Beneficial Ownership Disclosure Mandates and the Legitimate Privacy Interest in Anonymously-Owned Real Estate

In a forthcoming article in the Notre Dame Law Review, Professors Reid Weisbord of Rutgers Law School and Stewart Sterk of the Cardozo Law School examine the trade-offs posed by requiring the public disclosure of the beneficial owners of real estate. While promoting real estate ownership transparency and curbing criminals’ ability to use anonymously-owned real estate, there are clear disadvantages to making the home addresses of all citizens public, the recent murder of a federal judge’s son at the family home by a disgruntled litigant who found their address online the most patent.

As Professors Weisbord and Sterk explain, a common law trust is one way citizens can keep their home address private, but as they also say, the Pandora Papers shows how easy it is for corrupt officials and criminals of all kinds to use a trust to thwart law enforcement. As Congress considers legislation to end trust abuses, the two urge lawmakers not to lose sight of the downsides of requiring the unrestricted public disclosure of the home addresses of all citizens.  At GAB’s request, Professor Weisbord summarized the relevant portion of their article for GAB readers. The Notre Dame article and an earlier article by Professor Weisbord prompted by publication of the Panama Papers should be required reading for those struggling with how to ensure criminals cannot hide from law enforcement through the use of anonymous corporations, trusts, and other “offshore vehicles,” while protecting judges, victims of domestic or sexual abuse, or others with a legitimate need to keep their home address private.

On October 3, 2021, the International Consortium of Investigative Journalists (“ICIJ”) published the findings of a massive worldwide investigation that painstakingly reviewed nearly 12 million confidential financial documents, a collection now known as the Pandora Papers. In keeping with its prior bombshell investigations, including the Panama and Paradise Papers, the ICIJ has once again exposed a trove of secret financial transactions by a global cohort of world leaders, politicians, and billionaires who have offshored assets by covertly acquiring or storing property in foreign countries. There can be legitimate reasons for individuals to secretly acquire property abroad, but such transactions are also notoriously used to launder money and defraud creditors or tax collectors by evading the jurisdictional reach of the individual’s domestic legal system.

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Guest Post: Ensuring Integrity in U.S. Infrastructure Spending

Today’s guest post is from Shruti Shah, the President and CEO of the Coalition for Integrity (C4I), and Taylor Cerwinski, a consultant for C4I on various anticorruption and ethics issues.

The biggest item on the U.S. Congress’s legislative agenda right now is infrastructure. Last month, the Senate voted to pass a $1 trillion infrastructure bill focused on surface infrastructure and broadband projects, including $550 billion in funding for new projects. That bill is set for a House vote on Thursday, though the politics are complicated by the debates within the Democratic Party over the proposed $3.5 trillion federal budget bill that includes investment in “human infrastructure” via support of child care, education, healthcare, and other projects. While all eyes on Washington are focused on whether the Democrats will be able to hold together their progressive and centrist wings to pass both of these bills, there’s another important concern regarding the proposed infrastructure investment that ought to receive attention: the need for more effective oversight of how the money is spent.

While strong infrastructure is vital to ensure a healthy economy and thriving communities, the scope, complexity, and cost of the proposed infrastructure projects make it vital to ensure that there is clear and robust oversight, so that these projects are carried out in a fiscally responsible manner. Without such oversight, there is a substantial risk that infrastructure projects at the federal and state level will fall victim to waste, fraud and other abuses. Internationally, estimates of losses to bribery in construction are as high as 10 to 30 percent of construction costs. And the United States is not impervious to mismanagement and corruption in infrastructure projects. A review of prior high-profile projects such as the California High Speed train, the Central Artery Project in Boston (The Big Dig), and the awarding of contracts related to disaster relief and clean-up efforts in the aftermath of Katrina reveals cost overruns, fraud, and incidents of bribery and other forms of public corruption.

The infrastructure bill now pending before the House incorporates several measures to combat potential corruption. These include requirements that federal agencies award grants on a competitive basis, regularly publish reports on the implementation of grant programs, and fund oversight functions. While a good start, these measures do not go far enough. Assuming the infrastructure bill passes, agencies must—through implementing regulations and actual practice—go further to ensure transparency, accountability, and integrity in infrastructure spending. As a new Coalition for Integrity’s report on Oversight of Infrastructure Spending, there are a number of useful measures that would be helpful, including the following: Continue reading

New Podcast Episode, Featuring Kate Bateman

A new episode of KickBack: The Global Anticorruption Podcast is now available. In this week’s episode, I interview Kate Bateman, currently a senior expert at the United States Institute of Peace’s Afghanistan Program, and previously the Project Lead for the “Lessons Learned” program with the Special Inspector General for Afghanistan Reconstruction (SIGAR). Our conversation, which in many ways complements our previous episode’s interview with Jodi Vittori, focuses on the role that corruption played in the failure of the U.S.-led mission in Afghanistan and the collapse of the Afghan government that the U.S. and its allies supported, as well as the lessons that can be learned both from the overall experience and, more specifically, from SIGAR’s work. 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.

New Podcast Episode, Featuring Jodi Vittori

After a couple of month off for summer vacation, I’m happy to announce that a new episode of KickBack: The Global Anticorruption Podcast is now available. In this week’s episode, I interview Jodi Vittori, Professor of Practice and Concentration Co-Chair for Global Politics and Security at Georgetown University’s School of Foreign Service. Professor Vittori is an expert in the relationship between corruption and military affairs and security, and much of our conversation focuses on the role of corruption in the failure of the U.S.-led military intervention in Afghanistan and the collapse of the Afghan government that the U.S. and its allies had supported. In addition to the specific issues in Afghanistan, our conversation also addresses more broadly how military strategists, commanders, and diplomats ought to respond to corruption risks. 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.

On Corruption

Taking a break from his GAB duties, our indefatigable editor-in-chief Matthew Stephenson provides readers of Liberties, a leading American journal on culture and politics, a tutorial on corruption. GAB readers will not want to miss it. For in less than 10,000 words, his essay not only make sense of the (tens of? hundreds of?) millions of words written on the topic but provides corruption fighters an order of battle.

Citing passages from the Hebrew Bible and the great Indian text on governance the Arthaśāstra, Matthew reminds that corruption has always been with us and always tolerated — if only grudgingly. What’s new is the extraordinary international consensus that has formed over the past quarter century to end that toleration. Matthew explains how that consensus developed and the opposition it has had to overcome. From those who argue that in some societies corruption is culturally acceptable, from those who believe corruption fosters economic development, and from those think nothing can be done to combat it.

He calls each of these claims a “quasi-myth,” for each contains a kernel of truth, just enough to make a debater’s point. He crushes each, with the cultural determinate one quoting Edmund Burke’s pithy response that the claim of “geographical morality” simply doesn’t stand up to scrutiny.  

The research on corruption has exploded over the past two decades. Matthew’s bibliography is now at 720 pages! He seems to have read every one of the articles, for he brings their findings to bear on the pros and cons of the various solutions that have been proposed — “wise king,” “moment of crisis,” “long slog” — interweaving stories how Denmark, Sweden, and the United States overcame entrenched corruption. He admits that taming corruption is no easy task, especially where it involves persuading corrupt elites reform is critical (“bit like trying to convince turkeys to support Thanksgiving”), but he concludes that while history shows the cancer of corruption can never be fully eradicated “progress against this chronic disease of the body politic is possible, so long as those engaged in the fight do not lose heart.”

The full text of Matthew Stephenson, “Honey and Poison: On Corruption,” Liberties, Summer 2021 is here.

Fighting Corruption Isn’t Rocket Science

Space, the final frontier, sure is expensive to explore. Every launch, every mission, can cost billions of dollars in research, materials, and overhead. And partly because of this, government space agencies may be especially susceptible to corruption. After all, these agencies are responsible for enormous projects with thousands of moving parts (literally and figuratively), but are monitored principally by committees that lack the scientific knowhow to conduct effective oversight. Embezzlement, overspending, bribery, and other crimes are easy to miss. Not only is corruption easily buried by bureaucratic or technical minutiae, it’s also extremely costly, as mistakes can result in the loss of valuable equipment or even human life. Even when corruption causes things to go wrong, the fact that space missions are inherently risky and complex may make it difficult to recognize when a malfunction is due to malfeasance.

Roscosmos, the Russian state corporation responsible for space flights, serves as a cautionary tale. For years, Roscosmos funds have been embezzled though contracting bids— officials were bribed to make fake deals and artificially inflate costs, allowing hundreds of millions of dollars to evaporate and a few Soyuz rockets to accidentally explode. (In 2014 alone, corruption and other malfeasance caused Roscosmos to lose roughly US$1.8 billion.) After Russian anticorruption activist Alexei Navalny called out the “astronomic” levels of corruption and mismanagement at the Vostochny space center (one of President Putin’s pet projects), multiple criminal investigations resulted in the conviction and sentencing of fifty-eight officials for fraud and abuse of office.

Though the record of the U.S. National Aeronautics and Space Administration (NASA) is not nearly as egregious, neither is it pristine. Suspicions regarding bribes by private contractors to NASA officials have existed for decades. For instance, back in the mid-1990s, a controversial FBI sting operation implicated dozens of contractors that allegedly paid bribes to NASA employees in hopes of determining which commercial experiments would be selected for the International Space Station. Representative John Conyers, who chaired the Committee on Government Operations in the House of Representatives at the time, pinned the blame on “NASA’s dismal record of contract mismanagement and faulty financial controls.” And the problems haven’t gone away: just last year, NASA’s associate administrator for human spaceflight Doug Loverro resigned amid allegations for improper contacts with Boeing regarding the contracts for NASA’s moon lander program. NASA’s Office of the Inspector General (OIG) has raised numerous concerns about NASA’s procurement system, and NASA attributed the Taurus XL launch failures, worth $700 million, to faulty materials provided by a contractor that falsified thousands of certifications for their aluminum products.

Though NASA has since taken some measures to curb against the potential for this sort of corruption (such as the installation of a Chief Financial Officer and the Acquisition Integrity Program), the risks are still significant, especially as NASA ponders a return to crewed missions by way of billion dollar contracts. These risks are further exacerbated by the agency’s even greater reliance on private sector contractors to compensate for the decline in the agency’s budget. There are therefore several additional steps that NASA can and should take to further safeguard integrity in the procurement process.

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Guest Post: Illicit Enrichment Laws and the Presumption of Innocence

GAB is pleased to welcome this guest post by Andrew Dornbierer of the Basel Institute on Governance, author of the recently released open-access book Illicit Enrichment: A Guide to Laws Targeting Unexplained Wealth.

Laws targeting illicit enrichment are increasingly prevalent. To date, at least 98 jurisdictions have some form of illicit enrichment law. While the design and scope of these laws vary—some are criminal laws that can be used to convict individuals who control assets disproportionate to their lawful income, while others are civil laws that allow governments to seize assets whose lawful origins cannot be adequately explained—the common characteristic of all illicit enrichment laws is that they do not require prosecutors to secure a conviction for the underlying criminal conduct that allegedly produced the illicit wealth. Rather, illicit enrichment laws only require that the government show that the person enjoyed an amount of wealth that cannot be explained by reference to their lawful sources of income.

This characteristic serves as the primary point of attack for many critics. They claim that by not requiring a state to prove criminal activity, illicit enrichment laws effectively reverse the burden of proof, requiring the targets of the enforcement action to prove their innocence. And some countries have resisted adopting illicit enrichment laws for this very reason. While the UN Convention Against Corruption includes a specific article recommending that state parties consider adopting illicit enrichment laws, during negotiations “many [national] delegations indicated that they faced serious difficulties, often of a constitutional nature, with the inclusion of the concept of the reversal of the burden of proof.” Similar concerns were raised during the drafting of the Inter-American Convention Against Corruption (IACAC), and while in the end this convention did include a provision calling on states parties to adopt illicit enrichment laws, the United States filed a particularly clear reservation to this provision when it joined, noting that because “[t]he offense of illicit enrichment … places the burden of proof on the defendant,” such an offense “is inconsistent with the United States Constitution and fundamental principles of the United States legal system.” And in Ukraine, in February 2019 the Constitutional Court of Ukraine invalidated the local illicit enrichment law on the basis that it was inconsistent with the presumption of innocence.

Is there any truth to the claim that illicit enrichment laws unfairly place a burden of proof on the defendant, and thus violate the presumption of innocence?

The short answer is no.

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Breaking News without Breaking the Bank: Monetary Rewards for Media Organizations that Expose Corruption

Investigative journalists play a key role in exposing corruption. In many cases, as a direct result of media exposés, the government has been able to recover substantial sums. To take just a few examples: In 2011, the Los Angeles Times revealed that officials in a small California city improperly paid themselves exorbitant salaries, and the subsequent court cases ordered restitution awards nearing $20 million. In 2012, the New York Times exposed Walmart’s widespread bribery in Mexico, and the company ultimately agreed to pay $282 million to settle the resulting seven-year investigation into whether Walmart had violated the Foreign Corrupt Practices Act (FCPA). In 2017, the International Consortium of Investigative Journalists (ICIJ) shocked the world when its affiliated journalists broke the Panama Papers scandal, exposing extensive fraud and tax evasion by world leaders, drug traffickers, and celebrities alike. As a result of the ICIJ’s investigation, governments around the world have managed to claw back $1.28 billion from perpetrators thus far. A Malaysian-born British journalist’s investigations (prompted by a whistleblower who provided her with more than 200,000 documents) produced the first hard evidence of what became known as Malaysia’s 1MDB scandal, the world’s largest kleptocracy scheme to date, which has produced, among other things, a nearly $2.9 billion settlement for FCPA violations.

But despite the crucial role journalists play in uncovering corruption, investigative journalism is a risky investment for media outlets. For one thing, this sort of investigative journalism is time- and resource-intensive—much more so than straight reporting—and many investigations come to nothing. And when investigative journalism does uncover evidence of wrongdoing by powerful figures, publishing those stories can be legally and politically risky. So, even though media outlets can reap substantial rewards from successful investigations—in the form of clicks, subscriptions, and prestige—media outlets faced with declining revenues and an increasingly hostile environment may not invest nearly as much in investigations into corruption as would be socially optimal.

To mitigate this problem, I propose what may initially seem like a radical way to create stronger incentives for media outlets to invest in this kind of investigative journalism: When media outlets expose corruption or similar wrongdoing, and this exposure leading to monetary sanctions on the culpable entities or individuals, the media outlets responsible for the reporting ought to receive a percentage of the government’s recovery. Such a proposal is inspired by (though distinct from) the whistleblower reward programs that many governments have already adopted. (For example, in the United States, individuals who voluntarily provide the Securities and Exchange Commission with original information pertaining to securities law violations may receive between 10% and 30% of the total penalty collected if their information leads to a successful prosecution.) A similar “media rewards program” could substantially improve the effectiveness of independent investigative journalism in exposing and deterring corruption.

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See Hearing in Kleptocracy Fight Live at 11:30 EST Today

The anticorruption community rarely has a chance to witness first-hand the fight against Kleptocracy.  Today, Thursday, July 8, at 11:30 US East Coast time it will have a rare opportunity to see the combatants in action. In a Zoomed court hearing, the Department of Justice will ask a federal judge to order Equatorial Guinea’s kleptocratic Vice President, Teodoro Obiang Mangue, to abide by the settlement he reached with the Department in the famously styled action United States v. One White Crystal-Covered “Bad Tour” Glove and Other Michael Jackson Memorabilia.     

One of its first salvos in the U.S war against kleptocracy, the Department filed suit to confiscate the Jackson glove and other Jackson memorabilia, a Southern California mansion worth north of $20 million, and other assets on the grounds Obiang had acquired them with corrupt monies (complaint here).  After a key witness disappeared (under mysterious circumstances), a settlement was reached. Obiang agreed to surrender some of the property and sell the mansion (here) with the funds from the mansion’s sale given to a charity that would see it was used “for the benefit of the people of the Republic of Equatorial Guinea.”   

The settlement provided that should the Department and Obiang be unable to agree on a charity, a three-member panel — one chosen by the United States, one by Equatorial Guinea, and a chair jointly selected — would decide how to use the funds. After years of Obiang’s stalling, so many it prompted Mathew to wonder whatever had happened (here), a panel was finally chosen. An agreement was reached this past May 4 to use $19.5 million of the funds to vaccinate Equatorial Guineans against Covid-19.

Obiang and the EG government are now trying to renege on the deal, prompting the Department to seek an order enforcing it. The Department’s memorandum in support of an enforcement order is here, the affidavit of the U.S. panel member, the American Ambassador to Equatorial Guinea Susan Stevenson, which details the agreement is here, and the e-mail Equatorial Guinea sent backing out of the deal is here.

Click here for the link to the home page of U.S. federal judge George Wu who will preside at the hearing.  At the top will be a Zoom link to the hearing.  

Small Town Corruption: The Cautionary Tale of Jasiel Correia

Elected at the age of 23 to serve as mayor of Fall River, Massachusetts, Jasiel Correia looked like a wunderkind. A tech entrepreneur who founded his own startup, Correia was the youngest-ever mayor of his hometown, the golden boy who promised to use his technological prowess and puckish energy to bring his aging town into the 21st century

Then it all came crashing down. In 2018, Correia was charged with various personal misdeeds, including tax and wire fraud, related to his tech company. A defiant Correia maintained his innocence and rejected calls for his resignation. Then, a second round of charges hit, this time alleging public corruption. Correia purportedly took over $600,000 in bribes from marijuana business license applicants—including one marijuana business owner who paid the Mayor $100,000 and promised him 2% of his future sales revenue in exchange for a lucrative operating permit. By the time Mayor Correia went to trial, he faced 24 separate criminal charges, and on May 14, 2021, the jury found him guilty of 21 of those 24 counts.

Mayor Correia’s downfall might seem like a relatively minor matter involving local corruption in one small city. (Such stories are, alas, all too common.) But this incident usefully highlights the corruption risks associated with devolving regulatory authority to local governments. While there are certainly virtues of giving local governments power over local affairs, we need to be clear-eyed about the dangers that local control can pose, particularly in the context of regulating lucrative industries like legal marijuana. The Fall River example highlights several such risks:

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