Thursday, June 29, 2017

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Bipartisan Legislation Would Help Stamp out Anonymous Corporate Vehicles Used by a Rogue’s Gallery of Bad Actors Ranging from Human Traffickers to International Terror Networks
Yesterday, the US Senate and House of Representatives introduced bipartisan bills that would help stop the corrupt and other criminals from hiding behind anonymously-owned companies created in the US. Most major financial crimes and cases of grand corruption are facilitated through anonymous companies, with the US being one of the easiest places in the world to set one up.
“From multi-million dollar healthcare fraud to terrorist financing, anonymously-owned companies act as getaway cars for all sorts of criminals,” said Stefanie Ostfeld, Deputy Head of Global Witness’ US Office. “Swift passage of this legislation will make it harder to move, enjoy and hide dirty money and demonstrate that Congress is serious about making sure the US is not exploited by criminals and the corrupt who are a risk to national security.”
The True Incorporation Transparency for Law Enforcement (TITLE) Act, introduced by Senators Charles Grassley (R-IA), Dianne Feinstein (D-CA) and Sheldon Whitehouse (D-RI), and the Corporate Transparency Act, introduced by Representatives Peter King (R-NY-2), Carolyn Maloney (D-NY-12), Ed Royce (R-CA-39) and Maxine Waters (D-CA-43), would require companies formed in the US to disclose their ultimate owners when they are set up, and keep this information up to date. This would make it much harder for terrorists, money launderers, and other criminals to hide their identities behind webs of shadowy companies to stash their ill-gotten gains in banks.
The investigation into Russia’s interference in the 2016 US election and potential collusion between Russia and the Trump campaign has brought into the spotlight the role of anonymously-owned companies as vehicles for potentially suspicious financial activity. It has been reported that Paul Manafort, former manager of the Trump campaign, allegedly opened up a shell company which later received $13 million in loans from two businesses with links to Trump on the same day he resigned from his position. He has continually denied any wrongdoing.
Continuing this trend, USA Today reported that, since winning the Republican nomination, the majority of Donald Trump’s real estate sales have been to anonymous companies, with purchases by secretive buyers up by 66%, opening the door to the risk of corruption and undue influence. 
“As the majority of Trump real estate sales are to purchasers using anonymous companies, the public does not know who the Trump Organization is doing business with,” said Ostfeld. “As long as individuals, companies and foreign governments are able to hide behind secret companies, we cannot know which vested interests are trying to influence our political processes.”
It has been shown how anonymously-owned American companies allow a wide range of criminals to cheat justice and rip off ordinary people – from forcing vulnerable families into foreclosure to luring individuals from overseas into a human trafficking scheme that stretched across the US.
“Time and again we see how secret companies registered in the US or in offshore jurisdictions are used by the world’s criminal and corrupt to move suspect money through the international financial system,” said Ostfeld. “This makes it easy for unscrupulous people to steal state funds, launder money and cover up payments they don’t want the public to know about. It undermines democracy and poses a threat to US national interests. With this legislation, we can help put a stop to these practices.” 

Source: Press release, Global Witness Blog 

Monday, June 19, 2017

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The South African government recently announced its national anti-corruption strategy (NACS), that is aimed at tackling corruption in the public and private sectors, civil society, and citizen sector, as well as looking forward to other forms of corruption that could arise in the future – for example, cybercrime as a result of the evolution of technology.
The scope of the initiative is ambitious. But given the erratic track record of corruption busting in all sectors in the country, the question that is quite likely occupying South Africans’ minds is: can it work?
In a recent publication, the Organisation for Economic Co-operation and Development (OECD) discusses the effects of corruption around the world, and strategies for fighting it. The NACS is to a large degree aligned with the broader suggestions of the OECD, but drawing up strategies has never been the problem in South Africa – implementation has been the downfall of many a grand, well-intentioned plan. The NACS diagnostic report notes that a number of challenges for reducing corruption relate to “uneven or weak implementation of relevant legislation or policies, rather than the absence of appropriate laws. South Africa has a generally robust legislative framework for fighting corruption.”
The OECD says that despite great strides made globally in recent years, corruption remains a severe impediment to sustainable economic, political and social progress for countries at all levels of development. Recent scandals that have implicated national leaders and major corporations all over the world, as well as the ongoing investigations into various sporting disciplines, and the growing threat of terrorism and its links with corruption remind us that we have to do a great deal more.
Not only that, but corruption plays a role in the current refugee crisis by making people-smuggling easier for organised criminals and it undermines efforts to mitigate climate change by facilitating illegal logging. It has also contributed to the sharp rise in income and wealth inequality we have observed over the last decades.


Corruption decreases the profitability of the private sector by raising the cost of doing business, through bribes and drawn-out negotiations – the OECD Foreign Bribery Report, released in 2014, shows that, on average, bribes equal 10.9% of the value of a transaction and 34.5% of profits. Innovation, competitiveness and the emergence of new companies also suffers because it’s easier to just pay a bribe than to put in the hard work of winning business honestly.
In the public sector, corruption causes important decisions to be made on the basis of bias. It reduces the resources available to support economic productivity, and it negatively affects the skills and professionalism of public sector employees, especially where nepotism and favouritism have trumped merit and capability. It erodes trust in government and public institutions, making reform a more difficult task.
Customs-related corruption and tax evasion deprive the public sector of revenues that could otherwise be allocated to development, and it perpetuates inequality where programmes and projects are under-resourced or poorly managed.
Corruption undermines peace and democracy. When it is present in political processes such as elections or the financing of parties, corruption undermines the rule of the people and thus the very foundation of democracy, while a lack of public service delivery damages government credibility and legitimacy.
Corruption also increases states’ exposure to global threats arising from smuggling and illicit trade by organised crime and terrorist groups, and it contributes to the financing of terrorism.
Furthermore, illicit financial flows are increasingly associated with the illegal arms trade and drug trafficking, and as stated, these two crime sectors also play a significant role in the current refugee crisis by facilitating people smuggling.


The OECD recommends setting up strong governance frameworks, with input from all sectors of society, to prevent corruption. Building a culture of integrity will only succeed if not just the public sector is involved, but also the private sector and citizens as they are also responsible for the proliferation of corruption.
Such a framework will be bolstered by the inclusion of
  • A public integrity strategy;
  • Tackling the highest risk, which is public procurement;
  • Targeting high-cost, high-prestige and high-impact projects such as large-scale public infrastructure;
  • Curbing the risk of policy capture;
  • Making sure all companies, including SMEs, multinationals and state-owned enterprises, play by the rules.
It is the interplay of effective measures that are implemented, interest and commitment from all strata of government, business and the public, and sanctions for perpetrators, that will sustainably fight and reduce corruption in the long term.
But enforcement will also benefit from effective international co-operation, because strong integrity frameworks will only be of limited use, if they are not complemented by parallel efforts to detect and sanction corrupt behaviour. Crime and corruption often involves complex networks across borders and jurisdictions, and any effort to tackle it must involve the same scale and scope.
Countries will need to strengthen their enforcement of international standards such as the OECD Anti-Bribery Convention by giving higher priority to bribery investigations and prosecutions, providing enforcement institutions with adequate resources, and providing effective institutional frameworks that encourage reporting and protect whistleblowers. Additionally, the media has a role to play as a watchdog of both the public and private sector.
The fight against corruption will only succeed if both domestic and international frameworks are effectively put in place and if corrupt individuals and companies as well as those who help them are aggressively pursued across the globe.


Three pillars should be considered if corruption is to be tackled systemically, says the OECD report.
  • First, the highest political and management level needs to build a coherent and comprehensive integrity system by establishing clear institutional responsibilities and a risk-based integrity strategy that includes clear integrity values and standards.
  • Second, policy makers need to foster a culture of integrity through a whole-of-society approach and by investing in integrity leadership, a merit-based public sector, and an open organisational culture responsive to integrity concerns.
  • Third, they need to enable effective accountability through internal control and regulatory oversight to ensure compliance by the public sector, the private sector and citizens with standards of public integrity, and through transparency and active participation by civil society in the public decision-making process.
Comparing this strategy to the South African NACS, we see that the latter proposes nine pillars, but that on the whole it is aligned with the OECD’s suggestions.
  • Support citizen empowerment in the fight against corruption, including increased support for whistle-blowers.
  • Develop sustainable partnerships with stakeholders to reduce corruption and improve integrity management.
  • Improve transparency by government, business and civil society sectors.
  • Improve the integrity of the public procurement system to ensure fair, effective and efficient use of public resources.
  • Support the professionalisation of employees.
  • Improve adherence to integrity management and anti-corruption mechanisms and improve consequence management for non-compliance of these across government, business and civil society sectors.
  • Strengthen oversight and governance mechanisms in the government sector.
  • Strengthen the resourcing, cooperation and independence of dedicated anti-corruption agencies.
  • Build specific programmes to reduce corruption and improve integrity in sectors particularly vulnerable to corruption (vulnerable sector management), with an initial focus on the Justice, Crime Prevention and Security Cluster.
The NACS diagnostic report states that “At the heart of the fight against both public and private sector corruption should be a strategy to prevent corruption through building the autonomy and efficiency of state institutions in the country, and building the independence of the crime-fighting bodies.”
The national anti-corruption strategy should thus aim to support improved coordination between all role-players in the fight against corruption, and to tackle the systemic causes of corruption in the country.

Sunday, June 4, 2017

Corruption Watchers is delighted to welcome  Dr. Elizabeth Dávid-Barrett of the University of Sussex, who contributes today’s guest post:
Many anti corruption advocates are excited about the prospects that “big data” will help detect and deter graft and other forms of malfeasance. As part of a project in this vein, titled Curbing Corruption in Development Aid-Funded Procurement, Mihály Fazekas, Olli Hellmann, and I have collected contract-level data on how aid money from three major donors is spent through national procurement systems; our data set comprises more than half a million contracts and stretching back almost 20 years. But good data alone isn’t enough. To be useful, there must be a group of interested and informed users, who have both the tools and the skills to analyse the data to uncover misconduct, and then lobby governments and donors to listen to and act on the findings. The analysis of big datasets to find evidence of corruption – for example, the method developed by Mihály Fazekas to identify “red flags” of corruption risks in procurement contract data—requires statistical skills and software, both of which are in short supply in many parts of the developing world, such as sub-Saharan Africa.
Yet some ambitious recent initiatives are trying to address this problem. Lately I’ve had the privilege to be involved in one such initiative, led by Oxford mathematician Balázs Szendrői, that helps empower a group of young African mathematicians to analyse “big data” on public corruption.
The first step in this project was to develop software; this may seem trivial, but many cash-strapped African universities simply don’t have the resources to purchase the latest statistical software packages. The African Maths Initiative (AMI), a Kenyan NGO that works to create a stronger mathematical community and culture of mathematics across Africa, has helped to solve this problem by developing a new open-source program, R-Instat (which builds on the popular but difficult-to-learn statistics package R), funded through crowd-sourcing. Still in development, it is on track for launch in July this year. AMI has also helped develop a menu on R-Instat that can be used specifically for analysing procurement data and identifying corruption risk indicators.
Once we’ve got the data and the software to analyse it, the third and most crucial ingredient are the people. For “big data” to be useful as an anti corruption tool, we need to bring together two groups: people who understand how to analyse data, and people who understand how procurement systems can be manipulated to corrupt ends. Communication between the two is essential. So last month I tried to do my part by visiting AIMS Tanzania, an institute that offers a one-year high-level Master’s programme to some of Africa’s best math students, to help conduct a one-day workshop. After a preliminary session in which we discussed the ways in which the procurement process can be corrupted, and how that might manifest in certain red flags (such as single-bidder contracts), the students had the opportunity to use the R-Instat software to analyse the aid-funded procurement data set that my colleagues and I had created. Students formed teams and developed their own research questions that they attempted to answer by using R-Instat to run analyses on the data.
Even the simplest analyses revealed interesting patterns. Why did one country’s receipts from the World Bank drop off a cliff one year and never recover? Discussion revealed a few possible reasons: Perhaps a change of government led donors to change policy, or the country reached a stage of development where it no longer qualified for aid? Students became excited as they realized how statistical methods could be applied to identify, understand and solve real-world problems. Some teams came up with really provocative questions, such as the group who wanted to know whether Francophone or Anglophone countries were more vulnerable to corruption risks. Their initial analysis revealed that contracting in the Francophone countries was more associated with red flags. They developed the analysis to include a wider selection of countries, and maintained broadly similar results. Another group found that one-quarter of contracts in the education sector in one country had been won by just one company, and more than half of contracts by value in this sector had been won by three companies, all of which had suspiciously similar names. Again, there might be perfectly innocent reasons for this, but in just a couple of hours, we had a set of preliminary results that certainly warrant further analysis. Imagine what we might find with a little more time!
It is programs like these, that develop the tools and cultivate the skills in the next generation of analysts, that will determine whether the promise of “big data” as an anticorruption tool will be realized in the developing world.

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