Corruption

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.

The following text is the entirety of John Campbell’s speech delivered at the Nigeria Summit on National Security held by the Council on African Security and Development in Abuja, Nigeria, on May 25, 2016.  Thank you for your warm introduction. It is a pleasure to be at this important conference, to see old friends, make new ones, and to be back in Nigeria. I am honored to be billed as a “principal speaker.” But, let me begin my remarks with a disclaimer. I retired from the U.S. Foreign Service in 2007. Since 2009, I have been at the Council on Foreign Relations. So, in no way do I speak for the Obama administration or the U.S government. Nor do I speak for the Council which does not adopt formal positions on international, political, or other issues. However, I am a friend of Nigeria of longstanding. Long ago my imagination was captured by the vision of Nigeria as a multiethnic, pluralistic democracy based on the rule of law with the heft to give Africa a seat at the table – the “Nigeria Project.” So, my views may be of some interest, if only from the perspective of how things look to a highly sympathetic observer. The title of this session is “The Surge of Insurgency/Terrorism in Recent Times: Social and Economic Consequences.” To state the obvious, from Boko Haram and al-Qaeda in the Islamic Maghreb (AQIM) in the west to the so-called Islamic State redoubts in Libya to al-Shabab in the east, African states are increasingly facing terrorism and its consequences at the hands of radicals who claim to be Islamic. This morning, I am mostly going to refer to Nigeria, the West African country I know best. And that means my remarks will be dominated by Boko Haram, its consequences, and the response to it by Nigeria and the international community. Let there be no misunderstanding. Boko Haram is evil, to use theological language that will be understood in this deeply religious country. Nevertheless, trying to understand it is not the same thing as endorsing it or tolerating it. Failing to think hard about it can lead to a misreading of its consequences and result in poor policy choices. Boko Haram and its ilk are new. Not a single sovereign state endorses the kind of vicious and indiscriminate violence perpetrated by Boko Haram. Its crimes go way beyond rebellion against duly constituted authority. Its adherents are, among other things, murderers, kidnappers, rapists, smugglers, and extorters. They attack schools. They butcher teachers, murder young boys, kidnap young girls, of whom the Chibok girls are the best known. Boko Haram uses the term marriage to describe what is actually rape. Recovery from the social and economic consequences of Boko Haram is a challenge for Nigeria, and also for its international partners and friends. We need to step back and look at what we are up against. Pew Trust polling over the past year finds that about one Nigerian Muslim in five is favorably inclined toward the Islamic State. A separate Pew poll finds that ten percent of all Nigerians are favorably disposed toward Boko Haram. Polling data is always subject to question, and the Pew data is counterintuitive in many ways. Nevertheless, it does indicate that though only a small percentage the population may be favorably disposed toward Boko Haram, it would still appear to be large enough to provide Boko Haram with a significant reservoir of recruits for a long time. Boko Haram’s stated goal is the establishment of God’s kingdom on earth through justice for the poor by strict implementation of sharia. This can be a powerful message in a region that is increasingly impoverished and feels itself marginalized. Marginalization is both a cause and a result of Boko Haram. A consequence of Boko Haram is a mindset resembling the product of brainwashing. This is a reality that projects to deradicalize Boko Haram participants will have to take into account. Perhaps we should start with the observation that while Boko Haram has roots in the past, in its present form it is new. It might be useful to recall its trajectory. In 2004 as American ambassador I could travel throughout all of Nigeria—and did so. At about the same time, malam Mohammed Yusuf established his commune at the Railway Quarter mosque in Maiduguri. This group would eventually become known as Boko Haram. We at the embassy knew about the commune, but paid it little attention. At that time it was not associated with violence. Moreover, its members would have nothing to do with western diplomats. But, by 2007, on occasion Boko Haram was murdering religious and political rivals. Subsequently, Boko Haram began aggressively to attack Nigerian state personnel (especially soldiers and police). In 2009 it launched an insurrection centered in Maiduguri. While putting it down, the police and security services extrajudicially killed Mohammed Yusuf and hundreds of his followers. (A video of Yusuf’s murder went viral in northern Nigeria.) The group then went underground until 2011 when under the leadership of Abubakar Shekau it mounted successful jail breaks and its first suicide attacks. By 2014 it had captured a portion of northeastern Nigeria the size of Belgium and appeared to be threatening Maiduguri. Boko Haram’s success undermined popular confidence in the Jonathan administration’s ability to protect the people—a fundamental responsibility of any government. In response to the success of Boko Haram and looking toward the impending 2015 national elections, the Nigerian, Chadian, and Nigerien security services assisted by South African-led mercenaries pushed Boko Haram out of most of the territory it controlled. It was during this time period that Shekau pledged allegiance to the Islamic State. We now understand that Boko Haram’s remarkable success in the 2011-2015 period owed something to the shortcomings of the army and the police, at least in part because corruption deprived soldiers of what they needed to fight. The struggle continues and Boko Haram is tactically flexible. In the face of a much stronger Nigerian military response, Boko Haram has moved away from occupying territory. Instead, Boko Haram has increased its use of suicide bombers, most of them female, against “soft” targets. Moreover, the UN office for the Coordination of Humanitarian Affairs (OCHA) reports that forty-four children were involved in suicide bombing in 2015, up from four in 2014. Seventeen were in Nigeria, the rest in Chad and Cameroon. That, too, is a new and evil consequence of Boko Haram. Suicide has always been culturally anathema in West Africa, unlike in the Middle East, where it first appeared in a political context as part of the Palestinian resistance to the Israeli invasion of Lebanon in 1983. The social and economic consequences of Boko Haram are dire. Violence between Boko Haram and the security services has resulted in an estimated more than two million internally displaced persons and hundreds of thousands of refugees outside Nigeria’s borders. There are government estimates that Boko Haram has caused at least nine billion U.S. dollars in property damage. Little planting and less harvesting raises the specter of famine. OCHA estimates that three million are food insecure. It estimates that some 486,000 children in Borno and 242,000 children in Yobe are suffering from Global Acute Malnutrition. In addition, some 73,000 children under two years of age need urgently to receive ready-to-use supplementary specialized nutritious food. Without intervention an estimated 67,000 children from six months of age to fifty-nine months who suffer from severe malnutrition are likely to die in Borno and Yobe in 2016. What should we do? By ‘we’ I mean Nigeria and its international partners. The first is the need to counter and overcome Boko Haram efforts to impose radical extremism on Nigerians and their neighbors. Here, the Buhari administration has made important progress. But, beating Boko Haram on the battlefield is only the beginning. We must strike at the root—the root causes of Boko Haram. And we cannot do that unless we understand what those roots are. So let me return to the question of why people might join or support or acquiesce to Boko Haram. Some individuals within Boko Haram are driven by ethnic and religious allegiances or by membership in patronage networks that are allied to it. Others support it in response to oppression, especially human rights violations by the security services. Some likely have a selfish and shortsighted political agenda. Still others, however, are radicalized for reasons that have little to do with religion or politics. Some people appear to embrace Boko Haram because they have trouble finding meaning in life or economic opportunity; because they are deeply frustrated, and because they hope that Boko Haram will give them a sense of identity or purpose or power that they have not received elsewhere. When people have no hope for the future and no faith in legitimate authority, when they have no outlet for expressing their concerns, their frustration festers. And no one knows that better than Boko Haram. Accordingly, Boko Haram can be a consequence of personal alienation, and at the same time a cause of personal alienation. Boko Haram does all that it can to promote individual alienation from Nigerian society. In other countries challenged by radical terrorism, not just Nigeria, young people are essentially the swing votes in the fight against violent extremism. We need them to make wise choices, and yet, that is less likely if they grow up without faith in government, without an education, without the chance for a better life. Overcoming such challenges includes improving the climate for domestic and foreign investment. It means streamlining bureaucracies and preventing cronies from crowding out private enterprise. It means giving women and girls an equal chance in the classroom. Bribery, fraud, and other forms of venality feed terrorism and organized crime. Narcotics and arms traffickers are often links among terrorist networks, perhaps including Boko Haram and the Islamic State redoubts in Libya. This reality means that President Buhari’s fight against Nigeria’s culture of corruption, already a major achievement of his presidency, is a security priority of the first order as well as a cornerstone of improved governance. Boko Haram’s trajectory with its focus on Nigeria may be changing. Shekau’s pledge of allegiance to the self-proclaimed Islamic State may be “internationalizing” it.” The pledge has provided a layer of legitimacy to Boko Haram among radical extremists, giving it a greater ability to attract likeminded individuals in the region. There are reports of small numbers joining Boko Haram from elsewhere in West Africa, particularly Senegal, and of Boko Haram operatives joining the fight in Libya. While marginal at present, this could potentially be a lasting source of concern. U.S. Brig. Gen. Donald Bolduc claims a weapons convoy from the Islamic State in Libya was stopped as it moved toward the Lake Chad Basin where Boko Haram is active. This convoy could be one of the first concrete examples of a direct link between the two extremist groups. It was carrying small-caliber weapons and heavy machine guns, equipment Boko Haram is likely to need. An “internationalized” Boko Haram could result in its expanded operations elsewhere in Nigeria, and also outside the country. So, as Boko Haram’s trajectory shifts, so too do the social and economic consequences of it. Conventional wisdom is that by providing good governance and restoring popular confidence in the government, Nigeria can address the consequences of Boko Haram. This is a tall order, especially in a time of declining government revenue, and naturally raises the question of outside assistance. But, a very fundamental question is how much impact outsiders—such  as the United States and the EU—can have on Nigeria’s fight against terrorism and its trajectory toward democracy and good governance. I think we can help, but only at the invitation and initiative of Nigeria. With respect to Boko Haram, it would seem imperative to integrate security interventions with political and economic initiatives. For a start, this will require serious diplomatic engagement by Nigeria and its partners, especially the United States, with the other countries in the region, and also with the Saudis and the Gulf, and, I would suggest, with countries as far away as Malaysia and Indonesia. There is also the need to overcome distrust. Not only do governments and the governed distrust each other in certain areas, it is fanned by Boko Haram. The governments in the regions themselves often instinctively distrust each other. Boko Haram, too, fans that distrust. Elsewhere in this conference we will be looking at ways to move forward. In the meantime, let me throw out five ideas that might be worth thinking about as ways to respond to the social and economic consequences of Boko Haram and the struggle against it. First, I am hearing that the EU-funded, deradicalization programs appear to work. The trouble is they are too small. They should be greatly expanded if they are to have transformative impact. The programs are expensive at exactly the time that Nigeria’s oil-based revenue has fallen by up to 40 percent. Nigeria, the EU, and the U.S. could approach Saudi Arabia and the Gulf States for increased financial assistance to ensure their expansion. Second, security service abuses have been a driver of Boko Haram recruitment. They limit the field of military cooperation with, among others, the United States. They often appear to be the result of poor training, ill-discipline, and resource constraints. Security service human rights abuses must be addressed in a way that is convincing to harness the international community abroad and everyday people at home to the struggle against Boko Haram and also for the reconstruction of the northeast. One way to proceed might be for Nigeria to establish a “Truth and Reconciliation Commission,” or something like it, that would investigate credible allegations of both security service and Boko Haram abuse. It would include amnesty to those who confess. Like the Truth and Reconciliation Commission in South Africa, it could be made up of distinguished Nigerians from all walks of life—not just the security services. It should be conducted in public and transparent in its operations. A successful TRC might have the potential to restore a degree of trust among the shattered communities in the northeast where in liberated areas there is suspicion that returnees are Boko Haram converts. Such a body might meet the requirements of the Leahy amendment and the UK equivalent, opening the possibility for more U.S. cooperation with the Nigerian security services. The Civilian Joint Task Forces (CJTF) has been accused of human rights abuses and lack of discipline. President Buhari has raised incorporating them into the police and the military where they would be subject to discipline. That would be a positive step toward restoring trust between the civilian population and the security services. As for training, the United States, the UK, and other friends and partners should greatly expand the opportunities for Nigerian military officers to attend their advanced war colleges—in the American case, notably the Army War College at Carlisle, the Air War college at Maxwell Field, and the Naval war college at Newport. Nigerian officers are already enrolled in all three, but in very small numbers. Third, over the longer term, the reconstruction of the northeast will require an international effort. As for now, to promote international understanding of the magnitude of the task, it is to be hoped that the security services will facilitate visits to the region by the international media, NGOs, and also by potential investors. National and international organizations, too, will need the ability to visit and assess humanitarian need. The intervention of the World Food Programme and relevant NGOs is likely to be essential if famine is to be avoided. Over the longer term numerous international agricultural agencies could have a highly productive role in the rebuilding of northeastern agriculture. The region has long been among Nigeria’s poorest, even before Boko Haram. The traditional economy in the northeast is largely destroyed. A new economy will have to be built, one that takes into account climate change and desertification. What would a post-Boko Haram reconstructed northeast look like? The process of visioning should begin now. Proposals for a Northeast Development Commission are steps in that direction. Fourth, the education system has also been destroyed. In a region were literacy was already low, estimates are that Boko Haram has destroyed 910 schools and forced an additional 1,500 to close. Rebuilding education so that graduates can function in the modern world and at the same time in the context of the region’s strong Islamic identity is a challenge. Here, too, Saudi Arabia, the Gulf States, Malaysia, and Indonesia could be of help. Fifth, the health system, too, already weak, has largely been destroyed, raising the specter of epidemic diseases. International organizations and partners should be approached for help. Perhaps there are lessons to be learned from other countries that have experienced disaster, such as Haiti. I note that Cuba is offering an expanded health partnership and assistance to Nigeria. Such offers deserve serious consideration. These are musings that may or may not deserve further discussion. In conclusion, I would observe that Nigeria is a fellow pilgrim with the United States and other countries on the road to democracy. Nigeria moves on that road in a way that reflects Nigeria’s own history, experience, and challenges, just as America’s does. (Who would have predicted that Donald Trump would be the outcome of the Republican presidential nominating process?) My own personal view is that when we are talking about the post-Boko Haram reconstruction of the northeast in the context of democracy, government transparency and the rule of law are essential components. And transparency and the rule of law build trust between the government and the governed. Thank you.

On May 15, the Sunday Times (English, Johannesburg) published rumors of the impending arrest of Finance Minister Pravin Gordhan over alleged revenue service irregularities. However, on May 16, Beeld (Afrikaans, Johannesburg) reported that President Zuma denied the Sunday Times report. Nevertheless, the South African national currency, the rand (ZAR), fell the following two days, reaching its weakest level in two months; it has fallen 2.1 percent against the U.S. dollar since March 15. Bloomberg sees the Gordhan investigation as evidence that Zuma is trying to get rid of the finance minister, who has been curbing government spending and corruption and seeks to retain the country’s investment-grade credit rating.  Bloomberg quotes Peter Attard Montalto, an emerging markets strategist, as saying, “We think that markets are vastly underestimating the political risk. The arrest of a respected finance minister in order to engineer a reshuffle to achieve rent-extraction aims would be a major, catastrophic, market event from which it would be difficult to recover.” The Daily Maverick, long critical of Zuma, suggests credibly that the Sunday Times report of the rumor of Gordhan’s impending arrest could have been designed to test the market’s reaction should he be removed. The fall of the rand indicates that the markets would respond as negatively as they did in December 2015 when Zuma fired the respected Nhanhla Nene as finance minister and replaced him with a largely unknown parliamentarian. The blowback was so strong that Zuma was forced to appoint the well-regarded Gordhan as finance minister.  He had previously held the position from 2009 to 2014. Few think the drama is over. Warrick Butler, head of emerging market spot tradition at Standard Bank Group, Ltd., is quoted by Bloomberg as saying, “People are getting tired of the circus and investors don’t like uncertainty.”

British Prime Minister David Cameron gathered government officials, civil society advocates, and business leaders in London for a one-day summit on corruption, a global “cancer” hindering economic development and growth. Forty countries signed a Global Declaration Against Corruption, promising to prevent, uncover, and punish corruption “wherever it exists.” Many countries followed up the lofty rhetoric with concrete commitments: twenty-one pledged stronger legislation for returning stolen assets, fourteen will open public contracts to scrutiny for the first time, and the UK and five other countries will jointly launch a new anticorruption center to help investigate and prosecute cross-border cases. Yet even with the Panama Papers as a backdrop, pledges to rein in shell companies and tax havens fell short, facing resistance from UK territories and the United States. In the lead up to the event, three hundred prominent economists issued a demand to end the use of tax havens, jurisdictions that legally enable financial secrecy. The biggest resistance came from British overseas territories, home to hundreds of thousands of shell companies; over 450,000 based in the British Virgin Islands alone. The territories snubbed Cameron on publicizing ownership, though the Cayman Islands, Bermuda, the Isle of Man, and others acquiesced to sharing their lists with British and other authorities. The summit made more progress on bringing greater transparency to real estate. Cameron announced the UK will create a public registry for all properties owned or purchased there, requiring companies to reveal the true or ‘beneficial’ owners. The move will affect the 100,000 properties in the UK—40,000 in London alone—owned by foreign-registered companies, making it less amenable to stashing ill-gotten gains. Afghanistan, France, Kenya, Nigeria, and the Netherlands promised to set up similar public registries of company owners, while six other countries are considering it. That is too few for transparency advocates, and one of the biggest enablers of corporate secrecy—the United States—declined entreaties to join.

From 2011, when it re-emerged, until early 2015, Boko Haram inflicted one defeat after another on the Nigerian security services, principally the army. Boko Haram carved out a territory the size of the U.S. state of Maryland, and threatened Maiduguri, the capital of Borno state and a major Nigerian city. For many observers, the seeming collapse of the Nigerian military, once regarded as the best in West Africa, was bewildering, and a sign that Boko Haram was a formidable fighting force. Boko Haram was beaten back in 2015 by a multinational effort, South African mercenaries, and a revived Nigerian military. However, since Muhammadu Buhari assumed the presidency in May 2015, there have been regular revelations of spectacular levels of theft of funding intended to fight Boko Haram during the Jonathan administration. The latest chapter is the early May 2016 disclosure by Vice President Yemi Osinbajo that the previous administration lost some $15 billion to fraudulent security spending. The previous estimate had been that $5.5 billion had been misappropriated. The vice president observed that $15 billion “is more than half of the current foreign reserves of the country.” Boko Haram’s ostensible success clearly owed more than observers thought at the time to the criminal misallocation of resources away from the Nigerian army and the other security services into private pockets. Boko Haram’s success was not so much the result of its strength and the weaknesses of the Nigerian military, but in large part the result of theft.

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

The past week has brought a number of puzzling new feints and jabs in Brasília’s bloody political cage match: - Most dramatically, reputable news organizations are reporting that President Dilma Rousseff is contemplating resigning from office later this week, despite having spent much of the past year denying that she would ever countenance resignation; - After months of behind the scenes scheming to break with Rousseff and form his own government, Vice President Michel Temer announced that if he becomes president, he will not run for office again in 2018; and - Temer agreed to a laundry list of demands from the Brazilian Social Democratic Party (PSDB) as the price of their support. In the rapidly shifting political landscape of the impeachment drama, these perplexing reports only make sense when seen through the lens of legitimating, or de-legitimating, Rousseff’s removal. All parties are scrambling ahead of what looks like the certainty of a simple majority vote next week that would suspend Rousseff and install Temer as interim president. This week, the Senate special committee will vote on a report on whether or not to proceed to a trial; the Senate floor will then move to a simple majority vote on the trial, with overwhelming chances of approval. This vote would remove Rousseff for 180 days while the trial proceeds. On current trends, if the undecided senators follow the direction of their states and parties in the Chamber of Deputies, there are currently northward of fifty-eight votes for conviction, four more than the two-thirds majority needed. In the context of what looks—today—like almost certain conviction, Rousseff’s gambit appears to be to make it as hard as possible for Temer to govern with any semblance of legitimacy. Threatening to resign, and calling on Temer to resign alongside her, might be one of the few tactics available to Rousseff and capable of winning widespread public support. Whether or not she is serious about resignation, the mere suggestion that new elections would be more legitimate than impeachment has considerable political effect, especially in light of polls showing that three–fifths of Brazilians would support Temer’s removal. Although the chances of approving the necessary constitutional amendment seem low, calling for new elections is a powerful cudgel. Meanwhile, Rousseff is reported to have choreographed her departure from the Planalto Palace and to be contemplating an international tour to protest the impeachment effort, both of which might produce the desired cloud over the Temer administration. For his part, Temer is eager to ensure that the bandwagon effect skillfully constructed in the Chamber does not fall apart during the long Senate trial. The hangover that followed the spectacle of impeachment in the Chamber led to a certain buyers’ remorse: Rousseff was punished, but in the process, Brazilians got a closer look at their unpalatable Congress. The horrible spectacle of April 17’s impeachment vote, and the remarkably lopsided result (367 for, 137 against, 9 absent and abstaining) was shocking, even to those long inured to the opportunism of Brazil’s legislators. The governing coalition, many of whom had provided support to the Workers’ Party for the past thirteen years, suddenly turned its daggers on Rousseff. The spectacle was horrendous, demonstrating the opportunism of the congressional “bibles, bullets, and beef” caucuses, and the remarkable hypocrisy of legislators who are deeply implicated in corruption scandals casting votes against a president who is not thought to be personally implicated in corruption (although she faces allegations of having benefited from her party’s campaign finance violations and may soon be placed under investigation by Prosecutor General Ricardo Janot). As public revulsion with all politicians grows, Temer faces the tough task of keeping the pro-removal coalition intact, while simultaneously building a new administration from the ground up. In tackling these twin challenges, he has had to promise the world, most notably to the PSDB, which had threatened to remain outside the new government. As their price for joining Temer, the PSDB reportedly submitted a long list of demands, ranging from the sensible (a commitment to keep the Lava Jato investigation going), to the unlikely (a commitment to serious tax reform), and the downright fanciful (a commitment to political reform). Why the PSDB would ever expect Temer to fulfill those promises is, of course, moot: the list provides the PSDB with just the veneer of legitimacy they need. Joining the Temer administration is now harder to paint as golpista, and instead is portrayed as a high-minded commitment to the painful and necessary reforms needed to recover from the chaotic Rousseff years. Temer, meanwhile, brings on board an important ally that will help legitimate his very tenuous administration, providing a fig leaf of policy respectability that might otherwise be missing in an administration dominated by the unprincipled Brazilian Democratic Movement Party (PMDB). There will still be considerable drama surrounding the removal of Rousseff, and the daily news is likely to bring continued surprises and calculated misdirection. But the lens of legitimacy may provide the best analytical perspective on the news emerging from Brasília during the remainder of this turbulent year, in a political environment in which legitimacy is a scarce commodity for all of the major actors.

Rachel Brown is a research associate in Asia Studies at the Council on Foreign Relations. In February, $81 million stolen from the central bank of Bangladesh’s account at the Federal Reserve Bank of New York was laundered through the Philippines. Most observers worried about the security of the institutions involved. But equally if not more important is the potential impact on overseas Filipino workers. Increased scrutiny of vulnerabilities in the Philippines’ anti-money laundering provisions could make it harder for the over ten million Filipinos working abroad to send remittances home, as has occurred in many other developing nations. Globally, the Philippines is the third-highest recipient of remittances, which compromised 10 percent of GDP in 2014. These funds help fuel domestic consumption, and anything that affects the cost or ease of sending money to the nation will have significant economic implications. The Bangladesh Bank scandal highlights flaws in the Philippines’ current anti-money laundering regime. While the government strengthened regulations in 2013, highly secretive banking laws remain. Additionally, the 2001 Anti-Money Laundering Act does not cover the Philippines’ thriving casino industry, the destination of the pilfered funds. The revelation of these flaws and the parties involved may taint the image of the firms Philippine workers use to send money home. Philippine Senate investigations found that PhilRem, a Filipino remittance company in the United Kingdom and United States, converted and transferred the money into the accounts of one casino tour operator at the Rizal Commercial Banking Corporation (RCBC). In theory, the Philippines’ Anti-Money Laundering Act encompasses businesses like PhilRem that send or receive funds from workers overseas.  In practice, the funds are small and hard to track, and firms may misidentify themselves. (PhilRem originally listed as a land-transport company). PhilRem partners with major foreign banks such as Barclays and Lloyds to facilitate goods and cash transfers, but its involvement in the scandal could make banks wary of remittance firms’ capacity to monitor for suspicious transactions. The scandal has also sparked concern that the Philippines will be blacklisted by the inter-governmental Financial Action Task Force on Money Laundering (FATF). The Philippines was on the FATF blacklist in the early 2000s. When the FATF previously considered sanctioning the Philippines, officials worried about the repercussions for remittances. Senator Serge Osmeña noted this March that if re-blacklisted, “We will be at a loss because our banks will not be able to transact with their counterparts in New York and London.” Sending money to a blacklisted nation may entail higher fees, delays, and even denial of service. Even if the Philippines is not blacklisted, remitters could still face challenges. The experiences of other countries perceived as weak on money laundering reveal potential risks. After September 11, requirements to monitor stringently the paths and recipients of money – and penalties for not doing so – increased. Some foreign banks simply ended partner relations with firms in suspect nations, as there was little incentive to risk incurring fines given the small profits. These changes hit particularly hard in Somalia as by 2015, most major American, British, and Australian banks ceased remittance services. Remittances also dropped considerably in Guyana when the Caribbean Financial Action Task Force blacklisted it. Already, Philippine firms feel the squeeze of heightened suspicion. In late March, the Cebu Daily News reported greater scrutiny of remittances sent through a Filipino company in Australia. Even prior to the scandal, nearly forty banks shut down accounts of Filipino remittance firms in sixteen nations. In early 2016, RCBC, the Bank of the Philippine Islands, and Philippine National Bank all lost relationships with correspondent banks in Italy. If more firms lose relationships with international partners, reduced competition could lead to higher fees. Further closures or increased fees would also deal a blow to already weakening Philippine remittances. In July 2015, remittances grew at 5.9 percent their slowest rate in half a decade. Falling oil prices, in particular, have hurt remittances, roughly a third of which come from the Gulf. So what are the prospects for reforms that might forestall such closures? Last Thursday, the Philippine Central Bank’s governor announced efforts to minimize the damage to remittances from foreign banks limiting risk exposure. An inter-agency assessment of terrorist financing and money laundering weaknesses is underway, and the scandal has also revived interest in a biometric national ID system to better track who ultimately receives remitted funds. There is no question that the Philippines’ genuine money laundering vulnerabilities necessitate closer supervision, but lasting changes will occur only after the next president’s inauguration. Until then, banks should avoid too hastily curtailing services, otherwise families of overseas workers may pay too high a price.

South Africa’s High Court has ruled against the president yet again. It has determined that the prosecutor’s decision to drop 783 charges of corruption against Zuma should be reviewed. According to the BBC, Judge Aubrey Ledwaba characterized the 2009 decision to drop the charges as “irrational.” The ruling allows the National Prosecuting Authority to reinstate the charges, though it is unclear whether it will do so. Nevertheless, once again, South Africa’s judiciary has demonstrated its independence from the executive. Among South Africans concerned with advancing good government and maintaining the country’s celebrated constitution, the high court’s ruling is another political wound for Zuma. Predictably, the Democratic Alliance (DA) has again called on Zuma to resign. However, as the BBC’s Pumza Fihlani points out, the ruling has little impact on Zuma’s core constituency, the rural poor. Zuma has carefully tended to his base through patronage networks. His governing African National Congress (ANC), too, is dependent on the votes of the rural poor for its huge parliamentary majority. For rural ANC voters, legal questions and court decisions are remote; like the rural poor elsewhere, many are seeking merely to get from today to tomorrow. They are buffeted by changes ranging from the country’s rapid urbanization to the persistence of southern Africa’s worst drought in many years. Many of them, especially the Zulu, about a quarter of South Africa’s population, identify culturally with Zuma, who plays to ethnic politics and is an open polygamist, having fathered at least twenty-two children. For many rural, poor South Africans, Zuma is a champion. Within the ANC, no president is all-powerful; the party removed Zuma’s predecessor Thabo Mbeki from the party leadership and from the presidency. Despite the court ruling, the only practical way Zuma could be removed from office is if the ANC leadership concludes that he has become a major electoral liability. South Africa has local elections in August. If the DA and the other leading opposition party, the Economic Freedom Fighters (EFF), do well, the ANC may conclude that Zuma must go, despite his strength in rural areas. The DA has its eyes on Johannesburg and the Port Elizabeth metro area, parts of the increasingly urban South Africa. The EFF looks to increase its votes in the urban townships. Up to now, the principal predictor of voting behavior has been race. The ANC has been the “black” political party, and the DA is still perceived by many as “white.” It is by no means certain that the ANC will do badly. South Africa is a constitutional democracy. The powers of all elements of government are constrained by the constitution. But, to some spokesmen for the poor, constitutionalism is seen as a brake on the radical restructuring of the country that is required to lift the black majority out of poverty. At least some of them would like to move South Africa toward a parliamentary democracy in which there are few constraints on the parliamentary majority enjoyed by the ANC. However, South Africa’s constitution is very popular. It is identified with the end of apartheid and Nelson Mandela; it has even become an element of South African national identity. Such factors will make changing the constitution difficult.

According to Nigerian media, the northern branch of the Christian Association of Nigeria (CAN) warned President Muhammadu Buhari that “Nigeria would boil” if former President Goodluck Jonathan, the “hero of democracy,” were arrested as part of the ongoing anti-corruption campaign. CAN is an umbrella lobbying group; the warning was issued by its northern branch, not CAN as a whole. The leadership of CAN had been close to the Jonathan presidency. In the aftermath of the March 2015 elections, it was widely speculated that there was an agreement between the newly elected president and Jonathan that he and his wife would not be prosecuted in return for the defeated candidate’s acceptance of the election outcome. Were Jonathan to be arrested, at least some African heads of state might be encouraged to hang on to power for fear of possible prosecution. There has been no announcement by any part of the Buhari government of plans to move against Jonathan. Yet the public relations officer of CAN’s northern branch, the Rev. John Joseph Hayab, said “Every honest Nigerian knows that the feelers on the ground are that this administration’s popularity is dwindling rapidly among the Nigerian people. It is therefore not advisable to think or plan to arrest former President Goodluck Jonathan. Let me warn that such a misadventure will set a wrong precedent and only open the door for mischievous people to set this nation into confusion.” What is going on here? There are at least three credible hypotheses. The first is that there may be conversations within the anti-corruption agencies about the possibility of proceeding against Jonathan, notwithstanding the alleged post-election agreement not to proceed against the former president. If such conversations are taking place, however, there is no evidence that they reflect the views of President Buhari or other senior personalities in his administration. A second hypothesis is that Jonathan’s supporters are increasingly anxious that the former president could be besmirched by the ongoing investigations of some of the most senior members of his administration, such as the former oil minister, and national security advisor. The CAN statement could be a warning not to proceed against the former president. Finally, and perhaps the most credible hypothesis of all, the warning may be the result of internal CAN politicking, perhaps intersecting with broader political maneuvering.

Honduras’ New Anticorruption Fighter Takes on the President Last summer allegations that Honduran officials stole more than $200 million dollars from the social security system led to widespread public protests and calls for President Juan Orlando Hernández’s resignation. The scandal spurred the creation of the Mission Against Corruption and Impunity in Honduras (MACCIH), an anticorruption body backed by the Organization of American States (OAS) and modeled after the International Commission Against Impunity in Guatemala (CICIG). Now active, MACCIH officials say they will investigate the case. Given MACCIH’s more limited prosecutorial autonomy and much smaller budget, many wonder if it can match the impressive results of its Guatemalan counterpart, which—working with the attorney general—brought down former president Otto Pérez Molina. Democracy Eroding in Central Europe and Eurasia Freedom House’s 2016 Nations in Transit report shows democratic backsliding across Central Europe, the Balkans, and Eurasia. Measuring twenty-nine post-Communist countries on electoral process, corruption, media freedom, and judicial independence, the region’s average “Democracy Score” fell for the twelfth year in a row. Hungary’s decline continued, owing to the xenophobic actions and rhetoric of Prime Minister Viktor Orbán and his nationalist Fidesz party in the wake of Europe’s refugee crisis. Eurasia’s petro states—Azerbaijan, Turkmenistan, and Uzbekistan—ranked the worst overall, their authoritarian regimes ratcheting up repression and further consolidating power as commodity prices plunged. Ukraine stood out as one of the few positives, with civil society, aided by European Union, U.S., and IMF involvement, pushing against deep-seated corruption. Setback for Monitoring Conflict Minerals in Supply Chains A Securities and Exchange Commission (SEC) decision throws one tool for monitoring human rights in technology and other supply chains into question. Dodd-Frank’s conflict minerals rule requires U.S. companies to disclose their use of tantalum, tungsten, tin, and gold linked to violence in the Democratic Republic of Congo (DRC). The clause pushed companies to know their practices and, if guilty, change them. In response, Intel will completely eliminate conflict minerals from its supply chain this year and Hewlett-Packard now maps all its metal suppliers—a first step toward detecting ill-gotten minerals. In 2014 a U.S. appeals court ruled that requiring a company to say whether products are conflict-mineral free violates corporate freedom of speech and forces it to “confess blood on its hands.” The SEC has chosen to revise the rule rather than challenge the decision, leaving a legal limbo that may weaken compliance.      

The first rule of watching South Korean elections is the same as the first rule for watching Korean TV dramas: be prepared to be surprised. In this respect, South Korea’s 2016 National Assembly electoral result delivered, as virtually no one predicted the magnitude of the failure of the ruling Saenuri party or its major standard bearers. The results left the former majority party in second place at 122 seats, well short of the 151 seats needed to exercise a majority in the 300-seat National Assembly. The first place Minjoo or Democratic Party of Korea, pruned by the departure of entrepreneur-turned-National Assemblyman Ahn Cheol-soo, who started his own People’s Party, captured 123 seats to become the largest party in the National Assembly. Ahn’s own start-up experience proved sufficient to lead the newly-established People’s Party to a better-than-expected thirty-eight seats, primarily centered in Korea’s southwestern Jeolla region. The election also was a defeat for South Korea’s queen of elections, Park Geun-hye, following over a decade of dominant influence on national electoral outcomes. The result will constrain her presidency to initiatives that do not require National Assembly approval and will hobble her ability to secure legislative approval for future cabinet appointments. South Korea’s executive office wields significant power, especially over national security and foreign policy, but there are virtually no prospects for progress on any other matter that requires legislative support or approval. As with any good Korean drama, now that the shock has sunk in, it is clear that the signs of deep divisions within the Korean electorate exposed by this election were there all along. The biggest signal that the ruling party was headed for failure was revealed in the handling of the candidate selection process. Since at least 2000, South Korean voters have consistently expressed discontent with political parties, seeing them as corrupt and unfaithful intermediaries that distort the will of the people and translate it to serve their own interests. Because South Korean voters know that candidate selection is vulnerable to corruption that empowers the party leadership at the expense of the constituents, the parties that have implemented transparent or impartial candidate selection processes have tended to receive greater voter support. But the Saenuri party process this cycle was defined by perceptions of meddling and factional infighting between pro- and anti-Park forces, turning voters off. In retrospect, there were enough signs to know how this year’s National Assembly election drama would end all along. The veneer of unity generated by the Park administration’s efforts to engineer social and political cohesion and support has given way, revealing at least four types of deep divisions within South Korea’s electorate: First, there is the generational division between progressive younger voters who are concerned about jobs and the conservative older voters who are concerned about welfare. Park’s presidential victory in late 2012 was fueled by support from the older generation and generated disillusionment among younger voters. Three years later, voters are dissatisfied with the Park administration’s performance on both jobs and welfare. Second, there are personal divisions, personified most clearly by the fact that Park’s 2012 economic advisor, Kim Chong-in, who coined the phrase “economic democratization,” took leadership of the Democratic Party of Korea, while Lee Sang-don, who ran the Saenuri party selection process in 2012, was a prominent member of the newly-established People’s Party. In other words, former Park supporters were in the vanguard for the opposition. Third, there are structural divisions that are exacerbated by the dynamics that occur when the quadrennial National Assembly election lands in the fourth year of a five-year presidential term. This means that the time horizon of National Assembly candidates is longer than the time line of the president and therefore less likely to be controlled by presidential wishes. In addition, National Assembly elections become a dress rehearsal for the next presidential election in which leading candidates seek advantage or are winnowed out by the legislative electoral result. Dramatic failures this time included losses by former Seoul mayor Oh Se-hoon and former Gyeonggi provincial governor Kim Moon-soo. Fourth, there are not only ideological divisions between parties, but personal divisions within parties that will be exacerbated as members focus on the December 2017 race for the presidency and fight for party nominations of the three main bases that now have the organization and funding to run a national election campaign. Each party must contend with internal divisions: Saenuri will be hobbled by continued pro- and anti-Park competition; Minjoo will face continued rivalry between pro-Roh and anti-Roh factions; Ahn Cheol-soo is the face of the People’s Party, but Jeolla province (former president Kim Dae Jung’s stronghold) is its base. In my view, further splits are unlikely because the People’s Party’s performance qualifies it to receive public funds under Korean election law, but a new party without a track record would not qualify to receive those funds. A progressive merger between the Democratic and People’s Parties will be often discussed, but in my view is unlikely now that rival organizational bases have been established to support a presidential run. The aftershocks of this election have reshaped the political ground in advance of South Korea’s December 2017 presidential election. Given the known flaws of Korea’s known professional politicians and public doubts that they are truly capable of addressing Korea’s increasingly intractable, interlocking, and mutually contradictory challenges of economic growth, demands to expand public welfare, and income inequality, the ground is set for an outsider candidate that is able to credibly promise transformational leadership and sterling administrative management. And UN Secretary General Ban Ki-moon may not be the only plausible outsider who could shake things up. As the late Don Oberdorfer used to say about Korea’s most exciting political drama: hold on to your hats.

Peru’s Presidential Candidates Head to Second Round On June 5, Keiko Fujimori, the daughter of former president Alberto Fujimori, will face former finance minister Pedro Pablo Kuczynski in Peru’s presidential runoff election. Questionable decisions by Peru’s electoral board in the first round—disqualifying two competitive candidates and dismissing charges of vote-buying against Fujimori and Kuczynski—boosted Fujimori and clouded the vote’s legitimacy. Now the question will be the anti-Fujimori vote and whether Kuczynski (not a natural campaigner) can consolidate her opposition—much as current president Ollanta Humala did when he beat her in 2011’s second round. Although Fujimori is popular among the rural poor, many remember the corruption and human rights abuses of her father’s presidency, and fear that she could follow in his footsteps. Corruption Arrests in Argentina and Brazil Argentine and Brazil corruption probes widened this week with new arrests in both countries. In Argentina, police detained Lázaro Báez, a wealthy businessman with close ties to former president Cristina Fernández de Kirchner, on charges of money laundering and embezzlement. Federal prosecutors now want to investigate Kirchner herself in the case. In Brazil, police arrested former Senator Gim Argello on evidence he accepted at least $1.5 million in bribes from two construction companies to shield their executives from facing congressional testimony. This recent round of Lava Jato raids come as Brazil’s lower house moves to impeach the president this weekend. Brazilian judges and attorneys promise the investigations will continue, whatever the outcome. Governments Respond to Panama Papers with New Laws In response to the Panama Papers, governments and international organizations are proposing new legislation to catch tax evasion, money laundering, and graft. The European Union (EU) wants to require multinationals to share tax data from their operations beyond Europe, in countries considered to be tax havens. Germany and France go further, proposing the creation of a global public registry for shell company ownership. They also call for cutting blacklisted countries off from the international banking system. Though the more ambitious efforts may falter, transparency and legal cooperation look to grow in the face of the leaks.

After months of suspense, President Dilma Rousseff’s impeachment looks set to proceed in a floor vote in the Chamber of Deputies on Sunday, April 17. At present, impeachment seems more likely than not: Vice President Michel Temer and his allies have overcome many of the political hurdles to impeachment by skillfully creating a bandwagon effect among legislators, in part by arguing that there is little point in continued support for the outgoing Rousseff and that now is the time to make sweet deals with the incoming Temer administration. This week’s desertions mean that of the seven largest parties in Congress, only one (the PT) still supports the president, while five are in opposition (PMDB, PSDB, PP, PSB, and DEM) and one is still officially undecided (PR). Like a long night of heavy drinking, Sunday’s impeachment vote may feel at the time like a fitting way to put an end to the Rousseff years of economic mismanagement and political turmoil. Many Brazilians may be out demonstrating on Sunday, and celebrating (or drowning their sorrows) late into the evening. But Monday morning will bring a massive hangover, and like the aftermath of many a hard night, the morning after will bring as many new puzzles as it resolves: The Senate: The immediate question is whether the Senate will break the momentum set in motion in the Chamber of Deputies. Senate President Renan Calheiros has pledged support to Rousseff, but simultaneously assured the pro-impeachment forces that he will not get in the way of a Senate trial. Can the hapless Rousseff administration successfully build a more effective defense in the Senate, working with allies like this? They will have little time to mount a defense, as the Senate could vote within fifteen days on whether or not to proceed to trial. If a simple majority agree to proceed, Rousseff would be suspended from office for 180 days, handing her presidential powers of appointment and budgetary allocation over to Temer. Once that happens, it is hard to see how Rousseff holds together her evanescent coalition or builds up a new base of support, no matter how strong her defense in the Senate trial. The Supreme Federal Tribunal (STF): Will the high court, the STF, be asked to intervene? Already, the government is reported to be considering filing suit against procedural irregularities in the impeachment process before Sunday’s vote, and one such motion has been rejected. One of Brazil’s leading constitutional scholars, Oscar Vilhena Vieira, noted that there are a variety of ways in which the STF might intervene even after a vote has taken place. The high court is on a much slower timetable than politicians, and although temporary injunctions could immediately delay the impeachment process, there is also the possibility that judicial uncertainty could linger for some time. Temer: The vice president has played a skillful game, subverting the administration from within in subtle and deeply damaging ways. On Monday, a fourteen-minute long recording was released of Temer speaking to his allies as though impeachment had already occurred. The vice president claimed it was an accidental release, but the recording was a potent signal to wavering deputies that Temer was fully committed to impeachment. Yet Temer himself is hardly guaranteed a peaceful stay in the presidential office: allegations from plea bargaining witnesses have already tarred him with accusations of malfeasance; he has only 16 percent support in a recent poll; and the electoral court (TSE) could still move to remove him for campaign finance violations. If impeachment clears the Senate, Temer will only have two years to govern, but it may be that he spends much of this time under a shadow, not least because his bedfellows in the PMDB—including Eduardo Cunha and Renan Calheiros—are even more deeply implicated in corruption investigations. “A pox on all their houses” seems to be the deepening reply from the streets, and it will require all of Temer’s considerable political talents to overcome his low credibility and questionable legitimacy. Lava Jato: The “Car Wash” investigation is suddenly looking vulnerable, amid questions of whether a PMDB administration might undermine prosecutors. The excesses committed in March by prosecutors and the judge at the center of the case led many to believe that the Lava Jato investigation was closely allied to the pro-impeachment forces. But the supreme irony is that the Temer coalition is populated by a variety of actors—not least Cunha and Calheiros—who would gain enormously if the investigation ended up, as Brazilians say, “in pizza,” going nowhere. There are a variety of ways in which the investigation could be undermined by meddling from the executive branch, and there are rumors of a deal whereby Cunha would resign as president of the Chamber of Deputies in a bid to save him from expulsion from Congress and preserve his privileged standing in the high court. The new government: Assuming Rousseff is impeached on Sunday, what kind of mandate will the new government have, and what vision will an interim (and then, presumably, permanent) President Temer seek to implement? Will Temer seek a long-term legacy as a peacemaking statesman, undertaking painful reforms that might set the country on a new path, or will he seek quick victories that might lead to his election in 2018? Temer has claimed the former, but even if this is the case, the new government will need to overcome great polarization, an angry and mobilized opposition, and an abysmal economic situation, all while meeting the demands placed on it by the broad coalition that seated Temer in the Palácio do Planalto in the first place. The impeachment process—founded on historically unprecedented punishment of fiscal maneuvers that sixteen state governors and Temer himself are also accused of—will give credence to Rousseff supporters’ charges of golpismo, placing a dark cloud over the caretaker government. Many on the Left will be troubled and possibly radicalized by the one-sided nature of the outcome, which has left in place their deeply corrupt one-time allies in the PMDB and PP. The new president will need to deal with pressing fiscal challenges, all while meeting his promises that he would renegotiate state debts, and reward supporters with new roles in the already overstretched administration. In Brazil’s crazy political moment, a much less likely but not entirely implausible scenario is that Rousseff survives Sunday’s vote, perhaps by convincing enough wavering legislators to simply absent themselves from Congress, if they can’t stomach voting in her favor. In that case, there will still be a hangover, but of a different sort, like the difference between drinking cachaça instead of rum. This hangover will include a defenestrated and visibly exhausted president, a dysfunctional coalition, the continued threat of removal via a new impeachment request or an electoral court conviction, and continued macroeconomic malaise. Either way, Monday morning’s hangover is going to be painful.

Panama Papers Expose Weak Regulations The “Panama Papers” are an unprecedented leak of 11.5 million files revealing a complex global network of hidden wealth. For four decades, Panamanian law firm Mossack Fonseca helped to set up over 200,000 shell companies—a favored tool for laundering money, stashing ill-gotten resources, and evading taxes—for tens of thousands of clients in over fifty countries, with current and former heads of state among the 143 politicians and cronies named. So far the revelations have forced Iceland’s prime minister and the president of Transparency International’s Chile branch to resign, and upped support for a Brexit given British Prime Minister David Cameron’s involvement. The Panama Papers further expose weaknesses in global financial regulation. More than half of the leaked shell companies are based in UK  territories—100,000 in the British Virgin Islands alone—where Cameron has tried to end such anonymity by legally mandating a public registry of companies’ owners. European banks HSBC, Credit Suisse, and UBS are among the ten institutions that worked most frequently with the Panamanian firm to create offshore accounts for clients. Since the leak, countries including the United States and Germany have proposed new legislation to increase transparency around offshore companies. Curbing Tax Evasion: OECD and the United States Diverge The hundreds of thousands of accounts revealed in the Panama Papers provide a glimpse into the vast efforts made to avoid taxes globally, and call into question the efficacy of current rules and regulations. The best seem to be standards set by the Organisation for Economic Co-operation and Development (OECD), in which 132 countries allow participants to check on their citizens’ assets abroad. Next year this process will become more automated, as ninety-six of these countries will routinely share the financial data they collect on non-residents with foreign tax authorities, making it harder to avoid taxes. The United States has not signed on, preferring instead to share information bilaterally under the Foreign Account Tax Compliance Act (FATCA), its own anti-tax evasion program. Under FATCA the United States can refuse to share information on foreign nationals, enhancing its own status as a tax safe haven. United States Cuts Aid to Tanzania Over Election In a show of U.S. support for democracy, the Millennium Challenge Corporation (MCC) suspended $470 million in aid to Tanzania. The move came after the government nullified election results in semi-autonomous Zanzibar and cracked down on free speech using a draconian cybercrime law. MCC says these actions violate its strict eligibility criteria, requiring that countries score highly on political rights, civil liberties, control of corruption, and other indicators in order to qualify for aid dollars. While the decision will not affect $600 million in additional healthcare, education, and assistance the United States provides as Tanzania’s largest bilateral donor, it sends a clear message that MCC’s good governance standards are non-negotiable.