Middle East Rulers Wage War On Whistleblowers

The Arab Spring showed the power of social media and grass-roots transparency. Corrupt heads of state were swept out of office in Tunisia and Egypt. But some neighboring kleptocrats are fighting back.

The Independent reported that in September alone, the Iraqi government 'has forced the head of its anti-corruption watchdog to resign. And a prominent Iraqi journalist, who had been threatened for leading anti-government protests, was shot dead in his home in Baghdad.'

Jordan's lawmakers passed a bill last month imposing fines up to $85,000 on anyone who publicly accuses another person of corruption without proof. The next day, after a huge outcry and protests by journalist, opposition members, lawyers and others, the Jordanian senate delayed implementing the bill for at least a month.

Two weeks ago, two journalists in Oman were sentenced to five months in prison for reporting alleged government corruption.

In Iraq, the Independent said, Prime Minister Nouri al-Maliki and his government are trying to strip immunity from Sabah al-Saadi, a member of parliament and formerly head of the its committee on integrity, 'so that they can arrest him for making allegations against Mr Maliki.'

Ammonnews.net said several MPs in Jordan opposed to the anti-whistleblower bill 'blasted that the stipulation aims to 'fortress corruption and corrupt officials and contradicts the reform principles publicly propagated by the legislative and executive branches.'

Iraq ranks 175 on the Corruption Perception Index, ahead of only Afghanistan, Myanmar, and Somalia. Jordan ranks 50, and Oman 41.

On the Press Freedom Index, Iraq ranks 130 out of 178, Jordan is 120, and Oman 124.

Good Intentions, Bad Results

Does foreign aid cause corruption? Yes, mainly by helping corrupt regimes stay in power. And because corrupt regimes are the most unstable, aid also fuels civil unrest.

Here are the top ten U.S. foreign aid recipients as of a couple of years ago, followed by their rank now on the Corruption Perception Index:

1. Israel / 30
2. Egypt / 98
3. Pakistan / 143
4. Jordan / 50
5. Kenya / 154
6. South Africa / 54
7. Mexico / 98
8. Colombia / 78
9. Nigeria / 134
10. Sudan / 172

The top ten donor recipients have an average CPI ranking of about 100 out of 178 ranked countries. But the bottom five of those countries by CPI rank -- Egypt, Pakistan, Kenya, Nigeria, Sudan -- have an average CPI rank of 140. In other words, they're among the most corrupt countries on earth. Not coincidentially, they're also among the most unstable.

Four of those five countries are in Africa. Here's what Dambisa Moyo of the Wall Street Journal said in March 2009 about aid to countries there:

[E]vidence overwhelmingly demonstrates that aid to Africa has made the poor poorer, and the growth slower. The insidious aid culture has left African countries more debt-laden, more inflation-prone, more vulnerable to the vagaries of the currency markets and more unattractive to higher-quality investment. It's increased the risk of civil conflict and unrest (the fact that over 60% of sub-Saharan Africa's population is under the age of 24 with few economic prospects is a cause for worry). Aid is an unmitigated political, economic and humanitarian disaster.

And here's an excerpt (without footnotes) from a prescient U.S. Congressional report from 1999 that explored the link between aid, corruption, and instability:

Research relating to foreign aid shows that such aid is dispersed not on the basis of need, but on the basis of strategic and geo-political considerations. That is, aid tends to support existing recipients who generally are supportive of existing donors. Donors, after all, have incentives to provide aid to those forces, supporters, and organizations that will help them remain in power. In practice, these characteristics are more important to donors than forces of change. A World Bank survey of research on foreign aid, for example, indicates that "there is little relationship between changes in aid and policy reform."

Foreign aid, then, often has not worked to promote reform. Consequently, aid tends to subsidize -- and thereby strengthen -- existing government connections and structures since aid recipients also will distribute this aid so as to preserve their political positions. In short, political elites can benefit from aid. In practice, aid subsidizes and strengthens existing regimes so they become solidified and entrenched. When existing regimes are corrupt, such regimes can be strengthened by foreign aid. It has been shown, for example, that foreign aid seldom includes meaningful incentives to alter governmental behavior with regard to corruption. In sum, when existing regimes are corrupt, the result is that these corrupt political regimes can benefit from foreign aid and become more firmly entrenched.

No one wants to be stingy and hard-hearted toward people anywhere who need help finding food and water, shelter and medicine. But international aid, especially when used to help prop up friendly yet corrupt regimes, isn't part of the solution. It's part of the problem.

After They're Gone

Muammar al-Gaddafi at the 12th AU summit, February 2, 2009, in Addis Abeba.

By Bill Waite and Martin Stone

A by-product of the type of regime changes seen recently in Tunisia and Egypt, and appearing likely in Libya, is a wave of overseas asset traces.

Once change comes, business relationships with politically exposed persons and their web of companies can be unwound but can never be undone. The past relationships are always discoverable by determined investigators. That’s what many will soon discover when they’re hit with information requests from the prosecutors.

Long-time rulers such as Mubarak and Ben Ali accumulated power over a long period of time, and they, their families, and associates used that power to accumulate enormous wealth, often illegally. When they do fall, the new regimes move to recover national wealth, both to boost their treasuries and to discredit their predecessors.

The asset tracing can move quickly. Once a regime falls, evidence immediately becomes identifiable and accessible by prosecutors. And new governments leverage their investigation and prosecutorial capabilities by bringing in third parties to help.

Since Ben Ali’s departure from Tunis, for example, the new government has set up an independent panel to investigate corruption. It seems inevitable that the investigations will uncover irregularities that will at least embarrass – and at worst inculpate – some of his family’s foreign partners.

The situation in Egypt is more complex. In an apparent attempt to distance itself from some of its most controversial supporters, the outgoing Mubarak regime froze the assets of several former ministers and senior ruling National Democratic Party members, banned them from traveling abroad and placed most of them under investigation for theft of public money, profiteering, fraud and corruption.

In Libya, meanwhile, Gaddafi clings to power but his hold there looks increasingly fragile. The U.S., EU, and U.N. have already reimposed sanctions including travel bans and asset freezes.

The most obvious lesson from recent events? Know your foreign partner, agent, or intermediary’s political or ruling-family connections before you enter the market, and know about any allegations of corruption concerning  them that might emerge after a local regime change.

Bill Waite is a founder of The Risk Advisory Group and an expert on anti-bribery and corruption legislation. He formerly practiced as a criminal barrister before joining the Serious Fraud Office in 1991 as a prosecutor. Bill is frequently called upon to comment in the media and is a regular speaker in Europe and the US.

Martin Stone has more than 20 years due diligence, intelligence and investigations experience in the Middle East and North Africa and divides his time between Risk Advisory’s London and Dubai offices. 

The full version of this article can be found here.

Swiss Time

Within a half hour of Mubarak's resignation on Friday, Switzerland had acted.

"I can confirm that Switzerland has frozen possible assets of the former Egyptian president with immediate effect," a Swiss government spokesman told Reuters, without saying more.

Later in the day, a Geneva-based news site said an "estimated CHF3.6 billion [$3.7 billion] in assets that may have been deposited by Hosni Mubarak and those close to him were frozen within 30 minutes of the announcement of his resignation."

The speed of Switzerland's move was striking. And it was the best news to those in Egypt who'll be hunting for Mubarak's treasures. And yet, we thought, how much more important if Switzerland's announcement had come a month earlier. Or even a year earlier, or a decade.

To its credit, Switzerland isn't looking for excuses these days to hold back. On a single day last month, the country's federal council froze suspected assets of Tunisia's deposed president and the incumbent of Ivory Coast who lost an election but refused to go. The Swiss president, Micheline Calmy-Rey, said then that the asset freezes were intended to "encourage" the countries to seek help in possible criminal cases against the men.

Swiss policy has given corruption fighters plenty to cheer about. Still, it takes a revolution, coup, or similarly cataclysmic event before the Swiss and others will act against self-enriching rulers. So the question is, will the time ever come for preemptive action? For the freezing of assets while the incumbent still sits on the throne, otherwise undisturbed?

The question is crucial. Once corrupt rulers lose access to their plundered wealth, they lose a major source of their illegitimate power. Money not only talks, it keeps rulers in office long after they've gone stale. Loot fuels patronage. It buys loyalty and, of course, anti-personnel hardware. Take away the offshore billions and suddenly the emperor has no clothes.

Preemptive asset freezes would trigger regime changes and potential shifts in regional balances of power. That's too much blowback for Switzerland or other individual countries to risk, unless they're acting according to international norms and expectations. 

Right now, no one can say for sure whether grand corruption violates international law. Some academics, diplomats, and politicians argue that yes, according to the Rome Statute, grand corruption is a "crime against humanity" and therefore within the jurisdiction of the International Criminal Court in the Hague. That, however, isn't the public consensus within the international community. And until it is, countries aren't likely to act preemptively to freeze the ill-gotten gains of leaders who are still in charge.

Graft And Political Risk

Muammar Abu Minyar al-Gaddafi, also known as Colonel Gaddafi, leader of Libya since 1969. Photo by James GordonPredicting what leaders will fall from power is never easy, even for the pros ("Who lost Iran?).

But a quick test for stability is to check how long the leader has hung on, and how corrupt his or her country is perceived to be by the rest of the world. Although inexact, it can provide clues about what might happen.

The test works because corrupt rulers always become unpopular. To stay in power, they become increasingly repressive. Eventually the cork may blow. President Kennedy put it more eloquently: Those who make peaceful revolution impossible will make violent revolution inevitable.

Recent events in Tunisia are an example. The people rose up against President Ben Ali and pushed him and his greedy family out. He'd been in office since 1987 and his country had a ranking on the corruption perception index of 59 -- higher than most Tunisians probably thought their country deserved.

A WikiLeaks diplomatic cable from June 2008 written by the American ambassador to Tunisia, Robert F. Godec -- classified as secret, to be declassified in 2018 -- made the link between the country's long-time ruler, corruption, and political risk:

[C]orruption in Tunisia is getting worse. Whether it's cash, services, land, property, or yes, even your yacht, President Ben Ali's family is rumored to covet it and reportedly gets what it wants. Beyond the stories of the First Family's shady dealings, Tunisians report encountering low-level corruption as well in interactions with the police, customs, and a variety of government ministries. The economic impact is clear, with Tunisian investors -- fearing the long-arm of "the Family" -- forgoing new investments, keeping domestic investment rates low and unemployment high. These persistent rumors of corruption, coupled with rising inflation and continued unemployment, have helped to fuel frustration with the [government of Tunisia] and have contributed to recent protests in southwestern Tunisia. . . .

The full cable can be viewed here.

It sounded familiar. A few months after President Suharto was forced out of office in 1998 by street demonstrations across Indonesia, we wrote about an American businessman in Jakarta who'd complained for years that in any deal, one of Mr. Suharto’s kids or cronies would show up and demand a piece of the action.

Drawing out the lesson, we said it was easy to do business in the Philippines during Marcos’s time, likewise in Iran during the Shah’s or Nicaragua during Somoza’s. Foreign investors cut through the red tape by working with one of the few wired local partners, often a member of the leader's family. "Well-greased insider deals always look good at the time," we said, "but are usually too good to be true."

No one can predict a country's history before it happens, and that goes for Tunisia's neighbors. But here are some numbers to think about. In Egypt, Hosni Mubarak has been president since 1981; on the latest CPI the country ranked 98. In Libya, Mu‘ammar al-Qaḏḏāfī has been in power since 1969 and the country ranked 146 on the CPI.