Development Channel

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 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 anticorruption institutions and create tools for future reformers to take on bad behavior.

International Investigations Take Over as Domestic Malaysian Justice Fails New evidence shows that transfers from troubled state investment fund 1MDB into Malaysian Prime Minister Najib Razak’s personal bank accounts may top $1 billion—$300 million higher than previously thought. Yet Malaysian authorities continue to clear him of wrongdoing. The attorney general’s office ended its case, saying it found no evidence of graft, and Parliament is delaying a long-awaited investigatory report on the fund. The government has also shut down a Malaysian news site reporting on corruption and threatened harsh punishments for journalists who leak “official secrets”—a thinly-veiled warning to would-be whistleblowers. Less politically malleable are international authorities who continue to probe the cross-border case. Singapore recently seized a “large number” of related bank accounts. Criminal proceedings in Switzerland allege misappropriation of up to $4 billion in state money. And in the United States, the Department of Justice opened an inquiry into Najib’s U.S. real estate holdings and the Federal Bureau of Investigation (FBI) into the 1MDB case itself. Najib maintains the money was a political donation from an unnamed Saudi royal, a claim that conflicts with the growing financial paper trail. How to Get Rid of Ghost Workers The Nigerian government cut nearly 24,000 non-existent, or “ghost workers” from its payroll, a move that saved $11.5 million last month alone. A Finance Ministry audit showed that workers’ names and bank accounts did not match, and some accounts were paid several times. Ghost workers cost many nations: Iraq paid at least $380 million per year to 50,000 soldiers who never reported for duty, Kenya found over 12,000 retired or fictitious civil servants on its payroll, and Cameroonian officials estimate that almost a quarter of the government’s 220,000 employees could be ghost workers, running up a $12 million monthly tab. Technology—in particular biometric screenings and bank ID verification systems—is helping reformers uncover these costly shams. Lax Bribery Laws in the OECD The Organisation for Economic Co-operation and Development (OECD) called out member nations Finland, Slovenia, and Belgium for weak anticorruption measures. Though all three countries rank favorably on Transparency International’s Corruption Perceptions Index, recent evaluations by the OECD Working Group on Bribery highlight their failures to prosecute companies and people that pay bribes elsewhere. Finland lags on adopting adequate whistleblower protections, Slovenia’s anticorruption commission is politicized, and Belgium has yet to convict a single national for foreign bribery. Though the OECD Anti-Bribery Convention is not legally-binding (unlike the United Nations Convention against Corruption), it distinctively and importantly takes on corruption’s supply side—going after those who pay, rather than demand bribes.