Public Beneficial Ownership Registries: A Response To Recent Criticisms

Anticorruption activists and other advocates for greater corporate and financial transparency scored a big win earlier this month when the UK announced that it would require the 14 British Overseas Territories (such as the British Virgin Islands (BVI) and the Cayman Islands) to create public beneficial ownership registers for all corporations and other legal entities registered in those jurisdictions. Many in the pro-transparency community believe that such registers are critical for fighting corruption and money laundering, as they make it harder to use anonymous companies to engage in unlawful transactions and hide the proceeds of crime by requiring information on the actual human beings (the ultimate “beneficial owners”) who own or control these artificial legal entities. At the very least, beneficial ownership information should be verified and kept on file so that it will be available to law enforcement in the event of an investigation, but many in the pro-transparency community believe that public beneficial ownership registers would be even more effective, as they would provide open data that civil society groups, the media, and others could scrutinize and analyze in order to unearth shady transactions and make it harder for kleptocrats and others to hide their loot. The British Overseas Territories are not the only or even the worse offenders when it comes to corporate secrecy—the United States is still struggling to enact laws that would provide for a non-public register, which the BVI and some other Overseas Territories already have—but there’s no doubt that these jurisdictions are often a preferred destination for dirty money.

So when the UK announced that it would require the Overseas Territories to adopt public beneficial ownership registers, many cheered. But not everybody. A couple weeks back, over at the FCPA Blog, Martin Kenney, a lawyer based in the BVI, published an intemperate denunciation of the new policy, lambasting the so-called “transparency brigade” for having a “mob mentality,” for being “naïve,” “hypocritical,” and neo-imperialist (and possibly racist), and of taking advantage of the devastation that many of the Caribbean Islands suffered in Hurricanes Irma and Maria to push their agenda at a time when “they perceive their prey to be weakened.” Indeed, the ad hominem invective in the post is so thick that it’s sometimes hard to discern the serious, substantive objections underneath all the vitriol. Which is a pity, because Kenney actually does advance at least one or two arguments that, while in my view likely incorrect, are worth taking seriously.

Last week, Rick offered a thoughtful, measured response to Mr. Kenney’s piece that got at some, but perhaps not all, of the core issues. I want to pick up where Rick left off, to lay out what I think are the most sensible concerns about the new UK policy (and about public beneficial ownership registers more generally). And, following Rick’s lead, I’ll try to turn the rhetorical temperature down a few notches, as there’s little to be gained in a (virtual) shouting match on a complicated issue like this. Continue reading

More on the 2017 Corruption Perceptions Index, and the Relationship Between Media/Civil Society Freedom and Corruption

The rest of the anticorruption commentariat (and the mainstream media) may have already moved on from the publication of Transparency International’s 2017 Corruption Perception Index (CPI), but I wanted to follow up on my other posts from earlier this month (here and here) to discuss one other aspect of the new CPI. The general overview, press release, and other supporting materials that accompanied the latest CPI stress as their main theme the importance of a free press and a robust, independent civil society in the fight against corruption. As TI states succinctly in the overview page for the 2017 CPI, “[A]nalysis of the [CPI] results indicates that countries with the least protection for press and non-governmental organisations (NGOs) also tend to have the worst rates of corruption.” And from this observation, TI argues that in order to make progress in the fight against corruption, governments should “do more to encourage free speech, independent media, political dissent and an open an engaged civil society,” and should “minimize regulations on media … and ensure that journalists can work without fear of repression or violence.” (TI also suggests that international donors should consider press freedom relevant to development aid or access to international organizations, a provocative suggestion that deserves fuller exploration elsewhere.)

Speaking in broad terms, I agree with TI’s position, and I’m heartened to see TI making an effort to use the publicity associated with the release of the CPI to push for concrete improvements on a particular area of importance, rather than simply stressing the bad effects of corruption (such as the alleged adverse impacts on inequality and poverty), or devoting undue attention to (statistically meaningless) movements in country scores from previous years. Whether TI succeeded in leveraging the CPI’s publicity into more attention to the freedom of the media and civil society is another story, but the effort is commendable.

That said, I spent a bit of time digging into the supporting research documents that TI provided on this issue, and I find myself in the uncomfortable position of finding the proffered evidentiary basis for the link between a free press/civil society and progress in the fight against corruption problematic, to put it mildly—even though my own reading of the larger academic literature on the topic makes me think the ultimate conclusion is likely correct, at least in broad terms. That latter fact, coupled with my recognition that the materials I’m evaluating are advocacy documents rather than academic research papers, makes me reluctant to criticize too harshly. Nonetheless, on the logic that it’s important to hold even our friends and allies accountable, and that in the long term promoting more careful and rigorous analysis will produce both more suitable policy prescriptions and better advocacy, I’m going to lay out my main difficulties with TI’s data analysis on the press freedom-corruption connection: Continue reading

Adjusting Corruption Perception Index Scores for National Wealth

My post two weeks ago discussed Transparency International’s newly-released 2017 Corruption Perceptions Index (CPI), focusing in particular on an old hobby-horse of mine: the hazards of trying to draw substantive conclusions from year-to-year changes in any individual country’s CPI score. Today I want to continue to discuss the 2017 CPI, with attention to a different issue: the relationship between a country’s wealth and its CPI score. It’s no secret that these variables are highly correlated. Indeed, per capita GDP remains the single strongest predictor of a country’s perceived corruption level, leading some critics to suggest that the CPI doesn’t really measure perceived corruption so much as it measures wealth—penalizing poor countries by portraying them as more corrupt, when in fact their corruption may be due more to their poverty than to deficiencies in their cultures, policies, and institutions.

This criticism isn’t entirely fair. Per capita income is a strong predictor of CPI scores, but they’re far from perfectly correlated. Furthermore, even if it’s true that worse (perceived) corruption is in large measure a product of worse economic conditions, that doesn’t mean there’s a problem with the CPI as such, any more than a measure of infant mortality is flawed because it is highly correlated with per capita income. (And of course because corruption may worsen economic outcomes, the correlation between wealth and CPI scores may be a partial reflection of corruption’s impact, though I doubt there are many who think that this relationship is so strong that the causal arrow runs predominantly from corruption to national wealth rather than from national wealth to perceived corruption.)

Yet the critics do have a point: When we look at the CPI results table, we see a lot of very rich countries clustered at the top, and a lot of very poor countries clustered at the bottom. That’s fine for some purposes, but we might also be interested in seeing which countries have notably higher or lower levels of perceived corruption than we would expect, given their per capita incomes. As a crude first cut at looking into this, I merged the 2017 CPI data table with data from the World Bank on 2016 purchasing-power-adjusted per capita GDP. After dropping the countries that appeared in one dataset but not the other, I had a 167 countries. I then ran a simple regression using CPI as the outcome variable and the natural log of per capita GDP as the sole explanatory variable. (I used the natural log partly to reduce the influence of extreme income outliers, and partly on the logic that the impact of GDP on perceived corruption likely declines at very high levels of income. But I admit it’s something of an arbitrary choice and I encourage others who are interested to play around with the data using alternative functional forms and specifications.)

This single variable, ln per capita GDP, explained about half of the total variance in the data (for stats nerds, the R2 value was about 0.51), meaning that while ln per capita GDP is a very powerful explanatory variable, there’s a lot of variation in the CPI that it doesn’t explain. The more interesting question, to my mind, concerns the countries that notably outperform or underperform the CPI score that one would predict given national wealth. To look into this, I simply ranked the 167 countries in my data by the size of the residuals from the simple regression described above. Here are some of the things that I found: Continue reading

The New Corruption Perceptions Index Identifies Countries with Statistically Significant Changes in Perceived Corruption–Should We Credit the Results?

As most readers of this blog are likely aware, last month Transparency International (TI) released the 2017 edition of its important and influential Corruption Perceptions Index (CPI). As usual, the publication of the CPI triggered a fair bit of media coverage, much of it focused on how various countries ranked, and how individual country scores had changed from one year to the next (see, for example, here, here, here, and here).

There’s a lot to say about the most recent CPI—I may devote a post at some point to TI’s interesting decision to focus the press release accompanying the publication of the 2017 CPI less on the index itself than on the connection between (perceived) corruption and a lack of adequate freedom and protections for the media and civil society. But in this preliminary post, I want to take up an issue that regular GAB readers will know has been something of a fixation of mine in past years: the emphasis—in my view mostly misplaced—on how individual country CPI scores have changed from year to year.

In prior posts, I’ve raised a number of related but distinct concerns about the tendency of some commentators—and, more disturbingly, of some policymakers—to attach great significance to whether a country’s CPI score has gone up or down relative to previous years. For one thing, the sources used to construct the CPI for any given country may change from year to year—and adding or dropping an idiosyncratic source can have a substantial effect on the aggregate CPI score. For another, even when the underlying sources don’t change, we don’t know whether those sources are on the same implicit scale from year to year. And even if we put these problems to one side, a focus on changes in the final CPI score can sometimes obscure the statistical uncertainty associated with the estimated CPI—these scores can be noisy enough that changes in scores, even those that seem large, may not be statistically meaningful according to the conventional tests. Although TI always calculates statistical confidence intervals, in prior years these intervals have been buried in hard-to-find Excel spreadsheets, and the changes in CPI scores that TI highlights in its annual press releases haven’t always been statistically significant by TI’s own calculations. In an earlier post, I suggested that at the very least, TI should provide an easy-to-find, easy-to-read table assessing which changes in country scores are statistically significant at conventional levels, preferably over a 4-year period (as 1-year changes are both harder to detect if trends are gradual, and less interesting).

Apparently some folks within TI were thinking along similar lines, and I was pleased to see that in the 2017 CPI includes a reasonably prominent link to a spreadsheet showing those countries for which the 2017 CPI score showed a “statistically significant difference” from that country’s CPI score in each of five comparison years (2012, 2013, 2014, 2015, and 2016).

I’ve still got some criticisms and concerns, which—in the spirit of constructive engagement—I’ll turn to in just a moment. But before getting to that, let me pause to note my admiration for TI as an organization, and in this case its research department in particular, for constantly working to improve both the CPI itself and how it is presented and interpreted. It’s easy for folks like me to criticize—and I’ll continue to do so, in the interests of pushing for further improvements—but it’s much more challenging to absorb the raft of criticisms from so many quarters, sift through them, and invest the necessary time and resources to adapt and adjust from year to year. So, in case any folks at TI are reading this, let me first acknowledge and express my appreciation for how much work (often thankless) goes into the creation and continued improvement of this valuable tool.

Having said that, let me now proceed to raising some comments, questions, and concerns about TI’s claims about countries that appear to have experienced statistically meaningful changes in their CPI scores over the last five years. Continue reading

“Petty” Corruption Isn’t Petty

Grand corruption attracts plenty of attention—from activists, the mainstream media, and other commentators (including on this blog)—and for good reason. While the media may simply be riveted by the decadent lifestyles of corrupt actors, the anticorruption community has increasingly recognized the devastating impact that kleptocrats and their cronies can have. No doubt, this attention to grand corruption is welcome and recent successes in fighting it are laudable. At the same time, though, this increased focus on grand corruption carries with it the risk of making smaller, more everyday forms of corruption—sometimes called “petty” corruption—seem less consequential.

Yet so-called “petty” corruption remains widespread, and its aggregate impact should not be underestimated. By way of example, consider the most recent results from the Transparency International (TI) Global Corruption Barometer (GCB) survey of citizens in Latin America and the Caribbean, which found that one-third of people who used a public service paid a bribe in order to do so. In other words, for these 90 million people, their ability to access a government service to which they were entitled was conditioned upon an extralegal payment—and that’s just accounting for this one region.

Even as the anticorruption community rightly focuses attention on combatting grand corruption, we can’t forget the real havoc wreaked by smaller-scale corruption. So-called “petty” corruption is not a petty concern. Rather, it’s a serious, pervasive problem that deserves just as much sustained attention as does politicians buying collector cars and oceanfront properties with assets from their secret offshore bank accounts. At the risk of repeating familiar points, it’s worth reviewing the ways in which small-scale corruption has, cumulatively, a range of incredibly destructive effects:

Continue reading

Dispatches from the UNCAC Conference of States Parties, Part 1: Revisiting the Jakarta Principles of Anti-Corruption Agencies

Last month, the UN Convention Against Corruption (UNCAC) Conference of States Parties (COSP) was held in Vienna, Austria. In addition to the formal meetings of government representatives, the COSP also featured a number of panels, speeches, and other side events, at which leading experts discussed and debated a range of anticorruption topics. GAB is delighted that Northwestern Pritzker School of Law Professor Juliet Sorensen and her student Kobby Lartey, who attended the COSP, have offered to share highlights of some of the most interesting sessions in a series of guest posts. Today’s post is the first in that series.

Though specialized anticorruption agencies (ACAs) are dismissed by some as redundant or ineffective, last month’s COSP panel on “Revisiting the Jakarta Principles: Strengthening Anti-Corruption Agencies’ Independence and Effectiveness” made a strong case for ACA’s importance to the fight against corruption. (The Jakarta Principles are drawn from a 2012 statement drafted by anticorruption practitioners and experts from around the world; these broad, aspirational principles help anticorruption to protect themselves, and to offer inspiration for their work.) The panel, which included ACA commissioners from Indonesia, France, Romania, and Burkina Faso, as well as representatives from Transparency International, the UNODC, and UNDP, the panel highlighted the diverse struggles and successes of member states’ ACAs. Continue reading

Guest Post: Going Beyond Bribery? Improving the Global Corruption Barometer

Coralie Pring, Research Expert at Transparency International, contributes today’s guest post:

Transparency International has been running the Global Corruption Barometer (GCB) – a general population survey on corruption experience and perception – for a decade and a half now. Before moving ahead with plans for the next round of the survey, we decided to review the survey to see if we can improve it and make it more relevant to the current corruption discourse. In particular, we wanted to know whether it would be worthwhile to add extra questions on topics like grand corruption, nepotism, revolving doors, lobbying, and so forth. To that end, we invited 25 academics and representatives from some of Transparency International’s national chapters to a workshop last October to discuss plans for improving the GCB. We initially planned to focus on what we thought would be a simple question: Should we expand the GCB survey to include questions about grand corruption and political corruption?

In fact, this question was nowhere near simple to answer and it really divided the group. (Perhaps this should have been expected when you get 25 researchers in one room!) Moreover, the discussion ended up focusing less on our initial query about whether or how to expand the GCB, and more on two more basic questions: First, are citizen perceptions of corruption reflective of reality? And second, can information about citizen corruption perceptions still be useful even if they are not accurate?

Because these debates may be of interest to many of this blog’s readers, and because TI is still hoping to get input from a broader set of experts on these and related questions, we would like to share a brief summary of the workshop exchange on these core questions. Continue reading