Tag Archives: United States

The U.S. Supreme Court Has an Appearance Problem: What FEC v. Cruz Got Wrong

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According to the U.S. Supreme Court, campaign contributions are a form of political “speech” and are therefore protected by the First Amendment of the U.S. Constitution. As a result, the government may restrict such contributions only if doing so serves a compelling state interest. Currently, the only interests that the Court has recognized as sufficiently compelling to justify restrictions on political spending are preventing corruption or the appearance of corruption.

Though sometimes presented as a single interest, the prevention of actual corruption and the prevention of the appearance of corruption are not the same. The reason the government has an interest in preventing actual corruption is obvious. The Court has explained the related but distinct interest in preventing the appearance of corruption by appealing to the importance of maintaining public confidence in the electoral process. If a certain campaign finance activity creates the appearance of corruption, then ordinary citizens may start to view their political participation as futile, and may lose faith in the integrity of elections. Because Congress has an interest in preventing this erosion of public trust, the government can regulate campaign finance activities that the public perceives as corrupt, even when those activities are not associated with actual corruption.

At least that’s what the Court has said. In practice, however, the Court has often failed to apply the appearance of corruption standard in a way that serves these objectives. This is nowhere clearer than in the Court’s recent decision in Federal Election Commission (FEC) v. Cruz. The case concerned a federal law that prohibited a candidate from using post-election campaign donations to repay more than $250,000 of personal loans that the candidate made to his or her campaign prior to the election. The government justified this law partly on the grounds that it prevented the appearance of corruption. After all, when a candidate uses donations to repay personal loans, the donor’s contributions go straight into the candidate’s pockets; the public could easily view such payments as fostering corruption. In support of this argument, the government pointed to a public opinion poll in which 81% of respondents thought it was “likely” or “very likely” that donors who make post-election contributions expect a “political favor” in return. Additionally, the government cited an academic study that found—on the basis of over three decades of empirical evidence—that politicians with campaign debts are “significantly more likely” than debt-free politicians to switch their votes after receiving contributions from special interests.

This evidence, on its face, would seem to support the government’s claim that the limit on using post-election donations to repay a candidate’s large personal loans furthers its compelling interest in preventing the appearance of corruption. However, the Court’s majority opinion dismissed the government’s appearance-based argument in a brief passage with relatively little sustained analysis, apparently treating the flaws in the government’s arguments as self-evident. The Court’s dismissive attitude to the government’s evidence in this case indicates a worrisome approach to the appearance-of-corruption issue more generally.

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Corruption’s Queer History: Stonewall’s Seedy Underside

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A little after midnight on June 28, 1969, New York City police officers raided the Stonewall Inn, a seedy bar in Greenwich Village known for catering to a mostly LGBTQ crowd. Such raids were not uncommon—in fact, the Stonewall Inn had already been raided just four days prior to that now historic evening. But for some reason, that particular raid on that particular night had touched off violent clashes between police and Stonewall’s patrons, becoming a watershed moment for the LGBTQ civil rights movement in the United States. Indeed, the Stonewall Inn is now a national monument, and the anniversary of Stonewall is commemorated every year with Pride parades around the world.

In the days following the riots, however, the Stonewall Inn was in utter disarray: graffiti sprawled on its boarded-up windows read: “GAY PROHIBITION CORRUPT$ COP$ / FEED$ MAFIA.” That brief and blunt statement captures an important truth about Stonewall, one that is important for understanding both the historical context of the Stonewall uprising, as well as the intersection between anti-LGBTQ discrimination and corruption that persists today: The riots weren’t only about police discrimination—organized crime and corruption also played a fundamental role.

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U.S. States Have Failed to Address Charter School Corruption. It’s Time for Federal Intervention.

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In the United States, charter schools are publicly-funded, tuition-free institutions that operate largely independent from the traditional public school system. Charter schools are established through a contract, or charter, between the school and an “authorizer,” which is the school district, state education agency, or other entity that a state has sanctioned to approve these charters. Once approved, charter schools do not have to follow the same regulations as traditional public schools but instead are required to operate under the terms and academic standards set by their authorizing contract.

Proponents tout charter schools’ autonomy and flexibility: free from burdensome education laws and local regulations, these schools can be innovative in their curricula and management, and can compete with one another and with traditional public schools in the education “market.” Parents will then have the opportunity to “vote with their feet,” and they—along with the public funding designated for their children—will flow into better schools, leaving the poorly performing charter schools to shut down.

Or so the argument goes. In reality, thanks to rampant corruption that has come to plague the charter school industry, this public funding often flows not into the best schools but rather into the pockets of dubious school officials and their affiliates. There have been numerous charter school corruption scandals: self-dealing real estate leases, exorbitant salaries for school executives, and kickbacks from inflated purchases of school equipment and supplies, to name a few.

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The Financial Weapon: Expanding Magnitsky Sanctions to Attack Corruption

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Economic sanctions targeted at individual wrongdoers can be a potent weapon in the fight against global corruption. The United States’ 2016 Global Magnitsky Human Rights Accountability Act (GMA) authorizes the President to impose targeted sanctions on corrupt foreign officials and their associates. And the GMA has had successes in deterring corruption: As earlier posts on this blog have highlighted, the GMA has prompted countries to strengthen their anticorruption laws and has prompted businesses to cut ties with corrupt individuals. Yet despite these successes, Magnitsky sanctions remain a relatively underused anticorruption tool. The U.S. Treasury Department’s Office of Foreign Asset Control (OFAC) has only sanctioned around 200 people as part of its Magnitsky programs, and most of these individuals have been sanctioned for human rights abuses rather than corruption per se.

GMA sanctions can and should be scaled up by an order of magnitude, with a greater focus on targeting corrupt actors. The U.S. should be imposing GMA sanctions on several thousand people, not just a couple hundred. As the Biden Administration has recognized, global corruption increasingly threatens national and international security. In light of this, the Administration should use the GMA to impose sanctions on not only the most egregious of kleptocrats but those who engage in more modest—but still significant—forms of corruption. Continue reading →

“Municipal Takeovers”: Failing to Address Corruption While Threatening Democratic Self-Government 

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The town of Mason is a small, majority-Black community in the State of Tennessee. For two decades, Mason’s municipal government has been afflicted with serious corruption and financial mismanagement, leading to the resignation a few years ago of almost all of Mason’s elected leadership following allegations of fraud and embezzlement. In the wake of these persistent problems, this past February the Tennessee State Comptroller, Jason Mumpower, sent a dramatic request to every property owner in Mason: vote to dissolve your town (in which case Mason would be absorbed into majority-White Tipton County, thus ending Mason’s 153 years of independent governance), or else the state government will exercise its legal authority to step in and take financial control of Mason’s town government—which would likely lead to drastic layoffs and cuts to municipal benefits. (Mumpower’s ultimatum may well have been influenced not only by Mason’s history of municipal corruption, but also by the fact that Ford Motors is set to open up a massive manufacturing plant nearby, which will bring in significant tax revenue that Mumpower claimed Mason’s town government can’t handle responsibly.)

The situation in Mason may seem extraordinary, but it is far from unique. Roughly twenty U.S. states have laws that permit the state government to take over municipal governments, although the specifics of the laws differ. (Municipal takeovers are often preceded, as in Mason, by presenting the municipality with the option to dissolve and be absorbed into the surrounding county.) Though municipal takeovers come in various forms, they generally entail the appointment of an “intervenor,” such as a state official, emergency manager, or financial control board. In some states, the intervenor’s powers are limited to financial oversight and technical assistance, but in other states (including Tennessee), the intervenor can take steps as radical as entirely dissolving a locality.

Municipal takeovers are, unsurprisingly, controversial. While pursuing a takeover is an extreme step, one can understand why some people might find it warranted, especially when corruption is so deeply embedded in a municipality that it seems inconceivable that the local government can clean itself up. But this view is misguided, at least in the U.S. context. (Municipal dissolution has been deployed and endorsed by some anticorruption advocates in other countries, such as Italy. While some of my arguments may apply in other contexts, this post focuses on the United States.) First, the costs of municipal takeovers are substantial and are often underestimated. Second, the purported benefits of municipal takeovers—at least with respect to addressing the underlying corruption and misgovernance problems in a given community—rarely materialize.

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President Biden’s “Fishy” Corruption Statistics Called Out

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Thanks to GAB Editor-in-Chief Matthew Stephenson, readers of this blog have known for years not to believe the many numbers thrown around about the global cost of corruption.  As he has shown in a series of posts, (here, here, here, and here) and in a 2021 paper for the U4 Anticorruption Resource Centre with Cecilie Wathne, these estimates are, not to put too fine a spin on it, baloney. Or what I have somewhat scatologically termed WAGs (Wild A** Guesses).

Unfortunately, White House staff apparently (and disappointingly) neither read GAB nor follow U4’s work. That is the only explanation for why they would have let President Biden say at the launch the other day of the Indo-Pacific Economic Framework for Prosperity that “corruption saps between 2 to 5 percent of global GDP.”

Fortunately, Washington Post crack fact checker Glenn Kessler didn’t let the President’s citation of what his paper termed a “fishy statistic” go unchallenged. Relying on Matthew’s and Cecile’s paper, backed up by a chat with U.S T.I. director Gary Kalman, Kessler termed the 2-5 percent statistic “so discredited” that it should have never been “uttered by the president of the United States.” The White House, he wrote, must in the future do a better job of vetting such “dubious” data.

While I trust White House staff will, I hope the error in no way hope cools theirs or the president’s commitment to upping America’s anticorruption game. After all, as the president also said at the Indo-Pacific launch, corruption “steals our public resources,. . . exacerbates inequality [and] hollows out a country’s ability to deliver for its citizens.”  All unequivocally true. No fishy data required. QED

The Coal Industry Has No “Final Villain”

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“Manchin’s coal corruption is so much worse than you knew.” So proclaimed the headline of a Rolling Stone article this past January, referring to West Virginia Senator Joe Manchin. In March, the New York Times published a similar article. “At every step of his political career,” the Times reported, “Joe Manchin helped a West Virginia power plant that is the sole customer of his private coal business.” Salon, just a few days later, followed suit, describing Machin’s ties to the coal industry as a “stunning portrait of political corruption.” (See also here, here, here, and here). These stories, understandably, focus on Machin himself—the Rolling Stone article even calls him “the final villain” in the story of corruption it unfolds. And Manchin’s conduct is indeed outrageous: First as Governor and then as a Senator, Manchin lined his pockets off of personal stakes in the coal industry—an industry he used his political power to prop up at every turn—in spite of pollution, climate change, inefficiency, and high costs to his constituents.

Yet the journalistic outrage over Manchin’s unethical (albeit not illegal) behavior may be distracting from the real issue, if not outright misdiagnosing it. Corruption in the coal industry is not the result of individual unscrupulous politicians. The problem is coal itself.

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The Anticorruption Campaigner’s Guide to Asset Seizure

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Anticorruption campaigners have long argued that Western governments should be more aggressive in freezing and seizing the assets of kleptocrats and corrupt oligarchs. While targeting illicit assets has been part of the West’s anticorruption arsenal for many years, attention to this tactic has surged in response to Russia’s invasion of Ukraine. Almost as soon as Russian troops crossed the border into Ukrainian territory, not only did Western governments impose an array of economic sanctions on Russian institutions and individuals close to the Putin regime, but also—assisted by journalists who identified dozens of properties, collectively worth billions—Western law enforcement agencies began seizing Russian oligarchs’ private jets, vacation homes, and superyachts.

Many people who are unfamiliar with this area—and even some who are—might naturally wonder about the legal basis for targeting these assets. And indeed, the law in this area has some important nuances that are not always fully appreciated in mainstream media reporting and popular commentary. Continue reading →

New Podcast, Featuring Gary Kalman

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A new episode of KickBack: The Global Anticorruption Podcast is now available. As our regular listeners are aware, for the last couple of months we have featured a series of special episodes focusing on how corruption issues relate to Russia’s war on Ukraine. While the war goes on, and we hope to continue to feature experts who can focus on that topic, this week we return to, for lack of a better term, our “regularly scheduled programming,” with an interview with Gary Kalman, the Director of Transparency International’s United States office. Gary has appeared on our podcast twice before (in February 2020 and February 2021), so this interview, which was conducted this past February, can be seen as the continuation of what has become an annual tradition. As in our previous conversations, we focus on anticorruption developments in the United States. More specifically, we discuss ongoing rulemaking proceedings to implement the Corporate Transparency Act, the significance and potential impact of the Biden Administration’s Countering Corruption strategy document, the impact of the December 2021 Summit for Democracy on global anticorruption efforts, proposals for new US anticorruption legislation (such as the proposed ENABLERS Act and Foreign Extortion Prevention Act), and, going forward, what Gary believes are the most important challenges and agenda items for Transparency International’s US office.

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 Interdisciplinary Corruption Research Network (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 the U.S. Should Tackle Money Laundering in the Real Estate Sector

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It is no secret that foreign kleptocrats and other crooks like to stash their illicit cash in U.S. real estate (see here, here, here and here).  A recent report from Global Financial Integrity (GFI) found that more than US$2.3 billion were laundered through U.S. real estate in the last five years, and half of the reported cases of real estate money laundering (REML) involved so-called politically exposed persons (mainly current or former government officials or their close relatives and associates). The large majority of these cases used a trust, shell company, or other legal entity to attempt to mask the true owner of the property.

Shockingly, the U.S. remains the only G7 country that does not impose anti-money laundering (AML) laws and regulations on real estate professionals. But there are encouraging signs that the U.S. is finally poised to make progress on this issue. With the backing of the Biden Administration, the U.S. Treasury Department’s Financial Criminal Enforcement Network (FinCEN) has published an advance notice of proposed rulemaking (ANPRM) that proposes a number of measures and floats different options for tightening AML controls in the real estate sector. The U.S. is thus approaching a critical juncture: the question no longer seems to be whether Treasury will take more aggressive and comprehensive action to address REML; the question is how it will do so. And on that crucial question, I offer three recommendations for what Treasury should—and should not—do when it finalizes its new REML rules:

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