July 1, 2012

Eight Ways to Commit Grand Corruption (Part One)

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Having grown up during the Marcos era, I have a morbid fascination with corruption that takes place on a grand scale. By the time their 20-year reign ended in 1986, Ferdinand Marcos and his glittering wife Imelda had amassed a fortune estimated at $10-$20 billion dollars and stashed in Swiss banks, artwork and real estate, including buildings in Manhattan.

The looting continues. Only now, for example, are we beginning to get an idea of the assets amassed by more recently fallen dictators. Muammar Gaddafi  is said to have $200 billion in bank accounts, real estate and corporate investments worldwide. Hosni Mubarak’s fortune is estimated at $70 billion, including investments in companies and real estate in London, Manhattan and Beverly Hills.

This is why I found The Puppet Masters so fascinating. It’s the World Bank’s recent study on 150 cases of grand corruption in 80 countries in the last 30 years.  I dug into the study while preparing for  a Covering Corruption Workshop hosted by the International Press Institute in time for its World Congress  in Port of Spain, Trinidad.  There’s some interesting stuff in these cases, including fake loans, fictional consultancies and 100 pairs of  high-heeled, hand-made shoes for a vertically challenged president. It’s not an easy read but a great resource for journalists investigating corruption as well as anticorruption activists and government reformers.

Based on some of the cases in The Puppet Masters database, I’ve put together 8 Ways to Commit Grand Corruption. There’s more than eight ways, of course, but this list provides a good sample of the clever ways in which officials have stolen public funds and the lengths they went through to hide the loot. Beware: these officials have all been found out and tried; some are in jail.

1.Award an overpriced government contract to a shell company, subcontract the work to a real company that will do it for much less, and then pocket the difference. In 2002, the Kenyan government gave Anglo-Leasing and Finance Ltd. , an unknown UK company,  a €32-million contract to replace its passport printing system. A French company had offered to do the project for just €6 million. Anglo-Leasing – a shell company with a Liverpool post office box for an address – then proposed to subcontract the work to the French firm. The understanding, according to material leaked to journalists, was that corrupt senior politicans would keep the difference. The deal never went through, though, as it was leaked to the press by whistleblowers.

2. Create nonexistent state loans and  make the payments to your own accounts. Frederick Jacob Titus Chiluba was president of Zambia through most of the 1990s. In 2007, he was indicted in the UK for, among other things, his role in the so-called “BK conspiracy.” It involved a fake 10-year, $100-million loan to purchase military equipment from Bulgaria. The  Zambian government entered into the loan agreement in 1999, but there is no evidence that any such transaction ever took place. Yet, over $20 million was sent to bank accounts in Belgium and Switzerland as loan payments. The money from that and a similar scheme were then used to pay for school fees for Chiluba’s children, lodging in five-star hotels, expensive restaurants and as the London court where Chiluba was convicted noted, a $500,000-purchase of hundreds of suits and monogrammed shirts from a boutique in Switzerland as well as 100 pairs of hand-made, high-heeled shoes for the five-foot-tall president.

3. Get bribes from a multinational company and hide the money in bank accounts and shell companies in several jurisdictions overseas. Daimler AG, the German multinational car company, and its Russian subsidiary made over €3 million in allegedly illegal payments to Russian officials between 2000 and 2005. The amounts were coursed through bank accounts in Latvia, Switzerland, the US and other places. These accounts, in turn, were in the names of 27 companies in seven different jurisdictions. Some of these were shell companies; others were legitimate companies that did business with the Russian government, None of them  provided any services to Daimler, but received the money on the understanding that they would be passed on to the officials concerned. This case is now being litigated in the U.S. and investigated in Germany and Russia,

4. Set up a fake consultancy firm and hide the payments there. In 2009, Joseph Bruno, New York’s long-serving senate majority floorleader and one of the most powerful politicians in the state, was indicted for receiving over $3 million in consulting fees paid to a consultancy company in which he had interests. The payments were made to a shell company, Capital Business Consultants, a limited liability company which Bruno had incorporated. It had no real function except to receive his  payments for fictional consultancy services. The company was also used to conceal Bruno’s ownership in a company that had contracts with New York state.

Sheila Coronel is director of the Stabile Center for Investigative Journalism at Columbia University. This is reprinted from her blog, Watchdog Watcher.

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