A couple of weeks ago, I did a short post in reaction to the deadly warehouse explosion in Beirut, which killed at least 182 people, wounded thousands, and left hundreds of thousands homeless. My post wasn’t really about the Lebanon blast per se—especially because the causes of the explosion, and the role that corruption may have played, were unclear—but rather discussed more generally the direct and indirect ways that widespread corruption can increase the risk of deadly accidents. But I continue to wonder whether, with respect to the Beirut tragedy, it will turn out that corruption (rather than “mere” incompetence) will have been a contributing cause.
We still don’t have all the answers—particularly with respect to the decision-making process within Lebanon itself—but thanks to excellent investigative reporting by an international team of journalists with the Organized Crime and Corruption Reporting Project (OCCRP), we now have a great deal more information about the shadowy and highly suspicious backstory of the abandoned ship that brought the ammonium nitrate to Beirut in the first place. I don’t think I can do the report justice, but I highly recommend that everyone read it—it’s available here. And to give you a sense of what’s in it, I’ll just quote the main findings summarized at the beginning of the report:
- “Igor Grechushkin [the Russian businessman whom initial reports said owned the Rhosus, the ship that brought the ammonium nitrate to Beirut] did not own the Rhosus but was merely leasing it through an offshore company registered in the Marshall Islands. Instead, documents show that the true owner of the Rhosus was Charalambos Manoli, a Cypriot shipping magnate. Manoli denies this, but declined to provide documents to back up his claim.
- “Manoli owned the ship through a company registered in the notoriously secretive jurisdiction of Panama, which received its mail in Bulgaria. He registered it in Moldova, a land-locked Eastern European country that is notorious as a jurisdiction with lax regulations for vessels that fly its “flag of convenience.” To do this, he worked through another of his companies, Geoship, one of a handful of officially recognized firms that set foreign owners up with Moldovan flags. Then, yet another Manoli company, this one based in Georgia, certified the ship as seaworthy — even though it was in such bad shape it was impounded in Spain days later.
- “At the time of the Rhosus’ last voyage, Manoli was in debt to FBME, a Lebanese-owned bank that lost multiple licenses for alleged money laundering offenses, including helping the Shia militant group Hezbollah and a company linked to Syria’s weapons of mass destruction program. At one stage, the Rhosus was offered up as collateral to the bank.
- “The ultimate customer for the ammonium nitrate on the ship, a Mozambican explosives factory, is part of a network of companies previously investigated for weapons trafficking and allegedly supplying explosives used by terrorists. The factory never tried to claim the abandoned material.
- “The intermediary for the shipment, a British company that was dormant at the time, convinced a Lebanese judge in 2015 to get the ammonium nitrate tested for quality with the intent of claiming it. The stockpile was found to be in poor condition, and the company, Savaro Limited, did not try to take back the ammonium nitrate in the end.”
Whether “corruption” in the narrow sense is a significant part of the story we still don’t know for sure. But as the OCCRP report rightly points out, “at almost every stage, the Rhosus’ deadly shipment was connected to actors who used opaque offshore structures and lax government oversight to work in the shadows.”
I was particularly struck by an item mentioned at the end of the second bullet point above: It seems that governments have outsourced the inspection of maritime vessels to private companies, but have failed to put in place adequate safeguards to ensure that the firms doing the inspection and certification do not have a conflict of interest. And here I’m not talking about the conflicts of interest that often arise when private firms charged with certification or audits are paid by the firms being inspected, and so have a financial interest in providing a favorable report. That kind of “soft corruption” is indeed a serious problem, and has been documented in a wide variety of contexts—from the private credit rating agencies, whose rosy assessments of highly risky investment products contributed to the 2008 financial crisis, to environmental auditors in India, where a rigorous economic analysis found that auditors selected by firms were significantly more likely to falsify their reports. But the OCCRP report, if accurate, demonstrates a much more direct and unambiguous conflict of interest: It appears that the same person owned both the vessel being inspected and the firm conducting the inspection—a situation that means, as one of the experts interviewed by OCCRP put it, the seaworthiness certificate “isn’t worth anything.” Presumably this was made possible by the ease with which the real owner of the ship, and the certification company, was able to hide his ownership interest.
Of course we don’t know just how common this is, but it seems to me highly plausible that it’s a big issue, and further underscores that serious problems with outsourcing crucial public functions—such as performing safety certifications of ships, factories, financial products, or what have you—to private parties. Look, I’m not a hard-core opponent of any form of privatization. I get why there may be advantages to having private firms perform audits, inspections, and certifications, and many firms performing these functions do so with diligence and integrity. But providing safety certifications are public functions, whether they are performed by government employees or private firms. And if the financial interests of those responsible for performing those public functions—especially direct or indirect payments from the subjects of the inspections—lead the inspectors to lie, obfuscate, or otherwise shirk their public duties, then this is a form of public corruption every bit as serious and blameworthy as when a developer bribes a building inspector to ignore code violations, or an incompetent driver bribes the motor vehicles department in order to get a driver’s license.
Anyway, that was the feature of the report I wanted to pull out and emphasize, but it’s far from the most shocking or disturbing piece of information that OCCRP’s superb investigative reporting uncovered. I highly recommend that you read it.