Tag Archives: corruption

Muskrat Falls hydroelectric – Who buried the risk assessment report?

Muskrat Falls, Labrador. Site of a proposed hydro electric project by the governments of Newfoundland and Quebec. This is downriver from the Churchill Falls Hydro project in Labrador. Photo by Greg Locke © 2017 DCS Files

Muskrat Falls on the Churchill River, Labrador in 2006 before construction of an ill-conceived hydro-electric project by the government of Newfoundland and Labrador.  Photo by Greg Locke ©2017

November 25, 2017

ST. JOHN’S, Newfoundland — The man in charge of finishing the Muskrat Falls hydroelectric project on the Churchill River in remote central Labrador calls the venture a “boondoggle”. The Newfoundland and Labrador government has established a commission of inquiry to determine why the project is wildly over budget and years behind schedule. A good place for the Commissioner, Judge Richard D. LeBlanc, to start is to find out who buried the warning that there was a “very high risk” of a multi-billion dollar cost overrun barely four months after the massive project was green-lighted in December, 2012.


The warning came in the form of a risk assessment undertaken by SNC-Lavalin, the engineering company retained by the Nalcor Energy, the provincial government agency managing the project. SNC-Lavalin officials, who were responsible for construction management and procurement on the project, conducted the risk assessment when initial prices for some major construction elements came in well above the original estimates in the $6.2 billion December, 2012 budget. The experts at SNC-Lavalin warned their Newfoundland client the project could go over-budget by an additional $2.4 billion. The warning was buried for four years.


Some critics of the Muskrat Falls project argue that warnings were ignored long before 2013but when the SNC-Lavalin risk assessment finally surfaced in June of this year it was too much to ignore and according to Newfoundland and Labrador’s premier Dwight Ball too late to put the brakes on the project


 According to Nalcor Energy’s CEO, Stan Marshall, the Province is now staring at a total cost of $12+ billion to bring the megaproject in two years behind schedule and the Province wants Judge LeBlanc to inquire into “any risk assessments, financial or otherwise” and whether “Nalcor took possession of the reports” and “made the government aware of the reports and assessments”


Judge LeBlanc will find that, yes, there was a risk assessment done by SNC-Lavalin in April, 2013 and maybe Nalcor Energy took possession of it or maybe not, and according to the provincial Minister of Natural Resources in April, 2013, no, the provincial government was not made aware of the SNC-Lavalin risk assessment.


Ed Martin, former president and CEO of Nalcor Energy. Photo by Greg Locke © 2017

Ed Martin, former president and CEO of Nalcor Energy. Photo by Greg Locke © 2017

What is a matter of public record is the following: Ed Martin, Nalcor Energy’s CEO, parted company with the provincial government in 2016. Whether he was dismissed or resigned is still a bit of a puzzle, but he was succeeded by Stan Marshall, a very successful executive with the private energy company, Fortis Inc. Stan Marshall says he heard about the 2013 SNC-Lavalin risk assessment from a former SNC-Lavalin engineer, but could not find a copy of it in Nalcor Energy’s files. Finally, Stan Marshall says he asked SNC-Lavalin for a copy of the risk assessment, received it, gave it to the provincial government, and it was released by the Premier and Minister of Natural Resources on June 23, 2017 (External Link to CBC story)


A spokesperson for SNC-Lavalin told The Telegram newspaper and www.allnewfoundlandlabrador.com that they “attempted” to hand over the risk assessment to Nalcor. Ed Martin, the former Nalcor CEO told the media the risk assessment was never “presented” to him. Premier Dwight Ball told the media that he had been advised that the risk assessment results were presented by SNC-Lavalin at a meeting attended by Nalcor officials including Ed Martin. Obviously, either Premier Dwight Ball has been poorly advised or Ed Martin is not telling the truth or the word “presented” has a very narrow and specific meaning in the world of engineers and consultants that outsiders fail to understand.


The expression “attempted to hand it over” makes one wonder if an official of SNC-Lavalin held the nine-page risk assessment document in their hand and reached out to give it to a Nalcor Energy official who refused to accept it. Or, maybe there was a meeting where the SNC-Lavalin, motivated by what is described in the risk assessment as a sense of “urgency” to convey their findings verbally briefed Nalcor Energy officials on the results of the risk assessment, but did not have the report in hand. When engineers are under oath and lawyers from Judge LeBlanc rather than journalists are asking questions about who told who what and who gave what to who then the people who will ultimately pay for the “boondoggle” will know who buried what.


What does not take any clarifying are the words of Tom Marshall, the provincial Minister of Natural Resources in 2013. When the SNC-Lavalin risk assessment surfaced in June, 2017. I asked Tom Marshall if he saw the risk assessment in 2013. He said, “I never saw that report.” Asked if he had been advised of the risk assessment findings Mr. Marshall said, “No.” Did he think Ed Martin, the Nalcor CEO who he met with regularly at the time, held back the risk assessment’s findings Mr. Marshall said, “That would be terrible. I can’t fathom if that is the case.” Would it have made a difference if he had known? “It would have rung all kinds of alarm bells”


Eleven months after the SNC-Lavalin risk assessment warning Tom Marshall’s successor as Minister of Natural Resources, Derrick Dalley addressed the House of Assembly to reassure members that the government’s oversight of the Muskrat Falls project was “robust.” Mr. Dalley said, “senior staff with the Department of Natural Resources and Finance have met regularly with Nalcor’s CEO and their staff. As well, the provincial cabinet has had regular meetings and ongoing reports from the CEO of Nalcor”


For those who gamble on political affairs the question Mr. Dalley’s assurances in 2014 raise is this; what are the odds that Judge LeBlanc will hear testimony from one single senior staff or cabinet member who met regularly with the CEO of Nalcor who will recall hearing the words, “SNC-Lavalin risk assessment” or “serious concerns” or “very high risk of cost overruns” in any of those meetings?


Two days later the Minister again sought to reassure the members of the House of Assembly that there was no very high risk of cost overruns, “Nobody is putting my signature on a paper that costs my children $6 billion and $7 billion into the future. I can tell you the work is done. The oversight is there” he said.


When the Muskrat Falls Inquiry releases its schedule of witnesses make a note of the date of Mr. Dalley’s appearance.


Copyright Roger Bill 2017


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Why Scientists Should Not March on Washington

Scientists in Canada, supported by scientists around the world and global science journals, protested attempts to cut science funding and censor scientists from speaking out under Canada's Conservative government led by Stephen Harper, who was defeated in 2015. Above, scientists from the University of British Columbia and Simon Fraser University, in Vancouver, Canada, take part in a nation-wide protest in September, 2013.  © Deborah Jones 2013

Scientists in Canada, supported by scientists around the world and global science journals, protested attempts to cut science funding and censor scientists from speaking out under Canada’s Conservative government led by Stephen Harper, who was defeated in 2015. Above, scientists from the University of British Columbia and Simon Fraser University, in Vancouver, Canada, take part in a nation-wide protest in September, 2013. © Deborah Jones 2013

March, 2017

The April 22 March for Science, like the Women’s March before it, will confront United States President Donald Trump on his home turf – this time to challenge his stance on climate change and vaccinations, among other controversial scientific issues. The Conversation

But not everyone who supports scientific research and evidence-based policymaking is on board. Some fear that a scientists’ march will reinforce the sceptical conservative narrative that scientists have become an interest group whose findings are politicised. Others are concerned that the march is more about identity politics than science.

From my perspective, the march – which is being planned by the Earth Day Network, League of Extraordinary Scientists and Engineers and the Natural History Museum, among other partner organisations – is a distraction from the existential problems facing the field.

Other questions are far more urgent to restoring society’s faith and hope in science. What is scientists’ responsibility for current anti-elite resentments? Does science contribute to inequality by providing evidence only to those who can pay for it? How do we fix the present crisis in research reproducibility?

So is the march a good idea? To answer this question, we must turn to the scientist and philosopher Micheal Polanyi, whose concept of science as a body politic underpins the logic of the protest.

Both the appeal and the danger of the March for Science lie in its demand that scientists present themselves as a single collective just as Polanyi did in his Cold War classic, The Republic of Science: Its Political and Economic Theory. In it, Polanyi defended the importance of scientific contributions to improving Western society in contrast to the Soviet Union’s model of government-controlled research.

Polanyi was a polymath, that rare combination of natural and social scientist. He passionately defended science from central planning and political interests, including by insisting that science depends on personal, tacit, elusive and unpredictable judgements – that is, on the individual’s decision on whether to accept or reject a scientific claim. Polanyi was so radically dedicated to academic freedom that he feared undermining it would make scientific truth impossible and lead to totalitarianism.

The scientists’ march on Washington inevitably invokes Polanyi. It is inspired by his belief in an open society – one characterised by a flexible structure, freedom of belief and the wide spread of information.

But does Polanyi’s case make sense in the current era?

Polanyi recognised that Western science is, ultimately, a capitalist system. Like any market of goods and services, science comprises individual agents operating independently to achieve a collective good, guided by an invisible hand.

Scientists thus undertake research not to further human knowledge but to satisfy their own urges and curiosity, just as in Adam Smith’s example the baker makes the bread not out of sympathy for the hunger of mankind but to make a living. In both cases this results in a common good.

There is a difference between bakers and scientists, though. For Polanyi: “It appears, at first sight, that I have assimilated the pursuit of science to the market. But the emphasis should be in the opposite direction. The self coordination of independent scientists embodies a higher principle, a principle which is reduced to the mechanism of the market when applied to the production and distribution of material goods.”

Polanyi was aligning science with the economic model of the 1960s. But today his assumptions, both about the market and about science itself, are problematic. And so, too, is the scientists’ march on the US capital, for adopting the same vision of a highly principled science.

Does the market actually work as Adam Smith said? That’s questionable in the current times: economists George Akerlof and Robert Shiller have argued that the principle of the invisible hand now needs revisiting. To survive in our consumerist society, every player must exploit the market by any possible means, including by taking advantage of consumer weaknesses.

To wit, companies market food with unhealthy ingredients because they attract consumers; selling a healthy version would drive them out of the market. As one scientist remarked to The Economist, “There is no cost to getting things wrong. The cost is not getting them published”.

It is doubtful that Polanyi would have upheld the present dystopic neo-liberal paradigm as a worthy inspiration for scientific discovery.

Polanyi also believed in a “Republic of Science” in which astronomers, physicists, biologists, and the like constituted a “Society of Explorers”. In their quest for their own intellectual satisfaction, scientists help society to achieve the goal of “self-improvement”.

That vision is difficult to recognise now. Evidence is used to promote political agendas and raise profits. More worryingly, the entire evidence-based policy paradigm is flawed by a power asymmetry: those with the deepest pockets command the largest and most advertised evidence.

I’ve seen no serious attempt to rebalance this unequal context.

A third victim of present times is the idea – central to Polanyi’s argument for a Republic of Science – that scientists are capable of keeping their house in order. In the 1960s, scientists still worked in interconnected communities of practice; they knew each other personally. For Polanyi, the overlap among different scientific fields allowed scientists to “exercise a sound critical judgement between disciplines”, ensuring self-governance and accountability.

Today, science is driven by fierce competition and complex technologies. Who can read or even begin to understand the two million scientific articles published each year?

Elijah Millgram calls this phenomenon the “New Endarkment” (the opposite of enlightenment), in which scientists have been transformed into veritable “methodological aliens” to one another.

One illustration of Millgram’s fears is the P-test imbroglio, in which a statistical methodology essential to the conduit of science was misused and abused for decades. How could a well-run Republic let this happen?

The classic vision of science providing society with truth, power and legitimacy is a master narrative whose time has expired. The Washington March for Science organisers have failed to account for the fact that science has devolved intowhat Polanyi feared: it’s an engine for growth and profit.

A march suggests that the biggest problem facing science today is a post-truth White House. But that is an easy let off. Science’s true predicaments existed before January 2 2017, and they will outlive this administration.

Our activism would be better inspired by the radical 1970s-era movements that sought to change the world by changing first science itself. They sought to provide scientific knowledge and technical expertise to local populations and minority communities while giving those same groups a chance to shape the questions asked of science. These movements fizzled out in the 1990s but echos of their programmatic stance can be found in a recent editorial in Nature.

What we see instead is denial toward science’s real problems. Take for instance the scourge of predatory publishers, who charge authors hefty fees to publish papers with little or no peer review. The lone librarian who fought this battle has now been silenced, to no noticeable reaction from the scientific community.

Trump is not science’s main problem today – science is.

Creative Commons

Andrea Saltelli has worked on physical chemistry, environmental sciences, applied statistics, impact assessment and science for policy. His main disciplinary focus is on sensitivity analysis of model output, a discipline where statistical tools are used to interpret the output from mathematical or computational models, and on sensitivity auditing, an extension of sensitivity analysis to the entire evidence-generating process in a policy context. At present he is in at the European Centre for Governance in Complexity, a joint undertaking of the Centre for the Study of the Sciences and the Humanities (SVT) – University of Bergen (UIB), and of the Institut de Ciència i Tecnologia Ambientals (ICTA) -Universitat Autonoma de Barcelona (UAB). The ECGC is located in the UAB campus in Barcelona. His latest works include Science on the Verge, a book on the crisis of science, a series of article of criticism of the Ecological Footprint  He is an Adjunct Professor, Centre for the Study of the Sciences and the Humanities, University of Bergen, University of Bergen.

This article was originally published on The Conversation. Read the original article.


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Who knew? Modi’s secretive attack on black money

People queue outside a bank to withdraw cash and deposit their old high denomination banknotes in Mumbai, India, December 2, 2016. REUTERS/Danish Siddiqui/File Photo

People queue outside a bank to withdraw cash and deposit their old high denomination banknotes in Mumbai, India, December 2, 2016. REUTERS/Danish Siddiqui/File Photo

By Douglas Busvine and Rupam Jain
December, 2016

India's Financial Services Secretary Hasmukh Adhia answers a question during a news conference in New Delhi, India, August 14, 2015. REUTERS/Adnan Abidi/File Photo

India’s Financial Services Secretary Hasmukh Adhia answers a question during a news conference in New Delhi, India, August 14, 2015. REUTERS/Adnan Abidi/File Photo

NEW DELHI (Reuters) – Prime Minister Narendra Modi handpicked a trusted bureaucrat, little known outside India’s financial circles, to spearhead a radical move to abolish 86 percent of the country’s cash overnight and take aim at the huge shadow economy.

Hasmukh Adhia, the bureaucrat, and five others privy to the plan were sworn to utmost secrecy, say sources with knowledge of the matter. They were supported by a young team of researchers working in two rooms at Modi’s New Delhi residence, as he plotted his boldest reform since coming to power in 2014.

When announced, the abolition of high-value banknotes of 500 and 1,000 rupees (£5.9 and £11.78) came as a bolt from the blue.

The secrecy was aimed at outflanking those who might profit from prior knowledge, by pouring cash into gold, property and other assets and hide illicit wealth.

Previously unreported details of Modi’s handling of the so-called “demonetisation” open a window onto the hands-on role he played in implementing a key policy, and how he was willing to act quickly even when the risks were high.

While some advocates say the scrapping of the banknotes will bring more money into the banking system and raise tax revenues, millions of Indians are furious at having to queue for hours outside banks to exchange or deposit their old money.

Labourers have also been unpaid and produce has rotted in markets as cash stopped changing hands. Not enough replacement notes were printed in preparation for the upheaval, and it could take months for things to return to normal.

With India’s most populous state, Uttar Pradesh, holding an election in early 2017 that could decide Modi’s chances of a second term in office, there is little time for the hoped-for benefits of his cash swap to outweigh short-term pain.

Modi has staked his reputation and popularity on the move.

“I have done all the research and, if it fails, then I am to blame,” Modi told a cabinet meeting on Nov. 8 shortly before the move was announced, according to three ministers who attended.

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Overseeing the campaign, with support from the backroom team camped out at Modi’s sprawling bungalow in the capital, was Adhia, a top finance ministry official.

The 58-year-old served as principal secretary to Modi from 2003-06 when he was chief minister of Gujarat state, establishing a relationship of trust with his boss and introducing him to yoga.

Colleagues interviewed by Reuters said he had a reputation for integrity and discretion.

Adhia was named revenue secretary in Sept. 2015, reporting formally to Finance Minister Arun Jaitley. In reality, he had a direct line to Modi and they would speak in their native Gujarati when they met to discuss issues in depth.

In the world’s largest democracy the demonetisation was revolutionary: it called into question the state’s promise to “pay the bearer” the face value on every banknote.

At a stroke, Modi scrapped money worth 15.4 trillion rupees (£181.5 billion), equal to 86 percent of cash in Asia’s third-largest economy.

The idea is backed by some economists, although the speed of its implementation is widely seen as radical.

“One is never ready for this kind of disruption – but it is a constructive disruption,” said Narendra Jadhav, a 31-year veteran and former chief economist of India’s central bank who now represents Modi’s party in the upper house of parliament.

Modi, in his TV address to the nation, cautioned that people could face temporary hardship as replacement 500 and 2,000 rupee notes were introduced. Calling for an act of collective sacrifice, he promised steps to soften the blow for the nine in 10 Indians who live in the cash economy.


Immediately after the address, Adhia sent a tweet: “This is the biggest and the boldest step by the Government for containing black money.”

The boast harked back to Modi’s election vow to recover black money from abroad that had resonated with voters fed up with the corruption scandals that plagued the last Congress government. Yet in office, he struggled to keep his promise.

Over more than a year, Modi commissioned research from officials at the finance ministry, the central bank and think-tanks on how to advance his fight against black money, a close aide said.

He demanded answers to questions such as: How quickly India could print new banknotes; how to distribute them; would state banks benefit if they received a rush of new deposits; and who would gain from demonetisation?

The topics were broken up to prevent anyone from joining the dots and concluding that a cash swap was in the offing.

“We didn’t want to let the cat out of the bag,” said a senior official directly involved. “Had people got a whiff of the decision, the whole exercise would have been meaningless.”

Under Adhia’s oversight, the team of researchers assembled and modelled the findings in what was, for it, a theoretical exercise.

It was made up of young experts in data and financial analysis; some ran Modi’s social media accounts and a smartphone app that he used to solicit public feedback.

Yet for all the planning, Modi and Adhia knew they could not foresee every eventuality, and were willing to move swiftly.

The announcement caused chaos, with huge queues forming at banks when they reopened after a short holiday.

New 2,000 rupee notes were hard to come by and barely any new 500 rupee notes had been printed. India’s 200,000 cash dispensers could not handle the new, smaller, notes and it would take weeks to reconfigure them.

Filling ATMs with the 8 trillion rupees in new banknotes that the finance ministry reckons are needed to restore liquidity to the economy is even trickier.

In a best-case scenario, in which India’s four banknote presses churned out new 500 and 2,000 rupee notes designed to replace the abolished ones, it would take at least three months to hit that target.


Secrecy was paramount, but clues had been left.

Back in April, analysts at State Bank of India said that demonetisation of large-denomination notes was possible.

The Reserve Bank of India, the central bank, also disclosed in May that it was making preparations for a new series of banknotes that were confirmed in August when it announced it had approved a design for a new 2,000 rupee note.

The printing presses had only just started turning when the media finally started to run with the story in late October.

“The plan was to introduce it around Nov. 18, but there was a clear sign that it could get leaked,” said one person with direct knowledge who, like others interviewed by Reuters, asked not to be named due to the sensitivity of the matter.

Some officials in the finance ministry had expressed doubts about scrapping high-value notes when the idea came up for discussion. They now feel resentment at the secrecy in which Adhia rammed through the plan on Modi’s orders.

They also say the plan was flawed because of a failure to ramp up printing of new notes ahead of time.

Other critics say the Adhia team fell prey to a form of “group think” that ignored outside advice.

In the words of one former top official who has worked at the finance ministry and central bank: “They don’t know what’s happening in the real world.”

Copyright Reuters 2016

(Additional reporting by Rajesh Kumar Singh, Manoj Kumar, Mayank Bhardwaj and Neha Dasgupta in New Delhi, Suvashree Choudhury in Mumbai and Subrata Nagchaudhury in Kolkata; Writing by Douglas Busvine; Editing by Mike Collett-White)


Facts and Opinions is a boutique journal of reporting and analysis in words and images, without borders. Independent, non-partisan and employee-owned, F&O is funded by our readers. It is ad-free and spam-free, and does not solicit donations from partisan organizations. To continue we require a minimum payment of .27 for one story, or a sustaining donation. Details here; or donate below. Thanks for your interest and support.

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Suspected of Corruption, Finding Refuge in the U.S.

by Kyra Gurney, Anjali Tsui, David Iaconangelo, Selina Cheng
December 9, 2016

Wealthy politicians and businessmen suspected of corruption in their native lands are fleeing to a safe haven where their wealth and influence shields them from arrest.

They have entered this country on a variety of visas, including one designed to encourage investment. Some have applied for asylum, which is intended to protect people fleeing oppression and political persecution.

The increasingly popular destination for people avoiding criminal charges is no pariah nation.

It’s the United States.

An investigation by ProPublica, in conjunction with the Stabile Center for Investigative Journalism at Columbia University, has found that officials fleeing prosecution in Colombia, China, South Korea, Bolivia and Panama have found refuge for themselves and their wealth in this country, taking advantage of lax enforcement of U.S. laws and gaps in immigration and financial regulations. Many have concealed their assets and real-estate purchases by creating trusts and limited liability companies in the names of lawyers and relatives.

American authorities are supposed to vet visa applicants to make sure they are not under active investigation on criminal charges. But the ProPublica examination shows that this requirement has been routinely ignored.

One of the most prominent cases involves a former president of Panama, who was allowed to enter the United States just days after his country’s Supreme Court opened an investigation into charges that he had helped embezzle $45 million from a government school lunch program.

Former Peruvian president Ricardo Martinelli in 2010. Official portrait

Former Peruvian president Ricardo Martinelli in 2010. Official portrait

Ricardo Martinelli, a billionaire supermarket magnate, had been on the State Department’s radar since he was elected in 2009. That year, the U.S. ambassador to Panama began sending diplomatic cables warning about the president’s “dark side,” including his links to corruption and his request for U.S. support for wiretapping his opponents.

Soon after Martinelli left office in 2014, Panamanian prosecutors conducted a widely publicized investigation of corruption in the school lunch program, and in mid-January 2015, forwarded their findings to the country’s Supreme Court.

On Jan. 28, 2015, just hours before the Supreme Court announced a formal probe into the charges, Martinelli boarded a private plane, flew to Guatemala City for a meeting and then entered the United States on a visitor visa. Within weeks, he was living comfortably in the Atlantis, a luxury condominium on Miami’s swanky Brickell Avenue. He is still here.

The State Department declined to comment on Martinelli’s case, saying visa records are confidential and it is the U.S. Customs and Border Protection that decides who is allowed to enter the country. CBP said privacy regulations prevent the agency from commenting on Martinelli.

Efforts to reach Martinelli, including a registered letter sent to his Miami address, were unsuccessful.

In September this year, Panama asked to extradite Martinelli, but the former president is fighting that request, arguing there are no legal grounds to bring him back to his home country where the investigation has broadened to include insider trading, corruption and abuse of authority. Last December, Panama’s high court issued a warrant for his arrest on charges that he used public funds to spy on over 150 political opponents. If found guilty, he could face up to 21 years in jail.

Rogelio Cruz, who is defending Martinelli in Panama’s Supreme Court, said that the former president “will return to Panama once adequate conditions exist with respect to due process, where there are independent judges — which there aren’t.”

The United States has explicit policies that bar issuing visas to foreign officials facing criminal charges in their homelands. In 2004, President George W. Bush issued a proclamation designed to keep the United States from becoming a haven for corrupt officials. Proclamation 7750, which has the force and effect of law, directed the State Department to ban officials who have accepted bribes or misappropriated public funds when their actions have “serious adverse effects on the national interests of the United States.”

Under the rules implementing Bush’s order, consular officers do not need a conviction or even formal charges to justify denying a visa. They can stamp “denied” based on information from unofficial, or informal sources, including newspaper articles, according to diplomats and State Department officials interviewed for this report.

The State Department declined to provide the number of times Proclamation 7750 has been invoked, but insisted that it has been used “robustly.”

Over the years, some allegedly corrupt officials have been banned from entering the United States, including former Panamanian President Ernesto Perez Balladares, former Nicaraguan President Arnoldo Aleman, former Cameroonian Defense Minister Remy Ze Meka, and retired Philippine Gen. Carlos Garcia, according to cables published by WikiLeaks. In 2014, the U.S. banned visas for 10 members of Hungarian Prime Minister Viktor Orban’s inner circle because of corruption allegations.

But numerous other foreign government officials, including former presidents and cabinet ministers, have slipped through the cracks, according to court documents, diplomatic cables and interviews with prosecutors and defense attorneys in the United States and abroad. The charges involved a wide range of misconduct, from stealing public funds to accepting bribes.

Six months before Martinelli entered the United States, a former Colombian agriculture minister and onetime presidential candidate, Andres Felipe Arias, fled to Miami three weeks before he was convicted of funneling $12.5 million to wealthy political supporters from a subsidy program that was intended to reduce inequality in rural areas and protect farmers from the effects of globalization.

The U.S. embassy in Bogota had been following Arias’ trial closely and reporting on the scandal in cables to Washington. The trial featured documents and witnesses saying that under Arias’ watch, the agriculture ministry had doled out millions in subsidies to affluent families, some of whom, according to media reports, had donated to Arias’ political allies or his presidential campaign.

Subsidies went to relatives of congressmen, companies owned by the richest man in Colombia, and a former beauty queen. One powerful family and its associates received over $2.5 million, according to records released by prosecutors. Another family, which included relatives of a former senator, received $1.3 million. Both families had supported Arias’ chief political ally, former Colombian President Alvaro Uribe, with campaign contributions.

The law that established the program did not ban wealthy landowners from getting grants, but some elite families had received multiple subsidies for the same farm. They gamed the system by submitting multiple proposals in the names of different family members and by subdividing their land so they could apply for grants for each parcel, court records indicate.

Yet, in November 2013, while the trial was going on, the U.S. embassy in Bogota renewed Arias’ visitor visa. The State Department refused to discuss the case, saying that visa records are confidential. But a recent filing in federal court showed that the U.S. embassy had flagged Arias’ application, and asked him to provide documents to support his request to leave the country while charges were pending. Arias submitted documents from the Colombian court, including a judicial order that allowed him to travel. In the end, the embassy issued a visa because he had not yet been convicted.


On the night of June 13, 2014, three weeks before the judges convicted him of embezzlement by appropriation, a Colombian law that penalizes the unauthorized use of public funds to benefit private entities, Arias packed his bags and boarded a plane. The following month, the U.S. embassy in Bogota revoked the visa. But Arias hired an immigration attorney and applied for asylum.

“If you looked up ‘politically motivated charges’ in the dictionary, there would be a picture of Andres Arias next to it,” said David Oscar Markus, Arias’ lead attorney. “The case [against him] is absurd and not even one that is recognized in the United States.”

Over the next two years, Arias built a new life in South Florida with his wife and two children, opening a small consulting company and renting a house in Weston.

On August 24, he was arrested by U.S. authorities in response to an extradition request from Colombia. He spent several months in a detention facility until his release on bail in mid-November. Arias argues that the United States cannot extradite him because it has no active extradition treaty with Colombia, but the U.S. Attorney’s Office disagrees. A plea for asylum does not shield defendants from extradition if they are charged in Colombia with a crime covered by the treaty between the two countries.

Congress established the EB-5 immigrant investor program in 1990 as a way of creating jobs for Americans and encouraging investment by foreigners.

The agency that administers the program, the U.S. Citizenship and Immigration Services, has adopted regulations designed to prevent fraud, including requiring foreign investors to submit evidence, such as tax returns and bank statements, to prove they obtained their money legally.

But these safeguards did not stop the daughter-in-law and grandsons of former South Korean dictator Chun Doo-hwan from using Chun’s ill-gotten gains to get U.S. permanent residency.

In 1996, a Korean court convicted Chun of receiving more than $200 million in bribes while in office in the 1980s, from companies such as Samsung and Hyundai. He was ordered to return the bribes, but refused.

Part of Chun’s fortune was funneled into the United States through his son, who purchased a $2.2 million house in Newport Beach, California, according to South Korean prosecutors and real-estate records.

Millions of dollars from Chun’s bribery proceeds were hidden in bearer bonds, which are notoriously difficult to trace. Unlike regular bonds, which belong to registered owners, there is no record kept about the ownership or transfer of bearer bonds. The bonds can be cashed out by whoever has them.

In 2008, Chun’s daughter-in-law, a South Korean actress named Park Sang-ah, applied for an immigrant investor visa. Park listed her husband’s bearer bonds as the source of her funds without mentioning that the money had been initially provided to him by Chun. Eight months later, Park and her children received their conditional U.S. permanent residency cards in the mail.

In 2013, at the request of South Korean prosecutors, the U.S. Justice Department launched an investigation into the Chun family’s wealth in the United States and subsequently seized $1.2 million of the family’s U.S. assets in the United States. The money was returned to South Korea. Despite that, Chun’s family members have retained their residency status.

Chun’s relatives obtained their permanent residency by investing in an EB-5 project managed by the Philadelphia Industrial Development Corporation, a nonprofit company. The PIDC pooled Chun’s $500,000 with money from 200 other foreign investors to finance an expansion of the Pennsylvania Convention Center in downtown Philadelphia.

The same project in Philadelphia also helped to secure permanent residency for Qiao Jianjun, a Chinese government official accused of embezzling more than $40 million from a state-owned grain storehouse, according to reports in the People’s Daily, the Chinese Communist Party’s newspaper. Qiao had divorced his wife, Shilan Zhao, in China in 2001, a fact he did not disclose to U.S. immigration authorities. When Zhao applied for an EB-5 visa, Qiao qualified for U.S. permanent residency as an applicant’s spouse.

The Justice Department launched an investigation only when it was tipped off by Chinese authorities. In January 2014, a federal grand jury indicted Zhao and her ex-husband, Qiao, for immigration fraud, money laundering and internationally transporting stolen funds. Zhao was arrested and released on bail. Federal authorities are pursuing Qiao, whose whereabouts remain unknown.

A trial has been set for February 2017. U.S. government attorneys have filed asset forfeiture cases to recover real estate linked to Qiao and Zhao in Flushing, New York, and Monterey Park, California.

In April 2015, Qiao appeared on the Chinese government’s list of 100 “most wanted” officials who fled abroad after being accused of crimes such as bribery and corruption. He and 39 other government officials and state-owned enterprise leaders on the list allegedly fled to the United States.

The list, called “Operation Skynet,” is part of Chinese President Xi Jinping’s anti-corruption campaign, which has vowed to take down what Chinese officials describe as corrupt “tigers” and “flies” within the country’s ruling Communist Party.

Fengxian Hu was another fugitive on China’s list. A former army singer and radio broadcaster, Hu headed the state-owned broadcasting company that had a joint venture with Pepsi to distribute soft drinks in Sichuan province. In 2002, The Washington Post and The Wall Street Journal reported that Pepsi had accused Hu of looting the joint venture and using company funds to buy fancy cars and go on European tours.

The same year, in a widely publicized move, Pepsi filed a case with international arbitrators in Stockholm, asking that the joint venture be dissolved. Despite this, Hu was given a visa that allowed him to fly regularly to Las Vegas, where he was a VIP client at the MGM casino.

In January 2010, Chinese authorities investigated Hu for corruption. But the month before, Hu had entered the United States on a B1 visitor visa, joining his wife, a U.S. citizen living in New York.

Hu tried to obtain a green card through his wife, but the petition was rejected by U.S. immigration authorities. He applied for asylum instead.

Meanwhile, he had gotten into trouble in the United States for losing millions in a Las Vegas casino and failing to pay a $12 million gambling debt. In 2012, he was indicted in a Nevada court on two counts of theft and one count of intentionally passing a check without sufficient funds.

Hu pled not guilty to the charges; his lawyers claimed that his checks bounced because his bank account had been closed by Chinese authorities. The charges against him in the U.S. were considered an aggravated felony, which is a common basis for deportation. Hu, however, had a pending asylum case and so could not be deported.

In August 2015, a New York immigration judge denied the asylum claim. But Hu’s lawyers argued that he would be tortured if he returned to China and invoked the United Nations Convention Against Torture, which says that an alien may not be sent to a country where he is likely to be tortured. In the end, the immigration court suspended Hu’s removal order, allowing him to remain in the United States and work here indefinitely. He will not, however, be given permanent residency or be allowed to travel outside the country.

The absence of an extradition treaty — coupled with a high standard of living — makes the United States a favored destination for Chinese officials and businessmen fleeing corruption charges.

In April 2015, Jeh Johnson, the Secretary for the Department of Homeland Security, made a 48-hour trip to Beijing. The visit was intended to pave the way for Chinese President Xi Jinping’s U.S. visit in September 2015, according to a memorandum Johnson wrote, which was obtained through a request under the Freedom of Information Act.

In the memo, Johnson said the Chinese government is seeking 132 people it said have fled to the United States to avoid prosecution. This represents a greater number of fugitives than Chinese authorities have publicly acknowledged.

“I’m told that in prior discussions, the Chinese have been frustrated by the lack of any information from us about the 132 fugitives,” Johnson wrote.

The Chinese request for assistance posed a dilemma for the United States. American officials are concerned about a lack of fairness in China’s criminal justice system. Human rights groups say that China continues to use torture to extract false confessions from suspected criminals. Torture has also been documented to be part of shuanggui — a secretive discipline process reserved for members of the Chinese Communist Party.

Some analysts see the crackdown on corrupt officials as part of a purge aimed at the current regime’s political rivals and ideological enemies. U.S. officials say this makes returning corrupt officials to China a delicate issue for the United States.

In 2003, headlines around the world reported widespread street protests in Bolivia that led to security forces killing 58 people, most of them members of indigenous groups. Not long afterward, as protesters massed up on the streets of La Paz demanding his resignation, Bolivian President Gonzalo Sanchez de Lozada resigned and fled his country along with his defense minister, Jose Carlos Sanchez Berzain.

The two men flew to the United States, where they continue to reside. In 2006, Berzain applied for political asylum, which he was granted in 2007. On his application, when the form asked, “Have you or your family members ever been accused, charged, arrested, detained, interrogated, convicted and sentenced, or imprisoned in any country other than the United States?” Berzain checked the box “no,” even though by then he and de Lozada had been formally accused of genocide by Bolivia’s attorney general. The indictment was approved by Bolivia’s Supreme Court in 2007. Berzain also stated on his application that the State Department had arranged for his travel to the United States.

The de Lozada administration was vocally pro-American. Before it was ousted, officials had announced they would facilitate gas exports to the United States.

After their departure, Bolivia’s attorney general publicly stated that the administration had embezzled millions from government coffers, but did not formally file charges. He said de Lozada had taken some $22 million from the country’s reserve funds before fleeing.

De Lozada and members of his administration have dismissed the allegations as part of a politically motivated smear campaign, but there is evidence to suggest irregularities may have occurred in the handling of the reserve funds. The former president signed a decree shortly before leaving office authorizing the interior and finance ministers to withdraw money from Bolivia’s reserve funds without going through the normal approval process. De Lozada’s former interior minister pleaded guilty in 2004 to embezzlement after $270,000 in cash was found in an associate’s home.

De Lozada, a mining mogul before he became president, moved to Chevy Chase, Maryland, an upscale suburb of Washington, D.C. He now lives in a two-story brick house bought for $1.4 million by Macalester Limited, a limited liability company that was formed in the British Virgin Islands and lists a post office box in the Bahamas as its principal address.

De Lozada’s immigration status is unclear. He said in a sworn deposition in 2015 that he was not a U.S. citizen. His son-in-law, who spoke to ProPublica on his behalf, would not say whether de Lozada had applied for asylum.

Berzain, meanwhile, settled in South Florida. Records show that he and his brother-in-law personally own or are listed as officers or members of business entities that together control around $9 million worth of Miami real estate.

Some of the purchases were made in the names of entities that appear to list different variations of Berzain’s name in business records.

In addition, in the purchase of two properties, Berzain’s name was added to business records only after the deal had gone through. Berzain’s brother-in-law incorporated a company called Warren USA Corp in October 2010, for example, and the company purchased a $1.4 million residential property the following month. Three weeks after Warren USA Corp became the owner of an elegant Spanish-style villa in Key Biscayne, Berzain was added as the company’s secretary.

The following year, in May 2011, Berzain’s brother-in-law created Galen KB Corp and registered as the company’s president. A month later, Galen KB Corp purchased a $250,000 condo. In August, Berzain replaced his brother-in-law as the company’s president, according to business records. Berzain is no longer listed as a company officer in either company.

During an interview in January, Berzain told ProPublica “I don’t have any companies.” When asked about several of the companies associated with his name or address in public records, the former defense minister said he had a consulting firm that helped clients set up companies and that he was sometimes added to the board of directors. Efforts to reach Berzain’s brother-in-law, a wealthy businessman and the owner of a bus company in Bolivia, were unsuccessful. Berzain’s brother-in-law has not been accused of any wrongdoing.

The practice of purchasing real estate in the name of a business entity like a limited liability company, or LLC, is a common and legal practice in high-end real-estate markets, and one that enables celebrities and other wealthy individuals to protect their privacy.

But the practice also allows foreign officials to hide ill-gotten gains. U.S. regulations allow individuals to form business entities like LLCs without disclosing the beneficial owner. The LLCs can be registered in the names of lawyers, accountants or other associates — or even anonymously in some states — and used to purchase real estate, making it nearly impossible to determine the actual owner of a property.

Government investigators and lawmakers have pointed out persistent gaps in U.S. policy that have enabled corrupt officials to evade justice and hide their assets in this country. But little has changed.

Last year, a U.S. Government Accountability Office investigation said it can be “difficult” for immigration officials to identify the true source of an immigrant investor’s funds. Immigration officials told the government auditors that EB-5 applicants with ties to corruption, the drug trade, human trafficking and other criminal activities have a strong incentive to omit key details about their financial histories or lie on their applications.

“It’s very easy to get lost in the noise if you’re a bad person,” said Seto Bagdoyan, the accountability office’s director of forensic audits, who co-authored the GAO report.

Immigration officials, he added, have an “almost nonexistent” ability to thoroughly evaluate investors’ backgrounds and trace their assets.

Despite such weaknesses, Congress has continually extended the EB-5 program with minor changes. The program is backed by real-estate lobbyists who argue that it is a crucial source of financing for luxury condos and hotels. The program is expected to thrive in a Trump presidency because the president-elect is a developer and his son-in-law Jared Kushner received $50 million in EB-5 funds to build a Trump-branded tower in New Jersey.

In 2010, a Senate report described how powerful foreign officials and their relatives moved millions of dollars in suspect funds into the United States. The report said investors bypassed anti-money laundering regulations with help from U.S. lawyers, real-estate agents, and banking institutions. Last year, ABC News reported that lobbyists for real estate and other business groups spent $30 million in 2015 in an effort to protect the EB-5 program.

Senate investigators proposed legislation that would require companies to disclose their beneficial owners and make it easier for authorities to restrict entry, deny visas and deport corrupt foreign officials.

A few of the proposals have been adopted, but they have not made much difference. Banks have stepped up their efforts to identify corrupt officials and monitor their accounts. Professional groups such as the American Bar Association have issued non-binding guidelines for their members on compliance with anti-money-laundering controls. The U.S. government has also worked with the Financial Action Task Force, an international body set up to fight money laundering, to bring its anti-corruption controls in accordance with the body’s guidelines.

In May, the Treasury Department enacted a new rule that will take full effect in 2018 and will require financial institutions to identify the beneficial owners of shell companies. Some advocates see the rule as a step backward. The new rule allows shell companies to designate the manager of the account as the beneficial owner, concealing the identity of the person ultimately exercising control.

The State Department declined to say what progress, if any, it has made on the Senate subcommittee’s recommendation to more aggressively deny visas through Proclamation 7750. “The Department takes seriously congressional recommendations and devotes resources to addressing corruption worldwide,” a State Department official wrote in response to questions.

In 2010, then-Attorney General Eric Holder launched the Kleptocracy Asset Recovery Initiative. The small unit, which has grown to include 16 attorneys, aims to recover assets in the United States that are tied to foreign corruption and return the money to the looted countries.

Over the past six years, the unit has filed around two dozen civil asset forfeiture cases in an attempt to seize money, real estate and other assets tied to government officials from 16 countries. Assets have ranged from a lone diamond-encrusted glove worn by Michael Jackson that was purchased by Equatorial Guinea’s Vice President, Teodoro Obiang, to a $1 billion fund tied to Malaysian Prime Minister Najib Razak.

Yet most of the money the Department of Justice has pursued remains in limbo. The case involving Chun, the former president of South Korea, is one of only two instances in which corrupt gains have been returned to the home country through the Justice Department’s efforts. The other arose when Justice Department officials returned $1.5 million to Taiwan from property bought with bribes paid to the family of Chun Shui Bian, the former president of Taiwan.

The agency faces myriad challenges when attempting to seize and return assets acquired by corrupt foreign officials, including a lack of witnesses, said Kendall Day, head of the Department of Justice’s Asset Forfeiture and Money Laundering Section. These officials often shield their transactions through shell companies, offshore companies or a network of associates.

“The mission of the Kleptocracy Initiative is really to target what we call grand foreign corruption that impacts the U.S. financial system,” Day said, citing the Chun case as an example.

The 2012 Magnitsky Act gives the government power to deny visas and freeze the assets of Russian nationals accused of corruption or human rights violations. The Global Magnitsky Act would extend the same sanctions to the rest of the world, but it has yet to be passed by Congress. Unlike Proclamation 7750, the Magnitsky laws require the government to publish a list of foreign government officials who are barred from the United States.

In addition, the Treasury Department imposed regulations this year that aim to crack down on the use of shell companies to purchase real estate in places like Miami and Manhattan. Title insurance companies are now required to identify the real owners of companies purchasing high-end real estate without a mortgage. These regulations, however, are temporary.

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Related on F&O:

Canada, Fraudster’s Nirvana, by Jonathan Manthorpe, International Affairs  Column

Canada was slammed in a new report on corruption. It matters because tricks –blind trusts, shell companies, anonymous accounts in tax havens — are spurring the kind of populist, enraged politics that elected Donald Trump and is behind Brexit.  Unless Ottawa ensures that Canada’s privileged classes play by the same rules as everyone else Canada, too, will experience a tide of outrage.


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Canada, Fraudster’s Nirvana


JONATHAN MANTHORPE: International Affairs
December 9, 2016

Carlos Ugaz, Chair of the Board of Directors, Transparency International, at a World Bank even in Washington, Ocotber 7, 2016. Photo: Clarissa Villondo/World Bank

Carlos Ugaz, Chair of the Board of Directors, Transparency International, at a World Bank even in Washington, Ocotber 7, 2016. Photo: Clarissa Villondo/World Bank

There is a fine line between thinking the best of people, and being a sucker for every con artist, fraudster and runaway crook who comes along.

Canada all too often crosses that line without realising it. There is a blithe strain in Canadian culture that believes corruption is a foreign problem and that venal instincts magically vanish when exposed to Canadian values.

There was a fine example of this naivety on Friday when Foreign Affairs Minister Stephane Dion issued a statement to mark International Anti-Corruption Day. That it was the foreign affairs minister who issued the statement underlines the Canadian view that this is a foreign problem, not a domestic one.

And Dion’s statement went on to talk about the evils of corruption in foreign terms, apart from one pro-forma inclusion of the word “domestic” in a sub clause. The eradication of corruption, according to the Ottawa doctrine, is part of Canada’s mission to bring the country’s civic values to the less fortunate.

“Corruption is a major obstacle to sustainable development and is destructive in all its forms. Whether used to seek unfair advantage, evade justice, gain power or impose hardship, corruption leaves little room for democracy to flourish and economic growth to be inclusive.”

Well, all those evils are well established in Canada, as is made clear in a report published on Friday by Transparency International Canada.

Canada, says the report, has one of the worst records among the G20 organization of leading economies for providing a host of legal but immoral ways for people to launder ill-gotten gains, hide criminal activities, or spirit wealth away out of sight and reach of Revenue Canada.


Canada scores low on corruption globally, but lags within the G20 leading economies for providing a host of legal but immoral ways for people to launder ill-gotten gains, hide criminal activities, or spirit wealth away out of sight and reach of Revenue Canada. Above: Transparency International Perceptions Index 2015

The report looks in some detail at investment in Vancouver real estate in recent years. It quotes a September report by the global anti-money laundering authority, the Financial Action Task Force (FATF), saying the Canadian real estate sector is “highly vulnerable to money laundering.” The FATF report goes on to say a particular problem is “cases of Chinese officials laundering the (proceeds of crime) through the real estate sector, particularly in Vancouver.”

The Transparency International Canada (TIC) report puts some emphasis on the fall-out from corrupt Chinese Communist Party officials, their relatives and friends taking advantage of the open door offered by the naïve Canadian market to park their money in Vancouver, Toronto and elsewhere. But that is almost in parenthesis in a catalogue of failings in Canadian management of financial dealings that is an open invitation to criminals and tax dodgers both domestic and foreign.

At the top of the list of evils identified by TIC is the secrecy and opportunities to hide identities in the Canadian system. The report details the extraordinary and destructive lack of regulation in Canadian institutions about who owns what.

“In Canada, more rigorous identity checks are done for individuals getting library cards than for those setting up companies,” says the TIC report. However, setting up companies is only one example of the ease with which people can hide their identities alone with their wealth.

Establishing a blind trust in Canada is easy and there are estimated to be many millions here. But there is no legal requirement to register trusts, file a record of their existence, say who the beneficial owners are, or disclose when a surrogate – usually a lawyer or family member – is acting on behalf of others when dealing with banks or other businesses.

Another favourite financial instrument for hiding ownership and dealings is shell companies. The TIC report describes shell companies as “financial getaway cars that can be used to enable criminals to vanish without a trace.”

The report sets out evidence that shell companies are used to facilitate corruption, launder the profits from crime, evade taxes, commit fraud such as Ponzi schemes, and provide cover for exploits such as insider trading and market manipulation.

Trusts and shell companies are also being used to profit from the real estate market in Vancouver, Toronto and other Canadian cities. Again, there is no requirement that the real owner of property be identified or that an open public record be kept.

“Individuals can use shell companies, trusts and nominees to hide their beneficial interest in Canadian real estate,” says the TIC report. The organization’s analysis of land title records found that nearly half of the 100 most valuable residential properties in Greater Vancouver are held through structures that hide the identities of the real owners.

“Nearly one-third of the properties are owned through shell companies, while at least 11 percent have a nominee listed in the title. Trusts are also common ownership structures for luxury properties.”

Of course, the use of numbered shell companies, usually lodged in tax havens such as the British Virgin Islands, or the Isle of Man, makes a nonsense of the much ballyhooed 15 per cent tax on foreign buyers of Vancouver property. If a property is owned by a shell company with a hidden beneficial owner, all a buyer has to do is purchase the shell company and no one is the wiser there has been a transaction.

It would not be surprising if the apparent downturn in foreign purchases of Vancouver properties since the tax was introduced is an illusion. The business could still be flying high, but is being done by the sale of numbered companies registered in tax havens under the names of nominees, and no one in Canada is any the wiser.

A key result of all this officially endorsed anonymity is that the RCMP and other enforcement agencies have next to no ability to detect and prosecute financial crimes.

“The RCMP’s success rate in pursuing money laundering is a fraction of what it is for other crimes,” says the TIC report. “A suspect cannot be identified in more than 80 percent of cases, and only a third of the cases that go to trial result in a conviction. The cost to the treasury in lost tax revenues … is likely to be in the billions of dollars.”

So the odds of being caught and convicted of a financial crime in Canada are as close to zero as makes no difference.

The key recommendation of the TIC report is to end the secrecy. All companies and trusts in Canada should be required to identify their beneficial owners. This information should be publicly available through a central registry.

Further recommendations are that nominees should be required to disclose when they are acting on their principal’s behalf and those beneficial owners should be identified.

Corporate registries should be given the resources and requirement to verify information filed by companies, including the identities of directors and shareholders.

Property titles should include the names of beneficial owners, and no property deal should be allowed to proceed without that disclosure.

It should be a federal regulation requiring all financial sector professionals – including real estate agents – to identify beneficial owners before conducting a transaction.

And any company seeking a government contract – from municipal to federal – should be required to disclose its beneficial ownership.

Regular readers will know that I have consistently argued that the most effective way of dealing with the problem of foreign investment inflating Canadian real estate prices is to keep publicly available records of beneficial property ownership.

The attraction of Vancouver for foreign buyers is not, as Vancouverites like to imagine, that it is reputed to be one of the world’s “best cities,” but that it offers absolute anonymity for the buyer. If public records of beneficial ownership were available to the Mounties, Revenue Canada, and especially the Chinese Communist Party’s Central Commission for Discipline Inspection – beside which the Spanish Inquisition was a sympathetic guidance counsellor – the problem of prices inflated by foreign buyers would end overnight.

But TIC is not optimistic. “While the world’s leading economies move toward greater transparency, Canada seems to be dragging its feet,” says the report. “The government has taken very few concrete steps, despite making strong commitments at high-profile events including recent G8 and G20 summits.”

At a G20 summit late in 2014, the Canadian government said it would adopt 10 measures to ensure transparency of beneficial ownership. All Ottawa has actually done is to conduct a risk assessment of such a move, and that assessment was completed early last year.

The government’s only step so far into ending Canada’s dangerous liking for financial anonymity has been to propose amendments to the Canadian Business Corporations Act to eliminate bearer shares. These are unregistered securities that are owned and redeemable by whoever has them in their hands at that moment. They are an obvious godsend for money laundering, the financing of terrorism, drug trafficking, or any other trans-boundary crime that can be thought of. Most other sophisticated economies, and even several tax havens, have already outlawed bearer shares.

Ottawa does not yet seem to have grasped the broader political context of the problem of hidden and unaccountable wealth.

These dodgy tricks, such as blind trusts, shell companies and anonymous accounts in tax havens, used by the wealthy and criminal classes to hide their fortunes are a key part of the perception of growing inequality that is spurring what is known as populist politics. They are part of the cause of the anger that is putting Donald Trump in the White House, is taking Britain out of the European Union, and is feeding the rise of demagogues throughout Europe and elsewhere.

Anger at the growing disparity between the grossly rich and the rest is not as evident in Canada as it is in fellow countries of North Atlantic basin culture. At least, not yet. But unless Ottawa moves to ensure that Canada’s privileged classes play by the same rules as everyone else, Canada will inevitably be hit by the same tide of outrage.

Copyright Jonathan Manthorpe 2016

Contact, including queries about syndication/republishing: jonathan.manthorpe@gmail.com


Transparence International, Canada: http://www.transparencycanada.ca

Transparency International: http://www.transparency.org

Related stories on F&O by Jonathan Manthorpe:

Vancouver’s housing bubble inflated by China’s air pollution

Vancouver’s grossly inflated housing market, the United Nations’ climate conference in Paris and China’s catastrophic environmental degradation are all linked in a circle of cause and effect.

Vancouver: not mind-numbingly boring, but vacuously vain

The flood of vast wealth from China into Canada has not only contorted and distorted the Vancouver housing market beyond redemption, it has changed the sort of community the western Canadian metropolis is going to be for generations to come. In a bizarre piece of absence of mind and lack of attention, it has also hitched the future of Vancouver to the fate of the Chinese Communist Party. Vancouver’s low self-confidence and its destructive vanity have both played a part in these failures.



Manthorpe B&WJonathan Manthorpe is a founding columnist with Facts and Opinions and is the author of the journal’s International Affairs column. He is the author of “Forbidden Nation: A History of Taiwan,” and has been a foreign correspondent and international affairs columnist for nearly 40 years. Manthorpe’s  nomadic career began in the late 1970s as European Bureau Chief for The Toronto Star, the job that took Ernest Hemingway to Europe in the 1920s. In the mid-1980s Manthorpe became European Correspondent for Southam News. In the following years Manthorpe was sent by Southam News, the internal news agency for Canada’s largest group of metropolitan daily newspapers, to be the correspondent in Africa and then Asia. Between postings Manthorpe spent a few years based in Ottawa focusing on intelligence and military affairs, and the United Nations. Since 1998 Manthorpe has been based in Vancouver, but has travelled frequently on assignment to Asia, Europe and Latin America.


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Facts, and Opinions, that matter this week

People film with their phones and cameras during a flag-raising ceremony at the Tiananmen Square in Beijing, China June 4, 2016.   REUTERS/Damir Sagolj.

Taiwan tells China not to fear democracy. Above, people film with their phones and cameras during a flag-raising ceremony at the Tiananmen Square in Beijing, China June 4, 2016. REUTERS/Damir Sagolj.


Shelter the focus at Venice Architecture Biennale, by Joel Dullroy

The Venice Architecture Biennale is usually a showcase of prestigious architecture projects from around the world, but Germany’s entry this year has taken a different angle, focusing instead on simple shelters used to house asylum seekers.

Emily Dickinson’s garden, “native” plants, and climate change, by Janet Marinelli

A plant from the homestead of poet Emily Dickinson is challenging basic precepts of conservation practice, such as what is the definition of “native”? Are climate refugees that hitchhike north via horticulture less worthy of protection than plants that arrive on their own? Do they pose a threat to existing native species? Should native plant gardening, the domestic form of assisted migration, be used to help plants stranded in inhospitable habitat?

Taiwan tells China not to fear democracy, by J.R. Wu

On the anniversary of China’s bloody crackdown on student-led protests in and around Beijing’s Tiananmen Square, Taiwan’s new president told China that democracy is nothing to fear, and Taiwan could serve as an example to China.


Hong Kong activists split over Tiananmen Square, by Jonathan Manthorpe, International Affairs columnist

For the first time, Hong Kong’s Federation of Students, a coalition of student unions, eschewed the Victoria Park demonstrations over the anniversary of the Tiananmen Square uprising and killings. Instead, it focused on democracy and even independence in Hong Kong’s future.

Polls: The good, the bad and the ugly, by Tom Regan, Summoning Orenda column

A few suggestions about what to watch out for in political polls: how you can tell a good one from a bad one, and why you never, ever, ever bet your house on one poll only.


Christopher Park/ ProPublica

Christopher Park/ ProPublica

Gunfight in Guatemala: and insider’s tale of Latin America corruption. By Sebastian Rotella

Big or small, leftist or rightist, rich or poor, with only a few exceptions, Latin American nations struggle with a crime problem that threatens political stability and security; many are in a struggle between the rule of man and the rule of law. This is one man’s story in the large, long-running war.



This fall’s US presidential election will affect the world. Barring a cosmic event or supernatural intervention, Republican Donald Trump will be pitted against either Hillary Clinton or Bernie Sanders. A campaign milestone  —  the Democratic party primary in California — will occur Tuesday June 7. Some polls place Sanders and Clinton in a statistical tie. The latest developments include a remarkable letter released Friday by Green party contender Jill Stein urging Californians to support Bernie Sanders, unless already registered with the Green party,  to support “the agenda of economic and racial justice shared by Bernie’s and my campaigns.” Robert Reich, one of Sanders’ most vocal supporters, urged Democrats to put aside their differences no matter who wins. “I can’t criticize anyone for voting their conscience, of course. But your conscience should know that a decision not to vote for Hillary, should she become the Democratic nominee, is a de facto decision to help Donald Trump,” he wrote on his blog.

Follow the campaigns at these credible outlets: New York Times; Politico; Reuters; Bloombergthe BBC; the Guardian; the Economist.  Here are the campaign pages for Sanders, Clinton, and  Trump.  America’s two dominant parties are not the only ones in the running, though all others typically are ignored by pundits and political journalists and — in a Catch 22 — receive precious few votes. Here are the pages for the Green’s likely presidential candidate Stein, and for Gary Johnson of the Libertarian party.


This is good: Muhammad Ali, a feature and a video documentary on the New York Times about the fighter who died this week.

“Muhammad Ali was a three-time world heavyweight boxing champion who transcended sports and helped define his turbulent times. He entertained with his mouth as much as his fists, narrating a life of brash self-confidence full of religious, political and social stances.”

And THIS is surprising, and important: A criticism of neoliberalism by, of all organizations,  the International Money Fund

Neoliberalism: Oversold? Instead of delivering growth, some neoliberal policies have increased inequality, in turn jeopardizing durable expansion….

There has been a strong and widespread global trend toward neoliberalism since the 1980s, according to a composite index that measures the extent to which countries introduced competition in various spheres of economic activity to foster economic growth….

“There is much to cheer … however:

“An assessment of these specificpolicies (rather than the broad neoliberal agenda) reaches three disquieting conclusions:

•The benefits in terms of increased growth seem fairly difficult to establish when looking at a broad group of countries.­

•The costs in terms of increased inequality are prominent. Such costs epitomize the trade-off between the growth and equity effects of some aspects of the neoliberal agenda.­

•Increased inequality in turn hurts the level and sustainability of growth. Even if growth is the sole or main purpose of the neoliberal agenda, advocates of that agenda still need to pay attention to the distributional effects.­…

As Maurice Obstfeld (1998) has noted, “economic theory leaves no doubt about the potential advantages” of capital account liberalization, which is also sometimes called financial openness. It can allow the international capital market to channel world savings to their most productive uses across the globe. Developing economies with little capital can borrow to finance investment, thereby promoting their economic growth without requiring sharp increases in their own saving. But Obstfeld also pointed to the “genuine hazards” of openness to foreign financial flows and concluded that “this duality of benefits and risks is inescapable in the real world.” (my emphasis.)  Visit the IMF site to read the  analysis 


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Gunfight in Guatemala: an insider’s tale of Latin America corruption

Big or small, leftist or rightist, rich or poor, with only a few exceptions, Latin American nations struggle with a crime problem that threatens political stability and security; many are in a struggle between the rule of man and the rule of law. This is one man’s story in the large, long-running war.

Image by Christopher Park for ProPublica, © 2016

Image by Christopher Park for ProPublica, © 2016

By Sebastian Rotella, Propublica
June, 2016

Early on the morning of Oct. 31, 2012, Enrique Degenhart Asturias left his home in Guatemala City to drive to his gym for his daily workout.

Tall, bespectacled, and broad-shouldered, the 44-year-old Degenhart wore sweatpants and a T-shirt. Along with his exercise gear, he carried a .40-caliber Glock 22 pistol loaded with high-powered ammunition.

Degenhart had reason to be on guard. He had spent two years trying to clean up Guatemala’s immigration service. After taking the job of director of the notoriously corrupt agency in 2010, he had beefed up internal affairs, modernized technology, and battled criminal networks that sold fraudulent passports to African migrants, Russian fugitives, and Colombian drug traffickers. His reforms had won him a long list of powerful enemies — inside and outside the government — linked to mafias.

But despite his achievements, the new president, Otto Pérez Molina, had fired him in January, ignoring an appeal from the U.S. Embassy to keep him in his post. Pérez Molina’s aides had also taken away his armored car and bodyguards, breaking an agreement to provide security to the former immigration chief. Degenhart felt vulnerable and unsafe. In a land where roads swarm with robbers, carjackers, and hit men on wheels, even a trip to the gym was a potential ride into a kill zone.

At approximately 6:35 a.m., Degenhart’s Porsche Cayenne pulled to a stop behind two cars at an intersection. From there, the next stage in his morning route was to cross an overpass to the Pan-American Highway, which snakes through the verdant hills of Guatemala City. Suddenly, he spotted something in his rearview mirror: a green Mitsubishi Lancer. The four-door sedan approached fast. It swerved to the right past the Cayenne into the parking lot of a corner pharmacy and then swung back and stopped at a hard angle, ready to cut in front of him when traffic resumed.

The Lancer’s windows were polarized to a dark tint, like the windows of the Cayenne and many other vehicles navigating the anarchic streets of the capital. Degenhart could only see the thickset silhouette of the driver. But the aggressive maneuver had startled him. So did the fact that the left rear window lowered slightly and then slid back up quickly. His hand dropped to the Glock in the holster by his seat.

When a traffic officer signaled the stopped cars to advance, the Lancer forced its way into traffic ahead of Degenhart, turning left to precede him across the overpass. The Lancer turned left again and, instead of accelerating down the entry ramp, slowed and began flashing its hazard lights. As Degenhart followed warily toward the busy highway lanes, he saw two silhouettes in the back seat of the Lancer. One appeared to turn a baseball cap backward on his head, like a baseball catcher. Or a sniper.

Degenhart knew that gunmen in Guatemala’s underworld often wore brimmed caps to conceal their faces, reversing them when it was time to pull the trigger. Degenhart drew his gun.

In Latin American law enforcement, reformers are often outsiders: human rights activists, academics, women. Degenhart was a different breed of outsider. He was a private-sector technocrat who ventured into a predatory bureaucracy, an arena in which mafias have thrived with impunity.

Fair-haired, with the square-jawed looks of his German and Spanish ancestors, Degenhart has an intent, solemn air that is softened by his relaxed sense of humor. He was born in 1968 in Guatemala City to an engineer father and a mother who worked for the U.S. Peace Corps.

At the time, his country was embroiled in what would become a bloody civil war, sparked by a CIA-backed coup that toppled democratically elected President Jacobo Árbenz in 1954. A leftist guerrilla movement emerged, and the ensuing hostilities continued for more than three decades. Human rights inquiries by the United Nations and the Catholic Church later found Guatemala’s U.S.-backed military responsible for a campaign of deadly repression that reached genocidal levels in the 1980s.

Although Degenhart’s family was well-off, he did not have strong sympathies for the military or the guerrillas, he said during an interview with Foreign Policy conducted in the United States last year. Politically, he says, he considers himself a centrist.

“My generation grows up in the shadow of this concept of continuous war,” he explained. “I come from a family that was always very committed to the idea of social equality.… None of us got involved in politics until the return of democracy.”

Degenhart attended the prestigious American School of Guatemala and Francisco Marroquín University. In his final semester, he started a business with his brother (an Olympic swimmer) in the booming regional sector of maquiladoras, or textile-export assembly plants. Their company prospered and was later acquired by a U.S. firm.

While Degenhart’s business career progressed, in 1996 democracy returned to the country, heralded by free elections and the signing of a landmark peace accord to end the civil war, which had killed more than 200,000 people. But the long-entrenched oligarchy retained control, and profound inequality and violence persisted.

At that time, Degenhart was working as a Central American marketing manager at Bimbo, a Mexico-based food products group. During the 2000s, he changed jobs and dedicated himself to promoting Guatemala’s two biggest soccer teams. He also founded a management consulting company that helped businesses improve their information technology systems.

Degenhart was content in the private sector. But he had developed a political connection during his years in manufacturing that would prove fateful: his friendship with Alvaro Colom and Sandra Torres, fellow textile entrepreneurs who became a political power couple. In 2008, Colom took office as Guatemala’s first leftist president in decades. Like previous presidential administrations, Colom’s government was marred by scandal. But he also oversaw the passage of major justice reforms and appointed admired crime fighters and independent figures to powerful posts.

In 2010, Colom’s aides approached Degenhart with a surprising job offer: director of the immigration service. Colom offered Degenhart the role of interventor, which translates roughly as “inspector” or “comptroller,” a director for the troubled agency with special emergency powers and a direct line to the president.

There had been many interventores before Degenhart, and many did not stay long.

“They lasted six months,” a U.S. Department of Homeland Security official said. “It was hard to clean that place up. Either they got involved in the corruption or they got burned out.”

In developed and developing countries alike, border agencies hold the keys to the kingdom for illicit enterprises of all kinds. There are few posts in which low-paid functionaries wield more potential power over people’s lives and the movement of goods.

Guatemala suffered under the toxic legacy of decades of civil war, and continuing exploitation of the immigration and customs agencies

Another factor in Guatemala: the toxic legacy of decades of civil war. Military regimes had systematically exploited the immigration and customs agencies for financial gain and operational ease. Post-conflict mafias with roots in the military continued the practice.

“I couldn’t tell you exactly how long the agency had been infiltrated, but I’d think it was almost from its creation,” Degenhart said. “There are operatives encrusted in the structure.”

Guatemala’s immigration service was also a haven for malfeasance thanks to the three labor unions that represented its employees, including border guards and officials in the bureaucracy, according to Guatemalan and foreign law enforcement officials. Union bosses behaved like kingpins: feuding, staving off internal investigations, developing influential political allies, and enriching themselves with illegal activities, according to Guatemalan, U.S., and Mexican law enforcement officials.

The U.S. Department of Homeland Security took special interest in the affairs of the immigration agency because of concerns about Guatemala’s dual role as an outpost for smuggling and a source of illegal immigration. As in other Latin American nations, DHS worked closely with the government to push reforms and created a carefully screened unit of Guatemalan investigators to try to fill the vacuum in the fight against smuggling rings.

The union leaders “made so much money [that] they controlled judges and lawyers,” a veteran investigator for a U.S. law enforcement agency said. “They infiltrated the judicial system. It was almost impossible to make a case against them.”

Despite the many challenges of the interventor job, Degenhart accepted the position in February 2010. The president wanted him to overhaul the agency’s management and services and upgrade its technology. Degenhart felt comfortable with those tasks. When it came to crime fighting, however, he was a novice.

“Law enforcement was not a field in which I had ever worked,” he said. “I had no idea how complex it was going to be.”

Degenhart reported to then-Interior Minister Carlos Menocal. Like Degenhart, he was an outsider. A former journalist, Menocal had come to be regarded by Guatemalans and the diplomatic community as one of Colom’s most effective and honest cabinet ministers. In an interview, Menocal said he worked well with the new immigration chief.

“Degenhart was the beneficiary of a fortunate set of alliances with President Colom, with … myself, and international cooperation,” Menocal said. “It was a strong mix that helped make him successful. Enrique works in a direct frontal manner against criminality.”

Degenhart’s appointment was just one of the signs of a reform campaign underway in Guatemala. In 2007, the government had invited a team of U.N. prosecutors to set up shop in the capital and work with local law enforcement to build cases against mafias that had embedded themselves in the state during the military dictatorship — a move unprecedented in Latin America.

Degenhart’s path, converging with the U.N. crackdown, gives a rare inside look at the methods and perils of fighting corruption in Latin America.

No one knew it then, but Degenhart’s path would soon converge with the U.N. crackdown. His experience gives a rare inside look at the methods and perils of fighting corruption in Latin America.

Degenhart’s first step in his new job was to commission a study of the immigration service. Drawing on his business experience, he wanted a corporate-style diagnosis of the agency’s finances, services, technology, and human resources. The roughly 500 employees staffed border crossings and handled visas, passports, and other procedures. Many had paramilitary backgrounds. Degenhart learned the workforce was underpaid, neglected, and apathetic; the agency even forced employees to purchase their own uniforms.

They also worked in often primitive conditions. The agency’s ancient computer system looked to Degenhart as if it could have been disabled with a kick. At remote jungle outposts on the border with Mexico, he met inspectors who slept on cardboard bedding in hut-like quarters.

“We found a border station that was a little laminated shed with three people sitting at desks,” said Javier Rivera, who served as the deputy director of the immigration service. “Then you looked across the border, and there was the Mexican station with a helipad and everything. Our station was isolated and at the end of a bad dirt road. We had to install antennas for satellite phones [and] computers.”

At that border post and elsewhere, Degenhart’s team upgraded technology and databases that didn’t even allow inspectors to identify border crossers with warrants or security alerts, Rivera said.

After just a few days on the job, Degenhart collided with the criminal underworld. In February 2010, Guatemala hosted a world convention of coffee growers. Two dozen supposed delegates from China arrived in Guatemala City and then promptly disappeared. Some eventually turned up in Mexico, where authorities arrested them. The Chinese were actually illegal immigrants bound for the United States. They had paid smugglers $50,000 apiece to help them pose as representatives of China’s coffee industry. With the help of accomplices inside the Guatemalan government, they procured fraudulent visas using an electronic system created for the convention.

Degenhart promptly shut down that visa system, according to U.S., Mexican and Guatemalan officials who worked with him on the case. His agency turned away a second group of Chinese impostors who arrived at the airport sporting tennis shoes, jeans, T-shirts, and “little backpacks in which you couldn’t fit a suit and tie for a convention,” he said.

Teaming up with U.S. and Mexican law enforcement, Degenhart launched an inquiry into the smuggling scheme. His response was a pleasant surprise to his foreign counterparts. Mexican and U.S. law enforcement officials say they were unaccustomed to such vigor in the immigration service.

In addition to cracking down on smuggling, Degenhart set up a system that assigned a tracking number to people seeking passports, visas, or other services from the immigration agency. That simple measure drastically reduced the “margin of corruption” by creating a documented record of each case, as well as a timeline of the services provided, according to a Mexican law enforcement official who worked with Degenhart and U.S. counterparts.

“It becomes a lot harder to cut corners, sell favors,” the Mexican official said. “I told him: ‘You realize what you’ve done, don’t you?’ He looked at me, kind of surprised, and said, ‘Well, I come from the private sector. Everyone should get a number, like a bank, right?’”

Around the same time, Degenhart resolved a longtime contract dispute with the unions, agreeing effectively to double the salaries of immigration officers. But he warned that moneymaking on the side would not be tolerated, according to Rivera, his deputy director.

“Tell your people not to get into any more nonsense,” Degenhart told the labor bosses during a meeting, according to Rivera. “Now there’s going to be a decent, honest wage.”

Tensions with the unions escalated, however, when Degenhart unveiled a plan to rotate 64 officers to new assignments. Corruption depended largely on control of territory through key positions at land, air, and sea borders and in the bureaucracy. Union officials and their partners in crime had consolidated turf by entrenching operatives and collecting bribes from criminal rackets and users of the immigration system. The goal of the rotation plan was to disrupt those networks built on graft.

Border-crossers on the Suchiate River at Guatemala’s northern border with Mexico. Enrique Degenhart worked to combat mafias that used Guatemala as a hub for smuggling U.S.-bound migrants from as far as India and China. (Yuri Cortez/AFP/Getty Images)
Two of the three unions accepted his plan, albeit grudgingly. But Juan Pacheco Coc, the leader of the smallest union, resisted. He stormed into the director’s office and threatened him, according to Degenhart.

“He objected because he had fewer operatives [than the other unions] and they were in posts that were probably strategic for him and were going to be removed,” Degenhart recalled. “He said, ‘If the rotations are done, you are going to have serious problems. You are going to have serious legal problems, political problems, and, in case you don’t understand, even personal problems.’”

Pacheco didn’t have a reputation for making empty threats. He had accrued clout and wealth over decades of working the system, according to Guatemalan, U.S., and Mexican law enforcement officials. He had formed his breakaway union after clashing with other bosses and survived investigations into money laundering, passport peddling, and the smuggling of drugs, immigrants, and gasoline, according to Guatemalan and foreign officials, as well as documents and press reports.

Pacheco tried to block Degenhart’s anti-corruption rotation plan in court. Meanwhile, anonymous callers threatened to kill Degenhart. Someone slashed his tires. In response, he began driving an armored vehicle and increased his government-assigned security detail from six officers to 10. He also took weekly shooting lessons from an instructor on a tactical range used by the presidential protective service.

Before he began that training, Degenhart possessed only what he called “typical firearms knowledge” for a Guatemalan.

“You keep a shotgun in your house in case a robber breaks in,” he said. “But it was inherent to my new job to learn more. The danger was greater, and I also wanted to learn more about this world.”

Still, there were those who accused Degenhart of exaggerating the threat and of mismanagement. In May 2010, the newspaper Siglo 21 published a report titled “Excesos del interventor,” or “The Inspector’s Excesses.” It questioned Degenhart’s security spending and quoted a former interior minister who accused him of “lack of financial planning.”

Degenhart disputes the criticism. The security measures were warranted, he said in the interview with FP and ProPublica. The newspaper article, he said, was a political assault linked to the escalating labor conflict.

Pacheco, meanwhile, was making the rounds of influential figures and agencies, boasting that he had proof of crimes committed by his union rivals.

“It was a fight among mafias,” said the veteran U.S. law enforcement investigator. “Pacheco was dirty, too.”

On July 30, 2010, after weeks of trying to block the rotation of immigration officials behind the scenes, Pacheco publicly accused his rival labor bosses of engaging in corrupt activities such as selling fraudulent passports. The next day, authorities found his corpse in his home. There was no sign of forced entry. He had been bound, gagged, tortured, beaten, and stabbed to death. The case remains unsolved.

Four days after Pacheco’s murder, Roxana Baldetti, a powerful leader of the legislative opposition, summoned Degenhart and the interior minister to legislative hearings. A former Miss Guatemala contestant, she had a flashy, combative style. She was also gearing up to run for vice president on a ticket with Pérez Molina, a former general, and had taken a special interest in border issues.

“When I [sat] down with my division chiefs in the hearing room, she said, ‘Only you can stay here; the others have to leave,’” Degenhart recalled. “At that moment, I realized that it [was] a political lynching.”

Baldetti claimed during those public legislative hearings and comments to the press that Pacheco had given her information about a smuggling ring and that Degenhart had allowed it to flourish within the immigration agency.

But according to former Interior Minister Menocal and others, the reality was different. They assert that Baldetti presented herself as a crusader while concealing her connections to border mafias. Subsequent investigations of Baldetti have lent credence to those allegations.

Degenhart remained in his post. But it was clear he had acquired powerful enemies.

“They never found any dirt on him, and they looked for everything they could,” the Mexican law enforcement official said. “The fact is, in that job, either you devote yourself to stealing money or you do your work. He did his work. He didn’t need the money. His family is wealthy. But we were worried about him.”

Degenhart’s battles were part of a larger and longer war.

Big or small, leftist or rightist, rich or poor, Latin American nations struggle with a crime problem that threatens political stability and security. There are exceptions, such as Chile, and nations such as Colombia have made great progress. Latin American democracies are robust when it comes to freedom of elections and the press. Yet many struggle to consolidate the rule of law.

In Central America today, lawlessness has hit crisis levels

In Central America today, lawlessness has hit crisis levels. The repercussions reach into the United States, driving a surge of illegal immigration from Honduras, El Salvador, and Guatemala, a region known as the “Northern Triangle” of Central America. Honduras and El Salvador have among the highest homicide rates in the world.

Although the murder rate in Guatemala is lower than in its two neighbors, the country has long suffered from the criminality that afflicts Latin America like a virulent disease. Street gangs kill, extort and terrorize drivers and riders on public transport. Cops scare citizens almost as much as robbers. Cartels use the nation as a base to ship drugs and launder money. Hundreds of murders committed by assassins on wheels led to a temporary ban on motorcycle passengers. Skullduggery is frequent; punishment is rare; and new scandals sometimes feature the protagonists of past ones.

Yet, by the time Degenhart took office in 2010, Guatemala had also experienced incremental progress. The chief catalyst of these gains: an unprecedented U.N.-backed justice reform experiment called the International Commission Against Impunity in Guatemala. Known by its Spanish acronym CICIG, the multinational team of prosecutors, investigators, and analysts was created in 2007 to fight organized crime in government and modernize law enforcement.

Then attorney general Claudia Paz y Paz at a press conference in 2012. (AP Photo/Moises Castillo)
Another force for reform was Claudia Paz y Paz, a former human rights lawyer Colom appointed as his attorney general in 2010. Paz took on drug cartels, forged bonds with the U.N. prosecutors and the U.S. Drug Enforcement Administration, and helped win the historic conviction of former military ruler Efraín Ríos Montt for genocide in the civil war.

Degenhart had a lower profile than the attorney general. But like Paz, he saw the value in cultivating foreign allies, including U.S. Embassy officials. He expanded his internal affairs team and created a much-needed intelligence unit at the immigration agency to gather information on the smuggling industry, vetting officials at both units with the embassy’s help.

Degenhart also focused on what, at the time, was a U.S. priority — illegal immigration from India via Guatemala. Security cameras at the Guatemala City airport caught paid-off immigration officials in uniform directing passengers from India to inspection lines controlled by smuggling rings, according to U.S. and Guatemalan investigators who viewed the footage. Indians with suspiciously new Guatemalan passports showed up at the Mexican embassy in Guatemala City to request visas, according to the Mexican law enforcement official. Suspects in a thriving Guatemala-based network that smuggled Indians were caught in New Delhi and at the U.S.-Mexico border, where arrests of Indian illegal immigrants soared.

Working his contacts in the government and diplomatic community, Degenhart pushed through a visa requirement for Indian travelers that slashed the influx and cost the mafias a lot of money, according to U.S. and Latin American officials.

“He was working directly with us to combat corruption,” the DHS official said. “He had a great working relationship with the U.S. Embassy. For some people, that’s like treason.”

Guatemalan passports were a prized illicit commodity. In October 2011, airport immigration officials in Guatemala City implementing toughened screening policies detained two Colombians leaving for Amsterdam. Investigators linked them to a drug-related murder of four people in the capital days earlier. The duo carried Guatemalan passports, identification cards, and birth certificates — real documents, fake identities.

The arrest of the suspected Colombian hit men was one in a series of cases of international criminals carrying fraudulent Guatemalan documents. The trend exacerbated Degenhart’s concerns about the privatized system in which a contracted company called La Luz prepared and printed Guatemalan passports for the immigration service. He led an internal inquiry of the passport system and presented the results to the U.N. prosecutor, the attorney general, and the interior minister.

Because of lax screening, Guatemalan consulates in the United States had mistakenly issued second passports to Guatemalans using false identities, Degenhart found. Moreover, the inquiry revealed that La Luz had an unauthorized connection to an external computer at an immigration consulting firm, a worrisome vulnerability that could potentially have allowed outsiders access to sensitive records, including the biographical and biometrical information of Guatemalan passports, according to Degenhart, Menocal, Paz, and other officials.

The CICIG got involved. In late October of 2011, Guatemalan investigators backed by the U.N. prosecutor’s office searched the passport offices run by La Luz, opening an in-depth investigation into the systemic passport problems.

As that case unfolded, Pérez Molina and Baldetti, his running mate, won Guatemala’s presidential election. During the transition, U.S. diplomats met with representatives of the incoming administration and sent a discreet message: Attorney General Paz and Degenhart were forces for progress. The embassy hoped the new government would retain them. The conversations were described to FP and ProPublica by U.S. and Guatemalan officials familiar with the matter.

When Pérez Molina came to power, Paz remained in her post. But Degenhart was dismissed. And in a decision that stunned him, officials in the new government told him he would lose his armored vehicle and bodyguards, breaking an established tradition to provide protective details to former law enforcement chiefs. Even worse, the presidential transition teams had signed an accord specifically adding the immigration director to the list of ex-officials who would keep their security for five years, according to a copy of that accord obtained by FP.

Degenhart’s allies, such as former Interior Minister Menocal, blamed Vice President Baldetti, who had quickly asserted control over the immigration and customs agencies and who had made no secret of her hostility toward Degenhart.

“I felt totally vulnerable and exposed,” Degenhart said. “They wanted to leave me out in the cold.”

In February 2012, Degenhart returned to his business ventures. A few months later, the U.S. Embassy offered him a job as a part-time consultant on Central American immigration issues, and he accepted. His duties included monitoring the very reforms he had initiated and collaborating with officials he knew at Immigration and Customs Enforcement and other U.S. agencies.

In October 2012, the bosses of two of the immigration employee unions asked to meet with Degenhart to discuss technical aspects of the comprehensive labor accord he had brokered with them. He had lunch with them at Pollo Campero, a popular chicken restaurant chain in Guatemala City. Those attending the lunch were Arnoldo de Jesús Miranda Fuentes, the secretary-general of a union known as the SITRAMMIG; Miranda’s deputy; and Rodolfo Quiñones, the chief of the largest union, according to Degenhart. (Union officials did not respond to requests for comment about the meeting.)

The conversation soon grew tense, Degenhart recalled. Old conflicts flared as Miranda complained he’d been sidelined during the contract talks, according to Degenhart. No explicit threats were made, but he sensed hostility.

“I left that meeting with the idea that these people were really dangerous,” he said.

Degenhart feared a trap

On Oct. 31, Degenhart left his home in an upscale residential area a few minutes after 6 a.m. He was headed for his gym, which was located in a small shopping center next to the Pan-American Highway.

It was a nice day. His family had planned a Halloween party with friends that evening. He was looking forward to the festivities — and his daily exercise session.

“That was the only part of my day that didn’t change,” he said. “Otherwise, I changed up my routine for security.”

Security cameras captured his blue Cayenne crossing through the lot of a corner pharmacy and stopping behind two southbound vehicles waiting to proceed to the Pan-American Highway entry ramp.

In the video, a Mitsubishi Lancer emerges from a highway exit ramp behind Degenhart, moving at a healthy clip. The Lancer catches up to Degenhart’s Cayenne, maneuvers around it into the parking lot driveway, and swings into position at a near-right angle to his front bumper. He says he immediately sensed trouble.

“All my alarms were going off,” he said. “The way they positioned themselves — that is a shooting angle.”

The vehicles waited at the intersection for about 40 seconds. When traffic resumed, the Lancer pulled in front of the Cayenne, and the two vehicles turned left and then left again. The Lancer activated its hazard lights and slowed, easing to the left as if inviting Degenhart to pass on the right.

Degenhart kept his distance. Fearing a trap, he drew his gun as the two vehicles descended the entry ramp, according to his account. His heart was pounding. His eyes searched for signs of aggression.

As the vehicles merged into highway traffic, the right rear passenger window of the Lancer lowered. A hand emerged, holding a Glock 19.

The volley of bullets shredded Degenhart’s side window, hitting him twice in the chest, once in the chin, four times in the left arm, and once each in the right bicep and wrist. He shot back wildly, getting off roughly 16 rounds, first from his side window and then through the windshield as the Lancer pulled away.

Degenhart remembers the thunder of the gunshots, the crunch of bullets breaking glass, the gunpowder spraying like sand into his eyes, nose, mouth, and hair. He’d turned in profile — as he’d been trained — making his body into a smaller target and using his left arm to shield himself. Blood spurted everywhere.

“In my mind, I went into a dark room. I said: ‘I died.’ I said to God: ‘Please, I have to go back to protect my wife and children,’” he recalled. “I went to the other side. And I came back.”

Degenhart’s Porsche Cayenne. Shot nine times, he managed to return fire and fend off his assailants. (Courtesy of Enrique Degenhart)
A different camera on the shoulder of the busy highway captured blurry images of the gunfight from a distance. The footage shows the two vehicles rounding a curve into view, the Lancer on the left and ahead of the Cayenne. Frightened drivers stop behind them. The Cayenne stops. Glass and smoke spray up as Degenhart’s final shots pierce his own windshield. The Lancer speeds away past the camera; what appears to be a man’s arm is visible in the open rear window.

Degenhart tried to call for help, but his hand was too bloody for the touch screen on his iPhone. He managed to use a BlackBerry to call his wife, telling her he had been badly wounded in a shooting and was going to the hospital. His left arm hung uselessly at his side. He started driving one-handed, peering through the bullet-riddled windshield, the Cayenne weaving among lanes.

Fifteen minutes later, he pulled into the entrance of a medical clinic.

“I get out, I grab my arm, and go running into the building asking for help. I tell the nurse, ‘Please stabilize me because I am bleeding to death,’” he recalled. He collapsed into a wheelchair and passed out.

An ambulance transferred him to a hospital, which soon filled with visitors: former Interior Minister Menocal, former President Colom, U.S. and Mexican diplomats. U.S. law enforcement agents responded quickly. They regarded the attack on a close ally as a potential threat to embassy personnel, the DHS official said.

Degenhart would survive, albeit with a nearly pulverized left elbow.

“God saved my life,” he said. “I could have very easily died that day because of the number of impacts and where they hit me.”

He suffered through three nights of pain, fear, and hallucinations in the hospital.

“One night, I woke up at three in the morning in the hospital bed, and I said to the security officer: ‘Give me your gun, give me your gun. The assassins are coming to kill me again, and I’m going to be ready for them.’”

There have been numerous car-to-car ambushes of law enforcement chiefs and other government officials in Latin America. They rarely have a happy ending. What saved Degenhart?

“Alertness,” he said. “Always being vigilant, looking around, monitoring your surroundings. And also the repetition of having trained with the firearm. Muscle memory.”

The response from the government was minimal. Senior officials did not visit the hospital or express much concern, according to Guatemalan and foreign officials.

“When you leave government, you feel exposed,” Menocal said. “That’s why I made a statement expressing solidarity with him. But there was no response from the government.”

Two weeks after the shooting, still groggy from medication, Degenhart met with Guatemalan investigators to give a statement and turn over his gun as evidence in the case. Two days later, U.S. officials in armored vehicles took him to the airport, and he boarded a plane for the United States.

Civilians in the Guatemalan attorney general’s office, with quiet assistance from the U.S. Embassy, conducted the investigation into the attack on Degenhart. Their work was diligent but limited in scope, according to Guatemalan and U.S. law enforcement officials involved in the case.

The investigators viewed hours of footage obtained from roadside cameras located at the intersection and the highway where the incident took place. The Lancer’s license plates were not visible in the videos. Using a list of license plates on cars parked at the gym obtained from a security guard, investigators identified a Lancer whose occupants went into the shopping center very early that morning and, the guard said, drove off in a hurry just before the shooting. Investigators believed the gunmen had initially planned to ambush Degenhart at the gym and then decided to intercept him en route, perhaps using a spotter with a telephone to track his movements.

About two months after the shooting, the Guatemalan and U.S. investigators tracked down the car’s owner and another suspect in a semirural zone known for violence, hired gunslingers, and kidnapping gangs. One of the suspects admitted he had driven past the ambush scene on the day of the shooting. Both men had alibis for the crucial hours, however, as well as clean records. The car showed no signs of bullet impacts. The case, in other words, was weak.

Strangely, though, the Guatemalan prosecutors neglected a seemingly obvious line of inquiry: Degenhart’s conflicts with the unions and the passport company over the fraudulent passport racket.

In an interview, auxiliary prosecutor Maritza Sagastume Bojórquez said she refrained from pursuing that angle after learning the CICIG was investigating the passport fraud ring already. The U.N. anti-corruption prosecutors, however, didn’t examine the shooting, according to CICIG and Guatemalan officials. Sagastume said her requests about the U.N. probe’s possible relevance to her case went unanswered. The investigation by the attorney general’s office into the attack on Degenhart hit a dead end.

Sagastume decided to close the case in September 2013. She said her heavy workload played a role in making that decision. Moreover, she wasn’t convinced the shooting was premeditated.

“I had the impression that he and the other car got into a dispute,” she said during the interview last year.

Degenhart disagrees. He believes it was an ambush timed to send a macabre gangster-style message: Halloween is the eve of the Day of the Dead, the holiday during which Latin Americans honor the departed. He suspects that the mafias he clashed with during his tenure, such as those connected to the passport racket, retaliated against him. But he finds it hard to believe his assailants did not have orders or approval from his enemies in power. At minimum, he blames the Pérez Molina administration for leaving him vulnerable to an attack.

“It was convenient for them to remove my security and leave a door open so anyone could eventually attack me and kill me,” he said.

Guatemalan and U.S. law enforcement officials interviewed for this story have similar suspicions. Degenhart’s former boss, Menocal, has no doubt he was targeted. Menocal said in the interview last year that he believes CICIG should examine the shooting.

“This attack is related to achievements when he was director of the immigration service,” the former interior minister said. “He is a victim of the impunity that still exists in Guatemala.”

By early 2014, Degenhart had immersed himself in a new life in the United States. A surgeon had repaired his left arm. His psychological wounds had healed. He watched from afar as his country underwent increasingly rapid change.

In January 2014, Attorney General Paz and the current U.N. prosecutor, Iván Velásquez Gómez, announced the findings of a major investigation into the immigration service. Police arrested three dozen people, most of them employees of the immigration agency, on charges of running a ring that sold passports and smuggling services to Indians, Chinese, Pakistanis, Russians, and more. The alleged ringleader was Miranda — the same union chief who had argued with Degenhart at lunch only days before the ambush.

The investigation had also resulted in the arrest four months earlier of a former manager of La Luz, the passport firm with which Degenhart had clashed, according to the CICIG. Another employee of that company was arrested and convicted, according to the CICIG.

Soon, the U.N. prosecutor’s office gained momentum on another border-related case. It was known as La Línea, a massive investigation of the scandal-plagued customs agency. Tens of thousands of phone intercepts mapped out a vast high-level scheme to avoid import duties by paying bribes. In April 2015, prosecutors indicted 20 suspects, including a top aide to Vice President Baldetti. Baldetti resigned.

When investigators searched her home last August, Baldetti took refuge in a hospital. A team of police led by Juan Francisco Sandoval, a Guatemalan anti-corruption prosecutor, arrived at the hospital. Baldetti mistook the bespectacled 33-year-old for a doctor.

“I said, ‘No, I’m not a doctor. I’m a prosecutor,’” Sandoval recalled in an interview. “And the police officer read the arrest warrant.”

Outside the hospital, citizens set off firecrackers to celebrate the arrest of the former vice president.

In September, U.N. and Guatemalan prosecutors set their sights even higher: They arrested the president. Investigators say La Línea was part of a giant money machine built by Baldetti and Pérez Molina. The duo’s fall was hastened by months of unprecedented protest marches by ordinary Guatemalans who were fed up with the regime.

“The image of President Pérez Molina, a former general, in court submitting to the power of a judge exhibits dramatic change,” said former Attorney General Paz in an interview.

The former president and vice president have pleaded not guilty and are awaiting trial.

Latin American and U.S. leaders, such as Vice President Joe Biden, have hailed the work of CICIG and are pushing for the Guatemalan justice reform model to be reproduced elsewhere. Just last fall, the Organization of American States announced the creation of an anti-impunity commission in Honduras.

Degenhart is proud to have played a role in Guatemala’s evolution. His experiences had convinced him true change was possible.

“There is a perception that all the employees in the immigration service are corrupt,” he said. “I think it’s a minority of employees who are involved in acts of corruption. Most of them don’t want to be involved.”

While in the United States, Degenhart continued to work as a consultant for the U.S. government on immigration issues in Central America. And he gave tactical presentations about the gunfight in Guatemala to U.S. federal trainees.

The reforms in Guatemala brought down many of his enemies. Still, his case remains unsolved; no one has been charged.

In October, newcomer Jimmy Morales won the presidency on a wave of voter disgust with traditional politics. Although President Morales ran on an anti-corruption platform and promised to support the U.N. prosecutor, critics worry that his political movement includes military veterans from the country’s dark past.

Degenhart shares those concerns. But he said the new government has also taken encouraging steps, appointing reform-minded law enforcement officials whom he respects. The danger appears to be receding, he said.

In May, for the first time since his hurried departure in 2012, he returned home to Guatemala. He will be working there as a regional consultant on immigration issues for the U.S. government.

“I want to contribute to positive change in my country,” he said in a recent phone conversation.

Meanwhile, he gives thanks every day. For him, Oct. 31 is no longer just Halloween.

“It’s my second birthday,” he said.

Creative Commons

Editor’s note: This report was co-published by ProPublica and Foreign Policy. Read the original story here. This report is based on a series of interviews conducted in Guatemala and the United States with officials and experts from Guatemala, the United States, and Mexico, as well as a review of law enforcement files and other government documents. Foreign Policy and ProPublica agreed to grant anonymity to some law enforcement officials because of concerns for their safety or because they were not authorized to speak publicly.
Sebastian Rotella is a senior reporter at ProPublica. An award-winning foreign correspondent and investigative reporter, Sebastian's coverage includes terrorism, international security and immigration.Sebastian Rotella is a senior reporter at ProPublica. An award-winning foreign correspondent and investigative reporter, his coverage includes terrorism, international security and immigration.







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Explainer: tumult in China’s casino stock market

By Michele Geraci, University of Nottingham 
July, 2015

Renminbi_banknotesThe Chinese stock markets have experienced significant turmoil in recent weeks, with the Shanghai Composite Index – the country’s major reference – falling by 32% since June 12. But this fall was preceded by an equally sharp rise of 150% over the previous nine months. In the 20 years since I have been working in finance, I’ve never seen anything like this. So what is going on with the Chinese stock market?

There are several reasons for this unusual behaviour: firstly, when I teach stock market investment to my Chinese students, I always remind them that the Shanghai stock exchange should be thought of more as a casino, rather than as a proper stock market. In normal stock markets, share prices are – or, at least, should be – linked to the economic performance of the underlying companies. Not so in China, where the popularity of the stock market directly correlated with the fall in casino popularity.

In China, given the low credibility of the financial statements published by listed companies, investors need to rely on other tools to predict share price performance. These tools include a heavy reliance on technical analysis and charts – a method that tends to predict future share price based purely on the company’s past performance, with no regards to its fundamentals. Even the name of the company is often neglected; all that matters is the historic price performance.

While this technique is also used in Western markets, my experience in China is that it is the predominant method for investment. Hence the disconnect between a share’s price movements and economic fundamentals.

There has been, however, a strong correlation between the stock market’s performance and the revenues of the casinos in Macau. While gambling revenues were growing at a fast pace in Macau, people largely ignored the stock market – whose performance was, largely, uninteresting for a number of years. But since China’s president, Xi Jinping, launched a campaign against corruption, gambling activity has started to decline. This was when the stock market started to move up. Coincidence?

The other reason why the stock market experienced a sharp increase between September 2014 and June 2015 relates to the Chinese real estate market. In recent years, investment in real estate has been the only way for ordinary citizens to get returns higher than the paltry 3% offered by bank deposits (yes, 3% is paltry in an economy that grows at more than 10% a year in nominal terms). But high capital requirements and growing regulations on the purchase of real estate has meant that benefiting from this growing market has been increasingly difficult for ordinary citizens.

Commercial banks therefore – in an effort to mimic real-estate returns – started to offer so-called “wealth management products”, which are basically funds that invest in the real estate market. These funds were then repackaged and resold in the retail market. Chinese individuals would take their savings out of current accounts and placed them into these wealth management products and achieve returns similar to those available to buyers of real estate.

This was the modus operandi until the beginning of 2014, at which point the economy and the real estate markets started to show signs of weakness. The once-easy money coming from the property market started to disappear and people with wealth management products started to get into financial trouble and some of them even defaulted on their payments (the government bailed them out, so no individual was at a loss).

From November 2014 the Chinese central bank, worried about the slowing economy, decided to institute an aggressive monetary policy to rapidly lower interest rates with the aim of stimulating the economy, which also caused current account rates to decline. This created a perverse scenario where individuals who were already seeking returns higher than those offered by current accounts were then denied the opportunity to get them through real estate because of the falling market. As a result, deposit rates were cut further and the return on current accounts became even more dissatisfying. Commercial banks found themselves in a quandary.

With the casino route closed and real estate off the table, what was left? The Shanghai and Shenzhen stock markets: the two main stock markets that had remained dormant for years.

Banks then turned the old real estate wealth management products into investment vehicles to purchase shares directly on the stock markets. A large portion of customer deposits were then directly invested in the stock market, which then surged on the back of that demand.

Meanwhile, however, nothing happened to the earnings forecasts of the underlying companies. In fact, if anything, they should have been revised down because of the deteriorating macroeconomic condition of the Chinese domestic economy. But of course, as we said before, no one really looks at earnings and price ratios.

Due to the desire to maximise returns, many individuals then used leverage so that the inflow of money in the stock market was even higher. For example, if someone wishes to purchase shares for a total value of 100RMB, but only has available cash in his deposit account of, say, 60RMB, he could borrow the remaining 40RMB from the brokerage house. By doing this, the original source of 60RMB was turned into an upward push of the stock price equivalent to the full 100RMB. This drove strong share price growth between September 2014 and June 12 2015.

What happened on June 12 2015? Nothing. Just some smarter investors (generally large institutional investors, which represent 20% of all market volumes) started to sell and the rest of the market followed suit. Fear got hold of small investors (who represent 80% of the market) and selling accelerated, with margin calls making those selling do so even faster, and here we are today – a 32% drop and counting since the peak of mid-June.

In the past few days, the Chinese government has adopted a number of measures to try to mitigate this crash. The market finally reacted positively to a relaxation of restrictions on margin requirements. But this measure simply transfers the risks from investors to brokerage houses – it does not change the fact that the market has increased by 70% over the last year. The bubble, if it is a bubble, still has a long way to go.

Creative CommonsThe Conversation

Michele Geraci is Head of China Economic Policy Programme, Assistant Professor in Finance at University of Nottingham. This article was originally published on The Conversation. Read the original article.

Related on F&O: International Affairs analysis by Jonathan Manthorpe (Day pass or subscription required):

Money flight impoverishes the poorest countries

It’s not just China’s “Red Nobility” and Russian oligarchs who are robbing their countries by illicitly exporting their wealth to compliant and complicit countries like Canada. There is an epidemic of money flight from developing countries, according to a new report from the Washington-based anti-money laundering organization Global Financial Integrity.

Vancouver: not mind-numbingly boring, but vacuously vain 

The flood of vast wealth from China into Canada has not only contorted and distorted the Vancouver housing market beyond redemption, it has changed the sort of community the western Canadian metropolis is going to be for generations to come. In a bizarre piece of absence of mind and lack of attention, it has also hitched the future of Vancouver to the fate of the Chinese Communist Party. Vancouver’s low self-confidence and its destructive vanity have both played a part in these failures.

Labour unrest surges as China’s economy slows

As China’s economy slows to a crawl, the Communist Party is facing one of its worst nightmares: a militant labour movement. The Hong Kong-based China Labour Bulletin, which collects data on strikes and lockouts in China as well as promoting workers’ rights, says there has been a dramatic upturn in labour unrest across the country. As the country’s economy slowed to its lowest growth level since 1990, strikes and protests in the last three months of 2014 were three times those of the same period the year before. “The dramatic upturn can be partially explained by the increased use of cheap smartphones and social media as tools by workers to get news of their protest action to a wider audience,” says the latest report by the group. “But at the same time there is clearly an increase in labour activism in response primarily to the economic slowdown in China over the last year or so.” 

China’s Xi launches his own Cultural Revolution. August 13, 2014 

Xi Jinping is not content with being the most powerful leader of China since Mao Zedong. He also wants to play God. Xi’s ruling Communist Party announced last week it will write its own version of “Chinese Christian theology” to ensure adherents abide by the country’s party-imposed political culture. The attempt to take control of religion in China is part of a broad campaign by Xi to establish “cultural security.” The aim is to outlaw and control all foreign influences that might undermine the communists’ one-party rule.


If you value journalism, please help sustain us with a hat tip donation (every two bits helps) or by buying a subscriptionFacts and Opinions is an online journal of select and first-rate reporting and analysis, in words and images: a boutique for slow journalism, without borders. Independent, non-partisan and employee-owned, F&O performs journalism for citizens, funded entirely by readers. We do not carry advertising or solicit donations from foundations or causes. Subscribe by email to our free FRONTLINES, a blog announcing new works, and the odd small tale. Look for evidence-based reporting in Reports; commentary, analysis and creative non-fiction in OPINION-FEATURES; and image galleries in PHOTO-ESSAYS. Some of our original works are behind a paywall, available with a $1 site day pass, or with a subscription from $2.95/month – $19.95/year


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Nothing is rotten in Denmark, but China lives in a corrupt time: report

By Deborah Jones
December 3, 2014 

China, Turkey and Angola became increasingly corrupt, more quickly, than most other countries in the world in the past year despite strong economic growth, Transparency International reported Wednesday.

“Poorly equipped schools, counterfeit medicine and elections decided by money are just some of the consequences of public sector corruption,” said the report. “Bribes and backroom deals don’t just steal resources from the most vulnerable – they undermine justice and economic development, and destroy public trust in government and leaders.” 

“The biggest falls were in Turkey (-5), Angola, China, Malawi and Rwanda (all -4). The biggest improvers were Côte d´Ivoire, Egypt, Saint Vincent and the Grenadines (+5), Afghanistan, Jordan, Mali and Swaziland (+4).”

More than two thirds of the 175 countries in the 2014 Corruption Perceptions Index score below 50, on a scale from 0 (perceived to be highly corrupt) to 100 (perceived to be very clean). Denmark ranked top with a score of 92; North Korea and Somalia scored eight.

BRIC countries were cited as a particular concern:

China’s score fell to 36 in 2014 from 40 in 2013, despite the fact the Chinese government launched an anti-corruption campaign targeting corrupt public officials. The government has recognized the need to follow officials who hide ill-gotten gains overseas. This January, leaked documents revealed 22,000 offshore clients from China and Hong Kong, including many of the country’s leaders.

The score matches a poor performance by Chinese companies in Transparency International’s recent report on corporate disclosure practices where all eight Chinese companies scored less than three out of ten.

Corruption and money laundering are also problems for the other BRIC countries. This year has seen questions raised related to a major oil company using secret companies to bribe politicians in Brazil (which scores 43), questions about Indians (38) using bank accounts in Mauritius (54) and Russians (27) doing the same in Cyprus (63).

The report said countries that are not rated as highly corrupt must do more to “stop encouraging it elsewhere by doing more to prevent money laundering and to stop secret companies from masking corruption.” For example,  a blog post accompanying the report said corrupt Chinese are easily able to launder their proceeds in other countries, and the “United States, Canada and Australia are the most popular destinations for corruption suspects.”

The report lauded Denmark, Ukraine and Britain for pledging to create public registers, including beneficial ownership information for all companies incorporated in the countries, to “make it harder for the corrupt to hide behind companies registered in another person’s name.”

The 10 least corrupt countries, said the organization, are:

  • Denmark
  • New Zealand
  • Finland
  • Sweden
  • Norway
  • Switzerland
  • Singapore
  • Netherlands
  • Luxembourg
  • Canada

It named the most corrupt as:

  • Eritrea
  • Libya
  • Uzbekistan
  • Turkmenistan
  • Iraq
  • South Sudan
  • Afghanistan
  • Sudan
  • North Korea
  • Somalia

Transparency International said it assesses where countries lie on its corruption scale using surveys, independent expert analysis and data provided by a range of sources. It said these have included the African Development Bank, Asian Development Bank, Bertelsmann Foundation, Economist Intelligence Unit, Freedom House, Global Insight, the World Bank, resident business leaders, Political and Economic Risk Consultancy, and the World Economic Forum.

Peter Eigen, one of 10 founders of Transparency International. Photo by "Gryffindor" via Wikipedia, Creative Commons

Peter Eigen, one of 10 founders of Transparency International. Photo by “Gryffindor” via Wikipedia, Creative Commons

 The index is the 20th  by Transparency International, a non-profit founded in 1993 . The organization site said it was founded because ” corruption was directly undermining efforts to fight poverty and further development in the world’s poorest countries. While working for the World Bank, Transparency International’s founder, Peter Eigen, saw that major contracts for power plants, highways or telephone networks were awarded so as to line the pockets of government officials with little regard for the communities they were supposed to be benefitting.”

“Corruption wasn’t just robbing public funds intended for community schools or hospitals, it was also weakening the economy more broadly and making public institutions less effective.”

The ten founders, an eclectic and global group of jurists, politicians and activists, drafted and signed a founding charter at The Hague, the Netherlands, in 1993, which was filed in the Register of Association of Berlin Charlottenburg, in Germany.

The organization notes that it does not tackle just developing countries. “Bribe money was often coming from the wealthiest, and supposedly least corrupt, countries, in the form of illicit payments made by companies to public officials, and often with the support of their home governments. Banks, accountants and lawyers were also implicated in helping world leaders steal public funds, and launder, store and invest them safely abroad.”

The organization site says its biggest achievement in the past two decades has been to move corruption from the realm of a taboo subject to part of normal political discourse. Along with publishing indexes, it has pushed to successfully change laws in developed countries, helped draft the UN Convention against Corruption, and developed tools to help businesses draft policies on corruption and work together to resist demands for bribes.


Copyright Deborah Jones 2014

References and further reading:

Transparency International’s 2014 Corruption Perceptions Index  
Helping Countries Combat Corruption: The Role of the World Bank 
World Bank Listing of Ineligible Firms & Individuals

Facts and Opinions is an online journal of select and first-rate reporting and analysis, in words and images: a boutique for slow journalism, without borders. Independent, non-partisan and employee-owned, F&O performs journalism for citizens, funded entirely by readers. We do not carry advertising or solicit donations from foundations or causes.

Subscribe by email to our free FRONTLINES, a blog announcing new works, and the odd small tale. Look for evidence-based reporting in DISPATCHES; commentary, analysis and creative non-fiction in THINK; and image galleries in PHOTO-ESSAYS. Some of our original works are behind a paywall, available with a $1 site day pass, or with a subscription from $2.95/month – $19.95/year. If you value journalism, please help sustain us.

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The Dictator of Eritrea — Manthorpe

“Fellow Africa hand Remer Tyson and I were huddling behind the thickest wall we could find one bad morning in the Somali capital, Mogadishu, and, as one does as the bullets fly, we grew philosophical, recalls International Affairs analyst Jonathan Manthorpe of a day in 1991. “If Africa had any sense,” said Remer, correspondent for a major American newspaper group, “it would give Somalia to the Eritreans to run.” “Trouble is,” he added, “the Eritreans are far too sensible to take it.”

306px-Isaias_Afwerki_in_2002That was then. Now, Eritrea is called “the North Korea of Africa” writes Manthorpe. An excerpt of today’s column: 

After being the driving force behind the liberation of Ethiopia, the Eritreans gained their own independence in 1993. This was a time when many African nations were overthrowing the rule of “Big Man” dictators and embarking on the stormy transition to forms of democracy. In this sea change, Eritrea, with its compact and resource-rich territory and highly motivated people, was seen as potentially the most successful.

Instead, quite the reverse has happened. Eritrea is now often called “the North Korea of Africa.” That neatly sums up the reality of today’s Eritrea as a grim totalitarian state with prisons crammed full of dissidents, shunned by its neighbours, forced into diplomatic isolation, and with its economy buckling under United Nations sanctions.

No wonder that Eritrea’s diplomats in Canada, as they do elsewhere in the world, try to strong-arm emigrant Eritreans into donating two per cent of their incomes to the government in Asmara back home.

So what went wrong? The answer is President Isayas Afeworki … read more (subscription required)*

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Eritrea: the failure of Africa’s most promising nation

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