Tag Archives: United States

“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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Some Things Are More Important Than Money: The Nature of Bribery and the U.S. College Admissions Scandal

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For the last two months, it’s been difficult for me to think or post about anything other than Russia’s war against Ukraine—and how this crisis might relate, directly or indirectly, to issues of corruption. But for today, I’m going to write about something a bit closer to (my) home, and substantially lower-stakes: the U.S. college admissions scandal, often known as the “Varsity Blues” scandal, after the code name that U.S. prosecutors assigned to the investigation. A quick refresher: a number of affluent parents arranged for their children to be picked by colleges coaches as athletic recruits, even though these teenagers were not in fact gifted athletes, and in some cases did not even play the sports for which they were recruited; this virtually guaranteed that the children would be admitted to the colleges in question, because those colleges had the practice of giving the coaches substantial discretion in choosing a certain number of recruits each year. (There were other aspects of the fraud, including in some cases cheating on the admissions tests, but the fake athletic recruiting gambit was the heart of the scheme.) The coaches participated in this fraudulent activity because the parents bribed them, via the middleman at the center of the scandal (and the purported “charitable foundations” that he controlled). In some cases, the parents paid monetary bribes directly to the coaches. But in some cases, the parents also—or in addition—made substantial donations to the university’s athletic program or the individual team, in exchange for the coach falsely asserting that their child should be recruited as an athlete.

That last, rather unusual aspect of the scheme—that the payments sometimes went to the university’s athletic program, rather than into the coach’s pocket—gives rise to a question that some of the Varsity Blues defendants have been urging in court: Can a payment count as a bribe (in the legal or moral sense) if it goes to the university? Obviously, this is not an issue in those cases where the prosecution has proven that money or other things of value were offered directly to the coach. But what about those cases that involve donations to the university’s teams or athletic program? Some of the Varsity Blues defendants insist that these donations cannot be bribes—even if we stipulate that the purpose of the donation was to induce the coach to falsely claim that an applicant should be recruited as an athlete, and that the coach did so as part of an explicit quid pro quo. The reason, proponents of this argument insist, is that if the purported “victim” of the alleged bribery (here the university) is also the recipient of the payment, then the payment cannot not a bribe.

This is wrong. Indeed, it is nonsense, and that fact that at least some judges have been entertaining this as a serious objection to some of the Varsity Blues charges reveals a deep conceptual confusion about the nature of bribery and why it is wrongful. Continue reading →

The Anti-Anticorruption Origins of the American Revolution

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The story of the American Revolutionary War is one that many of our readers – certainly our American readers – know well. According to the conventional narrative, at least as conveyed in U.S. high schools, the British crown’s unfair taxes, punitive laws, and general disregard for the Thirteen Colonies led to protest, massacre, and revolution. There is, however, another perspective from which the story could be told, in which the British were not engaged in arbitrarily denying colonial rights, but were instead embarking an on anticorruption crackdown that went horribly awry.

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Guest Post: The Millennium Challenge Corporation’s Approach to Curbing Corruption in Development Projects

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Today’s Guest Post is by Chris Williams, Senior Director for Anti-Fraud and Corruption at the Millennium Challenge Corporation, a U.S. development agency. Chris explains the measures MCC takes to prevent corruption from infecting the projects it supports and reviews some lessons it has learned about preventing corruption in large infrastructure projects.  (Full disclosure. I consult with the MCC on corruption prevention although its prevention policies long pre-date my consultancy. I have hounded Chris for some time to write this post, for whatever bias I may have, I think MCC’s corruption prevention efforts provide a model for others in the development community.)

The Millennium Challenge Corporation is an independent U.S. government development agency working to reduce global poverty through economic growth. Created in 2004, MCC provides time-limited grants that pair investments in infrastructure with policy and institutional reforms to countries that meet rigorous standards for good governance, fighting corruption and respecting democratic rights. MCC provides an example of “smart” development assistance, using competitive selection of grant recipients, country-led solutions, country led implementation, and a focus on results to prioritize the use of U.S. taxpayer funds.

A central feature of MCC’s approach, country ownership, is that each partner government receiving a grant from MCC must identify a legal entity to which the government will delegate the responsibility for the projects funded by the MCC. A sign of the importance MCC places on fighting fraud and corruption is that this entity is formally designated the “accountable entity” (generally referred to as an “MCA,” as many are named Millennium Challenge Account Moldova, Millennium Challenge Account Senegal, etc.). This underlines the MCA’s responsibility for ensuring MCC funds are used only for the purposes intended.

MCC doesn’t just assign responsibility for managing fraud and corruption risks to the MCAs, however. Upon establishment of the MCA, MCC immediately begins working with it to put in place financial controls and other standard safeguards to prevent funds from being lost through fraud or corruption.

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Managing Corruption Risk in U.S. Public Pension Funds

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Public pension funds provide retirement benefits for government employees, such as firefighters, teachers, and police officers. In the United States, the pension funds of state employees are typically managed by a board of trustees that is generally comprised of investment professionals, beneficiary representatives, and individuals appointed by state elected officials. (Fund governance structures vary somewhat from state to state.) These trustees then exert tremendous influence over the allocation of pension assets to different investment vehicles, such as private equity and hedge funds. While individual pension funds vary in size, the total amount of money involved is enormous: Public pension fund managers in the United States are responsible for allocating over $5.5 trillion in assets across different investment vehicles.

How pension managers select among different investment opportunities remains a largely opaque process. This lack of transparency—coupled with broad investment discretion—fosters a substantial risk of corruption. Such corruption can take several different forms:

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