Global Capitalism, Trust and Accountability Conference: The Law and Politics of Fighting Corruption

Key Concepts

• Corruption (various definitions: abuse of entrusted power, systematic vs. venal)
• Quid pro quo
• FCPA (Foreign Corrupt Practices Act)
• KUM/Cum-Ex scandal
• Institutional multiplicity/Web of accountability
• Social norms
• Whistleblowers
• Transparency
• Fiduciary duty
• Incomplete contracts
• Principal-agent problem
• Absorptive capacity
• Western hypocrisy

Germany and the Cum-Ex Scandal (Garrett Chick)

• Main Point: Germany is not immune to corruption, as demonstrated by the Cum-Ex scandal, which involved the theft of over 10 billion euros from taxpayers.
• Details:
  • Cum-Ex schemes involved exploiting loopholes in the tax system to claim multiple refunds on the same dividend payments.
  • Over 800 suspects are under investigation, including major banks (both foreign and national).
  • Only 3 billion euros have been reclaimed.
  • Similar trades (Cum-Cum) continue today.
  • The German government was slow to react; relevant action was only taken in 2016, despite the deals dating back to the 1980s.
  • No one has been convicted for criminal action yet.
• Role of Institutions:
  • Tax Authorities: Decentralized regional authorities were vulnerable to lobbying, with regional politicians prioritizing relationships with local businesses. Federal authorities had to intervene in Hamburg.
  • Media: Limited media coverage due to legal questions with Cum-Ex suspects and potential influence from banks.
  • Legal System: Only one prosecutor (Anhka) actively investigated, but she was reportedly blocked from investigating politicians. The highest federal court almost declared the schemes legal.
  • Academia: Suspects tried to influence academic research to uphold the myth of a loophole in the tax system. Professors from public universities wrote legal opinions supporting the legality of Cum-Ex.
• Lobbyism: The German private bank association proposed a law in 2007 intended to stop Cum-Ex, but it instead increased the trades. There was a mole in the finance ministry paid by banking associations.
• Public Banks: West LB, a public bank, was one of the largest players and involved local public banks to reduce visibility.
• Lessons Learned: The financial system allows for the generation of large sums of money through illegal trades, which can then be used to influence media, politicians, judges, and academia, creating a difficult-to-break loop.
• Quote: "In a financial system we have today it is possible to raise a lot of money with illegal trades and invest part of that money to influence media politicians judges academia and thereby continue those trades."

US Anti-Corruption Law and Enforcement (Kevin Davis)

• Main Point: The US is stepping back in its enforcement of anti-corruption law, with a narrowing of scope at both the federal and domestic levels.
• Foreign Corruption: Pause on FCPA enforcement, decision not to enforce the Corporate Transparency Act, disbanding of kleptocracy initiatives.
• Domestic Corruption:
  • Court cases have narrowed the scope of federal anti-corruption law.
  • McDonnell Case: The Supreme Court limited the definition of an "official act" in bribery cases. Arranging meetings was deemed insufficient.
  • Snyder Case: It was unclear whether the statute covering state and local officials covered rewards paid after the official act.
  • Eric Adams Case: The decision to dismiss the bribery charge against the New York mayor, despite compelling evidence, raises concerns.
• Potential Problems:
  • Reduced deterrence of corrupt behavior.
  • Sends the message that the US federal government doesn't care about corruption, especially when committed by its friends.
  • May disillusion prosecutors and investigators.
• Possible Responses:
  • Legal reform.
  • Changes in the executive branch.
  • Relying on other actors and institutions (institutional multiplicity/web of accountability).
  • Private enforcement/civil litigation.
  • Whistleblower bounties.
  • US states bringing cases under state law.
  • Foreign states prosecuting foreign bribery or their own officials.

Anti-Corruption in Africa (John Githongo)

• Main Point: The fight against corruption in Africa, particularly in common law countries, has evolved since the end of the Cold War, with a shift in focus and challenges.
• Historical Context:
  • Post-Cold War: Democratization, political pluralism, free media, and civil society emerged.
  • 1990s: IMF and World Bank made anti-corruption a conditionality for loans.
  • Legal and institutional infrastructure for fighting corruption across sub-Saharan Africa looks similar, influenced by the US FCPA and OECD convention.
  • 2001 (9/11): Reduced focus on anti-corruption due to distractions in the West.
  • 2003 (UN Convention Against Corruption): Led to domestication of similar anti-corruption legislation worldwide.
• China's Influence: China's aggressive trade push in Africa has become consequential, affecting the normative environment for anti-corruption.
• Lessons Learned:
  1. Expensive Democracy: Democracy is expensive, and the same actors who fund politicians are often involved in corruption.
  2. Geopolitical Tool: Corruption is used as a tool of geopolitical competition between countries like the US and China.
  3. Private Sector View: The private sector treats corruption as a tax if it is predictable and consistent.
  4. Transition Management: Insufficient attention was paid to managing the transition from authoritarian systems to more open systems and dealing with past corruption.
  5. Ineffective Prosecution: Prosecution is the least successful tool, especially in developing countries, when prosecuting those close to power.
  6. Perception of Elite Behavior: Perceptions of conspicuous consumption by leaders have a huge impact on public opinion, especially among young people on social media.
• Importance of Politics: The importance of politics in the fight against corruption.
• Quote: "Democracy is very expensive, and the same cast of characters who pay for politicians to hire helicopters and the like is the same... in offices."

Synthesis and Solutions (Vikrant Vig)

• Main Point: Tackling corruption requires a holistic approach that considers the political economy, builds capacity through education, and addresses the root causes of corruption.
• Corruption as a Principal-Agent Problem: Corruption can be viewed as a principal-agent problem, where rules are needed to incentivize good behavior and punish bad behavior.
• Challenges:
  • Corruption is difficult to measure.
  • Incomplete contracts create opportunities for discretion, which can be abused.
  • Enforcement problems are often overlooked.
• Transnational Approach:
  • The push for supernational institutions and coalitions to combat corruption is driven by self-interest and the need to address interdependencies created by globalization.
  • These efforts can be viewed with suspicion by those not involved in the rule-making process.
• Role of Education:
  • Education is crucial for building absorptive capacity and empowering people to resist corruption.
  • India's investment in education after independence was a key driver of its growth.
• Social Norms: Corruption is a social phenomenon, and changing social norms is essential for long-term progress.
• Whistleblowers: Strengthening the role of whistleblowers is crucial for uncovering corruption, especially in opaque systems.
• Transparency: Removing opacity can help to combat corruption, but this must be balanced with privacy concerns.
• Addressing Harm: It's important to make the case for why corruption is socially harmful, rather than just a way of cutting red tape.
• Importance of Context: The specific context of each country must be considered when designing anti-corruption strategies.
• Quote: "Nobody cares a damn on what's happening unless their own interests are involved in it."

Additional Points from Q&A

• Analytical Content of Corruption: Need to distinguish between systematic and venal corruption.
• Leveraging Technology: Technology can be used to reduce opportunities for corruption and change norms.
• Complicity of Political Elites: The complicity of political elites and the diplomatic community in corruption must be addressed.
• Moments of Retraction: There are moments of retraction in the fight against corruption, such as after 9/11 and the 2008 financial crisis.
• Fiduciary Duty: Corruption involves a betrayal of trust and a violation of fiduciary duty.
• Need for Integrated Thinking: A framework is needed for integrated thinking about corruption.
• Anti-Corruption Agencies: The creation of anti-corruption agencies can sometimes complicate the problem.
• Definitional Specificity: Need to define specific offenses rather than using broad definitions of corruption.
• Capitalism and Corruption: Need to question whether capitalism is designed to promote some of the things that are being condemned as corruption.
• Perception of Corruption: Need to critically examine the perception of corruption and the role of the media.