Corruption

France’s Anticorruption Reforms After years of criticism for failing to prosecute foreign bribery, France adopted a new anticorruption law that will force companies doing business on its soil to take more aggressive preventative measures, and also gives the government stronger tools to fight corruption. The Sapin II law—named for French Finance Minister Michel Sapin—makes compliance programs mandatory for companies with over 500 employees and €100 million in revenue, and creates a new anticorruption agency that can impose fines up to €200,000 for individuals and €1 million for companies that fail to comply. Sapin II also expands whistleblower protections (though some say they do not go far enough), and introduces deferred prosecution agreements similar to those used by the U.S. Department of Justice—allowing prosecutors to fine companies for wrongdoing without a criminal conviction. These changes should help France make good on its OECD Anti-Bribery Convention commitments. Until now, only U.S. courts—not France’s—have sanctioned French multinationals for bribery abroad. Panama Papers Fallout Continues in Pakistan and UK Seven months after the Panama Papers revealed a vast network of often-stolen wealth hidden in shell companies, government-led investigations continue. In Pakistan—where the leaks revealed that Prime Minister Nawaz Sharif’s family (long dogged by corruption scandals) used offshore companies to buy real estate near London’s upscale Hyde Park—the Supreme Court is setting up a commission to look into opposition claims that the money came from graft. And this week the United Kingdom announced it is investigating over thirty people and companies for potential tax fraud and financial crimes based on the papers’ revelations. The government also placed dozens of wealthy individuals under “special review” and is looking into the activities of twenty-six no longer anonymous offshore companies. The UK’s message: it wants to shed its reputation as an offshore tax haven and hub for illicit finance. India Strikes “Black Money” Research shows that removing large denomination bills from circulation can help cut back on corruption, tax evasion, and terrorist financing. Cash makes illicit payments hard to trace, and high-value notes especially allow people to discreetly move large sums of money around the world—a million dollars weighs fifty pounds in twenty dollar bills, but just 2.2 pounds in 500 euro notes. This week India put this theory into practice, abolishing its highest currency notes—500 and 1,000 rupee bills (worth about $8 and $15, respectively). The immediate aftermath was chaotic, as ATMs were overrun with citizens looking to deposit or exchange their bills. But Prime Minister Narendra Modi hopes the move will cut back on crime and replenish government coffers. Its moves follow those of the European Union, which discontinued €500 notes earlier this year.    

The U.S. image in Africa has been based on more than trade and aid. Africans admire and seek to emulate U.S. rule of law and institutions of governance largely free of corruption. They seek to emulate American elections that are credible and accepted by winners and losers. U.S. ethnic and religious pluralism has long been admired. So, too, has been the American tradition of at least some civility in politics. With the ambiguous exception of Liberia, the United States was not a colonial power and public opinion (if not government policy) was generally hostile to colonialism. The success of American democracy and governance made U.S. criticism of “big man” and other sleazy governments credible to Africans. Alas, no more. It will take some time and considerable American effort to repair the damage to U.S. governance reputation in the aftermath of the 2016 U.S. elections. The comments below are based on contacts in Nigeria and South Africa, though it is likely that their views are shared across the continent. For many Africans, Hillary Clinton‘s personal wealth and lack of transparency as illustrated by her use of private e-mail servers for public purposes smacks of the personal corruption with which they are all too familiar. As for Donald Trump, his anti-immigrant, anti-Muslim rhetoric resonates negatively in a part of the world sending significant numbers of immigrants to the United States and in which perhaps half of the population is Muslim. Even more damaging are his claims that the political system is corrupt and that his defeat would be clear evidence that the voting is rigged. (His insensitivity to women resonates little in Africa, which is generally patriarchal in outlook.) For many Africans the current electoral cycle provides evidence that American democracy based on the rule of law is not what it once seemed to be. In addition, the elections must be seen against the backdrop of other issues about which African care deeply: the persistence of racism, as illustrated by Trump’s rhetoric against the backdrop of the “Black Lives Matter” movement and the police brutality that spawned it. White shootings of blacks, especially the Charleston church episode, also deeply resonate with Africans. So, for too many Africans the United States is no longer a beacon of freedom and democracy. Rather, it shares characteristics with most African states such as government corruption, weak institutions, ethnic conflict, and dishonest politicians. For we Americans the reality is, of course, much more nuanced. But nuance does not travel well. Restoring the American image in Africa may be the work of the next decade.

This is a guest post by Tyler Lycan. Tyler is an intern for the Council on Foreign Relations Africa Studies program, he recently obtained his Masters in International Security Studies from the University of St. Andrews, and is a former U.S. Marine. In This Present Darkness Stephen Ellis inspects the roots of the current culture of corruption in Nigeria. At an abstract level, he presents two, connected theories. First, he argues that the post-colonial political history of Nigeria combined with the economic power of the state’s oil riches created an environment in which fraud and corruption is accepted. Second, he suggests that the spirituality characteristic of many Nigerians allowed for a unique understanding of the interplay between two different worlds: the physical in which they exist, and the intangible world of economics and government institutions. The current political economy is a ‘new’ representation of the spirit world to which they have a long cultural and religious connection. His argument invoking traditional religion is subtle and well-developed; and a short review such as this one cannot do it justice. Hence, the focus here is on his discussion of the historical roots of corruption rather than its metaphysical dimension. While there is no activity during British Colonial rule that parallels exactly the current patterns of corruption, Ellis argues that much of the groundwork was laid then. The divide between North and South was exploited by the British in their effort to extract as much wealth as possible and their use of indirect rule distorted the existing political frameworks in each region. In the North, that included extra-governmental Sharia (Islamic) courts, while in the South it included secret societies and gift giving. In the South, there was a “distinction between public and private” realities that did not exist in Britain. ’Indirect rule,’ colonial governance through indigenous institutions, encouraged a “high degree of deceit and manipulation as to amount to training in subterfuge for anyone who had close experience of it.” According to Ellis, the origin of state corruption in its current form is illustrated by the career of Festus Okotie-Eboh. He needed to borrow large sums of money to achieve political and electoral success. Once in office, he used his position to acquire illegally the funds he needed to pay those debts and amass his own fortune. He pressured those dependant on him, and they in turn preyed on those subordinate to them. Corruption thereby came to infest the whole of Nigerian society. Colonialism in Nigeria created an environment in which fraud allowed individuals to flourish, and the subsequent oil boom of the 1970’s further enhanced a culture of fraud. From 1967-1977, oil revenues increased by 2,200 percent, but was managed with little transparency of sense of the public good by a military government that came to power through successive coups d’état. Yet, strong economic growth inspired many Nigerians to envision their country as on the cusp of superpowerhood, creating an ideology of “Nigerianism” that encouraged acquiescence to a culture of fraud. In summary, Ellis argues that indirect rule by the British created new, and exacerbated old, frameworks of power that were susceptible to fraud. Following independence, Nigerian politics took on a life of trickle-down bribery and fraud that infected all levels of society. Finally, Nigerian oil reserves, national pride, and a culture of consumption led many Nigerians to seek out any means to reach their goals. The implication is that the Buhari administration’s current crusade against corruption should keep this historical roots in mind as it seeks to root out the culture of corruption.

Critics worldwide of South African President Jacob Zuma characterize his administration as “Mafiosi” in style. South African society is characterized by gross inequality, generally with blacks on the bottom and whites on top. Ostensibly, the president’s goal is the “transformation” of this characterization of society, even if that means an assault on constitutional institutions and the rule of law. However, in cahoots with personal allies, notably the Gupta family, instead of “transformation” he is seeking to remain in power and preserve his wealth. Thus far, he has been successfully countered by the strength of South Africa’s institutions, a mobilized civil society, and the democratic faction within the African National Congress (ANC). Calls for his early recall are mounting within the ANC. A trenchant exposition of this “Mafioso” perspective is provided by Richard Poplak, in the Daily Maverick. Zuma and his political allies certainly have been trying to undermine the independence of the treasury, which has in general followed the policies of the “Washington Consensus” with the goal of economic growth rather than redistribution from the rich to the poor. The focus of this effort has been the removal of the well-regarded Finance Minister Pravin Gordhan. The head of the National Prosecuting Authority (NPA), a Zuma ally, indicted Gordhan on corruption charges which were so flimsy as to be clearly politically motivated. A consequence of this assault on the treasury was a rapid fall in the value of the Rand and a rallying of support for Gordhan. However, on October 31, the head of NPA announced that he was withdrawing the charges in the face of overwhelming support for Gordhan from within the ANC and civil society and the near certainty that the courts would throw out the case. The Rand promptly strengthened. The treasury has received good marks from the international financial community. However, with the country’s slow recovery from the 2008 recession and low commodity prices, international financial agencies have raised the possibility of reducing South African bonds to “junk” status. If that happens in December, Zuma may reshuffle his cabinet and thereby remove Gordhan. On the other hand, “junk” status may increase pressure within the ANC to remove Zuma. In the meantime, this episode has probably further weakened Zuma politically, not least within the ANC.

[This post was co-authored with John Polga-Hecimovich*. It is the third of a series that begins with this post.] The collapse in Venezuela has many potential costs: democratic regression in Latin America; destabilization of neighboring countries, including, potentially, the fragile peace process in Colombia; the possibility of a significant migrant crisis; rising violence, corruption, and criminality; and threats to hemispheric energy security. A mix of frustration with President Nicolás Maduro’s recent moves and apprehension about the potential outcomes of the crisis has led to a frantic search for alternatives, none of which seems particularly likely to be effective on its own. The paucity of alternatives suggests that the best the international community may be able to hope for is to isolate the regime, demonstrate to moderates within the regime that there are costs to sticking with Maduro, and make efforts to ameliorate the worst humanitarian consequences of the crisis. Taking Advantage of Latin American Leverage In recent years, U.S. policymakers have tried to encourage South American nations to take the lead on regional matters, recognizing that the region may be better positioned to foment meaningful dialogue and consensus than the United States, especially given the checkered past of U.S. interventions in Latin America and lingering local sensitivities about U.S. involvement. But Latin America has been slow to recognize the deterioration of the Chavista regime into an authoritarian state. Chavismo’s determined but patient degradation of checks and balances over the course of seventeen years; the huge revenues available to influence regional friends; the ideological affinities between Hugo Chávez, Nicolás Maduro, and regional leaders; and the government effort to present at least a façade of comity have helped dilute regional opposition to the regime. But this tolerance is slowly changing, not least because of the deepening crisis and shifting ideological winds in South America. At the level of regional bodies, three initiatives are underway. Mercosur has taken an increasingly firm stand against Maduro. During June and July, the new Brazilian administration joined Argentina and Paraguay to overcome Uruguayan resistance and suspend Venezuela from the Mercosur presidency. It also gave Venezuela until early December to meet conditions for accession that it had never met since joining the grouping in 2012. In effect, this signaled Venezuela’s impending expulsion, given that there was never much chance that Venezuela would meet the economic requirements imposed by the bloc. But a lack of consensus meant that Mercosur did not invoke the “democratic clause” that allows the trade grouping to suspend any member who fails to guarantee basic democratic rights. The four original Mercosur members will undertake discussions on the democratic clause on the sidelines of the Ibero-American Summit in Cartagena on October 28 and 29. Such a move to call out Maduro for his authoritarianism would be a significant symbolic rebuke, after years of close ties between the four original Mercosur nations and Chavismo, and it would increase the Venezuelan government’s international isolation. But it would do little to change the internal calculus that keeps Maduro in power, and the sanctions it imposes—suspension from the trade group—will have little practical effect on the Maduro administration in light of Venezuela’s already tenuous claim to membership. A major downside is that such a move might also complicate a more energetic effort to push humanitarian aid, such as medicines and medical relief, which Maduro would be unlikely to accept from the United States, and which Latin America is unlikely to offer if Brazil and Argentina do not lead the push. A second initiative is underway in the Organization of American States (OAS), whose Secretary General Luis Almagro is one of Latin America’s most passionate critics of the Maduro regime’s restrictions of political and civil rights. But Almagro leads a fractured organization, and it will be an uphill climb to the two-thirds support needed to invoke the OAS’ Democratic Charter suspending Venezuela from membership. It is telling that even a joint communique from the organization condemning last week’s events obtained only twelve signatories. Most importantly, of the silent countries, seventeen are members of Petrocaribe, who have benefited from considerable oil subsidies from Chávez and Maduro and remain net debtors to Venezuela. There may be room to split some of these nations from their support for Maduro, but the United States itself had until recently been reluctant to invoke the Democratic Charter, for fear of destabilizing ongoing talks by U.S. officials in Caracas. So it may take a while to gear up new efforts in this regard. Finally, the Union of South American Nations (UNASUR) has been playing a complex role. Of the three organizations, UNASUR under Secretary General Ernesto Samper is the most ideologically aligned with Maduro, and therefore may offer the best prospect for bringing him into dialogue. But this also raises suspicions among the Venezuelan opposition. UNASUR earlier this year created a special commission of former national leaders José Luis Rodríguez Zapatero (Spain), Martín Torrijos (Panama), and Leonel Fernández (Dominican Republic), who visited Caracas several times beginning in May to stimulate dialogue in the run-up to the expected recall vote. But these efforts paid few dividends, and some observers, including Almagro himself, have suggested that the UNASUR mission was a calculated ploy designed to slow the recall. After a hastily arranged visit with Maduro, reportedly requested by Samper, Pope Francis on Monday offered his good offices to “avoid an escalation of violence.” Talks sponsored by the Vatican and UNASUR are to begin on Venezuela’s Isla Margarita on Sunday, October 30. But almost immediately after the announcement, it became clear that not all members of the opposition Democratic Unity Roundtable (MUD) coalition were aware that talks were being discussed, raising concerns that this might be yet another stalling action by Maduro. The repeated use of such talks by the Maduro regime to delay progress or defuse opposition mobilization has left many MUD members skeptical of the value of trying to negotiate with the regime. Washington’s Toolkit There are not many good levers available to the U.S. government as it works to ameliorate the crisis. The best option available to Washington seems to be a combination of dialogue, continued work within regional bodies to pry away votes for the Maduro regime, targeted sanctions, and planning for post-crisis reconstruction. Talks between the Maduro regime and the U.S. government have been underway, most notably during a high-profile visit by Undersecretary of State Thomas Shannon to Caracas in June. Such talks have not shown many public results, but they are important to defuse the worst paranoid rhetoric out of the Maduro regime, to keep open a channel for dialogue, and to demonstrate to the region the willingness of the United States to contribute to a negotiated solution. It may be difficult to find the ten or so additional votes needed to invoke the OAS Democratic Charter, but patient efforts to sway Caribbean nations from their support of the Chavista regime may begin to pay off as the regime’s ability to invest in petrodiplomacy falters. Vice President Biden signaled the wedge that the Obama administration hopes to drive in a January speech to Caribbean leaders, noting that “no country should be able to use natural resources as a tool of coercion against any other country.” Meanwhile, the important repudiation of the regime by previously supportive governments in South America may yet contribute to a broader shift in Caribbean sentiment. The United States has already implemented targeted sanctions against members of the regime: Obama’s Executive Order 13692 in 2015 led to sanctions against seven senior officials. There was broad outrage in Venezuela and throughout Latin America against the order, not least because it labeled Venezuela as a national security threat (U.S. law requires such a determination before sanctions can be imposed). Maduro was able to use the order as a cudgel against the opposition, and he has promoted some of those who have been sanctioned or indicted in the United States. Yet narrowly targeted sanctions, announced publicly so as to send a clear signal, may be more effective today than they were even in the recent past, given the depth of the crisis. Sanctions against individuals—such as permanent visa restrictions and Office of Foreign Assets Control (OFAC) determinations—underline to Maduro’s moderate allies that they must be careful in how far they go in their support of a wobbling strongman. Individually targeted sanctions also send a message to regional governments about the worst players in the Maduro coalition, including embezzlers, cocaine traffickers, and abusers of human rights. So too do efforts to pursue Venezuelans abroad, like Maduro’s nephews in Haiti or the failed effort to nab a former intelligence chief in Aruba. Strategically targeted sanctions may contribute to breaking apart two coalitions: domestic supporters of Maduro’s regime, and the coalition of Latin nations that is stymying international efforts against that regime. Finally, the depth of the crisis suggests that there must be a significant international effort to design humanitarian aid and financial reconstruction. On the humanitarian side, as a recent Human Rights Watch report makes wrenchingly clear, Venezuela is facing one of the most horrific self-inflicted humanitarian disasters ever seen in Latin America. Although Latin American nations (led perhaps, by Brazil’s much-vaunted peacekeepers?) may be better able to orchestrate the delivery of humanitarian aid, the United States is uniquely positioned to provide the scarce medicines and equipment that will be needed to put Venezuela on a steadier footing. With regard to financial reconstruction, as CFR’s Robert Kahn has noted, the depth of the crisis in Venezuela means that returning the country to long-term solvency will be a massive project for international financial institutions. Proactive planning is needed to structure a financial reconstruction plan, as well as to engage with Venezuela’s biggest creditor, China, to ensure the plan’s credibility. The U.S. government must also think hard about what political conditions it will require on the ground before it lent its backing to such a significant financial support package. The good news is that the U.S. government already is engaged on many of these fronts. The bad news, unfortunately, is that none of these policies seem likely to bring quick relief to the Venezuelan people. *John Polga-Hecimovich is an Assistant Professor of Political Science at the U.S. Naval Academy. His research interests include comparative institutions of Latin America, especially the executive and the bureaucracy, as well as presidential instability. He has published peer-reviewed articles in The Journal of Politics, Political Research Quarterly, Electoral Studies, Party Politics, Latin American Politics and Society, and others, and conducted fieldwork in Venezuela, Ecuador, and Brazil. His Twitter handle is @jpolga. Disclaimer: The views expressed in this blog post are solely those of the authors and do not represent the views of or endorsement by the United States Naval Academy, the Department of the Navy, the Department of Defense, or the United States government.

According to the Nigeria National Petroleum Corporation (the state-owned oil company) Nigeria has the capacity to produce 2.5 million barrels of oil per day (bpd). At the beginning of the year, production stood at 2.2 million bpd. Under insurgent attacks on oil production infrastructure, it fell to 1.3 million bpd. With a pause in delta insurgent attacks on oil infrastructure, the administration now claims that oil production has recovered to 1.9 million bpd. Oil production plays a crucial role in state finance, as more than 70 percent of government revenue comes from it. Nigeria is in an economic recession, in large part because of the fall in international oil and gas prices. Yet, the country faces enormous costs for the reconstruction of much of the northeast, where the security services have been fighting a war against the radical extremist movement Boko Haram. President Muhammadu Buhari has pleaded many times for the delta insurgents not to “destroy Nigeria” by attacking oil production. However, the insurgents are highly fragmented. All of the groups feed on the region’s desire for a greater share of the revenue its oil produces (the federal government disperses oil revenue to the states, most of which comes from production in the delta). But, insurgent groups are also criminal or quasi-criminal and battle each other for turf and influence. The Umaru Yar’Adua and Goodluck Jonathan administrations bought-off the insurgents by an “amnesty” that, among other things, included payments to war lords and foot soldiers. However, the amnesty established a dangerous precedent: new groups are encouraged to attack oil infrastructure unless, or until, they too benefit from federal government largess. President Buhari is scheduled to meet with an umbrella of groups called the Pan-Niger Delta Forum (PANDEF) to start to address the region’s long standing grievances. PANDEF is led by Chief Edwin Clark, an old-line politician who has been federal commissioner for information. However, the Niger Delta Avengers (NDA) on October 23, threatened to resume its campaign against oil production should the president meet with PANDEF. Another group, the Urhobo Common Cause (UCC), also rejects PANDEF and accuses it of “internal colonialism perpetrated by the leadership” of Chief Clark. On the other hand, the Movement for the Emancipation of the Niger Delta (MEND), a major beneficiary of the amnesty endorses the dialogue between the president and PANDEF. History (real or distorted) plays a role. A NDA spokesman said, “it is disgusting for President Muhammadu Buhari and his tribesmen to equate the revenue priorities of the Niger Delta region with regional comparisons to development in Nigeria. For crying out loud, since 1914 our resources have been the essence of this union called Nigeria before crude oil was discovered. The amalgamation of southern and northern Nigeria was for administrative convenience because the north was not viable economically.” (Buhari is a Muslim Hausa-Fulani from the north; most delta residents are Christians and are ethnically diverse.) Another NDA spokesman said that “no amount of military action would stop it from halting the flow of the oil from the region to sustain Nigeria,” according to media. Hence, there is a real possibility that strikes on oil infrastructure will resume soon.

The Brazilian Federal Revenue Secretariat (SRF) has some good news to cheer: a big haul of fines and taxes from assets held offshore by Brazilians. The deadline for filing under Brazil’s equivalent of the Offshore Voluntary Disclosure Program ends October 31, but news reports suggest that more than US$12.6 billion in foreign bank accounts held by more than 25,000 Brazilians have already been disclosed, leading to fines and taxes of nearly US$4 billion on money ferreted away in accounts that had previously been inaccessible to tax officials. More than a third of that money has been declared in the last week alone, suggesting that by the end of the month, the absolute volume of fines and taxes may be near the amounts collected under a sister program in the United States, whereby 45,000 taxpayers contributed $6.5 billion to the U.S. Treasury. The voluntary disclosure program is an important part of a broader push to improve government control over Brazilians’ assets abroad. Brazil in recent years has signed a number of agreements governing the bilateral exchange of banking information, and just this month came news that the Swiss high court had upheld efforts to share banking information on more than 1,000 Swiss bank accounts believed to be held by Brazilian politicians and former Petrobras executives. In the past two decades, Brazilian regulators have also closed various glaring loopholes in domestic regulations covering foreign exchange transactions. The SRF has gained personnel and seen its budget increased, enabling it to push for and enforce tougher laws, often in cooperation with the Ministério Público, Brazil’s quasi-autonomous prosecutorial service. Together, these improvements seem to be bearing fruit. Not coincidentally, the massive Car Wash operation began as a money laundering investigation, and revenue agents have played a significant role in the operation. The recent Panama Papers leaks, listing more than 1,300 offshore accounts held by 400 Brazilians, will add fuel to this effort. The speed with which the voluntary disclosure program has come down the pike in Brazil has been impressive. The U.S. Congress approved the Foreign Account Tax Compliance Act (FATCA) in 2010, and the U.S. government launched its program in July 2014. Prodded along by the global implementation of FATCA and associated agreements on the automatic exchange of financial information, the Brazilian Congress approved its Repatriation Law in December 2015 (in the midst of the political crisis that would eventually lead to President Dilma Rousseff’s impeachment), regulations were finalized by March 2016, and now the program is nearing completion. Although they may seem small as a share of the $3 trillion economy, the taxes and fines collected under the program are extremely significant. Global Financial Integrity estimates that each year between 2010 and 2012, on average Brazilians illicitly transferred more than $33 billion to accounts abroad. While the accounts disclosed under the repatriation program may not always be reflective of corruption or tax evasion, the fungibility of money and the multiple ways it can find its way from illicit to licit channels suggest that it would be ingenuous to assume the assets were all aboveboard. More important, by bringing even ostensibly licit funds into tax compliance, it will be increasingly difficult for major launderers or the corrupt to hide their ill-gotten gains in the murky backwaters of international finance. One reason for the apparent speed and success of the program is the prospect of heavy penalties that will hit Brazilians who fail to register. Under the program, participants agree to a 15 percent tax rate and a one-time 15 percent fine on previously undeclared assets. But in November, the tax rate will rise to 27.5 percent and the fine to as much as 225 percent, along with the increasingly credible and frightening prospect of criminal prosecution. Further, bilateral agreements on bank information sharing suggest the dragnet is closing, and it will be much harder to hide funds in future. SRF officials have made a concerted effort to drum home the costs of non-adherence to the program, noting that as of January 1, 2017, they will have in place agreements with 103 countries for automatic tax revenue information sharing, as well as bilateral agreements on investigation with 34 countries. Another recent report detailed the SRF’s analysis of nearly 1,000 high net-worth Brazilians with bank accounts in the United States, and authorities’ suspicions that nearly two-thirds of these were evading Brazilian taxes. While the admirable recent gains in Brazilian anticorruption efforts should be credited entirely to Brazilian authorities and their supporters in civil society, their recent successes will be helped along immensely by FATCA and the attendant effort to share financial data across borders. As one leading Brazilian tax official boasted, “the world is beginning to have no boundaries for the [SRF].” No longer will investigators lose track of the trail at the water’s edge; indeed, the information made available under the program should help to invigorate the increasingly bold efforts to curb massive corruption at the intersection of Brazilian politics and business.

The Brazilian Federal Revenue Secretariat (SRF) has some good news to cheer: a big haul of fines and taxes from assets held offshore by Brazilians. The deadline for filing under Brazil’s equivalent of the Offshore Voluntary Disclosure Program ends October 31, but news reports suggest that more than US$12.6 billion in foreign bank accounts held by more than 25,000 Brazilians have already been disclosed, leading to fines and taxes of nearly US$4 billion on money ferreted away in accounts that had previously been inaccessible to tax officials. More than a third of that money has been declared in the last week alone, suggesting that by the end of the month, the absolute volume of fines and taxes may be near the amounts collected under a sister program in the United States, whereby 45,000 taxpayers contributed US$6.5 billion to the U.S. Treasury. The voluntary disclosure program is an important part of a broader push to improve government control over Brazilians’ assets abroad. Brazil in recent years has signed a number of agreements governing the bilateral exchange of banking information, and just this month came news that the Swiss high court had upheld efforts to share banking information on more than 1,000 Swiss bank accounts believed to be held by Brazilian politicians and former Petrobras executives. In the past two decades, Brazilian regulators have also closed various glaring loopholes in domestic regulations covering foreign exchange transactions. The SRF has gained personnel and seen its budget increased, enabling it to push for and enforce tougher laws, often in cooperation with the Ministério Público, Brazil’s quasi-autonomous prosecutorial service. Together, these improvements seem to be bearing fruit. Not coincidentally, the massive Car Wash operation began as a money laundering investigation, and revenue agents have played a significant role in the operation. The recent Panama Papers leaks, listing more than 1,300 offshore accounts held by 400 Brazilians, will add fuel to this effort. The speed with which the voluntary disclosure program has come down the pike in Brazil has been impressive. The U.S. Congress approved the Foreign Account Tax Compliance Act (FATCA) in 2010, and the U.S. government launched its program in July 2014. Prodded along by the global implementation of FATCA and associated agreements on the automatic exchange of financial information, the Brazilian Congress approved its Repatriation Law in December 2015 (in the midst of the political crisis that would eventually lead to President Dilma Rousseff’s impeachment), regulations were finalized by March 2016, and now the program is nearing completion. Although they may seem small as a share of the US$3 trillion economy, the taxes and fines collected under the program are extremely significant. Global Financial Integrity estimates that each year between 2010 and 2012, on average Brazilians illicitly transferred more than $33 billion to accounts abroad. While the accounts disclosed under the repatriation program may not always be reflective of corruption or tax evasion, the fungibility of money and the multiple ways it can find its way from illicit to licit channels suggest that it would be ingenuous to assume the assets were all aboveboard. More important, by bringing even ostensibly licit funds into tax compliance, it will be increasingly difficult for major launderers or the corrupt to hide their ill-gotten gains in the murky backwaters of international finance. One reason for the apparent speed and success of the program is the prospect of heavy penalties that will hit Brazilians who fail to register. Under the program, participants agree to a 15 percent tax rate and a one-time 15 percent fine on previously undeclared assets. But in November, the tax rate will rise to 27.5 percent and the fine to as much as 225 percent, along with the increasingly credible and frightening prospect of criminal prosecution. Further, bilateral agreements on bank information sharing suggest the dragnet is closing, and it will be much harder to hide funds in future. SRF officials have made a concerted effort to drum home the costs of non-adherence to the program, noting that as of January 1, 2017, they will have in place agreements with 103 countries for automatic tax revenue information sharing, as well as bilateral agreements on investigation with 34 countries. Another recent report detailed the SRF’s analysis of nearly 1,000 high net-worth Brazilians with bank accounts in the United States, and authorities’ suspicions that nearly two-thirds of these were evading Brazilian taxes. While the admirable recent gains in Brazilian anticorruption efforts should be credited entirely to Brazilian authorities and their supporters in civil society, their recent successes will be helped along immensely by FATCA and the attendant effort to share financial data across borders. As one leading Brazilian tax official boasted, “the world is beginning to have no boundaries for the [SRF].” No longer will investigators lose track of the trail at the water’s edge; indeed, the information made available under the program should help to invigorate the increasingly bold efforts to curb massive corruption at the intersection of Brazilian politics and business.

BRICS Fund Infrastructure As commodity prices have plunged, global growth slowed, and geopolitical competition risen, the BRICS’ interests have diverged, making annual meetings of the five emerging economies more complicated. Last weekend’s get-together in Goa, India focused mostly on counterterrorism and the New Development Bank (NBD), a two-year old alternative to the World Bank and other Western-dominated institutions. Its focus is green and sustainable infrastructure, seeded with $100 billion in capital. At the BRICS Summit, leaders celebrated the NBD’s first $900 million in loans for renewable energy projects in Brazil, China, India, and South Africa, and promised to expand the bank’s portfolio tenfold by 2020. The NBD joins the new Beijing-led Asian Infrastructure Investment Bank (AIIB), which promises a similar capital base for a more traditional infrastructure-based projects. Together they could rival the World Bank’s lending power. France’s Obiang Corruption Case France is set to try Teodoro Obiang—the vice president of Equatorial Guinea and the son of its long-ruling dictator—on money laundering, corruption, and embezzlement charges. Obiang’s court date comes almost a decade after Transparency International and other civil society groups filed a criminal complaint accusing him of using stolen public funds to fund a lavish lifestyle in Paris. France’s highest court allowed the case to move forward, and the government took measures to confiscate millions in assets, including at least eleven luxury cars, a multi-million dollar wine collection, artwork by Degas and Rodin, and a $3.7 million clock. Equatorial Guinea has fought back, trying to have the case dismissed by claiming diplomatic immunity, and Obiang refuses to appear in court. If the case continues and succeeds with a criminal prosecution, it will represent a significant blow to kleptocrats. The UK May Make it Easier to Seize Suspect Assets The United Kingdom is also looking to crack down on kleptocrats, going after those who hide their money in the country, often in its real estate market—London alone has over 36,000 anonymously-owned properties. The new Criminal Finances Bill, introduced last week, creates Unexplained Wealth Orders, which would allow British authorities to freeze and seize assets worth over £100,000—including property and jewelry—bought with suspect funds. The bill puts the burden on owners to prove their properties’ legal providence, and addresses major weaknesses in UK asset recovery, including law enforcement’s preference to wait on convictions in corrupt officials’ home countries before seizing assets (this often takes decades). If passed, the bill could come into effect as soon as spring 2017, following through on the UK’s pledge to strengthen anti-money laundering laws at the Anticorruption Summit it hosted last May.  

This week’s arrest of Eduardo Cunha—the former president of Brazil’s Chamber of Deputies, a leading member of President Michel Temer’s PMDB party, and a principal architect of Dilma Rousseff’s impeachment—is a major turning point for the massive Car Wash corruption investigation that has mesmerized Brazil for much of the past two years. Cunha’s arrest and imprisonment offers an important and overdue corrective to the narrative that the investigation is a political witch hunt aimed at President Lula and his Workers’ Party (PT). The arrest is also in many ways a rebuke to Brazil’s high court, the Supreme Federal Tribunal (STF), which failed to move against Cunha while he had special standing in the STF by virtue of being an elected federal official. Calls to reduce the practical impunity of elected officials in the timid and slow high court may well be strengthened by the increasing evidence of a two-track justice system that privileges the powerful. Finally, the arrest will have huge political aftershocks in Brasília, since Cunha will be under heavy pressure to reach a plea bargain that would allow him to reduce his jail time. While such deals typically take months to negotiate, even the prospect of a deal is likely to drive many of Cunha’s former party colleagues and allies to distraction.

Critics of the Buhari administration continue to protest the October 8-9 Economic and Financial Crimes Commission (EFCC) arrest of judges, including some from the Supreme Court, for corruption. Initially, the focus was on the rough “Gestapo style” way the arrests were carried out. Now, critics see the arrests as compromising the independence of the judiciary, in theory one of three co-equal branches of government. The issue is that the EFCC is part of the executive branch of government. But, it is the National Judicial Council (NJC) that is charged with questions of removal: the NJC is empowered to “recommend to the president the removal from office of the judicial officers… and to exercise disciplinary control over such officers.” So, the argument is that the EFCC (or any other investigating agency) should turn over its findings to the NJC, which would then take appropriate action. Even supporters of the Buhari administration are suggesting that the EFCC must follow the law, even while they are not directly criticizing the arrests. The Buhari government faces a dilemma. Judges are widely perceived as corrupt, and indeed the EFCC October 8-9 arrests turned up large amounts of cash (in Naira, U.S. dollars, British Pounds, and Euros) in at least one judge’s residence. Yet, the NJC does not appear to have been especially vigilant with respect to judicial corruption.

Pravin Gordhan faces charges of fraud and has been summoned to the Pretoria Regional Court on November 2. The charges appear to be spurious. They concern Gordhan’s approval of the early retirement of a government employee and his subsequent re-employment under contract. The claim is that the amount of money involved is just over ZAR 1.1 million (approximately $76,000). Early retirement followed by re-engagement on contract is commonplace in many governments, including that of South Africa. The seemingly trumped up charges should be seen in the context of an ongoing struggle within the governing African National Congress in the aftermath of the August 2016 local government elections and the reverses and scandals that plague the Zuma administration. Gordhan and the Treasury are associated with “reformers” who want to repair the party, restore its eroded grass roots support, and manage the economy to generate badly needed economic growth. Zuma, parts of the security services, various patronage/clientage networks, and (broadly speaking) the traditional party machinery seek to restore the political power of the president and break the intra-party opposition that is associated with Gordhan and many other senior party figures, including Deputy President Cyril Ramaphosa. Zuma’s allies are likely to call on Gordhan to step down, pending his trial. But, Gordhan is unlikely to do so, not least because of his considerable support within the party. Gordhan also enjoys the respect and support of the domestic and international financial community. In attacking Gordhan, Zuma and his allies are playing with international financial fire: in the day since the fraud charge was levied on Gordhan, the rand has fallen nearly four percent to 14.28  to the U.S. dollar. Efforts to remove Gordhan also raise the specter that the international financial rating agencies will down grade South African bond to ‘junk’ status. Hence, it is by no means certain that Gordhan will actually be brought to trial, and if he is, that he will be convicted.

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 individuals’ 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.

The manipulation of interbank lending rates by a host of global financial institutions could have significant repercussions for financial markets, consumer loans, and regulatory policy.

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.