Category: Corruption

Nordstrom on Global Outlaws

I was recently listening to a podcast by Carolyn Nordstrom of her 2008 Franke Lecture in the Humanities, Emergent(cies).  Nordstrom discusses the extraordinary power wielded by those in control of an underground economy of weapons, drugs, and human trafficking.  Paul Farmer attested to Nordstrom’s extraordinary dedication to ferreting out the transactions that knit together so many imperiled and privileged lives.  I look forward to reading her book Global Outlaws.  This excerpt describes her aims in it:

I am interested in the intersections of crime, finance, and power in activities that produce something of value: monetary, social, and cultural capital, power, patronage, survival. . . . Public media focus on . . . aggressive individuals under the sensational banner of “crime,” yet this interpersonal violence constitutes a small percentage of the universe of criminal actions. Smuggling cigarettes brings in far greater profits and economic repercussions. Robbing an entire country or controlling a transnational profiteering empire is the gold standard of crime.

Read More

1

The Partisan Foundations of Judicial Campaign Finance

The Center for American Progress has just issued a report on judicial campaign finance that documents the increasing costs of campaigning in judicial elections and raises alarm that “[i]nstead of serving as a last resort for Americans seeking justice, judges are bending the law to satisfy the concerns of their corporate donors.”  Jeffrey Toobin followed up in the New Yorker that “the last thing you want to worry about is whether the judge is more accountable to a campaign contributor or an ideological group than to the law. . . . [b]ut it’s clear now that in many states you should worry—a lot.”

My colleague Joanna Shepherd and I study judicial campaign finance and argue that what is regularly missed in this simple narrative is the crucial role of the major parties.  In our empirical work, we find a very real relationship between contributions to judges and judicial decisions favorable to contributors, but the intuitive narrative of direct exchanges of money for decisions between individual contributors and judges is too simplistic to describe the larger realities of modern judicial elections.  The Republican and Democratic Parties broker connections between contributors and their candidates, and we argue that parties, not elections, seem to be the key to money’s influence on judges.

In a new paper still in progress, The Partisan Foundations of Judicial Campaign Finance, we identify broad left- and right-leaning political coalitions, allied with the Democratic and Republican Parties, whose collective contributions exercise systematic influence across the range of decisions by judges who receive their money.  The parties appear to coordinate judicial campaign finance under partisan elections where their investment and involvement is greatest, and what is more, we find that the robust relationship between money and judicial decisions largely disappeared in our data for judges elected in nonpartisan elections where parties are relatively less involved.

In addition, we go on to find a striking partisan asymmetry between Republicans and Democrats in judicial campaign finance.  Money from conservative groups in the Republican coalition, as well as from the party itself, is associated with more conservative judicial decisionmaking by Republican judges, even controlling for individual ideology.  However, decisionmaking by Republican judges is not responsive to money from liberal sources.  Decisionmaking by Democratic judges, by contrast, is influenced by campaign support from both liberal and conservative sources and thus cross pressured in opposite directions.  The result is that judicial campaign finance reinforces party cohesion for Republicans while undermining it for Democrats.  Campaign finance thus predicts judicial decisionmaking by judges from both parties in some sense, but is much more successful in serving partisan ends for Republicans, netting out in a conservative direction between the two parties.

Penn State Scandal: Could a Corporate Compliance Model Have Prevented It?

The Penn State scandal has become ever more shocking with each new revelation. My colleague Kathleen Boozang argues that it is time for higher ed to learn from other large enterprises about the importance of compliance:

It appears that even now, Penn State lacks a compliance program, the creation of which Special Investigative Counsel Freeh’s Report recommends. Previously limited to financial fraud and HR issues, a June 21, 2012 posting by Penn State’s internal auditor announces a poster redesign advertising its hotline number, to which any ethical or legal concerns can now be reported.  Important will be training throughout the university regarding the law’s protection of whistleblowers, about which, according to Freeh’s Report, top university leaders were unaware.

While it is stunning that, even now, Penn State has not advanced further in setting up these protective measures, it is fair to say that much of higher ed has been slow to adopt compliance best practices common to the healthcare sector and most business entities.

In related news, the Institute of Internal Auditors met in Boston last week. It looks like they will need to play an increasing role in the higher education setting, especially if internal compliance methods are not mere “rituals of verification.”

2

Stanford Law Review Online: The Money Crisis

Stanford Law Review

The Stanford Law Review Online has just published an Essay by former U.S. Senator Russ Feingold entitled The Money Crisis: How Citizens United Undermines Our Elections and the Supreme Court. Senator Feingold explains how the Supreme Court decision in Citizens United threatens the integrity of our political process:

As we draw closer to the November election, it becomes clearer that this year’s contest, thanks to the Supreme Court’s 2010 Citizens United decision, will be financially dominated by big money, including, whether directly or indirectly, big money from the treasuries of corporations of all kinds. Without a significant change in how our campaign finance system regulates the influence of corporations, the American election process, and even the Supreme Court itself, face a more durable, long-term crisis of legitimacy.

[In Citizens United,] the Court was presented with a narrow question from petitioners: should the McCain-Feingold provision on electioneering communications (either thirty days before a primary election or sixty days before a general election) apply to this movie about Hillary Clinton? The movie, of course, was not running as a normal television commercial; instead, it was intended as a long-form, “on demand” special.

Yet Chief Justice Roberts clearly wanted a much broader, sweeping outcome, and it is now clear that he manipulated the Court’s process to achieve that result. Once only a question about an “on-demand” movie, the majority in Citizens United ruled that corporations and unions could now use their general treasuries to influence elections directly. Despite giving strenuous assurances during his confirmation hearing to respect settled law, Roberts now stands responsible for the most egregious upending of judicial precedent in a generation. As now-retired Justice John Paul Stevens wrote in his dissent to the majority in Citizens United: “[F]ive Justices were unhappy with the limited nature of the case before us, so they changed the case to give themselves an opportunity to change the law.”

He concludes:

The Court has a clear opportunity. A new challenge from Montana could allow the Supreme Court to reconsider its decision in Citizens United, and at least two justices have hinted that the 2010 ruling is untenable. In granting a stay of a Montana Supreme Court decision upholding that state’s anticorruption laws, Justice Ginsburg, writing with Justice Breyer, found the pulse of the chaos Citizens United has wrought: “Montana’s experience, and experience elsewhere since this Court’s decision in Citizens United v. Federal Election Commission, make it exceedingly difficult to maintain that independent expenditures by corporations ‘do not give rise to corruption or the appearance of corruption.’”

Justice Ginsburg is correct. Today’s framework for corruption cannot stand.

Read the full article, The Money Crisis: How Citizens United Undermines Our Elections and the Supreme Court by Russ Feingold, at the Stanford Law Review Online.

Note: corrected for typos

1

Did Spitzer and Levitt Stoke the Financial Crisis?

Many are to blame for the financial crisis and plenty of reports and analyses have been written detailing assorted causes and assigning responsibility.  Overlooked in accepted versions of events are two fateful decisions and their context: Eliot Spitzer’s overzealous drive to oust Hank Greenberg from heading AIG, and Arthur Levitt’s governance reforms implemented at AIG shortly thereafter.

The ouster of Greenberg and transformation of AIG are pivotal events because before the ouster and reforms, AIG wrote few of the credit default swaps that became the centerpiece of the crisis, but wrote increasingly risky and unhedged swaps thereafter.  Many informed people consider it extremely unlikely or nearly impossible to imagine that, had AIG still been run by Greenberg under its traditional governance structures, the swap business at AIG could have gotten so out of hand. 

In that telling, Spitzer’s aggressive tactics to have Greenberg ousted and Levitt’s ambitious reforms were at least indirect contributing causes of the crisis and its severity.  The actions and ideas therefore deserve greater scrutiny than they have been given.  

In Spitzer’s case, it’s important to highlight how he took many steps that were at least dubious as a matter of prosecutorial ethics; in Levitt’s case, the reforms were extreme departures from traditional corporate governance. Potential lessons include the importance of prosecutors not overstepping their bounds and the value of adhering to some traditions in the development of corporate governance. Read More

The Poor Get One Strike; Banks Get Thousands

Most readers of this blog are already familiar with draconian treatment of the poor by various law enforcers and state bureaucracies. Here’s yet another example:

[A] one-strike clause . . . allows the public housing authority to evict [the tenant] if any member of her household or any guest engages in certain kinds of criminal activity. . . . Stories abound about the one-strike policy being wielded in seemingly egregious ways to evict “innocent tenants,” such as a disabled elderly man in California whose caretaker was caught with crack. . . .The Chicago Reporter wrote in September that 86 percent of Chicago’s one-strike evictions last year did not arise from criminal activity by the person named on the lease.

“These policies, the effect of them on children, families, women, families of color, were not thought through. And I think now a national conversation is beginning to rethink that,” said Ariela Migdal, a senior staff attorney with the Women’s Rights Project of the American Civil Liberties Union. Migdal pointed to a June 2011 letter from HUD Secretary Shaun Donovan to public housing directors, encouraging the directors to use their “broad discretion” to create a flexible set of standards for who will be admitted to and allowed to stay in public housing.

Certainly the Obama administration has ample experience deploying “discretion” and “mercy” in other areas.  For example, consider Barry Ritholtz’s summary of a shocking Reuters report by Scott Paltrow on foreclosure fraud:
Read More

Resisting Elites’ Resistance to the Rule of Law (Review of Glenn Greenwald’s With Liberty and Justice for Some)

(Glenn Greenwald is having a fundraiser; link here.  I think his work is well worth supporting.)

There are few (if any) “free markets” in the largest sectors of the US economy. The health care industry is a labyrinth of public and private payers. Sectors known as “guard labor” are also larded with subsidies.  The Departments of Defense and Homeland security contract with thousands of companies.  The communications industry enjoys various government “givings.” And at this point, everyone knows that our largest financial institutions are taxpayer supported entities. Without the implicit backing of the federal government, they would collapse.

Government subsidy to large industries is not, in and of itself, a bad thing. When wages are stagnant and capital gains are mainly enjoyed by the top thousandth of the population, some entity has to spend for common provision. But the price of that spending should be higher standards for the propped-up industry. In health care, for instance, Medicare Conditions of Participation (and laws like the 1986 EMTALA) require many hospitals to provide care regardless of patients’ ability to pay. Tough fraud and abuse enforcement subjects providers’ bills to rigorous audits; privacy law will soon require audit-capability for digital medical records. Legislation passed in 2009 and 2010 creates many other requirements to channel private provision of health care toward more public ends. It’s certainly not a perfect system, but regulation is serious and purposeful. There are real consequences for many lawbreakers.

Glenn Greenwald tells a very different story about three other heavily subsidized industrial sectors.  He gives us serious reason to doubt that law has constrained banks, telcos, and the security sector when they posed critical threats to our economy, privacy, and liberty. His book With Liberty and Justice for Some is a passionate indictment of four distinct trends:

1) elites who violate laws with impunity,
2) retroactive immunity for acts unlawful at the time they were committed,
3) lobbyists’ power to influence legislators to render bad conduct lawful or even subsidized, and
4) a radical increase in punishment of those who fall outside the charmed circle of political and economic elites.

Greenwald has examined each area in his blog, as have other, lonely voices in corporate law (and a more robust chorus in communications & cyberlaw troubled by telecomms’ sweetheart deals). The vital contribution of With Liberty and Justice for Some is to show how the four trends mutually reinforce one another, contributing to a politics of wealth and privilege defense commonly known as oligarchy.
Read More

3

AALS “Hot Topics” Program: Russia’s “Dictatorship of Law”

I am glad to announce that the AALS Committee on Special Programs selected my proposal as a “Hot Topics” panel for the 2012 AALS Annual Meeting in Washington D.C. next month.  The program is called: “The Dictatorship of Law: The Khodorkovsky Case, Human Rights, and the Rule of Law in Russia.”  William Pomeranz, Deputy Director of the Kennan Institute for Advanced Russian Studies at the Woodrow Wilson International Center for Scholars, will chair a panel that includes Kim Lane Scheppele (the University of Pennsylvania and Princeton), Bruce Bean (Michigan State University), Christopher Bruner (Washington and Lee University), Alexei Trochev (Nazarbayev University) and me.  The program will begin at 10:30 on Friday morning, January 6. 

Below is a description of the panel, which will occur (as perhaps a “hot topic” should) between two central events on the Russian calendar: the surprising results of yesterday’s parliamentary elections in Russia and presidential elections scheduled for March 4 that (at least until yesterday) everyone was saying would be certain to return now Prime Minister Vladimir Putin to the presidency currently held by his protégé, Dmitrii Medvedev.

During his first campaign for President of Russia in February 2000, Vladimir Putin defined democracy as a “dictatorship of law.”  This was meant to signal a shift away from the perceived lawlessness of his immediate predecessor’s governance, and to feed the nostalgia for Soviet-era stability.  As Putin starts his gambit to return to the Russian presidency, this panel examines which half of that slogan will dominate the other.  Recent developments in the most well-known case in the courts of both Russia and the Council of Europe present an opportunity to do so at a pivotal moment not only in that case but for the future of the rule of law in Russia.

Mikhail Khodorkovsky was the CEO of the Yukos Oil Company and the richest man in Russia when in 2003 he and his business partner, Platon Lebedev, were arrested and charged with crimes connected to Yukos, Russia’s most profitable and well-known private corporation.  They were convicted of fraud, causing property damage by deceit or breach of trust, and tax evasion and sentenced to eight years in prison.  Yukos was seized and sold to state-controlled companies.  In December 2010, as their sentences drew to a close, Khodorkovsky and Lebedev were convicted by another court of embezzlement and money-laundering, charges arising out of the same time period and concerning the same corporate activities that were the basis for the first conviction.  On the eve of that verdict, Prime Minister Vladimir Putin informed a nationwide television audience that “a thief should sit in jail,” a reference to a well-known Soviet mini-series that would have been quite familiar to viewers (the quote continues: “… and people don’t care how I put him away.”).  In midsummer 2011, a Russian court upheld the verdict, extending the defendants’ sentences until 2016. 

A bit more on the tension this case embodies for Russian law and human rights after the break …

Read More

Unconditional Bailouts: Capitalism’s Undoing

What are we to make of Bob Ivry, Bradley Keoun and Phil Kuntz’s blockbuster report on the Fed’s bailouts? The three journalists conclude that “taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger.” Yves Smith argues that “banks lied” and grabbed $13 billion in profit. She also notes that their favorite water carrier, Timothy Geithner, “told Congressmen they were too stupid to be able to shrink banks, and they should leave those questions to the Basel Committee (which has no interest in making big banks smaller).”

For another perspective on the corrupt relationship between megabanks and our central bank, consider John Kay’s recent description of the “martingale” strategy among bettors:

Each time you lose, you increase your stake: to the point at which a win on the next game would recoup all your losses and leave you ahead. Since you will win sooner or later, you are certain to come home with a small profit. Provided you are infinitely rich before you start. Otherwise, if you regularly engage in martingales, you will eventually go bankrupt – and the richer you are, the larger the scale of bankruptcy.

Read More

An Important Post on Egypt from Nagla Rizk

At a time of global economic crisis, the renewed centrality of two origin points of modern civilization (Greece and Egypt) is uncanny. Nagla Rizk, a professor and dean at the American University in Cairo, has courageously offered a nuanced and critical perspective on tomorrow’s elections there and the past 10 months of political turmoil. I was privileged to meet Prof. Rizk while at Yale’s Access to Knowledge Global Academy, and I highly recommend following her work and twitter feed. A few insights from her:

When we stormed the streets last January, we chanted “Aish, Horreya, Adala Egtema’eya” (“Bread, Freedom, Social Justice”). . . . Ten months down the road, yesterday we chanted in Tahrir, “Aish, Horreya, Adala Egtema’eya” (“Bread, Freedom, Social Justice”). Why? . . .

Rather than tackling the root of the problem or starting a dialogue with the protesters, [the post-Mubarak SCAF regime] chose to order them to go home. To add insult to injury, SCAF and its government portrayed them as the cause of instability, turning the rest of Egypt against them.

Read More