Centre for the Study of Corruption

On 28 September 2015 the US Securities and Exchange Commission (SEC) issued a press release stating that the Japanese multinational conglomerate, Hitachi Ltd, had been charged with violating the Foreign Corrupt Practices Act (FCPA). Hitachi agreed to pay USD 19 million to settle the SEC charges which included the inaccurate recording of improper payments made to South Africa’s ruling political party, the African National Congress (ANC).

On the face of it Hitachi’s FCPA violation is nothing new; foreign company with poor internal controls pays politically-connected intermediary to secure contract. According to the SEC, Hitachi sold a 25% interest in its South African subsidiary to Chancellor House Holdings (Pty) Ltd., a company whose ultimate shareholding was held by the ANC. This allowed profits from power station contracts secured by Hitachi – using Chancellor House’s political influence – to be shared with the ANC backed company. Hitachi also paid a USD 1 million ‘success fee’ to Chancellor House which was inaccurately recorded in the company’s accounts as consulting fees. Despite the familiar pattern, both the nature and target of this SEC investigation indicates a changing regulatory focus.

The last ten years have seen a striking shift in tone from the US regulators who have adopted a more aggressive posture with respect to enforcing the provisions of the FCPA. The US authorities continue to target bribery offences committed outside the US through the use of more stringent investigative tactics and increased cooperation with other enforcement agents worldwide. The Hitachi case is illustrative of this new stance; often constrained by needing the relevant local governments to cooperate with them, on this occasion the SEC appears to have overcome the hurdle by enlisting the assistance of the African Development Bank’s Integrity and Anti-Corruption Department.

Moreover, this matter indicates the broadening sectorial scope of US regulatory interest. Previous FCPA enforcement actions have fallen within the oil and gas industry with the majority arising from West Africa; the Hitachi case is a first for South Africa and falls outside the extractive sector. Given that Japanese companies are increasingly involved across Africa, this change also represents heightened risks for their regional operations.

Growing Japanese FDI

Japan is one of world’s leading economies and whilst its progress into Africa has been slow, the country has made remarkable inroads in expanding its presence and influence. In 2014, the Japanese government promised USD 32 billion financial assistance to resource-rich African nations as part of its bid to cement relations with the continent. Japan recently signed a bilateral agreement with Mozambique – the first such agreement it has entered into with a sub-Saharan African country – and similar investment frameworks are in the process of being agreed with other African countries. These should all encourage more investment in the region.

This commitment to Africa is matched by Japanese companies. In September 2015, the African Development bank (AfDB) and the government of Japan agreed a USD 300m loan to support private sector business under a joint initiative named the Enhanced Private Sector Assistance (EPSA) for Africa. Several large trading entities, including Sumitomo and Sojitz, are active across the continent. Construction firms, such as Mitsubishi, Mitsui, and Hitachi, are also involved in various capacities in a number of infrastructure projects in Africa. According to Japan’s South African embassy, in 2013 the number of private Japanese companies in South Africa increased to 115. Direct investment from Japan has also increased in the country, and its cumulative total as of 2012 reportedly exceeded USD 26 million.

Notwithstanding the above, the popularity of Africa as a high-growth market is pushing Japanese companies into riskier investment terrains at a time when anti-corruption enforcement and awareness is at an all-time high. Hitachi is not the first Japanese company to face the wrath of the US anti-corruption regulators; Bridgestone, JGC Corporation and Sojitz have all been charged with FCPA violations in Latin America, Nigeria and Bahrain respectively. But as Japanese companies develop their new market strategies and pursue more opportunities in Africa, it is important that they are cognizant of the regulatory risks.

Establishing Proper Internal Controls

International anti-bribery legislation including the FCPA and UK Bribery Act (UKBA) require companies to make independent assessments of the ultimate shareholders and beneficiaries of their potential partners. Specifically, partnering with public or political figures and using their position in order to gain a commercial advantage is considered an offence under these laws. In many African countries, information that may identify both the political affiliations of immediate third parties and also the ultimate shareholders or beneficiaries of a company is not easily accessible. As such, Japanese companies should look to conduct comprehensive due diligence that goes beyond reviewing financial accounts and litigation files to include a less tangible narrative, which provides the story behind the public records.

Once a local partner is identified, it is important to ensure the necessary skills and expertise are in evidence, and that any fees paid are proportionate to the services rendered. Further to engagement, internal controls should ensure that all payments made to third parties are properly documented and regularly audited.

Although Japan is a member of the OECD, commentators note that its enforcement of domestic corruption laws is weak and there is no criminal liability for corporations under local laws. This is reflected in its position in Transparency International’s 2015 Exporting Corruption report; Japan ranked as having made ‘little or no enforcement’ in making bribery in foreign countries a crime for its companies and nationals. Whilst it may not be immediately obvious why the Hitachi case would fall foul of US regulations, it is important to be aware of the wide territorial reach of the FCPA, UKBA and other anticorruption legislation. Navigating the complex governance and regulatory environments is essential to international business and a particularly notable factor for Japanese firms establishing business in Africa.

Pamela Wadi

Author:

Pamela Wadi is a director of the Africa Global Risk and investigations Practice at FTI Consulting in London. Pamela also recently completed studying for an MA in Corruption and Governance at the University of Sussex.

Note

This article first appeared on http://www.fticonsulting-emea.com/en/insights/articles/navigating-japanese-african-business-environment

Of nuclear zombie blasters and party funding. Reflections on the anti-corruption discourse and party funding reform in Great Britain…

A couple of days ago there was a review on the Global Anti-Corruption Blog (GAB) investigating the recent work done by the Money, Politics and Transparency (MPT) research forum. MPT itself is an offshoot of the Electoral Integrity Project (EIP), headed up by Professor Pippa Norris – and currently hosting the University of Sussex’s very own Miguel Angel Lara Otaola as a visiting researcher. Above all else MPT looks to be an incredibly useful tool for those of us studying money in politics and it really is worth having a poke around the website, they have some fascinating case studies and a few datasets to have a play around with – if that’s your kind of thing.

Amongst all of this they also intend to release an edited volume of initial findings titled Checkbook Elections which contains chapter’s on party finance regimes of eleven different countries supplied by experts in each case (for example, the British chapter is written by Professor Justin Fisher, who – and this is an understatement – is somewhat of an authority on these matters). Prior to its release (sometime in 2016), MPT have released an executive report, a review of which was the main crux of the aforementioned review article on GAB. As the blog outlines the headline findings in the report are as follows:

1. The limited effects of legal regulations.  “[T]he comparative analysis was unable to establish that the degree of state regulation alone has any significant impact, positive or negative, on long-term societal and political outcomes, including the goals of strengthening political party competition, voter turnout, and anti-corruption.”
2. The most common reforms in recent years have sought to strengthen disclosure and public funding.
3. The effects of formal legal reforms are contingent upon enforcement, which in turn depends on regime type, state capacity, and societal cultures. “[L]egal regulations can only prove effective in states with enforcement capability. .  .  .  Even in countries that do have the capacity to enforce regulations, the political will to do so must also be present.”
4. Mixed policy strategies work best. “[A] balanced mix of regulatory policies to control political finance is probably the most effective strategy, ideally blending a combination of disclosure and transparency requirements, limits on spending and contributions, and public subsidies to political parties.”

The author of the blog, Rick Messick, bemoans that the findings represent ‘thin gruel for reformers hungry for guidance on what works’. Messick somewhat misses the point, however, party funding reform should be seen in very much the same light as we are increasingly seeing anti-corruption reform more generally. We should be wary of the one-size-fits-all panacea which will deliver corruption free party finance, just as we should be wary of one-size-fits-all approaches to anti-corruption. Or to paraphrase Dr. Heather Marquette (who put it rather delightfully if you ask me) in The Guardian this week: there is no nuclear zombie blaster that will eradicate corruption.

This means that to combat corruption in party finance there are a whole range of issues to contend with from ‘regime type [both party funding regime type and actual regime type], state society, and societal cultures’. Therefore, when asking for ‘guidance on what works’ the (sensible) answer is very likely to be ‘well it depends – can I hear a little more about your country specific circumstances?’ This encompasses a wider argument that I have made in numerous places, that state funding has for too long been seen, to those in the party finance reform community in Great Britain, as the nuclear zombie blaster. It is far more helpful to consider not whether a reformed party funding regime will be necessarily less corrupt – but whether it will simply allow for a different type of corruption to become prevalent.

The question of whether state funding is a necessarily less corrupt way of doing things, is something that I have looked at during the course of my research and the answer is (spoiler alert) no. However, there is also the question of whether the current system we have is actually that bad and/or as bad as people think it is? The answer to these questions are (spoiler alert) ‘we don’t really know’ and ‘probably not’. The ‘as bad as people think it is’ question is an important one, and comes up again and again in the transcripts of the public hearings the Committee on Standards in Public Life (CSPL) undertook (I’ve read them so you don’t have to) prior to compiling their 2011 report Ending the Big Donor Culture. The answer, more often than not, is something along the lines of: perception of corruption in party finance is so bad, that something should be done because [strong message here] this perception, whether or not it is true, is damaging democracy.

It is also a position that I see repeated in elite interviews during my own research. These hearings, and in many ways party finance reform itself, is a classic example of perception rather than reality guiding, and forming, the policy process. Indeed, to quote Professor Richard Wyn Jones, when appearing before the CSPL, ‘perceptions shape their own reality in politics’. It is of almost no importance whatsoever whether or not the current system is, or is not corrupt, the public think that it is – policy recommendations are being made on the basis that the public think it is – so it may as well be.

Secondly, and coming back to Rick Messick’s blog post (remember that?), this actually may not be all that effective in tackling perceptions of corruption. Messick notes that for him (and I’m inclined to agree) the most important finding in the MPT report is that ‘the level of state interventionism in the political finance arena is not a significant predictor of perceptions of corruption, voter turnout, or party competition’. So ultimately, changing the party funding regime is unlikely to alter perceptions of the party funding regime – or politicians – as corrupt.

So, is there any point in doing anything? Well, yes. For a multitude of reasons – not least because the current system is largely unsustainable in its present form (just ask any former party fundraiser) particularly, due to recent events, for Her Majesty’s Opposition. Further we can’t (and shouldn’t) expect a simple change in the party funding system to act as the cure for what is ultimately a larger, and more general, anti-political sentiment. The evidence from the world of party funding, ultimately, chimes with a growing realisation in the anti-corruption world articulated by Dr. Marquette earlier this week:

“Our childish, simplistic view of corruption has become, like a youngster’s fascination with zombies, simply a manifestation of our fears. A scary word, yet an essentially vague abstraction that speaks to more general worries about unfairness, impunity, abuse of power and waste of scarce public funds… The evidence seems to be telling us we must now start having [a] different, more grown-up conversation on corruption.”

Sam Power, University of Sussex

The summer break hasn’t meant that members of the Sussex Centre for the Study of Corruption (SCSC) have been twiddling their thumbs; far from it, as Dan Hough reports back on.

Corruption doesn’t take a summer break and neither does the SCSC. There’s been plenty going on. Firstly, Olli Hellmann convened the first annual conference of the Political Studies Association’s specialist group on Corruption and Political Misconduct (see here for the programme). The event took place on 27-28 August in the Freeman Centre on campus. Olli Hellmann himself presented a paper on why anti-corruption interventions fail, whilst Liz David-Barrett (together with Mihaly Fazekas from Cambridge) analysed the relationship between ‘safe seats’ and possible incidences of corruption in local government in the UK. Hellmann then combined forces with one of Sussex’s burgeoning cohort of PhD students, Lets Monyake, to give a paper on corruption and violence in Africa. Finally, Liljana Cvetanoska, another Sussex PhD student, also got in on the act, presenting her research on EU conditionality and anti-corruption in Macedonia.

The SCSC’s newest faculty member, Liz David-Barrett, has been active on a number of other fronts. She’s been responding to her well-received report on ‘Lifting the Lid on Lobbying’. She’s also been on the other side of the pond, analysing (alongside Paul Heywood) whether open government was more accountable government at the American Political Studies Association’s (APSA) annual jamboree in San Francisco. Liz, alongside Dan Hough and John Child, has also all been working with the Cabinet Office to help them think about where the UK is going in terms of its own anti-corruption infrastructure.

August 2015 saw Sussex’s third cohort of MA in Corruption and Governance students come to the end of their 12 month programme, but that didn’t stop some of them from taking part in a ‘Dragon’s Den’ style event with Nick Maxwell and other members of Transparency International UK on 4 September. The Sussex guys were encouraged to ‘pitch’ anti-corruption ideas and to explain what they would do if they had the ear of the UK Prime Minister. Sam Power made a strong case for pushing ahead with reform of how UK politics is financed, whilst Ben Halton made an equally impassioned plea for more work to be done on the UK’s ‘open data’ agenda. Matt Broderick argued that the EU’s transparency directive needed to be made to work in practice, and that encouraging states to do this could be in the UK government’s interests with regard to its own attempts to reform the EU, whilst David Ugolor, Sussex MA student recently appointed as advisor to the African Bar Association (AFBA), argued that the UK needed to improve its coordination efforts with other countries. The ‘dragons’ were listened on with interest.

SCSC members have also been publishing their work in academic and non-academic outlets alike. Liz David-Barrett (alongside Ken Okamura) published an article on norm diffusion and reputation in ‘Governance’, one of the leading journals in the field, whilst Dan Hough and Serena Verdenicci have had their work on citizens and anti-corruption accepted for publication in Crime Law and Social Change. A number of SCSC members have also been active in writing in, and speaking to, the media;

• In August Sam Power wrote for the Conversation on party funding and why we need to reform it
• In July Dan Hough wrote for the South China Morning Post on why FIFA was (is) proving so incapable of reforming itself. In July he also wrote in the Conversation on the Indian Premier League (IPL) and its corruption troubles and the Washington Post, again analysing FIFA’s problems. Dan also wrote a piece for the American Institute of Contemporary German Studies on Germany and its corruption challenges.
• In August Liz David-Barrett wrote a widely read piece for Democratic Audit on the effects of codes of conduct on parliamentary practice.
• Dan Hough also spent much of July talking to the media about FIFA. These included appearances on the BBC, CNBC and Good Morning Trinidad and Tobago!

September 2015 sees a fourth cohort of MA students join the 11 PhD students and half dozen staff members in the SCSC. Given that corruption hardly seems to be going out of fashion and given that the SCSC’s role in analysing it seems to be increasing in scope, another busy term undoubtedly lies on the horizon.

On 28 July David Cameron chose Singapore to go big on the UK government’s anti-corruption efforts.  The choice of Singapore will have been no coincidence; the late grandfather of modern Singapore, Lee Kuan Yew turned the city-state from a place where corruption was endemic to one where a strong, vibrant anti-corruption commission, the Corrupt Practices Investigation Bureau, helped transform the country develop in to a flourishing, economic success story.  When successful anti-corruption efforts are the talk of the town, the Singaporean experience normally makes more than just an honourable appearance.

Much of what Cameron said (see here) is commendable.  His government is indeed making progress, and the 2014 National Anti-Corruption Plan (see here) provides a good framework for tackling the myriad of issues that the UK still faces.  On the specifics there is also evidence that Cameron wants to move forward; the thorny issue of the beneficial ownership of companies, for example, has been – to the surprise of many – faced down, and the UK is doing a good job in placing itself in the international vanguard in this area.  The 2010 UK Bribery Act, to take another example, is a piece of legislation that has many honourable facets.  There is subsequently mounting evidence that the UK has moved on from assuming that corruption happened in far off places about which we knew little.

Cameron nonetheless needs to be careful that he doesn’t go overboard on the rhetoric.  Matthew Hancock, formerly the UK’s anti-corruption champion, was largely noticeable by his absence in UK domestic politics, whilst his successor, Sir Eric Pickles, doesn’t possess a cabinet rank post.  In and of itself that need not be a major problem.  The head of the UK’s anti-corruption drive needs to be someone who has the character and dynamism to drive the agenda forward; Pickles, as even his detractors are likely to admit, has that.  But, as Robert Barrington, Head of Transparency International in the UK, perceptively noted back in May, Pickles, as then Secretary of State at the Department of Communities and local government, was strong at taking on alleged corruption in the problematic London borough of Tower Hamlets but much less impressive when he led the way in abolishing the audit commission – a body that had a clear and unambiguous role in revealing financial malpractice.  The fact that nothing of note replaced it was even more worrying.

It would be easy to get too caught up in the personality politics of Westminster.  But if the UK is going to carry on the good work that this regime has started and, even more importantly, if the UK’s anti-corruption plan is going to be something that has a long-term impact, then individuals need to be empowered to complete the tasks set out in the plan.  Someone needs to have ownership of it and to stand up and be accountable for implementing it. As things stand, this isn’t the case.

Unless this happens, we will continue to see grand speeches the type of which Cameron delivered in Singapore but frustratingly little in substantive terms. Unless someone specific is tasked with putting each of the plan’s aims in to practice then the successes that Cameron rightly flags will remain beacons in an otherwise choppy sea. Tackling corruption requires both strategy and stickability. The UK may well have a case for saying that it could have both – but someone needs to be tasked with illustrating that that’s the case in practice.

Dan Hough

Put on your cape and pull up you tights because now we can ALL be integrity warriors! Well, that seems to be the newest, en vogue idea in the world of anti-corruption at least…

Citizen engagement is an understandably popular idea. The promise of repurposing the very victims of corruption as monitors, watchdogs, data gatherers and activists evokes a powerful sense of social justice, indeed the very reason that many of us care about the corruption problem in the first place. It is a sad reality then that in practice these strategies often yield decidedly disappointing results, leading us to a difficult proposition. That perhaps it’s time to put aside the convenient morally absolutist rhetoric and break bread with the ‘enemy’.

The term “Citizen Engagement” covers a variety of strategies from the technology driven Ipaidabribe.com to the comic stunts of Dejemos de Hacernos Pendejos (Quit Being an Ass) and beyond. It is this variance that highlights one of the major strengths of the idea that just as corruption can manifest in a variety of ways so too can citizens be engaged as an appropriate reflex. However those schemes that fail to make use of the specific cultural and political landscape where they operate often achieve nothing more than “awareness raising”, an important capacity to be sure, but one seemingly ascribed to even the most disappointing of citizen engagement strategies, like the medal for ‘participation’ awarded to those of us less physically inclined for bothering to show up to our school sports day.

If we look at the work of Shayfeen.com in their “We See You…” campaign to monitor the 2005 parliamentary election in Egypt, we can see some truly inspiring innovations. Tactics included clever branding of their logo and training their members and volunteers in the use of video technology that allowed them to purportedly record thousands of incidences of corruption leading to the implication of 18 judges in electoral fraud. However despite protests and activism these judges were protected by the Mubarak regime. Again in the case of Kenya’s MUHURI (Muslims for Human Rights) which intended to conduct a social audit into the mismanagement of community development funds. Results of the scheme were limited as Kenya lacked any right to information legislation and so as one might expect obtaining the relevant documents proved difficult with the scheme relying on the voluntary participation of elected officials. Interestingly though, those elected officials who complied with the scheme were able to parley their involvement into an anti-corruption platform for future elections.

Getting citizens to engage their own collective power against corruption is relatively straightforward. Citizens are vulnerable to both the day to day negative effects of petty corruption as well the infrastructural damage caused by grand corruption and so in many ways they have the most to gain from its eradication. However enlisting the necessary cooperation from the beneficiaries of corruption will likely be more challenging. After all “turkeys don’t vote for Christmas” but maybe they’d vote for snow, indoor trees and the Dr Who Christmas special. Our turkeys have even proven their fondness for ‘gifts’. So the true challenge would appear to be designing adequate ways to incentivise officials and make use of their power and influence rather than treating them as yet another obstacle. Schemes such as the South Korean social movement CAGE (Citizens Alliance for the General Election) who produced a non-partisan blacklist of corrupt politicians designed to influence voters in upcoming elections. Whilst this scheme would appear to fit into that familiar ‘us and them’ way of thinking it has an indirect and ulterior function of promoting those ‘clean’ politicians waiting to take office. Similarly Dosta! (Enough!) in Bosnia-Herzegovina deliberately targeted the then Prime Minister Nedžad Branković in order to make an example of a prominent public figure. Again on the surface this would appear to bring the group into conflict with office holders but Branković was strategically selected by Dosta! due to his waning popularity within his own party. The ousting of Branković could then be seen as a shared goal of Dosta! and his detractors in the Party of Democratic Action.

However just as the fear of reprisal represents a major hurdle in the engagement of citizens so to might we expect public officials to be perturbed by potential retaliation. The power of public officials and institutions should not be overestimated as they operate within the same restrictive political and cultural boundaries as citizen groups. For example, Shayfeen.com’s election monitoring mentioned above lead the group to engage with two judges that attempted to bring criminal prosecutions against those involved with the alleged rigging. In retaliation these judges were themselves investigated and had charges brought against them.

Seeking the engagement of public officials will undoubtedly seem heinous to many anti-corruption champions. It will be a difficult task both practically and morally to unite citizens with public officials, many of whom may be engaged in their own corrupt activities. Choosing the lesser of evils may not be a decision that many want to make but it may be important if citizen engagement is ever to live up to its potential and not prove as inadequate as the lumbering one-size-fits-all approaches that once dominated anti-corruption policy.

Bob Ferrie

University of Sussex

The case of Ashley Mote (see here), the former MEP who has been sentenced to five years in prison for fiddling over £400,000 out of the European Parliament, brings, once again, the issue of parliamentary expenses to the forefront of public debate. To be fair to most of the MPs involved in the 2008/09 debacle, Mote’s case is on a different level to some of the indiscretions committed back then. Mote has been convicted of deception, false accounting, concealing criminal property and theft – that’s a fair bit heavier than quite legally using a system to, for example, claim £3,371 for a new set of furniture (Nick Ainger, Labour) or £980 for bookshelves (Peter Bottomley, Conservative – see here for a full list of who claimed for what in 2008/09). Moat, it would appear, is in a small but quite distinct league of criminals who don’t just bend the rules to suit their own interests, but choose to flagrantly flout them; the famous five MPs who went to prison on account of expenses’ claimed (David Chaytor, Jim Devine, Eric Illsley, Denis MacShane and Elliot Morley) can, with the addition of Moat, now become known as the the Sleazy Six.

Moat’s case is not, however, a particularly useful one in helping anti-corruption scholars work out ways to move the debate on what could, should and should not be claimed on expenses forward. He’s clearly broken the rules, he’s been caught and he’s going to pay for it. But working out what is and isn’t appropriate in terms of expenses claims is still not as easy as many people think it should be. At the beginning of 2014, for example, the Daily Mail (see here) ran a story expressing nothing short of outrage at the pettiness of claiming 30p for a jam doughnut (Rosie Cooper, Labour – for the record, I’d very much like to know where these 30p doughnuts are available, as that is an excellent price), 4p for travel (Tristam Hunt, Labour), 7p for a paper clip (David Cameron, Conservative), 49p for a door mat (John Barrett, Lib Dem – are MPs now shopping at Poundland? That’s a super deal) and 19p for Blu-Tac (Pat McFadden, Labour).  The downright insignificance of some of these claims to one side, the Mail was also enraged as they (the MPs) simply “don’t seem to get it”.  What precisely they don’t “seem to get” remained tantalisingly unclear, as no effort whatsoever was put in to outlining what the perfect expenses regime would look like.  That, it seems, is not the Daily Mail’s job.  It’s much more straightforward to point out some of the quirks within the system, some of the grey areas and some of the more bizarre claims.  Ideas on how to put this right?  No suggestions forthcoming.

It is easy to see both why voters will be annoyed at seeing MPs claim money back on the most trivial of things and why the Mail (amongst others) refused to outline how we might move this debate forward.  The ‘new’ post-2009 expenses regime, headed by the Independent Parliamentary Standards Authority, is undoubtedly tighter and better regulated than the system that came before it, but making value judgments on what is and what is not an acceptable expense is actually very difficult.  MPs have long grumbled that IPSA is a bureaucratic nightmare, although few have dared say that in public.  IPSA’s challenge is to create a system that can be consistent, fair and flexible.  MPs have different needs (i.e. if your constituency is Newcastle upon Tyne Central then you should surely be entitled to claim more in travel costs than if you represent, for example, London-based Twickenham) and they face different challenges in their daily work patterns; the expenses system needs to reflect this and needs to be quick enough on its feet to recognise the difference between legitimate and illegitimate claims.   If anyone reading this blog thinks they have the answer, then IPSA will no doubt be very keen to hear from you.

Dan Hough