Tag Archives: Brazil

A Tale of Two Regions: Anticorruption Trends in Southeast Asia and Latin America

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OK, “best of times” and “worst of times” would be a gross exaggeration. But still, when I consider recent developments in the fight against corruption in Latin American and Southeast Asia, it seems that these two regions are moving in quite different directions. And the directions are a bit surprising, at least to me.

If you’d asked me two years ago (say, in the summer of 2014) which of these two regions provoked more optimism, I would have said Southeast Asia. After all, Southeast Asia was home to two jurisdictions with “model” anticorruption agencies (ACAs)—Singapore and Hong Kong—and other countries in the regions, including Malaysia and especially Indonesia, had established their own ACAs, which had developed good reputations for independence and effectiveness. Thailand and the Philippines were more of a mixed bag, with revelations of severe high-level corruption scandals (the rice pledging fiasco in Thailand and the pork barrel scam in the Philippines), but there were signs of progress in both of those countries too. More controversially, in Thailand the 2014 military coup was welcomed by many in the anticorruption community, who thought that the military would clean up the systemic corruption associated with the populist administrations of Thaksin Shinawatra and his successor (and sister) Yingluck Shinawatra—and then turn power back over to the civilian government, as the military had done in the past. And in the Philippines, public outrage at the brazenness of the pork barrel scam, stoked by social media, and public support for the Philippines’ increasingly aggressive ACA (the Office of the Ombudsman), was cause for hope that public opinion was finally turning more decisively against the pervasive mix of patronage and corruption that had long afflicted Philippine democracy. True, the region was still home to some of the countries were corruption remained pervasive and signs of progress were scant (such as Vietnam, Laos, Cambodia, and Myanmar), but overall, the region-wide story seemed fairly positive—especially compared to Latin America where, aside from the usual bright spots (Chile, Uruguay, and to a somewhat lesser extent Costa Rica), there seemed to be precious little for anticorruption advocates to celebrate.

But now, in the summer of 2016, things look quite a bit different. In Southeast Asia, the optimism I felt two years ago has turned to worry bordering on despair, while in Latin America, things are actually starting to look up, at least in some countries. I don’t want to over-generalize: Every country’s situation is unique, and too complicated to reduce to a simple better/worse assessment. I’m also well aware that “regional trends” are often artificial constructs with limited usefulness for serious analysis. But still, I thought it might be worthwhile to step back and compare these two regions, and explain why I’m so depressed about Southeast Asia and so cautiously optimistic about Latin America at the moment.

I’ll start with the sources of my Southeast Asian pessimism, highlighting the jurisdictions that have me most worried: Continue reading →

Mandatory Prison Corruption Report Looks for a Cure in Brazil

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In a recent provisional measure (currently only in Spanish), the Inter-American Court of Human Rights ordered the Brazilian government to take a variety of steps to address human rights violations at the notorious Curado prison complex. Such violations are pervasive: Shockingly, the Curado guards, in exchange for kickbacks or other illicit benefits, essentially handed over control of the prison (and other prisoners) to certain inmates (often the most violent or feared), turned a blind eye to or participated in the complex’s massive drugs and weapons trade, and repeatedly failed to stop prison breaks and riots.

Notably, among the steps in the Court’s order is a demand that the government investigate and report back to the Court on corruption, particularly on weapons and drugs trafficking, among officials at the prison. The Court—like its companion institution, the Inter-American Commission on Human Rights (IACHR), which investigates and reports to the Court—is not directly tasked with addressing corruption. However, its mandate includes protecting the right to humane treatment. At Curado, the prison guards, as agents of Brazil, affirmatively jeopardized the safety of prisoners with their corruption, and the Brazilian government failed to protect prisoners from abuses stemming from those actions. The Court’s measure, drawing from the Commission’s recommendations, emphasizes that the widespread corruption of the guards and other prison officials was one of the factors that allowed the inhumane conditions in the prison to continue.

The Court’s ruling seems to be one of the first times an international judicial body has ordered a country to undertake a review of corruption within its borders and then be held directly accountable to that international body. Thus, beyond its immediate significance to the Curado situation, the Court’s decision is a milestone in more directly recognizing and addressing corruption as a proximate cause of human rights violations. While this recognition will not by itself resolve the dire situation at Curado, it is an important step forward, and is notable for several reasons:

Continue reading →

Electoral Systems and Corruption: Proportional Representation in Brazil

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The Petrobras scandal currently engulfing Brazil is unprecedented in its scale and scope. Ironically, when the party of President Dilma Rousseff, the Workers’ Party (PT), initially became a major political player in 1989, it was seen as a clean, ethical alternative after President Collor de Mello stepped down from office amidst corruption allegations. Yet in the years following its rise to power, the PT has been dogged by corruption allegations, even before the explosion of the Petrobras investigations. During the presidency of Ms. Rousseff’s predecessor, Lula Inácio da Silva, prosecutors unearthed a major scheme, known as the Mensalão scandal, under which public funds were being used to pay members of Congress in exchange for their support of the PT government in crucial votes. At the end of the inquiry, 25 politicians and businessmen were convicted. Several other smaller corruption schemes (including Caixa Dois, Bingos, Sanguessugas, and Dossier) also implicated high-ranking members of the PT during Mr. da Silva’s tenure.

Despite this clear evidence of corruption within the PT ranks, the PT has been able to maintain its relative dominance in Brazilian politics, with three successive victories in presidential elections following Mr. da Silva’s initial rise to power, including Ms. Rousseff’s re-election in 2014, six months after the launch of the Petrobras investigations. This raises yet again a question that scholars and commentators have asked over and over again: Why do voters keep re-electing corrupt politicians? Democracy is supposed to enable voters to hold their government accountable, and most voters claim to dislike corruption and to value integrity in government. So why do parties like the PT keep winning elections? While there are many possible explanations (maybe, for example, voters don’t really care as much about corruption as they claim), part of the explanation in certain countries may have to do with the particularities of the electoral system.

Brazil has a hybrid electoral system: the President is elected in a two-round majority run-off system, elections for the Senate are based on plurality votes within states, and elections to the Chamber of Deputies are based on open-list proportional representation. An examination of this system suggests that it is particularly inimical to holding corrupt politicians accountable, and may have in fact contributed to the seemingly intractable problem of corruption in Brazilian politics. Three problems in particular stand out:

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London Anticorruption Summit–Country Commitment Scorecard, Part 1

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Well, between the ICIJ release of the searchable Panama Papers/Offshore Leaks database, the impeachment of President Rousseff in Brazil, and the London Anticorruption Summit, last week was quite a busy week in the world of anticorruption. There’s far too much to write about, and I’ve barely had time to process it all, but let me try to start off by focusing a bit more on the London Summit. I know a lot of our readers have been following it closely (and many participated), but quickly: The Summit was an initiative by David Cameron’s government, which brought together leaders and senior government representatives from over 40 countries to discuss how to move forward in the fight against global corruption. Some had very high hopes for the Summit, others dismissed it as a feel-good political symbolism, and others were somewhere in between.

Prime Minister Cameron stirred things up a bit right before the Summit started by referring to two of the countries in attendance – Afghanistan and Nigeria – as “fantastically corrupt,” but the kerfuffle surrounding that alleged gaffe has already received more than its fair share of media attention, so I won’t say more about it here, except that it calls to mind the American political commentator Michael Kinsley’s old chestnut about how the definition of a “gaffe” is when a politician accidentally tells the truth.) I’m going to instead focus on the main documents coming out of the Summit: The joint Communique issued by the Summit participants, and the individual country statements. There’s already been a lot of early reaction to the Communique—some fairly upbeat, some quite critical (see, for example, here, here, here, and here). A lot of the Communique employs fairly general language, and a lot of it focuses on things like strengthening enforcement of existing laws, improving international cooperation and information exchange, supporting existing institutions and conventions, and exploring the creation of new mechanisms. All that is fine, and some of it might actually turn out to be consequential, but to my mind the most interesting parts of the Communique are those that explicitly announce that intention of the participating governments to take pro-transparency measures in four specific areas:

  1. Gathering more information on the true beneficial owners of companies (and possibly other legal entities, like trusts), perhaps through a central public registry—which might be available only to law enforcement, or which might be made available to the general public (see Communique paragraph 4).
  2. Increasing transparency in public contracting, including making public procurement open by default, and providing usable and timely open data on public contracting activities (see Communique paragraph 9). (There’s actually a bit of an ambiguity here. When the Communique calls for public procurement to be “open by default,” it could be referring to greater transparency, or it could be calling for the use of open bidding processes to increase competition. Given the surrounding context, it appears that the former meaning was intended. The thrust of the recommendation seems to be increasing procurement transparency rather than increasing procurement competition.)
  3. Increasing budget transparency through the strengthening of genuinely independent supreme audit institutions, and the publication of these institutions’ findings (see Communique paragraph 10).
  4. Strengthening protections for whistleblowers and doing more to ensure that credible whistleblower reports prompt follow-up action from law enforcement (see Communique paragraph 13).

Again, that’s far from all that’s included in the Communique. But these four action areas struck me as (a) consequential, and (b) among the parts of the Communique that called for relatively concrete new substantive action at the domestic level. So, I thought it might be a useful (if somewhat tedious) exercise to go through each of the 41 country statements to see what each of the Summit participants had to say in each of these four areas. This is certainly not a complete “report card,” despite the title of this post, but perhaps it might be a helpful start for others out there who are interested in doing an assessment of the extent of actual country commitments on some of the main action items laid out in the Communique. So, here goes: a country-by-country, topic-by-topic, quick-and-dirty summary of what the Summit participants declared or promised with respect to each of these issues. (Because this is so long, I’m going to break the post into two parts. Today I’ll give the info for Afghanistan–Malta, and Thursday’s post will give the info for Mexico–United States). Continue reading →

The Petrobras Investigations and the Future of Brazil’s Democracy: Thailand and Italy as Cautionary Tales

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In March of 2014, when Alberto Youssef, the initial whistleblower for the now infamous Petrobras scandal disclosed his knowledge of the scheme to his lawyers, he prefaced his revelations with a grim prediction: “Guys, if I speak, the republic is going to fall.” While that prediction may have seemed melodramatic at the time, the recent turmoil in Brazil surrounding the Petrobras scandal and the impeachment proceedings against President Dilma Rousseff have led some to begin to question whether Mr. Youssef’s prediction might in fact ring true.

The Petrobras scandal may be the single biggest corruption scheme in any democracy, ever. By some estimates, up to US$5.3 Billion changed hands through inflated construction contracts and kickbacks to Petrobras executives and politicians. Even for a country accustomed to political corruption scandals, this case is unique in its breadth and scope. Dozens of Brazil’s economic and political elite have been implicated, including the CEO of the country’s largest construction firm (sentenced to 19 years in jail), and the former treasurer of Rousseff’s Workers’ Party (sentenced to 15 years in jail), plummeting Brazil into a true political and economic crisis. The investigations transcend party lines: Eduardo Cunha, the speaker of the House leading the charge for President Rousseff’s impeachment (for using accounting tricks to mask the nation’s deficit), has himself been charged in connection with the Petrobras Scandal. Indeed, this scandal appears to be a political reckoning, an indictment of the entire elite class in Brazil.

By most accounts, Brazil is a thriving democracy—elections are free and fair, and there is a multi-party system marked by vigorous competition between rival parties. Civil liberties are generally well respected. Protests against the government have been massive, but by most accounts peaceful and undisturbed by state authorities. But some have gone so far as to speculate that the unprecedented scale of this scandal may lead to a collapse of Brazil’s democratic system. At least one historical example suggests that this might not be so far-fetched: In Thailand, the political deadlock in 2014 following the ouster of President Yingluck Shinawatra on allegations of corruption and abuse of power ended with a military coup, and democracy has yet to return. Yet perhaps another, somewhat less dramatic but nonetheless troubling precedent is even more apt: In Italy in the 1990s, the Mani Pulite (Clean Hands) campaign revealed endemic corruption and led to the collapse of the four governing political parties. In this case, while democratic elections continued, the political void left in the wake of Clean Hands was filled by new, corrupt actors like Silvio Berlusconi, and political graft remains rampant. Though Brazil seems unlikely to suffer a fate similar to Thailand, it is highly plausible that the aftermath of the Petrobras scandal might resemble the Italian experience.

Let’s consider some of the possible parallels between Brazil and Thailand, on the one hand, and Brazil and Italy, on the other.

Continue reading →

Five Things Washington Should Do to Help Latin America Curb Corruption

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The following is based on a March 24 talk I gave at the Washington office of the Council on Foreign Relations.  It is posted in a slightly different form on “Latin America’s Moment,” the Council’s blog on Latin America.

One of the most promising developments in U.S. foreign relations is the all out war on corruption being waged across Latin America.  From “Operation Car Wash” in Brazil to investigations of presidential wrongdoing in Bolivia, El Salvador, Honduras, Guatemala, and Panama, across the region independent, tenacious prosecutors and investigators are out to end the massive theft of state resources that for so long has hobbled political development and throttled economic growth.  Americans should be cheering for these corruption warriors, for we have much to gain if they succeed.  Less corruption translates into more stable, reliable political allies; it means faster, more equitable growth and that means shared prosperity and less northward migration.  Finally, less corruption in government will offer American firms new opportunities. Think what the end of corruption in Brazilian public works would mean for U.S. engineering and construction companies.

But given the stakes in Latin America’s corruption war, America should be doing more than cheering from the sidelines.  It should be doing everything it can – without infringing the sovereignty or sensibilities of Latin neighbors – to see its corruption warriors succeed.  Here are five things to start with: Continue reading →

Claims Against Petrobras Highlight Prospects for Shareholder Enforcement in US Courts

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The fallout continues from the ongoing investigation of corruption at Petrobras, Brazil’s giant state-owned oil company. (See New York Times coverage here, and helpful timelines of the scandal here and here.) In March of 2014, Brazilian prosecutors alleged that Petrobras leadership colluded with a cartel of construction companies in order to overcharge Petrobras for everything from building pipelines to servicing oil rigs. Senior Petrobras executives who facilitated the price-fixing rewarded themselves, the cartel, and public officials with kickbacks, and concealed the scheme through false financial reporting and money laundering. The scandal has exacted a significant human toll: workers and local economies that relied on Petrobras contracts have watched business collapse: several major construction projects are suspended, and over 200 companies have lost their lines of credit. One economist predicted unemployment may rise 1.5% as a direct result of the scandal.

The enormous scale of the corruption scheme reaches into Brazil’s political and business elite. The CEO of Petrobras has resigned. As of last August, “117 indictments have been issued, five politicians have been arrested, and criminal cases have been brought against 13 companies.” In recent months, the national Congress has initiated impeachment proceedings against President Dilma Rousseff, who was chairwoman of Petrobras for part of the time the price-fixing was allegedly underway. And last month, federal investigators even received approval from the Brazilian Supreme Court to detain former President Luiz Inácio Lula da Silva for questioning. (Lula was President from 2003 to 2010—during the same period of time that Ms. Rousseff was chairwoman of Petrobras.) Meanwhile, the House Speaker leading calls for President Rousseff’s impeachment has himself been charged with accepting up to $40 million in bribes.

As Brazilian prosecutors continue their own investigations, another enforcement process is underway in the United States. Shareholders who hold Petrobras stock are beginning to file “derivative suits,” through which shareholders can sue a company’s directors and officers for breaching their fiduciary duties to that company. Thus far, hundreds of Petrobras investors have filed suits. In one of the most prominent examples, In Re Petrobras Securities Litigation, a group of shareholders allege that Petrobras issued “materially false and misleading” financial statements, as well as “false and misleading statements regarding the integrity of its management and the effectiveness of its financial controls.” (For example, before the scandal broke, Petrobras publicly praised its Code of Ethics and corruption prevention program.) The claimants allege that as a result of the price-fixing and cover-up, the price of Petrobras common stock fell by approximately 80%. In another case, WGI Emerging Markets Fund, LLC et al v. Petroleo, the investment fund managing the Bill & Melinda Gates Foundation has alleged that the failure of Petrobras to adhere to U.S. federal securities law resulted in misleading shareholders and overstating the value of the company by $17 billion. As a result, the plaintiffs claim they “lost tens of millions on their Petrobras investments.”

Thus, in addition to any civil or criminal charges brought by public prosecutors, private derivative suits offer a way for ordinary shareholders to hold company leadership accountable for its misconduct. In these derivative suits, any damages would be paid back to the company as compensation for mismanagement; the main purpose of the suits is not to secure a payout for shareholders, but to protect the company from bad leadership. The Petrobras cases illustrate how derivative suits can offer a valuable mechanism for anticorruption enforcement, but they also face a number of practical challenges.

Continue reading →

Guest Post: Brazil Must Fight Corruption, But Preserve the Rule of Law

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GAB is delighted to welcome back Mat Tromme, Project Lead & Senior Research Fellow at the Bingham Centre for the Rule of Law, who (along with research assistant Domenico Vallario) contributes the following guest post:

Across Latin America, the past year has provided reasons for hope that the struggle against grand corruption and impunity is finally making progress. Prosecutors have gone after corrupt elites in Guatemala and Honduras, while political leaders in Mexico and Chile have also been under pressure for their links to corruption scandals. And in Brazil, the investigations into the corruption scandal at the state-owned oil giant Petrobras have led to charges against around 80 people, including high-ranking political figures like the speaker of the Lower Chamber and former President Collor de Mello, and a former treasurer of the ruling Worker’s Party.

The investigation into the Petrobras scandal is being led by Brazil’s Federal Police and by Public Ministry Prosecutor Deltan Dallagnol, under the watchful eye of Judge Sergio Moro. And Judge Moro’s tenacious attitude to pursuing graft stands in sharp contrast to a judicial system that has traditionally been slow and ineffective, especially in corruption cases: out of ten salient scandals between 1990 and 2010, 841 people were implicated, but only 55 were convicted. Yet Judge Moro’s approach may actually be emblematic of a broader shift in the Brazilian judiciary, as corruption cases that are tried in courts have been on the increase over the past few years.

On the face of it, these convictions should be welcomed as a sign that justice is meted out against the corrupt and that the judiciary is playing its part in tackling grand corruption. Yet some critics have raised legitimate concerns about the arguably overzealous approach the authorities (not only the legislature and the executive, but also the judiciary) have taken in tackling corruption, in light of rule of law and human rights commitments. Continue reading →

The 2015 CPI and Year-to-Year Changes: A Definite Improvement, But Problems Remain

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As most people who follow this blog are likely aware, Transparency International released the 2015 Corruption Perceptions Index (CPI) last week. There is, of course, a lot to talk about here, and I’m sure many commentators and scholars will spend a lot of time poring over the new data and debating its significance. Given my previous criticisms of the CPI’s suggestion that scores for the same country can be compared across time (see here, here, here, and here), that was naturally the first thing I focused on. I was hoping that TI might take up some version of my suggestion to report statistical confidence intervals in an easy-to-see place in the main data table, or, even better, test for statistically significant changes in scores across years. Alas, TI didn’t do either of those things. (The confidence intervals are still available, but you have to download the data to find them.) TI did, however, report that since 2012, some countries had improved, while others had deteriorated. In particular, TI noted three countries (Greece, Senegal, and the UK) had improved their CPI scores since 2012, while five countries (Australia, Brazil, Libya, Spain, and Turkey) had seen a notable worsening.

Because of last year’s fiasco with China (where TI emphasized a decline in China’s CPI score that turned out to be bogus), I was initially skeptical. So, I went ahead and implemented the procedure that I outlined in my post from a few months ago to see whether, for these eight countries, there really was a genuine, statistically meaningful change in the CPI score. I was pleasantly surprised to discover that in all eight of the countries that TI identified, the change in the CPI score between 2012 and 2015 was indeed statistically significant at conventional levels, and do not seem to have been driven by the addition or subtraction of sources in the later year, or by a large anomalous jump in a single source. (Though it’s perhaps worth noting that in the case of Brazil – which TI particularly emphasizes in its press release – the change is just barely significant at conventional levels, and of the seven sources used to construct the score, although four indicate moderate to large declines, two show no change and one actually rates Brazil as improving slightly from 2012 to 2015.) So, while I still have a number of criticisms (about which more below), I’ll gladly give credit where credit is due: In this year’s publicity materials, TI has indeed identified countries where there is statistically significant change in CPI scores, generally driven by changes in several of the underlying data sources. I hope that in future years, TI will go further (and save me some time) by simply including in the main data table not only the confidence interval for the current year, but also a simple three-category indicator (up, down, null) for whether there has been a statistically significant change in the CPI in the past three years. (This is important because of the way the CPI is covered by mainstream journalists: Though researchers might dig into the data tables, most journalists or casual readers just look for year-to-year changes.)

Now, I did say I still had some concerns, so in the interest of continued constructive engagement, let me lay out why I still don’t think we should treat within-country year-to-year changes in CPI scores as terribly meaningful: Continue reading →

A Step in the Wrong Direction: How Term Limits Could Increase Corruption

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The recent federal corruption convictions of Sheldon Silver and Dean Skelos, longtime New York legislative leaders, have rightly led many to offer suggestions for preventing political corruption by elected officials. In two posts on this blog, Sarah suggested a mechanism for creating additional parties to make elections more competitive, and, in an earlier post, she proposed limiting New York legislators’ opportunity to take on additional employment. Others have suggested increasing legislator pay, amending campaign finance laws to close the “LLC loophole,” and increasing enforcement, including with independent ethics officers. This list is far from exhaustive.

One other “fix” that comes up again and again: term limits for legislators. Soon after the corruption scandal involving Silver and Skelos hit the news, a New York Post opinion piece called for term limits. And since Silver and Skelos were convicted, the calls have continued for term limits as part of a package of reforms (see, for example, here, here, and here). Although no one asserts that term limits are the silver bullet for ending corruption, many claim that term limits can play a constructive role as part of a comprehensive anticorruption package. But I am not convinced that term limits actually reduce the likelihood of corruption. Not only are term limits unlikely to be much help, but—as others have also argued (see here and here)—term limits might even increase corruption. Here’s why:

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