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Central American University - UCA  
  Number 255 | Octubre 2002



Realities and Appearances In the Fight against Corruption

The fight against corruption, which has provoked such novelties, controversies and contradictions in Nicaragua, must be placed in a broader context of time and space.

Ernesto Castillo Martínez

Corruption has been high on the political agenda for some time now, although it has been accentuated in recent years. All observers agree on the seriousness of the problem, with any disagreements limited to nuances or secondary aspects. Beyond this basic minimum agreement, however, corruption is expressed in many different ways by many different actors.

The debate on causes

The different analyses of the causes of corruption can take us in radically opposed directions, depending on the ideological paradigms involved. The neoliberal school considers corruption to be one manifestation of the black markets caused by excessive state intervention. The more the state intervenes, regulates and encourages bureaucratic invasion, the greater the risk of parallel procedures and markets, the origin of such criminal behavior. Those unconvinced of the state’s intrinsic perversity or of the market’s merits, insist on other aspects, such as weak public ethics, the fact that the state has been deligitimized as the incarnation of general interest, the dissolution of collective values in the scramble for profit and the defense of selfish, private interests. They argue that all of this creates a breeding ground for corruption.

While some claim that corruption has never before caused such havoc in public affairs and private relations, others argue that it dates back to the beginning of time, that it is an inherent part of the human condition and that there’s no point in exaggerating the situation. The first characterize the current period as a creeping generalizing of corruption that is reversing the progress achieved through the expansion of democracy. The second feel that the scope of corruption has been noticeably exaggerated by the media, that certain facts are filtered or amplified, while others only emerge due to a passing interest in the problem, as is the case with certain environmental issues.

This discussion leads nowhere. The optimists insist that this is a temporary phenomenon, basing their argument on sensationalist journalism and the excessive zeal of the moralists. The pessimists declare themselves convinced that the emerging facts are just the tip of the iceberg and that many cases have only been discovered by chance. While the debate continues, public awareness of corruption varies considerably from one country or culture to another. But some points of consensus are emerging. Surveys in Italy, France and Japan show that the vast majority of those interviewed—sometimes as many as 80%—are convinced that “all politicians are corrupt.”

Other measurements are more difficult. Corruption is always a clandestine activity, except when it has become systematic and enjoys an almost official status, like an unwritten agreement known and accepted by all. This generally secretive nature makes it difficult to measure what has been going on.

Only what the law establishes?

Is corruption defined only by the crimes classified in each political system’s penal laws, or should the definition be broader, based on a more realistic observation of the phenomenon? Is a more legal or a more sociological definition preferable?

The legal definition has the advantage of providing certainty: corruption is everything defined as such by the penal code, or everything forbidden by the codes of professional ethics. By establishing what is allowed and what is prohibited, the law draws clear boundaries that allow public officials and private citizens to determine the due line of conduct without too many doubts or vacillations. In the absence of individual or collective ethics, the law imposes itself as the arbiter of decisions. As Albert Camus pointed out, rules are needed in the absence of principles.

This positivist and legal explanation raises two problems, one strictly legal and the other ethical in nature. On the legal level, most jurists agree on emphasizing the limitations of traditional definitions of corruption. This is because corrupt practices are rarely limited to the area defined by penal laws and because other crimes have been incorporated around the crime of corruption, creating a whole that is artificially segmented by legal qualifications. At the same time, the traditional opposition between corrupter and corrupted, which is the basis of various legal provisions, is no longer valid. This opposition is based on the image of a corrupter from the social body trying to persuade a public official—the corrupted—to violate the obligations of his or her position in exchange for personal gain. But an updated observation of the situation shows that the situation is most frequently the other way around, with the offer of corruption no longer originating from the supposed “corrupter,” but rather from the politician or official whom the penal codes consider the passive actor, or the “corrupted.” It is increasingly common for the role of corrupter to be played by the public agent.

Shades of corruption

Behavior-based definitions tend to hold that corruption is the abuse of a post, of power and/or of public resources for personal gain. But with what criteria can we identify such “abuses”? And what do the words “public” and “private” mean in practice, especially when the notion of “gain” is added to this distinction?

Many academics have sought “objective” criteria, arguing that the answers to these questions are to be found in the law or other formal regulations, or else referring to “public interest.” Others propose “subjective” or “cultural” definitions, pointing out that “public interest” is too vague or controversial a notion to serve as a useful indicator, and that on certain occasions even formal laws and roles have limited legitimacy. Not only can it be difficult to agree about the meaning of “abuse,” it can also be unclear what constitutes a “function,” a “public resource” or “personal gain.”

Corruption is behavior that deviates from the formal duties of a public official with the aim of obtaining private benefits—be they monetary or prestige-conferring—in the family or personal setting or for private cliques. Some define practices that are not recognized as corrupt by either public opinion or minority groups as “white corruption.” This happens when the corruption is already incorporated into the culture in such a way that it is not even perceived as a problem. From this perspective, what is deemed corruption in one country may not be viewed as such in another. This cultural relativism—of space, time and class—may also allow the same act to appear corrupt in one situation but not in another. Bribes to speed up procedures do not have the same connotations in Germany as they do in Mexico or Nicaragua, for example.

“Black corruption” has the same degree of consensus, but in reverse. In this case, everyone agrees in stigmatizing certain practices, as in the general condemnation of drug trafficking, at least in public. Disagreements tend to emerge, however, over “gray corruption,” where what some people define as corruption is not considered as such by others. It is this disagreement between the perceptions of some and the practices of others that creates the risk of scandal, as in the case of financing political parties.

Do the growing needs of
parties generate corruption?

Until relatively recently, corruption in most countries appeared to be more a question of individual guilt than a generalized perversion of political and administrative circles. Things began to change along with the growing needs of political parties, which found themselves unable to cover their organizations’ increasing expenditure and the skyrocketing costs of electoral campaigns by regular means. Until the sixties, political parties only counted on contributions from their activists—through money or voluntary work—and on more or less generous donations from businesspeople or professional and union organizations. By the seventies, however, the traditional resources began to decrease along with a crisis in the number of activists, while at the same time the “Americanization” of electoral campaigns increased expenditure tenfold. In almost all countries the parties sought to solve this problem through irregular practices in the best of cases and practices that violated penal law in the worst.

This produced notorious scandals—the Flick scandal in Germany, Nixon’s electoral campaign scandal, the dismissal of US Vice President Spiro Agnew, and others in Italy, Japan and the Netherlands. A first wave of reforms following these scandals led everyone to think that a miraculous remedy had been found: financing parties and electoral campaigns at least partially with public funds and establishing mechanisms to control the origin of other funds and the way parties used them. It was soon discovered, however, that a large part of the funds were used for the personal benefit of party leaders.

Corruption in socialism:
A way to avoid bureaucracy?

The phenomenon of corruption is no longer a mainly national problem, inherent in a political system, as it was in the past. It now has an increasingly obvious international aspect. This has led to such a growth in the sophistication of the forms and modes of corruption that it has become practically invisible, or at least difficult to detect. In recent years, corruption has become a habitual practice in both democratic and autocratic regimes and in both rich and poor countries.

In the failed socialist regimes, in developing countries and in numerous Western societies, corruption has emerged as a functional way to deal with excessive regulation and bureaucratization. Although detestable in principle, corruption thus takes on the appearance of a kind of safety valve, a way to grease the gears, an instrument that can unblock a blocked up society. But corruption remains and increases even when the reasons that “justified” it have disappeared. The best example is the former socialist countries where corruption is prospering, despite the crumbling of the authoritarian and bureaucratized regimes that engendered it.

In reality, corruption plows its path wherever there are people with a discretional power to apply or reduce a fine, adjudicate or annul bids or decide whether to authorize an investment. Such decisions leave public officials or politicians considerable room for maneuver, particularly when not even the letter much less the spirit of the procedural rules to supposedly guarantee transparency are applied.

Are corruption opportunities
greater where the market rules?

Corruption is currently inscribed within an important ideological change through which the idea of the market has prevailed over that of the state. Having started in the United States, the neoliberal wave has conquered Great Britain, Latin America, Asia, Europe and even Africa, despite being the continent most affected by underdevelopment. This extolling of the market was supposedly confirmed by the economic successes of Japan and the “Asian tigers” and reinforced by the crumbling of the socialist countries and the growing difficulties social democratic governments faced in implementing their costly Keynesian-inspired policies.

Promoted by neoliberals or prescribed by the World Bank, the IMF and even Europe’s Organization for Economic Cooperation and Development (OECD), vigorous deregulation and privatization policies have dismantled the state’s legal, economic and financial dominion throughout the world. New ground rules have been imposed and new actors have appeared everywhere. The old coalitions of shared interests have been questioned by new ideas and by increasingly urgent outside obligations in the context of regional trade blocs and the liberalization of world trade. At this moment of transition, the crisis facing the old models and the introduction of drastic changes in ways of thinking and acting have generated considerable opportunities for corruption. With past conventions no longer valid or legitimate and the new ground rules still not established or enjoying only limited acceptance or integration, the time is ripe for corruption.

International transactions:
Breeding ground of corruption

Corruption is a form of parallel and hidden exchange that infiltrates both market mechanisms and the public processes for distributing rights and resources. Corruption spreads in areas where, rather than being regulated and transparent, operations turn into hidden transactions that tend to provide the beneficiaries with advantages they could not obtain through free competition or rigorous application of the established norms. This is exactly what happens in many international transactions.

There are many different channels for corruption in the international arena. These include, for example, all the protectionist regulations that exporters try to avoid, such as the need to obtain permits, authorization or licenses and the obligation to contract through brokers, who are very often intent on obtaining obligatory rewards. Then there is the obligation for a state receiving loans to spend the money in the creditor country; and the intervention of public authorities in the negotiation and conclusion of contracts, particularly when the supplier and client are public sector officials from their respective states.

Corrupt relations at an international level are particularly complex when legitimate private interests—of a company, for example—or less honorable ones—of intermediaries—mix with the interests of political and administrative partners who can act either in the name of public interests considered legitimate—such as support for exports or defense of national interests—or as parties directly interested in criminal exchange. A good example is what happened with the US blockade against Cuba and Nicaragua, which generated the design of necessary triangulation operations in both countries, the consequences of which included corruption and the personal enrichment of many of those involved.

International mafias gaining ground

Unlike the prevailing situation in most states, corrupt international exchange develops in a setting where the rule of law is more a laudable aspiration than a reality. Even today, corruption can only be repressed by means of national legislation. Furthermore, it is always difficult to prove the crime and is illusory to expect any great repressive effectiveness when most high-level leaders are themselves heavily implicated in the corruption.

Switzerland, the traditional refuge of “discreet operations,” has had to make certain minor concessions under pressure from the scandals revealing that its prestigious banks accepted deposits from drug trafficking and money-laundering activities. But the small changes made by the Swiss confederation have been compensated for or annulled by the proliferation of offshore banks and the design of complicated and innumerable crossed transactions. This phenomenon is even more worrying as the different international drug-trafficking and organized crime mafias not only avail themselves of national protection from the highest political and police echelons, but also benefit from the new opportunities offered by the globalization of monetary flows and from the secrecy safeguarding bank operations.

The least visible corruption

The most basic element in understanding the problem continues to be the fact that corruption is always a clandestine exchange, except when it has become so much of a custom that there is no longer any need to take the precaution of dissimulating it. When this happens, the corruption pact is the only thing that remains a secret, while all other elements of the deal can happily coexist in an atmosphere of legality and respectability.

The most extended form of corruption is also the least visible because it takes on the form of habitual economic or social relations. In this case, all elements of the corruption appear legal or normal, except the tacit, unwritten clandestine pact. The formal regularity of the procedures erases even any feelings of guilt that might otherwise affect the main protagonists of the corruption, and they declare themselves unjustly persecuted and hounded in their private and family lives.

This shows how the multiplication of repressive provisions, of watchdog procedures, amounts to nothing more than a partial and insufficient attempt. No penal sanction can resolve the problem of corruption if it is not first conceived of as breaking the rules of public ethics.

Living with high corruption
levels can lead to tolerance

Across the world, corruption is more than just a detestable custom; it has turned into a political problem. The increase in corrupt practices and their increasingly overt nature—at times almost official—is the first thing that has contributed to growing awareness of the problem. What was originally known only among very restricted circles of “initiated” people, such as party leaders and heads of large companies, has ended up an open secret because corruption has spread and increasingly influences the performance of the whole economy. The enrichment of FSLN leaders by siphoning off state goods during the change of government in 1990, dubbed the “piñata”; the business deals Sandinista leaders made with sugar refineries and banana plantations; and the spectacular growth of the personal wealth of former President Arnoldo Alemán and his closest followers were all widely known in Nicaragua even as they were happening.

When public ethics is flexible and public opinion has a generally negative concept of politics, corruption is tolerated because it comes to be considered an inevitable consequence of the exercise of power. Back-scratching policies and the generalized distribution of sweeteners and small benefits by the corrupt reinforce this tolerance. So although not everyone practices corruption, the network of back scratching and benefits promotes a complicit silence around the deviations of a regime that may be considered “positive in everything else.” This is exactly how many justified the Alemán government’s corrupt acts: “He may steal, but he gets things done.”

Despite everything, the vicious circle is broken when a great scandal blows up, the corrupt system falls into the trap of growing demands, there is a scarcity of resources to be squandered or the internal contractions become increasingly pronounced. Italy is a notable example of this kind of evolution. After decades of tacit complicity by the elite minorities and a large part of public opinion, the corrupt system crashed, victim of its own imprudence and arrogance as well as the economic and financial costs.

In Italy’s case, however, writers of the stature of Umberto Eco rejected the idea promoted by some that the scandals would easily heal the system. He warned that “we are not witnessing the revolt of a healthy country against the upper echelons of corruption; rather we should examine the conscience of a country where corruption is widespread. Italians knew who they had to see to receive a favor and how much it cost; they knew how to evade a traffic fine; how to find an easy, cushy job with a letter of recommendation; or how to land a contract without having to subject themselves to competition. In short, the system suited people well, and although they may have had to hold their noses when they went to vote, they still voted.”

A new law in the era of globalization

In the nineties, a new yardstick began to be used to measure the corrupt activities of European companies abroad. It originally came from the United States. The US Congress passed the Foreign Corrupt Practices Act (FCPA) in 1977, in the aftermath of revelations about generalized bribes offered by US companies. The Lockheed aeronautics company had become the most notorious case by paying off foreign politicians and high-level public officials to receive preferential treatment in contract bids.

While most countries’ laws allow the prosecution of corrupt practices in their national jurisdiction, no important country had yet established the legal basis for trying companies or individuals implicated in bribery cases outside national boundaries. The FCPA initiated a new way for governments to effectively control the behavior of transnational companies at a time when trade globalization was beginning to accelerate at an unprecedented rate.

New mechanisms and new contradictions

During the following decade, the US government started to apply the law very slowly to international cases of corrupt practices. A series of investigations related to processes initiated under this law got underway and a dozen cases were sent to the courts. The most serious trials had to face the argument that US businesses were at a great disadvantage, as other industrialized countries, particularly the European countries and Japan, had not introduced similar legislation. These countries were encouraging the corrupt practices of their companies in developing countries by continuing to allow bribery to be legitimately included in tax deductions. Even companies from Scandinavian countries, which pride themselves on their high moral level, resorted to corrupt practices in their activities abroad, which did not always end up reported or provoke a scandal.

The US law faithfully reflected the Carter administration’s moralistic foreign policy, which also stressed civil and human rights. Once the Reagan era’s laissez-faire policy was initiated, however, most people in the United States felt less concerned about moral questions. Meanwhile, other quasi-private initiatives emerged, such as the creation in 1993 of Transparency International, founded by the German national Peter Eigen, a former World Bank official. In April 1996, the OECD formally requested that its member countries revise any fiscal regulations that might incite the corruption of foreign officials by offering fiscal deductions.

A cancer that undermines economies

Corruption has very important negative effects on the economies of the countries involved, as it distorts the market-regulating forces. It destroys the efforts being made by legitimate local and foreign businesses to provide the best products and services at the best possible prices.

In addition to the moral decay that corrupt activities introduce into society, they generate real costs in terms of social welfare. They have an impact on the country’s economic product and divert the energies of businesspeople from productive activities towards less productive ones, such as banks, hotels and casinos. Corruption is associated with a greater fiscal deficit, which has a consequent impact on stabilization policies, and also distorts the state’s redistributive role as those who benefit most from public spending and its programs are not those who need it most. Finally, corruption has a greater effect on innovative enterprises, which need to get permits to start their activities, than on established ones, and by putting the brakes on such new activities, it also has an impact on the country’s economic growth.

The current transition of some economies that had high levels of state intervention to market-oriented economies generates very favorable conditions for corruption. The millions of dollars that can so easily be acquired through the privatization of state properties disturb the nervous and uneasy balance of ambitious politicians who thirst after power and money. The appraising of the state properties up for sale is highly subjective and lends itself to twisted interpretations because it can generate incredible profits for the few people in charge of such processes.

Focal points of world corruption

Capital flight and corruption are the two main causes of the impoverishment of the South’s countries. Without capital flight or corruption, the foreign debt crisis burdening the South would not have the same proportions.

The equivalent of over half the South’s debts is deposited in tax havens controlled by banks of the North. The five countries that receive most of the capital from at least 12 forms of corruption, including bribery, illicit enrichment of public authorities and tax evasion are Panama, the Caiman Islands, Switzerland, Luxembourg and the United States.

Financial centers and tax havens play a fundamental role in international financial relations. A legal structure should be set up at national, regional and international levels to effectively combat the procedures of corruption. Unsurprisingly, many countries, including those that act as tax havens, do not favor the creation of such an international framework.

Corruption moves over US$600 billion a year, according to a report by Transparency International issued in the context of the Anti-corruption Congress held a few years ago in Peru. This amount was calculated by estimating the commissions paid on public contracts, arms purchases and drug-trafficking facilities and to judges and police authorities.

In Latin America, the general sense of impunity, the limited rule of law and the susceptibility of public officials and business executives to receiving or paying bribes are the three dominant characteristics of corruption. And this corruption is defined as one of the main enemies of democracy due to its negative effects on the political system.

Rhetoric, demagogy and cynicism

Ordinary citizens remain confused and on the sidelines. They have no influence on public management, apart from the chance to vote every four or five years. Politicians, meanwhile, limit themselves to programmatic declarations full of rhetoric. Such was the case at the Inter-American Anti-Corruption Convention in Caracas in March 1996. Someone rightly commented that such declarations were the equivalent of “Lucifer himself announcing the opening of a store selling religious items.”

According to Peruvian analyst Mirko Lauer, the congresses on corruption held in Washington, New York, Hong Kong, Sidney, Amsterdam, Cancun, Beijing, Lima and Caracas, are nothing more than public speaking competitions. They sound like events that will have a great impact, but the lack of any real success has been turning the political crusade against corruption into a private consultancy business, a branch of academic study and a convenient club with which to beat governments or the opposition. Corruption is analyzed in a demagogic and even cynical way during these meetings, as the direct participants and protagonists of such acts are precisely those who attend them. In many cases the congresses just provide luxurious holidays for those responsible for the problem in the first place. “Developing countries were first told that neoliberalism would bring prosperity and now they are being told that neoliberal reforms aren’t providing the expected results because of corruption,” said Laner, commenting on the cynicism that dominates these congresses.

The big obstacle: Judicial corruption

In Latin America’s case, irregularities and corruption are growing within the judicial courts, generating strong distrust in the system. As this fitting perception increases, people are turning less and less to the courts, considering the system slow, uncertain and of very limited quality. There is also a general perception that the judges do not have enough training and that the supposed precept that all are equal in the eyes of the law is anything but guaranteed.

The inertia of judicial officials in making the required reforms to the administration of justice is partly explained by the fact that the benefits of the anti-corruption fight—greater investment and economic growth—are general and long-term, while the individual costs are immediate; namely the disappearance of all income derived from corruption. The reforms would thus have to include greater short-term benefits for judicial officials, such as better salaries and pensions, promotion for judges and employees, new installations and larger budgets.

In some cases, a whole structure of socioeconomic pillage and extortion has been designed in our legal systems around taxes, regulations, protection, subsidies, licenses, permits, concessions and transfers. As Montesquieu explained, there are two kinds of corruption: the first is when people do not observe the laws and the other when the laws corrupt them. The latter is incurable as it is rooted in the only possible remedy for that particular evil.

Ernesto Castillo Martínez is a Nicaraguan jurist. The above is a synthesis of his presentation at the debate on Ethics, Corruption and Immunity held in Managua’s American University in May 2002.

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