Politics and Government

Corruption

  • Politics and Government
    Nelson Mandela Day
    Africa in Transition usually runs an update of the Nigeria Security Tracker on Mondays. However, July 18 is Nelson Mandela Day, so the Tracker update will appear on Tuesday, July 19. Nelson Mandela was born July 18, 1918. He died in 2013; were he living, he would be 98 years of age. In 2009, the UN General Assembly officially declared July 18 Nelson Mandela International Day, starting 2010. It is the celebration of Mandela’s theme that each individual has the ability and responsibility to change the world for the better. In South Africa, Mandela Day is not a public holiday. Instead, it is intended to honor Mandela’s values of inclusive democracy conducted according to the rule of law and to celebrate his public service. Mandela Day is also an occasion for taking stock of where South Africa is and where it is going. Many of Mandela’s colleagues in the struggle against apartheid and for nonracial democracy believe that under the administration of Jacob Zuma, the country has gone astray. Zuma is mired in scandal and surrounded by cronies of dubious reputation. It is widely said, even within his governing African National Congress (ANC), that he uses intimidation, even blackmail, against his political opponents within the party. His governance decisions are increasingly quixotic, notably his effort to replace a respected finance minister with a crony. Markets swooned and he failed. More broadly, the consequences of three centuries of white supremacy, culminating in apartheid, still rest heavy on South Africa. There has been social and economic progress since the 1994 coming of nonracial democracy, but it has been slow. For many, perhaps most black South Africans, some 80 percent of the population, there has been too little change. However, I argue in Morning in South Africa, released last month, that South Africa’s institutions of governance (based on perhaps the world’s most respected constitution) are continuing to strengthen; this is because these institutions of governance are conducted according to the rule of law with an independent judiciary and defended by civil society and a free press. Notably, the judiciary regularly rules against the Zuma administration, and its decisions are upheld. Even though the ANC has an overwhelming majority of seats in parliament, a vigorous opposition ensures that it is no Zuma rubber-stamp. The so-called “Chapter 9” (of the Constitution) institutions continue to impose limits on what the Zuma administration can do. Democracy conducted according to the rule of law enjoys strong support from South Africans across the racial rainbow. Democracies sometimes go through patches of bad, even criminal governance. We Americans remember the last days of Richard Nixon’s administration. And former Federal Bureau of Investigation (FBI) Director J. Edgar Hoover was no stranger to intimidation and blackmail. Democratic institutions, the rule of law, and active civil society have carried the United States through dark days in the past and will do so now in South Africa.
    Blog Post by John Campbell July 18, 2016 Africa in Transition
  • China
    This Week in Markets and Democracy: China’s Private Sector Corruption, Zimbabwe’s Protests, New Corruption Brief
    Chinese Companies lag on Transparency Chinese companies filled the bottom twenty-five spots in a recent Transparency International report ranking one-hundred emerging market multinationals on anticorruption efforts. Three received zeroes (on a zero-to-ten scale) for failing to list subsidiaries, release financials on foreign operations, or set up antibribery programs. The Chinese government is not pressing for change, instead killing a business-led anticorruption task force within the G20 framework. As a result, foreign companies operating in China are hard-pressed to avoid bribery—a challenge reflected in Foreign Corrupt Practices Act (FCPA) cases. So far this year, over half of all corporate FCPA actions involved bribes paid to Chinese officials, and since 2008, the United States found more cases of misconduct in China than in all other countries combined. Bailing out Zimbabwe Mounting popular frustrations over economic hardship and public corruption led to Zimbabwe’s largest anti-government protests in a decade. As my colleague John Campbell explains, the country’s political and economic situation is deteriorating rapidly—unemployment tops 80 percent, and the government has missed payments to civil servants and pensioners. International donors look willing to lend Zimbabwe $1 billion to pay off its World Bank, African Development Bank, and International Monetary Fund debts, enabling the country to receive new loans. Though that might avoid an economic collapse and humanitarian emergency, it will likely shore up President Robert Mugabe’s ruling Zanu-PF party, whose behavior precipitated the crisis. It is hard to imagine his government pursuing promised economic reforms or refraining from stealing from replenished public coffers—as they have from its lucrative diamond sector. U.S. Efforts to Fight Nigerian Corruption In a new CFR brief, International Affairs Fellow Matthew T. Page argues that the U.S. government should do much more to deter official Nigerian corruption. Elite theft has long undermined the country’s development, security, and governance—areas in which the United States invests significant resources as a longtime ally. Page explains that despite anticorruption rhetoric from high-level U.S. officials—including President Obama and Secretary Kerry—the U.S. approach remains non-confrontational and ineffective. He offers three recommendations for how U.S. policymakers can better support Nigerian efforts, building on President Muhammadu Buhari’s aggressive anti-graft campaign. Page’s piece is the first in CSMD’s new Corruption Brief series that will analyze and propose solutions for a range of corruption issues globally. Watch this space for more.    
    Blog Post by Shannon K. O'Neil July 15, 2016 Development Channel
  • Trade
    Argentina and Brazil Grow Together
    In my piece published this week on Foreignaffairs.com I reflect on Argentina’s and Brazil’s current political and economic situations. I argue that while their current challenges are their own, a potential long-term solution to their problems comes from each other—namely working to build an integrated South American economic hub. You can read the first two paragraphs of the article below: This year has been a rough one for South America’s two largest states. Brazil—once lauded as a rising global power—has fallen deeper into recession and political turmoil. And although Argentina is finally attempting to transform itself into a model of sober pro-market governance after years of Peronist populism, it shares with its northern neighbor a grim set of economic and political indicators: stagnating growth, endemic corruption, and a new government beset by high expectations. As a result, Argentine President Mauricio Macri’s initially high approval ratings have declined since he took office in December. In Brazil, meanwhile, interim President Michel Temer comes close in unpopularity to the disgraced Dilma Rousseff. Despite their undeniable problems, however, there remains in both countries a cause for optimism. Argentina and Brazil are, for now, absorbed in their own domestic dramas, but they have within easy reach the long-term solution to their economic woes: each other. You can read the entire piece as it appeared on Foreignaffairs.com here.
    Blog Post by Shannon K. O'Neil July 15, 2016 Latin America’s Moment
  • Nigeria
    Improving U.S. Anticorruption Policy in Nigeria
    Introduction Corruption is endemic in Nigeria. It drains billions of dollars a year from Africa’s largest economy and most populous country. Systemic corruption also undermines Nigeria’s ability to combat Boko Haram, the world’s deadliest terrorist movement, which has displaced two million people in the country’s war-ravaged northeast. Although the United States and Nigeria have been close partners since Nigeria’s democratic transition in 1999, elite corruption has undercut diplomatic relations and undermined U.S. investments in the nation’s development, security, and governance. Following Muhammadu Buhari’s 2015 presidential election victory, senior U.S. policymakers saw an opportunity to support his aggressive anticorruption efforts. However, U.S. efforts have thus far been nonconfrontational—limited to public speeches and high-level discussions—and have yet to translate into policy action. Corruption is still treated as a secondary, stand-alone issue rather than as a potent threat to U.S. interests. To move beyond past mistakes, U.S. policymakers should commit to deterring official corruption in the sectors and institutions in which the United States invests significant attention and resources. At a minimum, this plan should establish an interagency working group on Nigerian kleptocracy, station a Federal Bureau of Investigation (FBI) investigator in Abuja, and promulgate an executive order (EO) restricting financial transactions by corrupt Nigerian officials. Background Nigerian official corruption is not new. It has thrived under both civilian and military-led governments, and has involved leaders of all ethnic and religious affiliations. However, under Buhari’s predecessor, President Goodluck Jonathan, official corruption rose in scope and scale, especially in the security, petroleum, and power sectors. Nigeria has one of the most corrupt defense and security sectors in the world, according to Transparency International. Decades of unchecked corruption have left the Nigerian military hollowed out and ill-equipped to handle Nigeria’s many internal challenges, including the long-running Boko Haram insurgency that has killed tens of thousands of people. Security sector corruption takes many forms, ranging from facilitating oil theft to procurement fraud to misuse of opaque slush funds called “security votes.” Nigeria’s previous national security advisor, for example, is on trial for his role in diverting over $2 billion in security funds. The scale of this theft has overshadowed and arguably negated U.S. military and police aid to Nigeria, which totaled just $45.4 million from 2010 to 2014. Corruption also pollutes two areas that will shape Nigeria’s economic future: the petroleum and power sectors. Nigeria’s state oil company, the Nigerian National Petroleum Corporation, has long been corrupt and mismanaged, according to the Natural Resource Governance Institute. In 2012, Nigerians took to the streets after it was revealed that politicians connived with domestic oil companies to embezzle $6 billion in budgeted fuel subsidies. Endemic corruption has also meant that, even as the government has spent $14 billion since 1999 on developing a modern power sector for all of Nigeria (population 183 million), the national electricity supply steadily diminished to a level on par with the city of Edinburgh (population 500,000). Systemic corruption threatens democracy and good governance in Nigeria. The country’s senate president is currently standing trial for false asset declaration and other corruption-related charges. At least five former governors are facing trial for graft. The Economic and Financial Crimes Commission (EFCC), Nigeria’s main anticorruption body, is actively investigating dozens more sitting and former officials. Recent news that several senior election officials allegedly accepted millions of dollars in bribes demonstrates that corruption threatens the integrity and credibility of Nigeria’s elections. Since 1999, U.S. policy in Nigeria has largely focused on three areas: security cooperation, economic growth and development, and democracy and governance. By not directly confronting corruption, the United States has done little to prevent kleptocrats from weakening Nigeria’s political, security, and economic institutions, sabotaging larger U.S. policy goals. Challenges U.S. anticorruption policy continues to be ineffective in Nigeria for four reasons. First, the interests of senior U.S. policymakers and working-level officials diverge. President Barack Obama, Secretary of State John Kerry, Attorney General Loretta Lynch, and Treasury Secretary Jacob Lew have defined anticorruption efforts as a U.S. policy priority in Nigeria; they see it as part of a global effort to combat illicit finance, poor governance, and violent extremism. Yet officials serving at the U.S. Embassy in Abuja—diplomats, military liaisons, and intelligence officers—are mainly concerned with cultivating strong relationships with a wide range of elites, including those complicit in corruption. As a result, U.S. anticorruption policy remains broad-based and untargeted, centered on modest assistance programs for police investigators and civil society watchdogs. One area where this tension occurs is visa sanctions under Presidential Proclamation (PP) 7750. Local U.S. diplomats insist visa revocations unnecessarily antagonize their Nigerian counterparts and should be used sparingly. In 2013, an attempt to revoke the visa of a corrupt former minister was derailed by a senior embassy official who claimed that doing so would put U.S. oil companies’ business dealings at risk. Little evidence supports this argument, however, given that when the United States revokes visas, the target is not made public. And at least one state governor still routinely meets with U.S. diplomats even though he allegedly had his visa revoked under PP 7750 nearly a decade ago. Second, U.S. officials are not using existing tools—such as consular databases, local law enforcement records, or online searches to conduct basic due diligence—to identify and avoid enabling corrupt officials. As one example, the U.S. Agency for International Development (USAID) funds a rice cultivation project owned by a former attorney general whom the United States sanctioned for corruption in 2010. In April 2016, the U.S. ambassador and USAID officials visited and toured the farm with the owner. Third, the anticorruption work of U.S. law enforcement agencies is under-resourced given the size and scope of corruption in Nigeria, its destructive impact on U.S. policy interests, and its role in fueling illegal financial transactions in the United States and Europe. Although the FBI’s International Corruption Unit recently tripled in size, its worldwide focus, heavy caseloads, and long prosecution timelines mean that it can only investigate a handful of the many potential cases involving corrupt Nigerian elites. Fourth, as with other policy efforts, anticorruption action is hindered by interagency divides. The U.S. Department of State, Department of Justice, Department of the Treasury, and the U.S. intelligence community rarely collaborate to combat corruption in Nigeria. For example, the State Department and the intelligence community do not routinely provide tips, background information, or expert advice to Justice Department investigators working to locate and seize assets stolen by Nigerian kleptocrats. Further, frequent personnel turnover has hindered attempts by some working-level officials to improve communication and policy coordination. Recommendations Since becoming president in May 2015, Buhari has supported the EFCC in investigating the country’s most corrupt officials, leading to 140 successful prosecutions in six months. Buhari has also lobbied the United States, as well as the European Union and Gulf countries, to repatriate stolen Nigerian assets. In April 2016, EFCC Chairman Ibrahim Magu visited Washington to ask for greater U.S. technical assistance, training, and information sharing. To fully realize the opportunity the Buhari presidency presents, the United States should make its anticorruption policy more effective by taking the following steps:  Formalize an interagency working group on Nigerian kleptocracy. This internal discussion forum would be useful for sharing information and improving coordination between Washington and the U.S. Embassy in Abuja, as well as among policymakers, law enforcement, and the U.S. intelligence community. Better communication at the working level could facilitate stronger vetting of potentially corrupt Nigerians and discourage insulated decision-making. Establish a permanent FBI special agent corruption investigator position at the U.S. Embassy in Abuja. In doing so, Washington would send a clear signal that it is upping its anticorruption commitments and moving away from its hitherto nonconfrontational approach. Though subordinate to the U.S. legal attaché in Abuja, this investigator would operate free from diplomatic interference in support of the International Corruption Unit at FBI headquarters. Collaborating closely with the EFCC, this investigator would be able to provide Washington with unbiased reporting on corrupt individuals. The United States should also encourage the EFCC to field a senior liaison at the Nigerian Embassy in Washington, DC, to enhance information sharing. Promulgate an executive order on Nigerian kleptocracy. The United States should craft an executive order on Nigerian kleptocracy similar to EO 13660 on Ukraine and EO 13692 on Venezuela. Although it would require a months-long interagency effort, an EO would facilitate and streamline efforts to restrict financial transactions by individuals and corporate entities involved in official Nigerian corruption. It would also have a deterrent effect on Nigerians accustomed to investing their illicitly gained wealth in U.S. real estate. Passage of the bipartisan Global Magnitsky Human Rights Accountability Act, now under deliberation in the U.S. Congress, would likely obviate the need to develop a separate EO by imposing financial and travel sanctions on foreign government officials implicated in “acts of significant corruption.” If passed, Congress should require the State Department to use its authority under Global Magnitsky, ensuring it becomes a forceful anticorruption policy tool. By taking these steps, the United States can combine its anticorruption policy rhetoric with measurable actions and significantly reduce illicit financial outflows from Nigeria, which Global Financial Integrity estimates exceeded $178 billion from 2004 to 2013. Absent these steps, Nigerian kleptocrats will continue to see the United States as soft on corruption and a place to hide and spend their ill-gotten gains. 
    Report by Matthew T. Page July 11, 2016 Civil Society, Markets, and Democracy Program
  • Americas
    This Week in Markets and Democracy: Foreign Aid Bill Passes, New TIP Report Released, UK Bribery Act Turns Five
    Now You Can Find out What Happens to U.S. Aid In a bipartisan vote, Congress passed legislation to require U.S. agencies—the U.S. Agency for International Development and U.S. State Department among them—to measure the success (or failure) of billions spent on development and economic assistance programs—and share the findings on foreignassistance.gov. Once signed into law the Foreign Aid Transparency and Accountability Act will also make public program budgets by country, showing where and how U.S. money is spent. Notably exempt is security assistance, leaving details about how the United States funds, trains, and equips foreign militaries still opaque. Naming and Shaming in the U.S. Human Trafficking Report The U.S. State Department released its sixteenth annual Trafficking in Persons (TIP) report, ranking 188 countries’ efforts to prevent human trafficking from best (Tier 1) to worst (Tier 3). Myanmar and Uzbekistan joined six other nations downgraded to the U.S. blacklist—in Myanmar’s case for recruiting and using child soldiers, smuggling minority Rohingya migrants, and official complicity in forced labor. Thailand rose from the bottom rung, despite criticisms that labor abuses in its multibillion dollar fishing industry remain unchecked. Last year investigations revealed top U.S. diplomats manipulated TIP rankings for political ends; this year’s calling out of strategic partners may help restore the report’s credibility. UK Bribery Act Turns Five Five years ago the United Kingdom (UK) passed the Bribery Act. It not only makes it illegal for companies to bribe foreign officials (in line with the U.S. Foreign Corrupt Practices Act), it also holds them to task for failing to prevent bribery among subsidiaries and business partners within their supply chains. Others have followed the UK’s lead. Brazil passed its Clean Company Act in 2014, imposing fines of up to 20 percent of revenue for companies that bribe foreign or domestic officials. Ireland has proposed legislation that includes the UK’s rules and adds provisions to force stricter corporate due diligence. The UK Bribery Act’s first half decade only saw two cases resolved: convicting Sweett Group of bribing a UAE official, and settling with Standard Bank for bribery in Tanzania. Last year the Serious Fraud Office took on sixteen new investigations—expect more decisions before the law’s next milestone birthday.
    Blog Post by Shannon K. O'Neil July 8, 2016 Development Channel
  • Sub-Saharan Africa
    Update on South Africa’s Nkandla Scandal
    As directed by the South African courts, the Treasury has determined that President Jacob Zuma owes the state ZAR 7.8 million (US$ 531,024) for work done on his private home, Nkandla. The South African government has spent over ZAR 246 million (US$ 16,747,680) ostensibly on “security upgrades.” Those include underground bunkers, a heliport, and elaborate communications facilities. But, they also include amenities not related to security such as a swimming pool, a chicken run, and a visitors’ center. It is these types of facilities for which the Treasury is seeking repayment. Public expenditure on Nkandla has become a political football, with the opposition parties accusing the president of gross corruption. There has been a series of parliamentary moves and court cases regarding the issue. The upshot has been to strengthen South Africa’s “Chapter 9” institutions, those established by the constitution as outside the control of the government and designed to protect the human rights of South African citizens and to promote good government. In effect, the Nkandla episode has reaffirmed the constitutional limits on the power of parliament, dominated by Zuma’s African National Congress (ANC), and also on the presidency. The episode has reinforced the rule of law. More immediately, Nkandla has reinforced Zuma’s popular reputation for corruption in the run up to important local government elections scheduled for August. Zuma has alienated some of the founders of the ANC, who have called for him to resign. If the August elections do not go well for the ANC, it is a distinct possibility that the ANC will remove Zuma from the party leadership, and, in effect, the presidency. However, Zuma retains support. Zuma’s political allies, the ANC in KwaZulu-Natal (where Nkandla is located) and the ANC Women’s League, have called upon ANC members voluntarily to contribute to the Zuma repayment. The former general secretary of the Congress of South African Trade Unions (COASTU), a parliamentary ally of the ANC but an enemy of Zuma, has denounced the proposal. Nkandla occupies tribal trust land controlled by Zulu King Goodwill Zwelithini. In principle, tribal land cannot be mortgaged, bought, or sold. This greatly reduces any market value Nkandla might have. King Zwelithini is a close ally of fellow Zulu Jacob Zuma. On June 28, King Zwelithini announced that he has started the process by which residential occupants of trust land will become fee simple owners of the land they occupy. That means the property could be bought, sold, and mortgaged. This would l be a personal bonanza for Zuma, and it is hard to believe that Zuma’s travails and King Zwelithini’s move are unrelated. *All currency conversions are based on rates from June 30, 2016.
    Blog Post by John Campbell July 7, 2016 Africa in Transition
  • Sub-Saharan Africa
    Guinea-Bissau: The Road Ahead
    This is a guest post by Russell Hanks. Mr. Hanks is a national security professional and a retired diplomat with the U.S. Department of State. Guinea-Bissau has a new government, or not, only a few months after the previous attempt to paper over its seriously polarized politics. Elections in 2014 were indecisive and installed officials with the same differences that led to the 2012 coup. The current dispensation is no more likely to bring political stability to the nation than the last. Guinea-Bissau has been plagued by instability since its independence in 1974. Following independence, two decades of one-party government stalled progress. An accommodation among the then-political factions was within grasp in the 1990s, as the one-party system gave way to efforts to liberalize the nation. These efforts were aborted by civil war and the subsequent intervention by its neighbors. Post-civil war, the three primary factions came to an uneasy accommodation. The old guard remained in control. A second group of politicians strived to break this faction’s hold on the economy. The third power element, the military, focused on promoting nationalism and served as the arbiter between the two political factions. Assassinations, coup plots, and corruption upset the balance among the three. Prime Minister Carlos Gomes Junior (Cadogo) stepped into the vacuum left by the assassinations of both the president and the chief of defense staff. Cadogo proceeded to starve the military, forcing it to self-finance. Not limited to the military, the theft of natural resources (fisheries and timber) and transshipping cocaine expanded to provide needed funding. The opposition found itself fighting a defensive battle as suspicious murders and police intimidation of its supporters continued. Cadogo’s heavy-handed approach to the 2012 elections, necessary after the unexpected death of the president, precipitated a 2012 military coup that ousted him from power. In the two years of interim government preceding the 2014 elections, Cadogo was exiled and his political power diminished. The elections of 2014, however, exacerbated the divisions in the polity. After much acrimony, Domingos Simōes Pereira, a reformer, took the leadership of the majority party, the African Party for the Independence of Guinea and Cape Verde. However, a former Cadogo supporter, Jose Mario Vaz, gained the party’s nomination and eventually won the presidency. Vaz was elected president and Pereira became prime minister. Vaz, intent on continuing a policy of crony capitalism, almost immediately challenged Pereira’s efforts at institutional reform and reconciliation with the international community. In 2016, Vaz dismissed Pereira. While current trends remain unclear, it appears that Vaz and his supporters remain intent on continuing the climate of corruption and impunity. Pereira and his allies are still working, although from a disadvantaged position, toward reforms. The military remains in the barracks for the moment, but it is unclear if it remains united behind its new leadership. While the president has sworn in another new prime minister, constitutional questions remain about his legitimacy. Until those questions are resolved, development and reform are stalled. Without a new election, not likely before 2018, the unstable political and economic situation will continue. Narcotics trafficking remains lower than in 2011, but corruption continues. Within each of the competing groups there are reform-minded people; but unless they can unify, any present or future government will remain hampered by challenges to its authority and questions of its legitimacy.    
    Blog Post by Guest Blogger for John Campbell July 6, 2016 Africa in Transition
  • Americas
    This Week in Markets and Democracy: U.S. Corruption Ruling, China’s Antigraft Drive, Panama Canal Expands
    Supreme Court Rules on Corruption The U.S. Supreme Court overturned former Virginia Governor Bob McDonnell’s bribery conviction for accepting over $175,000 worth of gifts and loans—including a Rolex watch, designer clothes, and luxury getaways—allegedly in return for favorable business treatment. The court said this did not count as an “official act” of bribery under U.S. law, raising the bar for federal prosecutions of public sector corruption. States can help fill the gap, as Virginia did in the wake of the scandal, setting a straightforward $100 annual cap on gifts from lobbyists and other individuals or businesses angling for government deals or support. Other states ban or set strict gift limits. In Florida, lobbyists (or those who hire them) cannot give more than a flower arrangement; in California, officials cannot accept anything valued over $250. Several states prohibit gifts with “intent to influence”—a hard case to prove. Check out your jurisdiction here. China’s Anticorruption Drive Goes Global? China says it needs help to take on corruption. Its antigraft unit asked Western countries to assist its “Operation Fox Hunt” efforts to repatriate corrupt officials that fled abroad. The nation seems less interested in abiding by widely-agreed upon international norms or helping set new ones. As G20 president, China scuttled the “Business 20” Anticorruption Task Force, established in 2010 to develop rules on transparency and shell company ownership. Working group members said China’s move sets back efforts to expose shell companies that conceal ill-gotten assets. And China has yet to follow through on a promise to join the Organisation for Economic Co-operation and Development (OECD) Working Group on Bribery, a necessary step toward signing onto the legally-binding OECD convention that would force China to hold its companies accountable for paying bribes abroad. Panama Canal Opens Amid Uncertainty The Panama Canal finally opened its nine-year, $5.4 billion expansion. The new canal permits ships carrying up to 13,000 containers—more than double its former capacity—to pass between the Atlantic and Pacific. It comes online amid slowing global trade and shipping industry woes. Only some East Coast ports are ready—others remain cut off due to too-low bridges for the new mega-freighters, too-small terminals, and a lack of modern railways and roads to get the goods to consumer markets. As former Port of Los Angeles director Geraldine Knatz explains in an interview with CSMD, to boost U.S. port competitiveness, the government needs to re-examine how it invests in them.
    Blog Post by Shannon K. O'Neil July 1, 2016 Development Channel
  • Americas
    This Week in Markets and Democracy: Ericsson Corruption Probes, EU Spurs Antigraft Action, Modi Courts FDI
    Corruption Probes Spook Ericsson Investors Both U.S. and Greek authorities are taking on Ericsson AB, one of the world’s biggest telecoms companies, for alleged corruption. The United States is investigating its operations in both China and Romania for potential Foreign Corrupt Practices Act (FCPA) violations. The Greeks summoned seven current and former executives over whether the Swedish multinational bribed government officials to win a $597 million defense contract in 1999. These inquires come at a time when the company faces stiff competition, declining sales, and falling share prices. Ericsson is now trying to ease investors’ concerns, hoping the revelations do not get worse. EU Membership Spurs Anticorruption Action The European Union’s (EU) anticorruption requirements are shaping rules for current and would-be members. In Serbia they have prompted antigraft activism as the nation pushes to enter the union. Authorities arrested eighty current and former officials for corruption and financial crimes late last year. And its courts just sentenced Miroslav Mišković, a politically-connected billionaire, to five years in prison for tax evasion. EU membership also likely helped keep Romania from backsliding, as the recent effort to decriminalize public official corruption—rejected by Romania’s constitutional court—would have violated its EU obligations. The move came after the nation’s anticorruption prosecutors took on a record 1,250 cases, convicting over 90 percent, including twenty-one members of parliament and the former prime minister. India’s Modi Courts Foreign Investment Despite India’s size and global heft, it so far has failed to capture its fair share of foreign direct investment (FDI). In 2015 it brought in $44 billion compared to demographically similar China’s $136 billion, and Brazil’s $65 billion. This matters, as studies show FDI brings jobs, new technologies, and can help emerging economies increase the value added in their production and exports. Now Prime Minister Narendra Modi’s government is easing many restrictions on investment. New rules allow foreign investors to fully own defense, aviation, and food companies. They also lower domestic content laws for consumer goods, making it easier for companies like Apple and Ikea to open stores in India. It remains to be seen whether these efforts will be enough to offset the still complex tax system and strict labor rules (that often require government approval for layoffs), to bring in foreign companies and dollars.
    Blog Post by Shannon K. O'Neil June 24, 2016 Development Channel
  • Europe and Eurasia
    This Week in Markets and Democracy: U.S. Hunts Stolen Uzbek Assets, Bribery Still Pays, Uganda’s Democracy Backtracks
    United States Hunts Stolen Uzbek Assets The U.S. Department of Justice (DOJ) is having a hard time collecting foreign officials’ ill-gotten gains. After finding evidence of bribery, the DOJ still needs to physically seize assets. The latest setback comes in the case against the Uzbek president’s daughter, Gulnara Karimova, for accepting bribes from Russian telecoms company VimpelCom. In the current round the DOJ and Uzbekistan are vying for some $114 million stashed in Karimova’s Irish bank accounts. This is just a small part of the $850 million the DOJ believes Karimova hid in accounts across Belgium, Luxembourg, and Ireland. If they get the money the Uzbek government, led by Karimova’s father, is already demanding its “rightful” return to Uzbekistan, the “victim” of corruption. OECD Finds Bribery Still Pays An Organisation for Economic Co-operation and Development (OECD) study shows in many places bribery still pays—the risk remains worth the reward. In part this is because countries don’t enforce their rules. Even if they do, the penalties are small. When maximum fines are $10 million for commercial advantages that could bring in billions, bribes remain good investments. To change these calculations, countries need to up fines and confiscate corruption proceeds—a difficult task where rule of law remains weak. Uganda’s Democracy Backtracks  Since his February election to a fifth term, Ugandan President Yoweri Museveni has jailed opposition supporters, shut down social media, and censored journalists. This week he arrested dozens of military officers for ‘coup plotting.’ All have ties to Kizza Besigye, the opposition leader awaiting trial for trumped-up treason charges who faces the death penalty. Unable to stomach the abuses of longtime western ally Museveni, EU and U.S. delegates walked out of his inauguration after he mocked the International Criminal Court, and the United States called Uganda’s post-election environment “unacceptable.” So far neither have stopped the abuses.
    Blog Post by Shannon K. O'Neil June 17, 2016 Development Channel
  • Brazil
    Brazil’s Challenging Distractions
    Michel Temer’s first month as interim president has not been the stuff of dreams. Even though important elements of urgently needed economic reforms have advanced, impeachment politics continue to cast a long shadow, corruption investigations continue to percolate, and Temer’s legitimacy remains under constant assault. As impeachment continues to move forward in the Senate, Dilma Rousseff and her supporters have pulled out all the stops. Actors at Cannes and other cultural events have protested the alleged coup, demonstrators have hit the streets alongside former President Lula, and perhaps looking for a wedge that might drive moderates to her side, Rousseff has suggested that if reinstated, she would call for new elections. Public support for impeachment has fallen slightly, although most Brazilians say they would rather not see Rousseff return and chances are still better than not that she will be convicted by the Senate in August. But Rousseff’s supporters know that their own long-term political fortunes depend on questioning the legitimacy of impeachment, and fence-sitting senators seem to be using the uncertainty surrounding support for impeachment to extract a pound of flesh from the interim president. Temer has built a defensive cabinet, following the time-tested recipe of appointing ministers who faithfully represent the majority legislative coalition. They are complemented by a parallel kitchen cabinet of technocrats in the Finance Ministry, the National Development Bank (BNDES), Banco do Brasil, Treasury, and state-owned enterprises. The bifurcated cabinet may help to ensure Temer’s survival, but it also helps to explain the ambiguous results of the last month: progress on fiscal reforms, such as more realistic fiscal targets and the DRU law (which reallocates tax revenues in favor of the federal government), but also important setbacks, such as a tone deaf congressional push for higher civil service wages. Most damaging, of course, is that Temer’s allies, especially within the PMDB party, are a constant embarrassment: wiretapped conversations between a defendant in the Lava Jato case and party heavyweights Renan Calheiros, José Sarney, and Romero Jucá, suggested an effort to undermine anticorruption efforts and confirmed many Brazilians’ worst suspicions about the Temer coalition. Recognizing his own tenuous support and the likely political confusion of coming months, Temer appears to be governing largely symbolically, announcing a number of high-impact measures that require little legislative support, such as reducing the number of ministries, creating a new concessions program, rebuilding regulatory agencies, and reviewing the rules on Petrobras’ participation in the pre-salt oilfields. The most important major legislative initiative announced by the government is social security reform, but debate over the specifics of the proposal is unlikely before municipal elections in October, given that Temer cannot afford a divisive battle while Congress is still fighting the impeachment battle or distracted by electoral politics. The best news in the short term is that the Temer administration is reportedly planning to back a series of accountability reforms proposed by the Ministério Público prosecutorial service, presumably to help it to recover some modicum of credibility in the anticorruption effort. Multiple corruption investigations continue to destabilize the political world. A plea bargain by former OAS executive Leo Pinheiro included allegations of campaign finance violations by Marina Silva, one of the few prominent politicians as yet untainted by the Lava Jato case. Rumors of a plea bargain by construction magnate Marcelo Odebrecht and the investigation of former President Lula’s involvement in the Petrobras scandal have Brasília abuzz. The Zelotes investigation of tax evasion seems to have moved into a new phase with the indictment of the president of one of Brazil’s largest private banks, Bradesco. The possible removal of Eduardo Cunha from the Chamber of Deputies presidency continues to generate sparks in Congress, and there is (as yet unfounded) speculation that Cunha might try to save his skin through a plea bargain of his own. Meanwhile, the impeachment trial will move into higher relief beginning next week, as the defense presents its case and President Rousseff is scheduled to testify. In sum, the coming weeks and months are likely to remain full of drama and tension, with a distracted political class focused less on governance than survival. In the background, almost as an afterthought, will be efforts to address the multiple economic challenges the country faces: heavily burdened state companies, the threatening fiscal deficit, and the critical situation of Brazil’s state governments.
    Blog Post by Matthew M. Taylor June 15, 2016 Latin America’s Moment
  • Wars and Conflict
    This Week in Markets and Democracy: Labor Rights in Supply Chains, Bank Secrecy Act, and the Kimberley Process
    Supply Chains Take Center Stage at International Labor Conference Of the $26 trillion in commerce flowing around the world, over 70 percent are intermediate goods. This reflects the rise of global supply chains. The International Labor Organization (ILO) conference put this dominant means of production on the agenda for the first time this year, addressing working conditions for those within these chains. Government and business leaders from the ILO’s 187 member countries spent the past two weeks debating whether to set official standards to push companies like Walmart, Gap, and Nestlé to address labor violations along their transnational production chains. Though any new rules would be non-binding, historically ILO standards have prompted legislation. Bank Secrecy Act Takes On Corruption Goldman Sachs may have run afoul of the Bank Secrecy Act in its dealings with Malaysian state development fund 1MDB. The 1970 legislation requires U.S. banks to report suspicious deposits or transfers. In 2013 Goldman transferred $3 billion from a 1MDB bond deal to a small Swiss bank. Days later, half the funds disappeared offshore, with some resurfacing in Malaysian President Najib Razak’s personal accounts. J.P. Morgan and HSBC have also been penalized under the act for neglecting to report the Madoff Ponzi scheme and providing financial services to Mexican drug cartels, respectively. Designed originally to target money laundering, the Goldman Sachs probe shows the act can help take on global corruption. Kimberley Process Lifts Diamond Ban on CAR     The Kimberley Process—a joint initiative by producer and consumer countries, jewelry companies, and civil society to keep “conflict diamonds” out of global markets—lifted a three-year embargo on the Central African Republic (CAR). In the wake of a 2013 coup, the government lost control of mining regions to rebel groups, making it unable to confirm the origins of its gems. The nation’s newly-elected government promises to trace its stones again, at least those from certain stable regions. Advocates for continuing the ban doubt the government’s capacity to weed out blood diamonds in the face of roving militias and active smuggling.
    Blog Post by Shannon K. O'Neil June 10, 2016 Development Channel
  • Mexico
    Mexico’s Gubernatorial Elections
    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.
    Blog Post by Shannon K. O'Neil June 6, 2016 Latin America’s Moment
  • Emerging Markets
    This Week in Markets and Democracy: International Labor Conference, Brazil’s Corruption Resignations, Politicians vs. the Press
    Fast Fashion Still Exploits Workers While multinational retailers such as H&M, Gap, and Walmart can get a swimsuit or sundress from the factory floor to customers’ closets within weeks, new reports show they still do not protect the workers that make this possible. Three years after Bangladesh’s Rana Plaza building collapse, which killed over a thousand workers and injured another 2,500, Walmart refuses to disclose details on factory safety inspections. Documents from a more forthcoming H&M show nearly 80,000 Bangladeshi workers make their clothes in workrooms without basic safety measures such as fire exits. And Gap has balked at Cambodian worker demands for a living wage—they now earn as little as $5 a day. At this week’s International Labor Conference in Geneva, unions and other groups will try to force measures to improve workers’ rights by holding multinationals more accountable. Corruption Brings Down Ten Percent of Brazil’s Two-Week-Old Cabinet Just two weeks into his interim term, Brazilian President Michel Temer has already lost two ministers—or 10 percent of his cabinet—to corruption. His planning minister, Romero Juca, stepped down after a recording emerged of him plotting to obstruct the Lava Jato corruption investigations. Temer’s transparency minister, Fabiano Silveira, resigned after a second recording caught him advising Senate President Renan Calheiros on how to evade prosecution. And Brazilian authorities are actively investigating another six ministers. These scandals weaken Temer’s already limited legitimacy, leading some to postulate Dilma Rousseff could return. Politicians Try to Silence the International Press Already having cowed or repressed local reporters, angry leaders in Malaysia and Venezuela are going after the Wall Street Journal for exposing their (alleged) crimes. In Malaysia, Prime Minister Najib Razak ordered police to investigate the paper for illegally publishing classified documents. This comes after the Journal uncovered the transfer of up to $1 billion dollars from the state investment fund 1MBD to Najib’s personal bank accounts, and then reported on government whitewashing of the subsequent official investigation. In Venezuela, the former head of the national assembly, Diosdado Cabello, filed a libel suit over a 2015 Wall Street Journal story reporting he was under U.S. investigation for running an extensive money laundering and drug trafficking ring. In harassing a free press, Cabello may give them an even juicier story—opening up sealed U.S. government evidence in the case.    
    Blog Post by Shannon K. O'Neil June 3, 2016 Development Channel
  • Americas
    The Anticorruption Boom and U.S. Foreign Policy
    April and May brought some of the most important movement on the anticorruption front of any two-month period in the past decade. Recapitulating briefly: - In April, the International Consortium of Investigative Journalists (ICIJ) began release of the Panama Papers, roughly 11 million leaked documents from the Mossack Fonseca law firm detailing the creation of more than 15,000 shell companies and providing information on more than 200,000 offshore entities. The lists touched on a variety of presumably legal uses of offshore firms, but also sprayed egg on a number of prominent faces, including in Russia, Ukraine, China, the United Kingdom (UK), Spain, Chile, Argentina, Iceland, and within the International Federation of Association Football (FIFA), among others. A follow-up manifesto by John Doe, the whistleblower at the heart of the leak, noted the extensive use of offshore accounts as part of a system of “massive, pervasive corruption” in the global economy. If nothing else, the Panama Papers have introduced the concept of “beneficial ownership” to a broader public, and fomented a larger discussion of how the West enables corrupt practices through loose monitoring of offshoring and financial disclosure. - The reports were followed in May by measures by the Obama administration to “combat money laundering, corruption, and tax evasion…,” stimulated in part by the Panama Papers, as well as the impending UK Anti-Corruption Summit (below). Among the administration measures were proposals to strengthen anticorruption efforts by requiring greater due diligence and disclosure regarding corporate ownership, and requiring foreigners setting up shop in the United States to obtain a tax identification number. Critics have noted (for example, here and here) that many of the measures will require legislative approval, which will be slow in coming, and many of the proposals do not go far enough in involving important gatekeepers in due diligence. But the Obama administration’s moves are at least a recognition of the problem, and perhaps may set the stage for future change. They also come in the wake of the announcement of much-needed increases in the human resources devoted to anticorruption efforts at both the Federal Bureau of Investigation (FBI) and the U.S. Department of Justice. - Finally, on May 12, at the Anti-Corruption Summit in the UK moved forward, millimetrically, on a proposal for public registries and an international information-sharing center on beneficial ownership. Only six countries are fully committed to the registries project, and the United States remains aloof, but at least the idea is on the table. If nothing else, governments will need to explain what they find problematic about the idea, even if they ultimately refuse to join up. These three developments highlight the stop-and-start nature of anticorruption efforts: as so often happens in the public policy world, a small group of anticorruption campaigners have kept the issue on the table during times of relative inattention to corruption. The shock generated by the Panama Papers created a small window of opportunity for policy change, when campaigners’ ideas and proposals could be placed before policymakers briefly focused on the problem and eager to hear about ready solutions. Whether these proposals move forward will depend significantly on the support they receive against a barrage of likely opposition. Five years ago, author Nicholas Shaxson noted that the biggest tax havens in the world are islands. Islands, he concluded tongue-in-cheek, such as Manhattan and the City of London. Tax havens are estimated to hold as much as $20 trillion, more than all U.S. banks. Furthermore, the Tax Justice Network ranks the U.S. as the world’s third-easiest place, after Switzerland and Hong Kong, to set up offshore companies that can be used for everything from tax evasion to hiding beneficial ownership (more here). As Daniel Kaufmann and Alexandra Gillies and Shruti Shah have noted separately, less background information is needed to set up a shell corporation in Delaware than to get a driver’s license or a library card. Beneficial ownership rules thus may face an uphill battle against opposition from the representatives of states dominated by the financial services industry or from lawyers and business groups concerned by increased regulatory costs. Ultimately, success in moving forward in fighting the corruption that disproportionally milks many of the world’s poor will require a sustained campaign that makes it clear to voters and policymakers that it is in the best interest of the United States to staunch the flow of illicit funds around the world. The experience of the past forty years suggests a way forward. The Foreign Corrupt Practices Act (FCPA) of 1977, for example, could never have moved forward without recognition that the offshore corruption of U.S. firms was circling back home in the form of highly damaging illegal campaign finance contributions. Following the FCPA’s passage, business complained—rightly—about the FCPA’s anticompetitive effects, and pressure from business and anti-corruption groups eventually led to passage of international agreements, such as the 1997 Organisation for Economic Co-operation and Development (OECD) Convention on Corruption, that imposed similar corruption-busting regulations on other countries, generating improved conditions for clean global business. There may be costs, in other words, to being a first mover. But there is significant and clear damage to the U.S. national interest when other countries’ corporations compete with ours on an uneven playing field, when corruption weakens and destabilizes our allies, when our treasury is depleted by offshore maneuvering, and worst of all, when our reputation is sullied because we are seen as part of the problem rather than the solution. Everything should be done to reduce the regulatory burden and lessen the costs of compliance. But if there is one lesson from the Panama Papers, it is that the days of ethical neutrality about the tangible costs of undisclosed and unidentifiable offshore financial movements are coming to an end.
    Blog Post by Matthew M. Taylor June 2, 2016 Development Channel