Media coverage of the Islamic State frequently refers to the group’s violent and seemingly archaic justice system without considering the institutional structures that enable this violence, or the broader function that it serves in the group’s ambitious state-building project. Legal institutions make it easier for the group to capture and retain territory by legitimizing its claim to sovereignty, justifying the expropriation of the property and land of enemies, and building goodwill with civilians by ensuring accountability.

The Islamic State’s legal system purports to strictly apply the divinely revealed body of Islamic law known as Sharia, which it regards as the only legitimate basis for governance. Although its legal system is frequently characterized as medieval, it has instrumentally supplemented the original text of the Quran with the modern rules and regulations that are needed to govern a 21st century state and punish modern day offenses—for example, traffic violations. It has the same three features that are present in any modern legal system: police, courts, and prisons.

In a region that has long been plagued by corruption, the Islamic State has attempted to ingratiate itself with civilians by claiming that its legal system is comparatively more legitimate and effective than the available alternatives. However, two emerging vulnerabilities—the system’s susceptibility to corruption and propensity for extra-legal violence—are increasingly undermining the Islamic State’s ability to obtain the trust and cooperation of civilians. Counterinsurgency efforts should be designed to undermine the legitimacy of its institutions. Long-term solutions in the region must involve a fundamental reorganization of political and legal institutions in ways that promote legitimacy and rule of law.

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• The legal foundations of the Islamic State

Media coverage of the Islamic State has focused on the group’s grotesque use of violence and archaic governance style. Less attention has been paid, however, to the institutions that make those practices possible—institutions that lend the group legitimacy, at least in the eyes of supporters, as a sovereign state. In her new Brookings Analysis Paper, “The legal foundations of the Islamic State,” Mara Revkin argues that legal institutions play a critical role in the Islamic State’s state-building project. Those structures help the group take and keep territory, as well as provide a measure of accountability to the people living under its rule.

Lesser evil?

Revkin writes that “the Islamic State has attempted to ingratiate itself with civilians by claiming that its legal system is comparatively more legitimate and effective than the available alternatives.” The Syrian and Iraqi governments, Revkin explains, are often perceived as being highly corrupt and ineffective. The Islamic State is able to gain civilians’ favor by arguing that its political and legal institutions are more legitimate than those of the Syrian and Iraqi governments or rival armed groups. She adds: “some Syrians and Iraqis seem to prefer the legal system of the Islamic State to the available alternatives not because they agree with its ideology, but simply because they regard it as the lesser evil.” 

The Syrian and Iraqi governments...are often perceived as being highly corrupt and ineffective.

Revkin writes that for the Islamic State, shariah law is “the only legitimate basis for governance.” In cases where shariah fails to address modern-day problems, she explains, religiously legitimate authorities appointed by the Islamic State—such as military commanders, police officers, and the caliph himself—can issue legal decisions as long as they do not conflict with the divine rules of shariah or harm the welfare of the greater Muslim community. Alongside this is a system of rules and regulations to “govern civilians, discipline its own officials and combatants, and control territory” in areas of rights and duties, behavior, property, trade, and warfare. 

Making the state possible

Legal institutions help the Islamic State advance three main state-building objectives, in Revkin’s view: 

1. First, they support the Islamic State’s territorial expansion by “legitimizing [its] claims to sovereignty, justifying the expropriation of the property and land of enemies, and building goodwill with civilians.” 
2. Legal institutions also allow the Islamic State to enforce compliance and accountability of its own members and maintain internal control and discipline. Revkin describes various types of punishments the Islamic State uses to discipline its own members—these punishments are important, she writes, because “no government can establish itself as legitimate and sovereign without policing the behavior of the people who are responsible for implementing its policies.”
3. Finally, Revkin explores the legal institutions surrounding the Islamic State’s tax policies, which are “critical to financing the Islamic State’s governance and military operations.” Courts and judges, she explains, are crucial to “administering and legitimizing” taxation and justifying “economic activities that might otherwise resemble theft.” 

Weaknesses in the system

Although the Islamic State claims to have legitimate governing authority, based on a defined legal system, that system faces vulnerabilities. Revkin writes, for instance, that reports of corruption and extra-legal violence are “threatening the organization’s long-term sustainability and undermining its ability to win the trust and cooperation of civilians.”

Amid recent signs that the group is losing strength, Revkin argues that it’s struggling to maintain its own moral standards. To further weaken the Islamic State, she recommends working to undermine those institutions. The trouble is, as Revkin points out: “the Islamic State came to power largely by exploiting the weakness and illegitimacy of existing institutions” in Iraq and Syria. Thus, a sustainable plan for ultimately destroying the organization must also involve strengthening political and legal institutions in those countries. 

The leaked information in the Panama Papers from the law firm Mossack Fonseca has captured the headlines for weeks and will continue to do so as further names are exposed. The scandal has placed Panama in the limelight and provided an unprecedented glimpse into the world of hidden money and tax avoidance. To understand its broader context, it is vital that we distinguish between legal corruption, like that exposed by the Panama Papers, and illegal corruption, like that exposed by the Unaoil scandal. Governments must seize the moment to take decisive action against both.  

The U.S., the U.K., and a range of other countries will announce commitments to combat corruption at the Anti-Corruption Summit on May 12, championed by Prime Minister David Cameron as a game-changing event. The question is whether these commitments will deliver concrete actions that target the most costly kinds of corruption that flourish globally today.  

Unfortunately, the world often engages in “summitry” filled with communiques, calls for coordination and exchanging information, or creating another toothless generic initiative, which offer media and photo opportunities that fulfill particular political objectives for some leaders. Let us see if it’s different this time.

Mossack Fonseca, and its home country Panama, are just a couple nodes in the vast and complex set of “enablers” of corruption and tax evasion around the world.     

For those seeking secret shelters and corporate shells, the mighty U.S. (which unsurprisingly doesn’t feature much in the Panama Papers) is one of the world’s most appealing destinations: Setting up a shell corporation in Delaware, for instance, requires less background information than obtaining a driver’s license. As seen in the chart below, this opacity, coupled with the size of the U.S. as a haven, means that it has been ranked the third most secretive jurisdiction among close to 100 assessed by the Financial Secrecy Index. Panama is 13th.

Figure 1: Financial Secrecy Index 2015 (Select jurisdictions, from the Tax Justice Network)

Source: The Tax Justice Network’s Financial Secrecy Index http://www.financialsecrecyindex.com/introduction/fsi-2015-results

This graph depicts the top 40 worst performing jurisdictions as well as four select better performing jurisdictions (right of dashed line). The Index combines a qualitative secrecy score based on 15 indicators and a quantitative measure of a jurisdiction's share in global financial services exports. 

And the U.K. is an important enabler of corruption: It has stood by as its offshore jurisdictions and protectorates operate as safe havens for illicit wealth, which the Panama Papers make clear. The British Virgin Islands, for example, were the favored location for thousands of shell companies set up by Mossack Fonseca.  

The Panama Papers speak only indirectly to core aspects of today’s global corruption challenge, which are neither about Panama nor taxes. We ought to view the resulting scandals in a broader light, and recognize the immense, complex webs of corruption that increasingly link economic and political elites around the globe.

Grand corruption

The most powerful figures who engage in high-level or “grand” corruption are hardly running scared following the Panama leak. These figures include kleptocrat leaders as well as oligarchs who wield enormous influence on government affairs. Often, these players interact and collude, forming high-powered public-private networks that make the traditional notion of corruption as an illegal transaction between two parties look like child’s play.

Corruption in these elite networks far transcends the unethical behavior of the typical tax avoider, as it involves the abuse of power to accumulate power and assets, often via the direct plunder of public resources, asset stripping, or large-scale bribery. The multi-billion-dollar scandal embroiling the Brazilian oil giant Petrobras illustrates the complexity of colluding networks, and how grand such corruption can inflict political and economic damage of historical proportions on a country. 

The oil sector provides many more illustrations of grand corruption. Few company officials may have been more relieved by the Panama Papers leak than those at Unaoil, whose own scandal had just erupted. Unaoil is an “enabler” company incorporated in Monaco that bribed and influenced government officials in various countries on behalf of multinational companies vying for lucrative procurement contracts. While overshadowed by the Panama leaks, the Unaoil case is at least as emblematic of the challenges in tackling global corruption. For instance, it shows the deeply ingrained practice of Iraqi government officials seeking bribes for the award of contracts and the willingness of companies to provide them.

Corrupt elites, including those embroiled in the Unaoil scandal, often use structures like shell corporations and tax havens (along with real estate and other investments) to hide their ill-gotten funds. However, even if the Panama Papers leak prompts more scrutiny on illicit financial flows and the reform of these opaque financial structures, grand corruption will continue in many locations.  It is noteworthy that the political fallout has been concentrated in relatively well-governed countries that do have accountability and anti-corruption systems in place, as illustrated by the resignations of the prime minister of Iceland, the industry minister of Spain, and the head of Chile’s Transparency International chapter. 

In sharp contrast, President Vladimir Putin brushed off the leaked Russian information as a Western anti-Putin conspiracy; in China, discussion and dissemination were muffled by media censorship; and, in Azerbaijan, exposure of details on President Aliyev’s family mining interests will hardly dent his hold on power. While reforms leading from the Panama leaks will hopefully deter tax dodgers and unethical corporations and individuals from hiding dirty assets, powerful corrupt leaders will continue to enjoy impunity.

Legal corruption and state capture   

The Panama Papers shed a sliver of light on the type of corruption that is perhaps most damaging and difficult to tackle: legal corruption and state capture. Around the world, powerful economic and political elites unduly influence laws and policies, shaping the rules of the game for their own benefit, or what has been called the “privatization of public policy and lawmaking.” This generates huge rents for the elite, increases their power, and exacerbates a country’s political and economic inequality.

Resource-rich countries provide many illustrations. In Angola, the Democratic Republic of Congo, Nigeria, and Venezuela, for example, political elites have used state-owned resource companies to serve patronage agendas, often—though not exclusively—through legal means.

In many industrialized countries, an example of state capture is the tax system itself. It is in the interest of elites to safeguard a worldwide network of secret offshore companies and tax havens as places to hide wealth—whether acquired legitimately or illicitly. The evidence on tax avoidance from the U.S. is telling: According to Zucman, since the 1950s the effective rate of corporate tax has decreased from 45 to 15 percent, whereas the nominal rate has only decreased from 50 to 35 percent. And U.S. companies make full use of foreign tax havens: According to a new Oxfam report, the top 50 American multinationals reported in 2008 that 43 percent of their foreign earnings came from five tax havens, accounting for only 4 percent of the companies’ foreign workforces. Further, Bourguignon reports that federal tax rates on the richest Americans fell by 15 percent between 1970 and 2004.

Risks of legal corruption in the U.S. run high because private money can so easily sway public affairs. Following the 2010 Citizen United ruling by the Supreme Court, private funds from deep pockets increasingly dominate the conduct of electoral campaigns. The avenues for private money to influence public officials may widen further, if forms of bribery traditionally considered illegal become legalized. A forthcoming Supreme Court decision could make it legal for public officials to receive gifts and other benefits from private individuals (potentially overturning the corruption conviction of a former Virginia governor for doing exactly that).  

Upfront, there are no easy solutions, especially because powerful decision-makers benefit from this status quo. But there is the opportunity, and public pressure, to reform.  As mentioned, the cause of tackling corruption often attracts token gestures, and David Cameron’s announcement of a new global anti-corruption agency could be at high risk of falling into this category. Rather, countries like the U.S. and U.K. must take firm action to reform their own practices, and push for the same from their partners such as the U.K. crown dependencies and overseas territories, the European Union and G20 members, and the recipients of overseas aid.

First, take legal corruption and state capture seriously. 

Transparency can be one game changer, especially if it addresses the channels of influence through which policy becomes “privatized.” Disclosures of campaign finance contributions, conflicts of interests, assets held by (and tax returns filed by) politicians and public officials, and parliamentary deliberations and votes can all discourage abuse and reveal hidden networks at play. Encouragingly, the Organisation for Economic Co-operation and Development (OECD) recently issued their first salvo, the report “Financing Democracy,” focusing on a few selected case studies, and as a next step it should be empowered to develop standards and carry out assessments on political finance for all OECD countries.

Transparency will only help if citizens can actively scrutinize and engage with their governments. Civic space is under attack in many jurisdictions, with activists and journalists facing intimidation, prosecution, or worse. Securing rights of expression and assembly should be the business of any international actor concerned with anti-corruption or economic governance. For instance, when considering funding requests from governments with weak records on protecting civil society—like Angola and Azerbaijan—the World Bank and International Monetary Fund as well as donors like the U.S. should prioritize civic accountability as well as broader transparency reforms.

Furthermore, grand corruption will not decline without more effective prosecutions and other sanctions that target bribe-takers, as well as the facilitators and middlemen of corruption, be they lawyers, accountants, or fixers like Unaoil. Of course, law enforcement authorities should also remain vigilant against bribe-paying companies; and governments—including OECD members implementing to varying degrees the OECD foreign bribery convention—would do well to emulate the active enforcement of the U.S. Foreign Corrupt Practices Act (FCPA) in this regard. But bribe-takers and facilitators have not faced sufficient scrutiny and sanction.

Second, get rid of shadowy corners.

Lessons yielded by recent events from the 2008 financial crisis to the Panama Papers suggest that major global players should not allow large corners of the global economy to escape scrutiny. The U.S. and the U.K. (with its offshores), should heed the calls for dismantling secrecy and tax havens. Seeds of effort, such as the U.S. government’s decision to require banks to know the identities of the individuals behind shell companies, are now coming to light, but broader efforts, including legislation, will also be required.  

Beneficial ownership transparency should become standard operating procedure, with governments following the example of the U.K., the Netherlands, and others in setting up public registries, and joining the movement toward a global registry. In the case of resource-rich countries, establishing sector-specific registries may be the right place to start. This practice is now mandated by the Extractive Industries Transparency Initiative.

Within the extractive sector, home country governments should subject commodity traders to payment disclosure requirements when doing business with governments and state-owned companies. Governments of countries like Switzerland, the U.K., and Singapore that are home to corporate actors shoulder significant responsibility, especially in the current era of low commodity prices, when traders are entering into profitable new deals with cash-strapped resource-producing countries. Shining light in dark corners like these will render them less susceptible to abuse.

Third, prioritize transparency and scrutiny when public resources are allocated.

Whenever a government allocates resources for exploitation, it ought to do so in a fully transparent fashion. The Open Contracting Partnership has made great strides in defining a gold standard for such reporting, including guidance on issues such as open data, corporate identifiers, and beneficial ownership reporting.

Natural Resource Governance Institute research on oil and mining sector corruption shows that multiple types of high-value allocations require scrutiny and contract disclosure. These include the allocation of exploration and production licenses, but also on export, import, or transport rights, which have been associated with corruption in countries such as Indonesia, the Republic of Congo, and Ukraine. And most of the oil sector cases prosecuted under the U.S. FCPA have arisen around the award of service contracts, a segment of the oil industry where the Unaoil and Petrobras scandals also took place. Transparency should be the default setting for any transactions that allocate public resources. Further scrutiny is also needed on the abuse of (mis-)managed exchange rate regimes that generates rents for the few and creates major economic distortions, such as currently in Nigeria, Venezuela, and Egypt.

Concrete impact will also require a major attack on impunity since transparency and freedom of expression are necessary, but insufficient. And governments including those of the U.S. and the U.K. should adopt reforms to address legal corruption and various forms of opacity—whether addressing the capture by money in politics or the “dark corners” among oil traders headquartered in Geneva and London. 

An ambitious commitment to tackling corruption and impunity is not only needed now, but demanded by societies, as events in Brazil and elsewhere show. This is a potentially “game-changing” global moment to make real progress.  

This piece is also available in Spanish and French. 

Editor’s Note: This blog post is one in a series of posts in which guest bloggers respond to the Brookings paper, “The potential and limitations of impact bonds: Lessons from the first five years of experience worldwide."

In 2014, clause 5 (1) of the County Early Childhood Education Bill 2014 declared free and compulsory early childhood education a right for all children in Kenya. Early childhood education (ECE) in Kenya has historically been located outside of the realm of government and placed under the purview of the community, religious institutions, and the private sector. The disparate and unstructured nature of ECE in the country has led to a proliferation of unregistered informal schools particularly in underprivileged communities. Most of these schools still charge relatively high fees and ancillary costs yet largely offer poor quality of education. Children from these preschools have poor cognitive development and inadequate school readiness upon entry into primary school.

The Kenyan constitution places the responsibility and mandate of providing free, compulsory, and quality ECE on the county governments. It is an onerous challenge for these sub-national governments in taking on a large-scale critical function that has until now principally existed outside of government.

In Nairobi City County, out of over 250,000 ECE eligible children, only about 12,000 attend public preschools. Except for one or two notable public preschools, most have a poor reputation with parents. Due to limited access and demand for quality, the majority of Nairobi’s preschool eligible children are enrolled in private and informal schools. A recent study of the Mukuru slum of Nairobi shows that over 80 percent of 4- and 5-year-olds in this large slum area are enrolled in preschool, with 94 percent of them attending informal private schools.

In early 2015, the Governor of Nairobi City County, Dr. Evans Kidero, commissioned a taskforce to look into factors affecting access, equity, and quality of education in the county. The taskforce identified significant constraints including human capital and capacity gaps, material and infrastructure deficiencies, management and systemic inefficiencies that have led to a steady deterioration of education in the city to a point where the county consistently underperforms relative to other less resourced counties. 

Nairobi City County now faces the challenge of designing and implementing a scalable model that will ensure access to quality early childhood education for all eligible children in the city by 2030. The sub-national government’s resources and implementation capacity are woefully inadequate to attain universal access in the near term, nor by the Sustainable Development Goal (SDG) deadline of 2030. However, there are potential opportunities to leverage emerging mechanisms for development financing to provide requisite resource additionality, private sector rigor, and performance management that will enable Nairobi to significantly advance the objective of ensuring ECE is available to all children in the county.

Social impact bonds (SIBs) are one form of innovative financing mechanism that have been used in developed countries to tap external resources to facilitate early childhood initiatives. This mechanism seeks to harness private finance to enable and support the implementation of social services. Government repays the investor contingent on the attainment of targeted outcomes. Where a donor agency is the outcomes funder instead of government, the mechanism is referred to as a development impact bond (DIB).

The recent Brookings study highlights some of the potential and limitations of impact bonds by researching in-depth the 38 impact bonds that had been contracted globally as of March, 2015. On the upside, the study shows that impact bonds have been successful in achieving a shift of government and service providers to outcomes. In addition, impact bonds have been able to foster collaboration among stakeholders including across levels of government, government agencies, and between the public and private sector. Another strength of impact bonds is their ability to build systems of monitoring and evaluation and establish processes of adaptive learning, both critical to achieving desirable ECD outcomes. On the downside, the report highlights some particular challenges and limitations of the impact bonds to date. These include the cost and complexity of putting the deals together, the need for appropriate legal and political environments and impact bonds’ inability thus far to demonstrate a large dent in the ever present challenge of achieving scale.

In the Kenyan context, especially at the sub-national level, there are two key challenges in implementing impact bonds.

To begin with, in the Kenyan context, the use of a SIB would invoke public-private partnership legislation, which prescribes highly stringent measures and extensive pre-qualification processes that are administered by the National Treasury and not at the county level. The complexity arises from the fact that SIBs constitute an inherent contingent liability to government as they expose it to fiscal risk resulting from a potential future public payment obligation to the private party in the project.

Another key challenge in a SIB is the fact that Government must pay for outcomes achieved and for often significant transaction costs, yet the SIB does not explicitly encompass financial additionality. Since government pays for outcomes in the end, the transaction costs and obligation to pay for outcomes could reduce interest from key decision-makers in government.

The above challenges notwithstanding, a combined approach of results-based financing and impact investing has high potential to mobilize both requisite resources and efficient capacity to deliver quality ECE in Nairobi City County. To establish an enabling foundation for the future inclusion of impact investing whilst beginning to address the immediate ECE challenge, Nairobi City County has designed and is in the process of rolling out a modified DIB. In this model, a pool of donor funds for education will be leveraged through the new Nairobi City County Education Trust (NCCET).

The model seeks to apply the basic principles of results-based financing, but in a structure adjusted to address aforementioned constraints. Whereas in the classical SIB and DIB mechanisms investors provide upfront capital and government and donors respectively repay the investment with a return for attained outcomes, the modified structure will incorporate only grant funding with no possibility for return of principal. Private service providers will be engaged to operate ECE centers, financed by the donor-funded NCCET. The operators will receive pre-set funding from the NCCET, but the county government will progressively absorb their costs as they achieve targeted outcomes, including salaries for top-performing teachers. As a result, high-performing providers will be able to make a small profit. The system is designed to incentivize teachers and progressively provide greater income for effective school operators, while enabling an ordered handover of funding responsibilities to government, thus providing for program sustainability.

Nairobi City County plans to build 97 new ECE centers, all of which are to be located in the slum areas. NCCET will complement this undertaking by structuring and implementing the new funding model to operationalize the schools. The structure aims to coordinate the actors involved in the program—donors, service providers, evaluators—whilst sensitizing and preparing government to engage the private sector in the provision of social services and the payment of outcomes thereof.

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The Nile River is one of the most important resources in Africa and supports the livelihoods of millions of people. Recently, though, efficient and equitable utilization of the waters of the Nile River has become an increasingly contentious issue, with many of the riparian countries demanding a revision of what they believe is an inappropriate legal regime. Currently, allocation and utilization of the waters of the Nile River is governed by the colonial-era Nile Waters Agreements, which were negotiated and entered into with the help of Great Britain, but without the participation of most of the river’s riparian states. These agreements allocated most of the waters of the Nile River to the downstream riparians—Egypt and Sudan—largely ignoring the development needs of the upstream riparians, like Ethiopia, whose highlands provide most of the water that flows into the Nile River. The upstream riparians contend that they were not party to the Nile Waters Agreements and thus should not be bound by them. As such, they want these agreements set aside and a new, more equitable legal regime. Egypt, however, considers the existing legal regime binding on all the Nile River riparian states and, thus, is opposed to any changes that might interfere with or reduce its “historically acquired rights.” Already the decision by Addis Ababa to proceed with the construction of the Grand Ethiopian Renaissance Dam on the Blue Nile has caused significant deterioration in relations between Cairo and Addis Ababa.

With significant increases in population and pressure to deliver development, especially in the upstream riparian states, the demand for water has become a very important policy imperative in the region. In fact, earlier this year Egypt claimed that, in order to meet its growing water needs by 2050, it will need to add 21 billion cubic meters of water per year to its current water allocation of 55 billion cubic meters. Thus, there is a fear that if this issue is not fully resolved soon, it could morph into a military crisis.

In our new book, Governing the Nile River Basin: The Search for a New Legal Regime, we argue that the current legal regime governing the allocation and utilization of the waters of the Nile River is not tenable, and there is an urgent need for all the Nile River riparian states to enter into a mutually agreed upon legal regime. Issues pertaining to transboundary water resource management, the evolution of current agreements and the role and interests of colonial powers, theories of treaty succession, and the recent attempts by the riparian states to formulate a new legal agreement, are thoroughly examined. We conclude that the most effective way to deal with conflict arising from the allocation and utilization of the Nile River’s waters is for all the downstream and upstream riparians to engage in fresh negotiations to design and adopt a new legal regime. Through a fully consultative process, these countries can provide the Nile River Basin with a legal regime that enhances equitable allocation and utilization.