Tag Archives: United States

I Caught the Sheriff: Why U.S. Anticorruption Officials Should Keep an Eye on Sheriffs

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An unusual feature of US law enforcement is the important role of the county sheriff. As of 2013, over 3,000 sheriffs’ offices across 47 U.S. states employed 352,000 people—roughly one-third of the country’s law enforcement personnel. The sheriff’s job varies from state-to-state, but the common denominator is responsibility over county corrections, including the operation of jails and transportation of inmates to and from court. In some states—Massachusetts, for instance—that’s essentially the extent of sheriffs’ duties. In other states, though, sheriffs wield much broader authority. Texas sheriffs, for example, can enforce the state’s criminal laws anywhere in their county, even where municipal police departments have jurisdiction. Most states are somewhere in the middle, tasking sheriffs with general law enforcement duties only in unincorporated parts of the county and sometimes with security for state government buildings, in addition to their correctional responsibilities.

Despite the variety of roles played by sheriffs, many commentators view sheriffs as merely another kind of police. After all, they wear badges, can legally use force, and, in many parts of the country, patrol the beat. But sheriffs are distinct from their police counterparts in significant respects. Most notably, whereas police chiefs are appointed by city officials, sheriffs are popularly elected by the county they serve. And, unlike police departments, which are creatures of state statute, the responsibilities of a county sheriff are often rooted in the state constitution.

These differences render sheriffs more susceptible than police to corruption for three reasons:

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Where Should U.S. State Governments Put Their Anticorruption Agencies?

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As other contributors on this blog have argued, U.S. states should assume a greater role in investigating and prosecuting corruption crimes, rather than leaving anticorruption enforcement efforts entirely to the federal government. But the call for a greater state role in anticorruption naturally invites a follow-up question: which office or unit within the state government should have principal responsibility for anticorruption? For starters, should the state have a specialized unit dedicated to investigating or prosecuting corruption crimes? And if so, where within the state government should that unit be located?

There are a range of potential answers to these questions. A 50-state survey from the Center for the Advancement of Public Integrity (CAPI) finds that although the vast majority of states have some kind of anticorruption commission, roughly half have no specialized anticorruption unit dedicated to investigating or prosecuting corruption crimes. States that do have such units house them in one of three places: (1) the state attorney general’s office, (2) local prosecutors’ offices, or (3) the state police.

State Unit Dedicated to Prosecuting Corruption?

Source: Center for the Advancement of Public Integrity at Columbia Law School

Having a specialized unit to prosecute corruption promotes the development of the expertise critical to successfully prosecuting corruption cases. Maintaining specialized anticorruption units also ensures resources are dedicated specifically to combating corruption, fosters norms of (and a reputation for) impartiality, and enhances deterrence by increasing officials’ perception that they’ll get caught if they do something wrong. But where a specialized anticorruption unit is located within state government affects the degree to which these benefits will be realized. In this respect, the three models of current state practice, as discussed in the CAPI survey and illustrated in the above map, differ along two dimensions: (1) the level of government (state or local); and (2) the nature of the law enforcement agency (prosecutors or police). An examination of both dimensions indicates that state-level prosecutors—state attorneys general—are best-equipped to house specialized anticorruption units.

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Beneficial Ownership Registry Coming to the United States?

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This may be the year the United States finally requires disclosure of who owns American corporations.  By a 43-16 vote, the House Financial Services Committee recommended on June 11 that the full House of Representatives approve legislation creating a beneficial ownership registry accessible to federal and state law enforcement agencies and presumably to foreign law enforcement authorities through a valid mutual legal assistance request.  At the same time, a bipartisan group of Senators, including two conservative Republicans who back President Trump, is proposing similar legislation in the Senate.

The American legislative process is an arduous one.  The Financial Services Committee’s proposed bill must be passed by the House of Representatives; an identical bill approved by the Senate, and President Trump must then sign it. Long-time supporters of a registry cite two reasons for optimism a bill will pass this year. One, 10 Republican members of the Financial Services Committee voted for the bill and others may support it when the House considers it, and second, the Senate bill has the support of Republican Senators close to President Trump.

Key provisions of the committee-approved bill: Continue reading →

“Ghost Money”: Assessing the Risks of State-Sponsored Bribery

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Back in 2014, the New York Times reported that the Central Intelligence Agency had been paying the office of then-President of Afghanistan Hamid Karzai tens of millions of dollars in cash for more than a decade. Afghan officials termed these payments “ghost money,” a convenient term that I adopt here—though some might simply call it bribery. This case was hardly unique. Indeed, the practice of engaging in state-sponsored bribery in the interests of national security appears to be a longstanding and global one: Over last half-century or more, the CIA has reportedly made cash payments to heads of state from Angola to Zaire in exchange for favors.

U.S. officials have defended this controversial practice. One former CIA operations officer even went so far as to say that state-sponsored bribery serves a productive role in the anticorruption fight: where the CIA is asked “to monitor the level of corruption in a place like Afghanistan,” “it only makes sense that U.S. operatives would have to talk to, and if necessary, bribe those involved in the corruption to find out what is going on.”

Yet even if one sets aside the question of whether ghost money itself presents the same normative concerns as regular bribery by private parties (an issue previously discussed on this blog), ghost money raises more problems than it solves for the anticorruption fight. In particular, the U.S. practice of making ghost money payments in places like Afghanistan likely has three significant adverse collateral consequences: Continue reading →

G7 Hypocrisy on Illicit Enrichment Crimes

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Last month, I saw a news report about the international reaction to the Ukrainian Constitutional Court’s decision striking down Ukraine’s criminal offense of “illicit enrichment” as unconstitutional. For those unfamiliar with this topic, the crime of “illicit enrichment” makes it a criminal offense for a public official to realize a significant increase in his or her assets that the public official cannot reasonably explain. The crime of illicit enrichment is related to, but distinct from, civil asset forfeiture systems under which the government may seize—as presumptively the proceeds of unlawful activity—assets that the owner cannot reasonably explain. The main difference is that a civil forfeiture order results in the loss of assets, while a criminal offense can result in fines or incarceration, as well as the other collateral consequences of a criminal conviction. Some anticorruption activists support the criminalization of illicit enrichment on the grounds that it is often difficult or impossible to prove the underlying corruption offenses, but a substantial unexplained increase in a public official’s wealth is sufficient to prove that the official is corrupt. Critics warn that criminalizing illicit enrichment is incompatible with traditional notions of the presumption of innocence. (The UN Convention Against Corruption (UNCAC), perhaps unsurprisingly, fudges the issue, with UNCAC Article 20 calling on States Parties to “consider” adopting an illicit enrichment offense, “[s]ubject to [that country’s] constitution and the fundamental principles of its legal system.”)

In its decision last February 26, Ukraine’s Constitutional Court went with the critics, holding that the criminalization of illicit enrichment a criminal offense was an unconstitutional infringement on the presumption of innocence. This decision met with swift condemnation from the G7, which issued a joint statement with the World Bank declaring that the “recent elimination of the illicit enrichment offence from [Ukraine’s] criminal code is a serious setback in the fight against corruption” that has “weakened the impact of the whole anti-corruption architecture.” Illicit enrichment, the G7 and World Bank admonished, “is not a new offence. In 2010 there were more than 40 countries that criminalized illicit enrichment,” and “[c]ourts around the world have recognized that the criminalization of illicit enrichment is a powerful tool in the fight against corruption, while at the same time respecting fundamental human rights and constitutional principles such as [the] presumption of innocence[.]” The G7-World Bank joint statement closed by calling on Ukrainian authorities to “reinstat[e] criminal liability for illicit enrichment in line with UN, OECD, and [European Court of Human Rights] principles.”

Now, as a policy matter, I tend to agree with the G7-World Bank position here. I think that appropriately tailored and cabined illicit enrichment offenses can be useful tools, and (as others have also pointed out), it’s not true that such offenses have any inherent conflict with the presumption of innocence. Nonetheless, I found the letter an exercise in outrageous, condescending hypocrisy, one that the G7 countries in particular should be ashamed to have written. Continue reading →

Are Legislative Changes to US AML Rules Finally on the Way? Some Thoughts on Tomorrow’s Subcommittee Hearing

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Although the United States has been a leader in the fight against global corruption in some respects—particularly in its vigorous enforcement of the Foreign Corrupt Practices Act and, at least until recently, its diplomatic efforts—there is widespread agreement in the anticorruption community that the United States has not done nearly enough to address the flow of dirty money, much of it stolen by kleptocrats and their cronies, to and through the United States. Effectively addressing this problem requires updating the US legislative framework, a task made difficult by the checks and balances built into the federal legislative process, coupled with high levels of political polarization. Yet there are reasons for cautious optimism: Thanks in part to skillful lobbying efforts by several advocacy groups, and aided in part by the Democrats taking control of the House of Representatives in the most recent mid-term elections, it looks as if there’s a real chance that the current Congress may enact at least some significant reforms.

Three of the reform bills under consideration are the subject of a hearing to be held tomorrow (Wednesday, March 13, 2019) before the House Financial Services Committee’s Subcommittee on National Security, International Development, and Monetary Policy. That hearing will consider three draft bills: (1) a draft version of the “Corporate Transparency Act” (CTA); (2) the “Kleptocracy Asset Recovery Rewards Act” (KARRA); and (3) a draft bill that currently bears the unwieldy title “To make reforms of the Federal Bank Secrecy Act and anti-money laundering laws, and for other purposes” (which I’ll refer to as the Bank Secrecy Act (BSA) Amendments). The subcommittee’s memo explaining the three proposals is here, and for those who are interested, you can watch a live stream of the subcommittee hearing tomorrow at 2 pm (US East Coast time) here.

For what it’s worth, a few scattered thoughts on each of these proposals: Continue reading →

Are Corporate Anticorruption Compliance Programs Effective?

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Requiring business corporations to institute an anticorruption compliance program should be a part of any national strategy to fight corruption.  The argument is simple.  Corporate employees or their agents are always on the paying side of a bribery offense and often a facilitator of conflict of interest and other forms of corruption.  Making it against company policy for employees or agents to participate in any corrupt act with stringent sanctions up to and including termination for a violation will help shut down the supply side of the corruption equation.

Even where a company’s compliance program is a sham, established simply to comply with the law, it can still help in combating corruption.  A sham program would be a violation of law, and were the company investigated, the existence of a sham program would be easy for investigators to spot, easing their task of determining wrongdoing.  So there seems to be no reason why lawmakers shouldn’t insist that firms subject to their law, whether state-owned or privately-held, establish a program.  And between the many guides published by international organizations (examples here and here), NGOs (here and here), academics, the burgeoning compliance industry, and the issuance of an international standard for such programs, there is no dearth of information on how to create and operate an effective one.

I have argued the case for a compliance requirement in several posts (examples here and here), as have many other GAB contributors (examples here and here).  My most recent plea for mandating private sector compliance programs came in this one noting such a requirement in Vietnam’s new anticorruption law.  But one thing I have not done is address two obvious questions about compliance programs that Matthew posed in a comment to the Vietnam post: How are compliance requirement laws enforced? How effective are they in practice?

It turns out these obvious, innocent sounding questions (the kind law professors always seem to ask) aren’t all that easy to answer.  What I have found so far follows.  Readers with more information earnestly requested to supplement it. Continue reading →

Ownership Transparency Works: Geographic Targeting Orders in the US Real Estate Market

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The anticorruption community, along with those concerned about tax evasion, fraud, and other forms of illicit activity, has made anonymous company reform a high priority on the reform agenda. It’s not hard to see why: Kleptocrats and their cronies, as well as other organized criminal groups, need to find ways to hide and launder their assets, and to do so in ways that are difficult for law enforcement authorities to trace. Moreover, those whose legitimate sources of income would be insufficient to obtain luxury assets would like to conceal their ownership of such assets, as the ownership itself could arouse suspicion, and might make the assets more vulnerable to forfeiture.

So-called “know-your-customer” (KYC) laws in the financial sector have made it much more difficult—though, alas, far from impossible—for account owners to conceal their identities from the banks and government overseers, at least in the US and most other OECD countries. But it is still far too easy for criminals to purchase substantial assets in wealthy countries like the United States while keeping their identities hidden. All the bad actor needs to do is, first, form a company in a jurisdiction that does not require the true owner of the company to be disclosed and verified to the government authorities, and, second, have this anonymous shell company purchase assets in a transaction that is not covered by KYC laws. Step one is, alas, still far too easy. Though we often associate the formation of these sorts of anonymous shell companies with “offshore” jurisdictions like the British Virgin Islands, in fact one can easily form an anonymous shell company in the United States. Step two, having the anonymous company purchase substantial assets without having to disclose the company’s owner, is a bit trickier, because you’d need to avoid the banking system. But you can get around this problem by having your anonymous company purchase assets with cash (or cash equivalents, like money orders or wire transfers), so long as no party to the transaction is under obligations, similar to those imposed on banks, to verify the company’s true owner.

One of the sectors where we’ve long had good reason to suspect this sort of abuse is common is real estate, especially high-end real estate. Though money laundering experts had long been aware of the problem, the issue got a boost from some great investigative journalism by the New York Times back in 2015. The NYT reporters managed to trace (with great effort, ingenuity, and patience) the true owners of luxury condos in one Manhattan building (the Time Warner Center), and found that a number of units were owned by shady characters who had attempted to conceal their identities by having shell companies make the purchases.

The US still hasn’t managed to pass legislation requiring verification of a company’s true owners as a condition of incorporation, which would be the most comprehensive solution to the anonymous company problem. Nor has the US taken the logical step of extending KYC laws to real estate agents across the board. But starting back in 2016, the US Treasury Department’s Financial Crimes Enforcement Network (known as FinCEN) took an important step toward cracking down on anonymous purchases of luxury real estate by issuing so-called Geographic Targeting Orders (GTOs). And thanks to some excellent research by the economists C. Sean Hundtofte and Ville Rantala (still unpublished but available in working paper form), we have strong evidence that many purchasers in the luxury real estate market have a strong interest in concealing their true identities, and that requiring verification of a company’s ultimate beneficial owners has a stunningly large negative effect on the frequency and aggregate magnitude of anonymous cash purchases. Continue reading →

Who Will Get to Prosecute Mozambique’s Former Finance Minister for Corruption?

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Manuel Chang must surely feel special these days. He is the first former Minister of Finance in history (or at least that history recorded on the internet) whose is being sought for corruption by two countries. As explained here, Chang was arrested in South Africa December 30 at the request of American authorities who are seeking to extradite him to the United States. Two weeks later, Mozambique filed its own extradition request.  Both countries want to bring him to trial for offenses arising from his alleged corrupt approval of government guarantees for loans taken out by state-owned firms while minster.  The companies have defaulted on the loans, costing the impoverished nation (GNI per capita $1200) as much as $2 billion and throttling the economy.

Which country will get to prosecute Chang will turn on how South African authorities construe recondite provisions in South Africa’s extradition agreements with the United States and Mozambique.  As obscure as the provisions in the two are, how South African authorities choose to interpret them will remain anything but.  For their interpretation will have significant consequences for the global fight against corruption. Continue reading →

Putting Elected Officials in Charge of Elections Is a Recipe for Corruption: Evidence from U.S. States

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One of the stories that figured prominently in last November’s U.S. elections was that of Brian Kemp, then Georgia’s Secretary of State and now the state’s new Governor. As Secretary of State, Kemp was responsible for administering the state’s elections—but in 2018 he was administering the very election in which he was running for governor, which creates an inherent conflict of interest. Indeed, there was plenty of evidence that Kemp used his position as Secretary to increase his odds of winning the election: He attempted to close polling locations in neighborhoods likely to vote for his opponent, promulgated abnormally stringent voter registration rules that put thousands of voters’ eligibility into question, and launched what most observers considered to be a groundless investigation into his opponent’s campaign in the week before the election. Ultimately, after ignoring calls for him to recuse himself, Kemp announced that he would resign as Secretary of State two days after the election, while the votes were still being counted. Kemp was eventually declared the winner, though his opponent, Stacey Abrams, never fully conceded, vowing to sue Kemp for “gross mismanagement of the election.”

It’s hard to see how an election administrator’s use of his power to benefit his own political campaign is anything other than corrupt. Indeed, Kemp’s controversial election illustrates how the U.S. electoral process is particularly vulnerable to this sort of corruption. (And, it’s worth noting, while Kemp drew most of the attention, there were two other candidates in the 2018 elections that found themselves in the same position, with one choosing to recuse himself from the recount process back in August 2018 during a close primary.) In most U.S. states, the Secretary of State (who is responsible for administering the state’s elections) is an elected official, and in over half of the states, Secretaries of State can run for public office while serving as Secretaries. This is out of step with most of the developed world, where election administration is independent and apolitical. Reformers have called for changes to this system before, so far without much success. But the atmosphere may now be ripe for anticorruption advocates to propose referenda to create new, independent, and non-partisan systems for election administration. A well-designed system could eliminate the clear conflicts of interest raised by people like Brian Kemp, while also tackling the more insidious and less obvious forms of corruption that arise when party members use their power over election administration to ensure that their party stays in power.

What might such a system look like? Canada may provide a useful model, given its similarities to the U.S., particularly with respect to its federalist structure. In Canada, each province is responsible for administering its provincial elections, while the Canadian national government administers national elections. The Canadian election administration systems share a few key components that keep the electoral commissions independent and non-partisan, and that all U.S. states should adopt: Continue reading →