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Mossack Fonseca law firm sign is pictured in Panama City, April 4, 2016. Carlos Jasso/Reuters

Corruption Brief Series: How Anonymous Shell Companies Finance Insurgents, Criminals, and Dictators

by Shannon K. O'Neil September 13, 2017

The latest paper in the Corruption Brief series from the Civil Society, Markets, and Democracy program at the Council on Foreign Relations was published this month. In the brief, Dr. Jodi Vittori, senior policy advisor at Global Witness, addresses the myriad problems posed by anonymous shell companies – corporate entities with few or no employees and no substantive business, which offer a convenient way to privately move money through the international financial system.

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Guatemala

Lessons From Guatemala’s Commission Against Impunity

What other countries can learn from CICIG’s first decade.

Report by Matthew M. Taylor June 19, 2017 Civil Society, Markets, and Democracy Program

Asia

Fighting Bangladesh’s Sweatshops

In late December, tens of thousands of Bangladeshi garment workers went on strike, shutting down over fifty factories making fast-fashion clothes for international brands including Gap, H&M, and Zara…

Blog Post by Shannon K. O'Neil January 18, 2017 Development Channel

Global

A Conversation with Senator Ben Cardin: Anticorruption in U.S. Foreign Policy under the Trump Administration

Senator Ben Cardin discusses corruption's effect on economic and social inequalities, investment, development, and democratic institutions.

Event with Benjamin L. Cardin and Shannon K. O'Neil April 6, 2017

Americas

This Week in Markets and Democracy: Asian Trade Openness, Palm Oil Abuses, Global Magnitsky

Trade Rules Favor Asia, Not the United States Asia’s rise in the global trading system continues. Recent World Economic Forum data shows that the ten Association of Southeast Asian Nations (ASEAN) m…

Blog Post by Shannon K. O'Neil December 16, 2016 Development Channel

United States

Mexico’s Corrupt Governors

Last June, Mexico elected new governors in twelve of its thirty-one states. As millions of voters went to the urns, corruption was a top concern (along with insecurity). Eight states saw the incumben…

Blog Post by Shannon K. O'Neil October 11, 2016 Latin America’s Moment

Human Rights

Beyond Supply Chain Transparency Laws

Global trade and the supply chains that support it are undergoing a period of profound change. Supply chains face threats including a resurgence of protectionism, climate change, decaying infrastruct…

Blog Post by Guest Blogger for Shannon K. O'Neil September 22, 2016 Development Channel

International Organizations

Who Governs Global Value Chains?

Blog Post by Guest Blogger for Shannon K. O'Neil August 16, 2016 Development Channel

Americas

A Game of Inches: The Uncertain Fight Against Corruption in Latin America

Harvard’s inimitable Matthew Stephenson this week published a thought-provoking blog post comparing anticorruption efforts in Asia and Latin America. Crudely summarizing Stephenson’s argument, a few …

Blog Post by Matthew M. Taylor August 10, 2016 Development Channel

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Americas

This Week in Markets and Democracy: UK Anticorruption Summit

British Prime Minister David Cameron gathered government officials, civil society advocates, and business leaders in London for a one-day summit on corruption, a global “cancer” hindering economic development and growth. Forty countries signed a Global Declaration Against Corruption, promising to prevent, uncover, and punish corruption “wherever it exists.” Many countries followed up the lofty rhetoric with concrete commitments: twenty-one pledged stronger legislation for returning stolen assets, fourteen will open public contracts to scrutiny for the first time, and the UK and five other countries will jointly launch a new anticorruption center to help investigate and prosecute cross-border cases. Yet even with the Panama Papers as a backdrop, pledges to rein in shell companies and tax havens fell short, facing resistance from UK territories and the United States. In the lead up to the event, three hundred prominent economists issued a demand to end the use of tax havens, jurisdictions that legally enable financial secrecy. The biggest resistance came from British overseas territories, home to hundreds of thousands of shell companies; over 450,000 based in the British Virgin Islands alone. The territories snubbed Cameron on publicizing ownership, though the Cayman Islands, Bermuda, the Isle of Man, and others acquiesced to sharing their lists with British and other authorities. The summit made more progress on bringing greater transparency to real estate. Cameron announced the UK will create a public registry for all properties owned or purchased there, requiring companies to reveal the true or ‘beneficial’ owners. The move will affect the 100,000 properties in the UK—40,000 in London alone—owned by foreign-registered companies, making it less amenable to stashing ill-gotten gains. Afghanistan, France, Kenya, Nigeria, and the Netherlands promised to set up similar public registries of company owners, while six other countries are considering it. That is too few for transparency advocates, and one of the biggest enablers of corporate secrecy—the United States—declined entreaties to join.

Blog Post by Shannon K. O'Neil May 13, 2016 Development Channel

Americas

This Week in Markets and Democracy: Protectionism Rises, Mexico Anticorruption Bill Delayed, How Corruption Affects Business

Protectionism by the Numbers It is not just anti-trade rhetoric spreading on both sides of the Atlantic; it is also policies. The Global Trade Alert, an online index that monitors trade policy, reports a rapid rise in protectionist measures worldwide since 2008. The database documents over 5,000 new barriers to trade, including import quotas, stricter rules for migrant workers, and local content requirements. The United States leads this turn toward protectionism, creating more than eighty new rules in the last year alone. These measures are one of the main causes slowing global trade. Mexico’s Anticorruption Legislation Delayed As Mexico’s Congress ended its spring term, the bill to make the new National Anti-Corruption System a reality remains pending. President Enrique Peña Nieto’s Institutional Revolutionary Party (PRI) and Green Party together blocked passage of the Ley3de3 legislation that would better define corruption, give greater tools to those going after it, and require Mexican public officials to reveal their assets, tax returns, and potential conflicts of interest. Though garnering more than 630,000 public signatures, the parties both question its constitutionality and the outcome—suggesting that opening their accounts to scrutiny would spur a political “witch hunt.” Though Congress will likely return in July for an extraordinary session, some doubt the citizen-led initiative will survive. Corruption Limits Investment in the BRICs Corruption risks loom large in the BRIC countries, according to a Dow Jones survey of hundreds of multinationals. China and Russia—along with Iran—top the list of countries with the greatest compliance concerns; Brazil and India make the top twenty. The survey also finds the U.S. Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act strongly shape corporate behavior, affecting where they invest and with whom they partner. And most companies don’t mind these laws. Instead, they see benefits for their own reputations and for leveling the playing field vis-à-vis competitors.

Blog Post by Shannon K. O'Neil May 6, 2016 Development Channel

Emerging Markets

This Week in Markets and Democracy: Rana Plaza Anniversary, Press Freedom Declines, Haiti Election Troubles

Labor Standards Three Years After Rana Plaza Three years after Bangladesh’s Rana Plaza garment factory collapse killed or injured over 3,000 people, labor rights remain tenuous. In the wake of the disaster apparel brands, suppliers, and the Bangladeshi government created the Alliance for Bangladesh Worker Safety, a partnership to improve conditions by setting standards and increasing inspections. The Alliance has worked with factories to build emergency exits, install fire hydrants, and rewire electrical systems. It has also blacklisted the worst offenders. Yet it only encompasses those operating under formal contracts. Over half of the nation’s 7,000 factories work in the informal economy. Here, the Bangladeshi government doesn’t enforce Alliance standards, leaving these workers vulnerable. Attacks on the Press Undercut Democracy The world became more difficult and dangerous for journalists in 2015. In Turkey, President Recep Tayyip Erdoğan seized several newspapers and jailed journalists. In Egypt, the government criminalized reporting that contradicts its own information. In Mexico, dozens of cases of murdered reporters remained unsolved. Even in established democracies the press came under attack. In France the government gained new internet and phone surveillance powers, and in Poland the government expanded control over state-owned media. A new Freedom House report finds that only thirteen percent of the world’s population lives in nations with a “free press”—where journalists can report political news without violence, intimidation, or state meddling. This undermining of the fourth estate mirrors that of democracy more generally, which has declined for the tenth consecutive year according to Freedom House. Haiti’s Election Troubles Continue Haiti missed an April 24 deadline to hold its long-delayed presidential runoff election and current political infighting could push a vote off until October. The country’s newly-appointed Provisional Electoral Council (CEP) says it needs more time to verify last year’s first round vote. The United States and others in the international community strongly oppose the delays, citing no evidence of alleged fraud. Haiti’s electoral chaos leaves an interim government in charge as the country faces an El Niño-induced drought and food crisis—its worst in over a decade—affecting over one million Haitian citizens.

Blog Post by Shannon K. O'Neil April 29, 2016 Development Channel

Americas

This Week in Markets and Democracy: Honduras’ Anticorruption Fight, Freedom House Report, Conflict Minerals Setback

Honduras’ New Anticorruption Fighter Takes on the President Last summer allegations that Honduran officials stole more than $200 million dollars from the social security system led to widespread public protests and calls for President Juan Orlando Hernández’s resignation. The scandal spurred the creation of the Mission Against Corruption and Impunity in Honduras (MACCIH), an anticorruption body backed by the Organization of American States (OAS) and modeled after the International Commission Against Impunity in Guatemala (CICIG). Now active, MACCIH officials say they will investigate the case. Given MACCIH’s more limited prosecutorial autonomy and much smaller budget, many wonder if it can match the impressive results of its Guatemalan counterpart, which—working with the attorney general—brought down former president Otto Pérez Molina. Democracy Eroding in Central Europe and Eurasia Freedom House’s 2016 Nations in Transit report shows democratic backsliding across Central Europe, the Balkans, and Eurasia. Measuring twenty-nine post-Communist countries on electoral process, corruption, media freedom, and judicial independence, the region’s average “Democracy Score” fell for the twelfth year in a row. Hungary’s decline continued, owing to the xenophobic actions and rhetoric of Prime Minister Viktor Orbán and his nationalist Fidesz party in the wake of Europe’s refugee crisis. Eurasia’s petro states—Azerbaijan, Turkmenistan, and Uzbekistan—ranked the worst overall, their authoritarian regimes ratcheting up repression and further consolidating power as commodity prices plunged. Ukraine stood out as one of the few positives, with civil society, aided by European Union, U.S., and IMF involvement, pushing against deep-seated corruption. Setback for Monitoring Conflict Minerals in Supply Chains A Securities and Exchange Commission (SEC) decision throws one tool for monitoring human rights in technology and other supply chains into question. Dodd-Frank’s conflict minerals rule requires U.S. companies to disclose their use of tantalum, tungsten, tin, and gold linked to violence in the Democratic Republic of Congo (DRC). The clause pushed companies to know their practices and, if guilty, change them. In response, Intel will completely eliminate conflict minerals from its supply chain this year and Hewlett-Packard now maps all its metal suppliers—a first step toward detecting ill-gotten minerals. In 2014 a U.S. appeals court ruled that requiring a company to say whether products are conflict-mineral free violates corporate freedom of speech and forces it to “confess blood on its hands.” The SEC has chosen to revise the rule rather than challenge the decision, leaving a legal limbo that may weaken compliance.

Blog Post by Shannon K. O'Neil April 22, 2016 Development Channel

Americas

This Week in Markets and Democracy: Peru’s Elections, Corruption Arrests, and Panama Papers Response

Peru’s Presidential Candidates Head to Second Round On June 5, Keiko Fujimori, the daughter of former president Alberto Fujimori, will face former finance minister Pedro Pablo Kuczynski in Peru’s presidential runoff election. Questionable decisions by Peru’s electoral board in the first round—disqualifying two competitive candidates and dismissing charges of vote-buying against Fujimori and Kuczynski—boosted Fujimori and clouded the vote’s legitimacy. Now the question will be the anti-Fujimori vote and whether Kuczynski (not a natural campaigner) can consolidate her opposition—much as current president Ollanta Humala did when he beat her in 2011’s second round. Although Fujimori is popular among the rural poor, many remember the corruption and human rights abuses of her father’s presidency, and fear that she could follow in his footsteps. Corruption Arrests in Argentina and Brazil Argentine and Brazil corruption probes widened this week with new arrests in both countries. In Argentina, police detained Lázaro Báez, a wealthy businessman with close ties to former president Cristina Fernández de Kirchner, on charges of money laundering and embezzlement. Federal prosecutors now want to investigate Kirchner herself in the case. In Brazil, police arrested former Senator Gim Argello on evidence he accepted at least $1.5 million in bribes from two construction companies to shield their executives from facing congressional testimony. This recent round of Lava Jato raids come as Brazil’s lower house moves to impeach the president this weekend. Brazilian judges and attorneys promise the investigations will continue, whatever the outcome. Governments Respond to Panama Papers with New Laws In response to the Panama Papers, governments and international organizations are proposing new legislation to catch tax evasion, money laundering, and graft. The European Union (EU) wants to require multinationals to share tax data from their operations beyond Europe, in countries considered to be tax havens. Germany and France go further, proposing the creation of a global public registry for shell company ownership. They also call for cutting blacklisted countries off from the international banking system. Though the more ambitious efforts may falter, transparency and legal cooperation look to grow in the face of the leaks.

Blog Post by Shannon K. O'Neil April 15, 2016 Development Channel