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Wednesday, November 19, 2003

First World Criminals, Third World Crimes – A Review of Recent International Corruption Cases – Part 3: High Crimes In Lesotho

Printable PDF Version Lesotho's Katse Dam fig. 2.32. Katse Dam, Lesotho.jpg lahmeyer.gif Schneiderlogo.gif ABB_Logo.gif dumez-gtm.gif acres_intl.JPG logo_bouygues.gif

As noted in Part 1 of this series, in the last six months we have seen a flurry of transnational corruption cases that involve misbehavior by leading First World companies in developing countries. All these cases raise basic questions about our current approach to investigating, prosecuting, and penalizing transnational corruption – and our understanding of its roots.

The following article, Part 3 in this series, takes a close look at another recent case, Lesotho’s Highland Water Project (LHWP), a huge World Bank-financed dam project where a half dozen leading Canadian and European engineering and construction firms are now being prosecuted for bribery by one of southern Africa’s smallest, most poverty-stricken countries.

This particular case suggests that, in principle, First World development banks and export credit agencies are in a very strong position to curb this kind of behavior, simply by insisting on tight financial controls and penalizing bribery heavily. So far, however, they have been reluctant to do so, apparently because they are reluctant to offend their First World constituents. After all, if politically-influential engineering firms, equipment vendors, and construction companies won’t lobby for their budgets and lending authority, who will?

THE PROJECT. Next to China’s gargantuan Three Gorges Dam, Lesotho’s Highland Water Project (LHWP) is the world’s second largest water transfer project and Africa’s largest dam project ever. In the finest traditions of hubristic civil engineering, the project’s design contemplates a thirty-year effort to build five big dams and a hydro plant in Lesothu’s Maluti Mountains, eventually diverting nearly half of the water – 2 billion cubic meters a year -- from the Orange River (known in Lesotho as the “Senqunyane River” basin) through 125 miles of tunnels to Johannesburg’s Vaal Dam.
The basic project concept, which dates back at least to the 1930s, is simple. Lesotho, an otherwise tiny, poor, landlocked, mountainous kingdom, is known as “The Kingdom in the Sky,” the only country in the world that is all above one thousand meters. The country is also entirely surrounded by, and dependent upon, its much wealthier neighbor, South Africa. Most of Lesotho’s 2.2 million people either work as subsistence farmers at home or as migrants in South Africa, which provides jobs for half of Lesotho’s labor force. Aside from these labor exports, one of Lesotho’s few other natural resources is the abundant rainfall that its mountains receive each summer. Johannesburg’s mines and other industries, on the other hand, account for sixty percent of South Africa’s economy, and are always hungry for cheap water and energy, as well as cheap labor.

In South Africa’s view, all this provided the basis for what appeared to be a “win-win” deal. LHWP was originally designed by South African-retained engineers in the 1970s, and the project agreement was “jointly approved” by the two countries in 1986. Back then -- and of course until 1994 -- South Africa was still an apartheid state, ruled by “whites only,” who accounted for just 14 percent of its population. And Lesotho was ruled by a compliant military regime that South Africa had installed only a few months before the LWHP agreement was signed.

These anti-democratic roots did not bother the “global development industry” very much at the time. This industry consists of multilateral development banks and aid agencies, private banks, engineering design firms, equipment vendors, and construction firms, mainly from First World countries and a handful of larger Third World countries, like Brazil and China. We’ll review the “private perp” list below, but among the leading development banks and export credit agencies that agreed to fund this multibillion dollar hydro boondoggle concocted by South Africa's apartheid planners were the World Bank, Canada’s EDG, the African Development Bank, the UK’s EGCD, France’s COFACE, Italy’s SACE, and Germany ‘s HERMES. Germany, France, and the UK also provided bilateral foreign aid to the project – an indirect way of channeling subsidies to their own politically-influential contractors.

All told, this global development industry has constructed more than 45,000 large dams in developing countries since the early 20th century, at a cost of more than $2 trillion, the resettlement of at least 50 million people, and untold environmental damage. Indeed, despite the fact that “large dams” have recently become much more controversial among development planners and environmentalists, this industry still builds about 1500 to 2000 new Third World dams per year.
See Chart:"Big Dams Per Year"

In the last decade, with the rise of more democratic regimes in leading developing countries like South Africa, Brazil and Russia, First World governments and development banks were essentially compelled to emit more favorable noises about “democracy” and “transparency” -- except with respect to China, where they continued to look the other way at autocracy. In fact, the reality is that the global development industry and its financial supporters actually do much better in situations where popular concerns like forced resettlement, land ownership, the appropriate pricing of natural resources and electricity, soil erosion, and other environmental concerns are subordinated to the priorities of organized interests. This is one key reason for the strong negative correlation between “big dam projects” and democratic development.

In any case, in Lesotho’s case, those who designed LHWP and structured its finances back in the 1980s did not worry very much about the fact that, at the time, they were in gross violation of international sanctions against apartheid. Instead, a group of clever merchant bankers at Chartered WestLB, a leading UK international merchant bank, consulted with the World Bank and got its approval to make pint-sized Lesotho the $8 billion project’s official borrower -- with South Africa kicking back debt service and water royalties under the table to a London-based trust.

This arrangement, in effect, “laundered” LHWP's finances, opening the door to the global pig pile of development funders, private banks, vendors and contractors that we listed earlier. At the time, these players could basically have cared less whether the project served to undermine apartheid or quenched its thirst for water and electricity forever. Meanwhile, Lesotho’s official foreign debt was sent soaring, and the potential contractors started arriving in droves to flog their wares and exert influence any way they could.

Two decades later, as of 2003, this bevy of contractors has finished the Katse and Muela dams and 53 miles of tunnels, at a total cost of $2.5 billion. Mohale Dam is due in 2004, for an additional $1 billion, followed by the Mashai dam by 2008 and the final Tsoelike dam by 2017. As noted, the total cost is supposed to be $8 billion by then -- though such cost estimates are rarely worth the paper they are printed on.See Chart: "Average Big Dam Cost Overruns"

Unfortunately KHWP has also hit a few snags. To begin with, the people of Lesotho have been having second thoughts about parting with so much of their water on such one-sided, apartheid era terms. There have also been some nasty side-effects. In January 1996, for example, the sheer weight of Katse Dam’s reservoir helped to cause earthquakes in Lesotho that shook many villages. In September 1996, 2,300 workers at Muela Dam were fired for striking illegally when they protested lousy working conditions and wage discrimination. Contractors, including the UK’s Balfour Beatty, called in the police and 5 workers at their camp were shot dead and 30 injured. In 1998, partly to deter a possible military coup, but also to remind Lesotho that LHWP was, after all, South Africa’s largest infrastructure investment, the “New South Africa” invaded Lesotho, killing 66 people to “restore order.” The Johannesburg Star later reported that protecting the dam had been one of the invasion’s primary concerns. There has also been a long list of environmental, distributional, and social problems associated with KHWP – with complaints from dam critics about some 24,000 people displaced without adequate compensation for resettlement, and increased erosion.

ANTI-BRIBERY WINDOW-DRESSING. Most interesting for the purposes of this article, LHWP has also turned out to make history in the field of global corruption, and the enforcement – or lack thereof – of “anti-bribery” statutes by First World governments, multilateral lenders, and export credit agencies.

The roots of these statutes, which have by now been widely adopted by most First World countries, goes back to the US Foreign Corrupt Practices Act (FCPA) of 1977. This statute, which was pushed through Congress during the relatively high-minded Carter Administration, has provided American officials with numerous opportunities to lecture their counterparts in Europe and Asia on the importance of taking a strong stand against Third World corruption. (The Europeans and Asians responded, with some justification, that US firms were hardly sin-free, and besides, that any excessive bribery on their parts just offset the substantial US advantage in industrial espionage provided by global electronic eavesdropping networks like the National Security Agency's Echelon system -- the fruits of which are increasingly shared with the private sector.)

In reality, the FCPA's actual enforcement has never been a priority for any US administration -- there are few votes in it, since most of the victims are located in distant lands, and most of the perpetrators are major homeland corporations. Since 1977, there has only been one sizeable fine – a $21.8 million charge levied on Lockheed in 1994 for paying bribes to win Egyptian defense contracts. Beyond this, there have only been 34 US criminal prosecutions under the FCPA in 36 years, with the median fine levied on 28 convicted corporations a mere $50,000. Just three out of 12 convicted US foreign bribers have ever done any jail time – a total of 34 months for all three! On top of all this, a federal court ruled in 2002 that the FCPA did not even apply to cases where US companies pay off foreign officials to cut taxes or customs duties – in the case at hand, a Haitian customs official who had been bribed by a major Texas-based rice exporter. According to this ruling, the FCPA only prohibits bribes made to “obtain or retain business.”

Nevertheless, over the next two decades following the FCPA’s adoption by the US, pressures for the transnationalization of sanctions against corruption grew, propelled in part by the sheer number of abusive projects that came to light all over the world. Organizations like Transparency International, started to publish a “corruption index,” an annual ranking that claimed to identify the world’s “most corrupt” countries, all of which turned out to be developing countries. fig. 2.27. James Wolfensohn, World Bank President.jpg
The World Bank also adopted new guidelines on corruption that were supposed to crack down on contractor/ vendor bribery. At the Annual World Bank Meetings in Washington, D.C. in October 1996, for example, World Bank President James Wolfensohn declared:

Let me emphasize that the Bank Group will not tolerate corruption in the programs that we support; and we are taking steps to ensure that our own activities continue to meet the highest standards of probity.

In 1999, responding in part to complaints from developing countries, as well the US' continuing whining that America’s global competitiveness was suffering because of the failure of other First World countries to adopt similar statutes, all but two OECD countries adopted a new treaty that provided for increased penalties for First World companies that bribe foreign officials.

Despite these new laws, indices, and declarations, however, the fact is that until the LHWP case exploded in 1999, there had been very little actual enforcement of such rules against bribery, especially against leading First World bribers and their money launderers – major First World construction companies, engineering firms, energy companies, equipment suppliers, banks, and other leading members of the huge global development industry.

This is partly just because it is hard to follow the money trail through the global thicket of offshore companies, secret trusts and bank accounts, and havens. However, as we’ll see, even tiny Lesotho was able to break through Swiss and Panamanian banking secrecy in less than two years and make a winning case against some of the world’s largest contractors.

The more important obstacle seems to be the fact that, when push comes to shove, many First World countries, export credit agencies, and multilateral donors appear to be deeply conflicted about how hard they wish to pursue the enforcement of such rules against the bribers, as opposed to the “corrupt” local officials. They appear to be concerned not only about alienating influential allies, but also about disrupting the flow of large projects. They may also be concerned that if they really looked hard at what has been going on around them, some of the revelations might be too hot to handle. (See Part 4 - The SGS Case.)

THE LESOTHO CASE. In July 1999, tiny Lesotho charged its former CEO for the Lesotho Highlands Project, Masupha Sole, with receiving more than $2.5 million in bribes by way of Swiss accounts, from almost all the key contractors involved in LWHP’s first three dams.

A Canadian-trained engineer, Sole had been Lesotho’s highest-paid public official when he was put on leave in 1995, pending the outcome of this investigation. He had worked as a director in Lesotho’s Department of Water, Lands, and Energy until October 1986, when he was appointed first CEO of the Lesotho Highlands Development Authority, the contracting agent for the project.

In that capacity, Sole had overseen all the tenders for the project. Everything had proceeded quietly until a new Minister of Natural Resources decided to hire Ernst and Young to audit LHWP’s account in 1994. The audit turned up discrepancies, and further investigation revealed that Sole had received large transfers to his Johannesburg bank accounts from accounts in his name at three Swiss banksUnion Bancaire Prive and Banque MultiCommercial in Geneva, and UBS in Zurich.

With the help of Durban lawyers, Lesotho managed to track down precisely who had paid bribes and how the money had flowed. The astonishing indictment listed all those international contractors and provided initial estimates of the amounts they’d paid:

    o Zublin - $444, 466, plus its share of $57,269 paid by LHPC and LHPC-Chantiers’ $63,959
    o Impregilo - $250,000, plus its share of $733,404 paid by the HWV consortium
    o Acres International - $260,000
    o Spie Batignolles - $119,393, plus its share of LHPC’s $57,269 and LHPC-Chantiers’ $63,959
    o Dumez - $82,422
    o ABB - $40, 410
    o Sogreah - $13,578, plus its share of LHPC-Chantiers’ $63,959
    o Lahmeyer/ RWE- $8,674
    o Diwi - $2,439
    o Balfour Beatty – its share of LHPC’s $57,269 and LHPC-Chantiers’ $63,959
    o LTA - its share of LHPC’s $57,269 and LHPC-Chantiers’ $63,959
    o Hochtief - its share of $733,404 paid by the HWV consortium
    o Bouygues - its share of $733,404 paid by the HWV consortium
    o Keir Int’l - its share of $733,404 paid by the HWV consortium
    o Stirling Int’l - its share of $733,404 paid by the HWV consortium
    o Concor - its share of $733,404 paid by the HWV consortium
    o Sir Alex Gibb – its share of the LHPC-Chantiers’ $63,959
    o Coyne & Bellier - its share of the LHPC-Chantiers’ $63,959
    o Knight Piesold - its share of the LHPC-Chantiers’ $63,959

In August 1999, Lesotho courageously decided to prosecute 14 of these companies, plus three French and South African intermediaries that had helped to provide “safe escort” for the bribes.

Swiss authorities, who decided to help Lesotho for reasons that may actually include a sudden surge of ethical responsibility, also found that at least 14 companies had made deposits to these accounts by way of two Panama shell companies and other accounts in the Channel Islands, all of which had been set up by one of Panama’s leading law firms, Morgan y Morgan. The haven-neering employed was surprisingly crude – whoever structured the bribe path neglected to add extra layers upstream to conceal the payors’ identities, and had also made the gross error of setting up Swiss accounts in Sole’s name and transferring funds directly to him. The two Panamanian shell companies used as conduits were Universal Development Corp (UDC) and Electro Power Corporation.

UDC had been created by Morgan y Morgan way back in December 1981, under the control of a French agent, one Max Cohen, who had worked with Spie Batignolles on numerous other projects. It was only dissolved on September 2, 1998, when Cohen got wind of the Lesotho investigation. Its sheer longetivity is just one indication that Lesotho was probably not these contractors' only victim. Electro Power Corporation, also under the control of Les Grand Messieur Cohen, was created in October 1989, and was dissolved on September 2, 1998. UDC and Electro Power had their own accounts at UBS and Union Banque Privee in Jersey and Switzerland. The funds flowed from the contractors’ banks to the bank accounts of these two companies, then on to Sole’s Swiss accounts, and finally to his accounts at Standard Bank in Johannesburg.

In any case, except for ABB, whose Chairman Goren Lindahl admitted knowing about “the problems” in Lesotho since at least 1987, and agreed to cooperate with authorities, all the contractors vehemently protested their innocence. They were not so worried about the fines that Lesotho might impose. What really caused them sleepness nights was the fear that the World Bank, in particular, might exclude them from the $7 to $10 billion of loans and credits that it still distributes each year to Third World infrastructure projects.

In May 2002, after a year-long trial, Sole was convicted on 11 counts of bribery and 2 counts of fraud in Lesotho High Court, and sentenced to 18 years in prison. The court concluded that he had taken payments from the international contractors and agreed “to further their private interests.” In March 1991, for example, just one month before a key contract worth more than $250 million dollars was signed with one of the two key consortia in the case, the court found that the consortium had paid him more than $1.2 million by way of the secret accounts.

THE LINE-UP. Sole’s conviction set the stage for Lesotho's prosecution of the companies, and a frustrating effort to have them blacklisted from bidding on contracts in international development projects.

In October, 2002, after a seven-month trial, Canada’s Acres International, a leading engineering services firm, was convicted of bribing Sole with $260,000, and fined $2.2 million. 66 As the presiding judge commented, “This is the first time a first world company operating in the third world has been convicted of bribing a public official.” As Lesotho’s Attorney General explained, “The attitude has always been that Africans are corrupt. We want rich world corporations and countries to acknowledge their role. "We are telling them it that it is no longer business as usual.”

Following the conviction, Acres International continued to deny any involvement in the bribes. But in August 2003, the conviction was affirmed by Lesotho’s highest court, although it did reduce the fine from $2.2 million to $1.5 million. Nevertheless, in November 2003, NGOs around the world were compelled to decry the refusal by Export Development Canada (EDG), that country’s export finance agency, to bar Acres from future contracts.

In August 2003, Lahmeyer International, another leading construction engineering company that is owned by RWE AG, one of Germany’s top five companies, was convicted and fined in the same Lesotho bribery case. Other German firms involved in the case include Hochtief, another RWE AG company, and Diwi Consulting, an engineering company.

Many other leading companies are also awaiting trial. So far the “transnational perp walk" in Lesotho includes the following companies:

~France’s Schneider Electric, one of the world’s largest electrical distribution companies, has been implicated in the case by way of its acquired company, Spie Batignolles. It is awaiting trial. Other French firms also awaiting trial in the case include Dumez International, another leading engineering firm that is now a subsidiary of Suez-Lyonnaise-Eaux; and Bouygues, a construction and media giant.

~Switzerland’s ABB, a giant industrial conglomerate and power equipment supplier, has also been accused of bribery in the case, and is awaiting trial.

~Many other firms have been charged indirectly, as members of the project consortium that led the project and allegedly made payoffs. These including Italy’s Impreglio SPa, owned by the Fiat Group; the UK’s Balfour Beatty, Stirling International Civil Engineering Ltd., Mott McDonald, Sir Alexander Gibb and Partners Ltd, Kier International Ltd., Kvaerner Boving Ltd., ABB Generation (UK). and Knight Piesold; Germany’s Hochtief (RWE) and Zublin AG; France’s Coyne et Belier, GEC Alstom, Campenon Bernard, and Sogreah; and South Africa’s own Concor and LTA.

~These firms were also assisted by several leading international private banks, including the UK’s merchant banks Chartered WestLB and Hill Samuel, France’s BNP and Credit Lyonnais, Germany’s Dresdner Bank , and all five top South African Banks.

RECIDIVISTS. Interestingly, quite a few of these firms are recidivists -- Lesotho is not the first time that they’ve been involved in shady Third World construction projects. This is yet another indication of just how inadequate legal sanctions and enforcement with respect to such transnational crimes really are.

~In the early 1990s, for example, the UK's Knight Piesold (backed by the ECGD, the UK’s export credit agency, Spie Batignolles, and Sogreah, as well as GE Alsthom and Norconsult, were also involved in Kenya’s notorious Turkwell Gorge dam, later described by Kenya’s press as “the whitest of white elephants” and “a stinking scandal.” Knight Piesold was also the lead designer for Kenya’s poorly-conceived Ewaso Ngiro dam project.

fig. 2.30. Turkwell Dam, Kenya.jpg

~Balfour Beatty was also prime contractor for a corruption-ridden project in Singapore, and the Pergau dam in Malaysia, for which Balfour’s Chairman inadvertently bragged to a British journalist that he had personally handed over the requisite bribes to Malaysian officials.

~Impregilo SPa and Dumez were prime contractors, and Lahmeyer a leading member of the consortium responsible for the disastrous $12 billion Yacryeta hydro dam on the Parana River in Paraguay, still unfinished after 20 years -- even former Argentine President Carlos Menem called a “monument to corruption,” with over $6 billion of funds completely missing.
fig. 2.19. Yacyreta Dam.JPG

~Fiat’s Impregilo SPa was also prime contractor on Honduras’ costly El Cajon hydro dam, and Guatemala’s notorious Chixoy Dam, where it was also assisted by Lahmeyer and Hochtief.

~ABB has supplied turbines and power generation equipment to numerous Third World dam disasters, including the disastrous Tucurui hydro dam in the Amazon. fig. 2.9. Tucurui Dam.jpg

THE WORLD BANK’S RESPONSE? One might have thought that the World Bank, for all of its recent rhetoric about “transparency” and “fighting corruption,” would have taken swift action in this case. However, in February 2002, eager to get on with the project, the World Bank reported that its own internal investigation had dismissed the bribery claims against all fourteen contractors charged by Lesotho for “lack of evidence,” and it refused to blacklist any of them from future projects. The World Bank also presented a new, narrower interpretation of its own rules.

According to this new standard, only if it were shown that bribes actually make use of World Bank money, or are related to a portion of a project directly funded by the Bank, would briber-companies involved be blacklisted. One only has to ponder this for a minute to understand how wide a loophole it creates.

So, while the World Bank currently lists some 78 contractors on its “Ineligible List,”as of late 2003 this list still contains none of the LHWP contractors, after more than three years of court hearings, and no major international contractors, vendors, or banks at all. Nor, for that matter, have there been any sanctions imposed by any other development banks, or export finance agencies -- indeed, in the case of the US and the UK, there have never been any sanctions imposed by export credit agencies because of allegations, suspicions or evidence of corruption.

Undoubtedly the World Bank, other development banks, and the export credit agencies all face intense pressures from leading First World countries – the World Bank’s “shareholders” -- to maintain the eligibility of key contractors. Apparently the World Bank also cares a great deal about seeing the big projects that it finances move along as quickly as possible.

Indeed, in Lesotho’s case, leaked correspondence between the World Bank and Lesotho’s government revealed that the World Bank had known about the Sole investigation as early as 1994. Its reaction? World Bank officials expressed great concern to Lesotho’s authorities that by suspending Sole, they might slow the project down.


(c) James S. Henry 2003. Not for quotation or reproduction without express consent from the author.

November 19, 2003 at 05:40 PM | Permalink | Comments (2) | TrackBack

Monday, November 17, 2003

First World Criminals, Third World Crimes - Part 2: France's Heart of Darkness: The ELF Story.

Printable PDF Version


Loik Le Floch-Prigent

On November 13-14, 2003, the former CEO Loik Le Floch-Prigent and 22 other former executives of France’s Elf Aquitaine, plus seven other accessories, were sentenced by a French court to a few €millions in fines and no more than 5 years apiece in jail –- 14 of the accused got suspended sentences -- on charges that they had embezzled €300 million ($346.8 million) from the company from 1989 to 1993. These sentences, the culmination of an investigation that started in August 1994, determined that most of these thefts had been skimmed from secret slush funds managed out of Switzerland, Luxembourg, and Liechtenstein.

From our standpoint, the key fact is that these secret funds had originally been created in order to pay up to $130 million of bribes a year to senior officials in African countries like Gabon, Congo-Brazzaville, Cameroon, Angola, Guinea, and the Congo, as well as in Venezuela, Russia, Taiwan, Central Asia, China, Uzbekistan, and Kazakhstan.

Significantly, this extraordinary global corruption eventually “blew back” to France itself, where, according to Le Floch-Prigent, Elf paid at least €5 -€20 million in bribes per year to France’s leading politicians, ministers, and political parties -- not only Gaullist parties like Chirac’s RPR/UMP party, and former Interior Minister Charles Pasqua’s RPF, but also the Socialists and other parties.

Even after this extraordinary 9-year trial, we still lack much of the detail on precisely where all this payola went. However, as usual, some things can be said.


de Gaulle and Chiraq

To begin with, it appears that most of Elf's transgressions were committed with the knowledge and tacit or active approval of every French President from Charles de Gaulle on down to Chirac, after de Gaulle created Elf and the original “black box” system in the 1960s.

In addition to these domestic political subsidies, Elf also paid out an extraordinary amount of personal payola to France’s political elite – including free airfare, sweetheart deals and payoffs for ex-wives and girlfriends, and fancy apartments. For example, when President Mitterrand's weekly golfing partner was threatened with losing his house near their favorite golf course, Elf bought the house and let him continue living there, all expenses paid.

Francois Mitterand

Many of the key figures involved with these funds turned out to have top-level connections in the French government. After his stint at Elf ended in 1993, its former CEO, Le Floch-Prigent, was appointed by Mitterand and Jacques Chirac to serve as head of the state-owned utility Gaz de France and SCNF, the French National Railroad. Roland Dumas, President Francois Mitterand’s close friend and Foreign Minister in the 1980s, was convicted in 2001 of receiving Elf bribes in connection with an arms sales to Taiwan – though the conviction was overturned on a technicality in 2003.
Tarallo.jpegAndre Tarallo was a close friend and former classmate of French President Jacques Chirac (Ecole Nationale d'Administration, class of ’59), and an Elf employee since 1967.

From our standpoint, Tarallo is an especially important figure. During the course of his long career, he became known as Elf’s “Monsieur Afrique,” the “real boss of Elf-Afrique,” in charge of the company’s relationships with corrupt regimes all over Africa. Meanwhile, he also helped himself to $27 million worth of property, including a mansion in Corsica and one of the largest apartments in Paris. For all these efforts, 74-year old Tarallo received a four-year sentence and a €2 million fine.

This huge case has been nine years in the making. As it slowly wended its way to a conclusion, many cynics predicted that because the case is one of France’s most sensational corruption scandal ever,few convictions would ever be seen. However, mainly because of the perseverance of a handful of courageous judges and magistrates in France and Switzerland, the embezzlement charges ultimately stuck. But for evidentiary reasons as well as “pour raison d’Etat,” the French court limited the investigation to personal enrichment by Elf’s own officials. When it came to exposing the details of the many bribes paid in the Third World and the First, they drew a complete blank.

Alfred Sirven

As noted, because of the sensitive nature of Elf’s payoffs, we are unlikely to ever learn the full story. Nevertheless, it is already clear from many other sources that Elf – France’s largest multinational company at the time, with owned refineries and gas stations throughout Europe, Africa and the West Indies -- became a cornucopia of global corruption. As Alfred Sirven, Elf’s second-in-command in the early 1990s, and the former head of Elf’s Geneva office, said at the trial this year, “I know enough to eliminate the whole French political class.” Or as the former CEO, Loik Le Floch-Prigent, said, “If the money sometimes ended up in an orphanage then I am very happy - but let's say it didn't always end up in an orphanage.”


Gabon's Bongo

Among Elf’s many unsavory activities around the globe: (1) Elf developed incestuous, mutually profitable relationships with key African autocrats like Omar Bongo, Gabon’s ruler, the Congo-Brazzaville’s Sassou Nguesso, the Cameroon’s Paul Biya, PaulBiyaCameroon.jpg>

Cameroon's Biya

Jonas Savimbi, the Angolan rebel leader; Jose Eduardo dos Santos, Angola’s “Marxist” President; and Nigeria’s Sani Abacha.

Congo's Nguesso


Angola's dos Santos

For example, according to an investigating magistrate, $30-$50 million a year was placed in a secret bank account belonging jointly to Bongo and Tarallo, his close friend, and Bongo’s Presidential Guard was partly paid for by Elf. In Congo-Brazzaville, where Elf has lucrative refineries and other concessions, it supplied helicopters and financed arms supplies for rival leaders. In Nigeria, it reportedly paid bribes to secure a lucrative oil concession in 1995. All told, according to the French magistrate, Elf ran "a vast and opaque system aimed at paying commissions, via intermediaries, to certain African personalities.” saniabacha_and_kofi_annan.jpg

Kofi and Sani

fig. 3.1. Carlos Andres Perez.JPG

Carlos Andres Perez

(2) Elf allegedly paid $2.5 million in bribes to Venezuela’s President Carlos Andres Perez and other Venezuelan politicians in 1991-92, part of some $20 million in commissions that Elf was alleged to have spent in Venezuela.

(3) Elf allegedly made still more payoffs in China and Taiwan in connection with a 1991 arms deal – including millions of dollars that were allegedly paid to Zhu Rongii, the former Mayor of Shanghai who served as China’s Premier from 1998 to 2003, and to Foreign Minister Dumas, to secure their tacit approval for the deal. ZhuandClinton.jpg

Zhu Rongii and Clinton

These payments were reportedly made by Elf’s network in connection with the sale of six frigates to Taiwan by Thompson-CSF, another French company, in 1991. On this deal alone, the commissions reportedly totaled more than 30 percent of the $2.5 billion purchase price.

(4) Elf also allegedly made huge payoffs to Nadhmi Auchi, an obscure Iraqi-British billionaire who is reputedly Britain’s seventh wealthiest man, the largest shareholder in BNP Paribas, and – according to some – one of Saddam Hussein’s oldest cronies and private bankers. (They both took part in the attempted assassination of Iraqi leader Abdul Karim Qasim in October 1959.).

Nadhmi Auchi

The Elf payoffs to Auchi, which he reportedly passed on to Spanish politicians and partly kicked back to Elf officials, were made in connection with its 1991 purchase of Ertoil, a Kuwaiti-owned oil refinery in Spain. Auchi, one of the 37 people charged by the French court, was given a two-year suspended sentence and fined £1.4 million, after having been found guilty of accepting illegal commissions from Elf worth $84 million.

(5) Meanwhile, back in the First World, Elf also allegedly paid at least €47 million ($54.8 million) in commissions to senior German ministers and a slush fund for former German Chancellor Helmut Kohl’s Christian Democratic (CDU) Party.

fig. 2.3. Dr. Dr. Batliner and Helmut Kohl.jpg

"Kohl and Liechtenstein Money Man"

These payments were made in connection with a corrupt privatization deal, Elf’s purchase of a chain of gas stations and the Leuna oil refinery in eastern Germany in the early 1990s. Elf received more than €1 billion in German subsidies to help it finance €2.4 billion cost of modernization costs for the refinery. Former Chancellor Kohl denied any involvement in the scandal, and German prosecutors were unable to make a case against him – especially after Kohl’s government destroyed millions of documents and two-thirds of its computer files during the three weeks after the CDU lost the 1998 German elections. However, one of those recently convicted in the November 2003 case in France was Dieter Holzer, a German lobbyist who had handled the refinery. He got 15 months in prison and was ordered to pay a €1.5 million fine and return at least €24 million in commissions.

Most of the alleged behavior listed above pertained to the period before Elf was privatized in 1994, and then merged with Total/Fina in 2000. So some have argued that the core problem here was that Elf was simply a corrupt state-owned bureaucracy, at the mercy of French politicians, and that privatization would fix the problem.

However, it turns out that this “neoliberal” view of reform is extraordinarily naive. First, it usually take a long time to change corporate culture and interests. Second, as this recent 9-year Elf prosecution showed, even if senior executives are caught and convicted, the initial “loot” is so large, the investigations are so lengthy and complex, and the ultimate jail sentences and fines for such white collar crimes are so modest under present laws, on a “net present value” basis, crime really does pay quite handsomely.

So it should not be surprising that misbehavior by Elf and its new parent Total S.A. appears to have continued long after privatization. For example:

Nazarbaev and Clinton<

(6) Total S.A. has recently been implicated by the US with participaitng with five other leading oil companies – including ExxonMobil, BP, and Royal Dutch Shell – in a consortium that allegedly paid millions in illegal bribes to Kazahkstan’s President Nazarbaev and former Prime Minister Balgimbaev in the late 1990s, to secure oil concessions.

(7) Elf and Total S.A. have also compiled an unsavory record of dealing with Burma’s SLORC/SPDC, one of the world’s most repressive military regimes. Together with Unocal and Thailand’s National Oil Company, in July 1992 Total struck a deal with the regime to exploit the Yadana offshore gas field, and to build a $1.4 billion gas pipeline across rebel territory to Thailand – with the help of forced labor. Throughout the 1990s, Total S.A. and Unocal were Burma’s largest foreign investors, with the pipeline and a related railroad accounting for more than a third of all foreign investment in Burma, and will provide the military its largest source of foreign exchange other than heroin. The “clean currency” provided by Total and Unocal to the regime helped Burma source mortars in Portugal and helicopters in Poland.

All told, then, what we have here is a clear demonstration of just how contagious corporate corruption can be -- and how it interacts with the power of the state to generate a long-term venal alliance that is extremely hard to unravel, once it is in place. From one standpoint, French justice worked -- after all, all these former Elf senior managers have at least been jailed and fined. But it took almost a decade to catch up with them, and apart from social disgrace, the actual fines and sentences they will suffer are relatively minor, compared with all the hundreds of millions still missing. Moreover, out of all the senior French officials who knew about Elf's behavior and tolerated or encouraged it, only one saw any jail time -- and his conviction was overturned on appeal.

Finally, perhaps the worst damage from this scandal has been suffered by the scores of developing countries where Elf/ Total has long used bribery to wield undue influence. While the names of those Elf bribed are still in many cases secret, we can be sure that this not only tilted public policy unfairly in Elf's favor; it also helped to spread corruption from the First World to the Third, and helped undermine the rule of law in these fragile environments.

So those who blithely criticize developing countries for having "corrupt governments" -- which many of them no doubt do -- might do well to remember the case of Elf. As this tale indicates, the fact is that for more than forty years -- and quite possibly still to this day -- the Government of France joined together with leading French corporations and banks, plus quite a few friendly bankers in Europe's top havens, and made it national policy to foster corruption throughout the developing world, in order to serve its own perceived national interests, and pocket a few bucks for influential insiders on the side. If this does not constitute "crime against humanity," the term has little meaning.


(c) James S. Henry 2003. Not for reproduction or other use without express consent from the author.

November 17, 2003 at 02:42 AM | Permalink | Comments (1) | TrackBack

Sunday, November 16, 2003

First World Criminals, Third World Crimes – Recent Transnational Corruption Cases. Part I: Introduction.

Printable PDF Version unocal.jpg elf_acquitaine.jpg Ever since a series of unprecedented corporate scandals erupted in the US in late 2001, students of corporate corruption and First World media have focused mainly on the misbehavior by First World companies, banks, and investment companies in their own backyards. As indicated by the unfinished prosecutions of Enron, Worldcom, and Tyco, plus the recent US mutual fund trading scandals, this kind of big-ticket corporate crime continues to be an important problem.

However, from the standpoint of developing countries, there is even more to learn from a recent flurry of transnational corruption cases that all involve serious criminal misconduct by leading First World multinationals in Third World countries.

The hit parade includes:

  • France’s huge oil company, Elf Aquitaine, formerly France's largest state-owned company, and now part of Total S.A., the world’s fifth largest oil company. Total.gif A French court case that ended just last week has helped to expose a vast network of bribery and corruption that operated throughout Africa, Asia, and Latin America, as well as Europe, for more than four decades -- with the complicity of France's highest officials. (See Part 2.)
  • A half dozen leading Canadian and European engineering and construction firms that are now being prosecuted for briberylahmeyer.gif with respect to a huge World Bank-financed dam project in the tiny African country of Lesotho. As we will see, despite Lesotho's courageous efforts, the World Bank and First World export credit agencies have been reluctant to punish the companies involved. (See Part 3.)
  • The giant Swiss “trade services” SGS, which has recently been shown by a Swiss court to indeed have been deeply indicted in bribing former Pakistan Prime Minister Benazir Bhutto, and leading members of her government, during both of her two administrations in the 1990s. The resulting bribery scandal may have had a profound impact on Pakistan’s efforts to develop democratic institutions. (See Part 4.)

  • The US’ own Halliburton, Enron, ExxonMobil, and Unocal have all been recently implicated in corruption and human rights violations in several developing countries, including Kazahkstan, Nigeria, India, Brazil, Burma, Equitorial Guinea, Guatemala, and the Philippines. Once again, they have been able to do so with impunity (See Part 5.)
  • Leading global defense contractors, which have recently been implicated in bribery schemes that have had a profound impact on several developing countries – and on the First World as well. (See Part 6.)

This article is the first in a series by Submerging Markets that will examine such cases in detail. One of our objectives is just to tell a few colorful stories. But we believe that there is also a great deal to learn from these cases about the way the world really works. In particular:

  • These cases raise serious questions about the First World’s ability and willingness to prosecute large corporations and banks for bribery, fraud, and other crimes that occur beyond its borders. So long as company managers don't steal from their shareholders (and perhaps even then), they appear to be safe.
  • The cases suggest that existing international mechanisms for prosecuting such corporate crimes are woefully inadequate, and that we need to consider creating the equivalent of an International Criminal Court for transnational corporate crimes. After all, the victims of these crimes are not just relatively-affluent First World investors, but the residents of some of the world’s poorest countries.

  • These cases beg the question of whether the privatization of corruption-ridden state enterprises necessarily reduces corporate misbehavior. They also provide an interesting vantage point from which to assess recent First World criticisms of efforts by countries like Russia and China to crack down on corruption among their own business elites.
  • Most important, these cases suggest that the standard “country by country” approach to understanding international corruption that has been employed by organizations like Transparency International (TI) is inadequate, because it ignores the fact that First World countries - and some leading developing countries -- often exert a profound negative influence on corruption levels far beyond their borders.

Of course, corruption varies with country income levels -- poorer countries have fewer resources for law enforcement, and they also have often suffered from “exploitative states,” which hardly encourages respect for the law. As for "national culture" explanations for corruption, as Alex Gerschenkron used to say, we start out by being suspicious of such "uncaused causes" -- but then one visits Italy! There is a obviously great deal of “petty-ante” corruption throughout the developing world, from the morditas (“bites”) made famous by Mexican and Costa Rican policemen and Nigeria’s “dash,” to Kenya’s “kitu kidogo and “sodas,” to baksheesh in the Middle East. And, as the examples of Russia, Mexico, Argentina, and China demonstrate, there is no shortage of unscrupulous Third World entrepreneurs.

However, as the cases examined in this series illustrate, much of the most heinous transnational corruption involves giant development projects, massive bribes, and secret haven bank accounts, where the transgressions are on such a grand, systematic scale that they require the active connivance of First World banks, transnational companies, and governments. This kind of big-ticket corruption requires a transnational system – a global network, not only of willing bribees in “corrupt” developing countries, but of eager corporate bribers, private bankers, First World government officials and spies, as well as “see-no-evil” development bankers at the World Bank and the IMF. Of course all these folks reside in First World countries that get "top-shelf" rankings every year from Transparency International.

In short, these cases suggest that the standard “neoliberal” approach to corruption and transparency, which emphasizes “institutional reform” at the level of individual countries, may be necessary for political development, but it is certainly not sufficient.


(c) James S. Henry 2003. Not for reproduction or other use without express consent from the author.

November 16, 2003 at 07:21 PM | Permalink | Comments (0) | TrackBack

Friday, November 07, 2003

South Asia - The Mystery of the "Missing Women," High Population Growth Rates, and The Limits of Choice

Indianwomen.jpg In the 1990s, India and its non-Communist neighbors on the Asian subcontinent -- Pakistan, Bangladesh, and Nepal -- followed the advice of UN experts and "pro-maternal choice" advocates, and bet heavily on a laissez faire approach to population control. This approach, which emphasizes education, family planning, maternal control, and the voluntary use of contraceptive devices, was supposed to be more humanitarian than the coercive approach that had been adopted by China, and briefly by India itself, in the 1970s. That approach had relied heavily on forced sterilzations, IUDs, and abortions, and heavy-handed ceilings on the number of children per family.

A decade later, as recent research on this region's demographics makes clear, both these approaches turn out to have serious limitations. For different reasons, they have both facilitated very high levels of infanticide against infant girls. And the laissez-faire approach has also utterly failed to restrain South Asia's population growth rate, which remains among the highest in the developing world. To transcend these problems will require the state to intervene, but in a much more intelligent way, by providing positive incentives to parents to "do the right thing."

Private Choice, Collective Insanity. To begin with, the voluntary approach to population control has not succeeded in reducing the overall populaton growth rate fast enough. As this The New York Times report indicates, population growth in India, and for that matter, in the whole South Asia region, continues at a very strong pace -- 1.7 percent a year. While this is below the 2 percent average recorded by South Asia in the early 1980s, it is 40 percent higher than the average for the rest of the developing world, and more than 2.3 times the population growth rate in China.

There are many factors responsible for these persistent growth rates, but among the most important are the relatively limited voluntary prevalence of contraceptives -- just 28 % of women in Pakistan and 49 percent in South Asia as a whole, compared with 82% in China, where the use of contraception was heavily subsidized and, indeed, mandated.

All told, South Asia now contains more than 1.35 billion people, a fifth of the world's population, compared with China's 1.28 billion. India alone is well on its way to displacing China as the world's largest country by the year 2020, absent a nuclear war or some unforeseen famine or epidemic. All these people are living on a land area just two-fifths the the size of the US or China, so this means intense pressures on living conditions, labor markets, and the environment.

Sexual Infanticide In both South Asia and China, another pathological byproduct of current family planning approaches, on top of cultural traditions, has been to reinforce one of the most abhorrent ancient forms of sexual discrimination. This is the age-old practice of eliminating what the Chinese called "the maggots in the rice" -- terminating pregnancies or new-borns, once it is determined that a child is a girl.

In the aggregate, the magnitude of this sexual infanticide activity is astonishing. To arrive at a very rough estimate, we've examined the World Bank's latest (2002) figures for the average "population sex ratio" -- the percentage of a country's total population that is female. For the developing world as a whole, excluding China, India, and the rest of South Asia, the average is 50.4 percent. But for China and South Asia it is 48.5 percent. The World Bank reports that India and China both have have almost identical rates, at 48.4 percent, but both rates appear to be dropping. A Chinese census in 2002 reported, for example, that the sex ratio for live births is now just 46.7%. As shown in Table 1 below (scroll to the end) , this implies that for these countries to record the same average sex ratio as other developing countries, South Asia and China would need to have almost 100 million more females in their populations than they currently do. So where are they?

The odds of conceiving a female child are 50-50 in the population at large, and certainly do not vary by country. Furthermore, life expectancy for women in all these countries actually exceeds that for men by at least 2-3 years -- so long as the women are allowed to be born in the first place, and are not snuffed out in their cribs.

So the only plausible explanation for these sex ratio differentials in South Asia and China is that something is killling off unborn and just-born girls at an extraordinary rate. Since there do not appear to be diseases or other health factors that discriminate against female children in this way, the only conceivable explanation appears to be willlful infanticide by the parents themselves, under the influence of cultural institutions like the dowry, unprincipled medical counselors and abortionists, and the state.

This is hardly an entirely new observation; other observers, like the World Health Organization, have also (rather quietly) observed that, for example, in China's case there appears to be at least 50 million women who are "missing" from the population statistics, compared with the sex ratios that one observes in other countries. But there is new evidence (see below) that the magnitude of this pathological activity may be on the increase.

The "sexual infanticide" explanation is supported by recent UN field studies that show that it is indeed a widespread practice. For example, an October 2003 study by the UN Population Fund reported a growing problem of sex-selective abortion and infanticide in India. The study found that the sex ratio for the country as a whole had declnied from 48.59% in 1991 to 48.11% in 2001, and that in some states, like Punjab, Haryana, Himachal Pradesh and Gujarat, the ratio had fallen “drastically" to 44 percent -- less than 800 girls for every 1,000 boys. Interestingly, the study also found declining sex ratos even in the country's most affluent districts of Delhi, where prospective parents use all the latest medical technology, including pre-conception gender selection practices, amniocentesis and late-term abortions, to support their curious, culture-bound preferences for male babies.

There have also been numerous press reports that corroborate similar findings with respect to China. In China's case, the impact of traditional preferences for male children was undoubtedly further aggravated by the notorious "1 child per family" that was introduced by the CP in 1979. In addition to increased infanticide and sexual discrimination, this system also produced a huge underground market in "unregistered" children, and has been widely criticized for its punitive nature.

So there are real dilemmas here, both for advocates of "choice" and "regulation" alike. Fans of "free choice" have to explain how we can square unfettered individual choice in these matters with the important goals of reduced violence and discrimination against women, as well as with the goal of securing aggregate rates of population growth that are sustainable in the long run. Fans of "regulation" have to explain how they can provide positive incentives for couples to make better choices, without using such the heavy hand. Ultimately, of course, everyone would like to leave the state out of these delicate, private matters. The problem is, that doesn't always seem to work.


Table 1: Asia's "Missing Women," 2002

Category Population%Women Female Population
High Income Countries964,738,60050.71% 489,218,944
India 1,048,279,00048.41% 507,471,864
Other South Asia304,708,41048.94% 149,118,930
China/ South Asia Total2,633,962,410 48.48%1,276,838,889
All Other Developing Countries2,602,674,99050.35%1,310,446,857
World6,201,376,00049.61% 3,076,502,634
"Missing Women:" China/ South Asia***-1.87%99,418,297

***Assuming that the China/ South Asia sex rato would otherwise equal the average in other developing countries

© Submerging Markets (2003)

(c) James S. Henry, 2003. Not for reproduction or other use without express consent of the author.

November 7, 2003 at 02:01 PM | Permalink | Comments (2) | TrackBack

Thursday, November 06, 2003

Democratic Nation Building - Our Newfound Justification for the Second Iraq War

000BACKTHEATTACK.jpgBushGWdemocracyinME.jpg Maybe President George W. Bush will indeed turn out to be a radical Wilsonian democrat. But it is easy to be cynical about his latest justification for the Second Iraq War -- to bring "democracy" to the Middle East.

After all, there have just been so many examples of dodgy US behavior in the Middle East, let alone the rest of the developing world. And the truth is that this behavior has long been almost precisely the opposite of what Bush claims to be hoping for -- the US has been at best indifferent to democracy as well as popular leaders, and often downright hostile.

For a longer discussion, I refer the reader to the last chapter of my new book. But just to cite a few examples:

  • Each year the US provides billions in economic and military aid to the scarcely-democratic regimes of Egypt and Morocco, as well as Pakistan;

  • President Bush's father made similar loud noises about Kuwait's democratizing efforts in 1990-91, as part of the rationale for his First Iraq War. Today, 12 years later, the Emir and the al-Sabah family remain firmly in control.
  • The US has a long history of overthrowing duly-elected governments in the Middle East and installing pro-US autocrats in their place -- most famously in Iran in th 1950s.
  • The US also has a long history of opposing "popular-if-not particularly-democratic leaders" that it did not like, such Iraq's Abdul-Karim Qassem, Egypt's Nasser, and the Palestinians' Arafat.
  • The US has long turned a blind eye to popular opposition to despotic regimes like the Saudis and the Shah, so long as they served its perceived interests.
  • When it served perceived US interests to side with "national liberation" movements like the Kurds or the Afghan rebels, the US did so. When it did not, it ruthlessly sold them down the river.
  • While Israel, the US' key client state in region, likes to proclaim itself a "liberal democracy" with civil liberties and a free press, many are concerned that its behavior toward the human rights and democratic voice of those who don't happen to qualify for Israeli citizenship is, to put it mildly, not beyond reproach.
  • Some might caution us to beware of getting what we ask for. After all this history, and having alienated and radicalized popular opinion in most Middle Eastern countries through our support of autocratic regimes, it is not as if a sudden change toward the support of democratic rule would produce many friendly governments. To deal with this dilemma will require decades.
  • The other basic history lesson that President Bush needs to learn is that democratic development is most likely to succeed where -- as in "the new" South Africa, Brazil, and Mexico -- it comes from within. Indeed, the irony is that by taking sides so publicly with pro-democracy forces in the Middle East, given our own image and track record, we risk actually undermining these forces. (One hopes that that is not somebody's maniacal hidden agenda.)

Overall, therefore, the best one can say about this latest in a series of shifting justfications for this costly war is that at least it is no weaker than all the others.

However, if, by some miracle, this does mark a historic moment in the history of the United States' commitment to Third World democracy and nation-building, how can we not welcome it? We will also look forward, therefore, with great anticipation to a renewal of US support for human rights and democratic nation-building in countries like China, which both Bush and Clinton have given a pass on these issues, and in Haiti and Liberia, where GW criticized "nation-building" so harshly the last time he ran for President. These last two countries may not have any oil, or WMDs, but heh -- that doesn't seem to matter, does it?

(c) James S. Henry, 2003. Not for reproduction or other use without express consent of the author.

November 6, 2003 at 03:25 PM | Permalink | Comments (0) | TrackBack

Tuesday, November 04, 2003

Guatemala's Upcoming Elections - "Democracy in the Americas?"

Gen. Efrain Rios Montt riosmontt.jpg guatemalamap.jpg It is election time again, and as millions of Americans commemorate our own more or less imperfect democratic institutions at the polls this week, it is appropriate for us to reflect on the tiny, long-suffering Central American country of Guatemala -- one of several neighbors where, for better or worse, the United States has exerted profound influence for decades on political and economic development.

This Sunday, on November 9, 2003, the roughly 4.5 million out of 13.9 million Guatemalans who are of voting age and have bothered to register will have an opportunity to chose a new President and Vice President, a Congress, the mayors of 300 villages, and 3500 local officials, not to mention Guatemala’s delegates to the (superfluous?) Central American Parliament.

This should be a cause for celebration. After all, this will be Guatemala’s fifth “peaceful, free” election in a row, after the 32 years of military rule that ended in 1986, and the third election since the December 1996 UN-mediated “Peace Accord” that was supposed to conclude the country’s civil war, alleviate poverty, increase spending on health and education, reduce discrimination against indigenous peoples, and bolster democracy.

In fact this latest election, like the Peace Accord, has also turned out to be somewhat disappointing -- an occasion for serious violence, intimidation, outright fraud, and the discriminatory use of government and press power. Because of all the intimidation, and the absence of candidates who dare to present serious alternatives to the status quo, many -- including this writer -- feared that Guatemala would maintain its record as having one of the lowest voter turnout rates among developing countries, with just one out of every three people of voting age bothering to vote in the last two Presidential elections. (In fact, this time around, Guatemalas swarmed to the polls in record numbers, with preliminary figures indicating that 80 precent of registered voters turned out to vote -- see below.)

At this point the outcome remains uncertain, and a run-off between the top two Presidential candidates may well be needed in late December. But it now appears likely that Guatemala will at least avoid the worst case scenario -- the return to power of one of its most reprehensible military leaders ever, General Efrain Rios Montt.

According to the latest polls, the 77-year old former general is likely to get trounced by “safer” candidates from the center-right’s “ladino/ oligarchy” parties, like former Guatemala City mayor Oscar Berger, or civil engineer and long-time bureaucrat Alvaro Colom. BergerOscar.jpgColomAlvaro.jpg (In fact this forecast, at least, made last week, turns out to have been correct -- in contrast to previous national elections, Guatemalans turned out in record numbers to reject Rios Montt's bid.)

For the vast majority of Guatemalans, which of these white faces presides over the next four years of government matters little, so long as it is not Rios Montt’s.

Given Rios Montt’s track record, of course the real question is not whether he has a chance at the Presidency, but why he is not sitting alongside Slobodan Milosevic or some Tutsi army commander in the dock at an international war crimes tribunal. In this respect he has already joined the hallowed ranks of such big-league war criminals as Radovan Karadzic, Augusto Pinochet, Indonesia’s General Wiranto, Liberia’s Charles Taylor, and our own Dr. Henry Kissinger, who have so far managed to escape the scales of justice for reasons that have little to do with their innocence or the scale of their transgressions.

Yet even if Rios Montt loses the election on Sunday, recent events have demonstrated that he and his reactionary supporters, plus the country’s largely unreconstructed military and national police, remain a potent force in this beleaguered, semi-feudal country, where the average per capita income is just $1700, more than half the population lives in poverty, and 70 percent of the land is owned by just the top 2 percent. To understand why his country remains in this situation, and why he and his genocidal henchmen are still lurking around in the 21st century, only two hours from South Beach, we have to take a brief look at his roots.

Ecumenical Genocide. From 1978 to 1986 Guatemala was ruled by a blood-thirsty junta that was directed, in turn, by Fernando Romeo Lucas Garcia (1978-82), General Rios Montt (March 1982–August 1983), and Oscar Mejia Victores (September 1983–1985) -- perhaps best known for describing the high level of violence in his country as “folkloric.” Beginning in the late 1970s, this group of US-trained uniformed savages began to systematically annihilate Mayan villages, which they feared might be sympathetic to left-wing guerillas.

The result was a lop-sided “civil war” that a 1999 UN-backed Truth Commission concluded had claimed more than 200,000 civilian lives, 2 percent of the country’s entire population. About 83 percent of these victims were Mayan Indians. While 3 percent of the victims were attributable to left-wing guerillas, the Commission estimated that 93 percent had been murdered by the Army and its death squads, which conducted massacres against some 626 Mayan villages. In addition, more than 1.5 million people were forced to emigrate. The Commission aptly described this entire policy as “genocide.”

In particular, for 17 months in 1982-83, General Rios Montt, a proud graduate of the US military’s School of the Americas (since renamed the “Western Hemisphere Institute for Security Cooperation”) and a self-styled “born-again Christian” who had become an ordained minister in California-based Gospel Outreach’s Guatemala Verbo evangelical church, presided over an especially harsh period of repression, which saw the expansion of the PAC (Las Patrullas de Autodefensa Civil vigilante groups that were responsible for wiping out most of the Mayan villages. A former investigator for the American Association for the Advancement of Sciences’ Guatemala exhumations project told me about one typical incident, near the central highlands village of Rio Negro in March 1982: fig. 1.25. Chixoy Dam, Guatemala.JPG


I organized the technical team that exhumed the gravesite at Rio Negro. We located the bodies of 177 women and children on a mountain side near the village, an hour by foot up the mountain from the dam. According to an eyewitness who was located by human rights investigators accompanying the team, the killings were done by the Patrullas, who were part of Rios Montt’s “Frijolles e Fulsilles” “(beans and bullets) strategy. The investigators located one old woman, a survivor who had managed to get away and witnessed the whole thing. According to her, the Patrullas marched these people up the mountain. The patrol was drinking. They put a tape on a cassette player and ordered the women to dance, “Just like you dance the guerillas.” They started shooting at their feet, then some of the Patrullas took some of the younger women off into the bushes and raped them. When the women fought back, they were hit in the face with rifle butts and knocked unconscious. This was consistent with the mandible fractures we found on a handful of bodies. We also found several infants who had skull fractures. The men of the village had escaped to the mountains, and did not expect the PAC to harm the women or children. They were wrong. They watched the whole thing from another mountain,,,,"

The origins of such policies go back at least to the June 1954 CIA-orchestrated coup against the duly-elected (with 65 percent of the vote!) government of Guatemalan President Jacobo Arbenz Guzman. Arbenz.gif

A Swiss immigrant and a reform-minded Army captain, but certainly no Communist, Arbenz had the temerity to contemplate polices like land reform, an income tax, a hydro dam that would compete with the US-owned electrical monopoly, and the nationalization (with compensation) of the United Fruit Company/Chiquita’s 600,000 acres in the early 1950s. dulles_allan.gif

Of course variations on all of these “radical” measures had also been widely introduced in the US itself, with results that were generally beneficial to the public at large, if not the landed elite. But in the Guatemalan context, given the cold war passions of the day, not to mention the fact that United Fruit’s former corporate counselors, the Dulles brothers, were influential members of the Eisenhower Administration, it was easy for local elites and multinationals whose oxen were being gored to characterize all these measures as part of some Great Transnational Communist Conspiracy. castillo.armas.jpg

The result was the ’54 coup, and the elevation of Colonel Carlos Castillo Armas – who had previously been working as a furniture salesman in Honduras – to become the first in a long series of thugs with a really quite unusual combination of banality, venality, and brutality.

Fast forward now to the Carter Administration (1976-80), the one exception to the rule that saw US administration after administration cultivate and abet its two key local partners, Guatemala’s military and its land-owning elite. To his credit, Carter condemned the Guatemalan junta and cut off arms shipments, although the CIA quietly maintained its connections. Deaver.jpg

But when Ronald Reagan took office in January 1981, the old public policy of mutual understanding and back-scratching returned. Indeed, Deputy White House Chief of Staff Michael Deaver’s LA/DC- based PR firm, Deaver and Hannaford, was hired by the junta’s cronies, a substantial amount of Guatemalan money reportedly found its way to the Reagan war chest, and sanctions against US arms purchases disappeared. With encouragement from officials like Secretary of State Al Haig, military aid and advice to the junta was also promoted through Israel, which provided more than 300 security advisors, built an entire factory in the northern province of Alta Verapaz to manufacture Galil rifles, the Guatemalan Army’s weapon of choice against the Mayan peoples, and also supplied a computer system for tracking “subversives.”

Meanwhile, on the political front, there was a systematic attempt to erase the bloodstains from Guatemala’s image. US Assistant Secretary of State Thomas Enders praised Rios Montt for his “effective counterinsurgency,” and Ronald Reagan called him “a man of great personal integrity,” “totally dedicated to democracy,” and someone who had supposedly been given “a bum rap” by Amnesty International.

Rios Montt’s Personal Pacification Program. Fast forward once more to the late 1980s, skipping over the abattoir of the Reagan years. After leaving power, General Lucas Garcia discretely retired to Venezuela and contracted Alzheimers, while Mejia Victores quietly divided his time between Miami and Guatemala City. But Rios Montt, who had actually run for President unsuccessfully way back in 1974, still thirsted for power. He remained in Guatemala, adopting a shameless, “in-your-face” stance, and founding a new conservative party, the Republican Front (Frente Republica Guatemalteco, or FRG).

Unfortunately for his Presidential aspirations, the newly empowered Constitutional Court ruled twice, in 1990 and 1995, that Rios Montt was barred from running for President by Article 186, because of his role in the 1982 coup. So for the time being he contented himself with being the FRG’s Secretary General, key financier, and a member of Congress -- which, among other benefits, gave him immunity from prosecution. Meanwhile, he tried to govern through stand-ins.

In December 1999, FRG swept both the Congressional elections and the Presidency, with a great deal from help from Angel Gonzalez, a curious Miami-based Mexican media mogul who, after 1981, quietly managed to gain control of more than 20 Guatemalan radio stations and seven TV channels – including all four private TV channels (#3 and #7, the most popular, plus #11 and #13) that have national coverage. (This was by no means Angel Gonzalez’s only Latin American TV venture, or his oddest acquaintance – in Peru he also reportedly collaborated with ex-Fujimori spy master Vladimoro Montesinos in an effort to buy a TV channel.) angel.jpg
With this kind of help, Rios Montt’s protégé, Alfonso Portillo,a former university professor and self-confessed killer who had to flee from Mexico in the 1980s because he was wanted for murdering two people, became President in January 2000, and Rios Montt became the President of the National Congress.

Portillo’s Debacle. Rios Montt should have known -- what can one expect from a murderer? In the following three years, Portillo’s self-proclaimed neoliberal FRG administration went from commanding a 65-percent electoral majority to earning the dubious distinction, as one Guatemalan newspaper put it, of being “one the most corrupt in the history of this Central American country”— given the country’s history, no mean achievement. As early as January 2001, according to investigations by two leading Guatemalan newspapers, Portillo and his cronies had already started diverting Interior Ministry funds to Panamanian bank accounts. Portillo also reportedly appointed Angel Gonzalez’ brother-in-law, Luis Rabbe, as Minister of Communications, in charge of the country’s only public TV station. A flurry of other corruption, arms and drug dealing charges followed. By January 2002, 92% of Guatemalans had lost all confidence in Portillo’s administration. By the fall of 2003, the vast majority rated Portillo Guatemala’s worst elected head of state ever.PortilloAlfonso.jpg

In January 2003, even the usually hard-shelled US Ambassador refused to attend Portillo’s annual speech to the National Congress, and the Bush Administration informed the US Congress that it intended to decertify Portillo’s drug enforcement program, which had gone through nine directors of its anti-drug unit in three years and was riddled with corruption. As one senior State Department official said, “Narcotics, trafficking, alien smuggling, money laundering, and organized crime in general are on the increase in Guatemala. Some of the leaders have very close ties to (President Portillo) and regularly influence his decisions.”

Even Rios Montt discovered that he was not entirely beyond the reach of the law. Guatemalan courts may not take human rights seriously, but it is very serious about liquor laws. In March 2001, its Supreme Court determined that Rios Montt and 23 other FRG legislators had participated in a conspiracy to reduce the country’s sales taxes on liquor without following proper parliamentary procedures. So his Congressional immunity was lifted against civil liability. That did not affect his immunity from criminal proceedings or military crimes, but it was one tiny crack in the wall of impunity.

In the event, however, the General bounced back again, determined to try once more to run for President. At first the Constitutional Court suspended his campaign for the same reason it had done so in 1990 and 1995. But in July 2003 he summoned thousands of his supporters to Guatemala City on what became known as “Black Thursday,” and literally held the country hostage until the CC relented, allowing him to be listed on the November ballet.

So now we wait for the final outcome. As indicated above, we have reasons to hope for the best – Rios Montt has discovered that he is being dragged under by the abysmal reputation of his fellow efrregista, Portillo. Absent another round of outrageous intimidation and violence by the General’s supporters – many of whom are former PAC members, recalled to action in the rural areas -- this Sunday should bring a least a little good news for the forces of democracy.

But contrary to Ronald Reagan’s hoary characterizations long ago, Rios Montt and his supporters are neither of men “great personal integrity” or “dedicated to democracy.” They are determined, unpredictable, dangerous, and evil. And they were largely of our creation.

After decades of intimate relations with the US and its various corporate interests and governmental agents, therefore, Guatemala today remains one of the bloodiest open sores on the pock-marked face of global capitalism. Not for nothing did Bill Clinton, in one of the finer, more humble moments of his Presidency -- for which he was roundly criticized by Republicans -- travel to Guatemala in March 1999 and apologize publicly to the Guatemalan people for the horrific impact that generations of US polices have had on their social and political well-being.

It is all very well for Americans to celebrate our undeniable achievements as a democratic society. It is also important for us to occasionally remind ourselves the incredible price that some of our poorest neighbors have paid for these achievements. As Rios Montt’s Gospel Outreach church likes to put it, “Eternity is a very long time to be wrong.”


© James S. Henry, 2003. Not for reproduction or other use without express consent of the author.

November 4, 2003 at 05:24 PM | Permalink | Comments (2) | TrackBack