Sunday, October 25, 2009

Inaction Against Corruption in South Asia

Under the US Foreign Corrupt Practices Act (FCPA), all American companies are required to provide details of illegal payments made in foreign countries.

Paxar Corporation, a New York listed company recently acquired by Avery, acknowledged paying $30,000 to bribe Pakistani customs officials in 2008 through its local customs broker. Avery, a California-based company, manufactures and markets various office products in several dozen countries around the world.

In a settlement with the SEC, Avery has agreed to pay over $300,000 in fines, and accepted SEC's cease-and-desist order to stop its corrupt practices.

Here is a list of FCPA violations involving Indian entities reported to the Indian Prime Minister by India's US Ambassador Meera Shanker in Washington:

* On January 9, 2009, Mario Covino of Control Companies allegedly pleaded guilty to making illegal payments of over $ 1 million to employees of state-owned entities, including the Maharashtra State Electricity Board.

* On Feb 14, 2008, Westinghouse Air Brake Technologies Corporation’s Indian subsidiary, Pioneer Friction Ltd, settled civil charges in connection with improper payments to employees of Indian Railways. The $137,400-payment was made between 2001 and 2005.

* Subsidiaries of York International Corporation allegedly made improper payments of over $ 7.5 million to secure orders in various countries, including India. Payments were made from 2001 to 2006.

* C Srinivasan, a former president of A T Kearney India Ltd, allegedly made improper payments of $720,000 to senior employees of two partially state owned enterprises in India between 2001 and 2003.

* Textron’s subsidiaries allegedly made improper payments to secure contracts in various countries including India in the 2001-2005 period.

* Dow Chemicals subsidiary, DE-Nocil Crop Protection Ltd, allegedly made improper payments to various officials, including to an official in Central Insecticides Board. Pride International too, may have made third-party payments.

In spite of the well-publicized actions of the US government under FCPA, there appears to have been no government investigations ordered or actions taken against the corrupt officials on the receiving end of the reported bribes from the US companies in India and Pakistan.

It is because of the total impunity for the corrupt politicians and officials in Pakistan that corruption has surged by whopping 400 percent in the last three years, according to the National Corruption Perception Survey 2009 carried out by Transparency International. The return of democracy under a US-sponsored amnesty for the current leadership has not helped in holding the corrupt accountable. On Transparency International survey for 2008, Pakistan fares badly, ranking at 134 on a list of 180 nations surveyed. By comparison, India ranks higher at 85 while Bangladesh ranks lower at 147.

The National Corruption Perception Survey 2009 (NCPS 2009) indicates that the overall Corruption in 2002 has increased from Rs.45 Billion to Rs.195 Billion in 2009. Police and Power maintained their ranking as the top two most corrupt sectors.

There has been remarkable improvement in Judiciary. As compared to 2006 when it was ranked 3rd most corrupt sector, in 2009 Judiciary is ranked 7th, The News reports.

Postscript: According of Professor Mike Koehler of Butler University School of Law, the FCPA does not contain any affirmative disclosure obligation, as the opening paragraph of this post suggests. However, I do believe that there are certain practical benefits of self-disclosure, such as no prosecution for past violations or lighter or suspended sentences etc.

An example is the case involving a Dutch software company, Paradigm, that caters to the oil and gas industry. After the company relocated its principal place of business from Israel to Texas in 2005, it discovered it had either made or promised numerous bribes to officials in five nations. The company pre-emptively confessed to Justice Department prosecutors, instituted remedial compliance measures, and ultimately ended up with an 18-month non-prosecution agreement.

Related Links:

Haq's Musings


Avery Acknowledges Bribing Pakistani Officials

FCPA Violations Involving Indian Entities

The Story of Graft

Anti-Corruption Day, Blagojevich and Zardari

Bhutto Convicted in Switzerland

Corruption in Pakistan

Transparency International Survey 2007

Is Siemens Guilty?

Zardari Corruption Probe


Riaz Haq said...

Kamran Khan of the News sees Zardari's dwindling influence and rising power of PM Gilani:

President Zardari’s political problems are compounding rapidly as the key players, such as the Army, the judiciary and political allies who had facilitated Zardari’s ascent to the presidency despite PPP’s lack of majority in parliament last year are now having second thought that borders on repenting their earlier decision to let Zardari combine the powers of the supreme commander of the armed forces, the president and the PPP chief in one office.

Dwindling faith in President Zardari’s capacity to act as a neutral, corruption-free, nationally respected leader of Pakistan waned further early this month when the Washington-based International Republican Institute (IRI), a pro-democracy group financed by the US government, reported in an in-depth survey that only about two in 10 Pakistanis carry any favourable opinion about President Zardari.

As opposed to President Zardari’s terrible approval rating, the same IRI survey revealed that a big majority of Pakistanis, close to nine out of 10, hold the institution of the Pakistan Army in the highest esteem followed by the judiciary that won the support of seven out of 10 Pakistanis.

Immediate concern facing President Zardari, knowledgeable officials and a personal aide said, is not his sinking public image but the growing unease in relations with an increasingly assertive Prime Minister Yousuf Raza Gilani.

Gilani now wants unhindered authority on matters of government that include foreign relations, meaning no role for president in the external and national security affairs of the state. The prime minister, enjoying full confidence of the military leadership and the cabinet, has set on an independent course, often confronting President Zardari’s closest allies like in November last year when he removed the president’s blue-eyed retired civil servant Salman Faruqi from the important post of deputy chairman Planning Commission.

He followed that by sacking Mahmood Ali Durrani, the president’s handpicked national security adviser in January this year, and reinforced his position by neglecting Zardari’s preference for Dr Shoaib Suddle, a professional police official as the head of Intelligence Bureau, who was replaced by Javed Noor, an equally honourable professional police officer in May this year.

Gilani went on to consolidate his image of an independent and assertive prime minister in August this year when he asked President Zardari’s closest friend and important associate Dr Asim Hussain to resign as the prime minister’s adviser on petroleum and natural resources. And early this month, he sacked Latif Khosa, President Zardari’s nominated attorney general of Pakistan, whose case of allegedly accepting Rs 3 million as bribe was referred to him by the Chief Justice of Pakistan.

“The president fully understands that all critical actors of power play in Pakistan, along with almost full spectrum of political parties, are putting their act together to launch a final salvo against him soon,” conceded a personal friend and a close aide to President Zardari.

Riaz Haq said...

Here's a report about India's judges declaring their assets as part of the transparency campaign:

New Delhi, Nov 2 (IANS) Bowing to the popular demand and after a Delhi High Court ruling, which they have contested, the Supreme Court judges, led by Chief Justice of India K.G. Balakrishnan, Monday declared their assets. The CJI put the value of his assets at around Rs.18 lakh.

The judges’ assets were posted on the apex court’s official website Monday evening.

Though the declaration followed a Delhi High Court ruling in September, the apex court website said the judges were voluntarily making public the assets they held.

About Justice Agrawal’s decision to declare his assets, the apex court said the details of his assets have been “uploaded on the website on his special request”.

The assets declared by Chief Justice K.G. Balakrishnan were around Rs.18 lakhs, including his two-bedroom flat in Ernakulam worth Rs.5.75 lakh, his vacant residential plot in Faridabad measuring 444.44 sq yard valued at 4.50 lakh, and his native house in Thrikkakara South village in Kerala.

The CJI also declared other landed properties in Kerala, worth Rs.3.5 lakh and Rs.4.33 lakh. He said his wife has gold jewellery weighing 20 sovereigns and an old Santro car of 2000. He said he has no investment in shares or fixed deposits.

The apex court’s second senior most judge, Justice S.H. Kapadia, appeared to be richer than the CJI.

Justice Kapadia put the value of his declared assets at over Rs.48 lakh. The declared assets include flats, buildings, shares, mutual funds, fixed deposits, provident funds. He said he owned no vehicle.

The third senior most judge, Justice Tarun Chatterjee, declared cash worth around Rs.3 lakh, but he said that he has other properties like vehicles, gold jewellery of his wife and some ancestral property in Kolkata. Justice Chatterjee’s vehicles include a Chevrolet Tavera and a Honda Seil.

The court’s fourth senor most judge, Justice Altamas Kabir declared assets of around Rs.80 lakh, including ancestral property, besides LIC policies and saving accounts.

The fifth senior most judge, Justice R.V. Raveendran, gave a detailed account of his assets running into five pages with the exact number of his shares, debentures etc.

According to the declaration, he owns shares in about 60 companies, including Reliance Group firms belonging to both Mukesh and Anil Ambani. He is also hearing a case on gas supply disputes between the firms of the two Ambani brothers and the government.

Riaz Haq said...

Here's a BBC report about "ghost worker" costing $43m a year in Delhi city government:

The government of the Indian capital, Delhi, has been paying salaries to 22,853 civic workers who do not exist.

Salaries for the missing Municipal Corporation of Delhi workers add up to nearly $43m a year, City Mayor Kanwar Sain said in a statement.

The "gap" was discovered after the authorities introduced a biometric system of recording attendance.

Correspondents say it shows some civic officials created a list of "ghost workers" to siphon off state funds.

The Municipal Corporation of Delhi (MCD) employs more than 100,000 cleaners, gardeners, teachers and other workers.


City officials became aware there were thousands of "ghost workers" after introducing the biometric system in August last year.

Mr Sain said the civic agency has 104,241 "genuine" employees - while the records show the numbers at 127,094.

A press release issued by Mayor Sain's office said: "There is a gap of 22,853 employees in the Municipal Corporation of Delhi between the data given by drawing and disbursing officers, the head of the department and the number of employees enrolled for biometric attendance."

An "in-depth vigilance inquiry will be conducted into the matter to ascertain the facts," he said.

"Strict disciplinary action will be taken against officials who cooked the books," the mayor said.

It was long suspected that the city was being defrauded by "ghost workers", but the authorities had always denied the charge.

Riaz Haq said...

Here's a World Bank assessment that corruption retards investment in Pakistan:

ISLAMABAD: The World Bank finds corruption a serious and growing obstacle to the investment climate in Pakistan besides expressing dissatisfaction over the issue of governance in the country.

In its 128-page draft report on Pakistan’s Investment Climate dated March 16, 2009, the WB said that corruption is largely associated with business-government interface and reveals that the menace is more widespread here as compared to other countries though the bribe rates here are lower. Referring to a survey conducted for the formulation of the draft report, the Bank says that results show that perceptions about corruption in Pakistan are based on actual experiences with paying bribes by the investing firms. It reveals that the firms making investment in Pakistan have to pay bribes even to get water, telephone and electricity connections.

In view of WB clarification to The News Wednesday’s report on power sector and its observation that this correspondent has drawn inferences from the Bank’s draft report, select portions of the report pertaining to governance and corruption are being reproduced to end any confusion being deliberately created about the findings of WB in its draft report.

On the issue of government, the report in its page 64 and para 135, said, “Consistent interpretation and application of rules and regulations is an important reflection of good governance. Discretion or lack of predictability and consistency in the interpretation of rules and regulations (by government officials) is indeed a severe problem in Pakistan. Only 46 per cent of firms in Pakistan believe that the officials interpret rules consistently, compared with 60 per cent in comparator countries.”

On the issue of corruption, the report’s para 136 states, “Corruption, a serious and growing obstacle to the investment climate, is largely associated with business-government interface. Corruption is considered a severe constraint by more than half of all the firms (57 per cent) in Pakistan, significantly higher than the 40 per cent figure from 2002 and much higher than those of the comparator countries, with the exception of Brazil and Bangladesh. It is common for firms in Pakistan to pay informal payments to government officials to get things done. In 2006, three out of every four firms strongly agreed or tended to agree with the preceding statement.”

Para 137 of the report says, “Results show that perception about corruption in Pakistan are based on actual experiences with paying bribes. In other words, the probability that a firm reported corruption as a serious obstacle rises by 29-percentage point (against 57 per cent in the full sample) if the firm experienced at least one incident of bribe. As with perceptions of corruption, bribe incidence in Pakistan has increased 20 per cent over time-from 40 per cent in 2002 to 48 per cent in 2007.”

Riaz Haq said...

Here are some excerpts from a recent by India's piece on the impact in South Asia of Swiss Bank secrecy law change forced by the United States:

SHAKEN BY the Swiss government’s recent announcement that it would reveal the names and account details of Indians who have stashed away an estimated $1.4 trillion ( Rs.62 lakh crore) in Swiss banks, the tax evaders are rushing the greenbacks back home. The Swiss are only waiting for the Indian Parliament to ratify the revised Double Taxation Avoidance Agreement (DTAA) that the two countries signed in August. The revised treaty is also likely to ensure that henceforth global shipping companies will be required to pay tax on their profits only in their country of domicile. Currently, though India has DTAAs with 79 countries, not all of them have provision for exchanging taxation-related information..............
As for the Swiss government, it could soon push its banks to exchange information related to the tax evaders’ bank account details, as per norms set by the Paris-based Organisation for Economic Cooperation and Development. The move is believed to have been prompted by intense pressure from G-20 nations. “This is worrying many Indians who have money stashed away in those banks,” says Jethmalani, adding: “So they are taking out their money and, for the time being at least, investing heavily in the market.”

And this has been happening in Pakistan as well, ever since the Swiss Parliament’s historic move to pass the Return of Illicit Assets Act (RIAA). There, too, the tax evaders have started transferring billions of dollars from their Swiss bank accounts to secret destinations in Europe and Asia. According to recent estimates, roughly $200 billion — four times the external debt of Pakistan — is stashed away in Swiss banks and is now being withdrawn. Top sources in Lahore say they have evidence that Pakistanis are moving their black money to two destinations — London and Islamabad — via PN, and opening sub-accounts with FIIs. “Our problems are similar. They are making everything above board, everything official,” said Ali Mohammed, a broker at the Karachi Stock Exchange.

Earlier this month, Christa Markwalder, president, Foreign Affairs Committee (Presidentin Aussenpolitische Kommission des National Rats) of the Swiss Parliament told Tarun Vijay, MP and national spokesperson of the Bharatiya Janata Party, that she had recently explained to Finance Minister Pranab Mukherjee about how the matter could be resolved to India's satisfaction. Incidentally, Vijay was the first to directly contact the Swiss government in this regard. But Jethmalani feels India is not pressing the Swiss hard enough. “Soon, there will be a crash of an unusual nature in the markets — because even if the Swiss government is keen, the Indian government does not seem to be keen to push the agenda,” says Jethmalani.

Riaz Haq said...

Here's a BBC report about alarm over rising corruption in India:

A group of eminent Indians says they are "alarmed" by the rising corruption which is "corroding the fabric" of the nation.

In an 'open letter', they have expressed concern about "widespread governance deficit almost in every sphere of national activity".

The group includes businessman Azim Premji and ex-central bank governor Bimal Jalan.

A number of corruption scandals have shaken India in recent months.

"Possibly, the biggest issue corroding the fabric of our nation is corruption. This malaise needs to be tackled with a sense of urgency, determination and on a war footing," the group wrote in an 'open letter to our leaders'.

The letter said that independent anti-corruption bodies should be set up "speedily".

The Congress party-led government is battling allegations of corruption over the allocation of telecom licences - why so-called 2G spectrum phone licences were sold in 2008 for a fraction of their value, costing the government $37bn (£23bn) in lost revenue, according to the national auditor.

Another high-profile inquiry is continuing into claims that organisers of the Delhi Commonwealth Games swindled millions of dollars from the October event.


Congress party president Sonia Gandhi said recently that corruption was a disease in India.

The group wrote that it was also "alarmed at the widespread governance deficit most in every sphere of national activity covering government, business and institutions".

"Widespread discretionary decision making have been routinely subjected to extraneous influences.

"The topmost responsibility of those at the helm of the nation's affairs must be to urgently restore the self-confidence and self-belief of Indians in themselves and in the State as well as in Indian business and public institutions which touch the lives of every Indian."

A recent report by US-based group Global Financial Integrity said the illegal flight of capital through tax evasion, crime and corruption had widened inequality in India.

Many also accuse governments and politicians of corruption in India.

Riaz Haq said...

Two former #Pakistan Generals punished in NLC corruption case by Military under Army Act: #ISPR

RAWALPINDI (Staff Report) – Inter-Services Public Relations (ISPR) on Wednesday said the two accused retired General Officers of Pakistan Army have been punished under the Pakistan Army Act in the light of inquiry conducted after violations were observed in NLC in 2009.

According to details the dismissal of Major-General (r) Khalid Zahir Akhter, implies forfeiture of rank, decorations, medals, honours, awards, seizure of pension, recovery of personal gains, cancellation of service benefits and all other allied facilities including medical whereas Lt-General (r) Muhammad Afzal has been awarded “Severe Displeasure” which in essence is a disciplinary award due to an offence of lesser degree.

On the other hand Lt-General (r) Khalid Munir Khan has not been found involved in any financial irregularity or serious misconduct and therefore stands absolved from all charges, ISPR statement said.

The inquiry was initiated by Defense Ministry after National Assembly’s Public Accounts Committee noted irregularities in the audit report of National Logistic Cell (NLC) in 2009.

Riaz Haq said...

Wanted by #US: The Stolen Millions of Despots and Crooked Elites. #Corruption #FCPA

It’s hard to imagine a public official with more toys than Teodoro Nguema Obiang Mangue, who spent $300 million on Ferraris, a Gulfstream jet, a California mansion and even Michael Jackson’s “Thriller” jacket. The buying spree is all the more remarkable since this scion of the ruling family of Equatorial Guinea, one of Africa’s smallest countries, bought all this while on an official salary of $100,000 a year.

But legal action by the Justice Department has brought an end to Mr. Obiang’s spendthrift ways. His $30 million Malibu estate is on the market, as are his luxury cars and six life-size Jackson statues. Proceeds from these sales are earmarked for citizens of Equatorial Guinea, who prosecutors claim are victims of Mr. Obiang’s “relentless embezzlement and extortion.”

The turnabout in Mr. Obiang’s fortunes is part of an effort by the federal government to recover assets it says were stolen by foreign officials — dictators, politicians and ruling elites — and laundered in the United States. Since its start in 2010, the Kleptocracy Asset Recovery Initiative has grown to include a dozen government lawyers and teams from the F.B.I. and Homeland Security.

“We don’t want the United States to be a haven for this money,” said Leslie Caldwell, assistant attorney general and head of the criminal division. “If it comes into this country, we have the ability to reach out and grab it. Kleptocracy undermines the rule of law and breeds crime and terrorism.”

Yet for all this firepower, the Justice Department has found that bringing cases against kleptocrats has been daunting, and seizing their assets even harder still. A total of 25 cases have been brought against 20 foreign officials under the Kleptocracy initiative, and the government is seeking to seize $1.5 billion, mainly in American real estate and bank accounts. But most of that money remains in legal limbo.

The government is stepping up efforts to halt the flow of illicit money into the United States through stronger anti-money-laundering rules, investigations into secret buyers of high-end real estate and measures to identify owners of anonymous shell corporations used to hide financial transactions.

Government prosecutors have taken aim at funds held by officials from Nigeria, Ukraine, Uzbekistan, South Korea, Taiwan, Honduras and even Canada. One case involves $630 million once controlled by the late Sani Abacha, the strong-arm Nigerian general who ran the country in the 1990s and reportedly took billions from it.

Another seeks $250 million said to be embezzled by Pavlo Lazarenko, the former Ukrainian prime minister who spent several years in an American prison on money-laundering charges. Then there is the glamorous Gulnara Karimova, the Harvard-educated daughter of the Uzbek president, who the government says absconded with $300 million from a telecom scheme and parked it in an American bank’s overseas branch.


In violation of a court order, Mr. Obiang whisked some of his holdings out of the United States and put them on display back home — including Michael Jackson’s famous white jewel-encrusted glove and all of his gold and platinum albums.

“Despite the efforts of some Western institutions to prevent these objects from coming to our country, justice has returned them to their authentic owner” an Equatorial Guinea government website says. Gone, too, is the $38.5 million Gulfstream jet — it flew away.

There are concerns that the money might end up in the Obiang family’s pockets. But the United States may have little choice. “No one is confident that this will work perfectly,” said Kenneth Hurwitz, senior legal officer with the Open Society Justice Initiative. “But that’s still better than if the U.S. didn’t try.”