Guest Post: An Anticorruption Agenda for the Biden Administration

Today’s guest post is from Lucinda A. Low and Shruti Shah, respectively Acting Chair and President of the Coalition for Integrity, a U.S. based non-governmental organization focused on fighting corruption. The opinions expressed here are those of the authors, and should not be attributed to the organization..  

The United States has a long history, across administrations of both parties, of showing leadership internationally in the fight against corruption. The passage and enforcement of the Foreign Corrupt Practices Act (FCPA) has served as an example for other countries to adopt their own transnational anti-bribery laws. Additionally, the United States has championed international anti-bribery efforts in multilateral organizations and worked to build coalitions to root out all types of corruption. For the last several years, however, U.S. has faltered. In order to reestablish the U.S. as a global leader against corruption, and to get its own house in order, the Biden Administration and the new Congress should embrace an ambitious agenda that includes the following elements: Continue reading

New Podcast, Featuring Gary Kalman

A new episode of KickBack: The Global Anticorruption Podcast is now available. In this week’s episode, we’re delighted to welcome back to the podcast Gary Kalman, the Director of Transparency International’s United States office. I was fortunate to be able to interview Gary a little over one year ago, just before he stepped into his new role as TI’s U.S. Director. In our more recent conversation, we had the opportunity to discuss how his first year in this position has gone, touching on some major successes–most notably the passage of the Corporate Transparency Act, which requires companies to provide the government with information on their true beneficial owners–as well as ongoing challenges. Gary discusses some of the advocacy strategies that proved effective on the corporate transparency issues, and suggests how similar strategies might be deployed to advance other aspects of the anticorruption agenda. He also lays out what he sees as the highest priorities for TI’s advocacy work in the United States, and what vulnerabilities have been exposed by the experience with the Trump Administration and how those might be addressed. You can also find both this episode and an archive of prior 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.

The New FCPA Resource Guide Wisely Suggests a More Flexible Approach to Successor Liability

When a company subject to the jurisdiction of the U.S. Foreign Corrupt Practices Act (FCPA) merges with or acquires another company that is also covered by the FCPA, should the former company also acquire the latter’s potential FCPA liability? In other words: Suppose Company A acquires Company B, and evidence later comes to light that prior to the acquisition, Company B’s employees paid bribes to foreign government officials, in violation of the FCPA. Can or should Company A be subject to a post-acquisition enforcement action for these earlier FCPA violations? This is known (in the FCPA context and elsewhere) as the question of “successor liability.” In U.S. law, the general rule is that successors inherit the acquired company’s civil and criminal liabilities. The U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC), which share responsibility for enforcing the FCPA, have long argued that there is no reason to make an exception to this general rule for FCPA cases. Yet critics have argued that successor liability in the FCPA context “can kill deals.” Numerous transactions have fallen through or decreased in value because of corruption-related concerns, and other transactions became costlier due to such risks.

The DOJ and the SEC’s traditional response to such concerns—as laid out in the first edition of their FCPA Resource Guide, published in 2012—is that companies should conduct pre-acquisition due diligence to identify red flags and potentially undertake various forms of remediation. Furthermore, the agencies have stated that they might decline to pursue enforcement actions against an acquiring firm on a successor liability theory if that firm’s pre-acquisition efforts were adequate. The problem, though, is that pre-acquisition due diligence on possible FCPA violations is often difficult or impossible to conduct properly. In some cases, laws in foreign countries known as blocking statutes may prevent the acquiring firm from getting the information it needs from the target company (see, for example, here and here). More generally, there are numerous practical reasons why pre-acquisition due diligence on possible FCPA violations may not be possible, including time-sensitivity, the difficulty of accessing data stored or located in distant places, and the target company’s reluctance to cooperate with external investigations that could result in the target’s personnel facing criminal exposure. These factors can make pre-acquisition due diligence impractical.

The DOJ and SEC appear to have acknowledged and responded to that concern in the second edition of the FCPA Resource Guide, published this past July. While the second edition’s treatment of successor liability seems mostly the same as in the first edition (save for some wording adjustments and references to more recent cases), the second edition also includes one short but potentially crucial additional paragraph, which reads as follows:

DOJ and SEC also recognize that, in certain instances, robust pre-acquisition due diligence may not be possible. In such instances, DOJ and SEC will look to the timeliness and thoroughness of the acquiring company’s post-acquisition due diligence and compliance integration efforts.

Although subtle, this passage represents a potentially important shift, as it indicates that the DOJ and SEC will consider not only pre-acquisition due diligence, but also post-acquisition measures, when deciding whether to pursue enforcement actions against a company on a successor liability theory.

Continue reading

The Emoluments Clause Cases Against Donald Trump: A Post Mortem

Of the many credible corruption and conflict-of-interest allegations against former President Donald Trump, some of the most prominent concerned the income that the Trump Organization earned from parties with interests in influencing U.S. government policy. While the general conflict-of-interest rules that cover most federal officials do not apply to the President, a subset of the Trump Organization’s business dealings—in particular, those involving foreign governments and state governments—at least arguably violated the U.S. Constitution’s two so-called “Emoluments Clauses. (The Foreign Emoluments Clause prohibits any U.S. official from receiving gifts, titles, or “emoluments” from foreign governments, while the Domestic Emoluments Clause prohibits the President in particular from receiving any benefits other than his official salary from federal, state, or local governments.) President Trump’s alleged violations of the Emoluments Clauses triggered three separate lawsuits, filed by different parties in different federal courts, within Trump’s first six months in office. Those cases gradually wound their way through the legal system, with some defeats and some victories, mainly on threshold legal questions.

Last week, the U.S. Supreme Court brought that whole process to a halt, dismissing petitions for review in two of those pending cases as moot. (The third case had been dismissed by an appeals court, and the Supreme Court declined to review that case last fall.) Thought the Court’s terse, unsigned order included no explanation, the obvious inference is that the Court determined that the Emoluments Clause suits were moot because Donald Trump is no longer President. Importantly, the Court’s mootness order means not only that these suits won’t proceed, but also that the previous legal rulings in the cases under review are vacated, and thus have no precedential value. Legally speaking, it’s as if the cases never happened.

This did not sit well with everyone. Former head of the Office on Government Ethics Walter Shaub described the Court’s dismissal of the cases as “insane,” arguing that the cases are “not moot” because Trump “still has the money.” “When any other federal employee violates the emoluments clause,” Shaub observed, “they have to forfeit the money.” Others involved in the litigation against Trump tried to look on the bright side. The Citizens for Responsibility and Ethics in Washington (CREW), for example, issued a statement noting that the Emoluments Clause litigation “made the American people aware for four years of the pervasive corruption that came from a president … taking benefits and payments from foreign and domestic governments.”

I’ve been trying to figure out what I think about all this. I don’t have a clear, clean bottom line, but I do have a few scattered thoughts about what we might take away from the denouement of the Emoluments Clause controversy. Continue reading

Checked or Choked? How the Congressional Response to the Abscam Investigation Undermined the FBI’s Ability to Root Out High-Level Corruption

On February 2nd, 1980, the FBI announced the results of a massive sting operation, codenamed “Abscam,” conducted against members of the U.S. Congress. At the time, this was the largest FBI political corruption operation ever conducted: two years in the making, involving over a hundred agents and hundreds of thousands of dollars in operating costs. The details of the operation were so outlandish they sound like they could have been lifted from a Hollywood movie. The FBI recruited an international con artist named Melvin Weinberg for “creative direction” of the operation, and then had agents pose as wealthy Arab sheiks (hence the name of the operation, a contraction of “Arab scam” or “Abdul scam”) that came a-calling to Capitol Hill to purchase favors and votes. The operation took place on Key West yachts and in Atlantic City casinos, in limousines and on chartered jets, where the “sheiks” lured politicians to glitzy affairs with offers of $50,000 for a favorable licensing deal or immigration waiver. They had astonishing success. Not only were the approached targets receptive, several actively recruited other elected officials to the bribery scheme. Congressmen were caught on tape accepting paper lunch bags stuffed with cash, paired with made-for-movie dialogue such as: “Money talks in this business,” “I’m no Boy Scout,” and “I got larceny in my blood. I’ll take [the bribe] in a goddamn minute.” Weinberg and the FBI reckoned that the sting easily might have nabbed a great deal more Congressmen if the FBI hadn’t run out of bribe money and the press hadn’t scored an early scoop. What followed was a flurry of resignations, hearings, and criminal trials. After the dust settled, six representatives and one senator had been convicted of bribery and conspiracy. Despite controversy over the ethics of the FBI’s methods, every conviction was upheld on appeal.

The fact that these convictions stuck is a reflection of the fact that although the undercover FBI agents involved in Abscam got very close to the line that separates legal deception from unlawful entrapment, the FBI had been scrupulous about staying on the right side of that line: all tapes were immediately reviewed to ensure that agents had not improperly induced wrongdoing; the cash transfers were witnessed and monitored by Justice Department attorneys; and judges signed warrants and sanctioned the FBI’s methods. Nevertheless, Congress—perhaps unsurprisingly—thought that the FBI had gone too far. At hearings before House Subcommittee on Civil and Constitutional Rights and the Senate Select Committee to Study Undercover Activities, Members of Congress aired grievances over FBI undercover procedures, and argued that while undercover investigations could be valuable, the FBI had gone too far, and had engaged in a wildly inappropriate exploratory fishing expedition.

Now, Congress’s actions may not have been purely self-serving. A few years prior to Abscam, a Senate select committee, known as the Church Committee, revealed significant FBI abuses, documented in a whopping fourteen reports that laid out intelligence agency abuses in extraordinary detail. Some suggest—controversially—that Abscam was the FBI’s retaliation against Congress for this public excoriation.

Whatever Congress’s motives, in the decade following Abscam, Congress circled the wagons, pressuring the Department of Justice to implement internal reforms by way of proffering dramatic legislative packages staunchly opposed by Attorneys General. The “compromise” result was a series of restrictive guidelines for undercover and sting operations, guidelines that effectively bar the FBI from ever again conducting an operation similar to Abscam.

Continue reading

The Decline of Small Newspapers Means Higher Risk of Local Corruption in the U.S.

There is widespread consensus that a free, objective press plays an important role in fighting corruption and holding public officials accountable (see here, here, and here). That’s why, when countries with high levels of public corruption seek to silence investigative journalists or shutter unbiased news outlets, anticorruption organizations like Transparency International are vocal in their opposition. It’s a bit surprising, then, that so little has been said about how the decline of small newspapers in the United States has increased the risk of local corruption.

The decline of small newspapers in the United States has been precipitous. Between 2004 and 2018, there was a net loss of nearly 1,800 papers, over 1,000 of which had circulations under 5,000. Today, around half of all counties in the United States only have one local newspaper, often circulating only on a weekly basis, while nearly 200 counties don’t have a single newspaper—resulting in “news deserts,” defined as communities “with limited access to the sort of credible and comprehensive news and information that feeds democracy at the grassroots levels.” Furthermore, in many of the small- and medium-circulation outlets that remain, newsrooms have been gutted, often due to layoffs imposed by their parent companies. For example, Digital First Media, a publisher that owns more than 50 newspapers, has eliminated two-thirds of all newspaper staff since 2011.  Between 2001 and 2016, employment in the U.S. newspaper industry decreased by more than 50%.

The decline of small newspapers is just one component of a shifting media landscape in the United States. Some of the other trends, like the rise of social media and the proliferation of unverified and sometimes apocryphal online new sources, have been at the center of political discourse. The decline of small newspapers, on the other hand, is often lamented as a regrettable casualty of changing times, but there isn’t enough appreciation of the fact that the decline of small newspapers poses a risk of increased local corruption. Continue reading

The Trump Administration and Corruption: A Preliminary Retrospective

As of yesterday at 12 noon, U.S. East Coast Time, Donald Trump is no longer the President of the United States of America.

First, let’s all breathe a collective sigh of relief.

OK, now we can start thinking about what we’ve learned from this traumatic experience. There is no shortage of political and cultural commentary on the Trump era and its implications, and I have little of substance to add to that general discussion. But, given that this is a blog specifically focused on corruption, let me offer a few reflections on the implications of the last four years for corruption and anticorruption in the United States.

At the risk of self-indulgence, I’ll frame this preliminary discussion in terms of my own guesses, as of four years ago, about how the Trump Administration would affect U.S. corruption and anticorruption policy. Immediately after Trump’s election, I wrote a despondent post about why I thought that Trump’s election would be a disaster for the fight against corruption on many different dimensions. Roughly a year later, I did a follow-up post assessing my own predictions, concluding that on some issues my pessimistic forecasts proved inaccurate (for reasons I did my best to assess), while on other dimensions the Trump administration was as bad or worse than I had feared. Now that Trump is finally out of office, it’s a good time for another retrospective assessment—both to understand where things stand now with respect to U.S. policy and leadership on anticorruption issues, and also to see what lessons we might be able to draw from the experience of the past four years. Continue reading

It’s Not Just the Corporate Transparency Act: Other Reasons To Welcome the Passage of the U.S. NDAA

Last week I posted about the Corporate Transparency Act (CTA), the new law requiring companies to provide the government with information about their ultimate beneficial owners. The CTA, which was passed (over President Trump’s veto) as part of the National Defense Authorization Act (NDAA), has been getting a lot of attention in the anticorruption and anti-money laundering (AML) community, and rightly so. The product of decades of tireless and shrewd advocacy, the CTA—despite its limitations and imperfections—will make it substantially harder for kleptocrats, terrorists, organized crime groups, and others to abuse corporate structures to facilitate their crimes and hide their loot. But the CTA is not the only part of the NDAA that may have a substantial positive impact on the fight against corruption and money laundering. And while it’s entirely understandable that most of the attention (and celebration) in the anticorruption community has focused on the CTA, I wanted to use today’s post to highlight several other provisions in the NDAA that may also prove important in combating corruption and money laundering. Continue reading

A Few Thoughts on the Passage of the U.S. Corporate Transparency Act

[Note: I drafted the post below earlier this week, before yesterday’s shocking events in the U.S. Capitol. I mention this only because it might otherwise seem odd, and perhaps a bit tone-deaf, to publish a commentary on new corporate transparency rules when we just saw an attempted insurrection incited by the siting U.S. President. I don’t really have anything to say about the latter events (at least nothing that others haven’t already said), so I decided to go ahead and publish the post I planned to publish today anyway.]

Last week, as I suspect many readers of this blog are well aware, the United States Congress enacted one of the most significant anticorruption/anti-money laundering (AML) reforms in a generation. The Corporate Transparency Act (CTA), which was incorporated as part of the annual National Defense Authorization Act (NDAA), will require—for the first time in the United States—that corporations, limited liability companies, and similar entities will have to provide the U.S. government (specifically, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN)) with the identities of the ultimate beneficial owners of those entities. That beneficial ownership information, though not made publicly available, will be provided to law enforcement agencies, as well as to financial institutions conducting due diligence (with customer consent). This reform will make it substantially harder for kleptocrats and their cronies—as well as other criminals, including human traffickers and terrorists—to conceal and launder their assets in the United States through anonymous shell companies, and will make it substantially easier for law enforcement to “follow the money” when investigating possible criminal activity.

This important reform has already gotten a ton of coverage in the anticorruption/AML community (see here, here, here, and here), as well as the mainstream media (see here, here, here, and here), though mainstream coverage has understandably been overshadowed by both the coronavirus pandemic and President Trump’s attempts to subvert the recent election. And we’ve had quite a bit of discussion of the issue on GAB prior to the passage of the NDAA (see, for example, here, here, here, here, and here). So, I’m not sure I really have that much to add to what others have already said. Nevertheless, it felt strange to allow this landmark event to go entirely undiscussed on GAB, so at the risk of self-indulgence, I’d like to throw out a few additional thoughts and observations related to the CTA. Continue reading

New Podcast Episode, Featuring Norm Eisen

A new episode of KickBack: The Global Anticorruption Podcast is now available. In this week’s episode, I interview Norm Eisen, currently a Senior Fellow at the Brookings Institution. Mr. Eisen previously served as the White House Special Counsel for Ethics and Government during the Obama Administration, as the U.S. Ambassador to the Czech Republic from 2011-2014, and as counsel to the U.S. House Judiciary Committee during the impeachment proceedings against President Donald Trump. Mr. Eisen is also a founder and previous board chair of the Citizens for Responsibility and Ethics in Washington (CREW), which, among other activities, sued President Trump for allegedly receiving unlawful emoluments from foreign and state governments. My conversation with Mr. Eisen–like my conversation with my Jack Goldsmith last month–focuses primarily on what the Trump Administration has taught us about the strengths and weaknesses of the U.S. system for constraining corruption, conflicts of interest, and other forms of wrongdoing by the President and senior members of the executive branch, as well as what kinds of institutional reforms and policy changes would help prevent such wrongdoing going forward. Mr. Eisen emphasizes the resilience of U.S. institutions in the face of the “stress test” provided by the Trump Administration, outlines some of the most important reforms he’d like to see adopted to address the corruption risks that Trump experience has highlighted, and discusses some of the international implications of this issue. You can find this episode here. You can also find both this episode and an archive of prior 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.