convince you that in fact AIID would be an extremely useful complementary indicator for progress toward SDG 16: Continue reading

Canada, Camembert, and Controversy: How to Save the Canadian Senate

On Monday, October 19th, Canadians voted in the first new Prime Minister in over a decade. The Liberal party walloped the reigning Conservative party, capturing 55% of the seats in the House of Commons, while the Conservatives retained only 29% of the seats. But the Canadian public’s desire for change is not limited to the House of Commons. The Canadian Senate, the unelected chamber of “sober second thought,” has been rocked by an expenses scandal reminiscent of the 2009 MP expense scandal in the United Kingdom (see here), and the ongoing series of minor expense scandals in the United States (see here).

In late 2012 it was revealed that four Canadian Senators – Pamela Wallin, Patrick Brazeau, Mike Duffy, and Mac Harb – used their Senate expense accounts for personal and private business. As a product of these revelations, all four resigned or were removed from office, and all four have been indicted on criminal charges. In the response to the unfolding scandal, Auditor General Michael Ferguson launched an investigation into the finances of all Canadian Senators and found about 840,000 dollars in suspect claims. His investigation pointed to a systematic failure on the part of Senators to provide appropriate documentation for their expenses and to “prioritize consideration of the cost [of their expenses] to taxpayers.” (As with most proper scandals, there have been moments of levity in addition to frustration. Ferguson’s audit report suggested Canadian Senators should not claim per diem meals when other food had been made available, but Senator Nancy Ruth took umbrage at the suggestion that she was obligated to eat a free airplane breakfast consisting of, in her words, “ice-cold Camembert with broken crackers.”)

Partly as a result of this scandal, faith in the Canadian Senate is at an all-time low. Before his defeat, Conservative Prime Minister Stephen Harper had stopped nominating new Senators. In 2014, the Liberal party kicked all of its Senators out of the party’s ranks, thereby converting them to “independent” Senators. The NDP, Canada’s third largest party, has long called for abolishing the chamber entirely. What, then, should be done to reform Canada’s beleaguered Senate? Ferguson’s audit report offers several promising proposals for addressing the concerns about Senator integrity  But the problems with the Senate as an institution run deeper, and will likely call for more thorough reform (even if abolition of the Senate is politically and legally infeasible). Continue reading

Raising the Ethics Bar: Namibia’s President Voluntarily Discloses His Income and Assets

Namibia is not the first country that comes to mind when looking for international trend setters.  Roughly the size of Turkey but with a population of only 2.1 million, it has been an independent state for just 25 years.  Yet thanks to a recent initiative by its newly installed President, Hage Geingob, the country could become a leader in the worldwide struggle to combat corruption.  On May 21 the President voluntarily disclosed his income and assets and those of his spouse.  The disclosure is an effort to prod Namibia’s public servants to follow his example, but if President Geingob’s precedent setting move prompts other heads of state, in Africa and elsewhere, to voluntarily disclose details of their personal finances, the country may long be remembered for its contribution to the international movement to curb corruption.

As important as the disclosure are the actions the President took in connection with it, actions other heads of state seeking to emulate him should take as well.  Continue reading

Anticorruption Enforcement Policy: Insights from the Deterrence Scholarship

Over the past three decades much empirical work has appeared on the effect of the criminal law on crime rates.  Usefully summarized in review articles by, among others, Professors Daniel Nagin of Carnegie Mellon University and Michael Tonry of the University of Minnesota (click here and here for examples), this research offers several insights for those engaged in the fight against corruption.

The first is that the criminal justice system can make a difference.  Save for acts committed in the heat of the moment, crime is a cost-benefit proposition.  Would-be criminals tote up the (usually) monetary gains of violating the law against the risks of being caught and punished and, when the benefits exceed the costs, commit an offense.  Thus policies that drive up the cost of crime by increasing the chances an offender will be caught, prosecuted, and appropriately punished reduce the crime rate.  Recent studies confirm that corruption crimes are no exception.  Putting more resources into to prosecuting corruption in the United States and ensuring corruption in the construction of roads is detected both reduced corruption.

But if the good news from the deterrence literature is that the criminal law can make a difference, the bad news is that that the difference is not easy to realize and that the logic of deterrence can lead policymakers astray.  One of the more striking findings is that what would seem to be the easiest way to enhance deterrence, sharp increases in the penalties for corruption crimes, may actually lead to more corruption.  Continue reading

Disclosure Rules and Political Corruption: The Lessons of the Menendez Case

On April 1, 2015, the United States Department of Justice issued a 68 page indictment charging U.S. Senator Robert Menendez and Dr. Salomon Melgen, a Florida ophthalmologist, with 22 separate violations of American federal criminal law arising from their long running relationship.  The Department alleges that Dr. Melgen provided Senator Menendez “domestic and international flights on private jets, first-class domestic airfare, use of a Caribbean villa, access to an exclusive Dominican resort, a stay at a luxury hotel in Paris, expensive meals, golf outings, and tens of thousands of dollars in contributions to a legal defense fund.” In return the Department claims that Senator Menendez used his position as a member of the U.S. Senate to advance Dr. Melgen’s personal and business interests.

If both Dr. Melgen and Senator Menendez stand by their initial responses to the indictment, prosecutors will find it very hard to prove that Melgen bribed Menendez.  The doctor and the Senator are not disputing the facts; what they say is that they are friends and what each did for the other was motivated by friendship.  To overcome this “gifts from a friend” defense, prosecutors must prove that what was in the minds of the two men when the gifts passed was not friendship but corruption.  Showing what was in a defendant’s mind is always difficult and is even more difficult when the defendant offers a plausible, benign alternative. So unless the Department intends to call a mind reader as a witness, proving the 21 charges of bribery or acts relating to bribery in the indictment will be a challenge.

That’s what makes the 22nd charge so important.

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A Mexican Candidate’s Income and Asset Declaration Lambasted as “Amazing,” “Absurd,” “Inconsistent”   

Under pressure from civil society, Mexican officials are starting to come clean about their personal finances, but as Marcelo Ebrard, a candidate in this June’s parliamentary elections, has learned, a half-baked disclosure of one’s financial life can backfire.  His disclosure drew nothing but scorn from the experts the on-line journal Sinembargo had review it. They found it implausible that a senior member of the Mexican political establishment claimed to own no house and to earn less than 150,000 pesos (~ $9,600) a month after leaving high office.  They questioned why money he received from his political party was not disclosed, contracts that might create conflict of interest were he elected not revealed, and his wife’s assets not reported.  What he released did not meet international standards for financial disclosure, and the disclosure, they bemoaned, was thus a “lost opportunity” to establish a new benchmark for transparency by political candidates.

While these criticisms may harm Ebrard’s chances of being elected to Mexico’s lower house of parliament, that he had to release a financial statement and that civil society invested the time and effort to examine it are both encouraging signs that Mexico’s anticorruption movement is taking off. Continue reading

The Prosecution of Bribery: What Lawmakers Can Learn from Bavaria and Virginia

Prosecutors thinking about whether to pursue a case against the recipient or payer of a bribe will surely think twice given events of the past weeks in the German state of Bavaria and the American state of Virginia.  In Bavaria the bribery prosecution against Formula One impresario Bernie Ecclestone collapsed mid-trial after the judge expressed strong doubts the case could be proved.  In Virginia prosecutors are slogging through the third of what is expected to be a six week trial as they try to show that Robert McDonnell, the state’s former governor, was paid to shill for a local business.  To prosecutors, the two cases remind that bribery is no easy crime to prove and that losing carries risks both personal and professional.  To lawmakers, the two cases should prompt a scrub of their nation’s bribery laws to see whether the bar they have set for proving a case is too high. Continue reading