The Anticorruption Imperative for Latin America

By Matthew Taylor*

Bar graph showing accountability in Latin America

Graphic courtesy of author. For a larger version, please click here.

Latin America’s reactions to the massive transnational scandals involving the Brazilian construction giant Odebrecht and its subsidiary Braskem are an important sign of progress in anticorruption efforts.  But across the region, courts’ reluctance to challenge elites remains a major obstacle to deeper accountability.  Brazilian, Swiss, and U.S. authorities’ announcement in December 2016 of a multibillion dollar global corruption settlement with the Brazilian firms – valued at $3.5 to 4.5 billion – was remarkable for being the largest in history.  It was also shocking for its revelations: Odebrecht admitted using a variety of elaborate subterfuges to launder bribe payments and corrupt proceeds, including by setting up a bribe department and buying an offshore bank.  Graft allowed executives to rewrite laws in their own favor, and guaranteed that the right officials were in the right place when public contracts were up for bidding.  The firms netted $3.60 for every $1 they spent on bribes in Brazil, and admitted to paying $788 million in bribes across twelve countries, including ten in Latin America.

The political salience of the charges is roughly similar in all ten Latin countries, muddying the reputations of presidents or former presidents in Argentina, Colombia, the Dominican Republic, Peru, Panama, Venezuela and, of course, Brazil.  Ministers and high-level officials have been implicated in the remaining countries: Ecuador, Guatemala, and Mexico.  Nearly one year after the settlement, it is time to ask how well law enforcement and judicial processes are resolving the allegations against these high-powered public and private sector elites.

  • In a paper forthcoming in Daedalus, I argue that accountability can be thought of as the outcome of a basic equation – A = (T + O + S) * (E – D) – combining transparency (T), defined in its most essential sense as public access to information about the government’s work; oversight (O), meaning that government functions are susceptible to surveillance that gives public or private agents the right to intensively evaluate the government’s performance; and sanction (S), effectively punishing wrongdoing and establishing societal norms to their rightful place. These are tempered by institutional effectiveness (E) – understood as the outcome of state capacity, relevant laws and procedures, and citizen engagement – and political dominance (D), which diminishes the incentives for active oversight or energetic sanction.  The graph above uses a combination of data points from the World Justice Project to measure each of the five variables.
  • The comparison yields mixed findings. On average, the nations implicated in the Odebrecht settlement do quite well on transparency, effectiveness, and political dominance – the outcome of a generation of democratic rule (with Venezuela being the obvious outlier).  But all ten countries perform comparatively poorly when it comes to oversight, and abysmally when the criterion is sanction.  This does not bode well for accountability, especially if we consider that among the Odebrecht Latin Ten, the highest-scoring country on the sanction criteria is Argentina, whose score is still below the middle-income country average.  In Brazil, where trial courts have led the way in imposing sanctions on business elites, political leaders are nonetheless protected against meaningful sanctions by an arcane system of privileged standing in the high courts.

Latin American judicial systems – long rigged to protect local economic and political elites – remain the principal obstacle to accountability.  The Odebrecht settlement signaled that a new day has arrived: new international norms and law enforcement across multiple jurisdictions are likely to continue to upset the cozy arrangements that have protected the region’s elites from corruption revelations for decades.  But true accountability will only come when local courts and prosecutors are empowered to effectively punish corrupt elites.  That implies changes in legal procedure, new laws, and most importantly, political will.  Perhaps the Odebrecht case will galvanize domestic public opinion and mobilize policymakers about the need to improve local justice systems.  The enormous costs of corruption revealed by the Odebrecht settlement suggest that change cannot come soon enough.

November 6, 2017

* Matthew Taylor is Associate Professor at the School of International Service at American University.  His forthcoming article in Daedalus is entitled “Getting to Accountability: A Framework for Planning and Implementing Anticorruption Strategies.”

Guatemala: Anti-Corruption Still Losing Momentum

By Ricardo Barrientos*

President Jimmy Morales of Guatemala looks upward

President Jimmy Morales of Guatemala. / OECD / Andrew Wheeler / Flickr / Creative Commons

Although the International Commission Against Impunity (CICIG), Attorney General, and civil society remain bulwarks in efforts to combat corruption and impunity in Guatemala – and occasionally score big hits – the Administration of President Jimmy Morales is slowly grinding them down and generating opposition to much-needed reforms.  In a speech at the signing of the National Development Agenda last month, the President attacked provisions in the law requiring transparency in public procurement and budgeting as counterproductive, while also lashing out at the judges, congressmen, general comptroller, and civil society leaders who support such measures.  He claimed on that occasion and others that anti-corruption measures have hindered his ability to govern.

  • The Morales Administration has not just complained; it has tried to remove anti-corruption controls. On July 14, CICIG and the Ministerio Público (MP) made the first of dozens arrests of persons involved in a corruption network run by former Communications, Infrastructure and Housing Minister (CIV) and potential presidential candidate in the 2015 elections, Alejandro Sinibaldi.  Three days later, the government responded to the case, known as “Corruption and Construction,” with a Presidential Decree declaring a “State of Emergency” on conditions of the nation’s roadways.  The order would allow the government for 30 days to sign new contracts and modify existing ones with companies involved in the scandal, including Brazilian contractor Odebrecht, free of all anti-corruption controls.  Congress not only rejected the Decree, but also impeached current CIV Minister, Aldo García, and forced him to take the blame for decrepit road conditions.

Despite such high-profile cases, Guatemalan anti-corruption advocates are concerned the MP and CICIG could still lose the war against corruption.  In addition, CICIG Commissioner Iván Velásquez has publicly lamented that structural reform – the Commission’s other mandate – has been too slow.  Last month, he said that “with current [circumstances] it is very difficult to defeat corruption and impunity.”  Some local observers believe that Velásquez’s focus on constitutional reforms to enhance the Attorney General’s powers is overly ambitions, and that other important initiatives are more attainable, but they acknowledge the generally hostile political environment he faces.  Advocates also believe that the Morales Administration is waiting out the term of fiscal general (attorney general) and head of the MP Thelma Aldana, who steps down next year.  The President even excluded her from his delegation attending a summit in June with U.S. Vice President Pence and Central American counterparts.

The strident complaints of some Guatemalans about U.S. support to CICIG and other anti-corruption initiatives has fueled perceptions that external support for clean government is more important than local demands for good governance – and coincided with a decline in the civic engagement that helped bring down the corrupt government of President Pérez Molina in 2015.  Much attention in Guatemala City has focused on outgoing U.S. Ambassador Todd Robinson and is now naturally shifting to the man confirmed by the U.S. Senate on August 3 to replace him:  Luis Arreaga – most recently a deputy assistant secretary of state for narcotics and law enforcement – is a Guatemala-born naturalized U.S. citizen who, nominated to the post by President Trump in June, is expected to distance himself from the Obama Administration’s strong commitment to anti-corruption programs.  Even though Attorney General Aldana was bumped from President Morales’s delegation at the June summit, Pence publicly praised Morales’s “personal dedication” to fighting corruption.

August 21, 2017

*Ricardo Barrientos is a senior economist at the Central American Institute for Fiscal Studies (ICEFI).

The Panama Papers: Damning Evidence Against Latin American Elites?

By Emma Fawcett* and Fulton Armstrong

Panama Papers

Photo Credit: Pixabay / CC0 Public Domain

The “Panama Papers” have revealed the reputed secret accounts and tax-evasion strategies of a number of Latin American leaders, but preexisting widespread perceptions that political and economic elites are corrupt may reduce the immediate shock value of the revelations.  More than 11 million documents leaked from the Panama-based law firm Mossack Fonseca – given an initial review by the Süddeutsche Zeitung and International Consortium of Investigative Journalists (ICIJ) – provide evidence of 215,000 arrangements by which 14,153 powerful and wealthy clients from around the world hid their money from the prying eyes of the media, tax collectors, and public-accountability experts.  Early reports already indicate Latin Americans – small-time players compared to the Russians and some Europeans – are among those mentioned.

  • The Petrobras scandal that has paralyzed Brazil will find further fuel in these files. Investigators in Operation Car Wash apparently had no knowledge of many accounts held by Petrobras officials.  A secret company linked to House Speaker Eduardo Cunha, who’s leading the charge to impeach President Rousseff, reportedly figures prominently.
  • Argentine President Macri, his father, and brother reportedly had an offshore company for 10 years. They closed it in 2009, two years into Macri’s term as Buenos Aires mayor, but he did not report it.  The government says he was only “circumstantially” the CEO.
  • The president of the Chilean branch of Transparency International, Gonzalo Delaveau, resigned because he was linked to at least five offshore companies.
  • Mexican President Peña Nieto’s association with tycoon-contractor Juan Armando Hinojosa, who reportedly had a massive array of shelters worth US$100 million, is once again a liability. The President was dragged through the mud – and eventually exonerated of personal involvement – over a mansion that Hinojosa allegedly gave to his wife.  The Mexican government is investigating several dozen others named in the documents.
  • Many other cases are in the wings. Pedro Delgado (former governor of Ecuadorian Central Bank and cousin of President Correa); financial backers of Peruvian Presidential candidate Keiko Fujimori; and an array of former central bank and intelligence officials – Peruvians, Venezuelans, Panamanians, and others – are all being looked at.  In El Salvador, the Attorney General, already criticized for his investigative zeal, has raided Mossack Fonseca’s offices, suggesting more revelations to come.

Allegations of tax evasion, hidden income, and other forms of corruption are a mainstay of Latin American political lifeand the Panama revelations will only aggravate the oft-held opinion that rich, powerful people play by their own rules to maintain wealth and power.  Ramón Fonseca, one of the founders of the law firm, claims that the publicity is part of “an international campaign against privacy,” which he called “a sacred human right [and] there are people in the world who do not understand that.”  The backlash against someone like Argentine President Macri may not be too great, especially because his family ended the tax haven years ago.  But what makes the allegations potentially disruptive is the number of people implicated – across public and private sectors – in so many countries, in an investigation that has only just begun.  Further revelations are sure to come and, although themselves a sign of transparency, challenge people’s faith that leaders will come clean.  The revelations will fuel popular cynicism and discontent in the short term, but renewed demands for transparency may eventually help rekindle popular confidence in government.

April 11, 2016

*Emma Fawcett is a PhD candidate in International Relations at American University.   Her doctoral thesis focuses on the political economy of tourism and development in four Caribbean case studies: Haiti, Dominican Republic, Cuba, and the Mexican Caribbean.

Nicaragua: Where’s the Canal?

By Fulton Armstrong

Canal Nicaragua

Coming soon to Nicaragua? Photo Credit: tryangulation / Flickr / Creative Commons

The Nicaraguan government and Chinese investment group leading the Nicaragua Grand Canal project continue to claim enthusiasm for their dream, but enough fundamental problems remain unresolved to suggest that prospects for its eventual construction are dimming – and the principals are maneuvering to avoid picking up the tab for the expenditures made so far.  In a year-end statement last December, President Ortega’s office said the canal project would be one of his government’s top 25 priorities this year and emphasized its benefits to the Nicaraguan people.  Hong Kong-based HKND Group had announced in November that it was “fine-tuning” the canal design to address problems raised in an environmental impact study, which would delay the beginning of major excavations and lock-building until the end of 2016.  Company officials have since said, however, that construction of a fuel terminal and wharf on the Pacific coast –necessary to bring in the massive equipment the project requires – could start as early as this August.  The company still claims that it will complete the canal in 2020 – a prediction that few, if any, outside experts see as feasible.

The project faces massive obstacles, with no solutions in sight.

  • The estimated US$50 billion in financing is nowhere to be seen. Chinese investor Wang Jing, who has already spent US$500 million of his own money on the project, lost some 85 percent of his US$10 billion personal fortune in last year’s Chinese stock market correction.  (Bloomberg named him the worst performing billionaire of 2015.)  Observers believe his losses as well as the problematic environmental impact study have cooled his and other private investors’ support.  An initial public offering of shares has been postponed indefinitely.
  • Project managers have yet to demonstrate the need for the canal and propose solutions to significant engineering challenges, such the need for construction able to withstand earthquakes made likely because of seismic faults along the route. HKND says the canal will handle 3,500 cargo ships a year, including ones bigger than those transiting the Panama Canal, but industry experts say there’s no demand for more than will be accommodated by the expansion of the existing canal – and that the United States has no ports capable of receiving the larger vessels.  Global warming, moreover, could soon open a faster and cheaper route north of Canada.
  • Public protests have diminished during the hiatus in canal-related news and activities, but opponents remain strident and are gaining international support. Detractors’ resolve to fight has been strengthened by the environmental report, by a credible UK firm, determining that the project will “have significant environmental and social impacts,” including dislocation of at least 30,000 Nicaraguans.  Indigenous and Afro-Nicaraguan groups on the Atlantic Coast are upset about disruptions to traditional territories, including cemeteries and holy places.  Amnesty International has condemned the treatment of affected persons as “outrageous” and “reckless.”

The “biggest earth-moving project in history” is still looking like one of the biggest boondoggles in history – yet another in a long series of chimera canals in Nicaragua since early last century.  The government says that popular support for the project remains about 81 percent, but a survey by Cid Gallup, published in the Nicaraguan newspaper Confidencial in January, showed that 34 percent of 1,000-plus respondents consider the canal to be “pure propaganda.”  One quarter believe technical studies have been inadequate and that funding will not materialize.  Those sentiments could be reversed somewhat by the appearance of massive excavation equipment and creation of related construction jobs, but support will still be tempered by concerns about persons whose lives are disrupted by the project – and by perennial and profound suspicions that corruption will take the lion’s share of benefits.  Some opposition leaders believe HKND’s big push to appear optimistic is to build a case for collapse of the project to be Nicaragua’s fault, so that the company can demand that Managua repay the $500 million that Wang has reportedly spent.  The lack of transparency surrounding the project only fuels such speculation. 

April 4, 2016

Transparency in Brazil: More Progress than Meets the Eye

By Vanessa Rodrigues de Macedo*

Photo Credit: Antonio Thomás Koenigkam Oliveira / Flickr / Creative Commons

Photo Credit: Antonio Thomás Koenigkam Oliveira / Flickr / Creative Commons

Amid all the corruption scandals shaking Brazil in recent months, positive signs about future prospects for accountability – in a country where it has historically been lacking – are easy to overlook.

  • The judicial system is improving and – since the historic conviction of 25 of 37 defendants in the notorious mensalão bribery case in 2012 – has shown commitment to meaningful outcomes in corruption cases.  Prominent offenders who in the past would have been untouchable today face a significantly higher probability of conviction and imprisonment.  In March, the Supreme Court authorized investigations into more than 50 high-ranking officials, including the leaders of both legislative houses.  In July-August, prosecutors launched investigations into former President Lula da Silva (as an informant) and senior Petrobras officials.
  • Important transparency initiatives are also taking hold. On paper, these are some of the most demanding standards in the world.  The Freedom of Information Act (FOIA) enacted in 2011 ranks among the top 20 FOIA laws in the world, according to the Global Right to Information Rating.  Since 2012, more than 300,000 FOIA requests have been made through the online request system (e-sic) created by the law. No fewer than 98.34 percent of these requests have been replied to, with an average response time of 14 days.
  • Brazil has been at the forefront of promoting transparency globally.  Together with the United States, it was the founding co-chair of the Open Government Partnership (OGP), a multi-stakeholder partnership that now involves more than 60 countries.

The impact of such initiatives has been limited, however, because they were launched as a result of the mobilization of a handful of NGOs, journalists and international actors, rather than broad societal pressure.  Street protests against government policies have had massive turnouts over the past couple years, but mobilizations in favor of concrete transparency measures and similar reforms have not involved wide swaths of citizens.  Cultural change at the popular level has been slow, reflecting a lack of social maturity to accept responsibility to monitor public policy and demand transparency.  Nonetheless, some important initiatives, such as joint government-citizen policy conferences to discuss public policies, are attracting significant citizen participation. Between 2003 and 2010, 70 such conferences drew 6.5 percent of the Brazilian population, according to academic tallies, and from 2010 to 2014 there were 26 more conferences.

That these achievements haven’t ended corruption is not a sign that they’re useless. Rather, the consolidation of transparency norms and institutions; the continued assertiveness of Brazilian prosecutors and judges; and the expanding opportunities for citizen engagement suggest that the prospects for inculcating a culture of accountability in Brazil are not as bleak as might appear in the almost-daily headlines about endemic corruption in politics and big business. Having transparency initiatives in place has the potential over time to make corruption less frequent, and the more engaged that Brazilian society becomes in the implementation of transparency norms the more likely it is that massive scandals such as those around Petrobras and Lava Jato will become the exception rather than the rule.

*Vanessa Macedo is a CLALS research fellow and political science PhD candidate at the Instituto de Estudos Sociais e Políticos at the Universidade do Estado do Rio de Janeiro (IESP/Uerj).

Civics Lessons from Guatemala

By Robert Brenneman*

Former Vice President of Guatemala Roxana Baldetti (l) and a protestor with sign "We demand justice" Photo Credits: Surizar / Flickr / Creative Commons

Former Vice President of Guatemala Roxana Baldetti (l) and a protestor holding sign that proclaims “We demand justice.” Photo Credits: Surizar / Flickr / Creative Commons

Guatemala’s popular movement for justice and transparency is suddenly and happily discovering that nothing breeds success like success.  Many Guatemalans have grumbled for years about rampant corruption among the political class, but in recent weeks a surging popular movement has finally emerged giving voice and energy to years of that frustration with impunity and graft.  The movement picked up steam after a public exposé of a shadowy tax fraud and contraband network called “La Línea,” orchestrated out of Vice President Roxana Baldetti’s office by her private secretary.  The report was produced by the International Commission against Impunity in Guatemala (CICIG).  (Click here for analysis of the Commission’s renewal.)  President Pérez Molina not only renewed CICIG’s term until 2017; on May 7 he also accepted the resignation of Baldetti and her secretary, who had served as the key money-raising dealmakers for his administration.  The U.S. Embassy suspended the visas of many of the officials named in the report, including the luckless former vice president herself.

These actions have not been enough to appease the appetite for justice and transparency sought by the growing crowds of flag-waving nonviolent protestors converging each Sunday afternoon in front of the Guatemala City’s Municipal Palace.  An estimated 57,000 gathered under thunder and pouring rain on May 17.  Empowered by the relatively swift impact of their movement, and outraged by the mounting evidence pointing to the president’s personal connections to the corruption network, the crowds of protestors  led principally by students of the public university  have shifted to demanding that the president himself step down.  Pérez Molina, sensing that the wheels are coming off his administration, has requested the resignations of his closest advisors and top officials, including his Interior Minister and his Chief of Strategic Intelligence.  He has revoked or rescinded several of the most lucrative (and obviously corrupt) government contracts that he had vociferously defended only a few weeks ago.

President Pérez Molina’s political future remains up in the air.  Many Guatemalan political analysts believe he should step down.  José Rubén Zamora, founder of Guatemala’s influential daily El Periódico, argues that resigning is “the only way out of an impossible labyrinth” of the president’s own making.  But many others view the president’s fate as less important than whether the country takes advantage of the opportunity to use public pressure to pass sorely needed structural reforms.  For years Congress has ignored several bills that would tighten campaign finance rules and bring transparency to government contracting.  Since pay-to-play politics is not unique to this administration, fixing the problem will require legal and structural changes, not merely changing the nameplate on the presidential suite.  One hopeful sign is that Manuel Baldizón, leader of the opposition Renewed Democratic Liberty Party (LIDER), has not managed to coopt the popular outrage to kickstart his own election campaign.  A popular banner at the protests warns him “¡No te toca!” (“It’s not your turn!”).  The leaders of the movement recognize that Baldizón – who has many skeletons in his own closet and heads another investment-financed party – is hardly the answer.  The protesters’ focus on reform rather than politics suggests that the most certain – and long-lasting – outcome of all is the strengthened civic sphere that appears to have emerged as the protests grow and the newspapers report daily arrests and resignations.  In this civics lesson, the Guatemalan public is both pupil and teacher.

May 26, 2015

*Dr. Brenneman teaches sociology at St. Michael’s College and is author of Homies and Hermanos: God and Gangs in Central America (Oxford University Press 2012).

Honduras: Charter Cities Lurch Forward

By Fulton Armstrong

Choluteca, Honduras Photo Credit: Jonathan D. / Flickr / Creative Commons

Choluteca, Honduras Photo Credit: Jonathan D. / Flickr / Creative Commons

The Honduran government expects to get the green light this month from a Korean consulting firm for a master plan to hand governance of several small communities over to private investors to develop them, but concerns about the plan run deep and appear unlikely to fade.  Called ZEDEs – the Spanish acronym for “Employment and Economic Development Zones,” the specially designated areas are also called by their proponents charter cities, model cities, and startup cities.  The first tranche of towns facing conversion are in the southern Honduran departments of Valle and Choluteca, with a new port built on the Gulf of Fonseca.  The government says that the affected communities will remain an “inalienable part of the Honduran state,” but amendments to the Constitution, laws, and regulations permit their governing body – which is unelected – to establish “policies and regulations” and their own police and other public services.  Called the “Committee for the Adoption of Best Practices,” the board is dominated by representatives of Honduran millionaires and an even greater number of non-Hondurans of predominantly libertarian ideology.  Among them are American anti-tax crusader Grover Norquist; former President Reagan’s son Michael; and Michael Strong, chief executive of Radical Social Entrepreneurs.  The ZEDEs’ guiding principle is to liberate communities from government taxation, oversight, and corruption in order to attract investment and stimulate prosperity.

The ZEDEs initiative has been plagued by opposition since its inception, however.  Numerous reports underscore that the affected communities were never consulted, and demands for a referendum have repeatedly been rebuffed.  Honduran implementation of the model has been rejected by the U.S. economist who proposed it, Paul Romer (formerly of Stanford University; currently at New York University).  He withdrew because of the lack of Honduran transparency, including secret deals with interested U.S. parties.  The Honduran Supreme Court initially voted 4-to-1 against a Constitutional amendment allowing creation of ZEDEs in 2012, but the Congress impeached the four dissenters and replaced them with supporters who voted unanimously in favor.  There are numerous reports of intimidation of local civil society leaders, who deem them credible in view of clashes between wealthy businessmen and campesinos in other areas resulting in hundreds of deaths in recent years.

Honduras has a desperate need for economic growth – two-thirds of the population lives below the poverty line – and its model of national governance, riddled with corruption and non-transparency, is indeed in crisis.  But there’s no evidence that fighting one form of corruption with another non-transparent system will help anyone but the big investors.  Indeed, Honduras has ranked among the most violent countries in the world for several years, with the term “failed state” looming darkly over it – making it perhaps the worst place to experiment with provocative new models of governance without popular consultation or support.  Critics seem to have a good case: real reform and economic stimulus would focus on cleaning up the government and holding accountable the elites that have brought the country to ruin and now are trying to impose this model on their fellow citizens, rather than usurping the affected communities’ sovereignty.

March 19, 2015