Regime change and the rule of law: Serbia’s lessons to Montenegro

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Montenegro’s new government was voted in on 4 December, heralding regime change after almost three decades (although former prime minister Milo Đukanović remains president). Tena Prelec, Research Fellow at the Department of Politics and International Relations at the University of Oxford (and former CSC PhD Researcher), analyses the corruption-related challenges facing the new cabinet.

In autumn 2000, as a man on an excavator became the symbol of the revolt set to dig out the roots of Slobodan Milošević’s authoritarian regime, the ruling elite in Montenegro was just about to enter a new phase of consolidation. Then Montenegrin President Milo Đukanović had recently performed another of his multiple chameleon-like transformations. From Sloba’s ally and long-standing supporter of Yugoslav unity, Milo was about to set the course of a new era for his country: its independence. In doing so, he assumed the mantle of the champion of the Montenegrin nation, garnering support from both Western and Eastern allies.

Twenty years on, the chameleonic good fortune of Milo Đukanović seems to have run its course. An unlikely coalition of opponents, ranging from Serbian nationalists (backed by the powerful bishop Amfilohije, head of the Serbian Orthodox Church in Montenegro, who won this battle but later lost the one with Covid-19) to green civic parties, and passing through a range of inbetween options, defeated Đukanović’s Democratic Party of Socialists (DPS) without resorting to blood-soaked revolutions. To the surprise of many (yours truly included), on 30 August 2020 democratic change in state-captured Montenegro took place through the ballot box. And a little more than three months later, on 4 December, the Montenegrin parliament approved its first ever DPS-less government.

The change of a corrupt government is, of course, no guarantee that a new era of transparency and fuller democracy is to follow. The rise to power of Silvio Berlusconi in Italy (following the Tangentopoli scandal, which seemed to have wiped out the entrenched corruption of Italy’s ‘First Republic’) and that of Jair Bolsonaro in Brasil (after the Car Wash trials, hailed by some as a positive example of judicial activism) are but two recent examples. On the other hand, there are examples of countries where a ‘clean sheet’ did work out: Estonia is one of them.

This Baltic charm, alas, did not quite work in Serbia. The legacy of the two decades since 5 October 2000 is notoriously contested. During my PhD fieldwork, which sought to explain the morphing corruption practices in the energy sector in the post-Yugoslav space from the 1980s to the 2010s, I came across many examples of such disillusion with the new Serbian elite. I was particularly struck by the testimony of a former anti-Milošević activist, who said:

“People were expecting that Serbia would change, they were expecting democratic changes, and did not get anything in return. Their hopes were crushed. I was on the streets with OTPOR. But when you see that everything is done in the same way, that the party officers from the new government are getting hold of petrol when they want, that they are trafficking, that everything is done in the same way as it was done before… this leads to devastation.”

Turns out, manning an excavator in front of the parliament is not enough to uproot the dirt within it. The Serbia of 2000 and the Montenegro of 2020 differ in many respects, not only because of the time distance: while Milošević was soon handed over to the International Criminal Tribunal for the former Yugoslavia, Đukanović still wields considerable power as the President of Montenegro. However, parallels among the two ‘novel’ coalitions run aplenty. Similarly to the political forces about to take power in Montenegro, the Democratic Opposition of Serbia (DOS) was a broad church of progressive and conservative (some of them: nationalist) forces, united by the common aim to bring down a strongman. With time, their differences started to matter more, while corruption scandals engulfed the credibility of key members of the coalition.

If the 4 December experiment is to work, or for it to be a constructive interludium while conditions for fuller democratic pluralism are being built, it is essential that Montenegrins take note from their neighbours. There are several lessons that those interested in real change in Montenegro should heed – starting from the below.

  1. Anti-corruption: set the expectations straight…

A country whose state capture has been perfected over the course of three decades can’t be free of it immediately. Rather than overpromising and underdelivering, the new coalition would be better advised to underpromise and overdeliver. Easier said than done, for sure: but the message that a wholesome change in tack in a short time is an almost impossible feat needs to be articulated very clearly. Setting clear and achievable goals should be a priority.

2. …but practice what you preach.

But even more than on the form, it is imperative that the new coalition delivers on the substance: the promised change of tone needs to be underpinned by setting the right example. In this sense, an experience at the local level in the administration of the coastal city of Budva is a cautionary tale. Local elections in Budva in 2016 returned a result that allowed a change of power from the  DPS to a composite majority in the city council, similar in composition to the one now taking power at the national level. From a governance perspective, that experience developed in an alarming way: Democratic Front (DF) politician Marko Carević (who assumed the office of mayor of Budva in 2018) personally profited from public procurement to the tune of €1.9 million. Replicated at national level, this road would lead to secure ruin, as it would prove, in the eyes of the public, that ‘all politicians are the same’ – as summed up in the words of the Serbian activist quoted above.

3. Take particular care to free captured institutions…

A change of blood among the people running the State’s institutions will be crucial for reformatting the country. The new team of ministers was announced as an ‘expert government’: let that statement of purpose not be mere window-dressing, but truly set the tone. The guiding principles of the professionalisation of the institutions, the rationalisation of spending, and the drastic curbing of clientelism should be followed through. Promptly depoliticising key institutions such as the Anti-Corruption Agency would give a strong signal.

4. …but strive towards creating a ‘consensual elite’.

Perhaps counterintuitively, however, the new political leaders must not fall in the trap of purging the state apparatus of any sign of the previous guard: installing the same obedient type of civil servants will do Montenegrin democracy no good. In Serbia, the decision to substitute all the people in charge at state-owned companies created, in certain cases, a gaping hole and “catastrophic lack of professionalism”, as a Serbian energy expert characterised the change of the guard at the electricity utility, EPS, in the early 2000s, which exposed it to even greater rent-seeking practices. An important signal of the changing tide would be to keep in charge figures who stood out for their high-quality work, regardless of their political affiliation.

This course of action has good grounding in theory. Elite circulation (incorporating some elements of the old while allowing space for the new) is said to be characteristic of a consensual elite, which is present in a consolidated democracy. Elite reproduction, which stifles the emergence of new cadres, produces fragmented elites, and is usually present in unconsolidated democracies. The elite development model of replacement or quasi-replacement is, in fact, most characteristic of totalitarian or authoritarian regimes. It follows that the first road should be the one to strive for: a model in which “there is high certainty about the rules and about the practices that flow from them, but low certainty about the political outcomes, with today’s winners likely to become tomorrow’s losers” (Higley and Lengyel).

5. Embrace a global anti-corruption push and set an example for the region

Montenegro is infamous for being a captured state. From the cigarette smuggling with the Italian crime families Camorra and Santa Corona Unita in the 1990s (and later), to Daphne Caruana Galizia’s murder in recent years, the country’s involvement in global dynamics of organised crime and corruption has resonated far wider than its own borders – not unlike Serbia’s embargo-busting experience. There are concrete legislative steps the government can take that would place Montenegro at the forefront of global anti-corruption and anti-money laundering discussions. From the setting up of a thorough register of beneficial owners, to setting stricter rules for its sprawling high-end real estate industry (a boon for money launderers), to implementing a Global Magnitsky-style law that would take into account grand corruption as well as human rights abuses, there are ways for the government to show that they are serious about tackling these grave problems head on and potentially turn Montenegro’s bad reputation on its head. While some of these discussions are contained in the EU negotiation talks, Montenegro going the extra mile in this field would be truly significant.

These are but a start…

…as there are, obviously, a great number of challenges that stand in front of the new government. Building a truly inclusive Montenegro – and thus rebuking the insistent criticism according to which Serbian nationalism and Russian influence are those that stand behind the overthrow of the supposedly ‘civically minded’ DPS – is an important one. There is a long way to go in this sense: the recent statements by DF MP Jovan Vučurović denying the Srebrenica genocide are absolutely unacceptable and should be condemned as such. Making good on the promise of keeping Montenegro firmly on a pro-EU and pro-NATO track is another crucial, and related, tenet. Implementing a strong economic programme that delivers growth while ensuring that it balances off inequalities, rather than deepening the divide, is of course key.

But if Montenegro’s new government manages to deliver on the all-important issue of the rule of law, the next one will be better placed to take on these, and other, topics. All the dirt will not be eradicated at once, but it is time for some serious elbow grease. 

This text has been prepared within the project “Strengthening the Rule of Law in the Western Balkans: Old Tools for New Rules” implemented by Politikon Network, in cooperation with Centre for Contemporary Politics, and with the support of the Embassy of the Kingdom of the Netherlands. This blog was originally published by Politikon Network.

Posted in Governance, Politics, Regions

To fix procurement, the UK has to open it up

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Following a recent National Audit Office report that revealed major weaknesses in governance and transparency for the UK government’s covid-19 procurement, Gavin Hayman, Executive Director of the Open Contracting Partnership and Liz David-Barrett, Director of the Centre for the Study of Corruption, University of Sussex call on the government to learn from other countries and open up government contracting.

The normally sleepy, paper-shuffling world of public procurement has been on the frontline of the global response to the Covid pandemic. The UK media has been awash with hair-raising stories of multi-million pound government contracts awarded to mysterious brokers and tiny, unheard-of companies promising a secret stash of supplies. The profits from one entrepreneur who simply flipped his contract over to somebody else could have paid the bill for extending school meals to poorer children during the holidays. 

The recent National Audit Office report confirmed the lack of basic standards of transparency and documentation, with some contracts even awarded retrospectively. 

We both work around the world helping governments do procurement better. We’ve seen the impact that procurement can have to improve public service delivery and to encourage competition and innovation. We also know how to protect the process from corruption and clientelism, to which it is vulnerable everywhere. 

It’s upsetting to see our own country fall short in its hour of need. Fortunately, what we have seen work elsewhere can help the UK fix things too. Here is our top advice:

1) Close the special channel and return to open competition

One of the oddest features of the UK response was that a special high-priority channel for major awards was set up for companies recommended by certain gatekeepers, including ministers, MPs and peers, as well as health officials. Companies going through that channel were ten times more likely to get a contract. 

In a process where open competition is vital to obtaining quality and value for money, the government seems to have institutionalised favouritism. There is no evidence that politicians anywhere are particularly well placed to decide who has stocks of PPE and who doesn’t. Normally, close connections to a politician are cause for more scrutiny of a contract, not less. So let’s close the channel.

Several months into the pandemic, we need to ask if emergency procedures are still necessary. Needs are no longer unforeseen. We now can plan ahead for the distribution of the vaccine.

Some countries have managed to procure PPE whilst maintaining due process. In Sweden, Slovakia, Estonia and Latvia the amount of contracts awarded using open competition actually went up during the pandemic. 

2) Full investigation and accountability of any underperformance

In its response to the National Audit Office, the government said the failure rate on PPE is currently 0.5%. On a spend of around GBP15 billion, that could still be some GBP75 million. Moreover, the stories of cronyism risk deterring good suppliers with higher-quality products and more competitive prices who do not have connections.

Any suspicion of fraud and profiteering needs to be investigated and any conflicts of interest disclosed and investigated. The government should now convene a ‘star chamber’, staffed with a legal power team to make sure that all the millions disbursed early for contracts that promised vital supplies actually delivered in full.

Six months into the pandemic, the Lithuanian public procurement service published a full review of their efforts, where the gaps were and how to fix them. Let’s see a similar focus on learning and performance in the UK. Because of the scale of public procurement, even small process improvements can lead to huge savings.

3) Improve transparency and open up the data

It is startling that some emergency contracts have still not been published after 100 days. The UK procurement rules mandate publication after 30 days. Despite the contracts being concluded in a hurry under emergency provisions, it’s taken three times longer to make them public. Why?

To cope with the supply shock from the pandemic, nothing can be more important than having reliable and timely information about who buys what, at what price, and from whom.  Some of the other countries where we work require COVID emergency contracts to be published within 24 hours. All the information therein is shared on a public dashboard, thereby helping to connect buyers and suppliers. Open data from those contracts allows analytics to track prices, risks, costs and to flag anomalies. You can even get that information beamed to your phone.  If Ukraine or Colombia can do this, why can’t the UK?

4) Put someone in charge

Part of the challenge for the UK has been that the whole system of awarding public contracts is devolved, fragmented and siloed. Other than publication of major awards on the EU framework, the UK rules are a patchwork of different legislation and policies with no consistent oversight. Everybody has their own system – the NHS, central government, cities, counties, Wales, England, Scotland and Northern Ireland. There is little coordination. Vital data are lost between them.  

Other countries, with clearer governance and oversight, were able to create a single unified emergency framework process for Covid procurement, connecting buyers to suppliers under one set of simplified rules, and ‘call down’ contracts from there. Still others had pre-vetted emergency frameworks in place to cope with surging demand during disasters or avoided opaque direct awards by simply hacking down their processes and running fast competitions. This may not be the last pandemic alas, so let’s prepare for the future. 

Leaving the EU means a fresh start for the UK procurement landscape. 

We need to rethink procurement as a smart digital service, tracking public contracts from end-to-end with open data and using analytics to track performance. Everyone should be able to follow the money. 

Procurement is the single largest area of public spending in the UK, over GBP284 billion every year. That is over one in every three pound of our taxes. Making it better is vital for economic recovery. Local and national budgets will be stretched as never before. Openness, accessibility and better information all help improve competition and inclusion in procurement, saving time and money and improving services. Simple, clear procurement processes and contracts will be vital to spending limited resources wisely and to rebuilding the devastated small business sector. Our health, safety and national security require this money to be spent wisely.

So no excuses Britain: let’s open up the black box of government procurement and make it faster, fairer and smarter in future.

Posted in Governance

We need to tackle conflicts of interest in UK local government planning

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With the UK facing a shortage of housing and the government intending to overhaul the planning process, CSC Director Liz David-Barrett considers what corruption risks affect local government planning decisions.

In 2013, I researched and wrote a report for Transparency International UK on corruption in local government. The research identified three areas which were most prone to risk: one was applications for planning permission, another social housing, and the third public procurement. In these areas, we found that conditions were conducive to corruption: there were low levels of transparency, poor external scrutiny, evidence of local cronyist networks, and outsourcing of public services was undermining public accountability, not least because it put large sections of public service delivery beyond the reach of Freedom of Information requests.

The report also warned that the risks of corruption were mounting, because: the austerity drive had forced councils to curb ‘back office’ functions like audit; central government had abolished the Audit Commission, an independent auditor that not only audited individual councils but also played a broader oversight role in identifying emerging systemic risks; and, as part of a ‘localism’ agenda, the government had withdrawn a national code of conduct, leaving it up to local councils to write their own if they wished, with no requirement for councils to have a standards committee or indeed a register for declaring gifts and hospitality. On top of all this, the report noted a reluctance or lack of resource to investigate alleged wrongdoing, and often a denial that corruption was an issue at all.

Seven years on, a new report from TI-UK focusing on planning permission, Permission Accomplished, provides clear evidence of how, in the absence of action, these risks have crystallised – in some cases, into alleged misconduct that is under investigation by law enforcement. Conflicts of interest, excessive gifts and hospitality, secret lobbying and weak oversight have become commonplace. In a review of 50 councils, TI-UK found 32 councillors (across 24 councils) holding critical decision-making positions in their local planning system whilst simultaneously working for developers.

The report shows clearly how corruption risks intersect with and contribute to the UK’s chronic shortage of affordable housing. With the government having recently launched a White Paper on planning reform, it is a good time to take stock of these risks and to ensure that they are mitigated in any new system.

Corruption risks arise because councils have significant discretionary power over many aspects of planning decisions that property developers want to influence. And some property developers seek to improperly influence those decisions – whether by using their connections to lean on decision makers, offering jobs to councillors (during or after they leave office), or by wining and dining them into a position where they feel obliged to abuse their office to help.

One key decision that property developers might seek to influence relates to the categorisation of land, ie to decide whether it can be used for industrial building or housing or should be kept as green belt. ‘Change of use’ decisions can have huge implications for the value of that land to developers.

Another risk relates to ‘Section 106’ commitments, where developers promise to provide necessary infrastructure to the local community. For example, if they are building a big new housing estate, they might promise to build new roads or other facilities to avoid burdening existing infrastructure. But councils are often lax about enforcing these rules and often fail to report them to the Land Registry, making it difficult for the public to hold them – or the developers – to account.

Councils also have some discretion over whether to implement targets that developers build a certain amount of affordable housing. This issue came to the light in the case of Westminster councillor Robert Davis, chairman of the planning committee, who was found to have received gifts and hospitality from property developers at a rate of about once a week over several years. While improper influence was not proven, the council dramatically undershot its target for 35% of new homes to be ‘affordable housing’, with only 12% of new homes built in 2013-16 qualifying.

The timing of decisions can also matter to developers. This became evident in a scandal that broke this summer, although it was a central government minister, not local government officials, who faced allegations of improper influence. UK Housing Secretary Robert Jenrick’s decision to override the local council and his own ministry officials to fast-track the Westferry development – and thereby allow the developer, a Conservative Party donor, to avoid a £45 million council levy – was found to be unlawful.

The Jenrick case showed that central government can intervene in planning decisions with relative ease, by ‘recovering’ decisions that have been made by local authorities. Open Democracy found that Jenrick has recovered about 20 such decisions since becoming housing secretary in July 2019, and the Westferry affair is not the only one tarnished by conflicts of interest. The same team found that property tycoons and construction companies have donated more than £11m to Conservatives since Johnson took office.

Tackling conflicts of interest in local government is not straightforward. Councillors take on the role as a part-time post and earn a tiny amount for their trouble. They cannot be banned from taking second jobs. And yet if second jobs are permitted, this bakes in to their role an inevitable risk of conflicts occurring.

As I have written elsewhere, our regulatory tools for dealing with conflicts of interest are out of date. Relying wholly on self-regulation is risky given what we know about how difficult it is for individuals to screen out biases, and asking individuals to recuse themselves from relevant decisions raises major questions about what is regarded as relevant. Banning individuals from having other interests risks the unintended consequence of deterring good people from entering public office. Transparency about interests and the minutes of meetings are important minimum requirements but they only translate into accountability if accompanied by adequate audit structures and bodies that conduct investigations and sanction accordingly. But starting a conversation with councillors about what is acceptable and feasible would be a good step.

Posted in Governance, Politics

The UK needs to get serious about debarring corrupt companies from public procurement

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Currently there are few consequences for companies that subvert public procurement through corruption and fraud. And with government departments often highly dependent on a few large strategic suppliers, there are real risks of moral hazard, where suppliers behave badly because they know the government won’t act. But with the UK reforming its procurement rules post-Brexit, Sue Hawley, Executive Director of Spotlight on Corruption argues that this presents a great opportunity to introduce an effective debarment regime.

Public procurement is widely recognised everywhere in the world as high risk for corruption and fraud. The UK is no exception. The UK loses up to £22.6 billion at central government level to “fraud and error” annually, with procurement fraud the dominant type of fraud detected, and up to £2.7 billion at local government according to recent government estimates.

Losses from procurement fraud are not confined to the public sector. In 2019, analytics company SAS described the UK as a ‘procurement fraud capital’ after finding that 40% of UK businesses had lost between €150-400,000 a year to fraud compared with an average of 16% for the rest of Europe, Middle East and Africa (EMEA). Alarmingly, the same report found that only 29% of UK businesses held regular audits to detect fraud compared with an average of 46% across EMEA.

Why does it matter?

Corruption and fraud in public procurement not only increase costs for government which are ultimately born by the taxpayer, they also undermine confidence in, and pose real reputational risks for government. Unregulated conflicts of interest in procurement likewise increase perceptions of corruption and destroy trust in decision-making around public expenditure.

One of the problems with tackling corruption and fraud in public procurement is the dangerous lack of consequences for those, particularly companies, that engage in it. This problem can be exacerbated where the government departments are highly dependent upon a few large strategic suppliers – a phenomenon that the current UK Prime Minister’s chief advisor has characterised as corporate looting. In this context, these suppliers become too big to fail or to hold to account. This creates real risks of moral hazard, where suppliers behave badly because they know there is nothing the government can do about it.

Having a regime to incentivise and reward ethical behaviour in public contracting, and to penalise those who undermine fair procurement processes, is essential to protect the public purse, create a level playing field and build confidence in the public procurement system. This is where debarment (also known as exclusion) from public procurement comes in.

Debarment is increasingly recognised globally as an effective tool to protect the integrity of public contracting and prevent corruption and fraud.

New rules post Brexit

Up to now the UK’s procurement regime has been based on EU rules which have allowed for companies to be excluded from procurement where they’ve faced a conviction for corruption, fraud and money laundering. These rules have rarely been used in the EU, and to our knowledge, never in the UK (though lack of procurement data on this make it almost impossible to find out).

This is in part because of serious limitations with the EU rules themselves, and recent EU case law interpreting them which makes them hard for public authorities to use.

As the UK leaves the EU and reformulates its procurement rules, it has a real opportunity to revisit these rules and introduce an effective debarment regime. We’ve identified seven key components to an effective debarment regime in our new paper for the Centre for the Study of Corruption, which we believe the UK government should consider in rewriting its procurement rules.

These include:

  • Establishing clear policy goals for the regime, including ensuring the regime supports the government’s objectives on tackling economic crime
  • Requiring effective internal controls from companies as a condition of contracting
  • Ensuring that contractors can be suspended or debarred where there is sufficient evidence of corruption and fraud, not just where they have been convicted, subject to due process safeguards  
  • Centralising decision-making and guidance to ensure consistency and ensuring that properly trained officials, of senior rank, are empowered to take debarment decisions
  • Creating a central database of qualification and performance information on contractors, including companies excluded
  • Enhancing detection by establishing a procurement-specific anonymous reporting tool for whistle-blowers and competitors
  • Using complementary tools to encourage compliance such as administrative agreements and independent monitors appointed by government bodies where misconduct has occurred.

Several of these recommendations have also been put forward in a recent excellent paper by Professor Sue Arrowsmith, one of the country’s leading procurement experts. Arrowsmith argues that a properly resourced and centralised approach to exclusion is essential to make it work and that exclusion should not be limited to situations where a formal judgement against a company has been made.

Free trade – creating the ground rules for debarment

As the UK seeks Free Trade Agreements (FTAs) around the world, access to the UK’s £284 billion a year public procurement market will be one of the carrots dangled in negotiations. Understanding who will gain access to UK public contracts from countries with whom FTAs have been concluded, and their track record on corruption and fraud, will be essential to protecting the integrity of UK public procurement.

Yet a recent trial by government found that it was very hard currently for procurement officials to find out information about whether a company tendering for a contract has been convicted abroad. At the moment, they are entirely reliant on self-declarations to ascertain that information.

That makes it essential that the UK ensures that there are strong debarment provisions in the Free Trade Agreements it negotiates which include information sharing provisions – something for which we are also calling. It also means having a central database on the track records of suppliers, and ensuring free trade partners also have such databases, so that information about performance and past convictions or regulatory findings can be easily shared.

Meanwhile, it’s worth noting, given the UK’s prioritisation of a Free Trade Agreement with the United States, that the US has one of the most advanced debarment regimes in the world, and many US free trade agreements contain just such debarment provisions. Showing that the UK is serious about having an equivalent regime might not just be a negotiating advantage but might also become a requirement in any deal with Washington.

A properly functioning debarment regime would bring both economic and social benefits for the UK. It will help reduce fraud and corruption in public procurement, create a level playing field for companies that abide by the rules, and boost the UK’s international reputation for integrity. The only people set to lose are the corrupt and fraudsters.

Posted in Governance

The Centre for the Study of Corruption: Oct 2020 News

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It has been a busy summer for the CSC. In this post CSC Director Liz David-Barrett provides a brief round-up of our key activities over the last few months and a few things to look out for this term.

Research. The CSC faculty have seen a flurry of publications come out in recent months. Sam published articles on the Conservatives in the 2019 election, the transparency paradox in election regulation, and motivations for party membership. Shahrzad published a book chapter on Corruption, regulation and the law: the power not to prosecute under the UK Bribery Act 2010. Liz has a new paper on how efforts to curb corruption in aid spent through procurement might simply displace corruption to other areas, and a book chapter on regulating conflicts of interest. Roxana has a book chapter out on Corruption in the media. She chaired the Section on Corruption and Integrity at the ECPR general conference and also presented work regarding corruption standards in the time of COVID-19.

We have also been busy writing op-eds and blogging. Liljana published one piece on corruption, electoral funding and women’s participation in politics and another on gender quotas in Kosovo. Sam wrote about the need to regulate digital campaigning, foreign interference in elections, and business money in politics. Robert published a piece with Chatham House on the threat of Russia and China to the global anti-corruption framework and also analysed the merger  between the Foreign & Commonwealth Office and the Department for International Development for the IDS blog. Liz wrote about conflicts of interest in UK politics and how the ministerial code is flawed.

Dan and Robert submitted an ESRC bid about the impact of Brexit on corruption risks in the UK and should hear the outcome soon. Robert and Liz submitted a proposal for research on corruption risks arising from covid-19 but sadly were not successful…

Policy.  We made CSC submissions to the government’s consultation on Freeports, the Integrated Review and the UN’s consultation over the General Assembly’s Special Session on Corruption which takes place next year. All of these are on the CSC website. Sam submitted evidence to the Committee on Standards in Public Life ‘Review of electoral regulation’ in August and has been invited to participate in the review’s expert roundtable in October. He also published a report on Democracy in the Dark: digital campaigning in the 2019 General Election and Beyond for the Electoral Reform Society, which has already been mentioned in parliament!

We have been engaging a lot with the UK government. Robert gave informal advice to the FCDO on the DFID/FCO merger and to the PM’s Anti-Corruption Champion on the governance of corruption in the UK. He also sits on the UK government’s post-Brexit taskforce for revising the UK’s procurement legislation. Liz gave informal advice to the Joint Anti-Corruption Unit on corruption measurement, which is set to be a priority for Italy’s presidency of the G20 next year.

Looking further afield, Shahrzad is leading a project on Judicial Corruption in Afghanistan. Liljana is reviewing North Macedonia’s Open Government Action Plan 2018-2020 for the Open Government Partnership. Roxana is consulting on an EC funded project regarding corruption across Europe, as country expert for Romania. Liz has been working with the G20’s Anti-Corruption Working Group and UNODC to feed in results from research on law enforcement cooperation and public procurement.

Liz is also part of a team with Mihály Fazekas and other colleagues which is one of the finalists in the IMF Anti-Corruption Challenge. The Final is a virtual pitch event on October 7th at 15.15 (UK time). There will be several judges but viewers are also able to vote for their favourite project, so please do come along and support us!  

New students!

Talking of events, Irasema has kindly volunteered to set up a corruption club this term so that students can organise speakers and social events, and she is hoping to involve many of our fantastic new cohort of MA Corruption and Governance students. They are as usual from all over the world – including Burma, Burundi, Costa Rica, Cote d’Ivoire, Germany, South Africa, Spain, Trinidad and the UK – and seem like a great bunch with all kinds of interesting experience.

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Democracy in the Dark: It’s time to regulate digital campaigning

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Sam Power, Lecturer at the Centre for the Study of Corruption, has recently co-authored a report for the Electoral Reform Society titled ‘Democracy in the Dark: Digital Campaigning in the 2019 General Election and Beyond’ with Dr Katharine Dommett, University of Sheffield. The full report can be found here – an extract from the Executive Summary is below. 

Over the last few years, calls for the regulation of digital campaigning have been growing in the UK. Committees in the House of Commons and Lords, groups of MPs, regulators, think tanks, charities and campaign groups have been stressing the need for urgent electoral reform.  

Yet nearly a year on from the 2019 general election campaign, the only concerted action taken by the government has been to launch a consultation on digital imprints. This change, first recommended by the Electoral Commission back in 2003, is long overdue, but it also only scratches the surface of the problem. And at a time when the Electoral Commission is more important than ever – needing new powers and competencies – we have witnessed growing threats to its future.  

In this report, we look at the case for strengthening – not stymying – democratic oversight by examining what we know about the use of digital technology at the 2019 general election. Posing five questions, we show why there is a need for urgent action that extends far beyond digital imprints.  

Specifically, we ask: 

  • What was being spent? 
  • Who was campaigning? 
  • Who was seeing what? 
  • How was data being used? 
  • What was being said? 

Looking at examples from the 2019 general election, and presenting new analysis of Facebook and Google’s advertising archives, we demonstrate the case for reform. We also review the recommendations from a series of reports and inquiries to outline what has so far been proposed to address these trends. Through this report, we shed fresh light on the need for urgent action and the demand for far-reaching reform. 

You can read the full report and findings here: ‘Democracy in the Dark: digital campaigning in the 2019 General Election and beyond.’ 

Posted in Politics

FinCEN money laundering files raise questions for UK

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With the publication of the latest set of leaked papers revealing global money laundering on a grand scale, known as the FinCEN Files, Professor Robert Barrington of the Centre for the Study of Corruption looks at some of the implications for the UK.

Like so many of the global money laundering scandals, the UK plays a disproportionately prominent role in the FinCEN Files.  There are apparently more UK-registered companies in the Files than those from any other jurisdiction.  We do not learn much that is new about the UK, but this is a timely reminder that the UK still has a big problem to fix.

The Files highlight some awkward issues for the UK: whether the political will really exists to prevent the UK being a safe haven for dirty money; the risks when that money enters British politics; the complicity of the UK’s Overseas Territories and Crown Dependencies; the involvement of an army of lawyers, accountants and other professionals who are cogs in the system; and the central role of British banks, to whom the government has contracted out much of the nation’s anti-money laundering defences.

This ‘privatisation’ of the UK’s AML defences is particularly troubling.  The FinCEN Files suggest that banks too often turn a blind eye to money laundering, presumably because the institutions as a matter of culture, or a sufficient number of individuals within the banks, believe the financial gains outweigh the risks of being caught.  Giving those banks a central role in the nation’s anti-money laundering defences thus places a huge conflict of interest at the core of the system.  It might not matter if we could be confident everyone is on the same side: but leaks like the FinCEN Files reveal that is not always the case.

There is a reasonable argument in favour of a ‘partnership’ that exchanges information, but this has recently been extended into formalising the banks’ role in helping to set the national economic crime strategy.  The Economic Crime Strategic Board contains government Ministers, law enforcement officials, banks – and no independent participants, let alone civil society.  It is poor governance and undermines public confidence in the system, as well as potentially having the Economic Crime Strategy directed by those who are themselves implicated in serious economic crimes. 

What should be done? The government’s own Economic Crime Plan and Anti-Corruption Strategy lay out the threats of money laundering, and the benefits to the UK of tackling money laundering.  They contain many good ideas, as do other government announcements since the Anti-Corruption Summit of 2016.  But in several key areas there has been slow implementation and weak enforcement.

This latest scandal is brought into sharp relief by Brexit and the UK’s need to work out what it stands for: willing to attract suspicious money as part of its economic planning, or operating to high standards backed up by adequate regulation and enforcement.  The UK will very soon no longer be bound by the EU’s rules, and has some major decisions to make about its new direction.

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Public spending must be regulated, even in an emergency: reflections from the Philippines

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In times of crisis, rules regulating the procurement process and the disbursement of public funds are often discarded, to speed up the acquisition of necessary goods and the provision of services. But, argues Nelia Lagura Prieto, anti-corruption lawyer and CSC alumnus, this makes it far too easy to divert emergency funds away from the intended beneficiaries and into the hands of a few opportunistic entities.  

On 23rd March 2020, in view of the threats to public health brought about by the coronavirus pandemic, the Philippine Congress placed the entire country under a state of national emergency through Republic Act No. 11469 (R.A. 11469). The said law granted the President emergency powers necessary to carry out the declared national policy (R.A. 11469, Section 4).  Among those powers are: 

1)  the power to discontinue appropriated programs or projects of any agency of the Executive Department and utilize the savings generated to augment the allocation for any items necessary to address the CoVid19 emergency; and 

2) the power to procure said items (e.g. personal protective equipment (PPEs), laboratory equipment and their reagents, medical equipment and devices, and medical supplies) in the most expeditious manner, exempt from the country’s procurement law.   Resolution 06-2020 of the Philippine Procurement Policy Board (GPPB) reveals that these emergency procurements do not need to undergo competitive bidding. Written formal offers are not even necessary.  Under the interim rules, verbal agreement on the price and compliance or commitment to comply with legal, technical and financial requirements of the project are sufficient bases to recommend award to a supplier, manufacturer, contractor or consultant (section 3.3 of GPPB Resolution 06-2020).

With the suspension of bidding requirements, relevant government agencies immediately awarded contracts for much-needed medical and laboratory equipment and supplies through the so-called emergency procurement mechanism.  Several of these contracts and transactions have become controversial.

Overpriced Personal Protective Equipment (PPE)

The Department of Health (DOH) purchased 1 million sets of PPE worth 1.8 billion pesos at 1800 pesos (around USD37) per set.  A Senate inquiry on the alleged overpriced PPE and test kits revealed that locally sourced PPE would have cost as little as 400 pesos (around USD8.25).  It was also disclosed that the Office of the Vice President (OVP) who, as of March had already distributed 32,000 full sets of PPE, acquired them at only 397 pesos per set from a local supplier.  

One senator has therefore claimed that the government could have saved 1.4 billion pesos had DOH contracted with local suppliers.  The DOH purchase is an anomaly even under the emergency rules, since procurements are still subject to a requirement to negotiate the most advantageous price to the government based on existing price data of the agency or on prevailing market prices, even in emergencies. 

In addition to the unconscionable price difference between those purchased by DOH and by the OVP, it was also reported during the Senate hearing that 727 million pesos’ worth of contracts for PPE and vitamins were awarded to one company despite it having been blacklisted.  

Release of Covid-19 Funds to Health Care Institutions (HCI) under the Interim Reimbursement Mechanism (IRM) 

In early 2020, when the world started to panic about CoVid19, the Philippine Health Insurance Corporation (PhilHealth), a state-run agency under the DOH, began providing funds for HCIs through its IRM. While called a reimbursement, IRM is really a cash advance scheme to provide available funds to HCIs in times of emergency.  

The Senate inquiry revealed that as of April and prior to the dissemination of standard operating procedures for the release of funds through IRM, PhilHealth had already  released 9.29 billion pesos of the 30 billion pesos allocated to 279 HCIs for hospital assistance.  The initial release of funds to several HCIs did not correspond with the prevalence of Covid19 in the areas covered.  Two hospitals from Davao in Mindanao received the first and third-largest sums: 326 million pesos for Southern Medical Center and 209 million pesos for Davao Regional Medical Center.  The allocation raised questions since Davao had only 2,600 cases compared to 144,000 in the National Capital Region (NCR)  and 20,829 in Central Visayas.

PhilHealth chief, retired general Ricardo Morales, explained that when they started releasing funds through IRM prior to the guidelines, there were as yet no established  concentration areas of Covid19 cases.  They instead used the 90-day historical claims of HCI beneficiaries to determine the amount to be released.  He also stressed that the cash advances were subject to liquidations.  However, only 1 billion pesos have been liquidated and there is no evidence that unused cash advances have been returned or should be returned.

It appears that PhilHealth officials responsible for the release of the funds prior to the guidelines exercised an almost unrestricted discretion in deciding which hospitals should receive funding and how much.  As a result, funds allocated for Covid-19 response were disbursed to HCIs that until now have yet to deal with Covid-19-positive patients. Among them is B. Braun Avitum (a dialysis center) which received 45 million pesos from PhilHealth’s IRM. B. Braun Avitum despite not admitting Covid-19 patients. 

The release of funds in such a highly discretionary manner has led to an outcome which largely defeated the intended purpose of the funds.  While HCIs with no, or just a few, Covid-19 cases have plenty of response resources, those with patients in excess of their bed capacity have to make do with what they have. Many patients are denied hospitalization because of this flawed allocation of resources.

Even in times of emergencies, government spending must still be governed by reasonable rules that balance urgency and propriety.  In countries like the Philippines where national emergencies brought about by calamities such as typhoons and earthquakes are common, laws should be put firmly in place to avoid recurring fund wastage due to negligence, lack of wisdom or outright corruption.

Posted in Politics, Regions

Sri Lanka election result paves way for state capture

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Recent elections in Sri Lanka open the way for major constitutional reform by a party and President that have already indicated their plans to remove key checks on power. Sankhitha Gunaratne, Senior Manager – Advocacy at Transparency International Sri Lanka, currently taking our Master’s in Corruption and Governance, analyses the risks of state capture.

The 5th of August saw the Parliamentary Election held in Sri Lanka with a 70% voter turnout even amidst fears of COVID-19 transmission. Twice postponed due to the pandemic, this was a critical election that would enable President Gotabaya Rajapaksa to form a government after his victory in November last year. The elections were largely peaceful, in spite of many abuses of State resources taking place during the campaign, constituting election violations.

The President’s party, the Sri Lanka Podujana Peramuna (SLPP), secured 145 out of 225 total seats in Parliament, leaving it in a strong position to form alliances that would result in two-thirds support in Parliament. This is especially significant as it provides the necessary majority for the government to amend provisions of the Constitution. The SLPP has already indicated that it would repeal the 19th Amendment to the Constitution, which re-introduced the two-term limit for the Presidency and strengthened the Constitutional Council that recommends and approves appointments to independent commissions, the higher courts and other key posts – aspects that Mahinda Rajapaksa’s 2005-15 government had removed and weakened. The 19th amendment also enshrined the right of access to information as a fundamental right, a key accountability tool that citizens across the country have availed themselves of in relation to varied issues ranging from access to water to accessing draft laws. Key officials have, however, indicated that the independent commissions and the right to information will not be affected – though these undertakings are yet to be proven right.

President Gotabaya Rajapaksa has now appointed his brother former President Mahinda Rajapaska as the Prime Minister, leading to the interesting dynamic of two members of the same family – not for the first time in Sri Lanka – heading the executive and legislative branches of government. The appointment does not violate any law, as former President Mahinda Rajapaksa ran and was elected for his parliamentary seat in both subsequent general elections(after being defeated for a third-term presidency in 2015). The Constitution empowers the President to appoint as Prime Minister, the person who, in the opinion of the President, is most likely to command the confidence of Parliament.

The Prime Minister also holds the portfolios of Finance, Buddhasasana, Religious & Cultural Affairs and of Urban Development, Water Supply and Housing Facilities. His son Namal Rajapaksa is the Minster of Youth & Sports, and his brother Chamal Rajapakse holds the position of Minister of Irrigation.

Markers of State Capture?

State capture is defined as “A situation where powerful individuals, institutions, companies or groups within or outside a country use corruption to shape a nation’s policies, legal environment and economy to benefit their own private interests”. The plans for Constitutional amendments combined with the neutralisation of dissenting voices bodes ill for Sri Lanka, foreshadowing a future as a captured state.

A two-thirds majority in Parliament that allows virtually unfettered Constitutional amendments to remove checks and balances, on top of the threat to the separation of powers caused by two brothers heading the executive and the legislature combined with close family members in key positions of power, makes a dangerous cocktail that raises red flags for state capture. The electoral victory also comes against a background of increasing militarisation of the State where key public positions have been filled with military personnel (see examples here, and here) and a Presidential Task Force has been appointed ‘to build a secure country, disciplined, virtuous and lawful society’ consisting entirely of military and police personnel, with a broad mandate that even allows the provision of instructions to public officials. Dissenters including lawyers, journalists, civil society and activists have come under threat, scrutiny and arrest in an alarming trend recognised by Human Rights Watch and others in its statement on 29th July this year.

While they do not necessarily act of one accord, the Rajapaksa family and their close contacts have been implicated in many corruption scandals during their last stint in power (see here, here and here and here) giving credence to a general perception in Sri Lanka that politicians run for office with the specific intention of benefiting from public funds. However, these scandals do not seem to have discouraged voters from electing to office those implicated. It is almost an expectation among citizens that government contracts will be awarded based on what are colloquially named ‘komis’ (commissions). It is particularly concerning therefore, that the resounding mandate given by the people almost seems to endorse a level of state capture. Government procurement therefore will continue to be an at-risk area for potential grand corruption that must be subject to scrutiny especially in the context of potential state capture.

The former government that was in power in 2015-19 was originally elected on a ‘good governance’ mandate. It lost its credibility in the Central Bank Bond Scam case where the son-in-law of the then Governor of the Central Bank was alleged to have benefited from insider information about an unprecedented issue of government bonds, at a major loss to the public purse.

The track record of that government was somewhat mixed, however. In addition to promulgating the 19th Amendment to the Constitution, some strides towards accountability were made when the then Finance Minister – also implicated in the bond scandal – was forced to step down. During the same period, special High Courts were set up to deal with corruption. The Chief of Staff of President Maithripala Sirisena was arrested and subsequently convicted for accepting a bribe of Rs. 20 million. All these factors demonstrated a certain level of accountability. Yet, that party and its successor party suffered a resounding defeat in this election.

This leads us to ask whether issues relating to corruption have ceased to swing votes in Sri Lanka, at least for the moment. As Robert Barrington points out, could it be that the ‘currency’ of corruption as an electoral issue is eroding, leading to voters making their choices on other issues, since they assume that anyone who gains power will inevitably be corrupt?

While the judiciary as the third arm of government has also been the target of political ire in the past, a robust judiciary could still act as the last bastion of hope for Sri Lanka. Anti-corruption tools such as asset declarations and the right to information must still be used and defended. Independent critical voices will be more important than ever, to call out any attempts to roll back the measures put in place to protect citizens’ freedoms and public resources – the Constitution of Sri Lanka being prime among many.

 

 

Posted in Politics, Regions

No Rest for the Wicked: Match-Fixing in the age of Lockdown

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immo-wegmann-DX3_dXuHVl8-unsplashThe Covid-19 crisis has led some sports to innovate by holding remote events. But that has also created new opportunities for corruption and match-fixing. Billy Pratt, currently taking our Master’s in Corruption and Governance, looks at match-fixing allegations in a remote darts match – and implications for how the sports industry can adapt to new conditions.

Following several months of Covid-19 related disruption, sports fans have been treated to a gradual return of live sport to their TV screens. Whilst the return of industry dominators such as football made news, a few others found ways of continuing despite strict lockdown regulations. The online suitability of esports lead to a boom in viewership for competitive gaming. Whilst not a sport in the purist sense, WWE were quick to move their wrestling shows to a crowd-less studio and never stopped. Then we have darts, which started to stage matches remotely with cameras in players’ homes to record them throwing darts at their own boards. Using this format, several professional events were hastily organised and streamed online, providing entertainment for sports-hungry fans at home and something to do for darts players with time on their hands.

Whilst these events were generally seen as a success, recent news has dampened the mood with two players, Wessel Nijman and Kyle McKinstry, being charged with match-fixing during a remote event in April. Nijman has confessed to the charges, whilst McKinstry is expected to appeal. Despite the occasional rumours, darts is not a sport typically associated with corruption, with only one confirmed betting-related match-fixing case in its professional history. The 2017 UK Sports Integrity Index even went as far as to name darts as the professional sport with the most integrity. For this reason, it is pertinent to question why this happened, if the move to a remote format was responsible and if so, what lessons anti-corruption efforts in professional sports should learn. With the winter months to come and another lockdown possible, sports fans may find themselves yet again at home watching darts being played remotely via video link.

Professional Uncertainty

The most obvious impact of the pandemic on sports as an industry has been the reduction of events, slashing earning opportunities for players. Whilst those at the top level of professional sports are well documented for their lucrative wages, the situation for those lower down is much less stable, even during normal times. Darts is no exception, with the number 1 ranked player Michael Van Gerwen earning over £1.5 million in prize money over the past 2 years whilst Nijman and McKinstry only earned several thousand each in the same time period. There are several papers within corruption literature which explore the relationship between salary and the incentive to corrupt. Within the realm of sport, Hill (2015) finds athletes are much more likely to match-fix later in their careers when they have greater awareness of their diminishing window for earning. With the pandemic postponing 14 PDC Development Tour events (which Nijman frequently played in), this may have been a factor. Given that the most high-profile remote darts tournament, the PDC Home Tour, had zero prize money on offer, it does not take an anti-corruption expert to see the allure of a match-fixing offer.

Gambling Increase

Whilst sports betting decreased during the UK lockdown as a function of there being less sport to bet on, sports corruptors quickly adapted. For example, one set of match-fixers managed to fool several well-known bookmakers into offering odds on an entirely fabricated Ukrainian football tournament. An estimated £100,000 of bets were placed before the tournament was revealed to be fake. What little sport remained saw huge betting interest with a 2,000% increase in bets placed on the basketball leagues of Tajikistan and Taiwan as well as in Belarusian football. Darts was one of the few sports that continued during this time and became a key asset for bookmakers, with several gambling websites even streaming these remote events. Match-fixing is often carried out with the intention of making or laundering money through gambling, and with Nijman and McKinstry being charged on the back of suspicious betting patterns, it is now clear that darts was targeted by match-fixers. Darts’s status as one of the few sports still available to bet on would only have made it a more attractive for fixers.

Remote Anti-Corruption Regulation

Professional darts is governed by the Darts Regulation Authority (DRA), who can be considered proactive in their anti-corruption work. They have confidential email addresses and hotlines for reporting corrupt approaches, clear and easy to follow regulations on betting and match-fixing [11] and partnerships with companies such as SportRadar to use the most refined match-fixing detection tools . These measures may partly explain why darts has rarely faced corruption issues before, and these measures also helped lead to Nijman and McKinstry being caught, for which the DRA deserves credit. However, the DRA’s usually effective approach failed to prevent corruption from taking place in this case and we must question why. With the change of format leading to players staying at home rather than travelling to a physical venue and interacting with officials, the DRA must examine if their anti-corruption efforts do enough to prevent match-fixers accessing and convincing players to fix when they are playing remotely. Match-fixing often depends on the ability of the fixer to communicate with the fixing player to relay information or instructions. In a physical tournament setting, such communication can be monitored or prohibited and there is evidence of this taking place with 2 players being officially warned for using internet devices during an event in 2017. During the remote events, officials were not only unable to physically monitor potentially corrupt communication but could not even prevent players from using internet devices capable of outside communication – indeed, the event relied on the players having internet access. The DRA’s anti-corruption approach was understandably designed for a pre-pandemic world, and must change before any more remote events are staged.

Going Forward

This case should prove instructive for a sports industry that will continue to be impacted economically until major gatherings are permitted again. The boom in esports viewership has led to the normalisation of watching two people playing video games against each other over the internet and betting on it. Even outside of a pandemic situation, remote darts events still provide content for bookmakers without having to pay for the logistics of a full sporting spectacle, but if they can’t be secured from corruption risks, these remote competitions may have to stop. The story of Nijman and McKinstry shows that even the more vigilant anti-corruption approaches need to be re-thought for our new conditions.

 

Posted in Sport