Tag Archives: United States

The ComEd Corruption Scandal is a Wake Up Call for Illinois

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In 2020, one of the largest energy companies in America, Commonwealth Edison (ComEd), admitted to bribing “Public Official A” for legislation that allowed the company to increase the utility rates ComEd charged to Illinois citizens. Public Official A is almost certainly former Illinois House Speaker Michael Madigan, the longest-serving House Speaker in a state legislature in American history. Though Madigan denies wrongdoing and has not yet been charged, the evidence indicates that for close to a decade, ComEd bribed Madigan—for example, by giving Madigan’s allies political patronage jobs and “do-nothing consulting” contracts—in exchange for favorable legislation.

Madigan’s tenure as Speaker exemplifies Lord Acton’s adage that absolute power corrupts absolutely. During his time as Speaker, Madigan consolidated power over the legislative process, as well as substantial leverage over how other House members voted. This concentration of influence made him the ideal corruption broker for companies like ComEd. Preventing this sort of corruption from arising in the future will require various reforms, including the empowerment of external watchdogs, such as the currently dysfunctional and ineffective Office of the Legislative Inspector General. But while proposals to reform this office (see here and here) are welcome, genuine structural reform will require addressing the excessive concentration of power in the House Speaker. If Illinois, and similar jurisdictions, hope to tackle the sort of corruption we see in the ComEd scandal, it is essential to ensure greater dispersion of power within the legislature.

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One American Rule for Compensating Corruption Victims Not to Follow

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American law offers victims of corruption several advantages: a range of legal theories on which to bring suit for damages; a low cost procedure for recovering damages in a criminal prosecution; the ability to aggregate many small claims into a class action; rules permitting lawyers to represent claimants in return for a share of any recovery. Each has contributed to a decent corpus of corruption victim compensation law (reviewed here), and each merits consideration by judges and policymakers elsewhere searching for ways to reduce obstacles to the recovery damages for corruption.

One feature of American law should, however, be avoided at all costs. Too often courts demand victims show exactly how much harm they suffered to recover damages. The exercise is inherently imprecise.  Advanced econometric techniques fed the best data imaginable yield nothing but a rough approximation. U.S. courts are beginning to opt for common sense rules of thumbs in some settings, but the demand for precision where precision is not possible still frequently stands in the way of the victim compensation.

The most egregious cases are where an employer seeks damages caused when a supplier bribes an employee.

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Rethinking the Hatch Act in a Post-Trump World

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In the United States, the Hatch Act has long served as bulwark against the corrosive intersection of partisan politics and government power. Signed into law in 1939, the Hatch Act was designed to combat the corruption associated with the so-called “spoils system,” in which politicians dole out valuable government jobs to their supporters, and those supporters are in return expected to use their government positions to benefit their political patrons. Civil service laws that create a “merit system” attack the spoils system from one direction, by making politically-motivated hiring and firing more difficult. Laws like the Hatch Act complement these efforts by prohibiting government employees from engaging in partisan political activities. More specifically, the Hatch Act prohibits any federal officer or employee (other than the President or Vice President) from engaging in political activity while acting under his or her “official authority or influence.” (This prohibition, as interpreted, covers any sort of partisan political activity while on the job, including displaying political paraphernalia, distributing campaign materials, and soliciting campaign contributions.) Penalties for violating the Hatch Act can include fines, demotion, suspension, removal from office, and temporary debarment from future federal service.

Since its enactment, compliance with the Hatch Act has generally been quite good. But that changed in January 2017, when President Trump took office. Throughout the Trump years, rampant violations of the Hatch Act plagued the federal government. High-level Trump Administration officials like Ivanka Trump, Jared Kushner, Mike Pompeo, Kellyanne Conway, and Stephen Miller, among many others, engaged in likely Hatch Act violations, with no significant consequences. This exposed an uncomfortable truth: At least for high-level political appointees, the Hatch Act’s enforcement mechanisms are too week, and the penalties too negligible, to deter officials uninterested in complying with the law. Indeed, past compliance with the Act was likely more the product of government norms than fear of punishment.

Just to be clear, the situation is likely quite different for career civil servants who serve in government regardless of which political party holds the White House. With respect to these individuals, who comprise the overwhelming majority of the government, the Hatch Act’s prohibitions are strictly enforced, and the penalties are stiff. But for senior political appointees, the Trump Administration exposed glaring weaknesses in the Hatch Act’s efficacy, when the Administration has little interest in adhering to conventional norms of ethics and integrity. Two types of reform are needed:

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The Perils of Over-Criminalizing Sports Corruption

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Although the fight against corruption has traditionally focused on corruption in government, the anticorruption community has started to pay more attention to corruption in other spheres. One particularly prominent concern is corruption in sports (see here, here, and here). The topic of sports-related corruption includes not only corruption in the major sports associations (think FIFA and the International Olympic Committee), but also the corrupt manipulation of individual sporting events in order to win bets (whether legal or illegal). Such corrupt manipulation includes match-fixing (where corrupt actors fraudulently influence the outcome of a game); spot-fixing (where wrongdoers seek to influence events within the game that do not necessarily have a significant effect on the final outcome, such as the number of minutes an athlete plays or timing the first throw-in or corner in a soccer game); and point-shaving (where perpetrators seek to hold down the margin of victory in order to avoid covering a published point spread).

Different jurisdictions approach this sort of sports corruption differently. Many countries in Europe have enacted blanket laws criminalizing match-fixing in order to uphold the integrity of sports. The United States, by contrast, takes a narrower approach: The relevant criminal laws targeting sports corruption in the U.S.—both the Federal Sports Bribery Act (the “Act”) and comparable laws at the state level—focus solely on bribery. Furthermore, the Act has historically been used to prosecute individuals involved in paying bribes or inducing others to collect bribes, but not the people (usually athletes, coaches, or officials) who receive the bribes. Although a great deal of corruption in sports involves the payment of bribes, and would therefore be covered by these laws, some types of sports corruption are unilateral: An athlete or sports official may place bets on sporting events and subsequently undertake behavior to win those bets. For this reason, some scholars have argued that the U.S. should close this loophole by criminalizing such unilateral conduct as well.

I disagree. To be sure, unilateral sports corruption is unethical, and criminalizing it would help to prevent athletes, referees, and coaches from engaging in corrupt acts that jeopardize the integrity of sports. But the benefits of criminalizing this form of misconduct are minimal and are greatly outweighed by the corresponding costs.

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Actions for Damages Caused by Corruption: American Law

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American law allows corruption victims to recover damages under a variety of legal theories, and its class action procedures are well suited for recovery in certain cases.  This post discusses who the law deems a victim and what damages they are entitled to recover.  A second post will suggest where countries developing their own corruption victim law might follow American practice, and where American practice should be avoided at all costs.

In the United States, the party that most often recovers damages for corruption is a company whose employee accepted a bribe. The bribe will have been paid in return for awarding the bribe-payer a contract or for approving poor performance or overpayment on a contract the payer already holds with the employer. Most cases have arisen from one firm bribing an employee of another, but the same law applies when the victim is a government agency whose employee was bribed. U.S. agencies (here), cities (here and here) and counties (here), local police forces (here) and the United Nations (here) have all collected damages in these circumstances. So have foreign governments when the bribe was paid in violation of the Foreign Corrupt Practices Act (chapter 10 here). 

The basis of the employer’s damages is in taking a bribe the employee breached the duty of loyalty owed the employer. The duty of loyalty is also grounds for recovery in conflict of interest cases.  The most well-known public conflict of interest case is from the early 20th century. In United States v. Carter, Army Captain Oberlin Carter had awarded dredging contracts to a company in which he had a secret interest. The court ruled that not only was the Army entitled to Carter’s share of the company’s profits but to any money he had earned from investing those profits.

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Guest Post: The U.S. Just Created a Public Beneficial Ownership Registry for a Subset of Companies

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Today’s guest post is from Neil Gordon, a Senior Researcher at the Project On Government Oversight (POGO).

Companies with anonymous ownership structures are a serious global problem. Anonymous companies, as readers of this blog are likely well aware, play a significant role in facilitating grand corruption. Anonymous companies are associated with a wide range of other criminal misconduct as well. Unfortunately, the United States bears much of the blame for the proliferation of anonymous shell companies and the harm they cause. Most states make it relatively easy to set up a business without revealing the real owners—even easier than getting a library card, according to the anticorruption think tank Global Financial Integrity. That’s why it was so important that Congress finally enacted two key corporate transparency provisions as part of the fiscal year 2021 National Defense Authorization Act (NDAA).

The first provision, the Corporate Transparency Act (CTA), requires most companies to register their beneficial owners—the people who really own, control, and financially benefit from the company—with the Treasury Department’s Financial Crimes Enforcement Network. This provision received a great deal of media coverage, and rightly so. But the second key beneficial ownership transparency provision in the NDAA has received almost no attention, even though it could be a real game-changer. That second provision can be found in Section 885 of the NDAA. Section 885 requires all companies receiving federal contracts or grants over $500,000 to report their beneficial owners in the Federal Awardee Performance and Integrity Information System (FAPIIS), a database containing the misconduct and performance histories of federal contractors and grantees. Continue reading →

Guest Post: An Anticorruption Agenda for the Biden Administration

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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

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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

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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.

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The Emoluments Clause Cases Against Donald Trump: A Post Mortem

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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 →