President Theodore Roosevelt on the Importance of Fighting Corruption

Last week, I posted some information about a new working paper that I jointly authored with Justice Mariano-Florentino Cuellar on anticorruption reform in the United States over the 1865-1941 period. Although one of our main arguments in that paper is that the process of anticorruption reform in the United States was long, slow, and involved many different actors at all levels (in contrast to the image of the “big bang” reform driven by a single powerful figure, like a Lee Kwan Yew or a Mikheil Saakashvili), there were indeed some periods, and some leaders, who were especially important to the anticorruption fight. One of those leaders was undoubtedly President Theodore Roosevelt. President Roosevelt was a complicated figure with complicated legacy, but with respect to anticorruption, he was a significant leader of the reform movement. Since today (September 14) is the 119th anniversary of President Roosevelt’s assumption of the presidency, I thought I’d use the occasion to share some of my favorite remarks of his on the subject of corruption The specific context of these remarks, which came in a December 1903 address to Congress, concerned his administration’s efforts to secure the extradition of bribe-taking officials who had fled the country, but President Roosevelt’s sweeping rhetoric sounds like it could have come from a modern anticorruption reformer in a particularly fiery mood:

There can be no crime more serious than bribery. Other offenses violate one law while corruption strikes at the foundation of all law. Under our form of Government all authority is vested in the people and by them delegated to those who represent them in official capacity. There can be no offense heavier than that of him in whom such a sacred trust has been reposed, who sells it for his own gain and enrichment; and no less heavy is the offense of the bribe giver. He is worse than the thief, for the thief robs the individual, while the corrupt official plunders an entire city or State. He is as wicked as the murderer, for the murderer may only take one life against the law, while the corrupt official and the man who corrupts the official alike aim at the assassination of the commonwealth itself. Government of the people, by the people, for the people will perish from the face of the earth if bribery is tolerated. The givers and takers of bribes stand on an evil pre-eminence of infamy. The exposure and punishment of public corruption is an honor to a nation, not a disgrace. The shame lies in toleration, not in correction…. If we fail to do all that in us lies to stamp out corruption we can not escape our share of responsibility for the guilt. The first requisite of successful self-government is unflinching enforcement of the law and the cutting out of corruption.

New Working Paper on Anticorruption Reform in U.S. History

Endemic public corruption in developing and transition countries often seems intractable. Yet most countries that are currently perceived as having relatively high levels of public integrity–places like Sweden, Denmark, the United Kingdom, and the United States–were, at an earlier point in their history, afflicted with pervasive corruption similar to what one finds throughout the developing world today. Considering the history these countries may therefore make a valuable contribution to modern debates about anticorruption reform—not so much by providing simple lessons about what policies to adopt, but by offering a broader sense of how the complex process of anticorruption reform unfolds over time, and by calling into question certain widely-held beliefs about this process.

A couple years back, after attending a fascinating presentation by Mariano-Florentino Cuellar (a Justice of the California Supreme Court who somehow manages to continue to hold down his former day job as a professor at Stanford Law School), I became particularly interested in the history of my own country, the United States, in the late nineteenth and early twentieth century. The challenges facing anticorruption reformers in the United States during this period bear a striking resemblance to the challenges facing reformers in modern-day democracies in the developing world. Indeed, the United States is a particularly interesting case study because, in contrast to most of the other Western democracies that are currently perceived as having low corruption, the United States established political democracy well before it embarked on significant “good government” reforms.

Justice Cuellar graciously agreed to collaborate with me, and we finally have a draft paper entitled “Taming Systemic Corruption: The American Experience and its Implications for Contemporary Debates.” The draft now available on SSRN here, and is also available as part of the University of Gothenburg Quality of Government (QoG) Institute’s working paper series. Our article, which focuses principally on the period between 1865 and 1941, does not purport to reach firm conclusions about the reasons that the U.S. struggle against systemic corruption ultimately succeeded—let alone to draw facile “lessons” about “what works.” But we do find that the U.S. experience calls into question a number of commonly-held views about the struggle against corruption in modern developing countries: Continue reading

The U.S. Qualified Opportunity Zone Program Is Vulnerable to Corrupt Manipulation by Politically-Connected Investors. Here’s How To Fix It.

The U.S. federal government’s Qualified Opportunity Zones Program, a program established as part of the 2017 Tax Cuts and Jobs Act, is supposed to drive investment to certain low-income neighborhoods (so-called “qualified opportunity zones,” or QOZs) by allowing investors to defer (or, in the case of sufficiently long-term investments, to avoid) capital gains taxes on their investments in these areas. The process of designating QOZs works as follows: First, the U.S. Department of the Treasury provides each state with a list of eligible “economically distressed” neighborhoods. This list is based on census data, but, importantly, it includes not only neighborhoods located in poor census tracts, but also neighborhoods that are adjacent to poor neighborhoods, or that overlap (even slightly) with areas designated as “empowerment zones” under a Clinton-era redevelopment initiative. Next, each state governor has the authority to nominate up to 25% of these eligible neighborhoods for designation as QOZs. The governors’ lists are then submitted to the Treasury Secretary, who has the final authority to certify these neighborhoods as QOZs. As of July 2020, 8,700 neighborhoods had been designated as QOZs.

Many have questioned the wisdom and efficacy of the QOZ program on a variety of grounds, with some characterizing the program as little more than a new form of tax avoidance for the wealthy that fails to address structural poverty. Even if one puts those concerns to the side, there are serious concerns that the existing QOZ program—and in particular, the process for selecting QOZs described above—has been corrupted by wealthy interests, who are able to exploit their political connections to get certain areas designated as QOZs, even when professional staff deem such designations inconsistent with the established program criteria. Consider just a few high-profile examples: Continue reading

New Podcast, Featuring Danielle Brian

A new episode of KickBack: The Global Anticorruption Podcast is now available. In this week’s episode, I interview Danielle Brian, the Executive Director of the Project on Government Oversight (POGO), a U.S. civil society watchdog organization that focuses on investigating, exposing, and preventing government corruption, fraud, and waste, and more broadly lobbies for systemic reforms to improve accountability and integrity in the U.S. government.

The interview begins with a conversation about POGO’s history and current work, and discusses POGO’s somewhat “hybrid model,” which combines investigation work on specific cases with a broader policy reform agenda. Ms. Brian provides, as an encouraging example of how groups like POGO can have a positive impact, POGO’s work in promoting significant reform in the regulations governing payments to oil and gas companies. She describes the case study as a useful illustration of a successful advocacy campaign, but also emphasizes that one of the lessons from this and other cases is that genuine reform takes time and requires patience. We then turn to several other challenges that anticorruption advocacy groups like POGO face, including how to maintain a reputation for nonpartisanship and how to balance the interest in engaging with the government and publicly criticizing the government. Ms. Brian and I also touch on a number of more specific issues, including concerns about corruption in the allocation of coronavirus relief funds, questions about whether or how to frame lobbying or other influence activities as “corrupt,” and the so-called “revolving door” problem.

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.

One other note: KickBack will be going on holiday in August, but we’ll be back with a new episode on September 7.

U.S. State Grand Juries Can Be Powerful Watchdogs. Let’s Put Them To Use (Again).  

Many commentators in the United States—including a number of GAB contributors—have lamented the lack of robust anticorruption investigations at the state level, and have advocated the creation or strengthening of state-level anticorruption commissions (see, for example, here, here, and here). While there is much to be said for these proposals, the existing commentary often overlooks the fact that states already have a powerful institution with the potential to perform many of the functions that reformers hope to vest with the state commissions. That institution is the state grand jury.

When most people hear the phrase “grand jury,” if they know the term at all, they probably imagine a scene from some TV crime show where a prosecutor endeavors to persuade a group of average citizens to indict someone that the prosecutor believes has committed a crime. And indeed in most states, grand juries’ principal function is to determine whether a state prosecutor has “probable cause” to put a defendant on trial. (After the trial beings, a different jury—the “petit jury”—decides whether the defendant is actually guilty.) But grand juries don’t just evaluate the prosecutor’s evidence at the indictment stage. Grand juries also have robust investigatory powers of their own. Like some state anticorruption commissions, state grand juries have the authority to subpoena documents or other tangible things. But unlike state anticorruption commissions, state grand juries can also compel witnesses to testify, and can hold those who refuse in contempt. (Indeed, while witnesses can invoke their constitutional right against self-incrimination to refuse to testify in a criminal trial, no such right exists in a grand jury investigation.) Moreover, grand juries can not only return criminal indictments (their more familiar function), but grand juries can also issue public reports about unethical and unsavory behavior.

If wielded properly, these immense powers could help unearth evidence of wrongdoing. Moreover, grand juries’ investigative powers may be especially valuable in cases involving corruption. While it might seem radical to propose that grand juries exercise these existing but largely moribund powers to assume the role of anticorruption watchdog, this would in fact be a return to one of the grand juries’ traditional functions.

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Guest Post: The Coalition for Integrity’s New Report on How To Ensure Oversight of U.S. Coronavirus Response Funds

Today’s guest post is by Shruti Shah, the President and CEO of the Coalition for Integrity, a civil society advocacy organization focused on corruption in the United States.

The U.S. Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), enacted in late March to address the economic fallout from the coronavirus pandemic, provides over $2 trillion in various forms of relief, including over $600 billion for the Paycheck Protection Program (PPP), which provides loans to small businesses, and approximately $500 billion in additional discretionary Treasury Department loans. To ensure appropriate allocation of these funds, and to reduce the risks of corruption, fraud, and other forms of misappropriation, transparency and oversight are essential. Indeed, we have already seen the perils of a lack of transparency in awarding the PPP loans. Instead of prioritizing businesses who were in danger of failing without an injection of cash, many large chains and other well-funded companies received loans. Further, there are reports that businesses owned by members of Congress received money under the program, which raises conflict of interest concerns.

Unfortunately, the Trump Administration has resisted even relatively modest measures to assure transparency and accountability in the allocation of CARES Act funds. Treasury Secretary Steven Mnuchin previously announced that the names of PPP recipients would not be made public, making the misguided claim that the identity of PPP loan recipients is the companies’ confidential and proprietary information. But taxpayer have a right to know where their money is going (a principle the U.S. vigorously applies when sending foreign aid dollars overseas). Eventually Secretary Mnuchin relented to pressure to change course, and agreed to provide information regarding PPP loans in excess of $150,000. Yet the administration’s resistance to transparency and oversight has continued, as demonstrated by alarming reports that the Treasury Department’s Office of General Counsel has issued a legal opinion claiming that the Department has no obligation to provide key information to oversight officials, including the Pandemic Response Accountability Committee (PRAC), about the CARES Act’s PPP and discretionary business loan programs.

These reports underscore the importance of keeping up the pressure on Congress and the Administration to take appropriate steps to ensure genuine transparency and accountability in the allocation of pandemic response funds. Congress in particular may need to add new legal provisions to address the flaws in the oversight system. The Coalition for Integrity recently released a new report, entitled Oversight is Better than Hindsight: Anti-Corruption Recommendations for the CARES Act, which documents the current oversight gaps in the CARES Act and presents a set of recommendations on how best to close those gaps. These recommendations include, among others: increasing appropriations for oversight bodies, enacting for-cause removal protections for Inspectors General, enhancing whistleblower protections, requiring the Federal Reserve to comply with Sunshine’s Act meeting transcript or recording requirements, and appointing a chairperson to the Congressional Oversight Commission. The report also highlights a number of measures that the Administration can and should take, including better and more effective cooperation with the oversight bodies, creating a public-facing website with detailed information on contracts awarded under the stimulus program (as was done by the Recovery Accountability and Transparency Board, which oversaw the stimulus funding enacted in response to the 2007-2008 financial crisis), and ensuring more generally that agencies are responsive rather than resistant to requests and recommendations from oversight bodies.

Effective oversight is not a partisan political issue. Misuse of stimulus money will compound the country’s collective misery at a time when millions are already suffering from the grave health and economic effects of the pandemic. In this context, insufficient public transparency and a lack of full cooperation with oversight bodies should worry us all.

 

World Bank Monitoring of Repatriated Assets Should Be Part of Major Settlements

The issue of repatriating the proceeds of corruption to the countries from which they were stolen has attracted substantial commentary, including in multiple posts on this blog (see here, here, here, here and here). Much of the discussion focuses on whether and how to return funds to countries that still suffer from systemic corruption or outright kleptocracy. In these cases, the risk that the assets, if simply returned, will be stolen again is, in the view of some critics, unacceptably high. In some cases, despite these risks, the government that seized the assets nevertheless repatriates the seized funds directly to the government from which they were originally stolen; the US Department of Justice (DOJ) has done this in several cases, including asset returns to Peru, Italy, and Nicaragua. In other cases, by contrast, the seized funds have been funneled to a local NGO rather than to the government. This was done in the agreement among the United States, Switzerland, and Kazakhstan regarding the transfer of corruption proceeds to Kazakhstan (an agreement which created a new NGO called the BOTA Foundation). This mechanism was also included in the DOJ’s settlement with Equatorial Guinea over the disposition of assets stolen by the President’s son, Teodorin Obiang. Another approach, which we saw in this past February’s trilateral agreement among the United States, Jersey, and Nigeria regarding the return of $308 million in assets stolen by former Nigerian dictator General Sani Abacha (which I discussed at greater length in a previous post), entails the earmarking of the repatriated funds for specific infrastructure projects, coupled with oversight by a yet-to-be-determined independent auditor and yet-to-be-determined independent civil society organizations (CSOs), with both the auditor and the CSOs selected by Nigeria, but subject to a veto by the United States and Jersey.

The inclusion of these various conditions is understandable. Notwithstanding the sovereignty-based objections advanced by the so-called “victim countries”—which often assert that they have an absolute right to the unconditional return of assets stolen from their national treasuries—returning huge sums to corrupt or weak governments without any safeguards would be irresponsible. Nevertheless, there are many pitfalls involved with leaving oversight largely to the victim country government and local CSOs, and the ability of countries like the United States to monitor compliance with the terms of repatriation agreements in foreign countries is limited. The best way to address these concerns is to involve an international institution—such as the World Bank, or possibly one of the regional multilateral development banks—in monitoring the terms of repatriation agreements.

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Fighting Corruption in U.S. Civil Asset Forfeiture Requires State-by-State Reforms

Civil asset forfeiture is a judicial process through which law enforcement officials seize assets belonging to a person suspected of a crime. To be subject to forfeit, the assets in question must be either the proceeds of crime or were used to further that criminal activity, but in many jurisdictions, civil asset forfeiture does not require a criminal conviction, or even the formal filing of criminal charges, and the typical legal threshold is probable cause that the seized property is connected to criminal activity, rather than the “beyond a reasonable doubt” standard generally required for a criminal conviction.

In the international context, civil asset forfeiture is an integral component in the battle against corruption. Empowering law enforcement agencies to seize ill-gotten gains, without the need to first secure a criminal conviction, is one of the most effective methods of punishing corrupt actors and depriving them of the proceeds of their crimes. But civil asset forfeiture is not limited to seizing the proceeds of grand corruption, and in the United States, the civil asset forfeiture system, particularly at the state and local level, has itself has become a significant vector for corruption, albeit on a much smaller scale, with local officials taking advantage of lax oversight to use seized funds for their own personal benefit. For example, in March 2020, the Michigan State Attorney General’s Office brought charges against Macomb County Prosecutor Eric Smith, alleging that Smith and other county officials had misused forfeiture funds for things like personal home improvements (including a security system for Smith’s house and garden benches for several other employee’s homes), parties at country clubs, and campaign expenditures. Smith is far from the only public official accused of corruption relating to forfeiture funds. To take just a few other examples: State revenue investigators in Georgia used millions in forfeited assets to purchase travel and trinkets like engraved firearms; police officers in Hunt County, Texas awarded themselves personal bonuses of up to $26,000 from forfeiture accounts; and the District Attorney in Lancaster County, Pennsylvania leased a new personal car with forfeiture funds.

To be clear, there are concerns about the civil asset forfeiture system in the United States that run much deeper than the misappropriation of funds. Critics have vigorously attacked both the legal underpinnings of the civil forfeiture system as it currently exists in the U.S., as well the system’s implementation. But for the purposes of this post I want to bracket those larger issues to focus on the question of why the civil forfeiture systems at the state and local level in the United States pose especially high risks of corrupt misappropriation, and what might be done about this (assuming that the civil forfeiture system is here to stay, at least in the short term).

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Barring Corrupt Officials from Entering the United States: A Guide to the Process

Since 2004 it has been American policy to deny entry into the United States of corrupt foreign officials and their immediate families. President George W.  Bush initiated the policy by presidential order, and in 2008 Congress added its voice, enacting legislation barring “foreign kleptocrats involved in the extraction of natural resources” from entering the United States.  Beginning in 2012, the Congressional ban was extended to include all those involved in “significant corruption,” and in 2014 the provision was expanded again to cover foreign officials involved in “a gross violation of human rights.” The following year Congress clarified that designations may be made publicly or privately.

The first public designation was made in 2018 (Albanian judge and prosecutor Adriatik Llalla), and since then more than 150 individuals from over 30 countries have been publicly barred from entry — either for corruption or human rights violations.  Although the State Department web site does not keep a running list of those who have been barred, the NGO Human Rights First does. A spreadsheet available on its website can be sorted by country, crime, date, and other fields and includes links to each State Department sanctions announcement. It is updated whenever new sanctions are announced

The Department encourage civil society activists, foreign diplomats, and others with information relevant to the designation process to contact it. The best way is through its personnel in the field as designations typically arise from recommendations made by U.S. embassy staff.

Two excellent descriptions and discussions of the visa denial policy by analysts at the Library of Congress’ Congressional Research Service are here and here.

The Human Right First spreadsheet, “U.S. Government Public Section 7031(c) Sanctions Designations to Date,” can be accessed here.

GAB contributor Daniel Binette’s recommendations for greater clarity in how visa denial decisions are made is here.

Are There Common Features of Dysfunctional Organizational Cultures? Corruption and Police Brutality

For the second time in the last several months, I’m finding it extremely difficult to blog about corruption due to a more urgent crisis. A few months ago, it was the Covid-19 pandemic, which is still very much with us. But now, in addition to the ongoing public health emergency, my home country (the United States) is in the midst of widespread social and political unrest triggered by the murder of an unarmed black citizen at the hands of police officers, as well as several other similar incidents. The underlying problems—systemic racism and misconduct by law enforcement agencies—are, sad to say, longstanding problems with deep roots. But the protests have given them new urgency and salience. And while there have been instances of rioting and looting—acts that the vast majority of peaceful protestors have roundly condemned—we have also seen what can only be described as a grossly disproportionate response by far too many law enforcement agencies and officers. In multiple cases, police have used unnecessary force not only against rioters and looters, but against peaceful protestors and members of the media who clearly identified themselves as such. And multiple senior elected officials, including President Trump and Senator Tom Cotton, have advocated the use of military force to suppress what they would characterize as civil unrest.

Suffice it to say that, given all this, it’s hard for me to think of something interesting or worthwhile to say about global corruption. But as I’ve been doing more to educate myself about the root causes of police misconduct (a mild term for a category that includes, among other things, brutality and racially discriminatory enforcement), I’ve noticed some intriguing similarities to some of the prevailing theories regarding the roots of organizational corruption (in both government agencies, including but not limited to police departments, and in private firms). Perhaps this shouldn’t be so surprising, because in both cases the ultimate issue concerns the reasons for widespread rule-breaking within an organization. To be clear, I don’t want to overstate the similarities, either with respect to the severity of the misconduct (I condemn bribery as strongly as anyone, but I wouldn’t dream of equating it with systemic racism or police brutality) or with respect to all of the causes and characteristics. I should also emphasize that I’m by no means an expert in police misconduct, and I suspect that many of my observations here will have already been made, or possibly already refuted, in the existing research literature with which I am not yet familiar. With those caveats, let me highlight some potentially intriguing similarities between the characteristics of police departments prone to racism and violence, on the one hand, and firms or divisions that engage in bribery, embezzlement, and other forms of financial malfeasance. These similarities may suggest some common features of ethically dysfunctional organizations. Continue reading