Mexico

Last June, Mexico elected new governors in twelve of its thirty-one states. As millions of voters went to the urns, corruption was a top concern (along with insecurity). Eight states saw the incumbent party kicked out; in four—Veracruz, Quintana Roo, Chihuahua, and Durango—the PRI lost for the first time in the party’s history. The voter outrage behind this rout seems to be rooted in reality. Seven of the outgoing governors face serious corruption allegations; in five of these investigations are already underway, either by the Mexican or U.S. government. Here is a rundown of their alleged misdeeds: The most egregious accusations surround the outgoing PRI governors of Veracruz, Quintana Roo, and Chihuahua. In Veracruz, still Governor Javier Duarte (PRI) is being investigated by Mexico’s attorney general’s office (PGR) for embezzlement and illicit enrichment. News reports count at least 646 million pesos—roughly $48 million dollars—in government contracts to phantom companies. In response the PRI has distanced itself, taking away Duarte’s party privileges. Quintana Roo’s former Governor Roberto Borge (PRI) is under investigation by Mexico’s tax authority (SAT) following a CNN exposé alleging that he led a vast fraud ring, systematically robbing individual’s and businesses’ real estate and bank accounts. In just one day, authorities took over four hotels worth 340 million pesos. Televisa journalists also uncovered sales of protected lands to Borge’s friends on the cheap, and his use of public money to fund his own personal airline. In Chihuahua, the PGR is investigating former Governor César Duarte (PRI) for illicit enrichment and money laundering, based on allegations that he directed 80 billion pesos in public funds into a bank he partially owned. He is also facing a lawsuit from a Spanish corporation for trying to use public funds to pay off $2 million of a $4 million dollar personal debt. All three governors attempted to protect themselves against prosecutions before stepping down, setting up ahead-of-schedule state-level anticorruption offices and then packing them with their cronies. So far, the Supreme Court has struck down both Duartes’ actions, and Borge’s case is pending. In Zacatecas, former Governor Miguel Alonso (PRI) is being investigated by the PGR for embezzlement and illicit enrichment for buying protected land before it was rezoned for residential or commercial use. Local legislators also accuse him of receiving kickbacks for government contracts—paid to his brother Juan Manuel Alonso. In Oaxaca, outgoing Governor Gabino Cué (PAN) is under investigation by U.S. authorities for possible money laundering, following the movement of tens of millions of dollars through the bank accounts of his close associates. In Hidalgo, the press uncovered that former Governor Francisco Olvera (PRI) spent hundreds of thousands of pesos to attend the Super Bowl and bring chart-topping musicians to play at his private parties, all supposedly on his governor’s salary. He also used his government helicopter for personal fun, including going to a soccer game. Finally in Aguascalientes, news exposés accuse outgoing Governor Carlos Lozano (PRI) of nepotism, maneuvering his nephew into control of the state’s finances. Those ending their tenure in the remaining five states have not yet been accused of illegal financial dealings, though rumors of using public funds for self-promotion, ties to drug cartels, and missing financial documents swirl around many of them. This corruption—part of the morass that costs the Mexican economy up to 10 percent of GDP each year—motivated voters last summer. It is time now for the judicial branch to step forward and play its democratic role—investigating, prosecuting, and convicting the guilty.

Harvard’s inimitable Matthew Stephenson this week published a thought-provoking blog post comparing anticorruption efforts in Asia and Latin America. Crudely summarizing Stephenson’s argument, a few years ago many looked to Asia as the gold standard in anticorruption efforts, in part because of the success of independent and effective anticorruption agencies (ACAs) in the region. But recent news of political meddling with Hong Kong’s ACA, brazen kleptocracy in Malaysia’s state development fund, and efforts to water down reform in Indonesia all suggest that the pendulum is swinging in a less positive direction. By contrast, Stephenson is optimistic about the important gains made in recent years in Latin America, including by Guatemala’s International Commission Against Impunity (CICIG), Brazil’s Car Wash investigation, elections in Peru and Argentina that highlighted voter frustration with corruption, and Mexico’s “3 out of 3” reforms. As Stephenson was careful to note, it is dangerous to generalize across regions. The on-the-ground details in each country get in the way of blanket statements about how regional anticorruption efforts are playing out. I agree, and I would go further. An additional caveat that the anticorruption community should keep in mind—even while celebrating successes—is that the effectiveness of anticorruption efforts is only really evident over the long haul. This is in large part because by their very nature, anticorruption reforms tend to generate significant pushback. Anticorruption reforms are never really complete: even independent and well-functioning institutions can decay over time, under pressure from the powerful interests that benefit from, and are empowered by, corruption. Incipient anticorruption reforms are even more vulnerable to regression. Latin America has indeed been making enormous strides forward in recent years, under a remarkable set of homegrown anticorruption campaigners, but resistance appears to be building against those who would reform the system. In recent years, a cautiously optimistic story could be told about Brazil, in light of the incremental anticorruption gains of the past generation. But recent developments suggest that these gains are under threat. Clientelistic parties and opponents of reform in both the Rousseff and Temer administrations have introduced proposals—both via decree and through legislation—that would weaken prosecutors and judges and considerably undermine the transparency of court cases, institute a tax amnesty law for repatriation of foreign holdings, restrict corporate leniency agreements, and limit plea bargaining. Although some of these proposals are framed as a seemingly reasonable effort to block the “abuse of authority,” they would have a chilling effect on the nascent—and still very uncertain—efforts to tackle corruption in Brazilian politics. Equally important, a set of necessary anticorruption reforms pushed forward by prosecutors, and placed on the legislative agenda with the support of 2 million citizens, has been stymied by congressional foot dragging. Acting president Michel Temer, who has now been mentioned twice in the Car Wash investigation, has adopted what is at best an ambiguous attitude toward anticorruption efforts, appointing a cabinet that is staffed by a number of unsavory characters, and failing to exert even an ounce of energy in support of reform. In Guatemala, the UN-backed CICIG is in danger of becoming a victim of its own success. The easy criticism is that due to the presence of an international body like CICIG, Guatemalan institutions have not been under pressure to reform themselves. This is too facile, if only because there was never any sign that Guatemala’s institutions would be able to reform on their own, and CICIG’s presence seems to have empowered Guatemala’s prosecutors. The remarkable former attorney general, Claudia Paz y Paz, moved against some of the most powerful figures in Guatemalan history, and the prosecutorial service has gained new staff, prestige, and resources. Yet the genocide case against former president Efraín Ríos Montt was overturned by the high court, and there are fears that the court might be similarly timid in addressing corruption charges against former President Pérez Molina and his vice president. Meanwhile, President Jimmy Morales has been slow to build on anticorruption successes, and in fact, the early days of his administration have been marked by a surprising willingness to compromise with questionable elites. One of the few barriers to regression has been the mobilization of the Guatemalan public, which has encouraged the appointment of a few reformers in the Morales administration, and which will be essential to ensuring the success of a planned judicial reform package to be drafted later this year. In Mexico, the “3 out of 3” reforms were a huge deal, not least because for months they seemed to be destined for the trash bin, after Institutional Revolutionary Party (PRI) legislators delayed their consideration and then attempted to sink them with a poison pill. As my colleague Shannon O’Neil pointed out, voter concern with corruption was one of the driving forces behind the PRI’s historic loss in the June gubernatorial elections, and the effort to move forward on the reforms may have been the PRI’s attempt to get out ahead of the corruption issue before the 2018 presidential elections. Yet just this week, news has emerged of the Mexican first lady’s luxurious vacation digs in Key Biscayne, which it now turns out are owned by a company that will be bidding for Mexico’s port business. This after another contractor sold the first lady her $7 million Mexico City mansion in a controversial transaction two years ago. Old habits die hard, even though public asset disclosure requirements in “3 out of 3” were aimed at curbing exactly this type of abuse. There is no reason to be a sourpuss. Latin Americans should be justifiably proud of the remarkable gains of recent years, and Stephenson is right to point out their relative success compared to the current backsliding in Asia. But the common thread running through the recent Brazilian, Guatemalan, and Mexican country experiences is the importance of citizen engagement: without public pressure, politicians tend to revert to old practices. Before he became one of the most famous judges of all time, Sérgio Moro wrote an academic paper on the Mani Pulite investigations of corruption in Italy, which noted that “judicial action against corruption is only effective with democratic support.” He concluded this after observing that when public attention turned away from the corruption investigations in Italy, politicians did all they could to make prosecutors’ lives more difficult: they strengthened evidentiary protections, decriminalized accounting fraud, reintroduced parliamentary immunity, and reduced statutes of limitations in corruption cases. It is probably unrealistic to expect Latin American publics to remain engaged on anticorruption: at some point, there may just be too much bad news, or the news may be too destabilizing to everyday governance, or the corruption effort will be seen as a partisan crusade, or the news that there is corruption in high places will no longer galvanize a weary public. Efforts to eradicate corruption will always be a game of inches, and the politicians who would like a return to the old status quo in Latin America have only just begun to fight.

Mexico’s New Anticorruption Tools President Enrique Peña Nieto signed into law long-awaited rules to step up Mexico’s fight against corruption. He had to veto an earlier version that would have forced private firms that receive government money to reveal their income and assets. The new measures mandate that all public servants disclose their assets, income, and tax returns. They also set up an independent prosecutor’s office and up the punishments for bribery, embezzlement, and influence peddling. While some civil society groups had hoped for more, the new anticorruption system provides new and stronger tools for those eager to take on bad behavior. South Africa Shows Anticorruption Tools Aren’t Enough While laws against corruption are important, they’re not enough—as South Africa shows. The nation’s anticorruption efforts, enshrined in its 1995 Constitution, have foundered under Jacob Zuma’s government. The National Prosecuting Authority (NPA), created to fight wrongdoing, dropped 783 charges of corruption, fraud, and racketeering against Zuma for his ties to a multi-billion dollar arms deal. In April, Pretoria’s High Court unanimously condemned the dismissals, calling for the charges to be revived. Now the NPA says it will appeal to South Africa’s supreme judicial body to overturn the High Court’s verdict. Though that outcome is unlikely—the Constitutional Court has been democratic South Africa’s strongest anticorruption tool—the process illuminates the limits of laws without political will. Venezuela’s Slow-Motion Coup While Turkey’s failed coup dominates headlines, Venezuela’s military furthered its political control to little international condemnation. Active and retired military officers already governed nearly half of Venezuela’s twenty-three states, one-third of its ministries, and ten state-owned companies in sectors ranging from transportation to agriculture. They set up a new oil and mining company that could absorb state-owned Petróleos de Venezuela S.A. (PDVSA) assets, giving the Ministry of Defense power over the country’s vast natural resources. In the face of a deepening humanitarian crisis, President Nicolás Maduro expanded Defense Minister Vladimir Padrino López’s responsibilities—putting him in charge of all ministries and institutions. The question now is whether Maduro is much more than a figurehead.                                                            

It is Latin America’s anticorruption season. Deep beneath the waves of revulsion about scandal, graft, and the general filthiness of local politics has been a profound concern with democracy. In particular, there is a growing awareness that the dangerous liaisons between corruption and electoral finance threaten the stability and legitimacy of elected governments in the region. While there is plenty of good news about the impressive corruption busters who are shaking up settled patterns of corruption and impunity in the region, many of the underlying links between corporate transparency, corruption, and campaign finance remain deeply troubling and potentially destabilizing. Of eighty-seven companies mentioned in the FCPA Blog’s most recent Corporate Investigations List—a count of companies whose public filings with the Securities and Exchange Commission reveal that they are the subject of an ongoing and unresolved investigation under the Foreign Corrupt Practices Act—fully twenty-six are Latin American. Given that Latin America accounts for only 7 percent of the global economy, the fact that it accounts for 30 percent of current enforcement actions is impressive. Equally remarkable is that Brazil alone accounts for more than one in five of the companies on the list. Of course, enforcement actions by U.S. regulators only target companies traded on the U.S. markets. The longstanding prevalence in Latin America of closed companies and conglomerates controlled by single families means that many regional corporate leaders are not publicly traded, much less traded on U.S. stock exchanges where they would be susceptible to U.S. regulation. Furthermore, it might be argued that much corruption is simply illegal enrichment, and does nothing to fund campaigns. But personal enrichment often comes at the cost of private-regarding policies. More damaging still is that as companies across the region increasingly expand beyond their domestic markets and into neighboring economies, they sometimes carry with them the nefarious practices of political influence-peddling that helped them dominate at home. By way of example, Odebrecht, the once-massive construction firm at the heart of Brazil’s Lava Jato case, has expanded significantly to neighboring countries since the turn of the century. In its baggage train it carried significant campaign contributions, whether to Peruvian candidates with a role in the construction of massive interoceanic highways, or to Panamanian politicians with influence in over-priced public works projects. Recognizing the dangers of corruption to electoral competition, the investigations that have swept the region in recent years have triggered a variety of changes in domestic laws aimed at destabilizing the nexus between politics and corruption. These include a ban on corporate donations in Brazil, a similar ban combined with campaign spending limits in Chile, and this week, after months of heavy civil society prodding, transparency requirements for politicians and the strengthening of anticorruption bodies in Mexico. But as a Transparency International report published earlier this month demonstrates, emerging market multinationals are lagging behind in the push for greater corporate transparency. Publicly listed companies do better than privately held companies, but overall, the results show that less than half of the emerging market multinationals are transparent about their internal anticorruption programs; only 47 percent report transparently on their holdings and subsidiaries in other countries; and a measly 9 percent report on their activities in other countries even though, on average, these multinationals have operations in twenty-six countries each. Latin American multinationals account for about a fifth of the index, and they perform about 10 percent better than the (abysmal) index average. But given that their home countries—Argentina, Brazil, Chile and Mexico—are all democracies, and half of the multinationals in the global sample are from non-democratic countries, perhaps we should expect even better from the multilatinas? Further regulation and red tape may have perverse effects, of course. But increased corporate transparency standards, especially if adopted voluntarily, might prove to be a competitive advantage, especially as the regulatory environment in Latin America is tightening anyway under citizen pressure. Under these new conditions, both multinationals and smaller firms in the region may see improved transparency standards as a way of simultaneously enhancing domestic politics in their home countries and improving their business prospects abroad.

The three North American leaders meet tomorrow in Ottawa, the new Trudeau government reviving an annual summit. As a recent poll of U.S. perceptions of its neighbors by Vianovo and GSD&M confirms, they face public opinion headwinds. Canvassing 1,000 U.S. adults through YouGov, the survey reveals the deep suspicions Americans hold of their neighbors, especially Mexico. Less than one in four Americans have a positive image of Mexico, and fewer still believe it has a modern economy or is safe for travel. Many see Mexico as an economic drain—when removing those who say they don’t know enough, a similar number want to leave as stay in NAFTA (mirroring the Brexit divide). A majority of Americans see the Mexican government as corrupt, the nation as unstable, and believe illegal immigration is increasing. Over half want to build a wall to shield the United States from these perceived problems. For them, Mexico is a problem, not a partner. These views divide sharply along partisan lines. By a two-to-one margin Democrats say they want to preserve NAFTA, compared to pluralities of Republicans and independents who would prefer to abandon it. Feelings about Mexico in particular differ depending on one’s politics. Republicans overwhelmingly see Mexico as the source of problems for the United States rather than as a good neighbor; Democrats are split between the two views. These perceptions don’t reflect reality. Since 2009 migration flows from Mexico have been net zero to negative (more people leaving than coming). Instead the largest sources of U.S. migrants are China and India. Economically, North American supply chains undergird much of U.S. manufacturing and support the jobs of millions of Americans. Without NAFTA the auto, electronics, and machinery industries would likely shut down, moving wholesale to other regions. Overall the majority of Americans miss the fundamental transformations Mexico has undergone over the last few decades. Now the eleventh-largest global economy, Mexico boasts top research universities, highly successful multinational companies, tens of millions of middle class consumers, and GDP per capita topping $18,000 (in PPP terms). Though cold comfort, American suspicions aren’t limited to Mexico. One in five Americans want to wall themselves off from Canada. These isolationist views aren’t driven by Trump—perceptions haven’t changed much in four years (the last time the firms conducted a survey). Few respondents even mentioned him, though when asked a strong majority thought he would worsen relations with our neighbors. What did emerge is that Americans that know Mexico—having visited for work or fun—feel better about the country. Time to encourage more visits—on top of the estimated 22 million trips by U.S. citizens each year. Perhaps that can change perceptions.

The U.S. Supreme Court is set to determine the fate of millions of undocumented immigrants and could influence how future presidents wield power.

Mexico’s PRI lost big in yesterday’s gubernatorial elections. Just six months ago party optimists boasted they might sweep all twelve of the governorships; preliminary results show they may get just five. The rout happened in places with the strongest party machines—Tamaulipas, Veracruz, Quintana Roo—where for the first time in over eighty years citizens put a different party in the executive branch. This alternation in power is an important step for local democracy. Andrés Manuel López Obrador’s (AMLO) new MORENA party came in a strong second in Veracruz and won a plurality of the seats of Mexico City’s Constituent Assembly. Independent candidates gained ground taking the mayor’s office in Ciudad Juarez and finishing well in many other cities. The biggest winner was the PAN, gaining on its own or in coalition with the PRD seven governorships. Yesterday’s elections hold lessons for the 2018 presidential race. While the chatter will definitely be about the rising threat AMLO poses, three months ago some thought MORENA would take Zacatecas, a week ago they thought the party could win Veracruz. Neither happened—showing he is beatable. For the PRI, the elections hurt the political chances of its president Manlio Fabio Beltrones vis-à-vis the other half dozen pre-candidates for the party’s nomination. Even if a clean sweep was always unrealistic, more losses than electoral wins questions his ability to deliver. The losses also cast doubt on the view that the PRI can win the 2018 elections with only its “hard vote”—roughly 25 to 30 percent of the population. Even though they came close to winning the largest number of ballots yesterday, to boost their presidential chances they have to appeal more broadly. A top concern for voters is corruption. The PAN is already after this vote. Party president Ricardo Anaya celebrated the PAN’s historic wins in the face of corrupt and authoritarian governors and federal officials. Several of their governors-elect promised to run their administrations cleanly and efficiently, in pointed contrast to their PRI predecessors. For the PRI, its leaders will have to do more than just express outrage over graft, since many of the prime alleged abusers come from their own party (including the exiting and former governors of Veracruz, Tamaulipas, and Nuevo León). They also control the Congress, whose job it is to get the new National Anti-Corruption System up and running. So far, the PRI’s senators have dragged their feet on anticorruption legislation, missing a supposedly firm May 28 deadline. They also have postponed several hearings on Ley 3de3, citizen proposed legislation that would better define corruption, give greater tools to those going after it, and require Mexican public officials to reveal their assets, tax returns, and potential conflicts of interest. With Congress now scheduled to begin an extraordinary session June 13, the PRI has an opportunity to regroup, and even get out ahead on this issue. Only by doing so can they change the current default for Mexico’s political Rorschach inkblot test: when Mexicans see the PRI, they see corruption.

Social cohesion, or the strength of a country’s social fabric, is often raised in discussions of security. The World Bank describes it as “fundamental for societies to progress towards development goals,” and for making countries more resilient to bloodshed. In Mexico, policymakers argue social cohesion is both a casualty and a solution for reducing violence. To measure these ties, the think tank México Evalúa constructed the Neighborhood Social Cohesion Index (ICSV). They canvassed four housing complexes scattered throughout Mexico—many isolated, without public services, and composed of poorer households with limited education. The residents were asked to rate their communities on a low to high scale of one to ten in terms of social identity, trust between neighbors, a sense of belonging, and engagement in the community. The four ratings were averaged to produce an aggregate score. Social cohesion in all four communities ranged between 5.1 and 5.4 on the index, indicating that Mexico’s social fabric is not entirely broken, even in these difficult surroundings. In every community a strong sense of belonging and shared identity persisted, even when community engagement lagged. The polls found hope for the future, with nearly nine in ten neighbors saying that if encouraged, they would be “willing to work for the benefit of their community.” The survey also explored the causal links between social cohesion and perceptions of insecurity. Those communities that were rated more cohesive tended to feel safer, and vice-versa. Perceptions of insecurity were high overall: only 12 percent of residents said they would let their children walk alone in their neighborhood, fewer than a third would walk themselves alone at night. One of the pillars of the Mérida Initiative, the main vehicle for U.S.-Mexico security cooperation over the last decade, focuses on building “stronger and more resilient communities.” On the ground, this money has gone to after school programs, citizen watchdogs in law enforcement offices, and creating and expanding drug treatment courts, among other programs. México Evalúa’s survey suggests that expanding basic public services and cleaning up public parks would strengthen communities, as would actively recruiting neighbors to get involved in local events and activities. The Mexican and U.S. governments should use measures such as the Neighborhood Social Cohesion Index both before and after they invest more in fragile communities, to help determine which of the dozens of potential programs actually make things better.

Central America’s Northern Triangle is one of the most violent regions in the world. Last year’s murder rate of roughly 54 per 100,000 inhabitants surpasses Iraq’s civilian death toll. El Salvador alone registered 103 homicides per 100,000—making it the deadliest peacetime country. While victims are often young men, women and children die too. Kids face a murder rate of 27 per 100,000 in El Salvador—making the country as dangerous for elementary and middle schoolers as it is for an adult in the toughest neighborhoods of Detroit or New Orleans. Its neighbors Honduras and Guatemala are also among not just Latin America’s but the world’s most dangerous nations. This violence is one of the main factors driving massive migration. In 2014, U.S. border patrol detained a record 239,000 Central Americans on the southern border. In 2015, this figure fell, in large part because Mexico stopped those leaving—sending back some 150,000 migrants caught along its border with Guatemala. In the last three plus years over 136,000 unaccompanied minors and 140,000 more family members have come north—enough to populate Cincinnati. Tens of thousands are fleeing to neighboring countries—Mexico, Panama, Nicaragua, Costa Rica, and Belize have all seen asylum applications skyrocket. Less than five months into 2016, 56,000 new unaccompanied minors and others are already in U.S. custody, suggesting another record surge in the making. The challenges facing Central America won’t diminish soon, meaning migration flows to the United States and elsewhere won’t end. Proposed solutions—strengthening public prosecutors, training police, cleaning up prisons, building community centers, and developing alternative jobs programs —will only make a difference in the medium to longer term. And though the U.S. Congress has approved $750 million for programs to reduce violence and boost economic development, those taking a historical perspective know this isn’t the first time the United States and others have tried to buttress these fragile nations, with few results. Yet what might be different this time comes from these societies themselves. Even as many justifiably flee, other Central Americans (notably not many of their elites, at least yet) are raising their voices against the poverty, inequality, corruption, and violence. Investigative journalists, armed with freedom of information acts, digital paper trails (such as the Panama papers), and other tools within these budding democracies have uncovered deep-seated corruption—including powerful Guatemalan politicians using their office for personal gain, and the expansive ties between Honduran elites and organized crime. Local prosecutors and judges too have stepped up to make sure justice is done, even if it involves the powerful. In Guatemala, the attorney general—working closely with the International Commission Against Impunity in Guatemala (CICIG)—brought down the former president and vice president for running a customs fraud scheme. El Salvador’s Supreme Court is going after two former presidents for graft. And citizen protests have grown. In Guatemala, the peaceful demonstrations by tens of thousands led to the resignation of President Otto Pérez Molina. In Honduras, citizen outrage over $200 million missing from the social security system forced the government to accept a new Mission Against Corruption and Impunity in Honduras, modeled after CICIG, to investigate that and other alleged wrongdoings. Ongoing protests following the assassination of environmental and indigenous activist Berta Cáceres are forcing the government to investigate. These steps, while fledgling, could matter for these nations’ future. Their successes or failures will also likely matter in shaping future decisions to exit—through migration—or to stay and raise one’s voice, for change at home.

Protectionism by the Numbers It is not just anti-trade rhetoric spreading on both sides of the Atlantic; it is also policies. The Global Trade Alert, an online index that monitors trade policy, reports a rapid rise in protectionist measures worldwide since 2008. The database documents over 5,000 new barriers to trade, including import quotas, stricter rules for migrant workers, and local content requirements. The United States leads this turn toward protectionism, creating more than eighty new rules in the last year alone. These measures are one of the main causes slowing global trade. Mexico’s Anticorruption Legislation Delayed  As Mexico’s Congress ended its spring term, the bill to make the new National Anti-Corruption System a reality remains pending. President Enrique Peña Nieto’s Institutional Revolutionary Party (PRI) and Green Party together blocked passage of the Ley3de3 legislation that would better define corruption, give greater tools to those going after it, and require Mexican public officials to reveal their assets, tax returns, and potential conflicts of interest. Though garnering more than 630,000 public signatures, the parties both question its constitutionality and the outcome—suggesting that opening their accounts to scrutiny would spur a political “witch hunt.” Though Congress will likely return in July for an extraordinary session, some doubt the citizen-led initiative will survive. Corruption Limits Investment in the BRICs Corruption risks loom large in the BRIC countries, according to a Dow Jones survey of hundreds of multinationals. China and Russia—along with Iran—top the list of countries with the greatest compliance concerns; Brazil and India make the top twenty. The survey also finds the U.S. Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act strongly shape corporate behavior, affecting where they invest and with whom they partner. And most companies don’t mind these laws. Instead, they see benefits for their own reputations and for leveling the playing field vis-à-vis competitors.

Corruption dominates Mexico’s headlines: helicopter rides for officials’ family members, housing deals from favored government contractors, the still unexplained disappearance of 43 students, and a drug lord escaping a maximum-security prison, for the second time. In a recent survey, Mexicans listed corruption as the country’s top problem, ahead of security and the economy. In absolute terms corruption eats away at Mexico’s growth. The think tank IMCO estimates the costs at $53 billion, or five percent of GDP. It increases the costs of doing business, with bribes for permits and government contracts tacking on up to ten percent according to Transparency International. And business owners face an uneven playing field—65 percent report that on at least one occasion a competitor offered a bribe or tapped personal relationships to win new business. By undercutting the market, corruption stifles excellence, deters investment, and hinders growth. Corruption also distorts public spending. Studies show corrupt public officials direct funds to projects more amenable to personal enrichment than those that offer the highest public returns. This means they overweight spending on (often shoddy) infrastructure and underfund education, health, and other human capital building services—the very skills needed for a twenty-first century economy and society. Lastly, corruption delegitimizes the state and undercuts democracy. The belief by two-thirds of Mexican citizens that their taxes line the pockets of officials fuels the informal sector and limits the collection of government revenue necessary to provide basic public services: education, healthcare, and basic safety. And it threatens Mexico’s democratic gains. When citizens know about corruption and nothing is done—as is the case in Mexico, where impunity reigns—voter turnout falls. The 2012 Pact for Mexico promised to combat the scourge. Yet while energy, finance, education, and telecommunication reforms moved forward, anticorruption efforts languished. Initial PRI proposals in the Senate did little to change the status quo, giving a new anticorruption body no autonomy or prosecutorial powers. The proposal that eventually reached the Chamber of Deputies failed to gain support from the PAN or PRD and was abandoned. In 2014, as Mexicans mourned the loss of 43 students in Guerrero and consumed pictures of the first lady’s $7 million dollar abode, owned by contractor Grupo Higa (a similar if smaller house purchased for the finance minister would appear four weeks later), the PAN sent its own anticorruption bill to Congress. Written in conjunction with civil society groups, it proposed a new National Anticorruption System, created a new Court of Administrative Justice, strengthened the Federal Superior Audit Office, and increased Congress’s role through appointment oversight for the new anticorruption officials. Supported by the three main political parties and a majority of states, the president signed the constitutional reform into law last spring. Lawmakers now need to hash out the details in secondary legislation by May. Civil society groups are pushing their own version of the implementing laws through a citizen-led Ley 3de3 initiative (allowed under the recent political reforms). The bill would require public officials to disclose their tax statements, assets, and potential conflicts of interest. It would also explicitly and legally define corruption—encompassing bribes, using political influence for personal gain, and misusing public funds among other actions, and it would increase the investigatory, prosecutorial, and sanctioning power of the new National Anticorruption System. The proposal needs 100,000 signatures for Congress to consider it; its advocates are hoping to get several times more than that to force it onto the agenda. A challenge for Mexico is moving beyond Twitter, Facebook, and Periscope to express society’s mounting frustrations. And that is the potential of Ley 3de3—to change the country’s anti-corruption institutions and create tools for future reformers to take on bad behavior.

Pressure for Mexican Action on Corruption During a five-day visit to Mexico, Pope Francis repeatedly denounced corruption, decrying the “path of privileges or benefits for a few to the detriment of the good of all.” His message coincides with a strong push by civil society groups to change the status quo. Many are monitoring Congress to ensure it meets a May deadline for secondary legislation to get the National Anticorruption System, signed last year by President Peña Nieto, working. Others are behind the Ley3de3 campaign, which would introduce legislation that defines official corruption and conflicts of interest, and increases the ability to prosecute and convict perpetrators. Coalescing around a social media campaign, active business involvement, academic backing, and even a nod from the pope, the movement needs 100,000 signatures; they hope to collect many times that. Then the question will be whether politicians will tie their own hands. Patience Fades over Ukraine’s Stalled Reforms Ukrainian President Petro Poroshenko passed anticorruption legislation as a growing political crisis threatened international aid. Two prominent reformers—the finance minister and number-two prosecutor—resigned in protest against corruption. They claim Poroshenko’s administration is sabotaging investigations and enabling political cronies. Western forbearance faded too. The International Monetary Fund (IMF) warned it would stop disbursing funds from a $40 billion package without drastic changes. The United States also threatened to cut $190 million in aid. Yet, without significant outside aid and pressure, a needed overhaul of Ukraine’s corrupt judicial system and Poroshenko’s oligarchic government is unlikely. Can the United States Keep Out Forced Labor Products? A recently-passed U.S. trade bill closes an arcane trade loophole that abetted global labor rights abuses. It will overturn a Depression-era tariff amendment that allowed imports of goods produced by slave or child labor if the United States could not otherwise meet demand. This change could affect Brazilian-grown cotton, Thai-caught fish, shoes manufactured in Bangladesh, and 350 other items that the U.S. Department of Labor warns forced or child workers sometimes make. But the challenge for customs agents is determining which cotton, coffee, tea, rice, rubber, or brick imports are “clean” when the multinationals themselves often fail.  

Once a year, policymakers and the press are forcibly reminded of the terrible costs of corruption. This year, it fell on January 27, when Transparency International’s Corruption Perceptions Index (CPI) was released, inciting the ritual gnashing of teeth and beating of chests about relative national corruption gains and losses. This is precisely the sort of attention that Transparency International hopes to draw to corruption. In this sense, the report is very much a continued success. But the CPI’s utility as a policy tool is less clear-cut, not least because there are so many reasons a country might rise or fall, including revelations of previously hidden corruption or simply the movement of other countries, which then push their peers up or down in relative terms. Transparency International routinely acknowledges these issues, and actively encourages readers not to use the measure as a longitudinal indicator. But this advice usually falls on the deaf ears of headline-seeking editors. The CPI remains a blunt tool, which doesn’t provide us much guidance on how and why public perceptions of corruption are changing, or broader lessons about what works in the fight for accountability. Nonetheless, there are a few important takeaways from the report that are especially relevant to Latin America. First, grand political corruption is ubiquitous and no country is immune. Shannon O’Neil pointed last year to the potentially significant political implications of the wave of corruption scandals that have beset Latin America over the past two years. These scandals have erupted at all levels of the CPI: in countries among the highest ranked (Chile, ranked 23rd of 167 positions), at the middle of the pack (Brazil and Mexico, 76th and 95th), and near the bottom (Honduras and Guatemala, 112th and 123rd). Second, if there is one policy recommendation that emerges from recent Latin American experience, it is that increasing checks and balances, granting true autonomy to watchdog agencies, and building budgetary and human resource capacities, all contribute to better control of corruption. Conversely, countries such as Venezuela in which these checks and balances have been eroded for political reasons suffer unintended consequences, including worsening corruption outcomes. Robust democracy, in other words, has some collateral accountability benefits. In the short term, improving capacity may lead to gains in corruption perceptions. One of the most improved countries in the CPI is Honduras, which rose fourteen spots, in part because of massive public protests last year that led a scandal-weakened government to acquiesce to the creation of an independent international panel of judges and prosecutors to investigate corruption: the Organization of American States (OAS)-sponsored Support Mission Against Corruption and Impunity (MACCIH), modelled on Guatemala’s UN-backed International Commission Against Impunity (CICIG). Despite its shortcomings, including fears that MACCIH may merely serve as a smokescreen to protect the president against removal, it is hoped that MACCIH will be strong enough to provide investigatory credibility in an institutional environment marked by a politically-dominated judiciary. Yet even in countries that are moving in the right direction and developing the autonomous capacity of their institutions, the perverse consequence may be the uncovering of major corruption, and a tumble in the CPI, as InsightCrime noted. Guatemala, where last year’s corruption scandal culminated in the forced resignation of President Otto Pérez Molina, declined eight spots. Brazil, where prosecutors have filed more than 1,000 charges, recovered more than a half-billion dollars, and convicted eighty for corruption associated with state-owned Petrobras, has fallen by seven spots. Let me close by floating two suspicions about the extent to which corruption will be relevant to Latin American politics in coming years. First, declining economic fortunes are likely to be accompanied by increasing revelations of corruption that was underway during the boom times. Bad economic times mean turnover in governments, closer scrutiny of past incumbents’ accounts, and an energetic scramble for tax revenue, including through tighter oversight. Able politicians may seek to deflect attention from current economic woes by pointing a finger of blame at corrupt predecessors who wasted the bonanza of the commodity boom. If the first suspicion is correct, the second follows: impunity is likely to be one of the next big political shibboleths in the region. Latin American countries have historically been a paradise for corruption; as Steve Morris noted with regard to Mexico, impunity has long been corruption’s evil twin. Impunity makes corruption much less risky and much more lucrative. A recent estimate suggests that only 3 percent of Argentina’s corruption cases since 1980 have led to convictions, and judges took on average fourteen years to reach final sentences in these cases. Of course, these dismal results are only the tip of the iceberg, since they refer only to those cases that actually saw the light of day. And it seems unlikely that Argentina is an outlier with regard to judicial ineffectiveness, although data on corruption prosecutions and trials is weak around the region. All of this suggests that for all its faults, the CPI release will continue to be closely watched throughout Latin America in years to come.  

Once a year, policymakers and the press are forcibly reminded of the terrible costs of corruption. This year, it fell on January 27, when Transparency International’s Corruption Perceptions Index (CPI) was released, inciting the ritual gnashing of teeth and beating of chests about relative national corruption gains and losses. This is precisely the sort of attention that Transparency International hopes to draw to corruption. In this sense, the report is very much a continued success. But the CPI’s utility as a policy tool is less clear-cut, not least because there are so many reasons a country might rise or fall, including revelations of previously hidden corruption or simply the movement of other countries, which then push their peers up or down in relative terms. Transparency International routinely acknowledges these issues, and actively encourages readers not to use the measure as a longitudinal indicator. But this advice usually falls on the deaf ears of headline-seeking editors. The CPI remains a blunt tool, which doesn’t provide us much guidance on how and why public perceptions of corruption are changing, or broader lessons about what works in the fight for accountability. Nonetheless, there are a few important takeaways from the report that are especially relevant to Latin America. First, grand political corruption is ubiquitous and no country is immune. Shannon O’Neil pointed last year to the potentially significant political implications of the wave of corruption scandals that have beset Latin America over the past two years. These scandals have erupted at all levels of the CPI: in countries among the highest ranked (Chile, ranked 23rd of 167 positions), at the middle of the pack (Brazil and Mexico, 76th and 95th), and near the bottom (Honduras and Guatemala, 112th and 123rd). Second, if there is one policy recommendation that emerges from recent Latin American experience, it is that increasing checks and balances, granting true autonomy to watchdog agencies, and building budgetary and human resource capacities, all contribute to better control of corruption. Conversely, countries such as Venezuela in which these checks and balances have been eroded for political reasons suffer unintended consequences, including worsening corruption outcomes. Robust democracy, in other words, has some collateral accountability benefits. In the short term, improving capacity may lead to gains in corruption perceptions. One of the most improved countries in the CPI is Honduras, which rose fourteen spots, in part because of massive public protests last year that led a scandal-weakened government to acquiesce to the creation of an independent international panel of judges and prosecutors to investigate corruption: the OAS-sponsored Support Mission Against Corruption and Impunity (MACCIH), modelled on Guatemala’s UN-backed International Commission Against Impunity (CICIG). Despite its shortcomings, including fears that MACCIH may merely serve as a smokescreen to protect the president against removal, it is hoped that MACCIH will be strong enough to provide investigatory credibility in an institutional environment marked by a politically-dominated judiciary. Yet even in countries that are moving in the right direction and developing the autonomous capacity of their institutions, the perverse consequence may be the uncovering of major corruption, and a tumble in the CPI, as InsightCrime noted. Guatemala, where last year’s corruption scandal culminated in the forced resignation of President Otto Pérez Molina, declined eight spots. Brazil, where prosecutors have filed more than 1,000 charges, recovered more than a half-billion dollars, and convicted eighty for corruption associated with state-owned Petrobras, has fallen by seven spots. Let me close by floating two suspicions about the extent to which corruption will be relevant to Latin American politics in coming years. First, declining economic fortunes are likely to be accompanied by increasing revelations of corruption that was underway during the boom times. Bad economic times mean turnover in governments, closer scrutiny of past incumbents’ accounts, and an energetic scramble for tax revenue, including through tighter oversight. Able politicians may seek to deflect attention from current economic woes by pointing a finger of blame at corrupt predecessors who wasted the bonanza of the commodity boom. If the first suspicion is correct, the second follows: impunity is likely to be one of the next big political shibboleths in the region. Latin American countries have historically been a paradise for corruption; as Steve Morris noted with regard to Mexico, impunity has long been corruption’s evil twin. Impunity makes corruption much less risky and much more lucrative. A recent estimate suggests that only 3 percent of Argentina’s corruption cases since 1980 have led to convictions, and judges took on average fourteen years to reach final sentences in these cases. Of course, these dismal results are only the tip of the iceberg, since they refer only to those cases that actually saw the light of day. And it seems unlikely that Argentina is an outlier with regard to judicial ineffectiveness, although data on corruption prosecutions and trials is weak around the region. All of this suggests that for all its faults, the CPI release will continue to be closely watched throughout Latin America in years to come.