Tag Archives: U.S. Senate

Do Individual U.S. Senators Manipulate the Timing of FCPA Enforcement Actions? (Spoiler: No.)

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Is enforcement of the U.S. Foreign Corrupt Practices Act (FCPA) improperly politicized? The notion that it is has gained traction in some circles, particularly in countries with multinational firms that have been sanctioned by U.S. authorities for FCPA violations, such as France and Brazil. The usual claim by those who assert that FCPA enforcement is politicized is that the US Department of Justice (DOJ) deploys the FCPA as a kind of protectionist weapon against foreign multinationals that compete with US firms. But a recent working paper by two business school professors (one American and one Chinese) claims to have found evidence for a different sort or FCPA politicization. According to this paper, individual U.S. Senators exert behind-the-scenes influence over the DOJ to manipulate the timing of FCPA enforcement actions against foreign corporations. More specifically, the paper argues that when a Senator is up for reelection, he or she will influence the DOJ to announce an enforcement action against a foreign company before, rather than after, the election. Doing so, the authors suggest, helps the Senator’s reelection chances by imposing a cost on a foreign company that competes with domestic firms in the Senator’s state.

I confess that when I first saw this paper a few weeks ago, I didn’t take it too seriously, because the central argument seemed so obviously detached from reality. (I also didn’t have time to dig into the details of the empirical methods, which are somewhat involved.) But the paper seems to generated a bit of buzz—including a Tweet from one of the best and most respected economists who works on corruption-related issues, which specifically asked me and a few others for our reactions to some of the “provocative” evidence presented in the paper. So I took a closer look. Continue reading →

Congressional Corruption During the Coronavirus Crisis: The U.S. Must Do More to Eradicate Insider Trading in Congress

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Four U.S. Senators have been accused of trading stocks based upon non-public information about the coronavirus outbreak. The most disturbing cases appear to be Republican Senators Richard Burr and Kelly Loeffler. Senator Burr, who as Chair of the Senate Intelligence Committee attended a daily confidential briefing on the pandemic, divested between $628,033 and $1.72 million from industries hardest hit by coronavirus restrictions, including two major hotel chains. Senator Loeffler, who attended a confidential meeting about the coronavirus on January 24th, divested $1.275 million to $3.1 million from industries most hit, while also purchasing stock in teleconferencing companies. (Two other Senators, Democrat Dianne Feinstein and Republican Jim Inhofe, both also made significant stock sales during this time, but Senator Feinstein’s funds are in a blind trust, and Senator Inhofe has said his financial decisions are made by his financial advisors without consulting him.)

This is not the first time that concerns have been raised about Members of Congress corruptly taking advantage of their privileged access to inside information to enrich themselves, though the fact that Senator Burr engaged in these transactions shortly after having co-authored a piece claiming that “the United States today is better prepared than ever before to face emerging public health threats, like the coronavirus” makes his case particularly egregious. In 2004, a quantitative study found that the investment portfolios of U.S. Senators consistently outperformed the market, a result that at least suggests that Senators were using non-public information to inform their investment decisions. In response to this concern, in 2012 Congress enacted a bipartisan bill called the Stop Trading on Congressional Knowledge (STOCK) Act. (Senator Burr, it should be noted, was one of only three Senators to vote against it.) The main purpose of the STOCK Act was to expressly affirm that Members of Congress and their staffers were covered by the general prohibition on insider trading. The Act also increased transparency by requiring that Members of Congress and senior staff release financial disclosures within 45 days of major trades.

The STOCK Act was a step in the right direction, but it does not do nearly enough to prevent federal legislators from using their privileged positions to enhance their own wealth. To eliminate this form of corruption, the law should impose much more aggressive, prophylactic restrictions.

Continue reading →

New Podcast Episode, Featuring Elise Bean

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A new episode of KickBack: The Global Anticorruption Podcast is now available. This week’s episode features an interview with Elise Bean, who previously worked for U.S. Senator Carl Levin (D-Mich) as staff director and chief counsel of the Senate’s Permanent Subcommittee on Investigations (PSI), which Senator Levin chaired. In the interview, Ms. Bean (who has also written a book about the Permanent Subcommittee’s work) discuss the role of legislative oversight, and the PSI in particular, in addressing money laundering, corruption, and related matters like financial fraud and tax evasion. Ms. Bean also addresses that various weaknesses and loopholes in current U.S. law on these topics and offers suggestions for reforms.

You can find this episode, along with links to previous podcast episodes, at the following locations:

KickBack is a collaborative effort between GAB and the ICRN. If you like it, please subscribe/follow, and tell all your friends! And if you have suggestions for voices you’d like to hear on the podcast, just send me a message and let me know.

How We Did It: the U.S. Congress’ Exposure of the Grand Scale of Global Corruption

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 Over the past two decades the U.S. Senate Permanent Subcommittee on Investigations has laid bare how Gabonese President Omar Bongo, Chilean dictator Augusto Pinochet, Equatorial Guinean President Teodoro Obiang, and a gaggle of friends and relatives of the leaders of Mexico, Pakistan, Nigeria, Angola, Saudi Arabia, and other countries conspired with large, prestigious banks to hide the enormous sums they stole from their nation’s citizens.  Financial Exposure, the new book by subcommittee investigator and later staff director Elise Bean, recounts how Democrats and Republicans united not only to document egregious cases of grand corruption but to enact legislation making banks’ complicity in future cases a crime.

Americans depressed by the rancorous polarization now gripping Congress will find her book a welcome reminder that Democrats and Republicans can work together to advance the public interest.  Scandals involving money laundering by banks in other nations, most recently Denmark’s Danske Bank and Latvian bank ABLV, should prompt non-Americans to send their parliamentarians a copy of Ms Bean’s book.  Below Ms. Bean offers a few morsels from the book to whet readers’ appetites.    

There isn’t room here to recount all the subcommittee’s anti-corruption investigations, but a few examples will illustrate what they showed and what results they produced.

Citibank Private Bank.  Corruption was the subject of a key investigation by the subcommittee in 1999, which was led by then subcommittee chair Republican Senator Susan Collins of Maine. Rumors were flying then that the United States had become the preferred banker for corrupt foreign officials around the world. Working with Democratic Senator Carl Levin of Michigan (my boss), the subcommittee elected to zero in on so-called “private banks,” banking units that opened accounts only for wealthy individuals with at least $1 million in deposits.

The inquiry ended up detailing four accountholders at Citibank Private Bank: Raul Salinas, brother to the then president of Mexico; Omar Bongo, then president of Gabon; Asif Ali Zardari, then known for his marriage to Benazir Bhutto, former prime minister of Pakistan; and the sons of Sani Abacha, recently deceased president of Nigeria.  Senate hearings exposed how Citibank had not only accepted tens of millions of suspect dollars from the accountholders, but also created offshore shell companies to hide their identities, helped them secretly move millions of dollars around the globe, and continued servicing them even after learning of corruption allegations. Continue reading →

Why Does the American Bar Association Oppose Beneficial Ownership Transparency Reform?

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Right around the same time that this post appears on the blog, the U.S. Senate Judiciary Committee will be holding a hearing on “Beneficial Ownership: Fighting Illicit International Financial Networks Through Transparency.” The main focus of the hearing will be on a pending bill, the True Incorporation for Transparency for Law Enforcement Act (TITLE Act). That bill’s major provisions do two main things:

  • First, subject to certain limited exceptions, the Act would require that every applicant wishing to form a corporation or limited liability company (LLC) in a U.S. State must provide that State with information on the true or “beneficial” owners of the company—that is, the live human beings who actually exercise control over, and/or receive substantial economic benefits from, these entities—and to keep this information updated. This information could then be requested by a law enforcement or other government agency, or by a financial institution conducting due diligence on a customer. Those applicants who don’t have a U.S. passport or driver’s license who want to form a corporation or LLC would have to apply through a U.S.-based “formation agent”; this agent would be responsible for verifying, maintaining, and updating information on the identity of the legal entity’s beneficial owners.
  • Second, the bill would also subject these “formation agents” to certain anti-money laundering (AML) rules applicable to financial institutions, including the requirements for establishing AML programs and filing suspicious activity reports (SARs) with the Treasury Department. However, the TITLE Act expressly exempts attorneys and law firms from this provision—provided that the attorney or law firm uses a separate formation agent in the U.S. when helping a client form a corporation or LLC. (The idea, as I understand it, is that the bill would avoid putting attorneys in the position of potentially having to file SARs on their own clients—but in order to avail themselves of this exemption, an attorney helping a client form a corporation would have to retain a separate formation agent, and it would be this latter agent that would be subject to the AML rules. More on this in a moment.)

Compared to the more aggressive beneficial ownership transparency reforms touted by anticorruption/AML advocates, and adopted in some other countries, the proposed U.S. legislation is fairly mild—but it is still, as prior commentators on this blog have emphasized (here and here), a welcome step in the right direction. After all, while the U.S. record on fighting global corruption and international money laundering is good in some respects (Foreign Corrupt Practices Act enforcement and the Kleptocracy Asset Recovery Initiative come to mind), when it comes to addressing the facilitators of corruption, such as corporate secrecy, the U.S. is a laggard (as illustrated by poor U.S. score on the Tax Justice Network’s 2018 “Financial Secrecy Index,” released last month). So it’s indeed encouraging that the TITLE Act, and its counterpart in the U.S House of Representatives (the less-cleverly-named “Counter Terrorism and Illicit Finance Act”) have received both bipartisan support and the endorsement of a wide range of interest groups—including not just anticorruption, AML, and tax justice advocacy groups, but also representatives of law enforcement, the finance industry and other business interests (here and here). Many are cautiously optimistic that some version of these bills might actually become law this year.

But some opposition remains. The sources of that opposition are, in some cases, predictable: the Chamber of Commerce, for example, opposes these reforms, as does FreedomWorks, the lobbying group sponsored by the libertarian billionaire Koch brothers. One of the major opponents of the legislation, though, was more surprising, at least to me: the American Bar Association (ABA), which represents the U.S. legal profession. The ABA has come strongly against this legislation, sending letters to the responsible committees in both the House and Senate expressing strong opposition to even these relatively mild reforms.

What’s the explanation for this uncompromising opposition? Do the objections make sense on the merits? How did the ABA decide to take such a strong stand, despite the fact that I’m sure many ABA members support greater beneficial ownership transparency? I don’t know the answers to any of these questions yet, and I may try to do a few more posts over this month as I try to work through these issues. But for now, let me offer some preliminary thoughts: Continue reading →

The U.S. Combating Global Corruption Act Is a Worthwhile Proposal that Deserves More Attention

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I know a lot of what I write on this blog is pessimistic, critiical, or both, but every once in a while it’s nice to call attention to some positive, encouraging developments. In this spirit, I was heartened to read that a bipartisan group of U.S. Senators last week introduced a new bill, the “Combating Global Corruption Act of 2017” (CGCA), that strikes me as quite a good idea overall. Yes, I realize that most bills like this never make it out of committee, let alone get enacted into law. And yes, the bill has a number of problems, some of which might be fixable through the amendment process but others of which are more inherent. But on the whole, it seems to me that this is the sort of bill that the U.S. anticorruption community ought to support.

Here’s a quick summary of what the bill would do, why I think it’s basically a sound idea, and (because I can’t help myself) a few of its problems and difficulties. (The full text of the bill can be found at the link above, and a press release about it from Senator Cardin’s office is here.) Continue reading →