Tag Archives: transparency

A Cultural Defense to Bribery? The Solomon Islands’ Approach

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Gift-giving usually has positive connotations as an expression of love, respect, friendship, gratitude, or celebration. However, when the recipient is a public official, there is always the concern that the “gift” is nothing but a thinly-veiled bribe. For this reason, countries around the world have placed restrictions on the character and value of gifts that public officials are allowed to accept. But in societies where giving gifts – including, perhaps especially, to powerful or influential figures – is an important part of the culture, treating all (sufficiently large) gifts as unlawful bribes is more than usually challenging. Indeed, a recurring question for anticorruption reformers is whether or how anti-bribery law should make allowances for local cultural norms and practices, especially those related to gift-giving. This question – often framed as one of “cultural relativism” – frequently comes up in the context of developing countries (such as Indonesia or various Pacific islands), though it is not exclusive to such countries (see, for example, discussion of this same issue in South Korea).

One country that has recently faced the challenge of regulating cultural gift-giving to and by public officials is the Solomon Islands – a small state in the Pacific Ocean consisting of over nine hundred islands, a population of about 600,000, and a rich and fascinating history. For years, the Solomon Islands has been dealing with pervasive corruption at all levels of government, most notably in natural resources management, which has had disastrous ramifications for the country’s economic development (see here, here, and here). Like other Pacific islands, the Solomon Islands is home to a practice of traditional gift-giving to and by public officials, which in many other jurisdictions could be viewed as legally problematic. According to a local custom (as explained in an official government document), public officials, as members of their community, are “expected to contribute to community events such as weddings, funerals, feasts or church gatherings” and are “obligated to reciprocate with gifts if and when they visit communities and are presented with gifts.”

In July 2018, as part of a comprehensive national anticorruption scheme, the Solomon Islands’ Parliament enacted the much anticipated Anti-Corruption Act (ACA). The ACA is especially notable, and unusual, in its approach towards customary gifts and bribery. Instead of capping the monetary value or limiting the type of gifts which public officials are allowed to accept, the ACA introduced a new cultural defense to the offence of bribery of public officials. According to this defense, a public official who accepts or solicits something of value, as well as the individual who offers or gives it, is not guilty of bribery if the defendants can prove that their respective acts were conducted: (1) “in accordance with custom,” (2) “openly, in the course of a traditional exchange of gifts,” and (3) “for the benefit of a community or group of people and not for an individual.” According to Prime Minister Rick Houenipwela, the ACA’s cultural defense is required as part of the government’s obligation “to respect our customs and traditional cultures” as “a multi-ethnic post conflict country.” However, the cultural defense has been criticized by many, including the Parliament’s Bills and Legislation Committee (see here and here) and Transparency Solomon Islands, which referred to this defense as “a good example of bad law.”

In this post, I do not attempt to answer the question whether the Solomon Islands’ customary gift giving should be criminalized. I do wish to argue, however, that even if we assume that local gift-giving customs are worth protecting, the ACA’s cultural defense to bribery in its current form is highly susceptible to misuse and may undermine the government’s anticorruption efforts. Both the Solomon Islands and other jurisdictions that might be considering a similar cultural defense should take heed of four significant problems with the defense as currently written: Continue reading →

Transparentizing the Commodity Trading Sector: Why Trading Companies Must be Subject to Mandatory Payments Disclosure

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Commodity trading companies (CTCs) mainly operate as middlemen in a business model called “transit trade,” where CTCs administer the delivery chain for primary economic products (energy, metals, agriculture, etc.) from the extraction site to the ultimate buyers. Though CTCs rarely have physical possession of these commodities, the CTCs are the ones that typically build connections with foreign officials and politicians, pre-finance extraction activities by indebted governments (often through loans pledged on future commodity deliveries), and sell raw materials across the globe. Because of CTCs’ frequent interaction with foreign governments and state-owned enterprises, their complex structure, and the opacity of the commodities market, the corruption risks—particularly in the markets for “hard” commodities like oil, gas, or minerals—are especially large, as a few recent cases have highlighted (see, for example, here, here, and here). Politically exposed persons (PEPs) also take advantages of the opacity in commodity trading to launder illicit proceeds derived from corruption.

Yet in stark contrast to the focus on the corrupt activities of those companies engaged directly in extractive activities, as well as by the ultimate purchasers “upstream,” corruption by CTCs has not received much attention. This oversight should be corrected, in part by covering CTCs under the “Publish What You Pay” (PWYP) laws of their home countries—laws that usually only mandate payment disclosures relating to exploration, extraction, and processing, and that often explicitly exclude payments related to “commodity trading-related activities.” This exclusion is a mistake, as there are at least two good reasons to apply PWYP rules to CTCs: Continue reading →

Proposed US Legislation Can Solve the Art World’s Money Laundering Problem

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The plan was simple: a wealthy client wishing to launder the proceeds of a stock manipulation scheme could do so through a Picasso painting. His accomplice would be Matthew Green, the owner of a prominent London art gallery and son of one of London’s most powerful art dealers. The client would purchase the painting using the illegal proceeds, own the painting for some time to avoid suspicion, and then sell the painting back to Green, who would transfer the original payment back to the client through a US bank—to “clean the money.” It was completely foolproof, except that the client turned out to be an undercover FBI agent.

Why a painting to launder the money? Because the art business is impenetrable by outsiders: it’s a world limited to highbrow art connoisseurs, dealers, and wealthy collectors, where the prices are whatever they want them to be. Here, $9.2 million, although the painting failed to sell at a much lower price estimate years before. And as the defendants in the Green case explained to their client, the art business is “the only market that is unregulated” by the government. It seems that the players in the art world make up their own rules, unchecked by any authority, making this elusive quality of the business the perfect “hotbed” for corrupt activity.

In May 2018—possibly in response to the February 2018 indictment in this case—legislation was introduced in US Congress to tackle the money-laundering problem in the art business (previously described on this blog). The Illicit Art and Antiquities Trafficking Prevention Act (Act) would cover art and antiquities dealers under the Bank Secrecy Act (BSA), which requires financial institutions and other regulated businesses to establish anti-money laundering programs, keep records of cash purchases, and report suspicious activity and transactions exceeding $10,000 to government regulators. This legislation has, perhaps unsurprisingly, been vigorously opposed by the art industry. But the objections to the proposal do not withstand scrutiny:

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The Bolsonaro Administration is Quietly Reducing Transparency in Brazil

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Right-wing populist Jair Bolsonaro was inaugurated President of Brazil on January 1, 2019. As a candidate, Bolsonaro promised that his regime would break with the large-scale graft of Brazil’s former leaders and would ruthlessly pursue the corrupt and bring them to justice. At the end of January, Justice Minister Sergio Moro released, with much fanfare and press attention, a sweeping anti-crime legislation package that addresses both white collar crime and violent organized crime, and that incorporates some, though not all, of the anticorruption measures proposed by Transparency International. So does this mean that the Bolsonaro Administration is following through on its promise to make the fight against corruption a major priority, and to end the culture of impunity that has shielded Brazilian political elites?

Alas, no. While the anti-crime package (and other high-profile pieces of legislation, like tax reform) have been highlighted by the administration and attracted most of the media attention, less prominent yet equally consequential pieces of legislation related to corruption are being passed with little to no warning or public debate. Here are two examples of major events that have occurred within the first month of the regime that should give anticorruption scholars and the international community pause in their evaluation of the Bolsonaro government’s fight against corruption:

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Open Contracting and the Withholding of Commercially Sensitive Information: the U.S. Experience

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U.S. courts and federal agencies have grappled for more than 40 years with the question of what information in a government contract should be made public and what should be withheld as “commercially sensitive.” The anticorruption community now seeks an answer to that same question.  The Open Contracting Partnership, the leading advocate for the full disclosure of every contract let by every government, acknowledged in July there should be an exemption from disclosure for such information, and a Center for Global Development working group followed in October with draft principles for determining what is commercially sensitive.

Getting the correct answer is critical, particularly for developing nations, precisely the countries where advocates believe open contracting will make the greatest difference and where the push for open contracting laws is felt the most.  Too narrow an exemption, one that would result in the release of genuinely sensitive information, will discourage companies from bidding on public tenders.  On the other hand, if the exemption is too broad, contractors can use commercial sensitivity assertions to hide information showing whether a contract was awarded fairly and honestly and whether the public is getting value for its money.

Though far different than conditions in these countries, the American experience nonetheless offers lessons to those urging developing nations to embrace open contracting. The most important being that it counsels more caution than many open contracting advocates might at first think is warranted. Continue reading →

Ukraine’s Cynical Efforts to Mandate Public Asset Disclosures for Anticorruption Advocates Must Be Stopped

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In 2016, under pressure from anticorruption organizations, Ukraine’s parliament passed the “On Prevention of Corruption” law, which required high-level government officials and other civil servants to disclose their income and assets in a public online database. A year later, however, the parliament—in what seems to have been an act of retaliation—adopted an amendment to that law, and required all individuals who “carry out activities related to the prevention and counteraction of corruption” to also declare their assets by April 1, 2018, or face potential penalties (including fines or imprisonment of up to two years). The amendment, in other words, imposes on anticorruption advocates the same financial disclosure requirements that many of these advocates had insisted on imposing on Ukrainian public officials.

Imposing this disclosure requirement on anticorruption advocates was rationalized as promoting transparency, since foreign money often supports anti-graft work in Ukraine. Some have claimed that anticorruption activists are themselves corrupt and work with anticorruption organizations to enrich themselves. More generally, the amendment seems to be motivated by an impulse toward retaliation (or a version of fairness): The message seems to be, “If you people think these requirements are appropriate for us, then you should be willing to put up with them too.”

But anticorruption workers do not hold public office and are not supported by taxpayer money, and there is no good reason to subject them to the same demanding disclosure standards that are entirely appropriate for public servants. This obvious distinction is further reason to believe that this amendment is yet another measure in line with previous government efforts to discredit anticorruption activists. Imposing the disclosure requirement has been roundly criticized both domestically and internationally, with activist organizations also arguing that the amendment violates Ukraine’s Constitution (particularly rights to freedom of speech, association, and employment). Even Ukrainian President Petro Poroshenko has called the bill a “mistake,” and in July 2017 he submitted to parliament two draft laws that eliminate the asset disclosure obligation for individual anticorruption activists—but place even more stringent reporting requirements on anticorruption organizations. These draft laws drew further criticism, and as the April 1, 2018 asset disclosure deadline approached and passed, Ukraine’s parliament has refused to consider any changes to the law.

Leaving in place the requirement that those who help fight corruption must make the same kind of public asset disclosures as government officials will sabotage and chill anticorruption work. It is vital that domestic activists and the international community keep up the pressure on Ukraine to eliminate this requirement altogether, and to do so soon in order to remove the cloud of uncertainty that has fallen over all anticorruption advocacy since the April 1 deadline passed. The disclosure requirement as it stands threatens to undermine the fight against corruption in Ukraine in at least three ways: Continue reading →

An Amazing Database: DIGIWHIST Strikes Again

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DIGIWHIST has struck again.  It has just released the latest version of its extraordinary data set covering political financing, disclosure of officials’ finances, conflict of interest, right to information, and public procurement in 34 European states plus the European Union.  With the laws on each subject along with an assessment of how thoroughly they address area, it is a real treat.

At least for the kind of people who read GAB (that means you, dear reader).

The database is part of an EU-funded digital whistleblowing project (DIGIWHIST).  The project’s aim is to improve trust in governments and the efficiency of public spending across Europe by providing civil society, investigative journalists, and civil servants with the information and tools they need to both increase transparency in public spending and enhance the accountability of public officials.  For those working in developing states, it is an invaluable resource, showing how different developed countries and those making the transition to a market economy deal with critical issues involving public integrity and transparency.  Thanks to the EU for supporting such a great project and congratulations to those whose hard work produced such a useful resource.

Best Practices for a “Database of Deals”

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Last month, Joseph Percoco, former aide to New York Governor Andrew Cuomo, was found guilty of conspiracy to commit fraud and soliciting bribes for nearly $300,000 in connection to several multimillion-dollar economic development contracts in upstate New York. Next month, Alain Kaloyeros, the former President of the State University of New York Polytechnic Institute, will similarly go to trial on federal bid rigging, fraud, and bribery charges related to the upstate economic development project the “Buffalo Billion.” As I previously wrote, these are two of six high-profile corruption trials in New York this year—cases that have already generated calls for ethics reform (see here, here, and here). While similar calls for reform after the high-profile convictions of former New York state legislators Sheldon Silver and Dean Skelos were largely ignored, one modest proposal seems particularly promising: creating a public database of businesses and organizations that are awarded state economic development contracts and grants.

New York state and local governments spend over $8 billion on economic development programs each year, the most of any state in the country. However, little clarity exists about which companies receive subsidies, the value or amount of these subsidies, the employment and investment commitments tied to these subsidies, and whether these commitments are being met. This opacity not only makes it difficult to assess the successes and failures of development programs, but also creates opportunities for the type of corruption that ensnarled Mr. Percoco and Mr. Kaloyeros. Creating a database of all public economic development benefits (including grants, loans, or tax abatements) would increase transparency and accountability. Such a “Database of Deals” would provide a central source for authorities to monitor and flag irregularities, increasing public confidence in the procurement process, and deterring corruption by individuals who know that the public can assess the return on investment for each economic development project.

The recently passed 2019 New York State Budget included billions of dollars in new appropriations for economic development, yet bi-partisan legislation creating a “Database of Deals” was dropped from the budget the day before it passed. However, the New York state legislature still has several months to pass similar legislation. Moreover, six other states—including Florida, Maryland, Indiana, Illinois, and Wisconsin—have created and implemented similar searchable databases after calls for greater transparency and accountability. If and when New York, and other states, create similar databases, there are certain “best practices” that they ought to follow, to maximize the effectiveness of these databases in deterring corruption.

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National Digital Currencies Raise New Risks of Grand Corruption

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In 2017, you may have heard of this thing called blockchain. The technology, which works by creating a decentralized, encrypted, and independently verifiable ledger of transactions distributed over a network of computer systems, has allowed innovations in the design of secure systems for recording votes, registering land ownership, and confirming digital identity. The most famous application of the blockchain, however, has been the creation of digital currencies such as Bitcoin, Ethereum, and Ripple. Many private individuals consider these currencies to be the way of the future, and the death knell of the central banker: universal, transparent, and valued according to mathematical laws rather than political preferences, cryptocurrencies—according to their proponents—will bring with them immeasurable benefits, among them making the fight against corruption easier by allowing all interested parties to “see the entirety of any transaction instantly and accurately.”

But private citizens aren’t the only ones who have heard of the blockchain: the same central bankers who are meant to be rendered irrelevant by the advent of cryptocurrencies have also taken notice. Several governments, including those of Israel, Russia, China, Estonia, Sweden, and Venezuela, have announced plans to create their own national digital currencies (NDCs) based on blockchain technology. While there are several sound economic reasons for introducing an NDC, governments frequently cite the same anticorruption benefits mentioned above.

However, there are crucial differences between NDCs and cryptocurrencies like Bitcoin. Rather than open architectures enabling full financial transparency, most NDCs currently plan to use some form of centralized ledger, giving government authorities (and only them) the ability to see and police transactions. While such centralized transparency will give honest governments a much-needed boost in the fight against corruption, it will also give oppressive and kleptocratic regimes another tool with which to steal from and oppress their populations. Continue reading →

India’s Political Party Finance Reform Falls Short of Ensuring Complete Transparency—But Is Still a Step in the Right Direction

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On March 1, 2018, India began its latest effort to clean up the financing of political parties and elections. This efforts involves the sale of so-called “electoral bonds” at select state banks across the country. The term “electoral bonds” is a misnomer, for these “bonds” are not linked to elections, nor do they involve paying back a loan or yielding interest. Rather, these instruments are simply a new means to facilitate financial donations to political parties, and are intended to displace the undocumented cash transfers that form the lifeblood of Indian politics. As India’s Finance Minister argued, this cash-based system causes two problems: First, “unclean money from unidentifiable sources” facilitates corruption and money laundering. Second, the reliance on cash allows parties to underreport both their budgets and spending. These concerns led the government last year to reduce the limit on anonymous cash donations from $300 to $30. Electoral bonds intend to further disrupt the system and achieve at least some increases in transparency of political spending.

Announcement of the new system has generated significant commentary, with the few admirers crowded out by the numerous detractors (see, for example, here, here, and here). The main focus of criticism is the new scheme’s guarantee of donor anonymity: Electoral bonds will carry no name and nobody, other than the bank and donor, can know who made the donation unless the donor willingly discloses her identity. The government has defended the anonymity guarantee as a way to prevent reprisals against donors, but critics understandably argue that the lack of transparency means that much political financing will continue to come from “unidentifiable sources,” allowing big business to keep lobbing money in exchange for policy favors while the public remains in the dark. (Moreover, the government’s emphasis on fear of reprisals as the rationale for anonymity suggests the government is unduly concerned with protecting the only class of donors for whom this would be a significant concern, namely large capitalists.) The electoral bond scheme has thus been painted as a move that potentially strengthens the crony capitalism responsible for India’s dire economic situation.

This strong negative reaction to the electoral bond scheme is, in my view, overwrought. True, the new policy does not solve the deep and serious problems with political finance in India. But it does have some notable advantages over status quo. Additionally, critics of the electoral bond system sometimes seem to treat donor transparency as an unalloyed good, when in fact donor transparency may have some drawbacks as well (even if one doesn’t take too seriously the government’s official line on political reprisals). Let me elaborate on each of these points: Continue reading →