TCS Daily

When 'The Law' Means 'Corruption'

By Peter F. Schaefer - July 5, 2006 12:00 AM

In December, 1989 the Armed Forces of the Philippines seriously threatened President Corazon Aquino in a coup, claiming she was corrupt and needed to be removed. The saintly housewife, affectionately called "Cory," led the movement that drove the corrupt dictator, Ferdinand Marcos, from office after the assassination of her politician husband Ninoy. The US, then still deeply concerned about keeping strategic bases in the Philippines, dispatched a couple of F-4 fighters to fly over Manila as a warning to the rebel soldiers, thus helping save Cory's presidency.

At the time I was an advisor to the Administrator of USAID. Although my responsibility was global, I had decades of experience in the Philippines, knowing leaders throughout the government, the military and even the various rebel movements. In fact I had been the sole American working with a group of Marcos cabinet officers who were in Washington to work out a "departure scenario" for Marcos, thus allowing Cory to assume the presidency bloodlessly in the first place.

Three years earlier, Aquino became only the fourth woman to ever address a joint session of Congress, where she was received like Joan of Arc in honor of her very real courage in facing down Marcos. As the Administrator went around the room at the weekly senior staff meeting that December, everyone took a turn and tsk-tsked about the terrible events that were unfolding, and the threat to the rule of St. Cory.

Corruption Among Saints and Sinners

Normally, I limited my advice to my boss. However in that December staff meeting, I gently noted that the military had a point; sadly, her administration was riddled with corruption. I made it clear that I didn't support the coup but only wanted to point out the realities. Then something extraordinary happened; I was booed by my colleagues.

Before entering USAID, I had been the principal US coordinator for Aquino's 1986 state visit. I had high hopes for her administration, but a year later, her brilliant finance minister, Jaime Ongpin, resigned in disgust over corruption and three months later, he was found shot in the head sitting at his desk. "Suicide," they said, but he was a lefty and the gun was in his right hand. Tsk-tsk.

Aquino's sister and brother in law had ended up acquiring over thirty public companies that were being divested by the so-called Philippine Commission on Good Government (PCGG). And one of the first things the Aquino family did after assuming control was gain control of the lottery commission, an enormous source of generally unmanaged cash, traditionally used as a political slush fund. Tsk-tsk.

DIY Rules

Cory was not especially corrupt; actually her moral character was higher than that of almost all third world leaders. The fact is that all developing countries are governed by autocrats, even when they are elected. Some are thugs, some are benign, even well-intended reformers, but all are autocrats. They have no choice because it is impossible to govern by the rules if there is no rule-set.

In fact, it is nearly impossible to get elected without systemic corruption; so in a way, our emphasis on democracy often contributes perversely to a rise in corruption. This prevails for two reasons. First, the nearly total disconnect between people and the government means they don't much care about the election, and so their votes are for sale. But secondly, election technology is now worldwide and high tech. TV is about as expensive in Manila as it is in New York and someone must pay. Every dime in fees that James Carville is paid by a politician in a poor country is money stolen from the mouth of some poor person, directly or indirectly.

Rule of law, adjudicated by even-handed justice, simply does not exist anywhere in the developing world and this is the real culprit that stifles development and condemns the poor to live in zero-sum societies. All developing countries are failed states to one degree or another and most of their citizens are miserably poor. In fact, calling them "developing" is misleading because it suggests an upward spiral. But these people are the great grandkids of folks who were poor a half century ago when we started giving out foreign aid in large chunks.

Without laws -- and the institutions to administer them fairly -- people make up their own rules. Society requires predictability to function and so absent national law they create informal rule-sets. But rules without the force of law can only be sanctioned through bribery or physical force. If the beat cop has no rules, he follows the local norms, the neighborhood rule-set. But to use his monopoly of force on behalf of the neighborhood rule-set he will extract a price. A bribe.

The Law Means Corruption

When that happens, the law comes to mean corruption. And since this system is not just accepted but actively reinforced by a network of beneficiaries, corruption becomes the organizing principle of society. At that point, demands by aid donors that governments control corruption are not just impossible to meet, but could even be dangerous and destabilizing for recipient governments and so are largely ignored.

To a large extent the rich countries of the world share responsibility for this tragic state of affairs. Traditional diplomacy (including foreign aid) has not and, I suspect, cannot effect meaningful change at such a fundamental level. After all, the responsibility of diplomats is to maintain state-to-state relations; being the agent of fundamental change is often subversive to their main responsibility. We are getting to be more forceful in our demands over governance issues now but not nearly enough. During the cold war we supported a rogue's gallery of reprehensible thugs and we are still paying for our short-sightedness.

But today our responsibility is less direct. Now our human rights office at the State Department is taken more seriously, our bureaucrats actually meddle not just national matters but local police affairs, such as recently in Guatemala. But corruption and reform are very much like human rights. We voice our concerns, they agree that it is just awful, but nothing really changes.

But Western culpability does not end with ineffective diplomatic protests. The system of corruption is global and the flow of money in both directions has exceeded a trillion dollars in this new century alone. With that sort of money on the table, the crumbs that fall on the floor can keep legions of bankers, lawyers, real estate brokers, luxury car salesmen and, yes, politicians, turning a blind eye to the corruption.

We need to find another way. Only the rule of law can supplant corruption, but writing law and living in a lawful society are very different things.

'This Is How Diplomacy Works'

When I was at USAID, part of my responsibilities was to read the Daily Logs. These Logs had all the mail and memos that came in to USAID's Administrator as well as his schedule and written briefing materials for meetings and interviews. It often included Top Secret biographic briefs about foreign officials that he was scheduled to see in the next few days.

I remember reviewing the backgrounds of a delegation coming from a Latin American country. The delegation was headed by the minister of economy or development, I don't remember. Our prospective guest was an interesting chap. In addition to his official work, he was an entrepreneur involved with drug trafficking, kidnap-for-ransom and murder-for-hire. I went in to see the Administrator and begged him to cancel the meeting. "No, this is how diplomacy works," he explained. "I represent the US, not myself," and his guest had been dispatched by the president of a country with whom we had diplomatic relations. He had no choice but to meet him out of respect to the sovereign state which he represented. I countered that sending this man to meet us showed us disrespect. Although I declined to attend the meeting, he was probably right; diplomacy is about relations between states, not individuals.

It is the global system of sovereign states which impedes new solutions. A few years before this, during a visit by Mobutu Sese Seko of Zaire (Congo), I was approached by his senior financial advisor who pressed me to help Zaire get a $30 million loan (read "gift") from the US to avoid being declared in default for sovereign loans. Now Mobutu had been looting his economy his entire public life and had accumulated billions of stolen dollars, salted away in Swiss banks and invested in real estate including lake-side mansions in Switzerland. I declined.

Later I had a meeting with National Security Advisor Brent Scowcroft to talk about economic development. But the Berlin Wall had just come down and that was all we had on our minds. We speculated on how the world would change, and General Scowcroft's advisor looked at me and with great passion said, "It means we don't have to kiss Mobutu's ass anymore." Well, that may have been true, but there was quite a line of brand new cheeks, attached to our friends and allies, awaiting our attention.

In the late 70s, I was in Indonesia working on a project that had dragged on too long. I had become a little stir crazy and one evening in the hotel bar I bumped into a fresh-faced Department of Justice lawyer who explained he was in Jakarta investigating violations of the new Foreign Corrupt Practices Act. I feigned nervousness and whispered, "Would you like a list of all the US companies here who were paying bribes?" Earlier that day at the US Embassy I had picked up a handout in the Commercial Attaché's office listing all the American companies doing business in Indonesia and I furtively slipped it to him. It took a few moments for him to realize I was putting him on and we had a good laugh over the prevailing joke that in the Indonesian courts, it is the person who pays the most to the judge who gets the decision. And, in fact, I was not putting him on. Everyone on the list paid and most likely still does.

The point is not that I was shocked, shocked to find that gambling was going on in the back room but, rather, that everyone knows all about it. It would take me less than an hour after arriving in Manila or Jakarta to find out which ministers were on the "dole." Where corruption has been institutionalized throughout a political system, there is no need to hide individual behavior. To the contrary, a corrupt system can't function if you don't know who sets and enforces the rules and, so, who needs to be paid. And the CIA knows this rogues gallery well since they were the ones, after all, who sent my boss those vile biographies.

Losing Millions by Saying 'No'

In my life, Filipino, Sri Lankan, Indonesian, Chinese, Japanese, a handful of Arab and Thai officials have tried to shake me down. I was even given a lecture on how to bribe Arabs by a wealthy Japanese ship builder. In my career, I lost millions saying "no."

Heck during the Vietnam War, I mounted an operation to get proof that the Thai commanding general, our great ally, was a major drug dealer. I had solid intelligence that he was importing black tar heroin for our troops. Ironically, the US Army opened their first drug rehab residential center a hundred feet from me on the Thai base camp. So at the same time that the GI patients were being treated, the weekly C-130 from Bangkok was bringing in the poison that had trapped these young American soldiers in the first place.

At first my Army superiors supported my efforts and I infiltrated someone into the local drug operation with a plan to run up the food chain. But then Saigon ordered me to stand down. I guess it was cheaper to set up a drug rehab center than to arrest the commanding general of an important ally in a time of war. They were probably right and I was wrong but again, politics trumped ethics and the law, and always will. It is likely that President Chirac personally benefited from Saddam Hussein's oil-funded spending spree and also likely that French, Chinese and Russian firms will be found to be complicit in making Saddam's WMD. But as an official matter, we will never say a word.

In looking at the problem, it is important to remember that official corruption is not just in the third world; fifteen years ago the FBI nailed the chairmen of every single county commission in Oklahoma, save one or two who avoided prosecution on technicalities. In poor countries it is a matter of degree. Corruption is pervasive and we often know all about who is corrupt and even how much they take, but how do we confront it? What do we do? There is no FBI, or if there is, they are on the pad like everyone else. This gun for hire.

Naming Names

It would be nice to stop providing economic aid to countries that are corrupt. We know who they are, so stop propping them up. How do we deal with a UN 85 percent of whose membership is a failed, corrupt state? It would be nice if we could insist that only states with a true rule of law could join the UN but if that happened, there would be more turtles than bureaucrats in Turtle Bay. There is a Community of Democracies and I suspect their Human Rights Commission will not be headed by Iraq or Libya. We should pack the UN off to Geneva and give their building to the CD. But we won't.

Realistically, the corrupt will continue to plunder. Now, frankly, if it was just their countries' money they were stealing, I would let them. A pox on them all. But it is trillions of dollars of our money -- my money -- they are taking. Foreign aid is a gift that just keeps on giving.

Sunlight is the real trick to solving this. We should expose these thugs by name and freeze their funds since every one of them ships their money to a country with secure banks as soon as they get it. We have the power, backed by law, to do this now. We just lack the will.

Also, there are a number of corruption watchdog NGOs; Transparency International and Global Witness are two of them. They do report court actions and press reports that name names but don't themselves generate information on the crooks' identity. They should, and to do it, they need to actively solicit names and data from those who know. Find out show steals from those who are robbed.

These organizations should put together a list of all senior officials, crony business leaders and multinational corporations who either pay or accept bribes. How? Well, they must cultivate businessmen, diplomats, intelligence officers, other watchdog organizations and whistle blowers in the countries themselves and ask them to "leak" the names or provide confirmation of others' leaks. Unlike many rich European and Asian countries which calculate bribes into their business plans, most American government and business officials hate corruption and would be delighted to expose the miscreants if there was a safe way to do it.

Yes with trillions at stake, the list would be controversial and some officials would, no doubt, sue the publisher. But so what? We have more money than they do at least as long as we stop giving it to them.

Peter F. Schaefer is a businessman and business consultant who has worked in over 50 countries and in the US government from time to time since 1970.


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