Trump’s New Executive Order on the Civil Service Poses a Grave Corruption Threat

Last week, President Trump issued a new Executive Order that, if implemented, could dramatically change the U.S. federal civil service—and in so doing threatens to subvert one of the most important bulwarks against corruption in all of U.S. law.

First, a quick synopsis of what the order does: Federal civil service laws are complex, but simplifying a bit, the bulk of U.S. civil service positions fall under something called the “competitive service” (also known as the “merit system”), in which hiring is based on competitive examinations administered by the Office of Personnel Management. Furthermore, those holding competitive service positions can only be removed for good cause (that is, they can’t be fired at will), and removals of such officials are reviewable by an independent commission called the Merit Systems Protection Board. Also importantly, those in the competitive service are entitled to union representation. Not all federal positions have these protections; the most senior civil servants are part of a different system (the “Senior Executive Service”), and there are a number of other relatively narrowly drawn exemptions for particular classes of jobs, typically those for which hiring by competitive examination is not practical (the “excepted service”). President Trump’s new Executive Order would shift from the competitive service to the excepted service any position that has “a confidential, policy-determining, policy-making, or policy-advocating character.” If that sounds very broad, it’s because it is. The Executive Order, if implemented, could shift tens of thousands, or possibly hundreds of thousands, of federal civil service positions out of the competitive service, thus giving the President the authority to fire the holders of those positions at will, as well as the authority to replace them with political appointees.

It’s not entirely clear whether the new order is legal. The relevant statute does contain a provision that allows the President to create “necessary exceptions” from the merit system insofar as “conditions of good government warrant.” Past presidents have exercised this authority, though to the best of my (limited) knowledge, President Trump’s Executive Order is unprecedented in both the breadth of its coverage and the thinness of its proffered justifications. That might matter, because there are a handful of prior court opinions (though none at the Supreme Court level) that suggest that the President’s authority to exempt positions from the merit system is not unlimited. It’s also not certain whether the Executive Order will ever go into effect. If Joe Biden wins next week’s election, he could reverse the order as soon as he’s inaugurated, and it’s unclear whether the Trump Administration will be able effect any actual reclassifications under the order prior to inauguration day. (The order itself calls on all agencies to prepare a preliminary list of affected positions by inauguration day, but it’s possible that agencies might move faster and reclassify some positions before then.)

For purposes of the present post, I want to put those issues aside. I also will put aside, for now, broader questions of whether the Executive Order would worsen the politicization of federal agencies or undermine their overall quality (themes I’ve explored in other work). Instead, my objective here is to elaborate on why this Executive Order, if implemented, poses such a significant corruption threat. To do that, let’s consider three forms of corruption (or corruption-facilitating practices) that the civil service merit system is meant to constrain, and the impact that this Executive Order would have on each: Continue reading

The FinCEN Files: Some Scattered Preliminary Thoughts

As most readers of this blog are likely well aware, last week BuzzFeed News and the International Consortium of Investigative Journalists (ICIJ) released a bombshell story about international money laundering through major financial institutions. The collection of stories—more of which are likely in the works—is based on an analysis of a large trove of leaked documents from the U.S Treasury Department’s Financial Crimes Enforcement Network (FinCEN), which the journalists reporting on the case have dubbed the “FinCEN Files.” These files consist of so-called Suspicious Activity Reports (SARs), which are documents that, pursuant to a U.S. statute called the Bank Secrecy Act (BSA), banks and certain other institutions are legally required to file with FinCEN whenever the bank has reason to suspect that a transaction it’s handling involves money laundering or some other criminal activity, or simply lacks an apparent lawful purpose. The bank does not inform its customer that it’s filing a SAR—indeed, the BSA prohibits banks from doing so. FinCEN can use SARs to detect and investigate financial crime, and may share SARs with other law enforcement agencies in the context of an investigation, but otherwise SARs are supposed to remain strictly confidential. However, in October 2018 a FinCen employee leaked over 2,100 SARs to a BuzzFeed reporter. (While BuzzFeed and ICIJ do not identify their source, it is almost certain that this former employee, who pled guilty last January to illegally leaking the documents, is the source.) Journalists with BuzzFeed and the ICIJ analyzed these documents and have published multiple stories (see, for example, here and here) about what these documents reveal regarding the global anti-money laundering (AML) regime, together with a subset of the actual SARs. (The journalists released only those SARs that support reporting in specific stories, principally SARs that pertain to known criminal figures. They are not publishing a database of all the SARs in their possession due to concerns about privacy of the individuals involved, many of whom are not currently accused of any wrongdoing.)

The picture that these stories paint of the global AML regime is not a pretty one. While the stories are lengthy and detailed, and discuss many different aspects of the overall issue, if I had to try to distill all this reporting into a simple punchline, it would go something like this: The leaked SARs reveal that the major banks repeatedly handled huge and highly suspicious transactions for corrupt kleptocrats, organized crime groups, terrorists, fraudsters, sanctions evaders, and others, and relatively little was done, by the government or the banks, to stop it. As the ICIJ puts it, “The FinCEN Files show trillions in tainted dollars flow freely through major banks, swamping a broken enforcement system.” Or as BuzzFeed puts it, the FinCEN files reveal “how the giants of Western banking move trillions of dollars in suspicious transactions,” while “the US government, despite its vast powers, fails to stop it.”

I’m still working my way through all the FinCEN Files stories, and I’m certainly no expert on money laundering or banking regulation. (I come to this issue sideways, from an interest in anticorruption, rather than any professional expertise in AML as such.) But, in the interest of getting some ideas down in writing and perhaps stimulating some further conversation on what we can learn from the FinCEN Files reporting, let me share a few scattered, somewhat disconnected preliminary observations. Continue reading

New Podcast Episode, Featuring James Wasserstrom

A new episode of KickBack: The Global Anticorruption Podcast is now available. In this week’s episode, I interview James Wasserstrom. Mr. Wasserstrom, currently a private consultant on corruption and transparency issues, began his career with the United Nations, and was posted to the UN Mission in Kosovo (UNMIK) in 2007. His UN career took an unexpected turn when he uncovered corruption by high-level UNMIK officials. He reported his findings to the UN, but this was leaked to the perpetrators, and he was subjected to an extensive campaign of retaliation. After extensive legal proceedings, it was eventually determined that he had been mistreated, but the UN denied him compensation on dubious procedural grounds. During and after his dispute with the UN, Mr. Wasserstrom has been a leading advocate for institutional reform at the UN and integrity reforms more generally, and from 2009-2014 served as a special advisor on anticorruption at the U.S. Embassy in Afghanistan. In our interview, Mr. Wasserstrom and I discuss his experience as a UN whistleblower, the flaws in the UN’s whistleblower protection system, and what if anything can be done. We also discuss Mr. Wasserstrom’s ideas for providing more international support for whistleblowers in hostile environment, including his new proposal for an “integrity sanctuary” program.

You can find this episode here. 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.

 

Two Legal Changes Which Would Bolster Israel’s Protection of Whistleblowers

Like many other jurisdictions around the world, Israel has long recognized the value of whistleblowers who report and expose illegal acts in their workplaces. Without such whistleblowers, it is almost certain that Israeli citizens and law enforcement would never have learned, for example, about alleged corruption in the Israel Tax Authority, municipalities, Israel Aerospace Industries, the Ministry of Transport and Road Safety, and others. In order to encourage more whistleblowers to come forward, Israel has developed several legal instruments, the strongest and most central being the Protection of Workers (Exposure of Offenses and of Harm to Integrity or to Proper Administration) Law (PoWL) (see here and here). The PoWL, originally enacted in 1997 and amended three times since then, civilly and criminally forbids employers from retaliating against employees for whistleblowing, and establishes an employee-friendly mechanism for the victims of such retaliation to seek damages. These cases are heard by Israel’s specialized Labor Courts. In addition to awarding compensatory damages, the courts are also authorized to order employers to pay exemplary (that is, punitive) damages, and may also invalidate the whistleblower-plaintiff’s dismissal, or order that the whistleblower be moved to “another appropriate position” in the workplace.

While at first glance the PoWL seems to offer strong protections for whistleblowers, the PoWL suffers from two major weaknesses that significantly compromise its effectiveness. These problems must be addressed if the PoWL is to provide whistleblowers with adequate protections against retaliation: Continue reading

Improving Brazil’s Whistleblower Regime

Because corruption is usually conducted in secret, without readily identifiable victims, effectively tackling corruption often requires evidence from insiders. Therefore, providing adequate protections and incentives to whistleblowers is crucial. Brazil, like many countries, does not have a strong tradition or culture of whistleblowing, making it all the more important that the legal system provides sufficient protections and incentives for insiders to provide material information about corrupt schemes. In the past few years, Brazil has made important progress in this area, but much remains to be done.

Two years ago, a specific statute introduced the practice of rewarding people who furnished information about criminal conduct. This legislation provided that Brazilian states could establish telephone hotlines for reporting unlawful activities, and also authorized all levels of government to establish rewards for whistleblowers who provide information that lead to the prevention, detection, and punishment of crimes and administrative offenses. That statute, while a good first step, was vague and incomplete. Near the end of last year, Brazil took another important step in the direction of modernizing its whistleblower laws with the enactment of the 2019 Anti-Crime Act. This Act requires that national, state, and local governments, as well as their agencies and companies, establish an ombudsman office to ensure that all people can report crimes against public administration (including corruption), administrative offenses, and any action or omission damaging to the public interest. The law further provides that whistleblowers cannot be held criminally or civilly liable for the report (as long as the information was not provided falsely and maliciously), that whistleblowers are entitled to the protection of their identities, and that whistleblowers are entitled to the same protections against retaliation as are witnesses and victims. Violation of the prohibitions on retaliation against whistleblowers can entitle the whistleblower to double damages and punitive damages. The new law also includes a clearer provision on financial rewards for whistleblowers, expressly providing that if a whistleblower who provides information leading to the recovery of proceeds from crimes against public administration, the corresponding government can grant to whistleblowers financial rewards of up to 5% of the recovered assets.

Despite this progress, though, the legal framework on whistleblowers in Brazil still suffers from a number of important deficiencies, and needs further improvements:

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Guest Post: What the U.S. Congress Must Do To Ensure Adequate Oversight of COVID-19 Relief Spending

Today’s guest post is by Shruti Shah, the President and CEO of the Coalition for Integrity, a civil society advocacy organization focused on corruption in the United States.

We are facing an unprecedented crisis, and governments around the world have responded with unprecedented actions. In the United States, Congress has responded to the economic disruption caused by the COVID-19 crisis with the $2 trillion CARES Act and the subsequent $484 billion replenishment; still more legislation, allocating even more money for crisis response, is under discussion. When this much money is in play, oversight and fraud prevention are essential. There are already reports of PPP loans meant for small businesses going to larger companies, scammers targeting small business owners, stimulus checks being sent to deceased people, and several other COVID 19 scams. But the current safeguards for preventing fraud, corruption, and abuse in COVID-19 relief spending are woefully insufficient. As negotiations over further relief packages continue, those in Congress who care about government integrity—and the effectiveness of these trillion-dollar programs in achieving their objectives—should insist on correcting these deficiencies. In particular, here are five crucial steps that Congress can and should take to ensure that COVID-19 relief spending helps its intended beneficiaries rather than lining the pockets of grifters and grafters: Continue reading

New Podcast, Featuring Gary Kalman

A new episode of KickBack: The Global Anticorruption Podcast is now available. In this episode, I interview Gary Kalman, formerly (and at the time of the interview) the Executive Director of the FACT Coalition, and now the Director of the U.S. Office of Transparency International. The first part of our conversation focuses on the work Mr. Kalman did at the FACT Coalition on the push for new U.S. legislation to crack down on anonymous companies. We also discuss his vision, and top priorities, for Transparency International’s new U.S. office.

You can find this episode, along with links to previous podcast 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.

Guest Post: Whistleblower Protection in Kosovo–An Unlikely Success Story of Civil Society Collective Action and International Support

Today’s guest post is from Nedim Hogic, a PhD candidate at the Sant’Anna School of Advanced Studies in Pisa, Italy, and Arolda Elbasani, Visiting Scholar at New York University. The research on which this post is based was sponsored by Kosovo Open Society Foundation.

In Kosovo, as in the rest of the Balkans region more generally, anticorruption initiatives and institutional solutions have typically been top-down efforts based on templates recommended by international actors and hastily approved by a circle of local political allies. Few of those international initiatives have proved successful, often because the new laws provided enough discretion for political interests to thwart effective implementation. Hence, Kosovo, like much of the rest of the Balkans, seems trapped in a continuous yet futile cycle of international-sponsored institutional- and capacity-building measures, which have not delivered.

The 2018 amendments to Kosovo’s law on the protection of whistleblowers suggests a more promising model of legislative drafting. The amended law stands out for its collaborative and open mode of drafting, involving various international, governmental, and civil society actors, a welcome contrast to the more prevalent pattern of top-down, and largely futile, approach to legal and institutional reform. Continue reading

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

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

Rewarding Whistleblowing to Fight Kleptocracy

Last February, Massachusetts Congressman Stephen Lynch introduced the Kleptocracy Asset Recovery Rewards Act (KARRA), which seeks to improve detection of stolen assets housed in American financial institutions by paying whistleblowers for reports that lead to the identification and seizure of these assets. The logic of paying rewards to whistleblowers is straightforward, and nicely summarized in the draft KARRA itself:

The individuals who come forward to expose foreign governmental corruption and klep­toc­ra­cy often do so at great risk to their own safety and that of their immediate family members and face retaliation from persons who exercise foreign political or governmental power. Monetary rewards and the potential award of asylum can provide a necessary incentive to expose such corruption and provide a financial means to provide for their well-being and avoid retribution.

Paying whistleblowers for information is a sound economic idea.  But in light of the cogent explanation for these rewards, the original draft of the KARRA legislation doesn’t go nearly far enough. Indeed, this original proposal provides much weaker incentives and protections for whistleblowers than several other existing US whistleblower rewards programs. It is unlikely that this bill has a real chance of being enacted in the current Congress, but if its introduction this year is a harbinger of a more sustained effort to enact legislation of this kind—and I hope it is—then I also hope that the next time around KARRA supporters will introduce a more ambitious bill, one that provides much higher potential rewards, fewer limitations on which whistleblowers are eligible for rewards, and more robust anti-retaliation protections.

There are many ways to design a whistleblowing program, as demonstrated by the spectrum of existing programs that use whistleblowing to tackle fraud in other domains. We can examine the effectiveness of the proposed legislation through comparison to existing whistleblowing programs:

Continue reading