Anticorruption: How to Beat Back Political & Corporate Graft

Summer 2018

Minxin Pei · Bo Rothstein Mark L. Wolf · · Bracking Sarah · Matthew M. Taylor · Susan Rose-Ackerman · Jon S.T. Quah Quah Jon S.T. Anticorruption: · Robert I. Rotberg, guest editor I. Rotberg, Robert & Corporate Graft Louise I. Shelley ·

Journal of the American Academy of Arts & Sciences Journal of the American Academy Michael Johnston Sérgio Fernando Moro Sérgio Fernando Moro

Paul M. Heywood with Alina Mungiu-Pippidi How to BeatPolitical Back

Rotimi T. Suberu T. Rotimi Dædalus Zephyr Teachout Teachout Zephyr

Dædalus Summer 2018 How to Beat Back Political & Corporate Graft Accomplishing Anticorruption: Propositions & Methods

Robert I. Rotberg

Abstract: The insidious practice of corruption cripples institutions, consumes communities, and cuts deeply into the very structure of people’s lives. It destroys nations and saps their moral fiber. Corruption is invasive and unforgiving, degrading governance, distorting and criminalizing national priorities, and privileging acquisitive rent-seeking, patrimonial theft, and personal gains over concern for the commonweal. It also costs an estimated $1 trillion annually–roughly a loss of 2 percent of global GDP–and disproportionally affects the most needy countries and their peoples. This opening essay shows that these baleful results need not occur: the battle against corrupt practices can be won, as it has been in several contemporary countries and throughout history. Ethical universalism can replace particularism. Since collective behavioral pat- terns and existing forms of political culture need to be altered, anticorruption endeavors must be guided from the apex of society. Consummate political will makes a critical difference. Anticorruption successes are hard-won and difficult to sustain. This essay and this special issue show what can and must be done.

Confronting and curbing corruption are not impossible. We now know how to transform wildly corrupt countries into largely graft-free polities. We know what works reliably, what works occasionally, and what works only under optimal conditions. We robert i. rotberg, a Fellow of know that talented political will is essential. But we the American Academy since 2005, also know that altering corrupting incentives for in- is President Emeritus of the World dividuals is less powerful than shifting the contours Peace Foundation and Founding 1 Director of the Program on Intra of behavior collectively. state Conflict and Conflict Reso Corruption is a systemic malady, emerging from lution at the Harvard Kennedy the top down rather than the bottom up.2 That is, School. He is the author of The Cor- the stain of corruption spreads from the attitudes ruption Cure: How Citizens and Lead- and permissive policies of persons at the top of po- ers Can Combat Graft (2017), Africa litical and corporate entities downward. Leaders set Emerges: Consummate Challenges, the tone; misconduct at one level of authority im- Abundant Opportunities (2013), and Transformative Political Leadership plicitly authorizes the next. Integrity or its absence (2012), and the editor of Corrup- therefore seeps into the collective societal conscious- tion, Global Security, and World Order ness: either to make corruption an ongoing social (2009). practice and an essential (even if de jure forbidden)

5 Accomplishing component of a governing political cul- Effectively, these peoples–mostly Eu- Anticorruption: ture; or more rarely, to accomplish the re- ropean, followed in the twentieth century Propositions & Methods verse, creating legal and normative barriers by a few Asian and African populations– to wholesale approval of corrupt practices. moved away from particularism, where- We know that corruption can be reduced in “individuals [are] treated differently or even nearly extirpated at the national according to status,” to what Alina Mun- level because a number of nation-states giu-Pippidi and others call ethical univer- (most of them small and tightly controlled) salism, or the equal treatment of all in the have in modern times succeeded in transi- delivery of government services and op- tioning from wholesale corruption to the portunities. As Mungiu-Pippidi asserts in pursuit of a fully ethical system. One or this volume, two small, fully democratic states have also Particularism, rather than ethical universal- managed to develop successfully without ism, is closer to the state of nature (or the de- enduring any periods of corruption, in part fault social organization) and . . . its opposite, by introducing widespread changes in their a norm of open and equal access or public in- peoples’ understandings of corruption. In tegrity, is by no means guaranteed by polit- China, the world’s most populous nation, ical evolution.4 President Xi Jinping’s lengthy and aggres- sive anticorruption campaign may result But when a society does reach that point, in the diminution of many enduring cor- acculturative anticorruption efforts have rupt endeavors, even if his foremost goals been internalized by the political culture for the campaign are doubtless political. and the body politic. In other words, eth- Fortunately, to buttress what we have ical universalism (hardly a utopian con- learned from the contemporary experience cept) replaces corruption and patrimo- of those democratic and quasi-democrat- nialism–malign allocational norms–with ic entities that have beaten back corrup- public-spiritedness and fairness in gover- tion and effectively altered their prevailing nance and politics, corporate behavior, and political cultures, we also now understand daily life. Ethical universalism “presumes that today’s least corrupt countries were that all inhabitants of a jurisdiction will be once themselves promiscuously crooked, treated fairly, equally, and tolerantly–that but shifted incrementally over the nine- minorities are entitled to the same privi- teenth and twentieth centuries from hav- leges and opportunities as majorities, and ing widespread to very limited tolerance that groups large and small can anticipate of corruption. These changes took place receiving similar rights and privileges.”5 thanks to gifted leadership, the influence In the Nordics, elsewhere in Northern of the Enlightenment, the spread of mass Europe, and even in the Antipodes, there education, the emergence of autochtho- has been a major and profound shift from nous churches, and the rise of merit-based the societal expectation that position, for- bureaucratic systems. Bo Rothstein’s es- tune, and licenses are obtained primarily say in this volume emphasizes the role of by buying influence and access from rul- education: “With the introduction of free ers and their bureaucrats to a presumption public education,” he writes, “citizens got that such goods can be attained through a stake in a well-functioning public sector personal achievement and merit. Collec- and thus found a reason to oppose corrup- tive behavioral responses have evolved to- tion.”3 Education also engendered loyal- ward an anticorrupt norm. In other words, ty to the state and an embryonic sense of elites, and later entire populations, first in nationality. Prussia and the Nordic nations and then

6 Dædalus, the Journal of the American Academy of Arts & Sciences in the Netherlands, Britain, New Zealand, rangement.8 One expects to be extorted in Robert I. and Canada, gradually discovered that Kenya, Nigeria, or Zambia; but not in Bo- Rotberg their political and corporate endeavors tswana or Mauritius; and less often now- could succeed optimally only if the temp- adays in Benin and Ghana. The striking tation to gain power and preferment by differences in attitudes in those less cor- virtue of corrupt transactions and influ- rupt polities come after decades of leader- ence were reduced as much as possible. induced revampings of “standard operat- These ineluctable advances in the func- ing procedures.” tioning of these relatively small societies constituted a virtuous circle: empow- The less corrupt African societies, and erment encouraged institutions to func- those in Europe, Asia, and Australasia, are tion and citizens to use them well. Citizen separated from the run of their peers by participation in turn strengthened politi- critical shifts in prevailing political cultures cal institutions. As Matthew Taylor puts that took place during the last sixty years, it: “In a word, Denmark.”6 that were engineered from above, and that Elsewhere, by contrast, regional cor- were orchestrated largely by example and ruption remains. For example, although with an emphasis on integrity. Taylor, in Chileans’ interactions with their police his essay in this volume, calls these strik- forces and bureaucrats are free of petty ing anticorruption improvements “positive corruption, in nearby Argentina, Boliv- equilibrium shifts.” In earlier centuries, ia, Peru, and Brazil, that is not always the the Nordics and other peoples achieved case. And in all of those South American the same radical enhancements in expec- countries, among others, grand corruption tations, but over much longer periods and still flourishes, as clearly demonstrated by much more gradually. Rothstein’s essay in Brazil’s Odebrecht corporate bribing scan- this collection emphasizes that the Nordic dal and the ongoing Lava Jato investigation transformation was largely driven “indi- and prosecution of intertwining corrupt rectly” (that is, anticorruption was a by- Petrobras, Odebrecht, and government of- product of robust reforms universalizing ficials. (Judge Sérgio Fernando Moro, who public goods), a strategy that Rothstein also presides over the Lava Jato cases, writes in recommends to advocates and implement- his essay in this volume about how today’s ers of twenty-first-century anticorruption Brazilian corruption is being prosecuted efforts.9 and tried.7) Canada provides another example of in- Africa, too, has seen mixed success on cremental institutional changes to corrup- corruption, with a tiny handful of exem- tion norms. Canada’s first prime minister plary anticorruption efforts. There may openly took bribes in exchange for autho- be residual corruption in Botswana, but rizing railway and construction contracts. its citizens do not anticipate being fleeced By the end of the nineteenth century, poli- at police roadblocks or told that marriage ticians still profited from their positions at and driving licenses are only available the provincial level, but hardly ever feder- for an extra fee, paid under the counter. ally. By the post–World War II period, Ca- In contrast, neighboring Zimbabwe was nadians had ceased to tolerate even most awash until 2018 with roadblocks manned provincial chicanery, which was target- by machine gun–toting, woefully under- ed by major prosecutions. But only in the paid policemen; permits were only pro- twenty-first century have Canadians col- cured by bribes; and electricity or water lectively embraced what we might call an only arrived at households by special ar- absolute intolerance of rent-seeking, in-

147 (3) Summer 2018 7 Accomplishing fluence peddling, political and official -ad ern Europe, Estonia and Georgia have more Anticorruption: vantage-taking, and overall sleaze in both or less followed the Botswanan and Hong Propositions & Methods public and private spheres of endeavor Kong models in their shift from Soviet- (not that rule-breaking does not here and style criminalized corruption to Nordic-like there persist). paradigms. So have Costa Rica, Uruguay, According to Transparency Internation- and Slovenia. al’s most recent Corruption Perceptions In- The anticorruption ideal is common to dex, Canada is the eighth-ranking least cor- all nations, all traditional cultures. There rupt nation-state, following New Zealand, is very little evidence that the nature and Denmark, Finland, Norway, Switzerland, practices of corruption vary from culture Singapore, and Sweden. Tied with Canada to culture or that the corrupt act itself is are the Netherlands, Luxembourg, and the viewed more permissively in some societ- United Kingdom. Australia and the United ies than in others. Nor is there any evidence States rank as somewhat more corrupt than that the presence of everyday grand or petty Canada, according to recent iterations of corruption helps a modern nation to func- this well-respected index.10 tion effectively; there is no evidence that corruption somehow appropriately greas- We know how to reform societies and es the wheels of commerce, improves offi- eliminate the types of graft that erode social service delivery, and incorporates out- ciety’s fabric and impede economic growth. groups into a political, social, or economic We even know–because British governor of environment from which they would oth- Hong Kong Sir Murray MacLehose, Prime erwise be excluded. Systematically cleans- Minister Lee Kuan Yew of Singapore, and ing an infected country of small-scale ex- President Paul Kagame of Rwanda showed tortions helps just as much as jailing venal the way–that the inhabitants of city-states offenders to demonstrate that corruption up through medium-sized nations can be is dysfunctional and an impediment to eco- retrained or resocialized relatively quickly nomic and social growth. to shun corrupt temptations. President Sir In the twenty-first century, in the “global Seretse Khama of Botswana also demon- village,” no nation-state permits bribery, strated how a thoroughly democratic, toler- graft, and extortion; a diverse collection ant, honest, political leader could encourage of states legally defines private, public, his associates, his followers, and the gener- and overall abuse congruently; and, most al population to refrain from the common important of all, their diverse citizenries regional acceptance of corruption as a way have no difficulty knowing the many ways of life. Whereas Lee and Kagame led by ex- in which their rulers, as well as the minor ample but also used coercion, Khama so- officials with whom they deal day-to-day, cialized his citizens within a totally demo- are corrupt. Even kleptocracies and oth- cratic environment, and so taught them to er excessively corrupt regimes–the large- operate very differently from their peers in ly criminalized states at the bottom end neighboring states. So did Prime Minister of the Corruption Perceptions Index–all Sir Seewoosagur Ramgoolam and his suc- publicly hold that they prohibit and abhor cessors in Mauritius. They accomplished in corrupt behavior. modern times what the kings of Denmark In 2018, no group of citizens anywhere and leaders in Sweden, Norway, and Finland is demanding more corruption, less trans- managed to do, using a combination of co- parency and accountability, or more com- ercive and social-shaming methods, from promised service delivery. Only multina- the late eighteenth century onward. In mod- tional corporations with their eyes on a

8 Dædalus, the Journal of the American Academy of Arts & Sciences resource prize or wealthy, small countries dustry, and ultimately the environmental Robert I. seeking to host a global sporting champi- sustainability of the planet, there exist few Rotberg onship favor outright covert bidding for proven anticorruption initiatives capable services or results that (in theory) should of dealing effectively with illicit trade. An be provided on the basis of merit. If at one International Anti-Corruption Court, per- time the distinctions between corrupt haps organized analogously to the Interna- bids and honest competition, or between tional Criminal Court, as Judge Mark Wolf a bribe and a gift, were poorly illuminated, proposes in his essay, could help. So could this demarcation is now increasingly ap- globally exposing money-laundering and preciated in urban and middle-class Afri- cross-border currency movements and the ca, Asia, and the Americas, even if it is ad- shuttering of those places where ill-got- hered to only indifferently.11 ten gains are stashed, including offshore In spite of increasing consensus on the tax havens. illegitimacy of corrupt principles of allocation, the long hand of corruption nonethe- These transnational flows complement less extends across borders. Louise Shel- the use of corrupt extractive techniques ley’s essay demonstrates how it takes both within individual countries. The most egre- corrupt national officials and low-level giously corrupt are also thoroughly crim- professionals–operating not only in de- inalized and, usually, repressive. In the veloping states or conflict zones but in free many nations in which leaders prey on their trade zones and corporate offices–to facil- citizens by purloining much of their wealth itate the wholesale pilfering and devasta- (including many post-Soviet and African tion of illicit trading schemes. Shelley re- nations), anticorruption efforts are much counts the huge sums of money involved harder to imagine, and their successful out- in the smuggling of guns, drugs, and peo- comes rare or nonexistent. These are the ple within and across national borders. But criminalized or criminal states, where the she also makes clear that the trade in rare entire point of a presidency is not to rule environmental resources, including ivory for the people, but for oneself, one’s family, and rhino horn provided by poachers and and one’s cronies. These are extractive en- timber harvested from old-growth rain terprises where we cannot expect bad rul- forests, can only flourish because of high- ers to be voted out (although the Gambia is and low-level corruption. Gatekeepers an unusual exception and President Robert such as customs agents and airport per- Mugabe’s removal from Zimbabwe’s presi- sonnel are rewarded when they facilitate dency by a gentle coup may prove positive) the movement of contraband cigarettes, il- or well-meaning foreign donors to have in- legally harvested timber, precursor chem- fluence. They are family concerns or, as in icals for synthetic drug fabrication, and Afghanistan, fiefdoms arrayed against one all manner of counterfeit goods (includ- another, each to benefit its own followers.12 ing those sold on the Internet or Darknet). What can be done to pry populations Criminalized syndicates reach high into from under the heel of such corrupt des- many governments; corrupt kleptocrats pots? World order, in the form of kinetic and insurgent groups like Boko Haram exercises of power and United Nations Se- and Al Shabaab find funding through such curity Council sanctions, can make mon- high-level contacts. Unfortunately, as im- ey laundering and banking difficult, or in portant as stanching the flow of trafficked some cases impossible, for criminalized goods and persons is for national govern- states. World powers can place embargoes ments, their poor citizens, the tourism in- on imports and exports, seal bank accounts,

147 (3) Summer 2018 9 Accomplishing and hinder the travel of autocrats outside tion, culminated in the first conviction Anticorruption: of their home states. Democratic neighbor- of a sitting federal politician in 2012, fol- Propositions & Methods ing entities can shun those who hold illegit- lowed by a number of high-profile corrup- imate power, refusing diplomatic dealings tion sentences in subsequent years. Con- or otherwise recognizing them as leaders. gress also authorized the use of plea bar- The aforementioned International Anti- gains to obtain evidence of corruption, Corruption Court could also bring the crim- and of pretrial detention to prevent new inally corrupt before a globally legitimated offenses. These rule-of-law reforms en- bar of justice. Such a new court would sub- abled Brazilian prosecutors and Moro and ject those who are above law in their own his fellow judges to pursue charges of cor- countries to what the rule of law imposes ruption against individual politicians, po- in most democratic states. An Internation- litical parties, and corporations, strength- al Anti-Corruption Court could also trace ening the rule of law in Brazil and helping and help to contain the movement abroad to bring the impunity that politicians had of ill-gotten personal wealth and the pro- long enjoyed to an unceremonious end. ceeds of corrupt transactions. These are among the important lessons for anticorruption efforts everywhere, not There are a number of conceptual ap- just Brazil. Furthermore, whereas the Unit- proaches that, if honored and developed, ed States has recently retreated from its can reduce corruption within nation-states. long prohibition against lavish corporate Foremost is the full functioning of the rule contributions to domestic politicians’ elec- of law. Moro, in his essay in this volume, toral efforts, Brazil’s Supreme Court, rec- reiterates that strong laws against corrup- ognizing the pernicious role of unlimited tion are necessary to authorize and propel monies in elections, has now outlawed cor- effective anticorruption actions. He writes: porate transfers of cash to political forces until Brazil’s troubled legislative and exec- Better laws can improve the efficiency of 14 the criminal justice system and increase the utive branches can set reasonable limits. transparency and predictability of relations Singapore long ago severely restrict- between the public and private sectors, re- ed electoral campaign expenditures, thus ducing incentives and opportunities for cor- theoretically obviating the need for politi- rupt practices.13 cians to seek help in paying for such costs. European and South American nations do But reasonable laws are in no way suffi- the same and, like Singapore and many cient on their own. Those legal strictures other parliamentary systems, permit only need to apply to everyone, not just the poor abbreviated preelection periods of vote so- and powerless. If not, a country risks “a licitation. Greatly curtailing the amount progressive erosion of trust.” of money needed to win a legislative seat For many decades, politicians and pow- turns out to be a powerful anticorruption erful businessmen were largely immune tool, as Lee Kuan Yew presumed. In his from effective prosecution for corruption contribution to this volume, Rotimi Su- in Brazil, as in so many other seriously cor- beru writes, also, of how significant elec- rupt nations. In Brazil, grand corruption toral institutional reforms can contribute was systemic; it had become a “standard to a reduction of Nigeria’s predilection to- operating procedure” at the state and na- ward corrupt behavior. tional political and corporate levels. But gradual changes in the law, as well as grow- Creating special anticorruption commis- ing pressure for more effective judicial ac- sions or agencies to investigate and com-

10 Dædalus, the Journal of the American Academy of Arts & Sciences bat corrupt activities within specific polit- 2012) to be taken to court and punished; Robert I. ical jurisdictions was an institutional in- ironically, some of the accused were able Rotberg vention of the 1950s and 1970s. Implicitly to buy their way out of investigation. And using a principal-agent model of how cor- in a few places (such as Malawi and Zam- ruption worked, political executives and bia in this century), heads of state naturally legislatures may have thought that the ex- refused to permit anticorruption commis- istence of such commissions would lead, sions to investigate their own persons. As after hard forensic investigation of crooks a result, most of the African commissions in governmental or paragovernmental ac- ended up concerning themselves with the tivities, to the prosecution and elimination small fry, not major embezzlers, as Namib- of much corruption. But, as we now know, ia’s anticorruption commission is currently only when such a new institution is backed doing.15 Rothstein’s Quality of Government by abundant political will can it succeed in Institute at the University of Gothenburg accomplishing its mandated task. concluded after extensive survey research Jon S.T. Quah’s essay reviews how the (cited in Rothstein’s essay in this volume) Singapore and Hong Kong anticorruption that the establishment of special institution- commissions–the most successful in his- al anticorruption arrangements have proved tory–helped to carry out the mandates of effective anticorruption instruments only in hard-charging executives who were deter- special cases. Mungiu-Pippidi advances ad- mined to break corrupt practices within ditional evidence that their city-states. Their regimes provided countries that adopt autonomous anticor- sufficient funding and manpower to make ruption agencies, restrictive party finance the commissions powerful. They also gave legislation, or whistleblower protection acts them independence and protected them make no more progress on corruption than from political and gangster pushback (un- countries that do not.16 like the comparable body established in In- donesia in 2002). In other words, an abun- For these reasons, Suberu’s anticorrup- dance of political will contributed to their tion recipe emphasizes the enhanced au- efficacy. tonomy of critical Nigerian federal over- Quah contrasts successes in those two sight bodies and offices and would devolve jurisdictions with the failure of the com- authority (and power) to subfederal enti- mission model to bolster anticorruption ties. To some extent, what Suberu advo- efforts in the Philippines (even before the cates resonates with Paul Heywood’s plea presidency of Rodrigo Duterte) and India. for the disaggregation of corruption statis- I indicate elsewhere, too, that of the fifty or tics and awareness: he cautions us against so anticorruption commissions established regarding corruption as only a nation-based in Africa and Asia, only a handful proved ef- problem, rather than one that also infects fective. Most were led by well-intentioned subsidiary regions and operates transna- judges or prosecutors, but only in Botswana tionally.17 and Mauritius, and for a time in Zambia and Holding rule-makers and government ac- Nigeria, were these commissions permitted tors accountable is also essential: account- to act in an unfettered manner. Unlike the ability is the rubric under which Matthew commissions in Singapore and Hong Kong, Taylor and others wish to place the equi- their investigations were often negated by librium-shifting activities that will bring attorneys-general or by heads of state. Some about meaningful anticorruption advanc- culprits were just too powerful (as in Bra- es. For Taylor, accountability encompasses zil, which had no such commissions before oversight and sanctions.

147 (3) Summer 2018 11 Accomplishing With respect to transparency–wide- completion and sustainability of Georgia’s Anticorruption: spread information sharing–Taylor ap- anticorruption drive. Elsewhere, “account- Propositions & Methods plauds the reforms in Georgia that made ability” has advanced according to Taylor’s governmental functions less opaque, civil- formula without the loss of momentum service examinations competitive, univer- and the ultimate equilibrium-shift failure sity entrance tests truly fair, and interac- (abbreviated or aborted acculturation) that tions with bureaucrats more automated.18 he describes. As Moro states in his essay, making the evidence and procedure of the courts in the Strengthened rule-of-law regimes and im- Lava Jato corruption cases fully public pro- provements to accountability theory and duced “the popular support necessary for mechanisms depend on active political will. the enforcement of the law.” It also hin- Rarely do effective, sustainable, remedial dered the obstruction of justice by “pow- actions against the scourge of corruption erful defendants.”19 occur without the exercise of consummate Moro also reveals that oversight–the political will on the part of a national or re- evaluation of a government’s performance gional political chief executive. As Quah’s by publics and special auditors–was en- essay indicates (and other literature sup- hanced in Brazil by greater monitoring of ports), successful anticorruption endeav- local government functioning and by im- ors depend on transformative leaders and proved municipal auditing mechanisms. civil-society reformers working separately In South Africa, where the state (as Sarah or together to establish or reconfigure exist- Bracking’s essay discloses) was captured ing political cultures. That is what happened by corrupt entrepreneurs in cahoots with in Botswana, Hong Kong, Singapore, and the chief executive, critical oversight was Rwanda. This is what Xi Jinping in China advanced by the public prosecutor (an om- and Crown Prince Mohammed bin Salman budsperson), a free media, and unfettered in Saudi Arabia may also be trying to do. political opposition. Minxin Pei doubts very much that Xi Sanctions–the demonstration that so- wants or can accomplish such an objec- cietal norms work–included the sacking tive: of vast numbers of official offenders and Xi’s anticorruption crackdown is less unusual thousands of presumably corrupt police- than it appears. What separates it is its feroc- men. Sanctions of this kind enhance social ity and length, which are largely the result of trust, their most important contribution Xi’s political motivation of conducting a de to the anticorruption endeavor. facto and full-scale purge under the guise of All of these management enhancements an anticorruption drive.20 led in Georgia to greater institutional effectiveness–enhanced bureaucratic capacity If Xi really wanted to reduce Chinese cor- combined with broad engagement by citi- ruption, Pei reminds us, he would empow- zens–and, importantly, improved tax-col- er civil society and the media, two custom- lection abilities. They also included the cre- ary watchdogs, and not crack down harsh- ation of several anticorruption agencies to ly as he has on nearly all free expression prosecute further the war against prevail- and criticism of the state. ing (inherited from Soviet times) corrupt Exercising political will means leader- practices. In Georgia, however, these “ac- ship from the front, not from behind; it countability” reforms also led to the kinds means diagnosing societal ills and artic- of regime domination and “hyper-central- ulating solutions that, after careful analy- ization” that eventually worked against the sis and broad explanation, can be sold to

12 Dædalus, the Journal of the American Academy of Arts & Sciences skeptical publics and opponents. Political ploying modern technology can assist bat- Robert I. will is active, not passive, leadership. Of- tles against the corruption scourge. Rotberg ten it is bold and courageous, politically Alongside committed political will, tech- risky. It puts a leader at any level squarely nological innovations can be effective in behind public policy choices that may not tackling grand corruption, but they are immediately be popular, may be difficult best positioned to assist efforts to mini- to accomplish, and may ultimately fail. Ex- mize corruption at the petty level.22 In- ercising political will exposes vulnerabili- deed, in many corrupt settings, the ubiq- ties. Political will means that a leader sets uitous smartphone enables even the least integrity standards, adheres to them, and privileged to access rules and regulations attempts by a variety of mostly democratic and thus to match wits and knowledge, for means to overcome opposition. But what the first time, with bureaucratic insiders. does integrity, often positioned as the force Needing to bribe for services that are a citi- opposing corruption, contribute? In his zen’s by right, not favor, could in this man- essay, Heywood writes at length about the ner become an impost of the past. meaning of integrity and what it contrib- Putting nearly all licensing or permit- utes to the anticorruption endeavor. ting operations online is the simplest and To enunciate a novel policy direction for a most direct use of modern technology to state or a region is one thing. But to put the moderate or defeat petty corruption. If in- full weight of high public office or to stake teractions are completed online via user- the legitimacy of a presidency or premier- friendly interfaces (preferably on a mobile ship on an unproven proposition for so- telephone), a client can obtain birth cer- cietal reconfiguration, and to threaten es- tificates, marriage licenses, and all kinds tablished interest groups and criminalized of documents from what in India is called elites, constitutes the essence of political the permitting Raj without being hit up for will. Additionally, political will encompass- bribes or “tea money.” In theory, all sup- es resolve. Expressing political will is never plicants seeking a bureaucratic transaction enough, however; no amount of bluster and would be treated equally, by an algorithm exhortation can translate a change agenda or a computer. Because none could be fa- into an acceptable and functional nation- vored, no application process could be ex- al program. The goals of an energetic po- pedited or slowed down without direct in- litical will are only achieved as a result of terference with the program. Applicants deep teaching, committed persuasion, and could also file for a permit using a number, the effective mobilization of large arrays of rather than their names, which would mean peoples behind a clearly defined and intelli- that it would be even harder to discriminate gible project attractive to whole communi- for or against a particular person or group. ties and legions of voters. This is the essence This is the method that post-Soviet Georgia of the anticorruption agenda in polities, employed to end bribery and favoritism in contemporary or historical, that have been university entrance examinations. shifted by leadership action from a deep ac- When routine bureaucratic interactions ceptance of corrupt behavior toward a ro- are automated and human oversight is re- bust approval of new noncorrupt norms.21 duced or eliminated, corruption recedes. This new method of limiting and enhanc- In addition to these relatively large-scale ing a state’s dealings with its citizens and attitudinal changes that are fundamen- clients could also be extended to immi- tal to any anticorruption campaign, now gration services and customs halls; there, there are a number of ways in which em- processes of naturalizing citizens or im-

147 (3) Summer 2018 13 Accomplishing porting goods might be treated with more ymous texts reporting bribes in eight lan- Anticorruption: impartiality by nonhuman-mediated inter- guages, with compatibility for addition- Propositions & Methods actions. Advanced, algorithmically driven al languages and nations coming soon. computer programs can limit the very dis- Ipaidabribe.com is well-used in India. cretion that has long enabled corrupt prac- In future years, governments and civil- tices to flourish. society operatives will increasingly utilize Extortionate efforts–by hospital clerks handheld devices to empower anticorrup- to admit an injured person, a principal to tion endeavors. (Pakistan is a pioneer al- permit a pupil to enroll, or a policeman to ready.) As smartphones get smarter and as wave a car with bald tires through a barrier, 4G and 5G (and perhaps one day 6G) wire- all for a fee–might also, with some clever less networks are extended, those techno- technological adaptations, be reduced, if logical advances will become less expen- not eliminated, given sufficient political sive and more accessible. The hope, there- will from above. Petty corruption could be fore, is that their deployment will make it overwhelmed or greatly reduced if available possible to disseminate information about modern technological resources were em- corruption widely and to collect hard data ployed to substitute for face-to-face encoun- about corruption and corrupt acts almost ters (especially if they are in user-friendly instantaneously. In Afghanistan, for exam- formats such as smartphone apps). ple, the United States Agency for Interna- Handheld devices and webcams can also tional Development (usaid) has spon- permit citizens to gather audiovisual evi- sored an extensive scheme to track and dence of attempts at extortion by officials, monitor governmental financial transac- by policemen at roadblocks, or by physi- tions via mobile technology in an effort cians and nurses in government hospitals to deter officials from the wildly corrupt selling medicines and supplies to patients. dealings that are otherwise common there. If a high- or low-ranking official asks for a When official data of all kinds are made bribe, a citizen can surreptitiously record accessible, astute civil-society actors can the incident. Indeed, the very act of captur- also uncover previously unknown cor- ing these illegal but common abuses of au- ruption trends via data analysis. In Mexi- thority can empower citizens and change co, for example, a think tank examined the their political consciousness even if the rolls of the public educational system and process only rarely leads to punishment. discovered more than 1,400 teachers who Even though ngos and civil society, had allegedly been born on the same day working on behalf of citizens, do not al- in a single year. The ghost teachers were ways know exactly how to translate this then purged from the rolls, depriving offi- sort of documentation into reform, it has cials who had been pocketing their pay of helped to make parts of South and Cen- easy money. Similarly, in Nigeria, investi- tral Asia and sections of sub-Saharan Af- gators discovered evidence of serious mon- rica more corruption-free than before. Mo- ey laundering by poring over property and bile-telephone services such as Ushahidi company registers. Tax authorities in many (“Testimony”; a mobile data-gathering countries are able to discover the real own- app used in nine countries) and Frontline ers of more than eighty-five million com- sms give local citizens the ability to track panies worldwide by searching OpenCor- human rights violations and violators, note porates, a British-founded web compendi- violent acts in real time, and reveal security um of property registers from more than breaches. Bribespot.com (which originat- one hundred nations and political entities. ed in Estonia) allows users to send anon- The more data appear online, the more they

14 Dædalus, the Journal of the American Academy of Arts & Sciences can be analyzed to expose–and hopefully resignation (or resilience) into anticorrup- Robert I. to end–corrupt practices. (See the Panama tion energy that will bring about meaning- Rotberg and Paradise Papers, for example.) As Mun- ful change for the better.24 giu-Pippidi suggests, civil-society organizations and others can then monitor “how Most of the anticorruption initiatives many public contracts go to companies be- discussed in this issue of Dædalus, and in longing to officials or how many people put the many books and articles previously their relatives on public payrolls.”23 Making published by its contributors, focus on the data sources like these open and universal- public and political spheres, in which pri- ly accessible through public or semipublic vate profiteering from official positions is entities (such as governments or registers both illegal and everywhere frowned upon of commerce) always helps. culturally. For a long time, the academic The use of modern opinion-polling meth- discussion of corruption and anticorrup- ods can reveal how citizens evaluate local tion, where it existed at all, accordingly corruption and whether they see progress focused primarily on that public sphere. being made in reducing it. Transparency In- So did the international lending institu- ternational’s Global Corruption Barome- tions and most foreign aid donors. More ter Survey performs this function in a num- recently, however, both scholars and prac- ber of countries. The Latinobarometro and titioners have come to realize that private Afrobarometer instruments both also as- corruption (primarily corporate corrup- sess citizens’ views of graft on their con- tion, but also corruption in quasi-public tinents. The Gilani Research Foundation bodies such as the key athletic federations does the same in Pakistan. More special- like fifa and the International Olympic ized surveys, such as Cyprus’s bribery sur- Committee) is as pernicious and destruc- vey, provide information that assists civil tive to citizen rights as purely state-based societies, governments, and donors in as- corruption. Impartiality–often honored sessing the extent and varieties of corrupt only in the breach–is important in all of behavior in a particular political jurisdic- those spheres. Transparency Internation- tion. The international charity Oxfam pro- al, in its definition of corruption, rightly vides trusted surveys about public services refers to abuses of entrusted power rath- that help deter the proliferation of corrupt er than abuses only by persons in public practices. positions. There is no end to the relevant and help- Susan Rose-Ackerman’s essay in this vol- ful data that can be accumulated through ume seeks to distinguish between behavior judicious polling of mobile-telephone sub- that is unproblematically “corrupt”–petty scribers, pedestrians on the street, shop- payoffs, massive kickbacks, vote buying– pers in a market, and people gathered and a host of other situations in which pri- around a village water pipe. In one context vate wealth influences public (and private) after another, such data provide abundant choices. “I reject,” she writes, evidence of public discontent with the cor- an expansive notion of corruption that cov- rupt practices of those who rule over soci- ers all cases in which private wealth affects eties and citizens smothered by the sleaze public choices, either directly or indirectly. and alarmed by the stench of corruption. That is an impossibly broad definition.25 The question for civil-society and political reformers in each of those affected na- She also notes that private wealth “dis- tion-states thus quickly becomes how best torts the exercise of public power, direct- to transform mass resentment and mass ing it away from majoritarian preferenc-

147 (3) Summer 2018 15 Accomplishing es and values.” But, she continues, label- sion with Chinese criminal gangs, and to Anticorruption: ing all such “distortions” as corrupt “sets destroy both tender and permit fraud. But Propositions & Methods an idealized standard of purity, implying MacLehose and his associates also realized that virtually all politicians and officials that what happened within the corporate are guilty of corruption.”26 sector–within law firms and manufactur- Zephyr Teachout, by contrast, builds a ing and service enterprises–was equally much more expansive and critical argu- destructive of the public trust. For those ment. Her essay regards the largest multi- reasons, the icac was instructed to in- national global corporate entities–such as vestigate both forms of venality equal- Amazon, Google, and Facebook–as inher- ly. In an additional breakthrough innova- ently monopolistic, and therefore corrupt tion by MacLehose, the icac was given because of the baleful influence that they a mandate to educate businessmen, offi- and their vast wealth can exert on the ac- cials, and schoolchildren about the variet- tions and policies of nation-states. (Smaller ies and dangers of corruption. Quah’s es- corporations simply do not have the capaci- say develops that theme well. Heywood, in ty for such corrupting influence.) Teachout another geographical setting, emphasizes argues forcefully for limiting the monopo- the importance of preventing corruption listic power of those twenty-first-century well before it emerges. Pei reminds us, too, trusts, at a minimum shielding the body that Xi’s campaign against corruption fo- politic from the untrammeled power of cuses exclusively on punishment, not on such behemoths. Amazon and Apple should prevention; Xi need not learn from Hong be limited, she argues, in their ability to Kong because he has other, not necessari- drive market prices lower or unfairly to pri- ly anticorruption, goals in mind. oritize search results. Comcast and Mon- It is obvious that multinational com- santo should be broken up. For Teachout, panies are also among the biggest bribe being monopolistic means being corrupt, payers globally. The U.S. Foreign Cor- since distorting public goods is often in the rupt Practices Act; the British, Canadian, best interest of corporate expansion. “Cor- Dutch, and French antibribery acts; and porate monopolies are a result,” Teachout the oecd Convention Against Corruption explains, curtail and catch some of this supply-side of legal frameworks that enable excessive graft. The Extractive Industries Transpar- concentration of private power, limit the free- ency Initiative, a global initiative to make dom to engage in moral action by officers and foreign corporate payments to govern- directors, and create overwhelming incen- ments in the mining and petroleum and tives to bend public power to selfish ends. . . . gas exploitation arenas open to inspection, Multinational corporations, at a certain size tries to expose as much influence and con- and with enough power, are built to corrupt.27 cession buying as possible. As Moro’s essay makes clear, joining Teachout’s admo- At a lesser scale, the acknowledgement nitions: of harm from business-to-business cor- Companies must therefore do their home- ruption, and its early curbing, flowed work, denouncing requests or demands for from Governor Sir Murray MacLehose’s bribes, as well as implementing mecha- reform efforts in Hong Kong in the 1970s. nisms of internal control and accountabili- His pathbreaking Independent Commis- ty that make it difficult or impossible to pay sion Against Corruption (icac) was es- or receive them. It is also important for pri- tablished to rid the then–British colony vate-sector actors to work collectively so that of graft, to end official and police collu-

16 Dædalus, the Journal of the American Academy of Arts & Sciences companies involved in corrupt practices are sufficient, for the pursuit of an efficacious Robert I. identified and isolated from the market and and responsible anticorruption program. Rotberg not allowed to assume a preeminent posi- In addition to agreeing on some basic tion.28 principles, our authors also suggest imaginative ways of advancing the anticorruption agenda. Rothstein prefers to make The contributors to this issue of Dæda- “war” on corruption and to let game and lus do not uniformly embrace all of the strategic military theory guide our efforts. above-mentioned frameworks or ingre- Michael Johnston favors “deep democra- dients of anticorruption success. Indeed tization”–involving citizens fully in gov- there is some spirited disagreement be- erning themselves–as the only path to de- tween authors, nearly all of whom are ac- feating corruption. Mungiu-Pippidi wants knowledged and well-published author- international donors to contribute to the ities in the study of corruption as a phe- anticorruption project by imposing condi- nomenon, regarding corruption as a social tionality measures on their clients (such as malady, as a weighty drag on development, compelling recipients to reveal the names and as a major contributor to the societal and amounts of all procurement benefi- ills suffered by millions of the world’s most ciaries). impoverished peoples. Despite their dif- Overall, our authors combine theory ferent approaches to combating corrup- and practice in order to offer a multifacet- tion, debates about the best way of effect- ed anticorruption agenda of unparalleled ing real improvements in corrupt nations, ingenuity and promise that, when realized, and concerns that prescribing exact curing could help to provide better social and eco- remedies is premature, most of our writers nomic outcomes to the many millions of consider a number of the factors already people who live in deeply corrupt societies. discussed in this essay as necessary, if not

We are grateful to Academy members James Wolfensohn and Herbert Sandler for their generous gifts that supported an authors’ conference in Cambridge, Massachusetts, at which our authors and other experts discussed draft versions of the essays that are published in this issue of Dædalus.

endnotes 1 For a discussion of corruption as a collective action problem, see Bo Rothstein, “Fighting Sys temic Corruption: The Indirect Strategy,” Dædalus 147 (3) (Summer 2018): 35–49. 2 For a good explanation of what systemic corruption entails, see Sérgio Fernando Moro, “Pre venting Systemic Corruption in Brazil,” Dædalus 147 (3) (Summer 2018): 157–168. 3 Rothstein, “Fighting Systemic Corruption,” 45. 4 Alina Mungiu-Pippidi, “Seven Steps to Control of Corruption: The Road Map,” Dædalus 147 (3) (Summer 2018): 23. 5 Robert I. Rotberg, The Corruption Cure: How Citizens and Leaders Can Combat Graft (Princeton, N.J.: Princeton University Press, 2017), 37. 6 This is Matthew Taylor’s formulation in his essay in this volume. He draws on Bo Rothstein, Alina Mungiu-Pippidi, and Francis Fukuyama, among others. See Matthew Taylor, “Getting

147 (3) Summer 2018 17 Accomplishing to Accountability: A Framework for Planning & Implementing Anticorruption Strategies,” Anticorruption: Dædalus 147 (3) (Summer 2018): 66. Propositions & Methods 7 Moro, “Preventing Systemic Corruption in Brazil.” 8 Robert I. Rotberg, “Roadblocks and Bribes: Zimbabwe is Africa’s Shakedown State,” Globe and Mail, October 19, 2017, https://www.theglobeandmail.com/opinion/roadblocks-and-bribes -zimbabwe-is-africas-shakedown-state/article36657279/. 9 Rothstein, “Fighting Systemic Corruption.” 10 Despite its high rating by the cpi and other indexes, Canada still suffers from various kinds of corruption. For the details, see Robert I. Rotberg and David Carment, eds., Canada’s Cor- ruption: At Home and Abroad (London: Routledge, 2018). For the Corruption Perceptions In dex, see www.transparency.org/. 11 This paragraph draws on Rotberg, The Corruption Cure, 27–28. 12 The phenomenon is well described in Sarah Chayes, Thieves of State: Why Corruption Threatens Global Security (New York: W. W. Norton, 2015). 13 Moro, “Preventing Systemic Corruption in Brazil,” 162–163. 14 Susan Rose-Ackerman discusses corruption and electoral contributions trenchantly in her es say in this volume. See Susan Rose-Ackerman, “Corruption & Purity,” Dædalus 147 (3) (Sum mer 2018): 98–110. 15 Rotberg, The Corruption Cure, 109–175. 16 Mungiu-Pippidi, “Seven Steps to Control of Corruption,” 30. 17 Paul M. Heywood, “Combating Corruption in the Twenty-First Century: New Approaches,” Dædalus 147 (3) (Summer 2018): 83–97. 18 In his contribution to this volume, Michael Johnston is skeptical of transparency as an effec tive anticorruption strategy. See Michael Johnston, “Reforming Reform: Revising the Anti corruption Playbook,” Dædalus 147 (3) (Summer 2018): 50–62. 19 Moro, “Preventing Systemic Corruption in Brazil,” 163. 20 Minxin Pei, “How Not to Fight Corruption: Lessons from China,” Dædalus 147 (3) (Summer 2018): 225. 21 Rotberg, The Corruption Cure, 45–49. Johnston is again skeptical regarding the value of empha sizing political will in combating corruption. See Johnston, “Reforming Reform.” 22 Johnston and Mungiu-Pippidi argue against the utility of distinguishing or separating pet ty from grand corruption. See Johnston, “Reforming Reform;” and Mungiu-Pippidi, “Seven Steps to Control of Corruption.” 23 Mungiu-Pippidi, “Seven Steps to Control of Corruption,” 28. 24 This section draws, in part, on Rotberg, The Corruption Cure, 272–284. 25 Rose-Ackerman, “Corruption & Purity,” 103. 26 Ibid. 27 Zephyr Teachout, “The Problem of Monopolies & Corporate Public Corruption,” Dædalus 147 (3) (Summer 2018): 112. 28 Moro, “Preventing Systemic Corruption in Brazil,” 163.

18 Dædalus, the Journal of the American Academy of Arts & Sciences Seven Steps to Control of Corruption: The Road Map

Alina Mungiu-Pippidi

Abstract: After a comprehensive test of today’s anticorruption toolkit, it seems that the few tools that do work are effective only in contexts where domestic agency exists. Therefore, the time has come to draft a comprehensive road map to inform evidence-based anticorruption efforts. This essay recommends that international donors join domestic civil societies in pursuing a common long-term strategy and action plan to build national public integrity and ethical universalism. In other words, this essay proposes that coordination among donors should be added as a specific precondition for improving governance in the WHO’s Millennium Development Goals. This essay offers a basic tool for diagnosing the rule governing allocation of public resources in a given country, recommends some fact-based change indicators to follow, and outlines a plan to identify the human agency with a vested interest in changing the status quo. In the end, the essay argues that anticorruption interventions must be designed to empower such agency on the basis of a joint strategy to reduce opportunities for and increase constraints on corruption, and recommends that experts exclude entirely the tools that do not work in a given national context.

The last two decades of unprecedented anticorruption activity–including the adoption of an international legal framework, the emergence of an anticorruption civil society, the introduction of governance-related aid conditionality, and the rise of a veritable anticorruption industry–have been marred by stagnation in the evolution of good governance, alina mungiu-pippidi is Pro- fessor of Democracy Studies at the ratings of which have remained flat for most of the Hertie School of Governance in countries in the world. Berlin. She chairs the European Re- The World Bank’s 2017 Control of Corruption ag- search Centre for Anti-Corruption gregate rating showed that twenty-two countries and State-Building (ercas), where progressed significantly in the past twenty years and she managed the fp7 research twenty-five regressed. Of the countries showing prog- project anticorrp. She is the ress on corruption, nineteen were rated as either author of The Quest for Good Gover- nance: How Societies Develop Control of “free” or “partly free” by Freedom House (a democ- Corruption (2015) and A Tale of Two racy watchdog that measures governance via politi- Villages: Coerced Modernization in the cal rights and civil liberties); only seven were judged East European Countryside (2010). “not free.”1 Our governance measures are too new to

20 allow us to look further into the past; still, largely independent from private interest Alina it seems that governance change has much and that allocates public resources based Mungiu- Pippidi in common with climate change: it occurs on ethical universalism? Can such a pro- only slowly, and the role that humans play cess be engineered? How do the current involuntarily seems always to matter more anticorruption tools promoted by the in- than what they do with intent. ternational community perform in deliv- External aid and its attached conditional- ering this result? ity are considered an essential component Looking at the governance progress in- of efforts to enable developing countries to dicators outlined above, one might won- deliver decent public services on the princi- der whether efforts to change the quali- ple of ethical universalism (in which every- ty of government in other countries are one is treated equally and fairly). However, doomed from the outset. The incapaci- a panel data set (collected from 110 devel- ty of international donors to help push oping countries that received aid from the any country above the threshold of good European Union and its member states be- governance during the past twenty years tween 2002 and 2014) shows little evolution of the global crusade against corruption of fair service delivery in countries receiv- seems over- rather than under-explained. ing conditional aid. Bilateral aid from the For one, corrupt countries are generally largest European donors does not have sig- run by corrupt people with little interest nificant impact on governance in recipient in killing their own rents, although they countries, while multilateral financial assis- may find it convenient to adopt interna- tance from eu institutions such as the Of- tional treaties or domestic legislation that fice of Development Assistance (which pro- are nominally dedicated to anticorruption vides aid conditional on good governance) efforts. Furthermore, countries in which produces only a small improvement in the informal institutions have long been sub- governance indicators of the net recipients. stituted for formal ones have a tradition Dedicated aid to good-governance and cor- of surviving untouched by formal legal ruption initiatives within multilateral aid changes that may be forced upon them. packages has no sizable effect, whether on One popular saying from the post-Sovi- public-sector functionality or anticorrup- et world expresses the view that “the in- tion.2 Countries like Georgia, Vanuatu, adequacy of the laws is corrected by their Rwanda, Macedonia, Bhutan, and Uru- non-observance.”3 guay, which have managed to evolve more Explicit attempts of donor countries than one point on a one-to-ten scale from and international organizations to change 2002 to 2014, are outliers. In other words, governance across borders might appear a they evolved disproportionately given the novel phenomenon, but are they actually eu aid per capita that they received, while so very different from older endeavors to countries that received the most aid (such “modernize” and “civilize” poorer coun- as Turkey, Egypt, and Ukraine) had rather tries and change their domestic institutions disappointing results. to replicate allegedly superior, “universal” So how, if at all, can an external actor ones? Describing similar attempts by the such as a donor agency influence thetransi - ancient Greeks–and also their rather poor tion of a society from corruption as a governance impact–historian Arnaldo Momigliano norm, wherein public resource distribution writes: “The Greeks were seldom in a po- is systematically biased in favor of authori- sition to check what natives told them: they ty holders and those connected with them, did not know the languages. The natives, to corruption as an exception, a state that is on the other hand, being bilingual, had a

147 (3) Summer 2018 21 Seven Steps shrewd idea of what the Greeks wanted to ey is used to do good, rather than actual- to Control of hear and spoke accordingly. This recipro- ly to funnel more resources into local in- Corruption cal position did not make for sincerity and formal institutions and predatory elites, real understanding.”4 seems more of an obligation than a choice. Many factors speak against the odds of While our knowledge of how to estab- success of international donors’ efforts to lish a norm of ethical universalism is still change governance practices, especially far from sufficient, I will outline a road government-funded ones. One such fac- map toward making corruption the excep- tor is the incentives facing donor countries tion rather than the rule in recipient coun- themselves: they want first and foremost tries. To do so, I draw on one of the largest to care for national companies investing social-science research projects undertak- abroad and their business opportunities; en by the European Union, anticorrp, reduce immigration from poor countries; which was conducted between 2013 and and generate jobs for their development in- 2017 and was dedicated to systematical- dustry. Even if donor countries would pre- ly assessing the impact of public anticor- fer that poor countries govern better, re- ruption tools and the contexts that enable duce corruption, and adopt Western values, them. I follow the consequences of the evi- they also have to play their cards realisti- dence to suggest a methodology for the de- cally. Thus, donor countries often end up sign of an anticorruption strategy for ex- avoiding the root of the problem: when the ternal donors and their counterparts in do- choice is between their own economic in- mestic civil societies.6 terests and more idealistic commitments Many anticorruption policies and pro- to better governance, the former usually grams have been declared successful, but wins out. no country has yet achieved control of corruption through the prescriptions attached The first question a policy analyst should to international assistance.7 To proceed, we ask, therefore, is not how to go about alter- must also clarify what constitutes “success” ing governance in developing countries, in anticorruption reforms. Success can but whether the promotion of good gover- only mean a consolidated dominant norm nance and anticorruption is worth doing of ethical universalism and public integri- at all, self-serving reasons aside. I have ad- ty. Exceptions, in the form of corrupt acts, dressed these questions in greater detail will always remain, but if they are numer- elsewhere; this essay assumes a donor has ous enough to be the rule, a country can- already made the decision to intervene.5 not be called an achiever. A successful trans- The evidence on the basis of which such formation requires both a dominant norm decisions are made is often poor, but real- of public integrity (wherein the majority istically, due to the other policy objectives of acts and public officials are noncorrupt) mentioned above (such as the exigencies and the sustainability of that norm across of participation in the global economy), at least two or three electoral cycles. international donors will continue to give aid systematically to corrupt countries. As Quite a few developing countries pres- long as one thinks a country is worth grant- ently seem to be struggling in a borderline ing assistance to, preventing aid money area in which old and new norms confront from feeding corruption in the recipient one another. This is why popular demand country becomes an obligation to one’s for leadership integrity has been loudly pro- own taxpayers. For the sake of the recipi- claimed in headlines from countries such ent country, too, ensuring that such mon- as South Korea, India, Brazil, Bulgaria, and

22 Dædalus, the Journal of the American Academy of Arts & Sciences Romania, but substantially better qual- lectivistic and status-based societies. Par- Alina ity of governance has yet to be achieved ticularism frequently results in patrimo- Mungiu- Pippidi there. While the solutions for each and ev- nialism (the use of public office for private ery country will ultimately come from the profit), turning public office into a perpet- country itself–and not from some univer- ual source of spoils.8 Public corruption sal toolkit–recent research can contribute thrives on power inequality and the inca- to a road map for more evidence-based cor- pacity of the weak to prevent the strong ruption control. from appropriating the state and spoiling The first step is to understand that with public resources. Particularism encom- the exception of the developed world, con- passes a variety of interpersonal and per- trol of corruption has to be built from the sonal-state transaction types, such as cli- ground up, not “restored.” Most anticor- entelism, bribery, patronage, nepotism, ruption approaches are built on the con- and other favoritisms, all of which imply cept that public integrity and ethical uni- some degree of patrimonialism when an versalism are already global norms of gov- authority-holder is concerned. Particular- ernance. This is wrong on two counts, and ism not only defines the relations between leads to policy failure. First, at the present a government and its subjects, but also be- moment, most countries are more corrupt tween individuals in a society; it explains than noncorrupt. A histogram of corrup- why advancement in a given society might tion control shows that developing coun- be based on status or connections with in- tries range between two and six on a one- fluential people rather than on merit. to-ten scale, with some borderline cases in The outcome associated with the prev- between (see Figure 1). Countries scoring alence of particularism–a regular pattern in the upper third are a minority, so a de- of preferential distribution of public goods velopment agency is more likely than not toward those who hold more power–has to be dealing with a situation in which cor- been termed “limited-access order” by ruption is not only a norm but an institu- economists Douglass North, John Wal- tionalized practice. Development agencies lis, and Barry Weingast; “extractive in- need to understand corruption as a social stitutions” by economist Daron Acemog- practice or institution, not just as a sum of lu and political scientist James Robinson; individual corrupt acts. Further, presum- and “patrimonialism” by political scien- ing that ethical universalism is the default tist Francis Fukuyama.9 Essentially, though, is wrong from a developmental perspec- all these categories overlap and all the au- tive, since even countries in which ethical thors acknowledge that particularism rath- universalism is the governance norm were er than ethical universalism is closer to the not always this way: from sales of offices state of nature (or the default social orga- to class privileges and electoral corruption, nization), and that its opposite, a norm of the histories of even the cleanest countries open and equal access or public integrity, is show that good governance is the prod- by no means guaranteed by political evolu- uct of evolution, and modernity a long and tion and indeed has only ever been achieved frequently incomplete endeavor to develop in a few cases thus far. The first countries state autonomy in the face of private group to achieve good control of corruption– interests. among them Britain, the Netherlands, Swit- Institutionalized corruption is based on zerland, and Prussia–were also the first to the informal institution of particularism modernize and, in Max Weber’s term, to (treating individuals differently according “rationalize.” This implies an evolution to their status), which is prevalent in col- from brutal material interests (espoused,

147 (3) Summer 2018 23 Seven Steps Figure 1 to Control of Particularism versus Ethical Universalism: Corruption Distribution of Countries on the Control of Corruption Continuum

35 34

30 29

25 23

20 16 15 16 15 14

Frequency 13 13 11 10 9 7 5 5 3 1 0 3.3 7.5 9.1 2.7 3.8 4.3 2.2 5.4 5.9 8.6 7.0 4.9 6.4 8.0

Control of Corruption (Values from 1 to 10) Higher

Particularism Universalism

Source: The World Bank, Worldwide Governance Indicators, Control of Corruption, http://info.worldbank.org/ governance/wgi/#home distribution. Distribution recoded 1–10 (with Denmark 10). The number of countries for each score is noted on each column.

for instance, by Spanish conquistadors who the West and some Western Anglo-Saxon appropriated the gold and silver of the New colonies, has not taken place in many other World) to a more rationalistic and capitalis- countries, regardless of whether said rulers tic channeling of economic surplus, under- were monopolists or won power through pinned by an ideology of personal austeri- contested elections. Despite adopting most ty and achievement. The market and cap- of the formal institutions associated with italism, despite their obvious limitations, Western modernity–such as constitutions, gradually emerged in these cases as the political parties, elections, bureaucracies, main ways of allocating resources, replac- free markets, and courts–many countries ing the previous system of discretionary never managed to achieve a similar ratio- allocation by means of more or less orga- nalization of both the state and the broad- nized violence. The past century and a half er society.10 Many modern institutions ex- has seen a multitude of attempts around ist only in form, substituted by informal the world to replicate these few advanced institutions that are anything but modern. cases of Western modernization. How- That is why treating corruption as deviation ever, a reduction in the arbitrariness and is problematic in developing countries: it power discretion of rulers, as occurred in leads to investing in norm-enforcing instru-

24 Dædalus, the Journal of the American Academy of Arts & Sciences ments, when the norm-building instruments be understood and addressed holistically Alina that are in fact needed are quite different. and not artificially separated into types of Mungiu- Pippidi Strangely enough, developed countries dis- corruption. play extraordinary resistance to addressing The second step is diagnosing the norm. corruption as a development-related rather If we conceive governance as a set of for- than moral problem. This is why our West- mal rules and informal practices determin- ern anticorruption techniques look much ing who gets which public resources, we can like an invasion of the temperance league then place any country on a continuum with in a pub on Friday night: a lot of noise with full particularism at one end and full ethi- no consequence. Scholars contribute to cal universalism at the other. There are two the inefficacy of interventions by perpet- main questions that we have to answer. uating theoretical distinctions that are of What is the dominant norm (and prac- poor relevance even in the developed world tice) for social allocation: merit and work, (such as “bureaucratic versus political” or or status and connections to authority? “grand versus petty” corruption), which And how does this compare to the formal inform us only of the opportunities that norm–such as the United Nations Conven- somebody has to be corrupt. As those option against Corruption (uncac), or the portunities simply vary according to one’s country’s own regulation–and to the gen- station in life (a minister exhorting an en- eral degree of modernity in the society? For ergy company for a contract is simply us- instance, merit-based advancement in civil ing his grand station in a perfectly simi- service may not work as the default norm, lar way to a petty doctor who required a but it may in the broader society, for in- gift to operate or a policeman requiring a stance in universities and private business- bribe not to give a fine), such distinctions es. The tools to begin this assessment are the are not helpful or conceptually meaning- Worldwide Governance Indicator Control ful. In countries where the practice of par- of Corruption, an aggregate of all percep- ticularism is dominant, disentangling po- tion scores (Figure 1); and the composite, litical from bureaucratic corruption also mostly fact-based Index for Public Integri- does not work, since rulers appoint “bu- ty that I developed with my team (which is reaucrats” on the basis of personal or par- highly correlated with perception indica- ty allegiance and the two collude in extract- tors). Any available public-opinion poll on ing resources. Even distinguishing victims governance can complete the picture (one from perpetrators is not easy in a context of standard measure is the Global Corruption institutionalized corruption. In a develop- Barometer, which is organized by Transpar- ing country, an electricity distribution com- ency International). Simply put, the major- pany, for instance, might be heavily indebt- ity of respondents in countries in the upper ed to the state but still provide rents (such tercile of the Control of Corruption indica- as well-paid jobs) to people in government tors feel that no personal ties are needed to and their cronies and eventually contribute access a public service, while those in the funds to their electoral campaigns. For their lower two-thirds will in all likelihood indi- part, consumers defend themselves by not cate that personal connections or materi- paying bills and actually stealing massively al inducement are necessary (albeit in dif- from the grid, and controllers take moder- ferent proportions). Within the developed ate bribes to leave the situation as it is. The European Union, only in Northern Europe result is constant electricity shortages and does a majority of citizens believe that the a situation to which everybody (or nearly state and markets work impartially. The everybody) contributes, and which has to United States, developed Commonwealth

147 (3) Summer 2018 25 Seven Steps countries, and Japan round out the top ter- Table 1 illustrates how these two con- to Control of cile. The next set of countries, around six texts–corruption as norm and corruption Corruption and seven on the scale, already exhibit far as exception–differ essentially, and shows more divided public opinion, showing that that different measures must be taken to de- the two norms coexist and possibly com- fine, assess, and respond to corruption in pete.11 In countries where the norm of par- either case. An individual is corrupt when ticularism is dominant and access is limited, engaging in a corrupt act, regardless of surveys show majorities opining that gov- whether he or she is a public or private ac- ernment only works in the favor of the few; tor. The dominant analytic framework of that people are not equal in the eyes of the the literature on corruption is the principal- law; and that connections, not merit, drive agent paradigm, wherein agents (for ex- success in both the public and private sec- ample government officials) are individu- tors. Bribery often emerges as a substitute als authorized to act on behalf of a principal for or a complement to a privileged con- (for example a government). To diagnose nection; when administration discretion an organization or a country as “corrupt,” is high, favoritism is the rule of the game, we have to establish that corruption is the so bribes may be needed to gain access, norm: in other words, that corrupt trans- even for those with some preexisting priv- actions are prevalent. When such practices ilege. A thorough analysis needs to deter- are the exception, the corrupt agent is sim- mine whether favoritism is dominant and ply a deviant and can be sanctioned by the how material and status-based favoritism principal if identified. When such practic- relate to one another in order to weigh use- es are the norm, corruption occurs on an ful policy answers. Are they complementa- organized scale, extracting resources dis- ry, compensatory, or competitive? When proportionately in favor of the most pow- the dominant norm is particularistic, col- erful group. Telling the principal from the lusive practices are widespread, including agent can be quite impossible in these cas- not only a fusion of interests between ap- es due to generalized collusion (the orga- pointed and elected office holders and civ- nization is by privileged status groups, pa- il servants more generally, but also the cap- tron-client pyramids, or networks of extor- ture of law enforcement agencies. tion) and fighting corruption means solving The second step, diagnosis, needs to be social dilemmas and issues around discre- completed by fact-based indicators that al- tionary use of power. Most people oper- low us to trace prevalence and change. For- ate by conformity, and conformity always tunately for the analyst (but unfortunately works in favor of the status quo: if ethical for everyone else), since corrupt societies universalism is already the norm in a soci- are, in Max Weber’s words, status societies, ety, conformity helps to enforce public in- where wealth is only a vehicle to obtain tegrity; if favoritism and clientelism are greater status, we do not need Panama- the norm, few people will dissent. The dif- Papers revelations to see corruption. Sys- ference between corruption as a rule and tematic corrupt practices are noticeable corruption as a norm shows in observable, both directly and through their outcomes: measurable phenomena. In contexts with lavish houses of poorly paid officials, great clearer public-private separation, it is more fortunes made of public contracts, and the difficult to discover corrupt acts, requiring poor quality of public works. Particularism whistleblowers or some time for a conflict results in privilege to some (favoritism) of interest to unfold (as with revolving and discrimination to others, outcomes doors, through which the official collects that can both be measured.12 benefits from his favor by getting a cushy

26 Dædalus, the Journal of the American Academy of Arts & Sciences Table 1 Alina Corruption as Governance Context Mungiu- Pippidi Corruption as Exception Corruption as Norm Social practice in which particularism (as op- Individual abuses public posed to ethical universalism) informs the ma- Definition authority to gain undue jority of government transactions, resulting in private profit. widespread favoritism and discrimination. Corruption is observable as overt behaviors and Corruption unobservable; flawed processes, as well as through outcomes/ Visibility whistleblowing needed. consequences; monitoring and curbing impunity needed. Enshrined. Access is permit- Permeable border, with patrimonialism and con- ted via lobby, and exchanges Public-Private flict of interest ubiquitous. Exchanges between between the sides are con- Separation the sides are synchronous (one person belongs sequent in time (revolving to both sides at the same time). doors). Preferred Macro (how many bills are driven by special in- Micro and qualitative (for Observation terest, how many contracts awarded by favorit- example, lobby studies). Level ism, how many officials are corrupt, and so on).

job later with a private company). In con- today this is widely understood to be a col- texts where patrimonialism is widespread, lusive practice and has been made illegal in there is no need for whistleblowers: offi- many countries. These indicators signal es- cials grant state contracts to themselves or sential changes of context that we need to their families, use their public car and driver trace in developing countries and indeed to take their mother-in-law shopping, and to use to create our good governance tar- so forth–all in publicly observable displays gets. If in a given country it is presently cus- (see Table 1). tomary to pay a bribe to have a telephone Efforts to measure corruption should line installed, the target is to make this ex- aim at gauging the prevalence of favorit- ceptional. ism, measuring how many transactions In my previous work, I have given ex- are impersonal and by-the-book, and how amples of such indicators of corruption many are not. Observations for measure- norms, including the particularistic distri- ment can be drawn from all the transac- bution of funds for natural disasters, com- tions that a government agency, sector, or parisons of turnout and profit for govern- entire state engages in, from regulation to ment-connected companies versus uncon- spending. The results of these observations nected companies, the changing fortunes allow us to monitor change over time in a of market leaders after elections, and the country’s capacity to control corruption. replacement of the original group of mar- Even anecdotal evidence can be a good way ket leaders (those connected to the losing to gauge changes to corruption over long political clique) by another well-defined periods: twenty years ago, for example, it group of market leaders (those connected was customary even in some developed with election winners). The data sources for countries for companies bidding for pub- such measurements are the distribution of lic contracts to consult among themselves; public contracts, subsidies, tax breaks, gov-

147 (3) Summer 2018 27 Seven Steps ernment subnational transfers; in short, ba- opposition, since they are not perceived as to Control of sically any allocation of public resources, being truly dangerous to anybody’s rents, Corruption including through legislation (laws are ide- and do not therefore need great heroism al instruments to trade favors for person- to be pushed through; just common sense, al profit). If such data exist in a digital for- professionalism, and a public demand for mat, which is increasingly the case in East- government performance. The latter sce- ern Europe, Latin America, and even China, nario, however, requires considerable ef- it becomes feasible to monitor, for example, fort and alignment of both interests favor- how many public contracts go to companies ing change and an ideology of ethical uni- belonging to officials or how many people versalism. Identifying the human agency put their relatives on public payrolls. En- that can deliver the change therefore be- suring that data sources like these are made comes essential to selecting a well-func- open and universally accessible by public tioning anticorruption strategy. or semipublic entities (such as government Changing governance across borders is a and Register of Commerce data) is itself a difficult task even under military occupa- valid and worthy target for donors. The tion. Leaving external actors aside, a coun- method works even when data are not dig- try’s governance can push corruption from itized: through simple requests for infor- norm to exception either through the ac- mation, as most countries in the world have tions of an enlightened despot (the king freedom of information acts. Inaccessibili- of Denmark model beginning in the eighty of public data opens an entire avenue for teenth and nineteenth centuries), an en- donor action unto itself: supporting free- lightened elite (as in the British and Amer- dom-of-information legislation also sup- ican cases), or by an enlightened mass of ports anticorruption efforts, since lack of citizens (the famous “middle class” of po- transparency and corruption are correlated. litical modernization theory). Enlightened despots do appear periodically (the king- Now that targets have been established, dom of Bhutan is the current example of the fourth step is solving the problem of do- shining governance reforms, after the clas- mestic agency. By and large, countries can sic example of Botswana, where the chief of achieve control of corruption in two ways. the largest tribe became a democratically The first is surreptitious: policy-makers elected president). Enlightened elites can and politicians change institutions incre- perhaps be engineered (this is what George mentally until open access, free competi- Soros and the Open Society Foundation tion, and meritocracy become dominant, have tried to do, with one of the results be- even though that may not have been a main ing a great mobilization against elites in less collective goal. This has worked for many democratic countries), and countries that developed countries in the past. The sec- have them (like Estonia, Georgia, Chile, and ond method is to make a concerted effort Uruguay) have evolved further than their to foster collective agency and investment neighbors. Enlightened and organized citi- in anticorruption efforts specifically, even- zens must reach a critical mass; and regard- tually leading to the rule of law and control less how strong a demand for good gover- of corruption delivered as public goods. nance they put up, they cannot do much This can occur after sustained anticorrup- without an alternative and autonomous tion campaigns in a country where partic- elite that is able to take over from the cor- ularism is engrained. Both paths require rupt one. As the recent South Korean case human agency. In the former, the role of has proved, entrusting power at the top to agency is small. Reforms slip by with little former elites leads to an immediate return

28 Dædalus, the Journal of the American Academy of Arts & Sciences to former practices; however, in that case, diamond mine, a country’s oil income, or, Alina the society had sufficiently evolved in the indeed, its whole budget, including assis- Mungiu- Pippidi interval to defend itself. tance funds. Despoilers generally control In principle, donors can work with en- those rents and distribute them wisely to lightened despots, attempt to socialize en- stay in control. Anticorruption is not a win- lightened elites to some extent, and help win game, it is a game played by societies civil society and “enlightened” citizens. against their despoilers, and when build- But, in practice, this does not go so well. ing accountability, not everybody wins. But Donors seem by default to treat every cor- if in contemporary times countries like Es- rupt government as though it were run by tonia, Uruguay, Costa Rica, Taiwan, Chile, an enlightened despot, entrusting it with Slovenia, Botswana, and even Georgia are the ownership of anticorruption programs. edging over the threshold of good gover- These, of course, will never take off, not nance through their own agency, we must only because they are more often than not maintain hope that others can follow. the wrong programs, but because implementing them would run counter to the We see all around the world that demand main interests of these principals. Addi- for good governance and participation in tionally, this approach is not sustainable: anticorruption protests have increased– pro-Western elites are so scarce these days just not sufficiently to change governance. that checking their anticorruption cre- Perhaps there was not enough middle-class dentials often becomes problematic. Take growth in the last two decades for that: the the tiny post-Soviet republic of Moldova, Pew Research Center found that between which could never afford to punish anyone 2001 and 2011, nearly seven hundred mil- from the Russian-organized crime syndi- lion people escaped poverty but did not cates that control part of its economy and travel far up enough to be labeled middle- even a breakaway province thriving on class.13 Fortunately, the development of weapons smuggling. Due to international smartphones with Internet access provides anticorruption efforts, a prime minister a great shortcut to fostering individual au- was jailed for eight years for “abuse of func- tonomy and achieving enlightened partici- tion”–actually for failing to prevent cyber- pation. crime–despite the fact that he held pro-eu Any assistance in increasing the percent- policy goals. The better and less repressive age of “enlightened citizens” armed with approach–designing anticorruption inter- smartphones is helpful in creating grass- ventions that include society actors as main roots demand for government transpar- stakeholders by default, not just working ency; this is why both Internet access and with governments–is rather exceptional, ownership of smartphones are strongly as- although such an approach might greatly sociated with control of corruption.14 But enhance the effectiveness of aid programs for our transition strategy we need more: in general. careful stakeholder analysis and coalition The remaining option, building a crit- building. Brokers of corrupt acts and prac- ical mass from bottom up, is not easy ei- titioners of favoritism are not hidden in cor- ther, as it basically means competing with rupt societies. Losers are more difficult to patronage and client networks that have a find; today’s losers may be tomorrow’s cli- lot to offer the average citizen. “Incentiv- ents. As a ground rule, however, whoever izing,” another anticorruption-industry wishes to engage in fair, competitive prac- buzzword, is really a practical joke. No an- tices–whether in business or politics– ticorruption incentive can compete with a stands to lose in a particularistic society.

147 (3) Summer 2018 29 Seven Steps He or she faces two options: to desert for a Voluntary implementation of accountabil- to Control of more meritocratic realm (hence the close ity tools by interested groups (businesses Corruption correlation between corruption and brain who lose public tenders, for instance, or drain) or to fight. These are our recruit- journalists seeking an audience) works bet- ment grounds. It is essential to understand ter than implementation by government, who is invested in challenging the rules of which is always found wanting by donors. the game and who is invested in defending In our recent work, my colleagues and I them; in other words, who are the status tested a broad panel of anticorruption tools quo losers and winners? Who, among the and good governance policies from the winners, would stay a winner even if more World Bank’s Public Accountability Mech- merit-based competition were allowed? anism database. The panel includes nearly Who among the losers would gain? These all instruments that are either frequently are the groups that must come together to used in practice or specified in the uncac: empower merit and fair competition. anticorruption agencies, ombudsmen, free- By now, enough evidence should exist to dom of information laws (fois), immuni- support a theory of change, which in turn ty protection limitations, conflict of inter- informs our strategy. To understand when est legislation, financial disclosures, audit the status quo will change, we need a theory infrastructure improvements, budgetary of why it would change, who would push for transparency, party finance restrictions, the desired evolution, and how donors can whistleblower protections, and dedicated assist them to steer the country to a virtu- legislation.17 The evidence so far shows that ous circle. The main theories informing in- countries that adopt autonomous anticor- tervention presently are very general: mod- ruption agencies, restrictive party finance ernization theory (the theory that increases legislation, or whistleblower protection in education and economic development acts make no more progress on corruption bring better governance) and state modern- than countries that do not.18 The compre- ization (the belief that building state capaci- hensiveness of anticorruption regulation ty will also resolve integrity problems). But does not seem to matter either: in fact, the as there is a very close negative correlation cleanest countries have moderate regula- between rule of law and control of corruption and excessive regulation is actually as- tion, it is the case more often than not that sociated with more corruption; what mat- rule of law is absent where corruption is ters are the legal arrangements used to gen- high, so legal approaches to anticorruption erate privileges and rents. In other words, it (like anticorruption agencies or strong pu- may well be that a country’s specific anti- nitive campaigns) can hardly be expected to corruption legislation matters far less in en- deliver.15 The same goes for civil-service ca- suring good control of corruption than its pacity building in countries where bureau- overall “regulatory quality,” which might cracy has never gained its autonomy from result precisely from a long process of con- rulers. Good governance requires autono- trolled rent creation and profiteering.19 mous classes of magistrates and of bureau- Actually, as I have already argued, the em- crats. These cannot be delivered by capacity- pirical evidence suggests corruption control building in the absence of domestic politi- is best described as an equilibrium between cal agency or some major loss of power of opportunities (or resources) for corruption, ruling elites that could empower bureau- such as natural resources, unconditional crats.16 This is why the accountability tools aid, lack of government transparency, ad- that work in our statistical assessments are ministrative discretion, and obstacles to those associated with civil-society agency. trade, and constraints on corruption, whether

30 Dædalus, the Journal of the American Academy of Arts & Sciences legal (an autonomous judiciary and audit) brought significant progress on press free- Alina or normative (by the media and civil soci- dom and trade openness. On items such as Mungiu- Pippidi ety).20 Not only is each element highly in- administrative burden, fiscal transparency, fluential on corruption, but statistical re- and quality of regulation, the country still lationships between resources and con- has much to do to bring the economy out straints are highly significant. Examples of the shadows and restore a social contract include the inverse relationship between between society and the state (see Table 2). red tape and the independence of the judi- To get there, policies are needed both to ciary and between transparency in any form bring the street vendors into the licensed, (fiscal transparency, existence of an foi, or tax-paying world and to reduce the discre- financial disclosures) and the direct relation of policemen. tionship between civil society activism and Examples of specific, successful legis- press freedom. Using this model, my col- lative initiatives exist in the handful of leagues and I designed an elegant compos- achievers we identified through our mea- ite index for public integrity for 109 coun- surement index: Uruguay and Georgia, tries based on policy determinants of con- for instance, which have implemented trol of corruption (which should be seen as soft formalization policies, tax simplifica- the starting point of any diagnosis, since it tion, and police reform. This is the correct shows at a first glance where the balance be- path to follow to control corruption suc- tween opportunities and constraints goes cessfully. In a context of generalized law- wrong). While even evidence-based com- breaking fostered by unrealistic legisla- parative measures can be criticized for ig- tion, selective enforcement becomes inev- noring cross-border corrupt behavior (like itable, and then even anticorruption laws hiding corrupt income offshore), from a can generate new rents and protect exist- policy perspective, it still makes the most ing ones, reproducing rather than chang- sense to keep national jurisdiction as the ing the rules of the game. One cannot ex- main comparison unit. Basically every an- pect isolated anticorruption measures to ticorruption measure that would limit in- work unless opportunities and constraints ternational resources for corruption is in are brought into balance. For instance, one the power of some national government. cannot ask Nigeria to create a register for Let’s take the well-known example of foreign-owned businesses in order to trace Tunisia, whose revolution was catalyzed beneficial ownership (as is the standard in late 2010 by an unlicensed street vendor procedure for anticorruption consultants) who immolated himself to protest against without formalizing and registering (hope- harassment by local police. Corruption– fully electronically) all property in Nigeria, as inequity of social allocation induced and a long-standing development goal with im- perpetuated by the government–was one portant implications for corruption. It is of the main causes of protests. Has the fall quite important, therefore, that we under- of President Ben Ali and his cronies made stand and act on both sides of this balance. Tunisians happy? No, because there are as Working on just one side only creates more many unemployed youths as before, equal- distance between formal and informal in- ly lacking in jobs and hope, and the maze stitutions, which is already a serious prob- of obstructive regulation and rent seekers lem in corrupt countries. who profit by it are the same. If we check The sixth step on the road map is for in- Tunisia against countries in its region and ternational donors to get together to im- income group on the Index of Public In- plement a strategy to fix this imbalance. tegrity, we see that the revolution has only In the same way the Millennium Devel-

147 (3) Summer 2018 31 Seven Steps Figure 2 to Control of Control of Corruption as Interaction between Resources and Constraints Corruption Constraints Resources

Internet users Time and procedures Broadband subscriptions to start a business Facebook users Time and procedures E-Citizenship Administrative to pay taxes Burden

Public access to the Freedom of the Freedom of Budget central government’s press score the Press Transparency budget proposal

Judicial Trade Independence Openness Assessment of the Time and number independence of the of procedures to judiciary from influences of import/export government, citizens, or firms

Structural Factors (level of development, geography, war and violence, past regimes, etc.)

Source: Alina Mungiu-Pippidi and Ramin Dadasov, “Measuring Control of Corruption by a New Index of Public Integrity,” European Journal on Criminal Policy and Research 22 (3) (2016).

Table 2 Tunisia’s Public Integrity Framework

World Rank Regional Rank Income Group Component Score (of 109) (of 8) Rank (of 28) Judicial 5.34 55 5 11 Independence Administrative 8.77 47 3 8 Burden Trade Openness 7.1 76 3 21 Budget 6.79 71 2 20 Transparency E-Citizenship 5.22 60 5 19 Freedom of the 5.16 65 1 14 Press

Note: On the Index of Public Integrity, Tunisia scores 6.40 on a scale of 1 to 10, with 10 as the best, and ranks 59th out of 109 countries. Source: Index of Public Integrity, 2015, http://www.integrity-index.org.

32 Dædalus, the Journal of the American Academy of Arts & Sciences opment goals required coordination and agree upon aid-related good-governance Alina multiyear planning, making the majority conditions and enforce them across the Mungiu- Pippidi of transactions clean rather than corrupt board. Aid recipients–including particu- requires long-term strategic planning. The lar governments, subnational government goals are not just to reduce corruption with units or agencies, and aid intermediaries– isolated interventions, but to build public should qualify for receiving aid transfers integrity in many countries–a clear devel- only if they publish in advance all their calls opment goal–and to refrain from punish- for tenders and their awards, which would ing deviation. The joint planners of such allow monitoring the percentage of trans- efforts should begin by sponsoring a diag- parent and competitive bids out of the to- nostic effort using objective indicators and tal procurement budget. Why not make subsequently launch coordinated efforts to the full transparency of all recipients the reduce resources and increase constraints. main condition for selection? Such indi- This collaboration-based approach also cators could also be useful to trace evolu- allows donors to diversify their efforts, as tion (or lack thereof ) from one year to an- some may have strengths in building civil other. On top of this, using social account- society, others in market development re- ability more decisively, for instance by forms, and others still in increasing Inter- involving pro-change local groups in plan- net access. Freedom of the press receives ning and audits of aid projects, would also insufficient support, and seldom the kind it empower these groups and set an example needs (what media needs in corrupt coun- for how local stakeholders should monitor tries is clean media investment, not train- public spending. These gestures of trans- ing for investigative journalists). parency and inclusiveness toward the so- Finally, international donors must set the cieties that donors claim to help–and not example. They should publicize what they just their rulers–would bring real benefits fund and how they structure the process for both sides and enhance the reputation of aid allocation itself. Those at the apex of of development aid. the donor-coordination strategy ought to

endnotes 1 Count based on the Worldwide Governance Indicator Control of Corruption recoded on a scale of 1 to 10, with the best performer rated 10. 2 Ramin Dadasov, “European Aid and Governance: Does the Source Matter?” The European Jour- nal of Development Research 29 (2) (2017): 269–288. 3 Cited in Alena V. Ledeneva, How Russia Really Works: The Informal Practices that Shaped Post-Soviet Politics and Business (Ithaca, N.Y.: Cornell University Press, 2006). 4 Arnaldo Momigliano, Alien Wisdom: The Limits of Hellenization (Cambridge: Cambridge Univer- sity Press, 1975), 8. 5 See Alina Mungiu-Pippidi, A Quest for Good Governance: How Societies Develop Control of Corruption (Cambridge: Cambridge University Press, 2015). 6 See Alina Mungiu-Pippidi and Ramin Dadasov, “When Do Anticorruption Laws Matter? The Evidence on Public Integrity,” Crime, Law, and Social Change 68 (4) (2017): 1–16. I am grateful to Sweden’s Expert Group for Aid Studies (eba) for funding this research and for helpful comments on an earlier version of this article. See Alina Mungiu-Pippidi, Seven Steps to Evidence- Based Anticorruption: A Roadmap (Stockholm: Swedish Expert Group for Aid Studies, 2017), http://eba.se/wp-content/uploads/2017/11/2017_10_final-webb.pdf.

147 (3) Summer 2018 33 Seven Steps 7 An ampler discussion of this issue can be found in Robert Klitgaard, Addressing Corruption Together to Control of (Paris: Organisation for Economic Co-operation and Development, 2015), https://www Corruption .oecd.org/dac/conflict-fragility-resilience/publications/FINAL%20Addressing%20corruption %20together.pdf. 8 For the intellectual genealogy of these terms, see Mungiu-Pippidi, A Quest for Good Governance, chap. 1–2; and Talcott Parsons, Introduction to Max Weber, The Theory of Social and Economic Organization (New York: The Free Press, 1997), 80–82. 9 Daron Acemoglu and James A. Robinson, Why Nations Fail: The Origins of Power, Prosperity, and Pov- erty (New York: Crown Business, 2012); Francis Fukuyama, Political Order and Political Decay: From the Industrial Revolution to the Globalization of Democracy (New York: Farrar, Straus and Gir- oux, 2014); and Douglass C. North, John J. Wallis, and Barry Weingast, Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History (New York: Cambridge University Press, 2009). 10 A fuller argument roughly compatible with mine appears in North, Wallis, and Weingast, Violence and Social Orders. 11 For evidence, see Mungiu-Pippidi, A Quest for Good Governance, chap. 2; and Mungiu-Pippidi and Dadasov, “When Do Anticorruption Laws Matter?” 12 For a more extensive argument, see Robert Rotberg, “Good Governance Means Performance and Results,” Governance 27 (3) (2014): 511–518; and Alina Mungiu-Pippidi, “For a New Gen- eration of Objective Indicators in Governance and Corruption Studies,” European Journal on Criminal Policy and Research 22 (3) (2016): 363–367. 13 Rakesh Kochhar, A Global Middle Class Is More Promise than Reality (Washington, D.C.: Pew Re- search Center, 2015), http://www.pewglobal.org/2015/07/08/a-global-middle-class-is-more -promise-than-reality/. 14 See Niklas Kossow and Roberto M. B. Kukutschka, “Civil Society and Online Connectivity: Controlling Corruption on the Net?” Crime, Law and Social Change 68 (4) (2017): 1–18. 15 Lant Pritchett and Michael Woolcock, “Solutions when the Solution is the Problem: Arraying the Disarray in Development,” World Development 32 (2) (2004): 191–212. 16 Robert Rotberg makes a similar point in “Good Governance Means Performance and Results.” 17 See Mungiu-Pippidi and Dadasov, “When Do Anticorruption Laws Matter?” 18 Ibid. 19 See updated evidence in Mihaly Fazekas, “Red Tape, Bribery and Government Favouritism: Evidence from Europe,” Crime, Law & Social Change 68 (4) (2017): 403–429. 20 For the full models, see Mungiu-Pippidi, A Quest for Good Governance, chap. 4; and Alina Mungiu- Pippidi and Ramin Dadasov, “Measuring Control of Corruption by a New Index of Public In- tegrity,” European Journal on Criminal Policy and Research 22 (3) (2016): 415–438.

34 Dædalus, the Journal of the American Academy of Arts & Sciences The Problem of Monopolies & Corporate Public Corruption

Zephyr Teachout

Abstract: Defining corruption as the exercise of public power for private, selfish ends, many theorists have argued that individuals can be corrupt even if their actions are legal. This essay explores the knotty question of when legal corporate action is corrupt. It argues that when corporations exercise public power, either through monopolistic control of a market or through campaign contributions and support of governmental actors, they are subject to the same responsibilities of anyone who exercises public power. There- fore, as a theoretical matter, we should call corporations corrupt when they exercise public power selfishly, in a way that puts their own interests over the public’s interests. Because they make legal corporate corruption less likely, global anticorruption campaigns should therefore emphasize antimonopoly laws and campaign finance laws.

Should we call legal corporate political behavior corrupt? If so, when? It is a tricky issue. Of course, in some cases, corporate actors engage in illegal bribes of public officials, and we can easily label this behavior corrupt.1 But more frequently, corporate actors use sophisticated legal means to exercise power over public officials: by making campaign contributions, lobbying, exerting media influence, funding nonprofits, sponsoring think tanks, paying speaking fees, or even cor- nering the market on key goods and services, creating public dependencies on the corporation. These kinds of behaviors make up what Michael Johnston has termed “influence markets,” which he identi- zephyr teachout is Associ- fies as the primary mode of corruption in developed ate Professor of Law at the Ford- democracies.2 These behaviors are also explored in ham University School of Law. depth in the works of sociologist Amitai Etzioni.3 She was the first National Director of the Sunlight Foundation and is All of these behaviors are not only legal in the Unit- the author of Corruption in America: ed States, but are encouraged and taught as essen- From Benjamin Franklin’s Snuff Box to tial strategies in business schools. They also have the Citizens United (2014). tendency to spread. Having built their power within

111 The Problem the United States or similar legal systems, The descriptive implications of this con- of Monopolies corporations then use legal tools to exert clusion are substantial: it means that some & Corporate Public influence in other countries. Depending of the great drivers of contemporary cor- Corruption on which side of the law they stand on, corruption around the world today are large porate actors may push to legalize the most multinational corporations engaging in powerful of their mechanisms of control, legal behavior. The practical implications criminalizing the tools used by weaker so- are also substantial, and flow from the im- cietal agents, or they may exercise their in- proved description: our anticorruption fluence to decriminalize their behaviors strategies must include antimonopoly in a new market. The question is, which of laws, not because antitrust violations are these behaviors should we call corrupt, and themselves corrupt or because mergers are which are merely corrupting? themselves corrupt, but because corrup- In 1820 America, it was not illegal for a tion is more likely when economic power corporation to give money to a member of is centralized. Failure to name legal corpo- Congress in explicit exchange for that con- rate behavior as public corruption in global gressperson’s vote. In 2017 America, be- anticorruption campaigns to date has led to cause of Citizens United, it is not illegal for a a focus on passing criminal laws and trans- corporation to spend millions of dollars to parency laws, instead of examining prob- punish a congressperson who voted against lems of market structure and monopoliza- its interests. We can certainly agree that the tion with global and domestic impacts. As former is corrupt; I think most would ac- Lord Acton famously put it: “Power tends cept that the latter is also corrupt. But if le- to corrupt.” Power is especially likely to gality is not the line between corrupt and corrupt when it is unconstrained by dem- noncorrupt corporate political behavior, ocratic accountability. what is? This kind of corporate and multina- I argue that we should use the same test tional corruption is a tragedy of design. for corporations as we do for public offi- It flows from our failure to protect mar- cials, condemning selfish behavior as cor- kets from concentrated economic power. rupt when it accompanies the exercise of Corporate monopolies are a result of legal public power, regardless of whether that frameworks that enable excessive concen- public power derives from formal office- tration of private power, limit the freedom holding. Elected officials who exercise pub- to engage in moral action by officers and lic power in the service of private ends are directors, and create overwhelming incen- corrupt irrespective of the legality of their tives to bend public power to selfish ends. behavior. By extension–with understand- Unlike small companies that have limited ing that it is not easy to identify what con- incentive or capacity to corrupt–because stitutes “public power” or even “selfish be- they do not exercise public power–multi- havior”–all selfish exercise of public power national corporations, at a certain size and is corrupt. The key theoretical point is this: with enough power, are built to corrupt. public power, not public office-holding, The critical strategic solution to this de- ought to be our marker for determining sign flaw is to engage antimonopoly laws who may be guilty of public corruption. in anticorruption efforts. The antimonop- Corporate actors are corrupt when they ex- oly approach is prophylactic instead of pu- ercise public power in a way that serves self- nitive; in this way it resembles elections, ish ends at the expense of public ends, re- another prophylactic anticorruption tool. gardless of whether it is illegal, and regard- New antitrust enforcement should not seek less of whether they formally hold office. to punish corrupt behavior, but to encour-

112 Dædalus, the Journal of the American Academy of Arts & Sciences age structures of power that make corrup- anny and a monarchy, he wrote, “the ty- Zephyr tion less likely. Open markets, free from rant looks to his own advantage, the king Teachout dominant players, are not only important to that of his subjects.” A tyrant is a king for a thriving economy and innovation, who “pursues his own good”; an oligarchy but for limiting corruption. is an aristocracy that pursues its own good; This essay proceeds in two sections. The and mob rule is a publicly governed polity first makes a theoretical argument and whose constituent parts each pursue their shows that a surprising formalism per- own selfish interests.4 vades many approaches to understand- This framework, which I have adopted, ing public corruption. This formalism ap- suggests there are two key features of cor- pears in two ways: First, discussion of pub- ruption: the exercise of governing power lic power often stops with a formal analysis and selfish intent. The implication of this of who holds a particular office, instead of framework is that private actors engage in who wields power over that office. Second, public corruption when they wield govern- even those anticorruption analysts and ac- ing power selfishly. tivists who claim not to tie a definition of Within the anticorruption field, there are corruption to legality tend to use legality as those who describe corruption in terms of an important marker in separating the cor- the violation of formal roles and obliga- rupt from the noncorrupt. Building on these tions, and those who see corruption in theoretical points, the second section high- terms of the illegitimate pursuit of private lights antimonopoly and campaign contri- interest at the expense of the public inter- bution laws as critical sets of tools for deal- est.5 The former ties itself in knots of posi- ing with this crisis of corruption. tivism. As political scientist Richard Mul- To be clear, I do not make accusations gan has recently argued: about corrupt behavior by particular mod- By taking existing duties and rules as given, ern corporate multinationals. An approach such definitions are too closely tied to a par- of identifying after-the-fact bad actors is al- ticular institutional context. They do not pro- ways going to be a weak strategy. Instead, vide an external standard by which to assess I lay out a theoretical framework for en- whether the duties or rules themselves prohib- abling accusations against modern corrupt it actions that should be regarded as corrupt.6 corporations and a practical road map for deterring future corruption via structural All parties appear to agree that public changes. power is an important feature of public corruption, though this has been given Aristotle laid out six kinds of govern- short shrift in some of the literature.7 For ment: three ideal forms and three corrupt instance, a recent article appearing in the forms. The rule of one he described as ei- UCLA Law Review observes that most defi- ther monarchy or tyranny; the rule of a few nitions of corruption involve the abuse as either an aristocracy or an oligarchy; of public office for private gain. The arti- and the rule of the many as either a polity cle continues: “The term ‘public office’ is or mob rule. The fundamental difference relatively clear. It includes, among others, between the good and corrupted govern- those persons whom the electorate has en- ment, according to Aristotle, was the psy- trusted with power to advance the public chological orientation of those who gov- interest.”8 Accompanying this assertion is erned: corrupt governments were selfish; a link to a judicial decision about the scope ideal governments sought the public good. of a bribery statute, making the easy error Explaining the difference between a tyr- of conflating statutory law and definitions

147 (3) Summer 2018 113 The Problem of corruption in one area but not in anoth- a clear scope of what constitutes entrusted of Monopolies er. If one does not confine oneself to stat- power for purposes of public corruption, & Corporate Public utes, it is not at all clear that office, instead nor does it examine whether multination- Corruption of power, is the key question.9 al corporations can be seen as having “en- For much of industrial history, private trusted power” because of their enabling parties were viewed as corrupt when statutes. Alternatively, private companies they exercised public power, regardless are seen as corrupting when they induce of whether they held office.10 In the 1874 behavior on the part of elected officials, or case Trist v. Child, an old man hired a lob- perhaps when they break existing anticor- byist to help collect a debt from Congress. ruption laws. They are not treated as cor- After the lobbyist succeeded, the old man rupt for their use of legal mechanisms, even refused to pay him; in response, the lob- when that use is for self-serving ends. byist sued the man for money owed. The Some modern definitions openly rely on case came before the Supreme Court, public office, instead of public power, as a which had to decide whether contracts central feature of corruption. Political sci- to lobby were legitimate and enforceable entist Joseph Nye’s influential definition in court. The Court concluded that they of corruption begins with a claim about were not, writing that “If any of the great the centrality of formal roles, arguing that corporations of the country were to hire corruption is either rule violation or “be- adventurers who make market of them- havior which deviates from the formal selves in this way [for] the promotion of duties of a public role because of private- their private interests, the moral sense of regarding (personal, close family, private every right-minded man would instinc- clique) pecuniary or state gains.”14 Several tively denounce the employer and employed other scholars have placed public office at as steeped in corruption.”11 The Court’s the center of the definition, but even those language indicates that corporations could who do not privilege the phrase “public themselves be corrupt, not merely a means office” or “formal duties” often implicit- by which public entities are corrupted. ly limit the accusation of public corrup- But over the last forty years of anticor- tion to those with formal public power.15 ruption efforts, many academics and jour- How should we approach this question? nalists have treated private companies as It is perhaps easiest to divide the possible corrupt only when engaged in what is approaches into a formal approach and a sometimes called “private corruption”: functional approach. The formal approach namely, accepting internal bribes or kick- limits the accusation of public corruption backs.12 Much of the discussion about pri- to those who hold an official position. vate entities–big multinational companies The functional approach looks at whether like Monsanto, Google, or Siemens–con- public power is exercised, regardless of cerns whether we should recognize a cate- office-holding. gory of private-to-private corruption.13 To A formal approach leads to peculiar re- address these concerns, some definitions of sults. Imagine a rich business owner in a corruption focus on “entrusted power” in- small town. He consciously chooses to use stead of public power. Transparency Inter- his wealth to elect a town council and may- national, for instance, defines corruption or that will serve his interest and lower his as “the abuse of entrusted power for private taxes. He is shameless about his desires: gain,” in order to include private-to-private he readily announces that he is only in- relationships within the definition. But terested in himself, and will use whatever Transparency International does not have means he can to serve himself. A formal

114 Dædalus, the Journal of the American Academy of Arts & Sciences approach would treat the business owner As these examples show, a functional Zephyr as not corrupt because he is not an elect- analysis is the more natural approach: for- Teachout ed official. It would not ask how he uses malism seems to simplify the concept, but his wealth, whether in fact he has public adds a requirement to public power of pub- power, or whether he is being selfish. In- lic office-holding that is hard to justify. Rul- stead, it looks merely at his status: since he ing is what creates moral obligations, re- was neither appointed nor elected, it treats gardless of how that rule is exercised. The him as someone who might be involved in strongest argument against the formal ap- private corruption (accepting bribes in his proach is that there is no a priori reason to business) or someone who might lead to limit the scope of public corruption to those the corruption of public officers, but not holding elected, appointed, or inherited of- someone who might be corrupt in his own fice. The selfish interests in a corrupt gov- right. ernment might be the interests of the people On the other hand, a functional analysis holding formal power in the government, would treat this business owner as engaged but–critically–they can also be the private in public corruption because he is using interests of someone or something that ex- public power, and using it to serve private ercises informal power over the official gov- ends without regard to the public good. ernment from outside it. That he may also be corrupting the local The best defense of a formal approach is government is a secondary question. This that it is more administrable and renders business owner is not unlike Aristotle’s corruption easier to measure. But we should king (or oligarch), who chooses to rule not confuse the administrability of crimi- over others in a way that benefits himself. nal and civil laws with the correct definition That he uses the mechanisms of democra- of a nonlegal term like corruption, just as cy does not change the fundamental com- we should not refuse to call something cor- bination of his ruling others and his moral rupt because it is difficult to measure. The orientation.16 functional approach would be inappropri- Another thought experiment in formal- ate for defining criminal laws of corruption; ism also leads to the mangling of language. it would require a fact-finder to make deter- Imagine a king who has inherited absolute minations of influence and power in a po- power over his country. He is selfish and litical society, beyond a reasonable doubt.17 cares only for his own interests, not the in- But we are not rewriting legal definitions, terests of the public. Because he is worried and inadequacy in criminal law does not about revolt, he chooses to install an elect- make the functional approach inadequate ed government, but creates laws allowing in our efforts to locate corruption. for only one party on the ballot, and estab- Another possible objection to the func- lishes informal mechanisms that ensure tional approach might be that it seems that he is the only person who can select harsh: it subjects private actors who have who runs for office. He then officially steps never run for public office or sought to be down from his position and abolishes the appointed to public office to accusations monarchy. But there is no doubt that he of public corruption and obligations to the controls who gets “elected” and what de- public good that they never wanted. But on cisions they make in office. A formal ap- the individual level, this problem does not proach would say that only those elected exist. Individuals are not required to ex- officials can be guilty of public corruption. ercise public power, even when they have A functional approach would consider the the capacity to do so. And most ceos of actual power dynamics, not the form. most companies, like individuals, simply

147 (3) Summer 2018 115 The Problem have no capacity to exercise public power. We need not spend much time debating of Monopolies They are free to suggest ideas, set up meet- the particulars of who or what company & Corporate Public ings, and occasionally lobby officials, but is corrupt, so long as we agree that there Corruption no one would argue that in so doing they is a broad set of powerful companies that are exercising public power. Success in pri- pursue selfish interests while exercising vate business creates no obligation to en- public power. gage in the public sphere in a selfish way. By way of analogy, consider a national Moreover, inasmuch as those with inher- campaign against alcoholism. One way to ited public power never chose their posi- deal with alcoholism is to try to identify tion, we do not soften the blow of corrup- everyone who is alcoholic–engaging in tion accusations by arguing that kings can- extensive studies to determine who might not be guilty of misusing powers they did be dependent on alcohol and who is mere- not seek. They may always abdicate. How- ly drinking a lot–in order to provide in- ever, for corporate officers and directors dividualized resources to those who need of enormous companies that can exercise them. In that approach, the question of governing power, this harshness does ex- who makes the judgment about particular pose a fundamental problem with our cur- individuals, and by what criteria they are rent antimonopoly laws by creating two judged, is critical. But another approach obligations that conflict with each other. might be to use countrywide surveys to Using the functionalist approach, we identify that there is problem of alcohol- should shift from an analysis of office-hold- ism, and then suggest countrywide solu- ing to an analysis of who holds “govern- tions that would reduce the levels of addic- ing power.” Governing power exists when tion overall and the likelihood of future ad- a company, person, or institution has the diction. In the second approach, we spend capacity to make choices that govern the little energy parsing the alcoholic from the lives of others. A juror has governing pow- nonalcoholic, and most of our energy is fo- er over the defendant. A magnate has gov- cused on prophylactic rules.19 erning power over his town when he uses Using this syndrome approach, undoubt- his ability to elect or defeat candidates who edly there are several big multinationals then exercise formal power. Governance is engaged in public corruption. We need not often defined by reference to a combination have a consensus around individual actors’ of decision-making and the implementa- corruption in order to agree that there is tion of those decisions. Political scientist endemic corruption. Two analysts might Stephen Bell’s popular definition of gover- disagree over whether Siemens or Ama- nance argues that it is “the use of institu- zon has more governing power, but they tions, structures of authority and even col- can certainly agree that some large multi- laboration to allocate resources and coor- national corporations engage in the self- dinate or control activity in society or the ish use of public power, and would likely economy.”18 The lines are by no means include both Amazon and Siemens in that clear; and there is not space here to explore category. in full the difficult questions of what is and For instance, I can argue that Google’s is not governing power. exercise of public power is corrupt be- More important, the job of anticorrup- cause it does so in pursuit of its own self- tion activists is largely not to identify in- ish ends, regardless of the impact on the stances of normative failure, but to iden- public good. As evidence to support my ar- tify the syndrome, and then push for the gument, I could point out that, as of 2017, rules that make the syndrome less likely. Google is the largest lobbyist in the Unit-

116 Dædalus, the Journal of the American Academy of Arts & Sciences ed States. Google has been implementing corruption. The second possibility is that il- Zephyr a successful political strategy to embed its legality separates corrupt from noncorrupt Teachout software in public schools (both in order behavior. The third possibility is that ille- to get its tools adopted and in order to col- gal activity defines the heart of corruption, lect data).20 Google is a major funder of that which is easiest to define and which we think tanks and has exercised its funding should most readily condemn, but some le- power to shape policy, supporting schol- gal activity is also corrupt, if less intense- ars who support its own political ends. In ly so. The fourth possibility is that there is short, an essential, nonaccidental part of often a relationship between illegality and Google’s business strategy is to shape pub- corruption, but that such correlation does lic policy in a way that serves its own nar- not help us decide in any particular instance row interests. As with the rich business- whether an action is corrupt or not. Corrup- man controlling the small town described tion encompasses a great deal of legal be- above, I argue that a functional analysis havior; only a small subset of corrupt be- would treat Google as corrupt. Howev- havior has been criminalized. Moreover, er, one need not agree with my particular noncorrupt behavior can be criminalized argument about Google in order to agree and called “corrupt” by the state. that the structure of power in our society The final option–a correlative relation- makes it likely that powerful companies ship but not sufficiently strong to make like Google–if not Google itself–will use presumptions–is the best way to under- public power for private ends. stand the connection between corruption and legality. While the overlap between The legality of the behavior is not deci- illegality and corruption exists, and may sive in determining either whether there not be wholly arbitrary, it approaches arbi- is governing power or whether it is self- trariness because the reasons for not crim- ish. Google’s practices as described here inalizing behavior are so varied and histor- are entirely legal under U.S. law. Lobbying ically and culturally dependent. Unless one is legal, funding think tanks is legal, build- is a positivist (believing law defines moral- ing a political strategy to shape public edu- ity), there is no a priori reason to assume cation is legal, and supporting academics a strong relationship between that which is legal. Moreover, these behaviors should has been criminalized and that which is be legal. However, the legality or illegali- corrupt. In fact, given that power tends to ty of a behavior is not a particularly useful protect itself, in most polities we should distinction in determining whether some- often start with the assumption that the thing is corrupt. As political scientist Den- most corrupt acts are shielded from crim- nis Thompson has argued, “Connections inal liability by those in power. Those in that are proximate and explicit, elements power, be they judges or lawmakers, may required to show bribery, are not neces- have selfish reasons to protect corrupt be- sarily any more corrupt than connections havior and criminalize noncorrupt behav- that are indirect and implicit. The former ior. World history is littered with regimes may be more detectable, but are not nec- that do not criminalize corrupt behavior essarily the more deliberate or damaging because those in power are engaged in it. form of corruption.”21 But even in a perfectly functioning democ- Instead, there are many possible relation- racy, where an engaged public would have ships between the legality of a behavior and criminalized corrupt behavior, there are its corruptness. First, it is possible that there many reasons for using other tools than is no relationship between illegality and criminal law to deter corruption.

147 (3) Summer 2018 117 The Problem The reasons for criminalizing some be- behavior for one-third of American history, of Monopolies havior and not others is often unrelated to has achieved protected legal status because & Corporate Public the morality of the action or the degree of laws against lobbying were struck down as Corruption public condemnation. A democratic society violative of the First Amendment.24 This could decide that criminal law is not a paris undoubtedly a good thing. But the fact ticularly effective mechanism for deterring that criminalizing a behavior would threat- corruption. In the United States, bribery of en free speech is hardly sufficient to mean members of Congress was not illegal at the that no instances of that behavior are exhi- federal level until 1853. Before then, every- bitions of corruption. one thought that paying a congressperson In sum, criminality and corruption may in exchange for changing a vote was cor- have a substantial overlap in certain devel- rupt; they simply did not use criminal law oped democracies, but that overlap does as the tool for deterring such corruption. not tell us much about the corruptness of Other considerations, like the desire to pro- any particular act, or whether most cor- tect certain forms of expression, could lead rupt acts are crimes. to the legalization of corrupt behavior. For You might argue that I have created a instance, under existing U.S. law, a senator straw man. It is the rare definition of cor- who accepts a personal gift of $15 with the ruption that openly relies on criminal law understanding that it will influence his or as a starting point for determining whether her vote is committing federal bribery. No corruption exists. Definitions are far more explicit exchange is needed. However, if likely to refer to “abuse of public power the same senator accepts a campaign con- for private ends,” or “norm violation in a tribution of $5,000, knowing it represents self-serving way by those in public power.” the purchase of the exercise of one hundred Even Joseph Nye, whose definition is often votes, that does not violate federal bribery characterized as requiring illegality, recog- law in the absence of an explicit contract or nizes norm violation, apart from illegality, agreement indicating the senator’s intent.22 within the category of corruption. Howev- There are reasons, both historical and pro- er, among the scholars and commentators tective of political expression, that make who theoretically acknowledge that much the former a crime and the latter not. But corrupt behavior is legal, many still ex- those reasons tell us nothing about the cor- hibit an assumption that legality is a good ruptness of the action. The fact that the lat- marker of corruption. Empirical studies ter is not a crime is not evidence that it is not and economic models of corruption often corrupt, or that it is somehow less corrupt. start with criminality.25 Transparency In- As of 2016, it is legal under federal law in ternational starts with the assumption that the United States for someone to pay tens most corruption is illegal.26 Many compar- of thousands of dollars to a state governor ative studies rely on criminality directly or in exchange for the governor, using the indirectly. official title of the office, setting up meet- For instance, in Susan Rose-Ackerman’s ings and making introductions to other landmark book Corruption and Government: officials and business executives. The Su- Causes, Consequences, and Reform, she ac- preme Court struck down a law criminal- knowledges that legal corruption is im- izing this behavior because of free speech portant, but states that because her work and due process concerns. Nothing in the is comparative, she will only look at those decision suggested that the Court thought instances in which laws were broken.27 She that the behavior was not corrupt.23 In the further argues that it “may be rhetorically same vein, lobbying, which was criminal valuable” to call legal behavior corruption,

118 Dædalus, the Journal of the American Academy of Arts & Sciences but that it does not “further the analytical” holder value is just that: a myth, and one Zephyr or “policy exercise of understanding the that is largely pushed by activist hedge Teachout landscape and proposing reforms.”28 This fund managers seeking to pressure cor- seems to get the analytical and policy proj- porations to produce short-term profits.33 ect upside down: it privileges those with However, corporations are not free to pur- the power to make the law with the power sue the public good when doing so conflicts to define corruption.29 Rose-Ackerman’s with the long-term sustainability of the cor- recent work has been more likely to recog- poration. Under state law, directors and of- nize legal behavior as a significant problem, ficers of a corporation have a duty of care but I use this example because it is typical and of loyalty to the corporation. That duty of the simultaneous acceptance and rejec- does not flow merely to shareholders, but tion of legal corruption.30 to all the stakeholders in a corporation. At a Once the anticorruption community ac- basic, ethical level, these laws create an ob- cepts that neither office-holding nor legal- ligation to maximize value–arguably long- ity is a definitive marker of the existence term, sustainable value–for the corpora- of public corruption, it becomes free to tion. It is rare that a lawsuit succeeds on the explore corruption as it actually exists in grounds that directors and officers violated modern society. these obligations, but that does not mean that the obligation does not exist. Instead, In the last thirty years, the entire machin- the laws, designed to ensure that directors ery of modern multinational corporations and officers do not treat the corporation as has developed, through law and culture, to their own vehicle, also ensure that the pub- embrace the pursuit of public power as an lic good cannot justify decisions that direct- essential business function. The deep de- ly hurt stakeholders. sign of a large multinational corporation In many instances, corporate stakeholder is to build power to gain control over lo- ends will either support the public interest cal governments and international regimes or at least be consistent with the public in- in which it operates so that it can advance terest. In these instances, there is no corrup- policies that create value for the corporation problem. Under other circumstances, a tion.31 Large multinational corporations ceo may have some discretion due to con- routinely exercise public power, and do so flicting visions of long-term sustainability: guided by private interests above public this discretionary space is where corporate ones. The intent/orientation of large cor- social responsibility (csr; a form of corpo- porations is easier to divine than the in- rate self-regulation) is likely to be most pow- tent of most individuals or organizations. erful. In the overwhelming majority of oth- When there is a conflict between public er instances, the corporation will not exer- and private interests, the enabling statutes cise public power. In these cases also, there is of a corporation require an orientation to- no corruption problem. For the millions of ward a limited set of stakeholders. small or medium-sized corporations, their One might point out that corporate en- private obligations will not conflict with tities need not seek short-term profits. public obligations, because such corpora- As the U.S. Supreme Court recently reaf- tions simply do not have the power to shape firmed: “Modern corporate law does not public policy on taxes, trade, antimonopo- require for-profit corporations to pursue ly, or contracting: they will face no moral profit at the expense of everything else, dilemma. The local pizza shop has no raft and many do not.”32 The myth that cor- of lobbyists, and if the owner makes a po- porations are required to maximize share- litical donation, it will be $30 or $300, not

147 (3) Summer 2018 119 The Problem a $300,000 independent expenditure. The The first strategy does not hurt the public at of Monopolies vast majority of companies never engage a large; the second strategy decreases essen- & Corporate Public lobbying firm, let alone build all the tenta- tial tax revenue for schools. The first strate- Corruption cles of public-policy-bending machinery. gy involves no corruption. The second strat- Some company owners may be wonder- egy is corrupt. We would expect the ceo to ful and deeply invested in their communi- engage in the second strategy. The selfish ty, others greedy and self-centered, but as a exercise of public power–public corrup- structural matter, these companies do not tion–is an essential part of the job. pose a public corruption threat. How can we change that behavior? How However, for large corporations that in- can we fight the threat of rampant legal vest heavily in politics, there will be fre- public corruption by large multinationals? quent episodes in which the obligations Some analysts, like Ben Heinemann Jr., to long-term profitability and to the public argue that the discretion afforded direc- interest directly conflict. Four of the most tors and officers is far greater than that common conflicts involve tax laws, trade which they exercise, and that corporate laws, antimonopoly laws, and contracts leaders can, consistent with law and cul- with the government. Big corporations will ture, pursue the public good. Heinemann’s almost always have an interest in lowering efforts are important, but cannot address their tax burden, improving their position the problem posed by a corporation like in global trade, decreasing antimonopoly Apple that wants to reduce its tax burden enforcement, and increasing opportunities through lobbying and campaign contribu- to win government contracts. Occasional- tions. Some might argue for a fundamental ly these interests will align with those of overhaul in corporate law, explicitly requir- the public, but frequently they will not. It ing officers and directors to serve the pub- is indefensible–to all the stakeholders in lic good. And the rise of new corporations the corporation–not to be engaged in pol- operating with clear public obligations itics and not to build public power that can might create positive impacts at the mar- be used to benefit the corporation in terms gins, but the side effects of fundamentally of taxes, trade, antimonopoly, and govern- restructuring the corporate form would be ment contracts. A ceo of Apple that did not far from benign. Moreover, this argument have a public relations firm would be fired is antidemocratic, and essentially an argu- by its board of directors. ment for aristocratic/oligarchic rule: it ac- Imagine a ceo of a modern multination- cepts that multinationals play a governing al corporation with $100 million to invest. role, and merely requests that they do so She can choose to invest the money in de- with a public orientation. creasing the cost of producing the product, Instead, our anticorruption efforts should or she can invest the money in changing the focus on the precise point at which pub- laws to decrease the corporate tax rate. The lic corruption comes into play: when cor- first involves changing the production line, porations come to exercise public power. switching some materials, and a slight prod- Corporate public corruption is most like- uct innovation; the second involves a com- ly when the industry itself is very large and bination of campaign contributions, direct heavily concentrated; when there are cross- lobbying, media strategy, and coauthored industry interests in bending public power; white papers. Most estimates suggest the or when a single corporation has become first strategy provides a 5 percent return essential to a polity, or “too big to fail.” on investment, while the second strategy In other words, we should focus public provides a 50 percent return on investment. policy on the problem of corporations ex-

120 Dædalus, the Journal of the American Academy of Arts & Sciences ercising public power–which only hap- ings. With fewer actors, the costs of identi- Zephyr pens at a certain scale and degree of power fying shared needs, of coordinating timing, Teachout –and not the problems of corporations be- and of identifying and punishing free-riders ing selfish: let them be selfish, but do not are all reduced. In monopolistic or oligop- let them govern. olistic industries, it is easier to share fixed In the United States, there is a long tra- costs, like writing legislation, identifying dition of resisting the corrupting tenden- targeted politicians, and producing effec- cies of concentrated power through anti- tive messaging. The concentrated industry monopoly laws. These laws–at the center therefore can more economically lobby for of which is the Sherman Antitrust Act of shared goals, including decreasing taxes for 1890–were not designed to punish corrupt the industry, increasing subsidies for the in- behavior, but to make corruption less like- dustry, decreasing regulations, and creat- ly. They were designed to prevent corpo- ing public insurance for the industry. An es- rate directors and officers from facing the sential part of our anticorruption strategy, point at which their public and corporate then, must be decreasing concentration. obligations clashed. They were designed to That means looking at industries that are ensure that private parties did not gain un- dominated by few firms, such as online ad- accountable public power. As Justice Wil- vertising or online retail. liam O. Douglas explained in his dissent in Anticorruption reformers should also the 1948 Supreme Court case U.S. v. Colum- focus on corporations that have grown so bia Steel Co., the traditional philosophy of large that they represent a significant frac- American antitrust law is that tion of the economy. When the size of a cor- all power tends to develop into a government poration relative to the gdp is significant– in itself. Power that controls the economy like 2 percent of gdp–democratic choic- . . . should be scattered into many hands so es become constrained by the self-interest that the fortunes of the people will not be of the individual corporation. Even in the dependent on the whim or caprice, the po- absence of resources devoted to purchas- litical prejudices, the emotional stability of ing political influence, the company with a few self-appointed men. a large relative size will have public power. Its sheer size makes it incumbent upon Drawing on that tradition, we should em- legislators to design laws that will at mini- brace antimonopoly law as an essential tool mum ensure the stability of the company. for fighting local and global corruption. If Lockheed goes under and lays off all of its The first target might be highly concen- employees, that has an impact on the entire trated industries. Profits are higher in con- economy. Even without lobbying, there- centrated industries, creating more cash fore, Lockheed can make demands of gov- flow for investment in politics. (It is no acci- ernment based on the threat of its own fail- dent that pharmaceuticals, an industry that ure. Companies that are large relative to the explicitly relies on monopolies, has among size of a country’s gdp can control politics the highest profits and the greatest polit- by threatening to collapse or leave if their ical investments.) Moreover, it is simpler demands are not met. and cheaper to organize a group consensus In concrete terms, global anticorrup- when the potential members are few. Few- tion should support free and open mar- er actors can more easily make joint strate- kets, with decentralized economic actors. gic decisions about what to demand from We should support antitrust efforts that government and create a shared, consis- put barriers in the way of companies’ mo- tent message when lobbying and in meet- nopolistic behavior, such as the European

147 (3) Summer 2018 121 The Problem Union’s efforts against Google; support None of these principles is simple to of Monopolies antitrust regimes that lead to breaking up implement. There will necessarily be a & Corporate Public heavily concentrated industries and stop- high degree of over- and under-inclusive- Corruption ping mergers; and support campaign fi- ness in any rule. There is no magic num- nance regimes that make corporate influ- ber representing company size within a ence on elections more difficult. The goal country, or across countries, and no mag- is to encourage an approach toward pow- ic structural relationship that will avoid er that recalls Justice Louis Brandeis: con- these harms. This, of course, is true for centrated private power is corrupt and cor- most laws: even for something seeming- rupts, and therefore should not be allowed. ly more straightforward like traffic law, The most useful antimonopoly, anticor- there is no magic number at which the ruption strategies will differ in particular speed limit best accommodates the prin- contexts; but as the exercise of power by ciple of reducing unnecessary deaths. But multinationals continues to grow, there when it comes to governance and rules of are a handful of urgent approaches: governance, there is always special difficulty in defining the rules of the game, Applying neutrality principles to plat- · because the rules of engagement create forms like Google and Facebook, and the outcome, including the outcome of not allowing vertical integration: search what the rules of engagement should be. services and advertising must be broken However, the difficulty in designing rules up. Amazon and Apple must be limited should not be a deterrence to trying. The in their ability to discriminate in price or underlying argument here is similar to search, and to use pay-to-play models in that of the mid-twentieth-century Chi- their search. The massive public power cago school of economics. Our visions of and control wielded by these platforms human nature differ: I believe people are depend on their ability to leverage their complicated and can be public-orientated, power in one area to make profits in an- that we are not solely or even primarily other. This approach includes condemn- homo economicus. And we use different lan- ing countries that refuse to limit platform guage. But these economists from Chicago dominance and power. saw the threat of corruption of large corpo- Supporting legal regimes that separate · rations wielding public power. They were distribution from content in cable and worried about a future of “rent-seeking,” wireless companies, requiring the break- as they called it, shifting public policy as up of Comcast, for instance. Condemning a strategy for increasing profits. In “The countries that refuse to separate the two. Theory of Economic Regulation,” George Urging countries to break up big banks, · Stigler famously wrote that “regulation is both in terms of size and function. acquired by the industry and is designed Supporting the breakup of the monop- · and operated primarily for its benefit.”34 olies of companies like Monsanto, al- Stigler, Gary Becker, Richard Posner, and lowing for competition from farmers; others argued that the size of government opposing the Monsanto-Bayer merger; should shrink to prevent corruption, be- supporting countries that ban the own- cause a smaller government with weaker ership of seeds and chemicals. central governing powers would create less Encouraging global trade agreements to · incentive for private actors to seek pub- disfavor monopolistic practices. lic power. They argued that rent-seeking Condemning countries that allow cor- · would be more likely in highly regulated porate spending in elections. industries because the existence of regu-

122 Dædalus, the Journal of the American Academy of Arts & Sciences lation and differentiation is what inspired can be brought to bear on other countries’ Zephyr corporate political involvement. populations. As a theoretical matter, then, Teachout However, they did not push for an ag- the upper limit of a subsidy from a govern- gressive antimonopoly strategy. Instead, ment is the maximum revenue the gov- they pushed to dismantle antimonopoly ernment can generate through its power. laws. Why? They made two basic theoret- (As a practical matter, the probabilities ap- ical mistakes in their description of politics. proach zero as the subsidy approaches the First, they imagined a limited set of policies maximum revenue.) This is not a small that might affect a company and, second, point. There are plenty of real-world ex- they presumed an upper limit of the val- amples in which companies exercise pub- ue that companies could extract from gov- lic power to secure benefits despite the ab- ernments. Judge Posner argued that once sence of existing revenue. The bailout of the a company becomes a monopolist, it has financial institutions is one example; the in- “less incentive to expend resources on ob- surance mandate sought by insurance com- taining the aid of government in fending off panies is another. And at a smaller scale, competitors” than one in a highly compet- laws that require schools to teach technol- itive industry.35 Posner imagines that the ogy classes are, from the perspectives of cer- would-be monopolist faces a single rent tain technology companies, rent-seeking (monopoly) that, once secured, sates his in- laws: they are not grounded in existing terest, and operates as a ceiling of all possi- revenue but rely on school boards to cre- ble rents. This is clearly false: experience ate it. Deficit spending is not limited by cur- shows that big companies, having invested rent tax revenues. And one can seek rents in securing a foothold in power, will have al- through the manipulation of monetary pol- ready paid much of the fixed cost of build- icy in a way that is not limited by existing ing the machinery to exercise public pow- revenues. In other words, the total poten- er, and will be more imaginative (and effi- tial benefits are bounded by the total po- cient) in using it to secure more benefits of tential (not actual) governmental reve- different kinds. This logical flaw also shows nue, including debts. The fixed upper lim- up in the work of Gary Becker. In his classic it model was essential to the argument that 1983 paper modeling rent-seeking, Becker that concentration in industries posed no describes an upper limit on what a compa- corruption threat. ny will seek from the government: “The total amount raised from taxes, including Anticorruption crusaders have for decades hidden taxes like inflation, equals the total asked companies to join them in fighting amount available for subsidies, including corruption on a global level. Some of these hidden subsidies like restrictions on entry efforts have doubtlessly produced public into an industry.”36 However, the creative good. However, corporate social responsibil- rent-seeker, like the entrepreneur in any ity is bound to be insufficient to address the area, will not look at present flows to deter- threat of corruption that flows from those mine potential flows, but will look at possi- companies themselves. Even the most ag- ble flows given political limitations. There gressive corporate social responsibility stan- is no theoretical constraint on the poten- dards do not exhort companies unilaterally tial size of the subsidy. The potential value to become less politically powerful. Even if of the subsidy is not defined by existing they did, it is unlikely that such an exhorta- taxes. More taxes can be levied: the exist- tion would work: it is hard to imagine Mic- ing population of the country does not de- rosoft choosing not to merge with LinkedIn fine it, because levies (direct and indirect) because of internal csr policies.

147 (3) Summer 2018 123 The Problem Corporate public corruption flows from a actors independently choosing that which of Monopolies tragic tension: between directors’ or offi- is best for the country, and quite possibly & Corporate Public cers’ obligation to the corporation’s health, the world. Moreover, systems of aristocracy Corruption and their ability to increase profitability by are notoriously weak, and tend toward cor- increasing corporate power. There is ample ruption themselves. Freedom plus exhorta- evidence that massive corporations, even tion does not always mean virtue. The oc- those perceived as leaders in csr, invest casional multinational will resist the temp- heavily in public relations to reduce their tation to reduce its own taxes or deregulate tax burden. They do not bribe, but they its industry, but that is hardly a prospect to extract wealth from the public through tax rely on. As Madison famously wrote in Fed- cuts; on a net level, they add more corrup- eralist Paper No. 51: “If angels were to gov- tion than they reduce. ern men, neither external nor internal con- One approach locates the institutional trols on government would be necessary.” flaw in corporate law and corporate obli- The problem is not with the existence gations, arguing that officers and directors of the corporation, or with corporate law. should be ethically free to pursue the pub- More free and open markets would lead to lic good even when it directly conflicts with less corruption. The problem is with con- corporate goals. In the Aristotelian frame- centrated power: a handful of actors who work, one might call this the aristocratic ap- are sui generis; so large and powerful they proach: the goal is to free corporate ceos to can bend public power. The modern anti- be aristocrats instead of oligarchs. While I corruption movement chooses not to ad- laud these efforts, I am troubled by the vi- dress these large actors, using formalism sion they present: unaccountable corporate or legalism as an excuse, at all of our peril.

endnotes 1 As when Siemens spent millions of dollars paying executives to win contracts at a state-owned utility in Israel. “Siemens to Pay to Settle Bribery Case,” Reuters, May 26, 2016, http://www .reuters.com/article/israel-siemens/siemens-to-pay-israel-43-mln-to-settle-bribery-case-israel -idUSL5N17Z2N6. 2 For example, see Michael Johnston, Syndromes of Corruption: Wealth, Power, and Democracy (Cam- bridge: Cambridge University Press, 2005), 60–88. 3 For example, see Amitai Etzioni, Capital Corruption: The New Attack on American Democracy (New Brunswick, N.J.: Transaction Books, 1988). 4 Aristotle Nicomachean Ethics 8.1. 5 For some discussion of the debate, see Michael Johnston, “Public Officials, Private Interests, and Sustainable Democracy: When Politics and Corruption Meet,” in Corruption and the Glob- al Economy, ed. K. A. Elliot (Washington, D.C.: Institute for International Economics, 1997), 61–82; Dennis F. Thompson, Ethics in Congress: From Individual to Institutional Corruption (Wash- ington, D.C.: Brookings Institution Press, 1995), 7 [corruption ordinarily involves the “improper use of public office for private purposes”]; Michael Johnston, “The Political Conse- quences of Corruption: A Reassessment,” Comparative Politics 18 (4) (1986): 459, 460 [corruption is “the abuse of public roles and resources for private benefit”]; and Joseph J. Senturia, “Corruption, Political,” in Encyclopaedia of the Social Sciences, ed. Erwin R. A. Seligman and Alvin Johnson (New York: Macmillan, 1931), 448 [defining corruption as “the misuse of public power for one’s own personal profit”]. For an argument that morality is essential to understanding corruption, see Laura S. Underkuffler, Captured by Evil: The Idea of Corruption in Law (New Haven, Conn.: Yale University Press, 2013).

124 Dædalus, the Journal of the American Academy of Arts & Sciences 6 Richard Mulgan, “Aristotle on Legality and Corruption,” in Corruption: Expanding the Focus, ed. Zephyr Manuhuia Barcham, Barry Hindess, and Peter Larmour (Canberra, Australia: anu Press, 2012), 26. Teachout 7 The idea that private actors might be part of a corrupt system has received attention. Michael Johnston, for instance, has argued that in societies with close ties between political elites and companies, the lines between public and private are blurred, which implicates corruption because corruption depends upon the idea of clearer lines between the spheres. I see this essay as supporting Johnston’s arguments about influence markets and elite cartels. 8 Sung Hui Kim, “Insider Trading as Private Corruption,” UCLA Law Review 61 (2014): 928–952. 9 To be clear, the problem of private actors corrupting public actors via legal means is central to much of the literature, but I make a slightly different point. 10 See, for example, Melvin Urofsky’s description of Louis Brandeis’s battle with Boston Elevated. Melvin I. Urofsky, Louis D. Brandeis: A Life (New York: Schocken, 2012), 135–139. 11 Trist v. Child, 88 U.S. 21 Wall. 441 441 (1874). Emphasis added. 12 Much of the discussion about private entities–including big multinational companies like Mon- santo, Google, or Siemens–concerns whether they are engaged in what is sometimes called private corruption, and whether we should even recognize the category of private corruption. For instance, on a smaller scale, if a bank manager accepts a personal payment from a customer in exchange for giving that customer special banking treatment, is that corruption? This essay does not address that question, but rather argues that there are many situations in which private actors do exercise governing power, and should be recognized for such. There is also a split between analysts who believe that there is a separate category of private-to-private corruption, and those who believe there is not. For purposes of this essay, I do not engage that argument: I am not addressing those situations in which Siemens might accept bribes from Bayer, but rather when Bayer uses its power to influence the German government. 13 For a recent volley in this debate, see Kim, “Insider Trading as Private Corruption.” 14 Joseph Nye, “Corruption and Political Development: A Cost-Benefit Analysis,” The American Political Science Review 61 (2) (1967): 417. 15 Arnold Heidenheimer and Michael Johnston argue that corruption has been defined in three ways: “public office centered,” “market centered,” and “public interest centered.” See Arnold J. Heidenheimer and Michael Johnston, eds., Political Corruption: Concepts and Contexts (Abingdon, United Kingdom: Routledge, 2000), 3–6. A closer examination, however, shows that the market- centered approach also depends upon formal office office-holding, since it describes corruption as those instances in which entities seek rents from “the bureaucracy” or public officials. For a discussion of the market-centered definitions of Jacob van Klaveren and Nathaniel Leff, see ibid., 8. Moreover, some of the public interest–centered definitions also employ public office office-holding and formal roles. For instance, Carl Friedrich attaches corruption to power-holders tasked with certain duties. Friedrich argues corruption exists when a “power- holder” “is by monetary or other rewards not legally provided for, induced to take actions which favour whoever provides the rewards and thereby does damage to the public and its interests.” Carl J. Friedrich, “Political Pathology,” The Political Quarterly 37 (1) (1966): 70, 74. For a more general discussion of these different approaches, see Heidenheimer and Johnston, eds., Political Corruption: Concepts and Contexts, 6. 16 The functional approach could consider this business owner not corrupt if he were using his wealth to shape public power to pursue public ends, even if we disagreed with those ends. 17 The United States’ federal criminal law of bribery has, in some very limited circumstances, taken a functionalist approach to determining who is a “public official.” In Dixson vs. United States (1984), an administrator at a private nonprofit corporation, administering federal grants, took money from a contractor in exchange for steering federal funds the contractor’s way. The administrator argued that he should not be convicted under federal bribery law because he was not a public official. The Supreme Court rejected that argument, and instead used something like a functional analysis, suggesting that someone is a public official depending on a fact-specific

147 (3) Summer 2018 125 The Problem analysis of the degree to which he exercised public power. However, Dixson involved statutory of Monopolies interpretation, not interpretation of public terms of approbation, and the statute at issue de- & Corporate fined a public official as one “acting for or on behalf of the United States.” Dixson v. United States, Public 465 U.S. 482 (1984). Corruption 18 Stephen Bell, Economic Governance and Institutional Dynamics (Oxford: Oxford University Press, 2002). 19 The approach that would make the least sense is one that identifies alcoholism by looking at who is breaking laws related to alcohol, using formal means to determine a very difficult and perhaps impossible diagnostic question. 20 Natasha Singer, “How Google Took Over the Classroom,” The New York Times, May 17, 2017, https://www.nytimes.com/2017/05/13/technology/google-education-chromebooks-schools .html?mcubz=0. 21 See Dennis F. Thompson, “Two Concepts of Corruption: Making Campaigns Safe for Democ- racy,” George Washington Law Review 73 (5–6) (2005): 1046. 22 McCormick v. United States, 500 U.S. 257 (1991). I have oversimplified a complicated area in my description above, but the basic point remains: the requirements for one are different than for the other. 23 McDonnell v. United States, 579 U.S. ___ (2016). 24 Zephyr Teachout, “The Forgotten Law of Lobbying,” Election Law Journal 13 (1) (2014): 4. 25 For example, see Timothy Besley and John McLaren, “Taxes and Bribery: The Role of Wage Incentives,” The Economic Journal 103 (416) (1993): 119. 26 See, for example, the Transparency International website: “Corruption generally comprises illegal activities, which are deliberately hidden and only come to light through scandals, investigations or prosecutions.” Transparency International, “Corruption Perceptions Index 2014: In Detail,” https://www.transparency.org/cpi2014/in_detail#myAnchor1. 27 See Susan Rose-Ackerman, Corruption and Government: Causes, Consequences, and Reform (Cam- bridge: Cambridge University Press, 1999). 28 Ibid., 343. 29 It is a variation of the Hobbesian idea that the sovereign controls law and therefore meaning: “The judgement of what is reasonable, and what is to be abolished, belongeth to him that ma- keth the law, which is the sovereign assembly or monarch.” 30 See, for instance, Susan Rose-Ackerman, “International Actors and the Promises and Pitfalls of Anti-Corruption Reform,” University of Pennsylvania Journal of International Law 34 (3) (2013): 484. Rose-Ackerman writes, “Although outright corruption in the form of bribes and kickbacks will remain a problem facing all polities for the foreseeable future, those interested in promot- ing economic growth, poverty alleviation, governance reform, and market efficiency also need to consider how the legal exercise of financial power undermines these values.” 31 They also have a separate, personal desire to use public power for private ends, since corporate pay is regularly tied to shareholder value; this creates separate issues that I do not address here, but note: it creates conditions of excessive temptation, more than most people can bear. 32 Burwell v. Hobby Lobby Stores, Inc., 573 U.S. ___ (2014). 33 For example, see Lynn Stout, “Corporations Don’t Have to Maximize Profits,” The New York Times, April 15, 2015. 34 George Stigler, “The Theory of Economic Regulation,” The Bell Journal of Economics and Manage- ment Science 2 (1) (1971): 3. 35 Richard Posner, Antitrust Law, 2nd ed. (Chicago: The University of Chicago Press, 2001), 23. 36 Gary S. Becker, “A Theory of Competition Among Pressure Groups for Political Influence,” The Quarterly Journal of Economics 98 (3) (1983): 372. 126 Dædalus, the Journal of the American Academy of Arts & Sciences Preventing Systemic Corruption in Brazil

Sérgio Fernando Moro

Abstract: This essay describes the Brazilian anticorruption operation known as Operação Lava Jato (“Operation Car Wash”), its findings, and its results based on cases tried up to March 2018. Told from the perspective of the federal judge of the Thirteenth Federal Criminal Court of Curitiba, in whose court most of the Lava Jato cases have been prosecuted, this massive criminal case offers lessons that may be useful to other anticorruption efforts. Preventing systemic corruption is a challenge, but it is a necessary step for the improvement of democracy.

What began as an investigation of an isolated instance of corruption within a Brazilian oil company expanded into an immense anticorruption operation known as Operação Lava Jato (“Operation Car Wash”). This investigative operation has penetrat- ed deep within Brazil’s government and corporate elite to root out systemic state-sanctioned corruption. Its criminal cases also appear to be instating new legal norms for how corruption cases are han- dled in Brazil, giving citizens hope that Lava Jato’s impact will be felt far into the future. How Brazilian prosecutors and courts dealt with this immense anticorruption effort may provide important lessons for the battle against systemic corruption both in Bra- zil and elsewhere. This essay provides a comprehensive account of Lava Jato and its significance for Bra- zil going forward. It is important to note from the beginning that Lava sÉrgio fernando moro is Jato is not a single criminal case but several, in which a Federal Judge of the Thirteenth federal prosecutors have decided to pursue separate Federal Criminal Court of Curi- charges against many defendants. So far, more than tiba, Brazil. He is also Professor sixty criminal cases have been brought against about of Procedure Criminal Law at the 1 Unicuritiba–Centro Universitário 289 defendants in Brazilian federal courts. About Curitiba. He presided over the trial thirty-three of those cases have already been tried, of many bribery cases in Operação resulting in convictions of bribery and money laun- Lava Jato. dering for about 157 people. The reflections I offer in

157 Preventing this essay are based on the cases that have by powerful politicians or businessmen. Systemic been tried at the time of writing. I do not an- There are likely two main reasons for this. Corruption in Brazil alyze or comment upon cases that have yet The first is the slow pace at which the to be tried or that are awaiting sentences. judicial process progresses in Brazil. Un- At the core of the Lava Jato cases are til recently, the enforcement of a criminal crimes connected to contracts with Petroleo conviction was possible only after the case Brasileiro s/a (Petrobras). Petrobras is a reached a final decision that could no longer semipublic, majority state-owned Brazil- be appealed. Enforcement of a criminal sen- ian company engaged primarily in oil and tence depended on the judgment of the last gas exploration, refining, and transporta- appeal. Only then would the case be seen as tion. It is Brazil’s largest company and one transitado em julgado, or tried with no possi- of the world’s major oil and gas companies. bility of appeal. Years might pass between It was founded in 1953 to explore Brazilian an initial judgment and the final sentence. oil and gas fields with the goal of transform- This rule emerged from a 2008 Supreme ing Brazil into a self-sufficient producer of Court decision regarding a controversial petroleum products. interpretation of the presumption of inno- As the cases already tried reveal, multi- cence in Brazil’s Constitution.3 Theoretical- ple bribes were paid in contracts between ly, enforcing this rule would not be a prob- Petrobras and its suppliers; these bribes lem, but because of a generous system of were used for the criminal enrichment of appeals and the heavy caseload of Brazilian Petrobras executives and politicians, as Superior Courts, powerful defendants used well as to finance electoral campaigns. Be- it to manipulate the judicial process, initi- fore describing what prompted the inves- ating endless appeal proceedings to prevent tigation and how it unfolded, however, it their cases from ever reaching a conclusion is important to provide some context, in- and effectively avoiding accountability.4 cluding some details concerning Brazilian Until recently, it was very common for criminal justice.2 no final decision to ever be reached in complex criminal cases involving power- White-collar crimes like bribery and ful individuals. Even cases with strong evi- money laundering represent a challenge dence of criminal behavior or cases involv- for law-enforcement agencies all over the ing very serious crimes never reach con- world. They are often difficult to discover, clusions in Brazil. As a rule, wealthy and to prove, and to punish. Such crimes are well-connected defendants in these cas- usually committed in secret, by powerful es never go to prison, despite compelling people, and with some degree of sophistica- evidence of their guilt. However, this rule tion. And police, prosecutors, and the judi- changed recently, as I will explain below. ciary are often not well prepared for the in- The second main reason for criminal im- vestigation, prosecution, and judgment of punity among the powerful is the fact that these highly sophisticated crimes. Some- the Supreme Court of Brazil has original times powerful defendants also exploit the jurisdiction over criminal charges against gaps in the criminal law and of the judicial high federal official authorities, including system to prevent effective accountability. the president, vice president, cabinet min- Some countries are more successful than isters, and members of the federal Con- others in enforcing the law against these gress. This is ensured by a controversial kinds of crimes. Brazil, at least prior to Lava provision in Brazilian law stating that high Jato, did not have a strong tradition of en- politicians and authorities in criminal cas- forcing the law against crimes committed es must have foro privilegiado (“privileged

158 Dædalus, the Journal of the American Academy of Arts & Sciences forum”). So if, for example, a criminal in- The charges were presented before the Sérgio vestigation in a lower court produces evi- Supreme Court in 2006, though it took un- Fernando Moro dence of criminal conduct by a federal con- til 2012 for the case to go to trial. There was a gressman, the judge must immediately send great deal of skepticism about the Supreme the case to the Supreme Court. However, as Court’s judgment, especially about wheth- mentioned, the Brazilian Supreme Court’s er it would try the case in a reasonable time heavy caseload (its docket contained over and convict the defendants. But in the end, fifty-five thousand cases in the last year the Supreme Court issued a guilty verdict alone) makes it very difficult to adjudicate for most of the defendants, including sev- criminal charges in a timely fashion. Conse- eral powerful politicians. Of course, Bra- quently, cases involving crimes committed zilian courts had produced some convic- by powerful defendants sometimes literal- tions for white-collar criminals in the past. ly never end. In practice, the special juris- But these were the exception, not the rule, diction of the Supreme Court over crimi- and none of them was as important or rel- nal charges involving high-ranking official evant as the decision in Criminal Case 470. authorities worked as a shield against ac- These verdicts marked a clear break with countability. the norm of weak enforcement of the law These are two primary structural reasons against white-collar or financial crimes. A (though there are others) why law enforce- Supreme Court decision has great influence ment is so weak on crimes committed by across the whole judicial system. Beyond powerful defendants in Brazil. The weak en- the importance of the criminal cases’ direct forcement of the law against white-collar consequences, they worked as an example crimes is one of the likely reasons for the for all Brazilian law enforcement agencies development of systemic corruption in Bra- and judges, showing that the shield against zil. However, legal procedures have recent- effective accountability for powerful defen- ly changed the system for the better, at least dants could be broken. in part. Lava Jato is not alone, but rather is part of this broader effort. Two years after the judgment in Crimi- nal Case 470, Operação Lava Jato began. Criminal Case 470, decided by the Brazil- As usually happens with criminal investi- ian Supreme Court in 2012, began to change gations, Lava Jato started small. The fed- the norm of weak enforcement of the law eral police opened an investigation tar- against white-collar crimes in Brazil. geting four individuals involved in what In this case, also known as Mensalão seemed at the time to be a money-laun- (“monthly,” because the case involved dering scheme involving black-market monthly bribes to some congressmen), money exchanges. One of these individu- the Supreme Court convicted several highly als, professional money launderer Alberto placed politicians, including a powerful for- Youssef, was connected to a former direc- mer minister of the federal government and tor of Petrobras, Paulo Roberto Costa. The several congressmen, political leaders, po- investigation revealed that Youssef had litical party operatives, and bank directors, bought a luxury car for Costa, concealing of bribery and money laundering.5 In this the origin of the resources used. case, it was proven that the chief minister of This evidence led the federal police, the Brazilian federal government between working with judicial search-and-seizure 2002 and 2005 organized a bribery scheme warrants, to raid the offices and houses of to obtain political support from congress- Youssef and Costa in March 2014. During men for federal legislative initiatives. this process, Costa tried to destroy and hide

147 (3) Summer 2018 159 Preventing paper evidence and consequently was placed win each bidding process, and the chosen Systemic into pretrial detention. Youssef was also ar- company could then offer a price proposi- Corruption in Brazil rested on a pretrial detention order due to tion without real competition. They called his status as a recidivist career criminal. themselves “The Club.” Looking at the banking records of Yous- The investigations continued to produce sef’s front companies, police and prosecu- new evidence based in part on plea agree- tors discovered that his accounts had re- ments with other cooperating criminals. Of ceived millions of reais in credits from some course, everything a cooperating criminal of the biggest Brazilian construction com- says has to be supported by additional evi- panies, which also happened to be some of dence. For this reason, many investigations Petrobras’s major suppliers. In another line are still ongoing. But it has been possible of the investigation, it was discovered with in some cases thus far to obtain evidence the assistance of Swiss authorities that Costa that corroborates information revealed by had hidden millions of dollars in offshore cooperating criminals. There have been accounts. Facing long prison terms, Alberto about twenty-eight criminal convictions Youssef and Paulo Costa agreed in the sec- and sentences specifically related to brib- ond half of 2014 to conclude plea agree- ery in Petrobras contracts as a result of the ments with the prosecutors. Lava Jato cases tried up to March 2018. Con- Youssef and Costa revealed that, as a rule, victions reached top executives of the big- every contract Petrobras signed with the gest Brazilian construction companies act- major Brazilian construction companies ing as corruptors; top executives of Petro- included kickbacks of 1 or 2 percent of the bras acting as facilitators and beneficiaries total value of the contract to the Petrobras of bribes or kickbacks; and intermediaries officials who approved it. Youssef’s role was between these two groups. to organize the money laundering scheme. So far, four former directors of Petrobras Costa received a share of the bribes to work have been convicted and sentenced to pris- for the interests of the construction com- on terms. Two of them decided, after serv- panies. Another share of the money went ing part of their prison sentences, to coop- to politicians, including federal legislators erate with authorities. The police and pros- of the Progressive Party (Partido Progres- ecutors discovered that all four had millions sista), which was part of the ruling coali- of dollars or euros in bribes hidden in off- tion and was in practice responsible for shore accounts in countries such as Switzer- the nomination of Costa for his position at land, Monaco, and Luxembourg. A Petro- Petrobras. bras ceo was also convicted for taking Youssef and Costa testified that other bribes and money laundering. Petrobras officials had received bribes and At least six trials ended in convictions had worked with intermediaries and politi- for former federal legislators who had re- cians from other parties in the governing co- ceived bribes in the Petrobras scandal. In alition, such as the Workers’ Party (Partido four other cases, the Court found that mon- dos Trabalhadores) and the Party of the Bra- ey from bribes had been directed to finance zilian Democratic Movement (Partido do illicitly a political party. Two of the former Movimento Democrático Brasileiro). They lawmakers convicted in the Lava Jato cas- also revealed that the Brazilian construc- es had also been involved in Criminal Case tion companies who paid the bribes were 470 (Mensalão). Amazingly, they contin- fixing Petrobras’s bidding-process out- ued to accept illegal payments from Petro- comes. Petrobras’s major suppliers decid- bras even as the Mensalão trial was under ed in advance which among them would way in the Brazilian Supreme Court.

160 Dædalus, the Journal of the American Academy of Arts & Sciences These behaviors, which may appear ab- of the largest companies–Camargo Cor- Sérgio surd, are indicative of the impunity many rea, Andrade Gutierrez, and Odebrecht– Fernando Moro corrupt officials enjoyed. In another exam- reached leniency deals with the prosecu- ple, in 2014, Congress created a special in- tors. In exchange for lighter punishments, vestigation commission for the Petrobras they agreed to reveal illicit acts, abandon scandal. A senator was nominated as vice criminal practices, implement efficient president of the commission. Instead of do- systems of compliance, and compensate ing the investigation, he took the opportu- public coffers by returning billions of nity to request bribes from top executives reais. One of them also revealed that it of the biggest construction firms then un- paid bribes for public employees abroad, in der investigation so that they might avoid countries like Peru, Argentina, and Mexico, scrutiny. For this, the senator was eventual- among others. ly convicted of taking bribes himself. The cases already tried reveal that the Even a former Speaker of the House of payment of bribes on Petrobras’s contracts Representatives was implicated in the scan- was not an exception but, rather, the rule. dal and was convicted. Again with the as- Some of the cooperating criminals used sistance of Swiss authorities, it was discov- that very word, describing the crimes they ered that he had received about $1.5 million committed as simply “a rule of the game in bribes, which were deposited in offshore in contracts of the public sector.” Some al- accounts in a Swiss Bank. A former gover- leged that this illicit practice went beyond nor of the state of Rio de Janeiro, a former Petrobras and was used by other state- secretary of finance of the federal govern- owned companies and in other branches ment, and even a former president of Bra- of the federal government. zil were also convicted for receiving a share Investigations are ongoing not only in of bribes in Petrobras’s contracts.6 So far, the Federal Criminal Court of Curitiba, dozens of executives from eleven of Brazil’s where the investigation started, but in largest construction companies have been other Brazilian federal courts that were as- convicted as bribe givers. signed responsibility for trying certain Lava To illustrate the magnitude of these cor- Jato cases. Because of foro privilegiado, doz- rupt practices, a manager at Petrobras, after ens of highly placed politicians, especial- reaching a plea agreement with the author- ly congressmen, are being investigated by ities, agreed to return nearly $97 million in the chief federal prosecutor before the Su- bribes that he had received from Petrobras preme Court. In spite of the Court’s heavy contracts and kept in secret bank accounts caseload, some of these high-profile defen- abroad. In the beginning of the investiga- dants have been charged already. tion, Petrobras assumed a posture of general denial, refusing to admit any problem The cases already sentenced suggest that of governance publicly. As the investigation an environment of systemic corruption was developed, however, the company gradual- uncovered by the investigation. The pay- ly began to admit that crimes were commit- ment of bribes was taken for granted in ted, culminating in an official recognition Petrobras’s contracts; participants knew in Petrobras’s 2015 annual report to share- even before signing contracts that bribes holders of losses from corruption of nearly would be paid, just like the construction 6 billion reais (about $1.9 billion). companies knew in advance whose “turn” It took time, but some of the construc- it was to win the contract, irrespective of tion companies involved in the scheme the formal bidding process. They also knew also began to admit responsibility. Three that the bribes would be shared between

147 (3) Summer 2018 161 Preventing Petrobras executives and the federal pol- with receiving kickbacks than doing their Systemic iticians who gave them political support. job in the company’s best interests. Corruption in Brazil There were even fixed rules to calculate the Another detrimental effect of systemic amount of the bribes: generally 1 or 2 per- corruption is that it chases away local and cent of the total value of the contract. foreign investors. If the market is not clean Corruption, as an isolated crime, exists and transparent and if bribes and cheat- all around the world. But systemic corrup- ing are the rule, responsible investors will tion–the payment of bribes as a rule of the not have the confidence to put their money game–is not as common, and represents a into that market. But above all, systemic cor- severe degeneration in the functioning of ruption is damaging because it undermines the public and private spheres, especially confidence in the rule of law and in democ- in democratic nations.7 The costs of sys- racy. If the law does not apply to everyone temic corruption are enormous. First, the and if crime and cheating are the norm, trust cost of the bribes is usually added by the in democracy will progressively erode. offending company to their contracts with state-owned companies or with the govern- Faced with the revelation of systemic cor- ment, affecting public budgets. If the pay- ruption, what should be done? First, the ju- ment of such bribes is not an isolated prac- dicial system must work. Crimes that are tice but a general rule, the management of uncovered and proven through due legal public resources is severely affected. More- process must be punished. Justice works over, the need to generate funds for bribes when the innocent defendant goes home in systemic corruption schemes can affect and the guilty defendant goes to prison, ir- investment decisions by public and private respective of their economic or political entities. status. There is still much to be done to ad- Some of Petrobras’s bad investments may vance this concept in Brazil, yet Criminal not be simply explained as a result of a bad Case 470 and Lava Jato, like other recent cas- judgment or unlucky bet, but instead as a es in Brazil, reveal that much can be done deliberate choice by the corrupt directors of even within the current legal system, as long Brazil’s largest enterprise to generate bribes as allegations are dealt with seriously.9 Jus- rather than to make the best decision from tice must be more than actors playing their an economic point of view. One example is parts in cases that never end with perpetra- the construction of the new Abreu e Lima tors who are never punished. refinery.8 Initially, Petrobras estimated the The adequate functioning of the crimi- cost of the project at $2.4 billion. Howev- nal justice system is a necessary, though in- er, by 2015, Petrobras had already wasted sufficient condition for the elimination of $18.5 billion on the construction of the re- systemic corruption. It is imperative that finery, and it was only partially complete. other public institutions, like the executive Even if the refinery operated with full ef- and legislative branches of government, ficiency for the rest of its planned life, it adopt public policies aimed at preventing would incur a loss of $3.2 billion. Lava Jato and combating corruption as well. System- cases have shown that bribes were paid in ic corruption is not and cannot be a prob- some construction contracts for the refin- lem only for the judicial branch. ery. But the difference between $2.4 billion The government is the principal actor re- and $18.5 billion cannot be explained only sponsible for creating a political and eco- by the additional costs of the bribes. Bad nomic environment free of systemic cor- investment decisions were made because ruption. Through its visibility and power, Petrobras executives were more concerned the government can lead by example. Better

162 Dædalus, the Journal of the American Academy of Arts & Sciences laws can improve the efficiency of the crim- or demands for bribes, as well as imple- Sérgio inal justice system and increase the trans- menting mechanisms of internal control Fernando Moro parency and predictability of relations be- and accountability that make it difficult tween the public and private sectors, reduc- or impossible to pay or receive them. It is ing incentives and opportunities for corrupt also important for private-sector actors practices. to work collectively so that companies in- Another important step would be the sig- volved in corrupt practices are identified nificant reduction of party patronage in the and isolated from the market and not al- civil service. The influence of party politi- lowed to assume a preeminent position. cians in the recruitment of executives in An outstanding example of this kind of state-owned companies, and other high private-sector responsibility can be found positions in the state bureaucracy, is what in Sicily, where businesses have joined to- made the criminal scheme at Petrobras pos- gether in associations like Addiopizzo, or sible. Based on cases tried and sentenced “goodbye pizzo,” to collectively refuse to thus far, it seems that Petrobras executives pay mafia money (pizzo).10 Acting togeth- were appointed with a mission: to obtain fi- er, they have more power to refuse to pay nancial resources from suppliers for the il- extortion money and to avoid retaliation licit enrichment of politicians or the illegal from organized crime. Their slogan is “a financing of electoral campaigns. Reducing whole people who pays pizzo is a people political influence in state-owned compa- without dignity.” Collective mobilization nies would help to prevent this evil. on the part of private companies could be Freedom of the press and access to in- used to good effect in Brazil, with some sit- formation are also essential. For citizens uation-specific modifications. to have meaningful checks on those who It is also important to keep in mind that govern, they must be well informed about systemic corruption is a product of insti- the management of public life. tutional and cultural weaknesses. System- Everything to do with the Lava Jato cases, ic corruption is not a natural phenomenon, from the prosecution, evidence, and hear- and no country is destined to live with it. ing of witnesses to the judgment and sen- Even if discovering and exposing corrup- tencing, has been conducted openly and in tion generates new challenges and painful the light of day. The Brazilian Constitution resistance in the short run, these effects requires that the judicial process be open are part of the cure. Once systemic cor- to public scrutiny. There is no possibility ruption is discovered, necessary public pol- of having cases prosecuted and tried in se- icies should be adopted and implemented cret. This rule of transparency was very im- to overcome it. The problem cannot be re- portant for the Lava Jato cases. Making ev- solved by sweeping it under the rug. ery piece of evidence public was crucial for gaining the popular support necessary for Because of the dimension of the crimes the enforcement of the law, and helped pre- that have been uncovered, Lava Jato perhaps empt attempts by powerful defendants to more than any other case provides Brazil obstruct justice. with a golden opportunity to take the neces- In fighting systemic corruption, the pri- sary steps to overcome this shameful prac- vate sector also plays a part. Corruption tice. It is difficult to predict at this stage involves those who make illicit payments whether that will happen, whether cor- and those who receive them. Both parties ruption will be contained and reduced to are guilty. Companies must therefore do more reasonable proportions, or whether their homework, denouncing requests Brazil will return to the pre–Lava Jato lev-

147 (3) Summer 2018 163 Preventing els of corruption. Some backlash and crit- dant will flee or obstruct justice. There are Systemic icism against Lava Jato has arisen (espe- similar laws in the United States: the U.S. Corruption in Brazil cially from politicians and corporations Criminal Code allows a judge to deny bail involved), much of it driven by miscon- if the defendant is potentially dangerous or ceptions about the nature of the enterprise. a flight risk.11 The U.S. Supreme Court case Some critics have complained that the U.S. v. Salerno affirmed that this statute was Lava Jato operation is not impartial and constitutional.12 has been used to “play politics.” But this is In the Lava Jato cases, pretrial detentions not so. Of course, crimes involving bribes were ordered only when evidence against paid to politicians will inevitably have po- the defendant was particularly strong; litical consequences. But they arise outside when there was a risk that the defendant the court and beyond the judges’ control. would flee or obstruct justice; or to pre- Others have said that Lava Jato represents vent the defendant from committing new the “criminalization of politics.” The blame crimes while awaiting trial. It is impor- should not, however, be aimed at the judi- tant to understand that the crimes of the cial process, but rather at the politicians Petrobras cases were committed in a pro- who committed the crimes. The judicial fessional and serial manner in a context process is just a reaction against corruption, of systemic corruption. For example, one as the justice system cannot turn a blind eye of the companies involved in this crim- to crime. inal network devoted a specific depart- Some critics say that the judiciary has not ment solely to paying bribes, which was respected due process in these cases. How- in operation for several years, even during ever, every aspect of the judicial process the investigation. Operations ceased only has been conducted in open court with re- when the company’s top executives were spect for the rights of the defendants, and served with pretrial detention orders. Giv- has been based on extensive evidence ob- en the presumption of innocence, pretri- tained, processed, and publicized in accor- al detentions should be exceptional; but dance with the law and the Brazilian con- the extraordinary nature of systemic cor- stitution. Lava Jato is not a witch hunt. In- ruption demands strong and urgent mea- vestigators simply followed the leads from sures by criminal justice to break the vi- case to case, uncovering a widespread prob- cious circle.13 lem that mandated numerous convictions Other critics have complained about the and detentions. Therefore, nobody is be- extensive use of plea agreements in the Lava ing charged or convicted based on political Jato investigation, arguing that prosecutors opinion. When there is evidence of illegal and judges are still not being tough enough conduct, the accused are being charged and on white-collar criminals. However, crimes convicted because of the bribery and mon- like corruption are committed in secret and ey laundering crimes they committed, not usually only the criminals themselves are because of their political allegiances. witness to their wrongdoing. Therefore, it Finally, there has been concern about the is sometimes necessary to make a deal with use of pretrial detention in the Lava Jato cas- a criminal to get evidence to build a case on es. Pretrial detentions should, of course, be more central players. As U.S. Federal Appel- the exception and not the rule in any judi- late Judge Stephen Trott has stated, some- cial system. However, a judge in Brazil can times such bargains are necessary, because order a pretrial detention if the defendant without them “the big fish go free and all presents a danger to other individuals or to you get are the minnows.”14 It makes sense society, or if there is a risk that the defen- to offer a plea agreement, for example, to a

164 Dædalus, the Journal of the American Academy of Arts & Sciences criminal responsible for a money launder- Unfortunately, it seems that as of this Sérgio ing scheme in order to get evidence against writing, the executive and legislative Fernando Moro bribe takers or bribe givers who are respon- branches of government have made no such sible for the national environment of sys- significant contribution to Brazil’s efforts temic corruption. against corruption. For example, they could do so by proposing and approving better Until now, the police, prosecutors, and the anticorruption laws. One necessary step judiciary have been the main protagonists would be to change Brazilian electoral law in Brazil’s fight against systemic corruption. along the lines of the Supreme Court deci- It is important also to acknowledge the Bra- sion I describe above. Congress should dis- zilian Supreme Court, which has handed cuss proper and strict regulations for elec- down new precedents that strengthen some toral contributions from companies. For anticorruption rules. In a possible collateral example, it could forbid any electoral con- effect of the investigation of the Petrobras tributions from companies with govern- scandal, Brazil’s Supreme Court overruled ment contracts and establish low limits for the harmful provision I discussed above, other corporate donations. which allowed wealthy defendants to post- Unfortunately, there are some signs of pone indefinitely, through endless appeals, reaction against Lava Jato from Congress the execution of a prison sentence.15 In 2016, itself. In 2016, federal prosecutors present- the Supreme Court ruled that the enforce- ed a bill to improve anticorruption laws. ment of a criminal conviction is permitted Despite major popular support for the immediately after a sentence is affirmed by measures, the House rejected most of the a court of appeal; it is no longer necessary reforms, and it is still uncertain whether to wait several years for a final decision at the bill will be approved. More disturbing the highest level of appeal. was an attempt in the House to approve This precedent represents a kind of judi- an amnesty bill for illegal electoral dona- cial revolution in the enforcement of crim- tions, up to and including bribes. In anoth- inal law in complex cases in Brazil. Its im- er controversial act, the Senate drafted a pact is already visible in several other cas- new bill about abuses of power committed es involving corruption. With this new by judges, prosecutors, and police officers. ruling, Brazil’s Supreme Court has clear- Of course, official authorities who abuse ly demonstrated that it fully understands their powers should be held accountable; the connection between systemic corrup- this, also, is central to a working system of tion and impunity.16 justice. But the text of the bill was written In another important case, Brazil’s Su- such that it could have a cooling effect on preme Court ruled against the legality of the independence of the judiciary and the electoral contributions from companies.17 autonomy of the prosecutors and the po- Brazilian electoral law previously lacked lice to pursue criminal corruption as they proper limits on large corporate contribu- see fit. As of this writing, the future of this tions to elections. In light of endemic cor- bill is also uncertain. ruption, the Supreme Court understood that without safeguards, there would be It is possible to garner some lessons from a great danger of improper relations be- Brazil’s situation. Decades of weak law en- tween companies and politicians via quid forcement against crimes committed by pro quo donations. So it ruled such con- high politicians and powerful business- tributions void until proper regulations men have generated a breeding ground for could be approved. bribery, kickbacks, and corruption. Weak

147 (3) Summer 2018 165 Preventing law enforcement may not be the first cause tions would prevent new crimes from Systemic of this virulent corruption, but it certain- being committed. Corruption in Brazil ly does not help to constrain it. However, · The use of plea agreements to disrupt new realities have presented Brazil with an complicity and secrecy between crim- opportunity to face systemic corruption, to inals and to advance investigations. confront past failures and set a new course · Extensive international cooperation and for the future. The systemic corruption un- support from Switzerland and other covered in Brazil is shameful. But there is countries. another way to look at this picture. The ef- · Trying cases under public scrutiny, from forts of many individual Brazilians to fight evidence and arguments to judgments. the problem of corruption have brought · Speedy criminal procedures and trials. these crimes to light. The police, the pros- · Strong public backing to prevent at- ecutors, and the judiciary are now dealing tempts by powerful defendants to ob- seriously with them. struct justice. There is no shame in the enforcement of the law.18 Lava Jato provides a measurement All of these factors have contributed to of the extent of Brazil’s corruption, but also progress in enforcing the rule of law in a measurement of Brazilians’ dedication to Brazil. anticorruption efforts. The Lava Jato operation is still ongoing, but it is already with- Much more must be done in the fight out precedent. Corruption scandals are not against corruption, and it is too soon to new to Brazil’s history, but never before say whether Brazil will exchange its cur- were top executives of the country’s biggest rent system for one fully committed to ef- construction companies arrested, tried, and fective accountability for crimes commit- convicted. Never before Lava Jato had a sin- ted by powerful politicians and business- gle director of Petrobras been charged with people. a crime. Today, four of them and a ceo are Even so, it is important to highlight that serving prison terms. Eight powerful poli- since 2015, millions of Brazilians have ticians have been convicted and some ar- protested against corruption. For exam- rested, including the former speaker of the ple, in March 2016, more than three mil- House. Several congressmen are being in- lion people occupied the streets in sever- vestigated and prosecuted before the Su- al state capitals and major cities in peace- preme Court for bribery and money laun- ful demonstrations. It is true that these dering (and not because of their political demonstrations were also motivated by opinions). other causes, such as dissatisfaction with Several measures have been essential the state of the economy and with the for- to the success of Operação Lava Jato, in- mer government. But the Lava Jato oper- cluding: ation was a common cause that united demonstrators. The fight against corrup- · The creation of task forces by the po- tion has definitively entered Brazil’s pub- lice and federal prosecutors to concen- lic policy agenda and will influence polit- trate effort and resources on the investi- ical debates for years to come. gation and to prosecute serious bribery Hopefully, it will be possible to look back and money laundering crimes. some years from now and say that Lava Jato · The use of pretrial detentions only in made the national economy, the rule of law, cases in which there was strong evi- and democracy stronger in Brazil. Maybe dence of the crimes or in which deten- it will be possible to say systemic corrup-

166 Dædalus, the Journal of the American Academy of Arts & Sciences tion was overcome and that it became a sad like Criminal Case 470, represent a clear Sérgio memory from Brazil’s past. We cannot take break with a past of impunity and with tol- Fernando Moro this result for granted, but there is some erance for systemic corruption. hope. At the very least, the Lava Jato cases,

endnotes 1 Basic information about Operação Lava Jato is available at Ministerio Publico Federal, “Caso Lava Jato,” http://www.mpf.mp.br/para-o-cidadao/caso-lava-jato (accessed March 10, 2018). 2 I am a federal trial judge in Brazil working in a role analogous to that of a district federal judge in the United States. Criminal cases are normally tried and sentenced in Brazil by a trial judge sitting alone, while jury trials are only used in murder cases. Federal judges in Brazil also have other responsibilities, such as ordering pretrial detentions and authorizing investigative measures such as wiretaps or searches and seizures. My court in Curitiba is responsible for trying most of the Lava Jato cases. 3 hc 84.078, Supremo Tribunal Federal, February 5, 2009. All Brazilian Supreme Court decisions are available at Supremo Tribunal Federal, http://www.stf.jus.br. 4 The Brazilian Supreme Court received 56,257 new cases in 2017. These statistics are available at Supremo Tribunal Federal, “Movimento Processual,” http://portal.stf.jus.br/textos/verTexto .asp?servico=estatistica&pagina=movimentoProcessual. 5 Ação Penal 470, Supremo Tribunal Federal, December 17, 2012. The opinion for the Court was delivered by Justice Joaquim Barbosa. 6 It is important to note that there are pending appeals against several of these convictions that could overrule them. 7 The Mani Pulite operation also revealed systemic corruption in contracts of the public sector in Italy. For a description, see Alberto Vannucci, “The Controversial Legacy of Mani Pulite: A Critical Analysis of Italian Corruption and Anti-Corruption Policies,” Bulletin of Italian Politics 1 (2) (2009): 246. 8 Regarding the cost of the Abreu e Lima Refinery, see Raquel Landim, “Refinaria Abreu e Lima dará prejuízo de us$ 3,2 bi,” Folha de S. Paulo, December 18, 2015, http://www1.folha.uol.com.br/ poder/2015/01/1576627-refinaria-de-abreu-e-lima-dara-prejuizo-de-us-32-bi.shtml. 9 For example, the “Calcutta Operation” (Operação Calicute) was inspired by Lava Jato and result- ed in several criminal convictions against corrupt officials of the State of Rio de Janeiro. Some information about the Calcutta Operation is available at https://pt.wikipedia.org/wiki/Opera %C3%A7%C3%A3o_Calicute (in Portuguese, accessed March 20, 2018). 10 See Addiopizzo, http://www.addiopizzo.org. 11 Title 18, Section § 3142. 12 United States v. Salerno, U.S. 739, 107 (1987). 13 About ninety-seven pretrial detentions were ordered in Operação Lava Jato; however, most of them were later followed by criminal convictions. At the time of this writing, there were only six defendants in pretrial detention who had still not been tried. 14 Stephen S. Trott, “The Use of a Criminal as a Witness: A Special Problem,” Hastings Law Journal 47 (5/6) (1996). 15 hc 126.292, Supremo Tribunal Federal, February 17, 2016; and adcs 43 and 44, Supremo Tri- bunal Federal, tried on October 5, 2016. These judgments overruled hc 84.078, Supremo Tri- bunal Federal, tried on February 5, 2009.

147 (3) Summer 2018 167 Preventing 16 Unfortunately, in August 2017, information emerged that some justices were again consider- Systemic ing changing their votes about the rule. Corruption 17 in Brazil adi 4.650, Supremo Tribunal Federal, September 17, 2015. 18 President Theodore Roosevelt, in a speech before the U.S. Congress in 1903: “The exposure and punishment of public corruption is an honor to a nation, not a disgrace. The shame lies in toleration, not in correction. No city or state, still less the nation, can be injured by the enforcement of law.” Theodore Roosevelt, “Third Annual Message, December 7, 1903,” The American Presidency Project, http://www.presidency.ucsb.edu/ws/?pid=29544.

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