10 country reports a k

8 Country reports

In this section, 34 country reports offer a more detailed look at key national corruption-related developments of the period from July 2002 to June 2003. Most contributors aremembers of TI’s more than 100 national chapters and contacts. Each report beginswith a country’s ranking on TI’s Corruption Perceptions Index and Bribe Payers Indexand a list of applicable anti-corruption conventions. Authors then identify and assessrecent legislation and institutional reform, discuss selected issues of particular importancein depth and finally recommend resources for further reading. In choosing countriesto feature, we sought to ensure a regional balance as well as a diversity in economiesand government systems. The result is a group of reports that vary in terms of topicsand approach, reflecting the wealth of knowledge within TI’s worldwide movement.

Algeria

Corruption Perceptions Index 2003 score: 2.6 (88th out of 133 countries)Bribe Payers Index 2002 score: not surveyed

Conventions: AU Convention on the Prevention and Combating of Corruption (adopted July 2003;not yet signed)UN Convention against Transnational Organized Crime (ratified October 2002)

Legal and institutional changes

• A presidential decree relating to public contracts was signed in July 2002 after twoyears of preparation by the government. This law, which replaces the public contractlaw of 1991, requires provisional awards of contracts to be published in order toenable unsuccessful bidders to appeal. It also facilitates the operation of contractsby mutual agreement.

• In February 2003 the president signed a decree to regulate the internationalmovement of capital and the control of foreign exchange. The decree was submittedfor adoption by parliament, but has not yet been debated. It modifies a regulationthat has been in force since 1996, defining offences and specifying penalties, finesand bans for offenders.

Country reports ALGERIA 143

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• Although not yet on the parliamentary agenda, a government statement released inMarch 2003 referred to a draft bill relating to patents, calling it ‘a measure thatpromotes anti-counterfeit measures and consumer protection and that guaranteesrectitude in commercial transactions’.

• On 12 April 2003, the justice minister set up an inter-ministerial commission forcombating money laundering. Although it lacks regulatory powers, the commissionis expected to enhance transparency in the banking system and combat secret sourcesof wealth acquisition.

Global, regional and country reports144

The Khalifa affair

No case in recent years has revealed the scaleof corruption as clearly as the Khalifa Groupaffair, which in late 2002 exposed the laxnessof authorities and an alarming degree ofpowerlessness in the state.1

Rafik Khalifa was owner of a privatecommercial and financial group that evolvedfrom virtual obscurity into a budding empirein little more than three years. The KhalifaGroup started by importing medicines in theearly 1990s, after the state monopoly wasremoved on external trade, and went on toestablish El Khalifa Bank when the bankingand insurance sectors were liberalised. Thegroup continued to diversify, launching aninternational airline, a construction businessand an array of service companies, includingcar rental agencies, restaurants and TVstations in London and Paris. Its dazzlinggrowth, the lack of transparency with respectto the group’s sources of finance and itsfailure to publish group accounts orinformation about shareholders andsponsorship – particularly about the sportsclubs it had opened – aroused media curiosityin Algeria and France.

In November 2002, the Banque d’Algérieand the finance minister launched aninquiry. Another official commission hadflagged management failures in El KhalifaBank on several occasions since October2001, but it was only in 2002 that the Frenchpress called into question the soundness ofthe group’s structure. French deputy NoëlMamère requested in vain that aparliamentary inquiry committee investigate

Khalifa’s activities in France (air travel,sponsorship and broadcasting).

In February 2003, three of the group’ssenior managers were detained at Algiersairport for possession of more than US $2million in undeclared currency. One monthlater, after the discovery at El Khalifa Bankof a ‘resource gap’ of more than US $1 billion– much of which had been moved out of thecountry – Algeria’s banking commissionappointed an administrator, spreading panicamong fund trustees and the bank’s clients.The heavily indebted airline ceased operatingentirely in June 2003 and, the followingmonth, the French courts pronounced theParis-based Khalifa TV bankrupt and theAlgerian courts issued a warrant for itsowner’s arrest.

Then the banking commission withdrewEl Khalifa Bank’s licence to operate andappointed a liquidator. In its statement, itreferred to ‘significant resource deficits thatare disguised by false declarations’, asituation created by ‘the flight of capital andthe accumulation of securities of no value,represented by debt among affiliatedcompanies and a misappropriation ofresources’.2

A few days later, Prime Minister AhmedOuyahia told the chamber of deputies thatthe Khalifa Group would cost the state 100billion dinars (US $1.3 billion) and that therewas ‘no place for charlatans in theeconomy’.3 He announced that the statewould reimburse the 250,000 investors, whohad deposited amounts of up to 600,000dinars (US $8,000) each, through a recentlycreated deposit security fund.4

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Djilali Hadjadj (Association Algérienne de lutte contre la corruption,Centre familial de Ben Aknoun, Algeria)

Country reports ALGERIA 145

All Khalifa Group activities have sincehalted, putting some 10,000 employees outof work, while the banking commission, thetemporary administrator and the courtscontinue their inquiries. The domestic press– even so-called independent titles – failedto publish any investigation on the affair asthe case first unravelled. This omission wasin all likelihood connected to Khalifa’sprevious strategy of ingratiation: he hadallegedly distributed gifts to many publishersand journalists, and the Khalifa Group hadbeen one of the sector’s largest advertisers.Rafik Khalifa, meanwhile, remains atlarge.With a presidential election scheduledfor April 2004, unofficial campaigning hasalready begun. Candidates have not so fartackled the Khalifa affair, but analysts do notexpect them to: doing so might unlock aPandora’s box too explosive for any side toexploit profitably. None of the inquiries hasunearthed the degree of facilitation providedto Khalifa by Algeria’s political, economicand financial elite, or analysed the factorsthat drove the authorities to ignore thewarning signs until it was too late.

The earthquake of 21 May 2003

On 21 May 2003, an earthquake measuring6.8 on the Richter scale hit northeasternAlgeria with an epicentre close to the coastaltown of Boumerdès. The number of victimswas high: 2,300 dead, 10,000 injured andmore than 100,000 made homeless. Thoughlong recognised as a seismic zone, the regionwas the site of hundreds of buildings – old andnew – that simply folded in on themselves,indicating that no anti-earthquake measureswere incorporated in their construction. Theimpact of such laxity was underlined a fewdays later, when an earthquake of even greaterintensity struck Japan, causing only slightinjuries to the inhabitants.5

Algerians attributed the terrible death tollto corruption in the housing andconstruction sector, and the lack of effectivestate inspection. The domestic and foreignmedia ran countless stories on the highcasualty figure and its link with poor buildingpractices, pushing President AbdelazizBouteflika into pledging that a disaster ofsuch dimensions would never happen again.While the authorities called on foreignagencies to conduct site investigations andidentify structural and systemic weaknesses,some Algerians accused the government ofdeliberately demolishing buildings in theearthquake zone to prevent an accurateassessment of the causes of the damage.6

The government did make disaster reliefavailable for reconstruction in the mostdamaged areas and stiffened building codesin response to the protests. Experts pointedout, however, that the rules have beenconsistently bent or ignored by developers,who also make use of sub-standard materialsand methods. Amar Tinicha, head of thenational union of construction engineers,claims the construction industry is riddledwith corruption, and public officialsrepeatedly fail to implement housingregulations. The head of an Algerianarchitects association, Ahmed Boudaoud,also stressed that the laws were not theproblem, but rather their enforcement.7

The new prime minister, Ahmed Ouyahia,acknowledged that corruption may haveplayed a role in the destruction of housingand promised to request technical studiesand take legal action. But now – in defianceof the national mood – the government isconsidering relaxing contract regulations‘with the aim of reducing the time involvedin the tendering process’, a move morelikely to encourage corrupt practices thanprevent them.

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Further reading

Weekly corruption column in the daily Le Soir d’Algérie (every Monday, except August),www.lesoirdalgerie.com

Notes

1. Le Figaro (France), 8 March 2003; www.algeria-watch.de/farticle/economie/empire_khalifa.htm; Le Monde (France), 9 April 2003.

2. Algérie Presse Service (Algeria), 29 May 2003.3. El Moudjahid (Algeria), 4 June 2003.4. Le Monde (France), 20 March 2003; Libération (France), 7 June 2003.5. Le Nouvel Observateur (France), 29 May 2003; Lutte Ouvrière (France), 30 May 2003; Agence

France-Presse (France), 23 May 2003.6. Algeria Interface, 5 June 2003, www.algeria-interface.com/new/article.php?lng=e&rub=37. Agence France-Presse (France), 25 May 2003.

Argentina

Corruption Perceptions Index 2003 score: 2.5 (92nd out of 133 countries)Bribe Payers Index 2002 score: not surveyed

Conventions:OAS Inter-American Convention against Corruption (ratified October 1997)OECD Anti-Bribery Convention (ratified February 2001)UN Convention against Transnational Organized Crime (ratified November 2002)


• In June 2002, congress passed a law on party financing that provides the firstregulatory framework for donors, donations and campaign expenditure. Those whoviolate limits could lose the right to public campaign funding for one or twosubsequent elections.1 Congress also reformed the electoral code by restrictingpresidential campaigns to 90 days, congressional campaigns to 60 days and regulatingelection advertising. Former president Eduardo Duhalde vetoed a section of the lawthat called for details of party and electoral finance to be officially gazetted, thoughthese will now appear on the Internet, which is a significant advance. He also vetoeda measure that would have given the general audit office, rather than the nationalelectoral chamber, control of campaign financing.

• On 8 May 2003 the lower chamber approved a bill on access to information. Atthis writing senate approval is still pending. Civil society organisations and the anti-corruption office wrote the original draft of the bill in 2001. Free access to informationis enshrined as a right in the constitution.


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• Twenty-three bills to regulate lobbying have been submitted to congress since 1992.At this writing, two are under debate in the senate. One, proposed by the anti-corruption office, would require the president, ministers, legislators and directors ofstate-owned banks and social services to make publicly available the details of allcontact with lobbyists.

Country reports ARGENTINA 147

Press freedoms called into questionafter reporter alleges bribery in thesenate

In an article on 22 August 2002, FinancialTimes correspondent Thomas Catan allegedthat senators had petitioned foreign bankersin Argentina for bribes as a condition forhalting legislation that would reinstate a 2per cent tax on banks to create a fund fordismissed bank employees. But rather thanleading to a thorough investigation of theallegations, the case was notable becauseestablished press freedoms, such as the rightto sources’ confidentiality, were threatenedduring the course of legal proceedings.

According to Catan, a person close to thesenator who allegedly solicited the bribecontacted the Argentine Bankers’ Association(ABA), which represents foreign banks. ABArepresentatives reported the request to theUS and British embassies, according to thearticle. Lobbyist Carlos Bercun, a formeremployee of Citibank, the central bank andthe economy ministry, was alleged to haveacted as broker of the deal.

The article prompted a judicial investiga-tion by federal judge Claudio Bonadio, whoordered a number of senators, bankers, tradeunionists, Catan and Bercun to testify. TheABA president, Mario Vicens, deniedreceiving any requests for bribes or knowinganyone in the banking world who had heardof any such requests. Senators gave differentopinions. Carlos Maestro, senate leader forthe opposition Radical Civic Union (UCR),dismissed the story and threatened Catanwith a judicial complaint if he did not backup his allegations. Senate president JuanCarlos Maqueda, from the ruling Justicial-ista Party (PJ), said that he thought

‘something must have happened’, thoughhe gave no further details.

CatansworebeforeJudgeBonadiothatthepublishedinformationwastrue,butherefusedtorevealhissources.Inacontroversialrequest,Judge Bonadio asked the state intelligenceoffice for a detailed list of Catan’s telephonecalls, violating the constitutional guaranteeof anonymity for a journalist’s sources.

Catan’s life in Buenos Aires subsequentlyturned into a nightmare. Rather thanprompting thorough investigation ofcorruption with his article, he became thefocus of investigations himself. When Catanheard of Judge Bonadio’s request to theintelligence services, his legal advisers appliedto the federal courts for an injunction tosafeguard his rights under article 43 of theconstitution, which protects the secrecy ofjournalists’ sources, and article 18, whichguarantees the privacy of addresses, corre-spondence and private papers. The courtsfound in favour of the reporter and forcedthe judge to destroy the lists. The senatelaunched an investigation in late 2002, butthe recess intervened and the case had notbeen resumed by mid-2003.

This was the second case of suspectedbribery in the senate in two years. In 2000,a local journalist published allegations thatthe executive paid a group of senators tovote in favour of labour reforms. The thenvice-president, Carlos Alvarez, tried todeepen the investigations, but resigned 10months into his term of office.

Overstepping the division of powers:judges penalised for tacklingcorruption

The division of powers of government is littlemore than a theory in parts of Argentina. In

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Salta, for example, the provincialconstitution was amended in June 1986 andApril 1998 to eliminate tenure for judges,which is a condition of an independentjudiciary. They now serve only six years withfurther terms dependent on the governorand the provincial senate. Moreover, as theremoval of Judge Roberto Gareca in late 2002demonstrated, even this restricted protectionof judges is sometimes violated.

Gareca was removed by the Salta jury ofindictment in December 2002 on thegrounds that he had delayed hearing a caseand had disclosed privileged informationabout a second case in a radio interview.Gareca refuted the allegations and said hisremoval was motivated by political consid-erations arising from his record of issuingindependent judgments.

During his four years in office, Garecainvestigated and filed charges of corruptionagainst more than 15 officials and formerofficials from Governor Juan Carlos Romero’sadministration.2 Whenthe juryof indictmentbegan proceedings against Gareca, he wasinvestigating former production and labourministerGilbertoOviedoandformer secretaryof public works Luis Siegrist for alleged irreg-ularities in awarding contracts worth morethan US $40 million.

Despite demonstrations in Saltasupporting Gareca and protesting theviolations of his right to due process, thejudge was removed – a comparatively easytask since many members of the jury ofindictment are directly or indirectly relatedto the governor.3

In February 2003, Gareca presented anextraordinary appeal to the Salta supremecourt claiming that his removal was uncon-stitutional and requesting reinstatement. Heforesees taking the case to Argentina’s highestcourt, the supreme court of justice, and, ifnecessary, the Inter-American Court ofHuman Rights.

The NGO Fundación Poder Ciudadanonominated Roberto Gareca for TransparencyInternational’s Integrity Awards in 2003 anda Salta newspaper honoured him as its‘person of the year’. Gareca has set up a law

practice to support his family while waitingfor the court’s decision.

This is not an isolated incident. In October2002, José Manuel de la Sota, governor ofCórdoba province, ordered the removal ofanti-corruption prosecutor Luis Juez oncharges of ‘qualified fraud against the publicadministration’. Juez claimed the allegationswere spurious – he had been investigatingmembers of de la Sota’s administration atthe time, including Sota’s wife, Olga Riutort,who also held a senior public position.

Opaque appointments at thesupreme court are challenged

The independence of the courts has been apoint of controversy since former presidentCarlos Menem repeatedly tried to stack thesupreme court with party loyalists in 1989,his first year in office. When that failed, heproposed a bill expanding the number ofsitting justices from five to nine, whichcongress approved. Menem had achievedthe automatic majority he sought. Sincethen, successive presidents have tried tounseat those loyal to Menem, often by lessthan transparent means.

Efforts to rid the court of those loyal toMenem resonate with public attitudestowards the judiciary. Protesters gatheredweekly outside the supreme court in BuenosAires at the height of Argentina’s economicand political crisis in 2002, to denouncecorruption in the country’s judiciary. Theyaccused the courts of rubber-stampingcrucial decisions, such as the privatisationof the national airline in the face ofwidespread suspicion of corruption andother irregularities.4

In December 2002, interim presidentEduardo Duhalde nominated Senator JuanCarlos Maqueda to the post of supreme courtjustice, sending the necessary documents tothe senate for ratification. When the localpress reported the appointment as a faitaccompli, days before the decision was due,civil society organisations canvassed theresponsible senate authorities asking them

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Laura Alonso (Fundación Poder Ciudadano, Argentina)

Further reading

Fundación Poder Ciudadano, ‘Banco de Datos de Políticos Argentinos’ (Database ofArgentine politicians), Buenos Aires, 2003, www.poderciudadano.org/elecciones2003/index.asp

Fundación Poder Ciudadano, ‘Contrataciones Transparentes’ (Transparent contracting),Buenos Aires, 2003, www.accioncolectiva.net

Fundación Poder Ciudadano, ‘Primer diagnóstico sobre la independencia judicial’ (Firstanalysis of judicial independence), Buenos Aires, 2003, www.poderciudadano.org/relaciones/210_justicia.doc

Organization of American States, ‘Informe del Comité de Expertos del Mecanismo deSeguimiento de la Implementación de la Convención Interamericana contra la

Country reports ARGENTINA 149

to ensure that a proper debate was held inthe senate and that representatives of civilsociety would be able to air their views aboutthe nomination. Their suggestions wereignored and Maqueda was appointed withinfive days of being nominated.

When President Néstor Kirchner came tooffice in May 2003, the debate was reopened.During a nationwide TV and radio address10 days after his inauguration, Kirchnercalled on legislators to sack one or more ofthe ‘sad and famous automatic majority’from the Menem era. At the sharp end of hiscriticism was Julio Nazareno, a formerpartner in Menem’s own law firm, who hadheld the court presidency for more than adecade. Nazareno’s performance as judge,Kirchner said, was ‘emblematic’ of the court’sfailings; namely corruption and political bias.

The following day, civil society organisa-tions met Justice Minister Gustavo Béliz todemand that the president abstain fromintervening in the selection of supreme courtjudges. In response, on 19 June 2003Kirchner issued a decree based on theirproposals, affirming that his governmentwould respect judicial independence. In themeantime, Julio Nazareno resigned underthe threat of a revived congressional probeinto allegations of fraud and other charges.Wide-ranging public debates, including ahearing in the senate, were held over whoshould replace Nazareno. At this writing,

Eugenio Zaffaroni, a respected practitionerand academic, is expected to be appointed.

Kirchner has not broken entirely with pastappointment practices, however, as thenomination of Alessandra Minnicelli to thepost of auditor of the national generalauditing agency (Sindicatura General de laNación, SIGEN) shows. Because she ismarried to Julio De Vido, the minister offederal planning, public investment andservices – the ministry SIGEN is primarilyintended to monitor – there was a clearconflict of interest. Poder Ciudadano askedPresident Kirchner to revoke her nomination,citing the regulation that ‘close familial rela-tionships’ are an impediment to employmentwith SIGEN. Despite complaints, Minnicelli’snomination was confirmed in June 2003.

The anti-corruption office defended thegovernment’s position, saying there is‘no legal impediment’ to Minnicelli’sappointment because she ‘can excuse herselffrom dealing with matters relating to theministry [thatherhusbandis responsible for]’.But the portfolio in question embraces awiderange of issues with scope for abuse, notablythe allocation of state resources for contracts,the renegotiation of rates for utilities andother public services now in private hands,and the government’s ambitious infrastruc-ture plan, involving the construction of newhousing, water and sewage works, transportlinks and port services.

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Corrupción’ (Report of the Committee of Experts of the Follow-up and Implemen-tation Mechanism of the Inter-American Convention against Corruption),Washington, D.C., February 2003

Daniel Santoro, Venta de Armas – Hombres de Menem (Arms sales: Menem’s men) (BuenosAires: Planeta Arg, 2003)

Miguel Trotta, La metamorfosis del clientelismo político: contribución para el análisis insti-tucional (The metamorphosis of political clientelism: a contribution to institutionalanalysis) (Buenos Aires: Espacio Editorial, 2003)

Fundación Poder Ciudadano: www.poderciudadano.org

Notes

1. The law was applied for the first time in the April 2003 presidential election. A survey ofcampaign costs carried out by Fundación Poder Ciudadano shows that the 18 presidentialcandidates only disclosed the origin of 20 per cent of funds from private sources. Thewinner, Néstor Kirchner, disclosed just 0.2 per cent while runner-up Carlos Menemdisclosed 6 per cent.

2. Governor Romero was elected for a second consecutive four-year term in 1999. He ranas a vice-presidential candidate in the elections of April 2003, alongside former presidentCarlos Menem. Romero’s father, Roberto Romero, governed Salta from 1983 to 1987.

3. For more information on the lack of judicial independence in Salta see Fundación PoderCiudadano, ‘Primer diagnóstico sobre la independencia judicial’, 2003, www.poderciudadano.org/relaciones/210_justicia.doc

4. In 1990, the supreme court took the unprecedented move of declaring a ‘per saltum’ –which wipes out all lower court rulings and gives the supreme court itself jurisdictionover a case – after a trial court judge blocked the sale of Aerolíneas Argentinas on thegrounds of irregularities alleged by a commission of experts. In a single day, 21 November1990, the case was reviewed by the supreme court and it decided that the sale to Spain’sIberia had been carried out lawfully.

Armenia


Conventions: Council of Europe Civil Law Convention on Corruption (not yet signed)Council of Europe Criminal Law Convention on Corruption (signed May 2003; not yetratified) UN Convention against Transnational Organized Crime (ratified July 2003)


• The law on parties, passed in July 2002, regulates issues related to the formation,reformation and liquidation of parties, as well as their activities and legal status. It


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prohibits party members who work in the state and local government from usingtheir positions for the benefit of the party.

• The laws on the tax service and customs service, both passed in July 2002, are designedto ensure that government posts are filled through open competition and to preventemployees from working with immediate relatives.

• The new criminal code, passed in April 2003, binds government officials to conflictof interest regulations and enlarges the definition of corruption to include theillegal involvement of public officials in business activities. Yet it also sets milderpenalties for corruption-related crimes, such as the abuse of power and position bypublic officials and the giving and taking of bribes. Punishment for abuse of powercan vary from a fine of 200 times the defined minimum monthly salary toimprisonment for two to six years.1

• The bill on freedom of information regulates the rights of those who possessinformation and defines the rules, procedures and conditions for receiving informationfrom government institutions. The law ensures access to information as well as its dis-semination and transparency. It also provides that requested information be deliveredwithin a five-day period, unless it requires additional work, in which case it must beprovided within 30 days. At this writing, the bill was expected to pass into law.

• The ombudsman law aims to regulate the appointment and dismissal of theombudsman, as well as related rights and obligations. It provides that the ombudsmanbe appointed by the president and approved by the national assembly for a five-yearterm. The ombudsman is to be independent, adhere to the constitution and enjoyimmunity during the term of office. The law has passed the second reading, but hasnot yet been promulgated.

• A controversial law on mass media, allowing for increased state control of the media,is in draft form. Protests prompted the justice ministry to submit a revised draft in2003, but critics are still not appeased.

Country reports ARMENIA 151

The unclear status of Armenia’santi-corruption programme

Since Prime Minister Andranik Margaryanestablished the state anti-corruptioncommission in 2001, progress on thedevelopment of a national anti-corruptionprogramme has been slow and less thantransparent.2 The final proposal for theprogramme is currently pending approval,yet its complete contents have not beenshared openly.

In early 2002, at the request of thegovernment, the World Bank allocated US

$300,000 to draft the anti-corruption strategyprogramme.3 An expert group, comprised oftwo international and six local experts, wasformed to work on proposals for legislative,institutional and public-involvementmeasures, as well as a detailed implementa-tion plan. Their proposals had to includemechanisms for monitoring and evaluatinganti-corruption activities.

Since one of the World Bank’srequirements was the active involvement ofcivil society in a transparent drafting of theanti-corruption strategy programme,members of the National Anti-corruption

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NGO Coalition were invited to attend oneof the expert group meetings.4

At the international level, the OSCE tookthe lead in coordinating donor assistance incombating corruption through the interna-tional Joint Task Force (JTF), which includedall the key international organisations anddiplomatic missions. Following discussionswith the president and prime minister, anagreement was reached on maintainingregular contacts between the JTF and thegovernment during the strategy’sdevelopment.

Initially, the expert group prepared a broadstrategy outline of more than 200 pages,which had to be discussed in detail with theJTF and civil society. The group also prepareda detailed plan for implementation. By July2002, two workshops were organised topresent and discuss the draft strategy. Itsmain elements included issues such as theeconomic transition and shadow economy;energy, infrastructure and natural resources;oversight and regulation; the legislative andregulatory environment; the political systemand elections; civil society participation inanti-corruption initiatives; e-governance andaccess to information; and internationalcooperation.

The expert group completed the firstversion of the programme later thanexpected, in August 2002, and circulated itto ministries, agencies and the JTF. The delaymay be explained by the fact that thepresidential and parliamentary electionswere due to take place in 2003. The publicsector reform commission, which serves asthe secretariat for the anti-corruptioncommission, then announced that theministries and agencies had reviewed theprogramme and that the final version hadbeen submitted to the prime minister forapproval in March 2003. At 23 pages,however, the revised action plan is a fractionof the length of the original plan, elicitingheavy criticism from the JTF.

The revised plan has not been reviewed bycivil society, which is still concerned aboutseveral issues. One particular area of concern

relates to the establishment of anindependent body that would be responsiblefor implementing and monitoring the anti-corruption strategy programme. One modelsuggested by the expert group was that thecurrent anti-corruption commission itselftake on this role. In this case, a secretariatthat could coordinate everyday work andimplement decisions would have to beformed to serve the commission.

An alternate suggestion called for thecreation of an anti-corruption agency withfull investigative and law enforcementpowers. Critics of this model argue that,instead of creating a new enforcement body,the capacity of institutions that already havesuch powers should be strengthened.

A third option envisions the establish-ment of an anti-corruption councilresponsible to the prime minister or thejustice minister. This council would consistof the representatives of the president’soffice, national assembly, constitutionalcourt, as well as the chief of staff of thegovernment, key ministers, the primeminister’s adviser on anti-corruption and thegeneral prosecutor. The council would alsoinclude five representatives of civil society,appointed by the president.

Regardless of which model is accepted,the anti-corruption body must secure thetrust of the people, most of whom areunaware that the government has evendeveloped anti-corruption initiatives. Thosewho are aware have little confidence thatthe initiatives are effective, because they viewgovernment officials as the main initiatorsof corruption. They do not believe that thosewho are corrupt can be truly committed tofighting corruption.5

Armenia’s 2003 elections: a case forreform in political party financing

A civil society monitoring project,undertaken during parliamentary electionsin May 2003, revealed troublinginadequacies in the regulation andmonitoring of political party financing.6

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Country reports ARMENIA 153

Using the project’s findings, the oppositionArdarutyun (Justice) alliance appealed to theconstitutional court to nullify the electionresults. The alliance pointed to violations ofelection procedures and voting irregulari-ties, alleging that tens of thousands of ballotscast for Ardarutyun were allocated to otherparties. The official result was thatArdarutyun won 14 per cent, rather than the50 per cent or more that it claimed. Theopposition also contested the election resultsin 19 single-mandate constituencies.

Although Ardarutyun’s appeal wasdismissed due to insufficient evidence, thecourt admitted that the issue requiredattention and proposed to promote greatertransparency and accountability in themanagement of political party financing.

Armenia’s election process is regulated byan electoral code that needs considerablerevision. The provisions that cause mostconcern relate to the opaque system of partyfinancing and the lack of enforcementmechanisms.7

According to article 25 of the code, theparties’ declaration forms must be publishedby the Central Electoral Commission (CEC)in the format determined by the CEC. Duringthe recent elections, the sources of theparties’ pre-election income were neverpublished though the issue drew strongpublic interest and was regularly discussedin the media.8 Although required by law topresent this information to the CEC, theparties and blocs were willing to publiciseonly the number of contributors to pre-election funds. In some cases, parties did notreveal any information at all.

Reasons for concealing the revenuesources vary. Some parties may be involvedin money laundering or using foreignfunding, which is prohibited by law.Furthermore, as Armenia’s business sector isnot well regulated and many businesses tendto hide their real turnover, they may wish toprevent the tax authorities from learning oftheir donations to party pre-election funds.Finally, rivalry between the opposition andgovernment does not encourage businesses

to publicise their contributions to pre-election funds.

After two rounds of presidential electionsin February and March 2003, only thecandidates’ total campaign revenues andexpenditures were published. When queriedabout the rationale behind not publishingmore detailed information, the CEC head,Artak Sahradyan, replied that thecommission had not published itemisedaccounts because it had not identified anyviolations of party finance regulations.

The monitoring team found that two ofthe 11 parties and blocs that agreed toprovide campaign finance information hadexceeded the limit of the pre-election fund.9

An analysis of the figures showed discrep-ancies for all other parties except one, whosereported data was consistent with that of theproject’s findings. Indeed, the overalltendency observed was that almost all theparties avoided registering their campaignexpenses in the pre-election fund and thatthey spent most of their money ‘outside thefund’.

Further results showed that violations ofparty finance regulations fell into two majorcategories. First, large sums were not properlyaccounted with respect to politicaladvertising on television. TV companieseither offered certain parties discounts, orprovided more airtime to selected partiesthan was officially declared.10 Second, thecode requires all party publications tomention the number of copies printed andthe name of the publisher. Several partiesand some experts revealed that parties oftenprinted more copies than officially declared.In some cases, campaign materials wereordered before the campaign period and paidfor from the party account. Moreover, anumber of parties conducted transactionswith service providers without a contract;money for these services was paid in cash,which is prohibited by law.11

These types of violations are motivatedby several factors. By paying cash, partiesavoid the 20 per cent VAT and serviceproviders evade taxes. For parties, especiallythose exceeding fund limitations, such

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Arevik Saribekyan (Center for Regional Development/TI Armenia)

Further reading

Armenian Democratic Forum, ‘Sociological Survey on Public Sector Reforms’, forenterprises and households, 2001; see lnweb18.worldbank.org/ECA/ecspeExt.nsf/0/1B062B0DC8A543B485256C63005D49FD?Opendocument&Start=1&Count=1000&ExpandView

CRD/TI Armenia: www.transparency.am

Notes

1. The minimum monthly salary is 1,000 drams (around US $2), so the fine would beequivalent to US $355.

2. Decision No. 4, adopted on 22 January 2001. The commission is headed by the primeminister and includes the vice speaker of the national assembly (as deputy head), headsof key ministries and the chief of staff of the president.

3. The grant was provided through the World Bank Institutional Development Fund.4. The National Anti-corruption NGO Coalition was established in March 2001 under

the CRD/TI Armenia. Currently the Coalition has 26 members representing differentfields, including journalism, business development, human rights, environment, localgovernment, the army, tourism and education.

5. See the ‘Country Corruption Assessment: Public Opinion Survey’, carried out by CRD/TIArmenia in March–April 2002. The sample of the survey included 1,000 households,200 entrepreneurs and 200 public officials. In answering the question, ‘Who mainlyinitiates corruption in Armenia?’, all three groups of respondents identified governmentofficials as the most corrupt.

6. Implemented in March–June 2003, the CRD/TI Armenia project, ‘Monitoring of thePolitical Parties’ Finances during the 2003 Parliamentary Elections’, was funded by the


dealings represent a way around the pre-election fund.

Another concern is that the law is vagueabout what expenses should be covered bythe pre-election fund, as opposed to the partyaccount. During the campaign period, forexample, parties continued to pay expensesrelated to their permanent office(s) throughthe party accounts, while expenses relatedto temporary sub-offices were covered by thefund. In general, parties hid the cost oftemporary offices, stating that partymembers or relatives provided office spacefree of charge.

Salaries were another issue of concern,since parties concealed their true expensesto avoid paying taxes. Violations related to

travel expenses and administrative costswere also apparent but difficult to monitorsystematically.

The Control and Review Service (CRS) –established ad hoc under the CEC – isresponsible for regulating such violationsand taking the necessary action. Despitesubstantial media coverage and the resultsof the monitoring project, the CRS filed noreports of party finance violations by thereview deadline. While the law itself providestoo much flexibility to parties and does notallow for easy monitoring, the reluctance ofArmenia’s state institutions to enforce thelaw is at the root of ongoing abuses inpolitical party financing.

TI 04 chap08 6/1/04 16:14 Page 154

Open Society Institute, Assistance Foundation – Armenia. The report is available onlineat www.transparency.am

7. The amended electoral code was adopted and ratified in July 2002; it entered into forcein August 2002. See par03.elections.am/?lan=eng&go=code

8. Legislation requires that participating parties and blocs open a pre-election fund duringthe election campaign period.

9. Actually, three parties exceeded the limit of the pre-election fund, two of which providedinformation within the framework of the monitoring project. The pre-election fundlimit is 60,000 times the minimum defined monthly salary, which for this year was60,000,000 drams (US $110,000). Independent monitoring was conducted for all 21parties and blocs.

10. Article 18.3 of the electoral code requires the mass media to provide equal airtime atthe same price to all parties. Article 11 of the Law on TV and Radio states that all theTV and radio agencies must announce their rates for political advertising before thepre-election campaign.

11. Article 25.7 notes that if during the pre-election campaign the candidate or party usesfinancial means other than the pre-election fund, the court may consider the candidateor party registration invalid.

Australia

Corruption Perceptions Index 2003 score: 8.8 (8th out of 133 countries)Bribe Payers Index 2002 score: 8.5 (1st out of 21 countries)

Conventions: OECD Convention on Combating Bribery of Foreign Public Officials (ratified October1999)UN Convention against Transnational Organized Crime (signed December 2000; notyet ratified)


• Federal: a September 2002 senate report into the 2001 Public Interest Disclosure Billrecognised the need for comprehensive legislation to protect public sector whistle-blowers but recommended that the bill as drafted should not proceed as it haddeficiencies. After nearly 10 years of debate, as a result, there is still no whistleblowerprotection legislation at the federal level, though all states and territories (except theNorthern Territory) have introduced laws.

• The federal treasury issued proposals in September 2002 under its Corporate LawEconomic Reform Program (CLERP), which included only limited whistleblowerprotection for disclosures to the Australian Securities and Investments Commission.Draft implementing legislation was equally insufficient in this regard. TI Australiamade a submission in November 2002 that argued for much broader protection forcorporate whistleblowers.1

Country reports AUSTRALIA 155

TI 04 chap08 6/1/04 16:14 Page 155

• New South Wales (NSW): the Statute Law (Miscellaneous Provisions) Act ofDecember 2002 amended the Protected Disclosures Act 1994. The general view isthat the legislation will still not be sufficient to overcome entrenched negativeattitudes to whistleblowing. A survey by NSW’s Independent Commission againstCorruption (ICAC) showed that nearly 70 per cent of state officials expect whistle-blowers to suffer retribution.2

• Western Australia: the ongoing Royal Commission into Police Corruption issued aninterim report in December 2002. The government accepted its recommendation toreplace the Anti-Corruption Commission (generally considered to have inadequatepowers) with a new external oversight agency, the Corruption and CrimeCommission, with extended investigation and enforcement powers and the powerto conduct public hearings, like NSW’s ICAC and Police Integrity Commission.

• The Australian Crime Commission (ACC) commenced operations on 1 January 2003,replacing the functions of the National Crime Authority, the Australian Bureau ofCriminal Intelligence and the Office of Strategic Crime Assessments. The ACC’sfunctions include criminal intelligence collection and analysis, setting nationalcriminal intelligence priorities, conducting intelligence-led investigations of criminalactivity of national significance, including organised crime and corruption, and theexercise of coercive powers to assist in intelligence operations and investigations.3

• Victoria: Public calls for a royal commission into police corruption were rejected,although more than 50 police officers are facing charges and the state’s most seniordetective is being prosecuted for drug trafficking and making death threats. In May2003, the Ombudsman of Victoria issued an interim report on Operation Ceja,4 anongoing Police Ethical Standards Division investigation into allegations of corruptionat the former drug squad. The investigation has led to several criminal prosecutionsand disciplinary actions, as well as a recommendation that officers working in areasat high risk of corruption should be rotated and drug investigators limited to three-year postings.

• In July 2003, the national standards organisation launched a set of five standardsfor effective corporate governance, including fraud and corruption and whistleblowerprotection programmes.5


Media concentration and ministerialdiscretion

The government’s proposed relaxation ofmedia ownership restrictions, as providedunder the Broadcasting Services Amendment(Media Ownership) Bill 2002, has been aburning topic. Existing rules prevented theownership of a newspaper and televisionstation in the same metropolitan market and

restricted foreign ownership in any mediaasset to 25 per cent. The government hascome under considerable pressure from largemedia organisations to remove one or bothof these restrictions – as a lifting of restrictionswould allow the purchase of media assetsthat were off limits, or would increase theprice for which they could be sold.

The more positive aspects of the billincluded: (1) the lessening of restrictions

TI 04 chap08 6/1/04 16:14 Page 156

Peter Rooke with TI Australia

Further reading

Auditor-General of Australian Capital Territory, ‘Fraud and Corruption Prevention inthe ACT Public Sector’, Canberra, May 2003, www.audit.act.gov.au/auditreports/reports2003/Rpt4_2003.pdf

Australian Institute of Criminology Research and Public Policy Series no. 48, ‘SeriousFraud in Australia and New Zealand’ (Canberra/Melbourne: 2003). See www.aic.gov.au/publications/rpp/48

Country reports AUSTRALIA 157

that govern Australian media ownership anddiversity of that ownership, and (2) thestipulation that media companies seekingtakeover authorisation must outline theirplans, rules and structures, avoiding amischief to which ‘diversity of ownership’provisions in the old legislation weredirected. The requirements for the latter werevery weak, however.

In addition, the bill did not propose theremoval of restrictions on cross-media andforeign ownership, but it granted discretionto the relevant minister to waive these rules.Although the Foreign Investment ReviewBoard (FIRB) vets foreign investments andrecommendations are made to the minister,the FIRB is not privy to the discussionsbetween media companies and ministers.This might seem a recipe for corruption inthe deal-making that goes on betweenpoliticians and media owners to supportgovernments at re-election time, or whengovernment is about to pursue a controver-sial course of action.

These proposals raised the concern thatpoliticians might back legislation thatsupports the interests of media owners inorder to secure favourable coverage. This isnot merely a theoretical risk. Media mogulConrad Black claimed before a parliamen-tary committee that then prime ministerPaul Keating once reneged on a deal toincrease the ceiling on media ownership to35 per cent in exchange for even-handedcoverage in the 1993 elections. Paul Keatingdenied the claim. The issue is not whetherthis claim was true,6 but how the risk ismanaged within democracies.

The bill proposes an ‘editorial separation’system as the key mechanism to preservediversity. However, it ignores one of the long-standing reasons for media diversity (oncechampioned by Rupert Murdoch) – thatdifferent owners would have different views.It does nothing to prevent those withexpanded media ownership from exercisingit to influence or even direct their expandedmedia empires. The requirement ofproviding basic information on editorialpolicy cannot fulfil that function and is notdesigned to do so.

The senate eventually rejected theBroadcasting Services Amendment Bill twice,but it was still on the government’s agendaat the time of writing. It could be put to ajoint sitting of both houses, if thegovernment were to seek a doubledissolution of both houses of parliament inthe next election.

Ministerial discretion in areas where mediaproprietors have huge financial interestsmust be identified as constituting a clear riskof corruption. The temptation to do what amedia owner wants in return for improvedmedia treatment during an election or a con-troversial war is great. Even if media ownersnever influence the content of theirnewspapers, the belief is that they mightcontinue to affect a minister’s decision. Onepossible reform is that communicationsbetween media owners and either ministersor ministerial staff should be recorded byindependent civil servants and filed with arelevant integrity agency. Another is todevelop a systematic regulatory frameworkor a media integrity regime.7

TI 04 chap08 6/1/04 16:14 7

NSW Audit Office Report no. 114, ‘Freedom of Information’, Sydney, August 2003,www.audit.nsw.gov.au/perfaud-rep/Year-2003-2004/FOI-August2003/foi-contents.html

NSW Independent Commission Against Corruption, ‘The NSW Public Sector: Functions,Risks and Corruption Prevention Strategies’, Sydney, January 2003, www.icac.nsw.gov.au

Queensland Crime and Misconduct Commission, ‘Public Perceptions of the QueenslandPolice Service: Findings from the 2002 Public Attitudes Survey’, Brisbane, February2003, www.cmc.qld.gov.au/library/CMCWEBSITE/PublicPerceptionsoftheQPS.pdf

TI Australia, Whistleblower Conference, Sydney, August 2002; Business Integrity Systemsin Australia, November 2001; Australian National Integrity Systems Assessment,Queensland Handbook, July 2001, www.transparency.org.au

TI Australia: www.transparency.org.au

Notes

1. See www.transparency.org.au/documents/clerp9sub.pdf2. See section 5.3 of ‘Unravelling Corruption II’, ICAC, Sydney 2001 ISBN 0731072871 at:

www.icac.nsw.gov.au/pub/summary_pub.cfm?ID=2483. See www.crimecommission.gov.au4. See www.ombudsman.vic.gov.au/downloads/ceja.pdf5. Copies of the standards can be downloaded from Standards Australia’s website

www.standards.com.au6. Black had originally gained 15 per cent at a time when that was considered not to

constitute ‘control’; he then demanded the right to own more than 15 per cent on thebasis that he should have a greater share of the extra value generated by his control ofthe assets.

7. The general issue of integrity systems for the media is covered in C. Sampford and R.Lui, ‘Media Ethics Regime and Ethical Risk Management in Australia’, paper deliveredto Media Ethics Conference, Parliament House, Canberra, 3 July 2002.

Azerbaijan


Conventions: Council of Europe Civil Law Convention on Corruption (signed May 2003; not yetratified)Council of Europe Criminal Law Convention on Corruption (signed May 2003; not yetratified)UN Convention against Transnational Organized Crime (signed December 2000; notyet ratified)


TI 04 chap08 6/1/04 16:14 Page 158


• A few amendments to the constitution that were adopted by referendum in August2002 may contribute to an increase in political corruption. One allows ordinarycourts to close down political parties; formerly, only higher-level courts could banparties. Another increases the term for official confirmation of election results fromseven to 14 post-election days, which gives incumbents a better opportunity to falsifyofficial precinct protocols. Sections of the Azeri opposition claimed that oneamendment was designed to make it easier for President Heydar Aliyev, who turned80 in May 2003, to name his successor – as appears to have happened in August,when parliament elected his son, Ilham, as prime minister.1

• In August 2002, the ministry of taxes closed down audit sections in its districtbranches and passed its audit authority to a centralised body within the ministry.One positive aspect of the change is that it led to a significant reduction in thenumber of unjustified inspections of small and medium-size enterprises (SMEs).

• President Aliyev signed a decree on state support to business development inSeptember 2002. The measures contain several anti-corruption regulations.

• Following the enactment of the law on public procurement, the president proposedand parliament adopted amendments to the laws on investment activities, on theelectric energy industry and architectural activity in December 2002. In all threelaws, the amendments replaced the term ‘tender’ with the term ‘competition’. Criticsof the amendments described ‘tender’ as a legal term with a precise formal meaning,while ‘competition’ was open to interpretation and thus seen as facilitating corruptprocurement.

• In January 2003, a presidential decree ratified amendments to the law on publicservice, allowing interviews as a tool of recruitment. Earlier versions of the lawenvisaged only open formal competition, leading some opposition critics to warnthat the amendment would encourage corruption in the access to public jobs.

• A presidential decree on preventing interference in business closed down theDepartment of Struggle against Economic Crimes of the ministry of the interior inSeptember 2002. The decree also instructed the ministry of the interior to reducetraffic police by 15 per cent. This cut may serve to decrease corruption after thepresident had recognised that the excessive number of police checkpoints was anobvious example of corruption. The ministry of taxes was instructed to decreasethe number of auditors by 40 per cent. The decree also called on all city and districtauthorities to close down departments engaged in the audit of businesses andenterprises. The decrease in the number of inspecting agencies has led to a slightimprovement in the corruption rate among SMEs, as demonstrated by recentresearch data.2

Country reports AZERBAIJAN 159

TI 04 chap08 6/1/04 16:14 Page 159


Official state registration

Extortion of bribes by civil servants whocontrol the obligatory state registrationprocess is not uncommon in Azerbaijan. Inview of the growing number of privateenterprises and civil society organisations,which must register with the state, however,the need to improve relevant legislation andstandards has grown more urgent.

The problem attracted particular attentionafter the representative of the AmericanChamber of Commerce in Azerbaijan, JonelleGlosch, cited official registration and taxesas the most difficult obstacles to investingin the country in a television interview. ‘Fourcompanies were supposed to receive licencesin April 2002. This was very difficult. We,together with representatives of the Britishand US embassies, went to the PresidentialExecutive Staff office and met [the president].After getting his instruction, the companieswere registered’, she said.3

Meanwhile, the new re-registrationprocess drew criticism from religiousassociations as well as human rightsobservers. In 2002, all religious associationsthat had previously registered with theministry of justice were required to re-registerwith the state committee. The authoritieshave stated that all care has been taken tomake religious associations aware of the needto re-register and to ensure transparency inthe documentation process. Nevertheless,reports indicate that some religiousassociations have not been properlyinformed about the need to re-register orwhat documentation they must submit.4

Besides having to register with theministry of justice, NGOs are now obliged toregister all grants with the justice ministryas well. Most NGOs protested against thisdecision, pointing to a high likelihood thatextortion would rise as a result. In turn, theyargued, international donors would bediscouraged from funding civil society andother projects in Azerbaijan.5

Political parties also face discretionary,inequitable registration scenarios. Election

laws – be they presidential, parliamentaryor municipal – as well as judicial practicecreate a number of opportunities for arbitraryand illegal denial of registration to candidatesand their political parties. This trend can betraced back at least to the parliamentaryelections of November 2000, when severalleading opposition parties were deniedregistration for ‘proportional’ seats. Theywere finally included on the ballot afterintense international pressure – though thispressure failed to assist other candidates inthe constituencies registering for ‘majority’seats. This problem was still in evidenceduring the by-elections of 2002 and 2003.Some key political parties, such as formerpresident Ayaz Mutallibov’s Civic UnityParty, still work without official stateregistration.6

A centralised and simplified officialregistration system for legal entities wouldbe the most effective way of addressing theproblem. A few initial steps have been takenin this direction, including the launching ofa state programme for SMEs, which aimsto simplify registration and licensingprocedures for SMEs and ensure protectionof their rights.7

Local excesses, central responsi-bility: an accountability update

Accountable only to the president, localexecutive authorities remain the mostinfluential organ of governance throughoutthe country. The lack of formal popularcontrol over their activities renders themone of the major sources of corruption.

In April 2003 President Aliyev replacedthe heads of executive authorities inSumqayit, Ganja and Lenkaran, the threelargest cities after Baku. The move followeda televised speech in which he levelledcorruption allegations against high-rankingcity managers and the local businesscommunity.8 The president also demandedfinancial involvement from a localbusinessman who had not been ‘very active’in assisting the city of Sumqayit with its

TI 04 chap08 6/1/04 16:14 Page 160

Country reports AZERBAIJAN 161

social programmes. The president’s speechseemed to imply that heads of the executiveauthority are empowered to force localbusinessmen to finance public services andreconstruction.

In May 2003 the parliament passed a lawon administrative control over activities ofmunicipalities, which empowers ‘anappropriate organ of executive authority’ toconduct audits and general assessments ofthe municipalities. This measure furtherreduced the independence of municipalitiescompared to that of the local executiveauthority.

Despite such setbacks, which haveincreased the power of the local executiveauthority throughout the country, a markedimprovement in the accountability ofpolitical leaders to the legislature is inevidence. In June 2002, parliament adoptedthe constitutional law on additional rightsof parliament concerning confidence in thecabinet of ministers. The law obliges thecabinet to report to parliament on an annualbasis and requires cabinet executives (withconsent of the government) to respond toverbal and written questions at parliamen-tary sessions. The first such exercise tookplace on 18 March 2003, when First DeputyPrime Minister Yaqub Eyyubov made apresentation and answered questions. Thisdevelopment is a move in the right direction,as Azerbaijan has thus far lacked a traditionof government reporting to the electedlegislature.

Similarly, positive steps were taken toimprove accountability in the newly createdindependent State Oil Fund (SOFAR), whichaccumulates all oil proceeds besides taxes,which are funnelled directly to the statebudget. SOFAR is to ensure transparency ofoil revenues earned by the State OilCompany of the Republic of Azerbaijan(SOCAR).9 On 13 May 2003, parliamentamended the law on budget systems toinclude SOFAR in the country’s consolidatedbudget, a first significant step towardsmaking the oil fund accountable tolegislative authority.

Yet domestic critics and the InternationalMonetary Fund have demanded full subor-dination of SOFAR to the legislative authorityto ensure its transparency and prevent thediversion of funds. SOFAR was created bypresidential decree, its expenditures arelargely controlled by the presidential admin-istration and its low levels of oversight renderit vulnerable to political manipulation.

A panel discussion organised by Eurasianetin June 2003 concluded that Azerbaijan,along with Kazakhstan, may see povertyworsen as oil exports grow. The discussionfocused on the ‘resource curse’, a term thatdescribes the pattern through which poorcountries become poorer when they beginto sell lucrative oil exploration rights. Expertsstressed the need to encourage corporate bestpractices in order to reduce the scope forcorruption in the oil industry. In particular,they argued for foreign companies to disclosehow much they pay to specific stateministries for the right to drill, a practiceencouraged by the ‘Publish What You Pay’initiative.10

Corruption persists in the military

Corruption and a lack of accountability inthe military remain burning issues of publicconcern. Reports by local and internationalhuman rights activists have found thatconscripts are targets of economicexploitation in the army and that officialsfrom the ministry of defence have extortedinformal fees – mostly in cash – for draftexemptions, deferrals and deployments tounits in the least risky areas. In some unitsofficers have siphoned off supplies or sur-reptitiously used conscripts as unpaidlabourers. Eight conscripts died of sunstrokewhile working on a construction project inJuly 2002.11

As can be expected, conscripts who cannotbribe their way out of military service or intoeasier service tend to be poor. Since theyfrequently suffer from malnourishment ortuberculosis, they are prone to accidents and

TI 04 chap08 6/1/04 16:14 Page 161

Rena Safaralieva (TI Azerbaijan) and Ilgar Mammadov (Demokr-IT, Azerbaijan)

Further reading

Sabit Bagirov, ed., Corruption, Transparency Azerbaijan, 2002Turan news agency expert group, ‘Corruption in Azerbaijan’ survey, 4 April 2001

TI Azerbaijan: www.transparency-az.org

Notes

1. Ilham Aliyev was elected president in mid-October 2003, although election monitorspointed to irregularities.

2. www.echo-az.com/archive/432/facts.shtml#113. Interview with ANS TV, 16 February 2003.4. ECRI Report on Azerbaijan, Council of Europe, 15 April 2003, www.reliefweb.int/w/

rwb.nsf/6686f45896f15dbc852567ae00530132/a2b221ae7a267396c1256d09002fcf5f?OpenDocument

5. The presidential decree of January 2003 enacted amendments to the law on grants of1998, which is actually dated April 2002.


are often not fit enough to perform the tasksassigned to them.12

On occasion, corruption in the army feedsinto major political scandals. In February2003, military journalist Uzeir Jafarov, whohad been convicted of fraud and abuse ofpower, held a press conference and chargedthat his conviction had been ‘inspired’ bythe newly dismissed deputy minister ofdefence, Mammad Beydullayev. Jafarovpresented a list of facilities formerly ownedby the ministry of defence and implied thatthey had been illegally privatised. No actionhas been taken.13 Alekper Mammadov, aformer high-ranking military officer, alsoaccused the ministry of defence of systemiccorruption.14

In early September 2002, an uprising at amilitary college in Baku led to hundreds ofcadets leaving the campus illegally to marchin protest against corruption in school.Speaking in Ganja a few days after theincident, President Aliyev admitted thatthere had been ‘violations of law, bribery bycommanders and abuse of power forcovetous aims’.15 Nevertheless, he stressedthat the cadets’ reaction had not been

justified. By spring 2003 all command staffat the college had been replaced, but theleaders of the cadet protest were sent to serveas privates on the Armenian or Karabakhborders.

Further areas of concern involve the‘military commissariats’, or conscriptionagencies, which enjoy a great deal of arbitraryauthority, which is sometimes employed asa political tool against opponents. A case inpoint concerns Mahammad Ersoy, editor-in-chief of the newspaper Bizim Yol.Immediately after publishing a series ofarticles criticising the government, Ersoy wascalled to military service and the newspaperwas partially confiscated from newsstands.16

While such developments are dis-couraging, criticism of secrecy in the militarywas heard in August 2002 when PresidentAliyev ordered the creation of a special fundto collect donations from citizens andcompanies willing to support the nationalarmy. In an apparent bid to silence critics ofthe lack of transparency in militaryaccounting, the president ordered that thefund be audited once a year.17

TI 04 chap08 6/1/04 16:14 Page 162

6. www.vbp-az.org/english/presssl.html7. The programme was launched by presidential decree in mid-August 2003.8. Novoye Vremya (Azerbaijan), 4 April 2003.9. Complicating matters further, Azerbaijan became the target of high-level allegations

in November 2002, when Czech businessman Viktor Kozeny accused the Azerigovernment of defrauding him in connection with the privatisation of SOCAR; seewww.eurasianet.org/departments/business/articles/eav111802.shtml

10. Eurasianet Organisation, ‘Will a “Resource Curse” Befall Azerbaijan and Kazakhstan?’,27 June 2003. See also, Svetlana Tsalik, Caspian Oil Windfalls: Who Will Benefit?, OSICaspian Revenue Watch, Central Eurasia Project, 2003, www.soros.org/publications/caspian/index.html

11. Human Rights Watch, World Report 2003, www.hrw.org/wr2k3/europe3.html12. Agence France-Presse (France), 31 July 2002.13. Echo (Azerbaijan), 5 April 2003.14. Interview with Alekper Mammadov, Echo (Azerbaijan), 25 January 2003.15. Turan news agency, 12 September 2002.16. Turan news agency, press review, 29 April 2003.17. www.rferl.org/nca/features/2002/08/23082002155927.asp

Brazil


Conventions:OAS Inter-American Convention against Corruption (ratified July 2002)OECD Anti-Bribery Convention (ratified August 2000)UN Convention against Transnational Organized Crime (signed December 2000; notyet ratified)


• The impact of a ruling from February 2002 requiring candidates to present theircampaign expenditure statements electronically was first felt in the October 2002general elections. The superior electoral court issued the ruling. Previously, suchstatements were presented on paper, making it virtually impossible to aggregate thedata and cross-reference information on candidates and their donors.

• A law passed in December 2002 modified the sections of the criminal procedural codethat relate to improbity. Prior to its introduction, prosecutors could initiate legalactions in first instance courts. Under the new law, elected and career officials canonly be judged by superior courts of justice, either state or federal, and not by firstinstance courts. This could make it more difficult to bring corruption cases to trial.

• A Council for Public Transparency and the Fight against Corruption wasestablished within the inspector general’s office (Controladoria Geral da União, CGU)in May 2003. Civil society organisations were involved in its creation.

Country reports BRAZIL 163

TI 04 chap08 6/1/04 16:14 Page 163

• The CGU, created during the previous administration, shows signs of reinvigorationunder the new government of President Luis Inácio Lula da Silva. The new inspectorgeneral, Waldir Pires, has declared the fight against corruption a major concern andhas introduced some innovations. In May 2003 the CGU introduced a programmeto verify the use of federal resources in cities with populations of up to 20,000inhabitants. The cities are selected at random each month.

• The minister of justice and the president of the central bank announced a series ofnew measures to combat money laundering in June 2003 (see below).


Government fails to curb tax evasionand money laundering

Tax evasion and money laundering havebeen routine in Brazil for years. Money fromillegal transactions such as bribery, politicalcorruption and drug dealing is easily sentabroad or diverted to fiscal havens. There isstrong evidence that vast amounts ofundeclared assets owned by Brazilians areheld abroad, mostly by businessmen and theaffluent seeking to avoid foreign exchangerisk. So far the government has provedunable to curb this capital flight.

Measures to stimulate the declaration ofassets maintained abroad have had littleimpact. The previous administrationintroduced the voluntary declaration beforethe central bank of all transactions exceedingUS $10,000, including purchases of foreigncurrency or money sent abroad. The measuredepended on far more good will than wasavailable. It was hard to conceive that corruptpoliticians, public officials, drug dealers andunethical businessmen would spontaneouslydeclare to the authorities the fruits of bribery,tax evasion and other illegal transactions.

Two recent cases are emblematic of thelevels of tax evasion and money launderingin Brazil. In January 2003, the Swiss courtsannounced that they had frozen US $36million laundered by Brazilian accountholders and kept in Swiss banks, followinga request by the Brazilian authorities. Theaccounts were in the name of tax inspectorsfrom the Rio de Janeiro state governmentwhom companies had allegedly bribed to

overlook their tax evasion activities. One ofthem, Rodrigo Silveirinha, was a deputy headof the state tax-collection office, nominatedduring the administration of formergovernor, Anthony Garotinho. A state par-liamentary inquiry commission wasestablished to investigate the case. By mid-2003, 12 tax inspectors had been arrested.The case emerged 10 days after Garotinho’swife was sworn in as the new governor ofRio and shortly after Garotinho – who stoodin the October 2002 presidential elections –became the state’s secretary of public security.The direct participation of Garotinho andhis wife in the fraud is under investigation,but has not been proven.

Another financial scandal, involvingParaná state-owned bank Banestado, came tolight in February 2003, in response toaccusations made by the newly electedsenator for the neighbouring state of SantaCatarina, Ideli Salvati of the Workers’ Party.Federal investigations revealed the existenceof a tax evasion and money launderingscheme amounting to US $30 billionbetween 1996 and 1999. The money wastransferred from a Banestado branch in Fozdo Iguaçu, near the borders with Argentinaand Paraguay, to 130 accounts in the bank’sNew York branch through a special form ofaccount reserved for non-residents. Thenames of several politicians and well-knownbusinessmen were included in the list ofbeneficiaries. The senate rejected a requestfor an investigation, but in June 2003 thelower chamber of congress agreed to establisha parliamentary commission of inquiry.

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Ana Luiza Fleck Saibro (Transparência Brasil)

Further reading

Larissa Bortoni and Ronaldo de Moura, O mapa da corrupção no governo FHC (A map ofcorruption in the government of FHC) (São Paulo: Ed. Fund. Perseu Abramo, 2002)

Antoninho Marmo Trevisan, O Combate à corrupção nas Prefeituras do Brasil (The fightagainst corruption in Brazilian city halls) (TBrasil, 2003), www.transparencia.org.br

Country reports BRAZIL 165

The parliamentary commission, sincetransformed into a joint commission, beganits work in mid-2003 and its findings weredue by the end of the same year.

In June 2003, the attorney general andthe president of the central bank introduceda new set of measures aimed at tacklingmoney laundering. Banks must now notifythe central bank of all deposits orwithdrawals of more than 100,000 reais (US$30,000). The measures also included thecreation of a general registry of bankaccounts; the formation of a new departmentof recuperation of illicit profits to coordinateinvestigations between different ministriesand departments; and the restructuring ofthe council for financial activities control(COAF, a part of the finance ministry).

The new government has yet to fulfilanti-corruption promises

In September 2002, before the first round ofthe most recent presidential election, Lula daSilva of the Workers’ Party signed an anti-corruption pledge prepared by TransparênciaBrasil. The document set out eight measuresto curb corruption and redress the lack ofadequate state control mechanisms. Themost important measure was the establish-ment of an anti-corruption agency. Withinsix months of the new government takingoffice, the agency would draw up an anti-corruption plan with the participation of thelegislature, judiciary, public prosecutor’soffice, supreme audit court and, as observers,civil society organisations.

The pledge contained initiativesconcerning public procurement; the estab-

lishment of a network of ombudsmen infederal government; the prohibition ofpublic officials hiring relatives; the strength-ening of investigative bodies; theimplementation of international anti-corruption conventions already ratified byBrazil; and the consolidation of initiativestaken by the former government in the areasof corruption control and conflict of interest.

After several unsuccessful campaigns, daSilva beat his rival, José Serra, winning 61per cent of the vote with a pledge to reconcilethe government’s relations with the Brazilianpeople. His victory reflected Brazil’s disillu-sionment with the free market policies ofthe outgoing government, which had arecord of poor administration of publicfunds, administrative inefficiency, cor-ruption, inadequate income redistributionand high unemployment.

President da Silva’s emphasis on the needfor a smooth transition allayed internationalfears about what Brazil’s first Workers’ Partyadministration might portend, and Braziliansare optimistic at the prospect of change. Firmaction to punish corruption – from nepotismto bribery and embezzlement – would satisfymany Brazilian expectations. Many considera reduction in corruption not only a moralnecessity, but a practical concern if Brazil isever to compete fairly in the global economy.

Although the fight against corruption hastraditionally been a theme in Workers’ Partyelection campaigns and was cited as a policyinitiative in President da Silva’s inauguraladdress in January 2003, the newgovernment has implemented few concretemeasures to tackle the problem. At thiswriting, no steps have been taken to createan anti-corruption agency.

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Rodrigo Penteado, Corrupção: 18 Contos (Corruption: 18 Short Stories) (Ateliê Editorialand Tbrasil, 2002)

Jeremy Pope and Bruno Wilhelm Speck, eds, Caminhos da Transparência (Paths oftransparency) (Campinas: Editora da Universidade Estadual de Campinas, 2002),www.transparencia.org.br/source/#!

TBrasil, ‘Corruption in Brazil: The Private Sector’s Perspective’, survey by TBrasil inassociation with Kroll Brazil, November 2002, www.transparencia.org.br

Transparência Brasil: www.transparencia.org.br

Bulgaria


Conventions:Council of Europe Civil Law Convention on Corruption (ratified June 2000)Council of Europe Criminal Law Convention on Corruption (ratified November 2001)OECD Anti-Bribery Convention (ratified December 1998) UN Convention against Transnational Organized Crime (ratified December 2001)


• Adopted in July 2002, amendments to the judicial system act provide for the estab-lishment of a system of accountability to the Supreme Judicial Council (SJC) forcourts, prosecution offices and investigation services; various anti-corruption checkson the judiciary, notably property and income declarations; adoption by the SJC ofethics codes for magistrates and administrative staff; competitive recruitment formagistrates and promotion according to objective criteria; and the creation of apublic institution – the National Institute of Justice – to train members of the judiciary.The act also modifies procedures for adoption of the judiciary budget.

• After a first reading in July 2002, the legislature passed controversial amendmentsto the civic procedure code granting prosecutors the right to discretionaryinterference in private contracts. Though still pending, a second hearing wasdelayed in view of criticism from civil society organisations.

• In September 2002, amendments to the criminal code introduced more preciseprovisions on organised crime and corruption, including trading in influence, privatesector corruption and the bribing of magistrates, juries and foreign public officials.The definition of ‘foreign public official’ was extended to reduce the scope of protectionproviding for acquittal in some cases of bribe paying. The amendments also introducefines as a penalty for bribery and more severe punishments for bribe taking by judges,


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jury members, prosecutors and investigators. Finally, non-material benefits wereincluded as a further definition of bribery.

• A parliamentary commission against corruption was established in September2002 with responsibility for monitoring draft laws for compliance with existing anti-corruption legislation prior to their adoption by parliament. The body will proposeamendments to existing laws as well as new legislation; assist in the elaboration ofcommon criteria and a strategy for curbing corruption; and provide related reports,statements and legislative proposals (see below).

Country reports BULGARIA 167

When anti-corruption bodies arepowerless

Despite creating two specific anti-corruptionbodies in the past two years, Bulgaria stilllacks an effective institution to tackle andprevent corruption. Neither the inter-ministerial commission against corruption,known as the White Commission, nor theparliamentary commission against cor-ruption has investigative powers.

Established in December 2001 and chairedby Minister of Justice Anton Stankov, theWhite Commission is composed of repre-sentatives from the justice, interior, financeand other ministries and is tasked withmonitoring the government’s anti-corruption measures. It coordinates theimplementation of the national strategyagainst corruption, on whose progress itreports, and suggests measures to increaseits effectiveness.

While the White Commission has noinvestigative powers and is unable tointervene in corruption cases, it functionsas a clearing house through which cases aretransferred to the appropriate investigativeauthorities. To ensure that the accused arepresumed innocent unless proven guilty, thecommission does not release its findings tothe public. Claiming that less sensitiveinformation must also remain confidential,it has made no effort to cooperate with civilsociety. Furthermore, the body is weakenedby the members’ inability to work full time,as the chairman and other members havefull-time ministerial roles.

In September 2002, the governmentsought to compensate for some of theseweaknesses by creating the ParliamentaryCommission against Corruption (PCC),comprised of 24 deputies from all parlia-mentary groups. The PCC can proposeamendments, monitor existing laws andidentify gaps in enforcement practices, butit still does not address the central problemin Bulgaria’s anti-corruption strategy – theabsence of investigative powers.

In his annual report on 23 January 2003,President Georgi Parvanov launched a publicdebate on the prospects of creating anindependent anti-corruption agency withinvestigative powers. He cited deterioratingpublic confidence in state institutions andforeign pressure to improve anti-corruptionmeasures as motives. The president identifiedseveral advantages that a new agency couldbring to the fight against corruption:increased effectiveness against corruptionby senior government officials andpoliticians, the detection of officials’ crimesby an independent authority not subject topolitical influence, improved publicconfidence in state institutions, and a strongpreventive effect on senior governmentofficials.

The proposed plan of action is to pass aspecial law setting up an independent agencyheaded by a single individual. Theappointment would not coincide with theterm of the national assembly so as to avoidthe director’s replacement by an incominggovernment. The agency would be assignedthe same scope of investigative functions asthe ministry of the interior and it would

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focus on crimes committed by a compara-tively small circle of senior officials. The datacollected would be sent to the prosecutor’soffice for a decision on whether tocommence proceedings.

Government and NGO representativesgenerally welcome the initiative, but criticsobserved that the government should focuson strengthening existing institutions, ratherthan creating a new body with similarfunctions. Some argue instead for theintroduction of the post of ombudsman.1

Promoting transparency in publicprocurement

In autumn 2002 the government drafted anew public procurement law to comply withthe European Commission’s Regular Reportfor the Accession of Bulgaria to the EU. Thedraft is pending in parliament.

The current public procurement law wasenacted in 2000. Following recommenda-tions of the World Bank’s procurementreview, it was amended in 2002 to includea judicial appeal procedure and facilitatedirect negotiations between the contractingauthority and the bidder. Despite thesechanges, however, procedures still needrevision.

The business community is nearlyunanimous in citing the procurementappeals procedures as the biggest problemin the field. Legally and in practice, filingan appeal stops the procurement process inits tracks until the courts rule on the case.Since no disincentives were established todiscourage bidders from filing an appeal, nomatter how baseless, they occur frequently.

Another problem relates to the linkagebetween public procurement and the budgetplanning and allocation processes. Uncer-tainties about the availability of funds delaythe initiation of essential procurement, whilethe need to commit funds before the end ofa fiscal year – or lose them – gives rise tohasty decisions and procedural violations.Budgetary uncertainty also leads to delayedpayment or non-payment of suppliers,

discouraging bidders from competing forgovernment contracts.

But the greatest shortcoming of theexisting legislation is the vague assignmentof responsibilities for regulatory functionswithin procurement. One or more organi-sations must still be given clear mandatesfor updating primary legislation andproviding secondary legislation coveringoperating procedures. The regulatoryfunction should also include the preparationand dissemination of standard documents,monitoring and quality control, andsupervision of professional training ofprocurement staff. Further, it should includea review of procurement appeals outside thecourt system, thereby eliminating one of themain sources of disruption in the process.

Some other procurement problems pertainto deficiencies in the law and to the way itis presently implemented, including theabsence of arbitration procedures and theneed for more clarity about the applicabil-ity of the law. Excessive requirements fordocumentation of bidder qualificationremain to be adjusted and specificationsfavouring one bidder should be eliminated.There is also a need for a review of contractvalue thresholds, insurance requirements,bid commission procedures and the need forsanctions for improper procedures.

Glaring inadequacies define newpolitical finance legislation

The year 2002 was the first year in whichnew rules for political party financing wereexpected to show results. Yet the newlegislation – the act on elections, as well asamendments to the act on local elections –failed to rectify problems that still mar thecredibility of Bulgaria’s political system.Opinion polls indicate that the newleadership has not fully convinced votersthat it has kept its anti-corruption promises.2

Indeed, political corruption is perceived asBulgaria’s most serious problem by a largepart of the population, which has singledout political parties as one of the most

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Katia Hristova and Diana Kovatcheva (TI Bulgaria)

Further reading

Access to Information Programme, ‘Access to Information Litigation in Bulgaria’, 2003;and ‘Access to Information Situation in Bulgaria: AIP Annual Report 2002’; www.aip-bg.org

Coalition 2000, Corruption Assessment Report 2002, www.anticorruption.bg/eng/coalition/car2002.htm

Country reports BULGARIA 169

corrupt institutions in recent years. Thereare two major concerns: one relates tosources of party funding, the other involvestransparency, control and sanctions foroffenders.

The act on political parties of March 2001confers the supervision of political partyexpenses and income to the National AuditOffice (NAO), whose reports evaluate theintegrity of political party financing (seeChapter 14, ‘Measuring the transparency ofpolitical party financing in Bulgaria’,page 298). The act requires parties to presenttheir annual reports to the NAO by 15 March,or lose their state subsidy for the relevantyear. Within six months of receiving annualreports, the NAO must announce whetherthese comply with the relevant legislation.Parties are also required to file reports withinone month of elections.

Despite this new legislation, the NAO hasidentified several aspects of party financingas ongoing problems. Anonymous donationsallow parties to dodge naming donors ordeclaring their gifts to the NAO. Secondly,parties are not equally sanctioned for failingto submit their reports within the timeprescribed by law. The act on political partiesguarantees state subsidies only to parties thatobtain 1 per cent of the vote during parlia-mentary elections; parties that do not reachthat threshold are not punished for failingto submit their statements.

Numerous parties have failed to submitfinancial information in their annual reportsand some are registered under incorrectaddresses, leading observers to assume theyare not truly engaged in political activity.

One way to address this problem is to re-register parties according to the provisionsof the act on political parties.

Local election campaign financing alsoneeds tighter controls. The act on localelections, passed in 1995 and last amendedin mid-2003, provides for elections ofmunicipal councillors and mayors.Campaigns can be financed through fundsof political parties and coalitions, as well asby individual donations and corporatebodies, as long as their shares are not ownedby public or foreign entities.3

The lack of effective controls and thefailure to sanction offenders continue tothwart transparency in the politicallandscape. Spending limits are nowdetermined based on population figures, butthe amended act still does not provide for thecontrol of candidates’ income and expenses,or for the application of sanctions. Theproblem is exacerbated by the lack ofaccounting requirements related tofundraising, as is the case for candidates formunicipal councillor who have access todouble funding if they set up personal bankaccounts while also taking advantage ofpolitical party funding.

The poor control of local electionfinancing stems from the lack of legallybinding reporting requirements forcandidates and political parties after electionsare held. Moreover, no body is legallyauthorised to oversee electoral campaignfinancing. Control can only be exercisedwhen parties or coalitions request a reviewof their adversaries’ financing.

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Open Society Institute, ‘Corruption and Anti-Corruption Policy in Bulgaria’, 2002;ftp.osi.hu/euaccession/2002_c_bulgaria.pdf

TI Bulgaria, ‘Methodology for Drafting and Implementation of an Ethics Code of CourtAdministration’, ‘Strengthening Public Confidence in the Judicial Administration’,‘Improving Transparency in the Work of Municipalities in Relation to the Governingof Municipal Property and Public Procurement Procedures’, all September 2002;‘Political Party Financing’, conference paper, June 2003

TI Bulgaria: www.transparency-bg.org

Notes

1. See ‘Establishment of a New Anti-Corruption Body in Bulgaria: The President’s Positionand Public Debate’, Center for the Study of Democracy, www.csd.bg/news/acagensy_stenograma.doc

2. See the annual report on Bulgaria for 2002 of the Access to Information Programme,www.aip-bg.org/pdf/an_rep02.pdf

3. Local Elections Act, article 68.

Burundi

Corruption Perceptions Index 2003 score: not surveyedBribe Payers Index 2002 score: not surveyed

Conventions:AU Convention on the Prevention and Combating of Corruption (adopted July 2003;not yet signed)UN Convention against Transnational Organized Crime (signed December 2000; notyet ratified)


• A September 2002 amendment to a 1996 law on privatisation was spurred by thecreation of a dedicated ministry. One provision, preventing senior officials and theirfamilies from bidding for shares in public organisations, applies to members of theInterministerial Privatisation Committee (Comité Interministériel de Privatisation),experts in the department responsible for public organisations (Service Chargé desEntreprises Publiques), consultants, independent agents as well as any head of a publicorganisation who has been convicted of fraudulent management of an organisationunder privatisation. The prohibition applies for five years from the conviction.

• In the second half of 2003 a parliamentary commission considered a bill on thecreation of an audit court, with the national assembly due to examine the matterthereafter. The Arusha Peace and Reconciliation Agreement in Burundi provides forthe creation of an audit court that would be ‘responsible for examining and certifying


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the accounts of all public organisations. This court will present a report on thepropriety of the state accounts to the national assembly. This report will establishwhether funds have been used in accordance with established procedures, and inaccordance with the budget approved by the above-mentioned assembly.’ The courtis also a requirement of the transitional constitution and the International MonetaryFund made its creation a condition for the release of the second instalment of creditto the government.

• The assembly adopted a law on the media in early August 2003 (see below).

Country reports BURUNDI 171

The devastating impact of war oncorruption

Although it is difficult to measure the impactof war on corruption in Burundi and littleinformation is available on the subject, therole of the hostilities cannot be underesti-mated. For almost 10 years, the country hasbeen immersed in a civil war that has haddisastrous consequences. The proportion ofthe population living below the poverty levelhas risen from 30 per cent in 1989 to 60 percent in 2000. The mortality rate has risen to114 per 1,000, and life expectancy droppeddramatically from 54 years in 1992 to 41years in 2000. Burundi is one the world’seight poorest countries.1

Coexistent with the war are regularmassacres of innocent victims, massdisplacement and restrictions on civil andhuman rights, such as the freedoms to travel,hold demonstrations and express oneselfopenly. The democratic process barelyfunctions in such an environment, which isaggravated by the virtual political impunitythat produces conditions favourable to thespread of corruption.

Despite the Arusha peace treaty of August2000 and various ceasefire agreements since,the situation in Burundi is deteriorating.Corruption, which used to be comparativelyinconspicuous, has adopted more publicdimensions, spreading into every aspect ofthe public and private sectors and affectingprocurement, the granting of land useconcessions, customs, public health, theapplication for driver’s licences and even theassignment of school grades.

The presence of military personnelthroughout the countryside has contributedto the increase in petty corruption. Soldierscommonly stop people under the pretext ofmaking identity checks, only to extort a bribebefore releasing them. In rural areas, a fee islevied on farmers for harvesting after thecurfew, while on the main roads, soldiers usethe curfew as an excuse to exact money fromdrivers.

Analysts note that the military elite,already enriched by the diversion of publicfunds, has more to gain from letting Burundisink deeper into debt than from pursuingthe peace process, which might lay the basisfor a return to democratic governance andlead to reform in the army.2 At a governmentlevel, a 2003 report by financial inspectorsdrew attention to the misappropriation ofmore than 20 million Burundi francs (aboutUS $20,000) in public funds at city hall inBujumbura. The report of the generalinspection of the ministry of finances foundthat more than 6 billion Burundi francs(about US $6 million) had been divertedsince 1993. Inspectors point to regularcorruption in the departments of taxation,customs, procurement, as well as in manystate-owned companies.3

In the absence of peace and security, andin circumstances where the authority andthe very institutions of the state arechallenged or rejected by warring groups,the fight against corruption is not likely tobecome a priority, even if the political willwere strong. This situation may explain whycorruption has taken on more publicdimensions. Christophe Sebudandi,

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president of the Governmental ActionObservatory (OAG), an umbrella associationof 18 media and civil society organisations,finds that ‘corruption has spread, openlyand publicly, to such an extent that thosewho practice it have become stronger thanthose who are fighting against it. This hasresulted in a kind of reversal of values.’4 Inthe view of Julien Nimubona, a politicalscience professor at the University ofBurundi, the civil war has produced ‘a mafia-like tendency at the heart of the state.Corruption is an ever growing blight onpublic services that relegates fundamentalsocial values to a secondary role.’5

Freedom of the press legislation:revisions needed despite progress

The national assembly adopted a long-awaited media law in early August 2003 thatrevises the measures laid out in legislationfrom 1997. While it secures certain rightsfor the media, the law fails to address crucialaspects related to freedom of information.

Debates on the media law began inDecember 2001, following completion of agovernment-initiated study on the legalframework for media and communicationsthat was partly funded by a UNDP projectto support democratic government. Theassembly considered the proposed newlegislation during its June 2003 session.

The new law makes some noteworthyimprovements to the previous legislativeregime. It removes the need for authorisationprior to publication: the 1997 law requiredthat the national communication councilapprove the content of all newspapers andperiodicals before they could be published.

The new law also dispenses with a previousrequirement that compelled publications toreveal their sources, which constituted aserious constraint on journalistic freedomand was compounded by the fact thatsources could not be prosecuted for violatingmedia laws. Since only the heads of mediaoutlets could be prosecuted for offencesarising from published or broadcast

information, dishonest journalists couldsafely denounce persons who never actuallyprovided them with any information.

One element of the new law that may beuseful in combating corruption relates to theprevention of conflicts of conscience.Journalists are now granted the right to callon a ‘conscience clause’ that allows them to‘break the contract that binds them to apublishing organisation if a new orientationof the said organisation conflicts with theterms of their contract’. If editors shoulddecide to serve the interests of a politicalparty in exchange for a bribe, for example,a journalist may refuse to be involved byinvoking this clause.

Despite including these valuable reforms,however, the new law also sets stringentlimits to media freedom, along with relatedpenalties. Under the law, the media may nolonger invoke the right to broadcast orpublish information in certain cases thatrelate to such matters as national defence,state security and secret judicial inquiries.

The law assigns fines and penalties of sixmonths’ to five years’ imprisonment for thepublication of insults directed at the headof state, as well as writings that aredefamatory, injurious or offensive to publicor private individuals.

Though some exceptions to freedom ofinformation rights may be justified,prohibitions regarding official secrets couldact as a shield for government, enablingwrongdoers to carry out secret or corruptactivities. Restrictions on publishinginformation on alleged corrupt activities ofpublic figures could be used to intimidate orcensor the media. The rules of conduct inthis area must therefore be given moreprecision, and the courts must showobjectivity in examining the grounds for thistype of argument.

At the same time, journalists and editorsmust be trained to respect journalisticstandards and sharpen their investigativeskills – admittedly difficult in anenvironment of war that does not favourfreedom of the press.6 To facilitate progress,

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Nestor Bikorimana (TI contact group, Burundi)

Further reading

Association burundaise des consommateurs and Observatoire de l’action gouverne-mentale , ‘Atelier de lutte contre la corruption au Burundi’ (Summary report on theworkshop for fighting corruption in Burundi), September 2002, www.ligue-iteka.bi/d180902.htm

Report of the parliamentary inquiry commission investigating cases of misappropria-tion of funds (Bujumbura: Assemblée Nationale, August 2000) [French]

UNDP Support Project for Promotion of Proper Government in Burundi, ‘Transparencyand the fight against corruption in Burundi: a quick diagnosis’, May–June 2000

Notes

1. www.worldbank.org/data/databytopic/GNIPC.pdf2. Économie (Burundi), 13 November 2002.3. RTNB (Radio Télévision Nationale du Burundi), 23 August 2003.4. Atelier de lutte contre la corruption (Workshop for fighting corruption), Association

burundaise des consommateurs (ABUCO, Burundi Consumers Association) andObservatoire de l’action gouvernementale (OAG, Governmental Action Observatory),12–13 September 2003, www.ligue-iteka.bi/d180902.htm

5. Julien Nimubona, ‘L’analyse critique de l’Accord d’Arusha’ (A critical analysis of theArusha treaty), OAG, May 2002, see www.ligue-iteka.bi/n121101b.htm

6. For more information, see ‘Rapport de la table ronde sur le projet de loi sur la presse auBurundi’ (Report on the roundtable about the media bill in Burundi), Maison de la Presse,Association burundaise des journalistes and Institut Panos, Bujumbura, 3 May 2003,www.panosparis.org/fichierProj/fichierProj94.doc

Chile


Country reports CHILE 173

the national communication council itselfrecommended in July 2003 that freedommust be the rule and preventive detentionan exception. Without seeking to justifyviolations of media laws, for instance, thecouncil argued that professional errorsshould only be a reason for detention if thereis a possibility the perpetrator will flee.

The government withdrew the bill inFebruary 2003 after the introduction of a

last-minute amendment on financial supportfor the press, but it was reconsidered in theJune session. The assembly approved the billwith the amendment in early August 2003,with provisions to grant the press taxexemptions on imported supplies and tosecure funds for media support.

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Conventions:OAS Inter-American Convention against Corruption (ratified October 1998)OECD Anti-Bribery Convention (ratified April 2001) UN Convention against Transnational Organized Crime (signed December 2000; notyet ratified)


• In February 2003 a new law on government remuneration and spending, whichregulates salaries for high-level officials and caps their discretionary budgets, cameinto force. All discretionary ministerial funds must now be disaggregated and submittedto the auditor general.

• The requirement to maintain a register of all individuals, institutions and companieswho receive public funds became law in February 2003.

• In June 2003 a new public administration law came into effect. The most significantchange concerns recruitment processes; jobs must be open to competition andpromotion must be based on merit, and the number of political appointments hasbeen reduced. It also regulates payment structure, probation processes, and bonusand pensions arrangements.

• In July 2003 a new law on public supplies and services contracts came into effect.The law makes the contracting process more transparent and stipulates that Internet-based selection mechanisms should be used for contracts above a certain threshold.

• In July 2003 a new law on political party financing was adopted. The law introducesdirect public funding for political parties (Chile had been, along with Peru, one oftwo countries in the region with no direct public funding for political parties). Itestablishes ceilings on spending and calls for sources and amounts of donations tobe disclosed (see below).

• In July 2003, congress began to debate a proposal to regulate lobbying in thelegislature. The aim is to make the practice more transparent and provide a frameworkfor sanctioning unlawful acts.

• Congress is reviewing amendments to the immunity law and considering a bill thatwould increase transparency of parliamentary funds.

• The government has continued to advance its wide-ranging electronic governmentprogramme, originally introduced in 1998. In 2002 and 2003, services made availableonline included customs processes, loan applications from micro- and small businesses,tax payments, agricultural-export certificates and patents registration. Thegovernment’s system of purchases and public contracts was further developed afterthe electronic signature bill was passed in April 2002.


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Country reports CHILE 175

Chile’s clean image tarnished byscandals

In October 2002, the weekly news magazineQué Pasa ran an article alleging thatgovernment officials had received bribesfrom a businessman seeking a contract tobuild a new vehicle-licensing plant.Corruption scandals have emerged severaltimes in President Ricardo Lagos’ adminis-tration (most notably, involving contractingand trading patterns at the state-ownedcopper company, Codelco).1 But the Octobercase was different in that it triggered a seriesof further revelations implicating highofficials and strengthened public perceptionsthat the entire machinery of governmentwas tainted.

The impact was felt deeply. According toThomson Financial Brasil, Chile suffered netoutflows of US $1.1 billion in the first halfof 2003, which was widely attributed to thescandals. The government moved to allayconcerns, hurriedly adopting a series of legaland institutional measures, some of whichhad been languishing in the legislativepipeline for years (see below).

The scandals were striking in view ofChile’s relative complacency about itsreputation as a clean destination forinvestors’ funds. Chile has ranked favourablyagainst other Latin American countries inindices measuring corruption, butperceptions were at variance with theunderlying reality and many necessaryreforms were not seen through to theirconclusion.

The need for reform in two specific areaswas emphasised by the series of scandals.The October case, known as Caso Coimas(the ‘bribes case’), and a second scandal inMarch 2003 that involved the central bank,a state development agency and a privateholding company, highlighted the need toclean up the interface between the publicand private sectors. The Inverlink holdingcompany allegedly used US $100 million indeposit certificates, stolen from the state dev-elopment agency Corfo, as security for

positions it took in the fixed-interest market,based on insider information supplied bythe secretary of the former central bankpresident, Carlos Massad. Both Massad andCorfo’s vice-president, Gonzalo Rivas, wereforced to resign. The investigation continues.

The second area for reform – public sectorconditions and performance – wasunderscored by two further scandals. In April2003 charges were filed against 22 officials,including former transport and public worksminister Carlos Cruz, for circumventingofficial pay scales by routing ministry fundsto staff through an outsourcing companycalled Gate that had ostensibly hired themas consultants. In the other case, the ministryof public works (MOP) paid top-up salariesto consultants and experts at the Centre forApplied Business Research of the Universityof Chile. Thirteen MOP officials were chargedwith unlawfully paying extra fees for a jobthat the trial judge deemed was neverproperly realised: high fees were paid formerely filling in a questionnaire, when theconsultants were supposed to have designedand implemented a system for evaluatingpublic proposals and contracts by the MOP’sregional divisions.

These last two cases should be viewed inthe light of Chile’s low public sector salaries.For decades governments have paid top-upfees to professionals, division heads and evenministers to attract well-trained staff. Inmany cases employees were given multiplecontracts with the same institution for workthat was never done. The additional salariesare often paid out of reserved funds, whichare not subject to any detailed accountabil-ity mechanisms.

While there was no direct connectionbetween the Corfo–Inverlink case and thelater scandals, they merged in the eyes ofthe press and public opinion into a singlegovernance malady. Media outlets failed tomake any clear distinction betweencorruption, administrative error, accusationsand facts, all of which contributed to a strongpublic sense that corruption stalks thecorridors of government.

TI 04 chap08 6/1/04 16:14 Page 175

Andrea Fernández (Corporación Chile Transparente)

Further reading

Centro de Estudios Publicos, Reforma del Estado Volumen II (State Reform Volume II)(Santiago de Chile: Andros, 2002)


Scandals provide new impetus forreforms

In reaction to this spate of revelations (seeabove), the Lagos government created atransparency commission, composed ofrepresentatives from government, theopposition and two civil society organisa-tions, with the task of drafting proposals toremedy the systems that had failed to detectcorrupt practices.

Cross-party working groups wereestablished in March 2003 to draft newlegislation and propose amendments to lawsthat were currently being debated. Many ofthe anti-corruption measures that weredebated were based on proposals by civilsociety organisations such as CorporaciónChile Transparente, Transparency Interna-tional’s national chapter. An all-partyanti-corruption pact, called the ‘Agreementfor the modernisation of the state,transparency and promotion of growth’, waslaunched.

The opposition lent its support to thegoverning coalition to help speed throughcongress a dozen anti-corruption initiativesthat have since passed into law. These werepart of the ‘short reform agenda’. Thirty-seven other reforms, the ‘long reformagenda’, are still being debated.

Among other areas, the new legislationraised government salaries across the boardto reduce the temptation to seek bribes, andabolished the opaque system of bonuses. Thenumber of civil service posts the presidentis entitled to fill was reduced from 3,000 toabout 700 and new campaign-financeregulations were passed. The new measuresalso included regulating the use of discre-tionary government expenses and political

financing, and introducing a formal, non-party national integrity commitmentbetween government, political leaders,businesses and civil society that wouldestablish more robust monitoringmechanisms.

But typical of reforms that have beenenacted hastily, not all the changes were wellthought out. The campaign finance law, forexample, makes a contribution to greatertransparency in elections and introducespublic funding for the first time, but it isundermined by a number of loopholes. Itestablishes spending limits, but does notprovide sanctions for those who exceedthem.2 It allows as much as 30 per cent ofdonations to remain anonymous.3 It alsofails to restrict donations from privatecompanies and congress is discussing newbills that would even exempt these donationsfrom taxes. Another problem is that the lawdoes not provide strict enough safeguardsagainst candidates violating the financingceilings by creating their own campaignfunds, parallel to party funds. A furthercriticism is that there is no regulation ofdonations and spending outside of theelectoral campaign period.

In other areas, reform proposals ran intoopposition. One proposal, aimed at avoidingfuture Inverlink-style scandals by givingregulators more control over banking andinsurance licences, was derailed because ofperceived constraints to Chilean markets.

By late 2003 the fate of the ‘long reformagenda’ looked uncertain. There was growingconcern that the ruling coalition might loseopposition support for the remainingreforms as parties seek to position themselvesfor the 2005 elections.

TI 04 chap08 6/1/04 16:14 Page 176

Corporación Chile Transparente, ‘Memoria: Legislación nacional y probidad’ (Notes:National legislation and probity), 2001

Juan Jorge Faundes, ‘Periodismo de Investigación en Sudamérica’ (Investigative journalismin South America), 2002, portal-pfc.org/bibliografia/periodismo/2002/periodismo_faundes.pdf

Claudio Fuentes, ‘Financiamiento Electoral en Chile: La necesaria modernización dela democracia chilena’ (Electoral finance in Chile: the necessary modernisation ofChilean democracy), in Colección Ideas, no. 30, April 2003

Luis Bates Hidalgo, ‘La legislación chilena y la Convención Interamericana contra laCorrupción’ (Chilean legislation and the Inter-American Convention againstCorruption), 2000, probidad.org/regional/legislacion/2001/022.html

Corporación Chile Transparente: www.chiletransparente.cl

Notes

1. Codelco was the focus of Chile’s biggest financial scandal in 1994, when it emerged thatfutures trader Juan Pablo Davila had cost the company US $200 million by inflating thesize of trades in order to generate higher commissions for his preferred brokers. Morerecently, the company has come under fire for failing to be transparent in adjudicatingcontracts. See Qué Pasa (Chile), 28 March 2003.

2. The first draft of the law was passed by the senate, but later challenged by the constitu-tional court on the ground that it did not provide channels for the accused to seek legalredress. Rather than develop the necessary dispute-resolution mechanisms (an electoraltribunal), the government opted to erase sanctions from the bill and resubmit it forapproval.

3. As much as 20 per cent of the candidate’s total campaign expenditure can be made upof anonymous donations as long as these do not exceed 340,000 pesos (US $484). Afurther 10 per cent can come from donations as large as 10 million pesos (US $14,500),which do not need to be disclosed to anyone other than the candidate.

China

Corruption Perceptions Index 2003 score: 3.4 (66th out of 133 countries)Bribe Payers Index 2002 score: 3.5 (20th out of 21 countries)

Conventions:UN Convention against Transnational Organized Crime (ratified September 2003)


• In June 2002 the Standing Committee of China’s National People’s Congress (NPC)passed the Government Procurement Act, which came into force in January 2003.The law regulates public procurement and includes guidelines for preventingcorruption (see below).

Country reports CHINA 177

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• In December 2002 amendments to the criminal code were ratified. One of theprovisions stipulates that abuse of authority and dereliction of duty by judicialofficials are subject to a criminal penalty of up to 10 years’ imprisonment (see below).

• In 2002–03 a pilot scheme for political reform began in Shenzhen municipality,involving the separation of the powers of policymaking, enforcement and supervision– a radical departure from the current political model (see below).

• China’s new leadership, which came to office in March 2003 under President HuJintao, called for an acceleration of the country’s anti-corruption drive. One of itsfirst measures was a new focus on monitoring provincial-level officials throughthe dispatch by the Communist Party’s Central Commission of Discipline Inspection(CCDI) of 45 inspectors to visit all the country’s provinces. The inspectors are expectedto finish their monitoring programme within four years. The decision should beviewed in the context of criticisms made of the CCDI for failures to tackle corruptioneffectively.

• In August 2003 a law on administrative licensing was passed by the NPC standingcommittee. The new law, which takes effect from July 2004, will streamline andintroduce transparency into the system of administrative permits. Until now officialauthority to issue licences for everything from marriage to establishing a businesshas provided a lucrative source of corruption to supplement meagre wages. Thoseseeking licences have often paid serial bribes to obtain approval from differentauthorities. The new law seeks to tackle the problem by introducing one-stopapplication procedures. The new rules also require licence applications to be filedin writing in order to avoid face-to-face contact with officials, hopefully lesseningthe incidence of ‘improper fee collection’.


Reforms to combat widespreadjudicial corruption

Many of China’s most senior leaders admitthat corruption is rife in the country’s judicialand law enforcement systems, in spite of amajor crackdown on illegal practices and aseries of recent reforms. In November 2002,Liu Liying, former deputy secretary generalof the CCDI, highlighted judicial corruptionas one of the key concerns.1 Offences byjudges and court officials include abuse ofpower in lawsuit proceedings, intentionalerrors of judgment, forging court papers andaccepting bribes.

In an effort to improve practices, recentreforms have included the introduction ofopen trials; more restrictive requirements on

evidence; the separation of trials fromenforcement and monitoring; and themonitoring and evaluation of judges. Thereform programme includes harsherresponses to judicial corruption. In December2002 the NPC standing committee passedamendments to the Criminal Code (IV),which will punish the abuse of authority bycourt officials with up to 10 years’imprisonment.

As a consequence of the crackdown,24,886 court employees were arraigned orprosecuted in 2002, or 2 per cent of thecountry’s judicial staff.2 Those investigatedfor allegations of corruption included twoprovincial chief justices. In the last two yearsa number of prominent officials in the legalsystem have been found guilty of taking

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Country reports CHINA 179

bribes, including Li Jizhou, former deputyminister of public security.

The government is also trying to improvejudges’ professionalism. Previously, therewere no specific requirements for membersof the judiciary, who typically holdprominent political positions since theinstitution is not independent. In March2002 – for the first time – lawyers, judgesand procurators faced a professionalexamination. Training is also beingstrengthened. In July 2002 the supremepeople’s procuratorate cooperated with theWorld Bank and Tsinghua University to runanti-corruption courses for procurators.

New experiments with politicalreform in Shenzhen

Shenzhen, a ‘special economic zone’ closeto Hong Kong, has pioneered nationalexperiments in economic reform for over 20years, becoming one of China’s wealthiestcities in the process. Recently it has been thescene of a number of administrativeexperiments designed to reduce corruption.In 1997–98 Shenzhen introduced a pilotreform, creating a ‘one-stop service’ for morethan 1,000 items requiring the approval ofthe municipal administration. By early 2003,the number had been reduced to around300.3 Since 2000, similar reforms have beenextended to other cities.

In January 2002 the CCDI approved acorruption prevention strategy for Shenzhenand the city again took the lead in experi-menting with systemic reform in 2002–03.The latest reforms are intended to create atransparent, accountable and law-abidinggovernment, both to fulfil China’scommitments to WTO principles and tobuild the kind of market environmentdemanded by the multinationals whoseinvestments have propelled the city’sdevelopment.

The central element of the reforms is theseparation of policy-making, implementa-tion and supervision, a measure that involveslimiting the powers of the Communist Party

and, in a conscious imitation of theseparation of powers that underpinsdemocratic systems, separating the partyfrom the government. What makes theseproposed reforms qualitatively different fromprevious administrative reforms is that therole of the party will henceforth be restrictedto ‘drawing up the overall economicdevelopment strategy for an area, and forsetting some other important policies’,according to Shenzhen’s mayor.4 The partywill be forbidden from involvement in theexecutive side of government. The localpeople’s congress will be responsible onlyfor reviewing and approving the party’sdevelopment strategies and large-scalespending plans.

The reform also involves placingsupervision and audit bureaus directly undercontrol of the mayor. The city has alreadycreated a new Bureau of Supervision, withpowers of prosecution. In addition there willbe a ‘non-governmental’ consultativeinstitution, intended to increase governmentaccountability. The Shenzhen governmentalso plans to accelerate the sale ofgovernment stakes in local enterprises, tocreate a clearer separation between the stateand business.

If successful, the Shenzhen experimentcould be rapidly copied elsewhere in China.But the limitations must be kept in mind:they remain reforms at the level of admin-istration, not of democratic accountability.

More open public procurement,under international pressure

Preparations for the 2008 Olympic games inBeijing and Expo 2010 in Shanghai – as wellas major development programmes such as‘Developing Western China’ – have focusedattention on the widespread corruption inpublic procurement and have motivated aseries of reform measures. According to asurvey by the anti-corruption authorities ofLicheng district in Jinan (Shandongprovince) in 2002, more than 70 per cent ofcases involved bribery, 44 per cent of them

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Guo Yong (Tsinghua University, China) and Liao Ran (Transparency International)

Further reading:

Angang Hu, ed., China: Challenging Corruption (Hangzhou: Zhejiang People’s Press,2001)

TI, Combating Corruption: Building a National Integrity System, translation of TI SourceBook 2000 into Chinese by the Anti-Corruption Research Centre, Tsinghua University(Beijing: Fangzheng Press, 2002)

Minggao Wang, A Study of Special Strategies and Measures to Oppose and Control Corruptionin China in the New Century (Beijing: Hunan People’s Press, 2003)


in public procurement. The highestoccurrence was in construction, whichaccounted for 63 per cent of all bribery cases.

In recent years the authorities have takensteps to reform contracting procedures inorder to improve efficiency and curbcorruption. Experiments with open biddingbegan in Shanghai in 1996 and spreadrapidly to other cities, with a growingproportion of bidding carried out by Internet.In 2000 open bidding was introduced intostate-funded engineering projects, when theInvitation and Submission of Bids Law cameinto effect. Most notably, the NPC passed agovernment procurement act in June 2002,along with a series of other new regulations.The new law standardises rules across thecountry and at all levels of government, andaims to increase transparency in publiccontracting.

So-called ‘construction markets’ (JianzhuYouxing Shichang) have been introduced inmost big cities with the aim of regulatingbidding in construction projects and curbingunder-the-table deals. Under the new system,contractors have to win contracts throughtransparent and fair competition conductedat such trading centres. All procedures arecomputerised.

However, China’s rapid transition hasresulted in huge investment in construction,breeding widespread corruption. The volumeof government expenditure in publicprocurement jumped from 3.1 billion yuan

(US $0.4 billion) in 1998 to 65.3 billion yuan(US $8.2 billion) in 2001, and is expected torise to 150 billion yuan (US $18.7 billion) in2003. Since all levels of administration enjoyoverwhelming and barely checked power –and transparency and effective monitoringare generally low – the opportunities forcorruption are high, and the task of curbingit Herculean.

International commitments andperceptions play an important role inmotivating the reform of public contracting.China has been a member of the World TradeOrganization (WTO) since 2001. Though ithas not signed the WTO Agreement onGovernment Procurement, which requiresopening public procurement to foreignsuppliers on an equal basis, it is an observerto the agreement and is negotiating to sign.In addition the overseas involvement ofChinese companies is having a strongdomestic impact.

Two weeks after the passage of thegovernment procurement act, the Beijingmunicipal government and the OlympicOrganising Committee issued an action planfor the Olympics, which embraces a widerange of associated construction projects.The organising committee is cooperatingwith the Anti-Corruption Research Centreat Tsinghua University, and otherinstitutions, to introduce transparency intoall procurement projects for the 2008 games.

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Notes

1. www.jcrb.com.cn, 20 November 2002.2. Chinese Chief Justice and Prosecutor’s Working Reports to the National People’s Congress,

2003.3. Nanfang Metropolis (China), 18 January 2003.4. Financial Times (Britain), 11 January 2003.

Costa Rica

Corruption Perceptions Index 2003 score: 4.3 (50th out of 133 countries)Bribe Payers Index 2002 score: not ranked

Conventions:OAS Inter-American Convention against Corruption (ratified June 1997)UN Convention against Transnational Organized Crime (ratified July 2003)


• Amendments to the 1983 Law against Illicit Enrichment by Public Officials havebeen proposed. The existing law obligates public servants to declare propertyownership each year and threatens them with removal from office if they fail to doso. But not a single government employee has been prosecuted as a result of thecontents of his or her statement. The proposed bill would allow the auditor general’soffice to examine the bank accounts of public servants and establish a broader rangeof sanctions for wrongdoers. Some legislators oppose the bill on the grounds that itwould violate their right to privacy, as well as existing bank secrecy norms.

• Two specialised divisions within the attorney general’s office were established bythe law on the creation of the prosecutor’s office for public ethics, which waspromulgated in April 2002 and came into force three months later. One is for illicitacts and falls under the treasury and public service jurisdiction (a new jurisdictionestablished in May 2002 to deal with cases of corruption involving public servants)and the other is for acts related to drug trafficking.

The same law obligates the attorney general’s office to carry out the administra-tive activities necessary to prevent, detect and eradicate corruption and to increaseethics and transparency in public service. It also states that the attorney general’soffice can denounce and accuse individuals before the courts of justice – a functionnormally reserved for the public prosecutions service – for abuse of authority inmatters that fall within the treasury and public service jurisdiction.

In the case of non-government employees, the attorney general’s office will onlyact when these persons have been involved in the administration of public propertyor funds, have received benefits arising from subsidies or payments with publicfunds, or have participated in a criminal offence committed by public servants. The

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expanded functions of the attorney general’s office do not preclude criminal actsfrom having to be processed additionally through existing administrative controland supervision channels, and do not impinge on the powers of the auditor general.

• The General Law of Internal Control entered into force on 4 September 2002 andestablishes the minimum standards that must be followed by the national auditorgeneral’s office and the bodies under its supervision when setting up, improving,evaluating and maintaining their internal control systems.


Court ruling highlights need to closepolitical financing loopholes

Investigations into the source of financingfor the two main political parties, theNational Liberation Party (PLN) and SocialChristian Unity Party (PUSC), during the2002 presidential election campaigns,uncovered a myriad of irregular funding tools– currently the subject of a congressionalprobe – and highlighted the need to tightenpolitical finance legislation.

Political parties have a substantial amountof their campaign costs reimbursed by thestate, according to the number of votes eachparty obtains and with the authorisation ofthe supreme elections tribunal (TSE). Partiesfirst have to find the funds to pay for theircampaigns. This sum is known locally as‘political debt’ and the right to have it repaidby the state is enshrined in the constitution.

The nature of ‘political debt’ was calledinto question in May 2003 when the TSEruled that it was lawful for the PLN to violatethe ceiling on campaign contributions andthe requirement to report the names ofcontributors, because contributions byindividuals to a bank trust fund representedan ‘investment in politics’, rather than adonation – which would come under thecategory of ‘political debt’. The fund was setup in September 2001 and party contribu-tions were deposited on the basis that themoney would be repaid after the electionswith the funds the state traditionallyreimburses.

The TSE ruling was criticised by NGOs andthe press, who argued that parties and theirfunders should not resort to their role as

‘private investors’ in an effort to evade thecontrols and limitations set by law, especiallywhen the funds used to guarantee theirinvestments are public. A trust fund set upfor purely commercial purposes is differentfrom a trust fund established to handlepolitical donations, which are subject to thecontrols established by the electoral code,as well as laws concerning the use andadministration of public funds.

These obligations are set out in the lawfor the financial administration of therepublic and public budgets, which stipulateshow and when public funds can beauthorised. It applies to all public bodies andalso to ‘private entities, in relation to theresources of the public treasury that theyadminister or dispose of’. The same lawexpressly prohibits the constitution of trustfunds using public money (unless there is aspecial law authorising them), while theelectoral code expressly forbids donationsand contributions in the name of thirdparties – which is a specific characteristic ofa trust fund.

At this writing, the congressionalcommittee created to investigate the irreg-ularities in the financing of the lastpresidential campaign is debating whetherpermitting the existence of trust funds ofthis kind would entail distorting the senseof electoral law and violate therefore thelimits and prohibitions that have been set forpolitical donations.

The committee is also investigating othersources of irregular funding, particularly theuse of parallel fundraising systems by boththe PUSC and the PLN to collect donationsthat were not reported to the TSE.1

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Roxana Salazar and Mario Carazo (Transparencia Internacional Costa Rica)

Further reading

Programa Estado de la Nación, Auditoría ciudadana sobre la calidad de la democracia(Citizens audit on the quality of democracy) (San José: UNED, 2001), www.estadonacion.or.cr

Programa Estado de la Nación, Octavo informe sobre el estado de la nación (Eighth reporton the state of the nation) (San José: UNED, 2002), www.estadonacion.or.cr

Roxana Salazar and Mario Carazo, ‘Guía de la Convención de la OEA’ (Guide to theOAS Convention) (San José: Transparencia Internacional Costa Rica, August 2002)

Country reports COSTA RICA 183

The findings of the committee includedonations that exceeded the legal ceilingseveral times, as well as donations fromforeign nationals, who are banned by lawfrom contributing to political parties. Amongthe transactions, according to the La Naciónnewspaper, were unrecorded chequestotalling US $500,000 from Taiwan’s Inter-national Bank of China that were channelledto a secret PUSC account held at Banco Inter-nacional de Costa Rica (BICSA), an offshoreCosta Rican bank registered in Panama.2

The scandals have prompted a wide-ranging discussion on the adequacy ofcampaign-finance laws, and an agreementon the need to revise them.

Court decision revives debate onaccess to information law

In response to the PUSC and PLN financingscandals, the constitutional court ruled inMay 2003 that the assets of political partiesare subject to the principles of ‘publicity andtransparency’, pursuant to article 96 of theconstitution. The lack of access to partyaccounts made it difficult to follow themoney trail and establish whether illegaldonations had been made. Since the ruling,the movements and balances of currentaccounts held by political parties in state orprivate commercial banks or in any othernon-banking financial entity can, inprinciple, be accessed by anybody.

The court declared that ‘banking secrecycannot be maintained in opposition to the

constitutional norm of the public nature ofthe political parties’ private contributions,since the former institution does not haveconstitutional, but legal status’. It stressedthat banking secrecy and the right to privacyare still in force for every bank account notconnected with political parties. The decisionreaffirms the right of an individual to askfor and receive information about the bankaccounts of the political parties, or of limitedcompanies that handle resources linked topolitical groups.

Many politicians were unhappy about thedecision, claiming it compromised theindependence of the legislature, might worryinvestors and violated the rights to privacy.Bank officials also voiced complaints on thegrounds that the ruling violated customerprivacy.

This ruling also helped to revitalise thedebate over the bill to regulate access toinformation, which had become stuck inparliament. Progress in establishing the newlegislation can be expected in the near future.

The party funding issue clearly has aninternational dimension as well. The localpress reported that the Panama branch ofBanco Internacional Costa Rica refused toopen for inspection a current accountregistered in the name of Bayamo S.A., whichallegedly acted as a channel for funds fromoverseas contributors to the electoralcampaign of President Abel Pacheco. Thebranch defended its refusal by appealing toPanamanian law.

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Roxana Salazar and Mario Carazo, ‘Memoria del programa Elecciones Transparentes’(Record of the Transparent Elections Programme) (San José: Transparencia Interna-cional Costa Rica, December 2002)

Roxana Salazar and Mario Carazo, ‘Guía de acceso a la información’ (Guide for Accessto Information) (San José: Transparencia Internacional Costa Rica, March 2003)

Transparencia Costa Rica: www.transparenciacr.org

Notes

1. In its evaluation of campaign expenditure for the 2002 elections (which is used tocalculate the level of government reimbursements to parties for funding), the generalauditor’s office found serious omissions in the information provided by parties, includingunauthorised spending and undocumented claims.

2. La Nación (Costa Rica), 12 September 2003.

Egypt


Conventions:AU Convention on the Prevention and Combating of Corruption (adopted July 2003;not yet signed)UN Convention against Transnational Organized Crime (signed December 2000; notyet ratified)


• To reduce red tape and petty corruption and ‘streamline transactions’, in August2002 the ministry of administrative development created citizen service centres wherecitizens and investors can do their government business without going to the relevantministries. The ministry publishes a guide of the 450 most requested services (outof a total of 728) and posts it on the Internet, specifying the documents and officialfees associated with each.1

• In an effort to confront widespread corruption among its members, the rulingNational Democratic Party (NDP) announced in September 2002 the creation of anew secretariat for ethics, headed by a retired judge. New rules calling for more regularelections of urban and provincial party leaders were adopted.2

• In November 2002, the government appointed new chief executives to the fourmajor public sector banks and required the establishment of an audit committeewithin each, comprising three non-executive board members.3


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• In May 2003 parliament passed the Unified Banking Law, which governs the CentralBank of Egypt (CBE), the banking system and foreign exchange bureaus. Thegovernment claims that the law will grant the CBE greater oversight powers byentitling its governor to appoint senior banking officials. The change comes inresponse to a recent spate of bad loans by public sector banks to tycoons who defaultand often flee the country. Prime Minister Atef Ebeid claimed the law places apremium on transparency and disclosure, but critics say it does nothing to changethe CBE’s supervision by the presidency.4 The CBE will be required to submit com-prehensive reports regarding monetary conditions in Egypt to the president and theassembly at the end of every fiscal year.

• In June 2003 parliament passed a package of reforms introduced by the NDP’s PolicySecretariat, headed by President Hosni Mubarak’s son, Gamal. The package includeda law abolishing the state security courts. These exceptional courts, created in 1980,were ostensibly designed to mete out swift justice on national security issues, buthave been used to try everyone from corrupt ex-ministers and businessmen todemocracy advocates, such as Egyptian-American sociologist Saad Eddin Ibrahim.An NDP official asserted that abolishing the courts will facilitate the extradition ofcorrupt businessmen who flee Egypt after defaulting on loans.5 Lawyers and humanrights activists point out that the new law leaves intact emergency state securitycourts, whose verdicts are final and subject only to presidential review.6

Country reports EGYPT 185

Assessing the Mubarak government’scampaign against corruption

‘Our battle against corruption is serious andgenuine’, Prime Minister Atef Ebeid has said.‘Our slogan is that no one is above the law.’7

Indeed, the government pursued severalhigh-profile corruption cases in 2002–03with prosecutorial zeal, partly to woo foreigninvestors and partly to show the public thatit is serious about purging the bad applesfrom its ranks. But details of the anti-corruption campaign reveal a morechequered picture, with political considera-tions superseding genuine efforts atinstitutional reform.

The timing of the well-choreographedanti-corruption campaign is paramount. Inthe last 12 months, the nature of thecampaign and its near-exclusive focus onsenior officials in President Mubarak’s NDP,concurrent with the political rise of his sonGamal, has led to speculation that the

crackdown is simply a prelude to his son’sincreasingly public role.8

The most striking feature of the campaignis that it is completely government-run andmanaged, lacking any input from NGOs andother civil society groups. Despite the admin-istration’s rhetoric about forging coalitionsto combat graft, the ‘no to corruption’ sloganis a government monopoly. Draconian pressand NGO legislation strips civil society ofthe requisite autonomy and resources toexpose corrupt officials.

The Egyptian media have been relegatedto the role of broadsheets for publishing thesalacious details of corruption cases revealedby the government. A press law of 1996imposed hefty fines and prison terms forjournalists convicted of slander. It was puton the books after the muckrakingopposition newspaper Al-Shaab rancampaigns against sitting ministers andthreatened to get uncomfortably close to thealleged shady business practices of Mubarak’ssons (Gamal and especially Alaa’). The

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newspaper was eventually closed in 2000.In June 2003, journalist Moustafa Bakri andhis brother, editors of the independent Al-Usbu newspaper, were put in prison for ayear on charges of slandering editorMuhammad Abdel Aal, though theirallegations of his extortionist practicesproved true and he is now in prison.9 TheBakris were later released after the publicprosecutor ordered a stay of implementationand review of the court ruling againstthem.10 Journalists have long called for thereform of the 1996 law to empower them toinvestigate corruption free from the threatof imprisonment under the pretext of libeland slander. A reform bill presented by anopposition member of parliament two yearsago has not made it out of parliament’sProposals and Complaints Committee.

NGOs are even more crippled, hemmed inby new legislation that imposes morerestrictions than the 1964 law it replaced.Ratified in June 2002, the law gives theadministration the right to veto candidatesfor NGO boards; prohibits NGOs from‘engaging in politics’; enables the govern-ment to dissolve them without a court order;and requires that the government approvefunding from foreign sources before NGOscan access it. The no-politics clauseeffectively rules out citizen participation inthe fight against corruption and is designedto limit the monitoring capability ofadvocacy NGOs, especially human rightsgroups.

Parliament, another potential check oncorruption, has historically been dwarfed bythe overwhelming powers of the executive.It has neither financial powers, requiringpresidential approval before changing itemsin the budget, nor oversight of the defencebudget. Moreover, the 1971 constitutionempowers the president to hold referendaby which parliament can be bypassedaltogether.

The executive branch has four capablemonitoring and auditing agencies that wouldgo a long way towards uncovering andpursuing corruption, but they are not insti-

tutionally empowered to pursue wrongdoers.The Central Auditing Agency (Al-Jihaz al-Markazi li al-Muhasabat) can only makerecommendations and issue reports. The eliteanti-corruption Administrative ControlAuthority (Al-Riqaba al-Idariya) is a powerfulmonitoring agency and a corrupt official’snightmare, but it is tied to the presidency.The Administrative Prosecution Authority(Al-niyaba al-Idariya) and Public FundsProsecution (Niyabat al-Amwal al-Aama) arecompetent investigative agencies butdependent on the prosecutor general, whois appointed by the president.

Since the presidency stands at the centreof Egypt’s institutional structure, it controlsthe pace and direction of any corruptioncampaign – which is why observers discountthe efficacy of the current one. They interpretit as essentially a political project, a coverfor shoving aside the old guard and pavingthe way for a new team of technocrats,headed by Mubarak’s son Gamal. At leastone of the new appointments to head thecorruption-ridden, public sector banks is afriend of the president’s son, himself abanker.11

The issue of political succession has cometo the fore recently because PresidentMubarak has yet to select a vice-president.Both father and son deny that Gamal is beinggroomed to succeed, but the youngerMubarak’s promotion to head the PoliciesSecretariat (a completely new body) at theNDP congress in September 2002, combinedwith the demotion of powerful agricultureminister Youssef Wali and the targeting ofcronies of Kamal al-Shazli, minister of statefor parliamentary affairs and the top old-guard NDP politician, reinforced suspicionsof the anti-corruption campaign’s politicalmotivations.12

Any serious crackdown on corruptionmust begin with effective institutionalreform. Government auditing bodies mustbe empowered to initiate and carry outindependent investigations and delve intono-go zones, such as the interior, defenceand justice ministries. They should answer

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Country reports EGYPT 187

to parliament, not the presidency, and thelegislature needs to regain its oversightpowers over the executive.

The last refuge: the Egyptian judiciary

Former court of appeal judge Yahya al-Refaidropped a bombshell in early 2003 when hetold the Judges Club and the Bar Associationthat he was leaving the profession and airedstartling revelations about governmentcorruption of judges via the ministry ofjustice. Almost as startling was the silencethat greeted Refai’s allegations. Nogovernment or ministerial spokesman eitheraddressed or denied the charges; only theopposition, Nasserist weekly Al-Arabi printedRefai’s statement in its 5 January edition.13

The incident illustrated the effectivenessof the government’s gag on any discussionof corruption that it does not design andchoreograph itself. The issue of judicialcorruption is a particularly sensitive subject,constituting a central taboo in Egypt’s publicdiscourse. While legal activists have beenworried by trends in judicial politics overthe last 10 years, Refai was the first toarticulate the details and practices. An unim-peachable career and his long activism onbehalf of judicial autonomy lent even morecredibility to Refai’s whistleblowing.14

The justice ministry, headed by a formerchief justice of the Supreme ConstitutionalCourt (SCC), has worked overtime to takefull control of the nation’s judges, Refaialleged. The minister appoints justices tocourts for as long as he wants and has powersto discipline and transfer judges. Refai alsotouched on the issue of judges’ income,describing how a freeze on their notoriouslymeagre salaries was complemented by asystem of selective bonuses to identify pliantjudges – and punish upstanding ones.15 Forthe first time since the British occupation inthe nineteenth century, Refai continued, theministry has required judges to provide itwith copies of civil and criminal suits againstimportant officials, and adopted othermeasures to influence the outcome of high-profile cases.

The Egyptian judiciary, particularly thehigh court of appeal, the SCC and the admin-istrative courts, are virtually the onlyremaining institutions to retain publicconfidence, despite fears of corruptionamong lower-ranking justices and those inthe exceptional judiciary. But it has becomean open secret in the legal community thatthe executive has made dangerous inroadsinto judicial independence.

Despite the hoopla surrounding PresidentMubarak’s appointment of the first womanjudge to the SCC, there have been worryingdevelopments. For the first time in the SCC’shistory, and contrary to its tradition of self-selecting its chief justices, Mubarakappointed a chief justice and five judges tothe court from outside its own ranks inAugust 2001. The newly minted judges allworked earlier in the ministry of justice,designing restrictive press and NGOlegislation.16

Yet the judiciary retains signs of vibrantlife in its upper echelons, despite attemptsto rein it in. In December 2002, the highestcourt of appeal accepted the appeal of formerfinance minister Mohieddin El-Gharib,sentenced to eight years in prison in Februaryfor accepting bribes from a businessman inexchange for helping him evade customsduties. The court overturned the supremestate security court verdict, released El-Ghariband ordered a retrial. On 18 March 2003, thesame high appeals court ended the three-year saga of Egyptian-American sociologistSaad Eddin Ibrahim, finally exonerating himafter two state security courts found himguilty of vague charges and sentenced himto seven years in prison.17

Both cases show that the judiciaryremains a viable refuge for those who fallfoul of the government, and that it refusesto participate in government-sponsoredsmear campaigns. The high courts retain asignificant degree of autonomy fromexecutive dictates. In April 2003, an admin-istrative court dealt a further blow to thegovernment, issuing a precedent-settingdecision allowing public demonstrations

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Mona El-Ghobashy (Columbia University, United States)

Further reading

Administrative Control Authority (Cairo), Annual Report 2002 [Arabic]Abdel Meguid, ed., Democratic Development in Egypt (Al-Ahram Centre for Political and

Strategic Studies, 2002) [Arabic]Hanan Salem, The Culture of Corruption in Egypt: A Comparative Study of Developing

Countries (Cairo: Dar Misr al-Mahrousa, 2003) [Arabic]

Notes

1. Al-Ahram (Egypt), 1 August 2002. 2. New York Times (US), 3 October 2002.3. Al-Ahram Weekly (Egypt), 19 June 2003; Business Today (Egypt), 1 November 2002;

Financial Times (Britain), 1 February 2003.4. Cairo Times (Egypt), 24–30 April 2003; Al-Ahram Weekly (Egypt), 10–16 April 2003.5. Al-Ahram Weekly (Egypt), 13–19 March 2003.6. Cairo Times (Egypt), 26 June–2 July 2003.7. Al-Ahram Weekly (Egypt), 6–12 February 2003.8. Gamal’s proposal to do away with the state security courts (see above), and other reform

initiatives that passed into law in June, led some analysts to conclude that a campaignwas underway to legitimise his unelected entry into politics by portraying the president’sson as the ‘saviour from corruption’. See Al-Ahram Weekly (Egypt), 5–11 June 2003; Al-Arabi (Egypt), 18 May 2003, p. 5; and Middle East Quarterly (US), Spring 2001.

9. Cairo Times (Egypt), 5–11 June 2003.10. Cairo Times (Egypt), 26 June–2 July 2003.11. Al-Arabi, 11 May 2003. As Eberhard Kienle, a Middle East expert at London’s School of

Oriental and African Studies, points out, the anti-corruption fervour ‘is always veryselective, so I wouldn’t conclude that it’s a general campaign to end corruption. It hasto be understood as power games between various groups’; Reuters, 23 September 2002.

12. Wali was demoted after his deputy, Youssef Abdel Rahman, was charged with receivingbribes from a French pesticide company in exchange for allowing their carcinogenicproducts to enter Egypt.

13. Cairo Times (Egypt), 10–16 July 2003.14. Refai’s name came to national prominence in 1969 when he and 188 other respected

judges were dismissed or transferred to administrative positions as part of a purge bythe Nasser regime. The purge was in response to a 1968 statement the judges hadauthored blaming Egypt’s 1967 defeat by Israel on the lack of democracy and political


and criticising the government for its uncon-stitutional ban on such gatherings.18

The fundamental problem is the lack ofinstitutional guarantees for the indepen-dence of the judiciary. The absence oflifetime tenure is the main way the executivecontrols the judiciary, dangling in front ofretiring judges lucrative offers of governor-

ships, consultancy work or appointment togovernment posts, a fact stressed by Refai inhis statement. That judges do not havecontrol over their budgetary or disciplinarymatters is a further crippling feature. As withparliament and civil society, the executivemust loosen its stranglehold on the judiciaryand allow it to manage its own affairs.

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accountability. After being reinstated by President Anwar Sadat, Refai went on to heada circuit of the Court of Cassation (high court of appeal), Egypt’s most independentjudicial institution. Since no judges have lifetime tenure, Refai left the profession uponreaching the mandatory retirement age. He opened a private legal practice and continuedto campaign for constitutional and legal reforms that would free judges from theministry of justice, and was one of the first to raise the issue of full judicial supervisionof parliamentary elections.

15. Cairo Times (Egypt), 30 January–5 February 2003. 16. Cairo Times (Egypt), 27 June–3 July 2002.17. The state security courts were abolished when law 105 was repealed in June 2003.18. The ruling came in response to a suit filed by activist Abdel Mohsen Hammouda to

hold a demonstration against the US invasion of Iraq. See Cairo Times (Egypt), 5–11June 2003.

France

Corruption Perceptions Index 2003 score: 6.9 (23rd out of 133 countries)Bribe Payers Index 2002 score: 5.5 (12th out of 21 countries)

Conventions:Council of Europe Civil Law Convention on Corruption (signed November 1999; notyet ratified)Council of Europe Criminal Law Convention on Corruption (signed September 1999;not yet ratified)EU Convention on the Fight against Corruption (ratified August 2000)OECD Anti-Bribery Convention (ratified July 2000)UN Convention against Transnational Organized Crime (ratified October 2002)


• A law passed in September 2002 introduced a number of changes in the criminaljustice process and its organisation. By specifying statutes of limitations for certaintypes of offences, and allowing for court appearances and anonymous testimony incases involving some lesser offences, the new provisions help pre-empt opportuni-ties for corruption (see below).

• In March 2003, the legislature modified the constitution to reflect a 2002 rulingrelated to arrest warrant and extradition procedures between EU member states.In effect, the arrest warrant allows for extradition without applying the principle ofdouble jeopardy, according to which the alleged crimes must be offences in boththe member state issuing the warrant, as well as in the member executing it. Theruling identifies corruption as an offence.

• The long-awaited financial security law came into force in August 2003. It is designedto strengthen the regulatory system’s powers of control and penalisation by creatinga single authority for financial markets. Auditors will assume increased responsibil-

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ities and be prohibited from providing an audit and advice for the same client, unlessboth services are part of the audit process. The law more clearly specifies what typesof conflict of interest preclude auditors from working on accounts. An independentauthority linked to the ministry of justice – the high council of the audit office – willbe responsible for regulating auditors. The law also calls for auditors’ remunerationto be made public; for the annual general meeting to receive information on a board’swork and on issues of internal control; and for all organisations making a publicshare offer to publish all transactions carried out by their managing agent, or by thelatter’s associates.

• At this writing, parliament was reviewing a bill that would alter the justice systemto reflect recent developments in crime and that would overturn French criminallaw procedures. The bill introduces the concept of pleading guilty and contains rulesdealing with international legal cooperation that promote the effectiveness of anti-corruption activities. In particular, it seeks to amend the criminal code to reflect theMay 2000 Convention on Mutual Assistance in Criminal Matters between the MemberStates of the European Union, as well as the 2002 ruling to institute Eurojust, theEU body dedicated to fighting serious cross-border or transnational crime.1


The misuse of company property

Judges investigating corruption cases oftenpursue suspects for the offence of misuse ofcompany property. The statute of limitationsand types of punishment for the crime arenow likely to change.

Until recently, the statute of limitations incases of misuse of company property begannot from the date of the offence but from itsdiscovery; in contrast, the statute oflimitations for corruption offences is appliedfrom the date of the offence but runs onlyfor three years. Consequently, investigatingjudges have tended to prosecute for themisuse of property rather than forcorruption, which is usually more difficultto prove. In June 2001, however, the courtof cassation ruled that the date the statuteof limitations begins must coincide with thedate on which a company publishes itsannual financial statements, unless there isnon-disclosure.2

Yet the definition of non-disclosure isactually at the heart of this debate. Opinionswould be divided, for example, in a suitinvolving the appearance of a fictitious

employee listed in an annual report: wouldthis case constitute non-disclosure? In itsannual report of 25 April 2003, the court ofcassation requested that the legislature settlethis debate. Until now, parliament, fearingcontroversy among political groups, hadrefrained from becoming involved inassociated legislative initiatives.

In a related matter, punishment for themisuse of company property may now beaffected by the 2002 law modifying thejustice system (see below). New proceduresallow, for example, a public prosecutor toterminate a criminal prosecution andpropose a fine or a restraining order onsomeone who pleads guilty and accepts theoffer. All offences punishable by five years’imprisonment – including the misuse ofcompany property – are subject to the newprocedures.

The diminishing role of the investigating judge

The 2002 law on modifying the justicesystem met strong opposition from investi-gating magistrates, whose authority it

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Country reports FRANCE 191

promises to reduce. Politicians, by contrast,have not commented openly on thelegislation, though they widely support areduction in the power of the judges, basedlargely on three aspects of judicial authority.

First, to date French criminal procedurehas been based on a system of inquiry thatfavours a very active role on the part of theinvestigating judge. The public prosecutorpresents complex criminal cases to investi-gating judges, who are responsible forimpartially expediting the inquiry with aview to establishing the facts in a case.Napoleon called the investigating judge themost powerful man in France because of hisright at the time to send the accused backto custody; since then, another special judgehas been assigned that role, after a law passedin June 2000.

Secondly, politicians on all sides havefrequently called into question the roleplayed by investigating judges in verysensitive cases, in particular because severaltrials have been annulled after the discoveryof procedural errors.3 To the further dismayof many, important cases have ended inacquittal, notably those involving RolandDumas, François Mitterrand’s foreign affairsminister, Dominique Strauss-Kahn, theformer minister for economy and finance,and Robert Hue, former secretary general ofthe French Communist Party.

Thirdly, even the attorney general of thecourt of appeal of Paris has spoken in favourof the abolition of investigating judges tobetter protect the rights of the accused.

Unsurprisingly, the new law confersadditional powers on the public prosecutorat the expense of the investigating judge.The attorney general – accountable to theminister of justice – may now employcoercive means, such as searches andtelephone tapping, hitherto only possibleonce a case had been referred to an investi-gating judge. The attorney general may alsodetermine which cases are related toorganised crime and plea bargain with adefendant who has admitted to committingan offence. Strengthening the judge’s roleas arbiter represents an important step

towards an accusatory procedure, whileempowering the public prosecutor isequivalent to sidestepping the investigatingjudge. In her recent book, Eva Joly observesthat if this reform had applied to the Elf case,the Elf scandal could have been avoided asa settlement would have been reached at thebeginning of the proceedings.4

The proposed reform of publiccontracts: too liberal?

A symptom of France’s current tendencytowards loosening procedures, the contro-versial regulation for the reform of publiccontracts has been the subject of livelydebate. Opposition critics argue that thisregulation creates new opportunities forcorruption, and professional groups areconcerned because they consider stricterprocedures and safeguards to be guaranteesof transparency and greater accountability.The government responded to thesereactions by introducing major alterations tothe regulation, with particular attention paidto spending limits.

This rule, which could be passed as earlyas the end of 2003, proposes a major reor-ganisation of France’s procurement system.Through a development of partnershipsbetween the public and private sectors, thegovernment would grant businesses respon-sibility for the design, construction andoperation of public amenities such ashospitals. The removal of all governmentoversight and management of the fundingand performance of such facilities wascondemned by the public finance courts 10years ago and the process was abandonedbecause of its openness to financial abuse.Concerns are fuelled by issues such as thefact that political parties were estimated tohave received around US $100 million ofprocurement monies from 1989 to 1995,funds that were supposed to be used for therenovation of high schools in the Ile deFrance region.

The original text would permit a localelected officer to sign a public works contract

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Yves-Marie Doublet (Ecole Nationale d’Administration, France)

Further reading

Thierry Beaugé, ‘Vers une nouvelle réforme du code des marchés publics’ (Towards areform of the code for public contracts), TI France, newsletter no. 17, April 2003

Yves-Marie Doublet, ‘Quel financement futur pour les partis politiques européens?’(Questions of future financing for European political parties), TI France, newsletterno. 17, April 2003

‘A propos de la réforme en cours du code des marchés publics, il est possible de conciliersimplification et transparence’ (The current reform process for public procurementcan reconcile simplification and transparency), TI France, newsletter no. 18, July2003

‘La délinquance financière devant les tribunaux français’ (Financial criminality beforeFrench courts), TI France, newsletter no. 15, October 2002

Service central de prévention de la corruption (Central service for the prevention ofcorruption), 2001 report, Editions des journaux officiels, no. 4433 [in French]

‘En finir avec la criminalité économique et financière’ (Putting an end to economic andfinancial criminal activity), Syndicat de la magistrature et ATTC, Editions mille etune nuits, no. 46, November 2002


for €6.2 million (US $7.1 million) with theorganisation of his choice without needingto refer to a tender commission or discussingthe contract with a council. When askedabout the opportunities for corruption thesereforms might create, the minister ofeconomy and finance responded thatcorruption would not be eliminated throughrestrictive procedures since it was a ‘questionof the condition of the spirit’.5

Initial criticism of the first draft of thereform prompted the government tointroduce major alterations to the text and,in July 2003, to create a cross-partycommission of deputies to re-evaluate themore restrictive procedures set forth in theregulations.

The ministry of economy and financessubsequently announced that the newcompetitive threshold would be €240,000(US $275,000) for all public tenders. Forconstruction contracts between €240,000and €6.2 million (US $7.1 million), the stateand the local communities will be able tochoose one of three formulas: the traditional

bidding process, recommended whencompetition between companies is strong;a publicised negotiation process, whichallows communities to raise questions andcall for improvements in the bids; andcompetitive dialogue, in which the publicprocurer defines needs to the company. Forcontracts involving more than €6.2 million(US $7.1 million), only the traditionalbidding process will be authorised. Further,public procurers must regularly publish a listof all significant transactions and vendors.The finance ministry has decided to continuemonitoring transactions with an eye toenforcing the regulations.

The reform was put forth in a climate thatbroadly favours decentralisation, with centralgovernment seeking to devolve increasedresponsibilities to regional, departmentaland municipal authorities. In particular,authority for road construction is soon tobe hived off to local authorities whileoccupational and professional training, andnon-national infrastructure projects, will beregional responsibilities.

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Notes

1. For more on the Convention on Mutual Assistance in Criminal Matters between theMember States of the European Union, see europa.eu.int/scadplus/leg/en/lvb/l33108.htmand www.justice.ie/802569B20047F907/vWeb/pcSBHN548FKE

2. The court of cassation is the supreme court of the judiciary, which is the final court ofappeal against the judgments of the lower courts.

3. In France, judges and prosecutors form part of the same single body of magistrates. Theymay be sitting magistrates or standing magistrates. Sitting magistrates are akin to judgeson the bench in the United States; they can issue ordinances, judgments and arrests.Standing magistrates are public prosecutors who work for the government in the criminaljurisdiction.

The principle of security of office applies to judges but not to prosecutors, the latterbeing under the direction and supervision of their hierarchical superiors and the authorityof the minister of justice. French criminal procedure involves discretionary prosecutionby the public prosecutor’s office and so far has granted judges a greater role than partiesin the conduct of proceedings.

4. Eva Joly, Est-ce dans ce monde-là que nous voulons vivre? (Paris: Les Arènes, 2003).5. La Tribune (France), 30 April 2003.

Greece


Conventions:Council of Europe Civil Law Convention on Corruption (ratified February 2002)Council of Europe Criminal Law Convention on Corruption (signed January 1999; notyet ratified)EU Convention on the Fight against Corruption (ratified April 2001)OECD Anti-Bribery Convention (ratified February 1999) UN Convention against Transnational Organized Crime (signed December 2000; notyet ratified)


• In November 2002 the government established the post of General Inspector ofPublic Administration (GIPA) with the aim of improving the performance ofmonitoring agencies and exposing corruption. The GIPA can order inspections intogovernment departments, public firms or public officials, and examine the privateassets of civil servants engaged in any monitoring role. It will publish an annual reportlisting the most significant examples of corruption, misgovernance or lack oftransparency in the public administration.

While the post may yet have a positive impact on corruption, critics have dismissedit as just the latest example of a habit of responding to problems by simply creating

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new institutions, rather than examining why the existing ones do not functionproperly. The GIPA’s remit overlaps with several other agencies’, including theeconomic fraud squad and the Inspectors–Controllers Body for Public Administra-tion, created in 1997.

• In January 2003, a new act extended the responsibilities of the ombudsman toinclude investigating corruption allegations in public service departments as well asaddressing human rights and children’s rights. The current ombudsman is assistedby five deputies and several investigators.

• In February 2003 parliament reformed the law on immunity for members ofgovernment. Under the reformed law, members of the government may not beprosecuted, arrested or imprisoned without the approval of parliament. Parliamen-tary consent is also required before an investigation into government behaviour canbe launched or ended. Elected deputies enjoy immunity under article 62 of theconstitution and parliament tends to protect its members against prosecution.


Construction for the Olympic Gamesmultiplies opportunities for corruption

Greece has been pursuing an acceleratedeconomic development programme over thepast few years, due to approval of a third EUfunding package and its hosting of theOlympic Games in 2004, which hasincreased the need for public works. The twoprogrammes have multiplied opportunitiesfor bribe taking and raised concerns aboutthe authorities’ ability to monitor such largeprocurements for maximum transparencyand optimal growth.

EU development funds for 2000–06amount to around €50 billion (US $57billion), much of which will be spentimproving the competitiveness of theeconomy by modernising infrastructure.1

The cost of preparing for the Olympic Gamesis over €4.4 billion (US $5 billion).2

Three ministries supervise the awardingof contracts: the ministry of finance (serviceprovision); the ministry of environment,planning and public procurement(construction and real estate); and theministry of development (state supplies).The Audit Court plays an importantmonitoring role. It exercises prior controlwhen the value of the contract exceeds €1.5

million (US $1.7 million) in the case ofsupplies and services, or twice that amountin the case of construction schemes, and canconduct an ex post review of the selectionprocedure if it is challenged. The GreekOlympic Committee, in collaboration withthe government, also supervises infrastruc-ture projects associated with the games.

To increase transparency, parliamentratified an act in June 2002 that preventsmedia firms from participating in publicworks contracts because of their influenceon public opinion and politicians. It wasfeared they might enjoy beneficial treatmentas candidates to implement public works, orthat they might engage in influencepeddling.

More robust legislation on monitoringpublic procurement was proposed in October2002, but not passed. The main pointsincluded: the establishment of anindependent committee to supervise theselection process for awarding contracts,guarantees to ensure that the cost and qualityof public works are measured objectively,and stricter penalties for corrupt officials andfirms that distort procedures. Both GRECOand TI-Greece, among other organisations,have proposed further detailed measures tocombat corruption.

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Vassilios Ntouvelis (Transparency International Greece/Diethnis and Athens University of Economics and Business)

Further reading

Center for the Development of Ideas for Greece in the 21st century, ‘Corruption: PoliciesAimed at the Containment of Corruption in the Public Sector’, 1998, www.E21.gr[Greek]

Council of Europe’s Group of States against Corruption (GRECO), ‘Evaluation Reporton Greece’, May 2002, www.greco.coe.int/evaluations/cycle1/GrecoEval1Rep(2001)15E-Greece.pdf

Country reports GREECE 195

The need for more effective mechanismsis underscored by indications of bribery,corruption and favouritism in the awardof public contracts. An Audit Courtexamination of preliminary contracts in 2000found 43 out of 182 were illegal, and 34 outof 164 in the following year.3 An opinion pollconducted in February 2001 revealed that 72per cent of respondents believed that publicadministration bodies were responsible formost corruption in Greece and needed to besubstantially reformed, while 86 per centwere dissatisfied with the way they operate.4

Floods seriously damaged many public worksin summer and autumn 2002, raising furtherquestions about quality and the effectivenessof the monitoring authorities. Some 2,140cases of corruption, mostly concerning publicofficials, are currently under investigationby the authorities.5

Financing of political parties during theelections

Many candidates and parties in the 2000elections were criticised for their lack oftransparency concerning donors and the trueamount of funding they received. Promptedto act by such dissatisfaction, parliamentratified a new law on political financing inJune 2002 that provides stricter penalties forcandidates who do not comply withcampaign financing rules during elections.

The new law set the level of public fundingfor parties at 0.022 per cent of the national

budget. Its proportional distribution dependson the number of a party’s parliamentarymembers and votes it received. The totalamount spent by a party in the electionseason should not exceed 20 per cent of theprevious public funding package. The newlaw also set regulations on private contribu-tions. Greek nationals are permitted amaximum annual contribution of €15,000(US $17,000) to a party and €3,000 to acandidate. Foreigners and Greek owners ofmedia firms are not allowed to donate topolitical parties.

The new law is also more exacting abouthow parties report their income. Accountsthat record expenses, revenues and thenames of donors are required annually.Monitoring them is the responsibility of acommittee composed of members ofparliament and judges. Those who violatethe new rules face fines or, in serious cases,dismissal. The ministry of internal affairs,public administration and decentralisationis to set up a special elections committeebefore elections with responsibility forimplementing the act effectively.

The concern, however, is not with thedetails of the new law, but whether politicalparties actually follow them. After the 2000elections, TI Greece reported severalinstances where candidates had not followedthe existing rules on promotional strategies,but nothing was done to punish theoffenders.6 Rather than pass more legislation,the priority should be ensuring compliancewith existing laws.

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European Anti-Fraud Office, ‘European Commission Fight Against Fraud Reports’, 2000,2001 and 2002, europa.eu.int/comm/anti_fraud/reports/commission/2002/en.pdf

TI Greece: www.transparency.gr

Notes

1. Ministry of Development, www.ypan.gr2. TI Greece.3. ‘GRECO: Evaluation Report on Greece’.4. Opinion poll on transparency, conducted by TI Greece in collaboration with Prognosis.S.A.

The sample was 920 people from the region of Athens and Pireus, aged 16–69 in February2001.

5. www.in.gr, 13 February 2003.6. Although nothing was proven, TI Greece sent a report to the committee responsible for

the monitoring of the election process detailing several cases of candidates who hadfailed to follow regulations concerning spending on publicity. But it faced resistanceand bureaucratic difficulties in getting the report to the committee. It is not knownwhether the report actually reached the committee.

Guatemala


Conventions:OAS Inter-American Convention against Corruption (ratified July 2001)UN Convention against Transnational Organized Crime (ratified September 2003)


• In October 2002, the Anti-Narcotics Operations Department (DOAN) was dissolvedand the Anti-Narcotic Information and Analysis Service (SAIA) created in its place.The SAIA has responsibility for investigating money laundering. DOAN had beenembroiled in a series of scandals – 320 of its staff were arrested for corruption in 2002– and the level of drug seizures fell under its steerage. The US Bureau for Interna-tional Narcotics and Law Enforcement Affairs trained 400 new SAIA agents in theyear 2002–03.

• A law on pre-trial hearings was approved by congress in December 2002 and enteredinto force in February 2003. It extends to a greater number of public officials theright to have cases heard by congress before they can be tried in court.1 It also givesthe congressional commissions unlimited time to decide whether or not to lift theimmunity of the accused, except in the cases of judges or magistrates when thedecision must be taken within two months.


TI 04 chap08 6/1/04 16:14 Page 196

• A Law on Probity and Responsibilities was approved by congress in December2002 and entered into force in February 2003. Containing rules and processes foropening administrative procedures against public officials, it specifies the impositionof monetary sanctions when found guilty. The sanctions, however, are mild andthe procedures it establishes cumbersome. Also problematic is the fact that the textrefers to the offence of ‘illicit enrichment’, which has not been defined in this orany other law.

• In December 2002, President Alfonso Portillo created the National Commissionfor Transparency and against Corruption to coordinate anti-corruption activitiesand encourage transparency through implementing institutional policies to ‘prevent,sanction and eradicate corruption in the public, private sector and civil sectors’. Setup as an autonomous, impartial body, composed of equal numbers of representa-tives from civil society and government, by late 2003 the commission was facingallegations that it was not transparent and its future looked uncertain.

• In December 2002, congress approved a decree that gives the attorney general’s officeresponsibility to defend, both legally and extrajudicially, the interests of the stateboth in Guatemala and abroad. This latter point has positive implications for therepatriation of assets.

• A number of bills that would enhance transparency were presented to congress, butthere was little interest in discussing, let alone passing them. They included: a lawto regulate social funds, which are currently administered in an entirely discretionalway; a law on access to information (though this bill has been neutered by theaddition of 40 amendments in the legislature); definitions of the offences of transna-tional bribery, illicit enrichment and influence peddling; and a law for the protectionof witnesses who denounce corruption.

Most worrying for civil society organisations and the media is the proposal toreform the penal code to criminalise the ‘improper use of privileged information’,which would encourage the denial of public information, limit freedom of expressionand reverse progress on making information public. What is understood by ‘privilegedinformation’ is not defined. There is little chance of the law being passed, however,due to its unpopularity and the fact that 2003 is an election year.

Country reports GUATEMALA 197

Culture of impunity serves grandcorruption

Recent years have seen several cases of grandcorruption involving officials at the highestlevel. Many have not been resolved,reflecting a culture of impunity deeplyentrenched in the Guatemalan state. Thescandals were exposed by an increasinglyvigilant local press.

One of the biggest cases was the allegedembezzlement of 4.5 million quetzals (US$600,000) of public funds by PresidentPortillo, Vice-President Juan Francisco Reyesand his private secretary, Julio Girón. Theywere accused of setting up 13 bank accountsand four ghost companies in Panama tolaunder the money. The so-called ‘Panamaconnection’ came to light in a reportpublished by the newspaper Siglo XXI on 5March 2002.

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Violeta María Mazariegos Zetina (Acción Ciudadana, Guatemala)

Further reading

Acción Ciudadana, ‘Manual Ciudadano: Conociendo y Denunciando la Corrupción’(Citizens manual: knowing about and denouncing corruption), Guatemala, 2002

Acción Ciudadana, ‘Manual Ciudadano para el Acceso a la Información Pública’ (Citizensmanual on access to information), Guatemala, 2003


In August 2002, anti-corruption prosecutorKaren Fischer Pivaral abandoned the inves-tigation due to lack of evidence. But theaccusations continued to rain down and, inDecember, she asked the Panamanianauthorities to take up the investigation.Fischer resigned in March 2003 underpressure, she alleges, from Chief StateProsecutor Carlos de León to terminate theinvestigation. She later fled Guatemala afterclaiming to have received death threats.

Fischer’s successor, Tatiana Morales,presented her letter of resignation in July2003 alleging similar pressures. She referredin her letter to frustration that other branchesof the public prosecutions service wereundermining her work. A special advisorycommission created to review the case, inparallel to the anti-corruption prosecutor’sinvestigations, advised against continuingthe investigation on the basis of informationfrom the Panamanian bank supervisory bodythat Portillo had no bank accounts inPanama and, furthermore, that the supremecourt should first lift his immunity. Panama’ssupreme court in mid-July ordered theattorney general’s office to open investiga-tions based on a request filed by Morales.

Another case that has still not beenproperly investigated is corruption at Guatel,the state-owned telecommunicationscompany. It first came to public attentionin August 2002, when the newspaper ElPeriódico published a series of investigativereports alleging that Guatel manager,Guillermo Estuardo Del Pinal, and peopleclose to him had misused public funds.2

Del Pinal allegedly authorised several largepayments that had already been paid andaccounted for under the previous Guatel

management. In late 2001 a transfer of 70million quetzals (US $9 million) wasreportedly made to cover a debt to the USEximbank, but Guatel accounts show thatthis sum had already been paid in 1998–99.He is also accused of providing jobs inGuatel to the friends and family of high-level officials, as well as for members ofcongress.

Although Finance Minister EduardoWeymann said that the transactions wereillegal – as did the auditor general – he sawno significant obstacles to authorisingGuatel’s budget for 2000 and 2001. Neitherwere the allegations an obstacle to OscarDubón Palma’s election to his current postof auditor general. Dubón had allegedlysigned the duplicate when he was financialdirector and deputy manager of operationsof Guatel. He then resigned from his post torun for auditor general, a post he was seekingat the time the allegations emerged.3

The cases are indicative of a generalisedpractice in Guatemala: the abuse of publicoffice for personal enrichment, or as a sourceof jobs and wealth for family and friends.They raise questions about the lack ofautonomy of the various branches andbodies of government – which are frequentlyheaded by people close to the party orofficials in government, as the Guatel casedemonstrated. Fischer’s resignation from thepost of anti-corruption prosecutor givesparticular cause for concern about the abilityof public prosecutors to act in cases involvinghigh-level public officials – the chief stateprosecutor has total discretion to removeand name prosecutors. This lack ofindependence contributes to the prevailingimpunity for perpetrators of corruption.

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Acción Ciudadana, ‘Manual ciudadano de monitoreo del gasto público’ (Citizens’manual on monitoring public spending), Guatemala, 2003

Asociación de Investigación y Estudios Sociales, ‘¿Llegó la hora de la ética, la integridady la transparencia en la gestión pública?’ (Has the time arrived for ethics, integrityand transparency in public management?), June 2001, www.asies.org.gt/ analisis6-2001.htm

Foro Guatemala, ‘Por la Transparencia en la Administración Pública y el Combate a laCorrupción en Guatemala’ (For transparency in public administration and the fightagainst corruption in Guatemala), Guatemala, February 2002

Reporteros sin Fronteras, ‘Un “monopolio de facto” en torno al Gobierno’ (A ‘de factomonopoly’ surrounding the government), 2002 www.infoamerica.org

Acción Ciudadana: www.quik.guate.com/acciongt

Notes

1. This portion of the law was declared unconstitutional and suspended on 2 September2003.

2. All of the details from this case were reported in a special investigation by El Periódico(Guatemala), 21–26 August 2002.

3. Congress elects the auditor general for a four-year term. The post holder can only beremoved by congress, in cases of negligence.

Japan

Corruption Perceptions Index 2003 score: 7.0 (21st out of 133 countries)Bribe Payers Index 2002 score: 5.3 (13th out of 21 countries)

Conventions:OECD Anti-Bribery Convention (ratified October 1998) UN Convention against Transnational Organized Crime (signed December 2000; notyet ratified)


• The Act Concerning Elimination and Prevention of Involvement in Bid Rigging,approved in July 2002, came into effect in January 2003. The law introducesmechanisms to prevent public servants, at national and local level, from involvementin bid rigging in public procurement. Bid rigging is pervasive in Japan, especiallyin the construction sector. It was already criminalised under the penal code andregulated under the fair trade law: the new law empowers the Fair Trade Commission(FTC) to require the head of a ministry or local government to take steps to eliminatesuspected bid rigging by public servants. When the FTC requires, a minister or head

Country reports JAPAN 199

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of local government is now obliged to conduct investigations, punish and demandcompensation from the officials involved.

• The Fair Trade Commission was relocated in April 2003 and now comes under thedirect control of the cabinet office. Since 2001 it had been a semi-autonomous agencywithin the ministry of public management, home affairs, post and telecommunica-tions. The FTC’s previous location raised doubts about its independence since its remitincluded oversight of the post and telecommunications industries, which weregoverned by another bureau in the same ministry.


Failure to extradite Fujimori

Responding to Peru’s formal request in July2003 for the extradition of former Peruvianpresident Alberto Fujimori to face chargesof human rights abuse and corruption, anofficial said the Japanese government hadno intention of overturning its principle ofnot extraditing Japanese nationals. A bilateralextradition treaty could override thisprinciple, but no extradition treaty existsbetween Japan and Peru. Fujimori wasgranted citizenship when he fled Peru inNovember 2000. While a campaign has beenlaunched in Peru and worldwide to lobbyfor Fujimori’s extradition, it has receivedonly limited support in Japan. (See Box 6.2,‘Campaigning for Fujimori’s extradition’,page 94.)

Little action yet against foreign bribery

Although there have been several reports ofJapanese companies making illicit paymentsto win business in international markets,none has yet been charged. The bribery offoreign public officials was made illegal inJapan in February 1999 through anamendment to the Unfair CompetitionPrevention Law (UCPL), which followedJapan’s signature of the OECD Anti-BriberyConvention.

The most prominent case in 2002–03involved allegations that an employee ofMitsui & Co. gave 1.3 million yen (US$11,000) in bribes to a senior official inMongolia’s ministry of infrastructure

between June 2001 and April 2002. Thepurpose was allegedly to win bids onconstruction projects for the Mongoliangovernment, funded through Japaneseofficial development assistance. In September2002 the Japanese prosecuting authoritiesdecided not to file a case against thecompany or the employee, although thepublic scandal led to the resignation ofMitsui’s chairperson and president.Reportedly, the supreme public prosecutor’soffice determined that there was insufficientevidence to prove that money had beenspecifically given to obtain an illicit profit –an important requirement before the UCPL’santi-bribery provisions can be applied. Thesmall amount of money allegedly involvedand its timing – long before Mitsui won thetender – were also cited as reasons fordropping the case. However, dropping thecase may have sent the message to Japanesecompanies that small bribes are permissible.

Japan also faced criticism from the OECDWorking Group on the Anti-BriberyConvention about loopholes in existinglegislation. The UCPL does not apply to caseswhere an overseas subsidiary of a Japanesecompany pays bribes to foreign officials. Inan apparent attempt to fend off criticism,the ministry of economy, trade and industryannounced in January 2003 that thegovernment intended to enact a new law onbribing foreign officials within two years.The law is expected to replace the anti-bribery provisions of the UCPL and expandthe law’s jurisdiction.

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TI Japan

Further reading

Ministry of Public Management, Home Affairs and Posts and Telecommunications, ed.,A Study of Corruption Cases in Local Governments: 2002 [in Japanese]

Tetsuro Murobushi, A 130-year History of Structural Corruption in Japan (Tokyo: SekaiShoin, June 2000) [in Japanese]

TI Japan: www.ti-j.org

Country reports JAPAN 201

A year of scandal in the Diet

In March 2003 Takanori Sakai, a member ofJapan’s lower house of parliament, the Diet,was arrested on suspicion of violating thepolitical funds control law. Prosecutors saidthat Takanori Sakai violated the law byordering his secretaries not to report some120 million yen (US $1 million) in donationshe had received from businesses from 1997to 2001. Sakai pleaded not guilty, and at thiswriting the case is still being heard in court.In the same month, agriculture ministerTadamori Oshima stepped down after hissecretaries faced a series of allegations thatthey had failed to report receiving moneyfrom businesses.

The cases were the latest of a string ofcorruption allegations that led to the arrestor resignation of numerous Diet membersover the past 12 months. In November 2002Muneo Suzuki was charged on severalcounts, including receiving a bribe worth 5million yen (US $42,000) in 1998 from aHokkaido company in return for using hisinfluence to obtain business related to anational park. At this writing the case is beingheard in a district court.

In August 2002, former foreign ministerMakiko Tanaka resigned from the Diet,apparently due to increasing suspicion thatshe had embezzled part of the official salaries

paid to her secretaries. The first half of theyear also saw the resignations of SocialDemocrat legislator Kiyomi Tsujimoto,Koichi Kato (former secretary general of theruling Liberal Democratic Party) and YutakaInoue, president of the upper house.Tsujimoto resigned after allegations that shemisused funds provided for her secretary’ssalary. The other two resigned followingallegations that businesses had channelledillicit funds to their secretaries. None of thethree was charged.

There are a number of reasons behind thehigh rate of political resignations during theyear. While there is no evidence of increasedlevels of corruption in the Diet, the rate ofdetection has certainly shot up. Some caseswere revealed by whistleblowers, and theiractions have led to a growing demand forthe introduction of laws to protect them.The media has also played an important rolein stoking public impatience with the actionsof politicians and their secretaries.

The case of Takanori Sakai may also beevidence of a more rigorous approach by theprosecuting authorities in applying existinglegislation on political funding. Prosecutorsregarded Sakai’s alleged persistent demandsfor political donations as tantamount toextortion. It was the first time that a Dietmember has been arrested under the politicalfunds control law.

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Kazakhstan


Conventions:UN Convention against Transnational Organized Crime (signed December 2000; notyet ratified)


• A law on political parties was adopted by parliament in June 2002 and came intoforce the following month (see below).

• A new customs agency was established in August 2002. Previously, it had been partof the ministry of public revenues and so lacked independence. This had resultedin clashes between the minister of public revenues and the chair of the customscommittee, which the new structure seeks to avoid.

• The post of ombudsman was created by presidential decree in September 2002 tomonitor respect for human rights and individual freedoms, including cases whererights have been violated as a result of corruption. The office received 226 enquiriesin its first six months, many of them related to complaints about law enforcementagencies, or failures to comply with court decisions. In December 2002 the NationalCentre for Human Rights was established by presidential decree to support theombudsman.

• The status of the disciplinary boards (DBs) of regions and of the cities of Astanaand Almaty was altered and their powers increased by a resolution in December2002. The DBs are consultative bodies, set up in March 1999 to monitor the activitiesof the akim (mayors) and the heads of other administrative and territorial agencies,including law enforcement bodies that are financed from the local budget. Theyissue recommendations about disciplinary action for public servants. The impact ofthe DBs on curbing corruption is not likely to be great, however. They lack autonomybecause they depend on the akim for administrative personnel and resources. Theyare also subordinate to a presidential commission on corruption and public serviceethics.

• The Commission for Prevention and Suppression of Corruption was establishedwithin the ministry of justice pursuant to an order from the justice minister inJanuary 2003. There are plans to set up similar commissions in the regionaldepartments of justice. This commission has the status of an interdepartmental body.Its main goals are to prevent and suppress corruption, abuse of office and the misuseof budgetary funds by employees of judicial authorities, though little has beenachieved so far.


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• The code on privatisation of land was approved in June 2003. It introduces privateownership of agricultural land, regulates property rights (ownership and rental),asserts the competence of the state and its bodies to oversee land disputes, andintroduces mechanisms to protect and regulate use of the land. The process ofprivatising land has enormous potential to increase corruption if not properlymonitored.

• An amnesty for registering property was proposed in June 2003 to legalise propertyacquired in the so-called ‘shadow economy’. It aims to incorporate small businessesinto the regulated economy and register property owned by rural immigrants in thecities. This one-off process of registration also has potential for corruption sinceinformation will not be disclosed and registration is voluntary. The draft law does,however, stipulate that rights to property that have been challenged legally, or wereacquired through corrupt means, will not be granted.

Country reports KAZAKHSTAN 203

Restrictive political party financinglaw threatens democratic principles

Kazakhstan’s new law on political partiesintroduces fundamental changes relating tothe financial activities of political parties,including their sources of funding. Anybeneficial outcomes that this mightrepresent in terms of more transparent andaccountable funding are, however,undermined by clauses in the law thatconstrain the formation and operation ofnew parties.

The new law allows political parties to seekfunds through entrance and membershipfees, donations by Kazakh citizens andKazakh NGOs, and from local businesses. Itstipulates that taxes on donations must bepaid and that documentary evidence ofdonations must be provided.

A number of sources of financing forparties that had been included in the formerlaw of July 1996 are excluded in the new law,such as the proceeds of lectures, exhibitions,sports, lotteries and publications. Also worthnoting is that the new law only calls forinformation from parties about money heldin accounts in banks registered under Kazakhlegislation. The new law does not considermoney held in foreign banks.

The official explanation for the new lawis that it strengthens the role of politicalparties and makes their financing moretransparent. By mid-2003 no political partyhad been charged with violating the sectionsof the new law relating to party funding.

Where the new law began to take its toll,however, was on party registration. The lawincreases the number of members a partyneeds to qualify for registration from 3,000to 50,000, and requires that branches withno less than 700 members be established inevery region in the republic. It alsointroduces rigid mechanisms for the state toregulate political party activity and increasesopportunities for the state and its bodies tointerfere in parties’ internal affairs.

There were 19 registered parties before thenew law was passed: now there are seven.Many of the others were unable to collectthe required number of members to qualifyfor re-registration.1 As a result, the onlyremaining opposition party in Kazakhstan isthe Communist Party.

Some opposition groups, including theRepublican People’s Party of Kazakhstan andAzamat, have refused to abide by the law,arguing that some of its clauses directlycontradict the constitution and otherlegislation. For instance, the new mem-bership requirements for the formation ofpolitical parties contradict the 1996 Law on

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Public Organisations that stipulates that only10 people are needed to create a publicorganisation.

The effects of the law in its first yearsuggest that its benefits in terms oftransparency may well be outweighed by thesetback in democratic rights. In addition toclauses that debar parties from running ifthey fail to surpass the membershipthreshold, restrictions to opportunities forfinancing parties could force parties to resortto illegal means of financing their activities.

Civil society and opposition partiesmobilise to stem flow of oil dollarsinto private accounts

A lack of accountability, transparency andpublic oversight has led to the sad realitythat some of the proceeds of Kazakhstan’soil boom have been siphoned into privatebank accounts rather than fueling long-termeconomic development. The following case,referred to as ‘Kazakhgate’, illustrates howoil revenues are misused and is strikingbecause of the huge sums involved, thesenior officials implicated and the array ofmultinational corporations and banksinvolved. Almost as important, itdemonstrates civil society’s intolerance ofsuch institutional failings.

The case gained prominence in March2003 when US businessman James Giffenwas arrested in New York and charged withpaying more than US $20 million in bribesto senior Kazakh officials to secure lucrativecontracts for his consulting firm, MercatorCorporation.2 Giffen had been paid to advisePresident Nursultan Nazarbaev on attractingforeign, primarily US, capital to the oil andgas sector since 1992. His main task was toact as intermediary between oil companiesand the Kazakh government, under anagreement dated 21 December 1994 betweenMercator and the ministry of oil and gas.Mercator was paid ‘success fees’ for everydeal it brokered.

From 1995 to 2000, Mercator receivedapproximately US $67 million in ‘success

fees’ for its work in Kazakhstan. Giffen alsoasked oil companies to pay about US $70million into conditional deposit accountsin Banque Indosuez and its receiver, CreditAgricole Indosuez, in connection with thepurchase of oil and gas rights so that thismoney could then be transferred toconfidential Swiss accounts under hiscontrol. From the ‘success fees’ paid toMercator and the money transferred toconfidential Swiss accounts, Giffen allegedlymade illegal payments totalling more thanUS $78 million to two of the most high-ranking officials of the Kazakhstangovernment, referred to in the case file as‘KO-1’ and ‘KO-2’. The Wall Street Journal of23 April 2003 identified them as PresidentNazarbaev and former prime minister NurlanBalgimbaev.

Opposition parties in Kazakhstan wereaware of the fraud investigation long beforethe case erupted in the international press.In January 2003 the Democratic Party ofKazakhstan, Ak Zhol, launched a campaignon ‘transparency of raw materials contracts’to alert the population to how the nation’swealth was being squandered. Activitiesincluded collecting signatures in support ofgreater transparency in awarding contractsfor raw materials and, by 4 June 2003, theparty said it had collected over 650,000. AkZhol also worked on draft amendments tolegislation relating to transparency ofcontracts between the government andenergy companies with the aim of makingall contracts public. The party co-chairmanrequested that legislators from the Majilis(the board of parliament) support and beginwork on the law. Lastly, party leadersappealed to all leading foreign companiesworking in the raw materials sector toremove confidentiality from oil contractssigned with the government.

The Communist Party also tried to obtainmore information about Kazakhgate. InOctober 2002, the party’s first secretary,Serikbolsyn Abdildin, repeatedly requestedPrime Minister Imanghaliy Tasmagambetovto furnish details of the persons and sums of

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Andrey Chebotarev, Nurgul Kuspanova and Sergey Zlotnikov (Transparency Kazakhstan)

Further reading

Mark Braden, ‘Review of Kazakhstan’s New Law on Political Parties’, unpan1.un.org/intradoc/groups/public/documents/apcity/unpan006217.pdf

Andrei Chebotarev, ‘Reciprocity Payments’, Izvestia-Kazakhstan (Kazakhstan), 25 June2002 and ‘The Fight against Corruption in Kazakhstan: New Stage or ImmediateBluff?’, Towards Society Without Corruption, no. 3 (11), June 2002

Transparency Kazakhstan, Source book of the student conference ‘Youth againstCorruption’, 2001, www.transparencykazakhstan.org

Transparency Kazakhstan, ‘Problems and Perspectives of Development in the Systemof Local Government’, 2001, www.transparencykazakhstan.org

Transparency Kazakhstan, ‘State of Corruption in Universities’, 2002, www.transparencykazakhstan.org

Transparency Kazakhstan: www.transparencykazakhstan.org

Notes

1. In four cases, the reason given by the justice ministry for debarring registration wasinfringement of the new law’s prohibition on gender- or ethnic-based parties.

2. See www.kub.kz material of 30 April 2003 for the bill of indictment on the Giffen caseissued by the court of the Southern District of New York.

Country reports KAZAKHSTAN 205

money involved in the scandal – with noresults. A request to include the issue on theparliament’s agenda was turned down by thespeaker, Zharmakhan Tuyaqbaev.

Civil society has played an equallyprominent role in the struggle to ensure thatoil revenues are not stolen or spent on petprojects or inefficient enterprises. TheCaspian Revenue Watch project, coordinatedby the Open Society Institute with inputfrom local NGOs, is pushing for thegovernment to implement systemic reformsin the management of oil revenues. It has

called on foreign oil and gas companies todisclose their payments so the use of theserevenues can be monitored. Withoutdisclosure, the organisations insist, com-panies expose themselves to accusations thatthey have underpaid the government andare contributing to continued poverty.

Such opposition efforts, plus pressure fromcivil society, are vital because thegovernment has so far made little attempteither to remedy the problem or cooperatewith international investigators, pleading‘sovereign immunity’.

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