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The Biden administration’s anti-corruption initiative is a welcome first step

Summary:
In June of this year, President Joseph R. Biden Jr. launched an anti-corruption initiative that received less attention than it deserved. The president's memorandum declared combatting corruption at home and abroad a core US national security interest and initiated an interagency review process to formulate a comprehensive anti-corruption strategy. While this initiative is an important first step, addressing corruption in countries where it is systemic requires a clear-eyed recognition that the economic and political elite in these countries will generally resist reform. Moreover, since criminal enforcement is often frustrated by corrupt prosecutors and courts, experience demonstrates that any effective strategy needs to be accompanied by comprehensive regulatory and civil service reform.

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In June of this year, President Joseph R. Biden Jr. launched an anti-corruption initiative that received less attention than it deserved. The president's memorandum declared combatting corruption at home and abroad a core US national security interest and initiated an interagency review process to formulate a comprehensive anti-corruption strategy.

While this initiative is an important first step, addressing corruption in countries where it is systemic requires a clear-eyed recognition that the economic and political elite in these countries will generally resist reform. Moreover, since criminal enforcement is often frustrated by corrupt prosecutors and courts, experience demonstrates that any effective strategy needs to be accompanied by comprehensive regulatory and civil service reform. The failure to address corruption in Afghanistan, a key factor in the government's downfall, underscores the relevance of these issues from a national security perspective.

The administration's initiative is intended to restore US leadership in this area, which goes back decades. In the 1990s, the Organization for Economic Cooperation and Development (OECD) adopted its Anti-Bribery Convention under US leadership, building upon the US Foreign Corrupt Practices Act of 1977, which outlawed the bribery of foreign officials. The United States also led efforts—although somewhat more unevenly—to establish and implement the global standard to combat money laundering, including the adoption of special rules designed to prevent public officials from concealing the proceeds of their corrupt acts.

Unfortunately, progress was reversed during the Trump administration, which in 2017 withdrew from the Extractive Industries Transparency Initiative, the leading global framework designed to address corruption in natural resource economies. Perhaps more importantly, the reputation of the United States as a champion of the rule of law was undermined by the former president's own actions: Among other things, he was impeached for engaging in corrupt activity himself; namely, on the basis of evidence that he had effectively engaged in an extortion scheme directed at the president of Ukraine.

Biden is right to link fighting corruption with strengthening national security

In giving priority to combatting corruption, President Biden notes that corruption "erodes public trust, hobbles effective governance, distorts markets and equitable access to services; undercuts development efforts; contributes to national fragility; extremism and migration; and provides authoritarian leaders a means to undermine democracy."

Recent empirical analysis and, tragically, recent events, support the connection that the president makes between corruption, economic development, radicalization, and national security.

In 2018, the International Monetary Fund (IMF) modified its annual economic health check of members to include a systematic analysis of corruption.[1] The Fund cited extensive evidence that corruption impedes economic growth.[2] For example, widespread tax evasion supported by corrupt officials undermines fiscal sustainability and increases the risk of debt crises. Corruption also discourages private investment, especially when public officials use the issuance of licenses and permits to extract bribes.

There is also considerable evidence that the distortions created by corruption can exacerbate inequality. For example, instead of investing in public health and education, officials will favor large infrastructure projects that generate kickbacks. In an environment where who one knows is more important than what one knows, the youth themselves are less interested in investing in education. When systemic corruption affects virtually all state functions, distrust of government can become so pervasive that it can lead to violence, civil strife, and conflict.

The situation in Afghanistan after the US invasion in 2001 included all of the key ingredients that typically generate systemic corruption in a post-conflict country: a distrust in the newly-formed government; weak institutions; and large amounts of foreign aid that create opportunities for bribery, kickbacks, and embezzlement. These problems were compounded by an international community that tolerated corruption because of the priority placed on short-term political stability.[3] Systemic corruption, once entrenched, fuels radicalization: Being constantly "shaken down" by corrupt officials, many citizens became easy recruits for the Taliban.[4]

Six lessons to heed in formulating an anti-corruption strategy

As the Biden administration formulates its strategy to address corruption in countries where the problem is systemic, it should learn from the mistakes as well as the successes of the past. Based on this author's own experience in this area (including a number of mistakes), some key lessons may be summarized as follows.

First, it is wise not to rely excessively on criminal enforcement in the country in question, at least in the short term. Institutions charged with enforcing the law—the police, the prosecutors, and the courts—are often the most corrupt institutions in the country. Until these institutions have been adequately reformed, other accountability mechanisms will need to be established, with a focus on civil service reforms that introduce and apply clear performance management standards. For example, Georgia's successful anti-corruption program, launched in 2004, included civil service reform that relied on both carrots and sticks: higher salaries but "zero tolerance" dismissal for offenders.[5] Civil service reform was also an important component of the remarkable anti-corruption program implemented by Lee Kwan Yew's government in Singapore during the early 1960s.[6]

Second, understanding the local context is critical, particularly when undertaking economic regulatory reform—which is normally a central feature in any anti-corruption strategy. In many countries, anti-corruption measures will involve a streamlining of the regulatory framework to minimize rent seeking by public officials. Such steps may include constraining or even eliminating their discretion. But in situations where governmental agencies have effectively been "captured" by the private sector, reform should focus on strengthening the independence and effectiveness of these agencies.

Third, although donor governments and international organizations may view the problem of systemic corruption primarily as one of weak capacity that can be addressed by further training and technical assistance, experience shows that the problem is often a political one. Those who benefit from the status quo will use their economic and political power to block any meaningful reform. Accordingly, unless the domestic political conditions for reform are in place, the ability of foreign governments or international organizations to significantly reduce systemic corruption in a country will be limited.

Fourth, although the democratic process can strengthen accountability, it is not a silver bullet. Democratic reforms were clearly critical in the case of Indonesia: An anti-corruption strategy was initiated following the fall of Suharto in 1998, but reforms only began to get off the ground after the establishment of the direct presidential election system that led to the election of Bambang Yudhoyono in 2004, who had run on an anti-corruption platform. At the same time, a number of democratic countries, such as India, suffer from a significant level of corruption. Indeed, in some cases, the democratic process can become an instrument of corruption: In Ukraine, the elected members of the legislature are regarded as being effectively on the payroll of large business interests.[7]

Fifth, measuring the magnitude of corruption and the progress in addressing it remains a particular challenge. Fortunately, multilateral organizations have made important progress over the past several years in identifying relevant and credible metrics. The United States should rely on the criteria and assessments of these organizations so as to avoid the perception that it is biased in applying its new policy by favoring strategic partners.

Finally, advanced economies are part of the problem. For every bribe that is taken by a corrupt official, one is offered—and they are often offered by multinational companies. Unfortunately, the United States is one of the few OECD countries that aggressively enforces the provisions of the OECD's Anti-Bribery Convention. The United States should press other OECD countries to fulfill their responsibilities. Moreover, officials tend to conceal the proceeds of corruption in banks located in the major financial centers. In this regard, although the internationally recognized anti–money laundering standard requires shell companies to disclose their "beneficial owners," the United States had been a notable laggard for many years. Fortunately, this problem was recently addressed through the adoption of the Corporate Transparency Act. It is critical that this law be effectively enforced.

President Biden is correct to give this issue priority. However, a final assessment of his initiative will need to await the formulation of the anti-corruption strategy and, perhaps more importantly, its implementation.

Notes

1. See Review of 1997 Guidance Note on Governance – A Proposed Framework for Enhanced Fund Engagement.

2. These channels are described in some detail by the IMF in Corruption: Costs and Mitigating Strategies.

3. For a general discussion of post-conflict countries as an enabling environment for corruption, see Susan Rose-Ackerman and Bonnie J. Palifka, Corruption and Government: Causes, Consequences and Reform (2016), p. 316.

4. See, for example, Sarah Chayes, How Corruption is a Precursor to Extremism, TEDx Talk, 2015.

5. For a comprehensive analysis of Georgia's anti-corruption program, see Fighting Corruption in Public Services: Chronicling Georgia's Reforms by the World Bank.

6. See Jon Quah, "Culture Change in the Singapore Civil Service," in S. A. Chaudhury, G. J. Reid, and W. H. Malik (eds.), Civil service reform in Latin America and the Caribbean: Proceedings of a conference, Washington: World Bank, 1994, chapter 27, pp. 205-216.

7. For a further discussion of corruption in Ukraine, see Anders Åslund, The Maidan and Beyond: Oligarchs, Corruption, and European Integration, Journal of Democracy 25 no. 3, p. 64 (2014).

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