Final Deliverable
Practicum Title: “Understanding and Combatting Terrorism” – CEIP Team
Semester: Spring 2016
Professor Name: Dan Schneider
Student Names and Programs: BilQis Aidara Adjei (USFP), Jack Brosnan (GGPS), Amit Kumar
(USFP), Veeravaroon Mavichak (IPCR), and Rebecca Palizza (IPCR)
1
The Security Consequences of Pervasive Corruption
BilQis Aidara Adjei, Jack Brosnan, Amit Kumar, Veeravaroon Mavichak, and Rebecca Palizza
Prof. Dan Schneider
SIS-793-003: Combatting and Understanding Terrorism
April 29, 2016
2
Executive Summary
Despite extensive scholarship in the areas of security and corruption, there is a dearth of
research into the overlap of these two fields. Research by Sarah Chayes and other scholars
reveals that acute and pervasive corruption lies at the heart of some of the world’s most
disruptive security crises.1 Ms. Chayes’ research demonstrates that many corrupt governments
are actually highly functioning criminal organizations, and it reveals valuable insights about the
relationships between corrupt governments and a country’s probability of experiencing a security
crisis. This paper builds on that research by analyzing networks of criminal organizations, also
known as kleptocratic networks, in 10 countries: Ethiopia, Guatemala, Honduras, Iceland,
Kazakhstan, Kyrgyzstan, Mexico, Moldova, Pakistan, and Thailand.2
We found that government officials are members of kleptocratic networks in all 10
countries researched. In addition, we found that kleptocratic networks in each of the identified
countries differed by the types of state institutions and revenue streams captured, the degrees to
which the networks include public and private sector actors, the degrees to which the networks
include low-level and high-level government officials, external enablers of corruption outside the
country, and presence of other security risk factors unrelated to corruption.3 We found that the
two most prevalent security risk factors unrelated to corruption in the 10 countries researched
were sharp economic inequality and a deep sectarian, ethnic, or other identity divide.
Each of the countries researched can be grouped into one of three categories: countries
that have experienced a corruption-related security crisis, countries currently experiencing a
1
Sarah Chayes is a senior associate in the Democracy and Rule of Law Program and the South Asia
Program at the Carnegie Endowment for International Peace. Her research focuses on correlations between acute
public corruption and the rise of militant extremism.
2
These countries, along with several others were identified by Ms. Chayes, and selected by team members
based on the needs of CEIP and team member regional expertise.
3
Horizontal integration is defined as incorporating government officials, private sector actors, criminals,
and often insurgents. Vertical integration is defined as low-level officials extorting bribes from the population and
sending a portion of their “take” to those higher up, in return for protection from repercussions.
3
corruption-related security crisis, and countries at risk of experiencing a corruption-related
security crisis.4 For example, in the grouping of countries that have already experienced a
security crisis, we found that Iceland’s two kleptocratic networks captured state institutions and
exploited private companies in the financial sector as revenue streams, displaying extreme
horizontal integration but virtually no vertical integration. Kyrgyzstan, another country that has
already experienced a corruption-related security crisis, had kleptocratic networks that were
highly integrated both horizontally and vertically and whose diverse revenue streams and
captured institutions included the banking, energy, judicial, development, defense, education,
and telecommunications sectors.
In the grouping of countries in the midst of a security crisis, Guatemala has a multitude of
kleptocratic networks that are both
horizontally and vertically integrated and that capture
institutions and revenue streams in the customs, social security, health, public procurement,
legislative, and judicial sectors. In Honduras, kleptocratic network members include local
government leaders, drug traffickers, and the ministries of defense and justice. Revenue streams
include drug trafficking, extortion, smuggling of gas and oil, and the pharmaceuticals sector.
Mexico has two main types of kleptocratic networks. One is led by federal government leaders
who receive kickbacks from preferred government contractors; a second type consists of at least
nine networks that are led by various drug trafficking organizations (DTOs) and that mainly
involve corrupted municipal and state law enforcement and judiciary officials. Pakistan has two
powerful kleptocratic networks, one network led by the military which has high vertical and
horizontal integration and captures the judicial sector and many private businesses such as banks
and construction and real estate firms. The second is a weaker network led by the civilian
government which has captured the ministries of interior, finance, and other sectors which
4
These levels of security crises were created by Ms. Chayes and her team.
4
receive public works contracts. In Thailand, there are three main kleptocratic networks that
compete with each other, have vertical and horizontal integration, and in effect capture most state
institutions.
In the grouping of countries at risk of experiencing a security crisis, Ethiopia’s single
corrupt network is a classic case of state capture, with a single corrupt network controlling
virtually all state institutions and featuring high vertical and horizontal integration. Kazakhstan
has three kleptocratic networks whose main revenue streams are in the nation’s oil and mineral
wealth and whose captured institutions span from the judiciary and energy sectors to its human
rights and election commissions. Moldova is dominated by one vertically and horizontally
integrated network, led by a single non-governmental, wealthy businessman who has captured
the entire state through control of Moldova’s parliament, Ministry of Economy, national anticorruption body, judiciary, and private sector businesses and banks.
Our findings demonstrate examples of countries that have faced or have the potential to
experience corruption-related security crises in the past, present, and future. This research
supports the theory that government corruption, in combination with other risk factors, can lead
to security crises. The findings suggest that scholars should conduct further research into
understanding corrupt governments as highly functioning criminal organizations and the security
implications that such governments present.
5
Introduction
Terrorism is not a modern phenomenon, and in recent decades it has claimed a countless
number of lives. Countries have implemented numerous counterterrorism policies and have spent
billions of dollars on developing and enforcing such programs.5 Despite global efforts to restore
peace and alleviate conflicts, however, threats from terrorists, insurgents, and political instability
persist. This persistence implies that there is an important element missing from the current
research on security crises.
Despite a wealth of existing literature and theories on terrorism and security studies,
scholars have paid little attention to how systematic corruption within states might be a catalyst
of terrorism and a threat to international security. Research by scholar Sarah Chayes6 suggests
that acute and pervasive corruption within countries has led to some of the world’s most
disruptive security crises.7 According to this research, systemic corruption combined with risk
factors such as economic inequality, political tension, or ethnic and religious rifts can lead to
security crises ranging from small-scale protests to devastating insurgencies or terrorism.
Policy makers and aid donors often ignore systemic corruption when designing
government policies, instead prioritizing issues of security, development, and economics.
However, by operating without an understanding of how systemic corruption can lead to security
crises, policy makers and aid donors often end up unwittingly enabling and facilitating corrupt
governments. More attention must be paid to the relationship between systemic corruption and
5
Bard E. O’Neil, Insurgency & Terrorism: From Revolution to Apocalypse, 2nd Edition (Dulles, Virginia:
Potomac Books, Inc, 2005), 231.
6
Sarah Chayes is a senior associate in the Democracy and Rule of Law Program and the South Asia
Program at the Carnegie Endowment for International Peace. Her research focuses on correlations between acute
public corruption and the rise of militant extremism.
7
Sarah Chayes, The Thieves of State (New York: W.W. Norton & Company, 2015), 262.
6
security crises to ensure that foreign military and development aid provide more benefit than
harm.
Based on Sarah Chayes’ hypothesis that acute and pervasive corruption in a country
combined with one or more risk factors can lead to security crises, this paper examines and
analyzes the relationship between corruption and security crises in the following 10 countries:
Ethiopia, Guatemala, Honduras, Iceland, Kazakhstan, Kyrgyzstan, Mexico, Moldova, Pakistan,
and Thailand.8 Kleptocratic networks in each country were examined, key actors identified, and
corrupt behavior analyzed. By definition, kleptocratic networks are systems of domestic
government, international government, and non-government actors who steal state resources and
revenue streams for self-enrichment. This paper identifies five key points for each identified
country: the elements of state function that have been captured and repurposed or hollowed out,
key revenue streams that the kleptocratic networks in each identified country capture, the
networks’ levels of horizontal and/or vertical integration, key external enablers and network
members, and security risk factors separate from corruption in each country using a list of nine
risk factors provided by Chayes’ team at the Carnegie Endowment for International Peace
(CEIP).9
Methodology
To fill the gap in understanding the relationship between kleptocratic networks and
security crises, team members conducted thorough analysis of these networks in the 10 identified
countries. With the exceptions of Iceland and Kyrgyzstan, these countries contain currently
8
interests.
9
The countries researched were chosen on the bases of CEIP priorities and team members’ regional
These nine risk factors were identified by CEIP. They are: (1) recent economic contraction, (2) sharp
economic inequality, (3) climate or environment degradation, (4) proximity to an established
separatist/terrorist/transnational criminal group, (5) sectarian division, (6) no transition of power plan in place, (7)
significant redistribution of resources, (8) significant and rapid urbanization, and (9) median age.
7
active kleptocratic networks.10 In the cases of Iceland and Kyrgyzstan, our research focused on
the networks that contributed to each country’s previous security crisis related to corruption.
To present accurate analysis of these kleptocratic networks, team members identified and
interviewed country experts, academics, and journalists who are familiar with each team
member’s respective countries. Government officials, activists, and persons living within each
country were also consulted for in-country and first-hand
expertise. We also consulted
secondary sources in the form of academic journals, think tank publications, and other open
source material such as data sets from The World Bank.
This paper presents the 10 counties researched in three groupings, organized by whether
the country has experienced a previous, current, or potential corruption-related security crisis.
The two countries that previously experienced a crisis are Iceland and Kyrgyzstan. Guatemala,
Honduras, Mexico, Pakistan, and Thailand are currently experiencing security crises, and
Ethiopia, Kazakhstan, and Moldova are categorized as being at risk.
Analysis: Countries That Have Experienced a Past Security Crisis
Iceland
“There is no such thing as impartiality in Iceland” claims Elvira Pinedo11, member of the
legal faculty at the University of Iceland. Corruption in Iceland operates with virtually no
vertical integration, but with an extreme degree of horizontal integration. With a population of
just 331,91812 virtually every important figure in business or politics is beholden to parochial
interests. After declaring its independence from Denmark in 1944 two small groups of families
10
These two countries had already experienced security crises and have identified networks. Iceland
experienced its security crisis in 2008 and Kyrgyzstan in 2010.
11
Pinedo, Elvira. Interview by Jack Brosnan. Washington, DC, April 8, 2016.
12
“The World Factbook: Iceland,” Central Intelligence Agency, April 06, 2016,
https://www.cia.gov/library/publications/the-world-factbook/geos/ic.html.
8
known colloquially as “the Octopus” and “the Squid” formed, leveraging their elite status to
embed themselves in influential governmental positions. Members of the Octopus formed the
leadership of the Progressive Party (PP), while members of the Squid dominated the
Independence Party (IP); a coalition of these two parties controlled Iceland for over 60 years.13
These elites dominated Iceland’s small private sector for decades while most productive
economic activity was controlled by the state. A separate group composed of former students
from the University of Iceland created a neoliberal political group known as “The Locomotives”.
This group was brought together by a shared belief in privatization of public industry and
neoliberal policies; they quickly rose to power in IP.14 Using their new political leverage the
Locomotives legislated a wave of privatization of public industry and deregulation of the
financial sector in 1991.15 Members of the Octopus and the Squid took advantage of their status
in the public and private sectors to support the push for privatization and deregulation. The two
kleptocratic networks manipulated the privatization of Iceland’s two largest banks Landsbanki
and Kaupthing to ensure that supporters of IP and PP gained control of the institutions from the
state.16 A separate group of related business elites concurrently took control of Glitnir (a smaller
13
Robert H Wade and Silla Sigurgeirsdottir, “Iceland’s Rise, Fall, Stabilisation and Beyond,” Cambridge
Journal of Economics 36, no. 1 (January 1, 2012), doi:10.1093/cje/ber038,
http://cje.oxfordjournals.org/content/36/1/127.full.
14
Robert H Wade and Silla Sigurgeirsdottir, “Iceland’s Rise, Fall, Stabilisation and Beyond,” Cambridge
Journal of Economics 36, no. 1 (January 1, 2012), doi:10.1093/cje/ber038,
http://cje.oxfordjournals.org/content/36/1/127.full.
15
Robert Wade, “Shadow Elite: The ‘inside job’ That Toppled Iceland’s Economy,” Huffington Post (The
Huffington Post), October 14, 2010, http://www.huffingtonpost.com/robert-wade/emshadow-eliteem-theinsi_b_762293.html.
16
Robert H Wade and Silla Sigurgeirsdottir, “Iceland’s Rise, Fall, Stabilisation and Beyond,” Cambridge
Journal of Economics 36, no. 1 (January 1, 2012), doi:10.1093/cje/ber038,
http://cje.oxfordjournals.org/content/36/1/127.full.
9
banking entity) and expanded it into a major financial institution through a series of mergers and
acquisitions.17
Several elements of state function were captured by the Octopus and Squid networks
through their respective control of the PP and IP, and the political coalition of these two parties.
The Office of the Prime Minister and the Icelandic Parliament (Althing) were both dominated by
the IP and PP from 1944 to 2009, exerting tight control over the process of legislation in
coordination with actors in the private sector in a classic case of cronyism. Ex-politicos from IP
and PP comprised the leadership of the Central Bank of Iceland, which in turn regulates the
country’s fiscal and monetary policy.18 At several points during the 2000s the Central Bank
made decisions which were objectively poor economic decisions but which favored the activities
of Iceland’s three largest banks. The Minister of Fisheries and Agriculture within the Ministry of
Industry and Innovation is an active member of PP, and is a former chairman of the party’s
parliamentary group.19
Critical sources of revenue for the Octopus and Squid networks were drawn primarily
from the financial industry in Iceland, and in particular from the country’s three largest banks:
Landsbanki, Kaupthing, and Glitnir. Executive leadership of the banks, politicos associated with
their ownership networks, and some external stakeholders engaged in rampant market
manipulation to inflate share prices both within and between banks.20 Bond sales in Iceland, the
17
Robert H Wade and Silla Sigurgeirsdottir, “Iceland’s Rise, Fall, Stabilisation and Beyond,” Cambridge
Journal of Economics 36, no. 1 (January 1, 2012), doi:10.1093/cje/ber038,
http://cje.oxfordjournals.org/content/36/1/127.full.
18
Robert H Wade and Silla Sigurgeirsdottir, “Iceland’s Rise, Fall, Stabilisation and Beyond,” Cambridge
Journal of Economics 36, no. 1 (January 1, 2012), doi:10.1093/cje/ber038,
http://cje.oxfordjournals.org/content/36/1/127.full.
19
“Gunnar Bragi Sveinsson, Minister of Fisheries and Agriculture.”
https://eng.atvinnuvegaraduneyti.is/ministers/nr/7594.
20
Robert H Wade and Silla Sigurgeirsdottir, “Iceland’s Rise, Fall, Stabilisation and Beyond,” Cambridge
Journal of Economics 36, no. 1 (January 1, 2012), doi:10.1093/cje/ber038,
http://cje.oxfordjournals.org/content/36/1/127.full.
10
US, and European markets were a major source of initial profits for the big three as well.21 With
the assistance of the Central Bank, increased interest rates were established which made the “big
three” favorable targets for deposits, and membership in the European Economic Area allowed
for expansion into Europe at large through branches and subsidiaries.22 Additional revenue was
and likely continues to be extracted from the fishery industry, which constitutes as much as 12%
of Iceland’s GDP.23 Ownership of companies in the Icelandic fishery industry is highly opaque
due to large ownership groups consisting of thousands of shareholders, however as few as fifteen
major companies dominate the industry.24 It has been reported that fishery companies with
access to political patronage and easy credit through cronyism have taken advantage of
fluctuations in the price of Individual Transferrable Quotas (ITQs) which constitute legal
ownership of stocks of fish to consolidate their stranglehold on the industry.25
With the assistance of Mossack Fonseca a series of shell corporations were set up in the
British Virgin Islands. Employees at Landsbanki Luxembourg acted as intermediaries by
requesting power of attorney for members of the Octopus and Squid groups, giving them control
the shell companies without having to expose themselves by establishing them.26 These shell
companies were in some cases used for tax evasion, but were primarily used for offshoring
21
Martin Hart-Landsberg, “Lessons from Iceland: Capitalism, Crisis, and Resistance,” Monthly Review
65, no. 05 (October 01, 2013), http://monthlyreview.org/2013/10/01/lessons-iceland/.
22
Martin Hart-Landsberg, “Lessons from Iceland: Capitalism, Crisis, and Resistance,” Monthly Review
65, no. 05 (October 01, 2013), http://monthlyreview.org/2013/10/01/lessons-iceland/.
23
“The World Factbook: Iceland,” Central Intelligence Agency, April 06, 2016,
https://www.cia.gov/library/publications/the-world-factbook/geos/ic.html.
24
“Case Studies on the Effects of Transferable Fishing Rights on Fleet Capacity and Concentration of
Quota Ownership - the Effects of Introducting Transferable Property Rights on Fleet Capacity and Ownership of
Harvesting Rights in Iceland’s Fisheries, B. Runolfsson and R. Arnason,” Food and Agriculture Organization of the
United Nations, 2001, http://www.fao.org/docrep/005/y2498e/y2498e04.htm.
25
“Case Studies on the Effects of Transferable Fishing Rights on Fleet Capacity and Concentration of
Quota Ownership - the Effects of Introducting Transferable Property Rights on Fleet Capacity and Ownership of
Harvesting Rights in Iceland’s Fisheries, B. Runolfsson and R. Arnason,” Food and Agriculture Organization of the
United Nations, 2001, http://www.fao.org/docrep/005/y2498e/y2498e04.htm.
26
“Iceland’s Prime Minister Ducks Question but the Answer Catches up with Him,” April 3, 2016,
https://panamapapers.icij.org/20160403-iceland-prime-minister.html.
11
profits made from the financial activities of the big three banks, the funds from which were then
used for purchases of businesses and real estate both in Iceland and abroad. Many of these shell
companies additionally became shareholders of the big three banks, participating in the process
of market manipulation. As revealed by the Panama Papers these shell companies were used by
elites to remove capital from Iceland just prior to the financial collapse, as well as to circumvent
the capital controls put in place at the behest of the IMF.27 The inception of the 2008 Icelandic
financial collapse disrupted the operations of the Octopus and Squid networks, and resulted in
the destruction of Landsbanki, Kaupthing, and Glitnir – however recent revelations from the
Panama Papers seem to indicate that elite networks may still be engaged in cronyism to a
significant degree.
Kyrgyzstan
The near economic meltdown and sudden implosion of Kyrgyzstan in 2010 was due to
vertical and horizontal kleptocratic networks that ate away at significant government resources
and functions. Kyrgyz President Kurmanbek Bakiyev and his son Maxim, were overthrown due
to a populist uprising protesting sudden spikes in the cost of utilities.28 Subsequent ethnic
tensions between Kyrgyz and Uzbek populations followed the toppled government, ensuing in a
country-wide collapse.
Strategic revenue streams that were captured by the Bakiyev government and associating
cronies included the Central Agency on Development, Investment, and Innovation (CADII), a
government agency for all financial inflows into the country. After his 2009 reelection and
27
“Iceland’s Prime Minister Ducks Question but the Answer Catches up with Him,” April 3, 2016,
https://panamapapers.icij.org/20160403-iceland-prime-minister.html.
28
The price of utilities, electricity, heat, and hot water, spiked by 170-700%. These utilities had been
heavily subsidized by the government for years. The utility companies benefiting from the hike in prices were
owned by the Bakiyev family. When the Bakiyev family fled the country, approximately 10% of Kyrgyzstan’s
reserves, $170 million, was transferred to offshore accounts. Up to $64 million had been siphoned from state funds,
including pensions.
12
consolidating his power, President Bakiyev appointed his son, Maxim, as head of CADII. It was
the central agency in charge of running the Kyrgyz economy, and allowed Maxim to monitor all
financial transactions within the country. CADII also served as a large-scale money laundering
scheme, siphoning profits from the telecommunication sector and aid payments from the US,
Europe, and Russia.29 The money was funneled into CADII and out to shell corporations,
offshore accounts, and financial institutions in the UK, US and Austria. Under Maxim’s
patronage, the largest bank in Kyrgyzstan, AsiaUniversalBank (AUB) was added to this scheme,
playing a large role in laundering the money.30 Maxim’s AUB accounts funneled up to $1.2
billion as public assets were privatized and funneled into shell corporations in the UK.31
Other key revenue streams appropriated included the country’s heavy reliance on foreign
aid and the cost of rent from the U.S. military for its use of the Manas Base and Transit Center.32
the illegal selling of hydropower to neighboring states, as well as disbanding of the Drug Control
Agency, creating a centralized system of control over the drug economy.33 This created a
centralized system of control over the drug economy, which was a major source of income as
Kyrgyzstan resides in a region that has made it an important transit country for illicit Afghan
29
When Maxim Bakiyev was the head of CADII, he diverted cash intended for the Kyrgyz treasury into
private bank accounts used to fund personal investments and pocketed percentages on deposit interests.
30
Marat, Erica. Interview by Rebecca Palizza. Washington DC, February 12, 2016.
31
Marat, Erica,, "Global money laundering and its domestic political consequences in Kyrgyzstan,"
Central Asian Survey 34, no. 1 (2015).
32
Schwirtz, Michael, and Clifford J. Levy, "In Reversal, Kyrgyzstan Won’t Close a U.S. Base." The New
York Times, June 23, 2009. Kyrgyzstan received hundreds of millions of dollars in military and humanitarian
development aid. The rent for the Manas base was alone $60 million per year in 2010. In June 2009, after initially
stating that the Kyrgyz government would not renew the lease of the base, the annual rent jumped from $17.4
million to $60 million per year. Plus an additional $36.6 million to expand the airport as well as contribute millions
of dollars in the form of economic development aid and funds to combat drug trafficking. Bakiyev had also
committed to an offer from the Russian government in the form of a $2 billion, 40-year loan to not renew the
American lease. However, he later renewed the lease, but still was able to receive a significant portion of the
Russian loan money.
33
Hydropower was mainly sold to Uzbekistan. During Bakiyev’s regime, the hydroelectric sector had been
particularly mismanaged. The winter of 2008-09 saw the rationing of electricity production, in part to low water
levels in the Toktogul Reservoir, caused by excessive selling of water abroad. Electricity tariffs were also increased
to 200% in February 2010. The Drug Control Agency had been financed by the UN Office on Drugs and Crime. The
elimination of the agency ended any external oversight on drug trafficking.
13
drugs to European markets. Petty bribery was and still remains a significant problem in everyday
life, from corruption in hospitals, schools, and the purchasing of local public official posts for
personal gain.34 Further criminalization of the state during the Bakiyev presidency led to a
suppression of small and medium businesses, as President Bakiyev amended the tax code to raise
taxes for these entrepreneurs.
As the Bakiyev family fled, momentous ethnic clashes ensued in June of 2010 due to a
lack of a stable government and has left a power vacuum within the political establishment,
resulting in a decentralized system of infighting and power struggles.35 Additionally, the
transition has created significant political alienation between the government and its people as
Bakiyev’s legacy has tarnished the office of the presidency. While the new president has begun
anti-corruption initiatives, the campaign has mainly been focused on the perception of
corruption, rather than the actual driving forces, leaving lesser-known corrupt officials
unscathed.36 Pervasive corruption remains, as there still lacks credible legislation to significantly
combat organized crime that currently benefits from the present-day system and has contributed
to Kyrgyzstan’s current weak governance.
Analysis: Countries Experiencing a Security Crisis
Guatemala
34
Aidarova, Atabek and Medina. Interview by Rebecca Palizza. Washington DC, March 2, 2016.
The violent clashes occurred between the Uzbek and Kyrgyz populations, beginning in the southern city
of Osh. The Kyrgyz viewed the Uzbeks as a population who held more wealth and privilege than citizens in their
own country and neighboring Uzbekistan was generally regarded as a threat. The Uzbek population in the city of
Osh were viewed by the Kyrgyz with suspicion. These rifts in society rose to the surface and were unable to be
quelled during the interim administration after the ousting of Bakiyev.
36
Kyrgyz Voters approved a new constitution which significantly reduced the powers of presidential
authority, and 2011 marked the first year that a legitimate and peaceful transfer of presidential power occurred with
the election of current president, Almazbek Atambayev.
35
14
Guatemala’s corrupt networks abound at every level of the state and vary in structure.
These groups mutate as actors rotate between different organizations to use their knowledge and
experience to execute more sophisticated and lucrative corrupt activities. This is most evident in
the 2015 customs scandal, known as La Linea, in which importers paid just 40 percent of
standard import taxes, the La Linea network received kickbacks of 30 percent, while the
importers kept the remaining 30 percent.37 One member of this network included Guatemalan
President Otto Perez Molina, who, according to a 2003 Washington Office on Latin America
(WOLA) report on illegal armed groups in Guatemala, was part of a powerful contraband ring
made up of corrupt military, police, and other government officials known as the Moreno
network that collected large sums of money by confiscating contraband shipments and forcing
their owners to pay bribes to recover the goods, from the 1970s until the mid-1990s. In addition,
this report identified Perez Molina as a leader of a clandestine group within the military known
as "El Sindicato" in 1969, which was a life-long alliance amongst a cohort of military school
graduates.38 The variety and fluidity of networks preclude the emersion of a dominant
kleptocratic group and produce a multi-headed hydra, instead, which manifests as parallel state
structures. Horizontally integrated networks, like those in the former La Linea and social security
(IGSS-PISA) corruption scandals, consist of actors from the public and private sectors. La Linea
was horizontally structured but the money circulated vertically because a portion of bribes
collected from importers were distributed up to the highest levels of the government - the
President and Vice President of Guatemala.
37
The IGSS-PISA network was horizontally
Daugherty, Arron, “Guatemala's Big Corruption Scandal, Explained,” InSight Crime, July 20, 2015,
http://www.insightcrime.org/news-analysis/guatemala-la-linea-customs-scandal-explained.
38
Barreto, Bill and Oswaldo J. Hernandez, “Tracing the Military Fingerprints on Guatemala's Customs
Scandal,” InSight Crime, August 28, 2015, http://bit.ly/1puzujq; Peacock, Susan C. and Adriana Beltran, “Poderes
Ocultos: Grupos ilegales armados en la Guatemala post conflicto y las fuerzas detrás de ellos,” Washington Office
on Latin America, Accessed April 20, 2016,
http://www.wola.org/sites/default/files/downloadable/Citizen%20Security/past/Poderesocultos.pdf : 23.
15
structured and funds circulated horizontally as it lacked strict hierarchies and the illicit
commissions collected remained in the possession of select groups of the social security
administration (IGSS) and the pharmaceutical provider (PISA).39
Various state structures have been captured and repurposed to enrich kleptocratic
networks, including the Ministries of Public Finance (customs and public procurement), Work
and Social Provisions (social security), Public Health and Social Assistance, Interior (national
police), Defense (armed forces); and the Legislature, Judiciary, and Executive branches of
government. Key revenue streams include mines, the oil and gas industry, exports, taxes,
extortion, bribes, and money laundering. Key elements of state function that are particularly
vulnerable to corrupt activity include the central government and affiliated ministries as well as
state and local governments. Internal entities that knowingly support corrupt actors include law
firms, the media, judges, banks, the legislature, and the judicial system. External companies that
knowingly support corrupt acts include foreign importers and U.S. and Canadian mining
companies. External entities that unwillingly make corrupt acts possible include foreign aid,
foreign banks, U.S. lobbyists, P.R. firms, and the media.
Guatemala has, allegedly, lost $175,200,000 - $500mm to corruption.40 Sometimes, illicit
funds are stored domestically as Guatemala has banking laws that protect the identity of its
depositors, which provides a high degree of impunity for those who deposit illicit money. At
other times, money flows externally to places including Panama, Puerto Rico, and the Bahamas.
39
Gagne, David, “Latest Guatemala Corruption Scandal May End in President's Ouster,” InSight Crime,
May 22, 2015, http://bit.ly/1YqAYan.
40
Marroquin, Manfredo. Interview by BilQis Aidara. Washington, DC, February 2016; Barreto Villeda,
Bill. Interview by BilQis Aidara. Washington, DC, February 2016; “World Bank Data Indicators,” The World Bank
IBRD IDA, bit.ly/1Qsli5d; Abiven, Katell, “Calculating the Cost of Corruption in Guatemala,” Associated Foreign
Press, September 3, 2015, http://yhoo.it/1QUInJj. The first figure is the quotient of 30% of the 2014 GDP data for
Guatemala, which was $58.83bn (World Bank). During an interview with Manfredo Marroquin, President of Citizen
Action, and Bill Barreto Villeda, an Investigative Reporter, both asserted that the total amount Guatemala has lost to
corruption is likely to equal a percentage up to 30% of the national GDP. The second figure is an informal estimate
made by Jonathan Menkos, Executive Director of Central American Institute for Fiscal Studies, (Abiven, 2015).
16
Corruption is prevalent in Guatemala and its stability is questionable. Small yet
meaningful strides have been taken by the United Nations and Government of Guatemala to
reduce corruption via the International Commission against Impunity in Guatemala (CICIG),
which is an independent, temporary organization mandated to investigate crimes committed by
members of illegal security forces and clandestine security structures and help disband such
groups.41 So far, CICIG and the Attorney General’s office have prosecuted twenty cases
involving corrupt networks. Still, Guatemala’s political, social, and economic stability is
questionable for two reasons. First, new information surfaces, daily, about the degree of previous
and new corruption scandals penetrate the Guatemalan government. Second, other risk factors
that weaken Guatemalan society remain intact, including sharp economic inequalities,
environmental degradation, proximity to transnational criminal groups, deep identity divides,
weapons trafficking, and violence.
Honduras
There are many corrupt networks in Honduras yet details about the structure of these
corrupt networks are vague partly because they change structure and membership according to
their needs and the political party in power. Moreover, corruption is systemic and involves the
entire government, which is dominated by the President and his political party, economically
elite families, the military, and organized criminal groups. Members of corrupt networks are
neither friends nor enemies yet bound by trust and silence. This manifests as clientelism;
nepotism; favoritism; an absence of institutional capacity to investigate, collect and archive data,
and prosecute corrupt activities; and secrecy laws that conceal government spending and
administrative processes.
41
International Commission Against Impunity in Guatemala, “Mandate,” International Commission
Against Impunity in Guatemala, http://www.cicig.org/index.php?page=mandate.
17
An overlap in membership and interests amongst political, social, and economic elites
result in horizontally structured networks, mostly. The Honduran Social Security Administration
(IHSS) scandal network was horizontally structured as it consisted of private businesses and
government agencies. It is alleged that kickbacks circulated up from the medical provider, Astro
Pharma, to members of the Social Security Agency, bypassing the public procurement process;
money circulated up from the medical provider to the National Party because the medical
provider was owned by the Vice President of Congress and member of the National Party.
Political favors are as valuable as money; these favors are exchanged when businesses,
individuals, or drug cartels make large political campaign contributions. On the local level,
favors are exchanged when gangs pay off the police to ignore or even help protect gang illicit
operations. Members of known corrupt networks include political parties – especially the
National Party and Liberation Party; the Executive branch – especially the Military, National
Police, and Health Ministry; the Judicial and Legislative branches; private businesses –
especially large companies and wealthy landowners. The fluidity of kleptocratic networks make
it difficult to identify the most powerful group; however, it is likely that the most influential
networks include the political party in power as it consists of the economic elite and it has power
over key state institutions, including the executive, legislature, and judiciary – institutions that
ensure impunity for systemic corruption. The power of horizontal relationships amongst political
parties, the oligarchy, and judiciary and executive branches was most evident in the 2009
overthrow of President Manuel Zelaya.
State entities captured and repurposed to maximize revenue and political power for
corrupt networks include the executive, legislative, and judiciary branches; executive cabinet
ministries and affiliated agencies, especially the Ministries of Health, Security and National
18
Defense; public institutions, like the Social Security Administration and National Property
Institute; the Civil Service; and municipal government officials. Key revenue streams include
foreign aid, the sale of government positions, extortion, bribes, political party financing,
alliances with drug trafficking organizations and gangs, land titling favors, weapons sales, gas
and oil smuggling, coffee smuggling, illegal logging, and seafood poaching. Foreign enablers of
corruption include U.S., European, Chinese, and Canadian corporations; foreign banks; luxury
real estate companies in Miami, Florida; U.S. lobbyists, law and public relations firms; U.S.,
European, and Japanese aid.
A significant amount of money leaves the country but the quantity and destination of
these funds are uncertain. Still, U.S. Treasury Department investigations of drug kingpins and
the recent Panama Papers investigation reveal that money flows from Honduras to Panama, the
British Virgin Islands, and the United States. It is estimated that the government of Honduras lost
approximately $991.1mm to corruption in 2015.42
Despite the state’s vulnerability to corruption, the Attorney General’s office has allied
with civil society organizations, like the National Anticorruption Council, A More Just Society,
and with the Support Mission against Corruption and Impunity in Honduras (MACCIH) to
eliminate corruption and impunity. Furthermore, multiple presidents have initiated laws to
reduce corruption. Unfortunately, the success of these efforts is unclear and corruption and
impunity continue to threaten social order.
42
“$200 millones van a las extorsiones,” La Prensa, February 24, 2016,
http://www.laprensa.hn/honduras/933077-410/200-millones-van-a-las-extorsiones and “CNA Comparte los
esfuerzos que realiza para combatir la corrupción a estudiantes de la UTH,” National Anticorruption Council, March
8, 2016, http://www.cna.hn/index.php/18-noticias-cna/356-cna-comparte-los-esfuerzos-que-realiza-para-combatirla-corrupcion-a-estudiantes-de-la-uth. The La Prensa figure refers to 2015 data and the NAC article figure does not
mention a specific time frame; however, we do know that the figure includes data from 2015. This knowledge gap
means that quantities associated with particular corruption scandals may be calculated twice in my total figure,
which could produce an inaccurate quantity.
19
Mexico
In Mexico there is one main kleptocratic network headed by the current federal
administration as well as an indeterminate number of, but likely at least nine, separate
kleptocratic networks led by various drug trafficking organizations (DTOs) mainly at the state
and municipal levels. The federal level network is horizontally integrated, and the main illicit
revenue streams kickbacks provided by favored government contractors and bribes paid by other
businesses.43 The network consists of politicians hailing from the state of Mexico, where Peña
Nieto was governor for six years, or neighboring Hidalgo and who are personally close to Peña
Nieto.44 Network members include the Secretaries of Interior, Communications and
Transportation, Finance, and Public Administration.45 Some vertical integration is evident, as
corrupt customs workers play a role in trade mispricing that benefits higher level officials.46
Further, weaknesses in Mexico’s judicial system, from the federal level to the municipal level,
facilitate conducting corruption.47 A key international haven for illicit revenues is real estate48.
Perhaps more significant than the federal level network are the multiple, competing
networks headed by DTOs at the state and municipal levels. The Mexican government’s 2006
decision to begin aggressively targeting DTO leaders has severely fractured the DTOs; violence
43
For example, government contractor Higo Group has secured more than 80 contracts worth nearly $3
billion with government agencies and has allegedly provided houses at steep discounts to the wife of the current
Mexican president ,Enrique Peña Nieto (the La Casa Blanca scandal), and to the Secretary of Finance. See Paulina
Villegas and Frances Robles, “Deals Flow to Contractor Tied to Mexican President,” New York Times, July 30,
2015.
44
Jonathan Fox (American University professor) in discussion with the author, April 2016.
45
Information compiled from multiple sources. Particularly helpful information on some of these members
came from Shannon O’Neil (Council on Foreign Relations scholar), in discussion with the author, April 2016.
46
Ivette Saldaña, “Limpian Aduanas de corrupción; caen 100 mandos,” El Universal, July 28, 2015.
47
Mathieu Tromme and Miguel Angel Lara Otaola, “Enrique Peña Nieto’s National Anti-Coruption
Commission and the Challenges of Waging War against Corruption in Mexico,” Mexican Studies 30, no. 2 (Summer
2014): 557-588.
48
Villegas and Robles.
20
has risen as fractured groups compete for power and control over drug trafficking routes.49 In
2015, the Mexican government said there were 9 large DTOs and 43 smaller cells in the
country.50 In general, each DTO subgroup makes an individual agreement with a state or
municipal government that allows it to operate in the state or municipality; even DTO subgroups
that are aligned under the same, larger DTO operate semi-autonomously and compete with each
other.51 Evidence suggests that in some cases, federal police or federal military officials,
especially those in the army, have knowingly allowed corrupt state or municipal officials to stay
in power -- willingly “turning a blind eye” from corruption.52
These networks led by DTOs are horizontally integrated, generally including local police
forces and local judiciary officials and sometimes including the state governor, state police,
federal police, and/or members of the federal military. The DTOs are allowed to operate without
government interference, and public sector officials receive either bribes or safety from
violence.53 There is no indication of any federal government alliance with certain DTOs or of
federal officials benefitting from DTO-government agreements that occur at the municipal and
state levels.54 The networks are generally vertically integrated, with portions of bribes paid to
low-level police officers being passed upward. DTOs’ key revenue streams include drug
trafficking, extortion, kidnapping for ransom, human smuggling, and oil theft.55 Key
international havens for illicit revenues include legitimate bank accounts and shell companies
49
“Special Report: Mexico’s Cartels Will Continue to Erode in 2016,” Stratfor, January 25, 2016.
June S. Beittel, “Mexico: Organized Crime and Drug Trafficking Organizations,” Congressional
Research Service R41576 (July 22, 2015).
51
“Special Report: Mexico’s Cartels Will Continue to Erode in 2016.”
52
Kirk Semple, “Missing Mexican Students Suffered a Night of ‘Terror,’ Investigators Say,” New York
Times, April 24, 2016.
53
Tromme and Lara Otaola.
54
Information compiles from multiple sources. For example, from interviews with Fox and O’Neil.
55
Beittel.
50
21
primarily in the U.S. but also in the Caribbean and Europe,56 and significant portions of illicit
funds are funneled back to Mexico to fund the DTOs’ operations and members’ lifestyles.57
Mexico is a country in the midst of a security crisis that resulted from corruption. Oneparty rule by the Partido Revolucionario Institucional (PRI) from 1929 to 2000 was marked by
rampant corruption and toleration of DTOs that allowed DTOs to grow in strength. The PRI
protected DTOs from the police in exchange for bribes and the condition that the DTOs not
target the domestic Mexican market. When the PRI was ousted from power in 2000, the
government was no longer able to offer impunity to the increasingly powerful and violent DTOs,
and the Mexican state’s ability to offer security to its population was compromised.58 However,
sources note that not all regions of Mexico suffer from DTO-related violence and control, and
sources argue that Mexico does not approach qualification as a failed state.
Pakistan
There are two powerful kleptocratic networks in Pakistan; the military kleptocratic
network and the civilian government network. The military network is more powerful than the
civilian government network and oftentimes shown disobedience to the civilian network. This is
because the perceived threat from India, which is encoded as a part of Pakistani identity.59
56
Dev Kar, “Mexico: Illicit Financial Flows, Macroeconomic Imbalances, and the Underground
Economy,” Global Financial Integrity, January 2012, 44-46.
57
Alejandro Hope (El Daily Post security analyst), in discussion with the author, April 2016.
58
Paul Kenny and Mónica Serrano, “The Mexican State and Organized Crime,” in Mexico’s Security
Failure: Collapse into Criminal Violence, ed. Paul Kenny, Mónica Serrano, and Arturo C. Sotomayor (New York:
Routledge, 2012), 29-49.
59
According to Dr. Daniel Markey, an adjunct senior fellow for India, Pakistan, and South Asia at the
Council for Foreign Relations, there are always ongoing disagreements between the military and the civilian
government networks. The two networks disagree on various important issues such as politic, economy, and national
security. Belligerent history and the current regional tension with India and ongoing Islamic Extremist threats give
the military its justification to hold onto power. The military network became so powerful that the civilian
government has very little control over it and frequent coups by the military network illustrate severe rivalry
between these two networks. Gigantic business conglomerates and private firms are horizontally integrated into both
networks
22
Pakistan’s kleptocratic networks are both vertically and horizontally integrated. The
networks are vertically integrated in the way that money can go both up and down depending on
the natures of the state bodies. In the armed forces, the money is distributed down the chain of
command in order to ensure loyalties of the subordinates. However, in the police and the
Pakistani bureaucratic system, the money goes up the hierarchy in return for protection and
impunity granted by the superiors.60 As for the horizontal dimension, the civilian government
and private sector actors such as gigantic industrial and financial firms are interweaved into a
powerful network. Once the money enters the network, it circulates around the government and
private sector actors in order to support the network’s operation. It is also distributed among key
figures within the network. In the military kleptocratic network, however, the military itself owns
and controls many businesses such as banking, airlines, insurance companies, industrial firms,
and real estate thus forming one powerful military-dominated network.61 The money goes to
pockets of active and retired military officers.62 Criminal organizations like drug cartels, illegal
smugglers, and illegal gambling providers are partially integrated into the horizontal dimension
of the networks. This is because only some high-ranking government officials and police officers
collaborate with the criminal organizations. The terrorist organizations are only employed by the
military network as “strategic assets” to bolster its foreign policy interest.63
60
Marie Chene, “Overview of corruption Pakistan,” U4 Anti-Corruption Resource Centre, August 8, 2008,
https://issuu.com/cmi-norway/docs/expert-helpdesk-174?e=1246952/2658016.
61
Ayesha Siddiqa, Military Inc: Inside Pakistan’s Military Economy (London: Pluto Press, 2007), 304.
62
According to Dr. Daniel Markey, a significant amount of money ended up in pockets of high-ranking
military officers who are holding key positions in the networks. A lot of them are retired. Their families also benefit
a lot. Dr. Daniel Markey mentioned that generals’ children often receive free premium education and health care.
63
There is no evidence which indicates that the networks and terrorist groups are working together sideby-side. Almost all of the sources indicate that the networks occasionally utilize terrorist groups as their proxies and
strategic assets to serve their foreign policy or personal interests. According to the Policy Outlook report from the
Carnegie Endowment for International Peace by S. Akbar Zaidi in 2011, the Army and ISI have been covertly
sponsoring the Haqqani Network, the Afghan Taliban, the Lashkar-e-Taiba, and some fractions of the Al Qaeda.
Full support on the terrorist groups would undermine the internal security of Pakistan and long-term stability of the
networks.
23
State bodies that are captured and repurposed by the networks to play key roles in
maximizing revenue and enforcing obedience include the Ministry of Defense, the Ministry of
Interior, the Judiciary branch, the Ministry of Finance, Revenue, Economic Affairs, Statistics,
and Privatization, the Ministry of Water and Power, the Pakistani Armed Forces, the InterService Intelligence, and the Police Service of Pakistan.64 Although partly under the military’s
influence, the National Accountability Bureau is an effective and semi-independent national anticorruption body. It has prosecuted a lot of corrupt high-ranking government officials.65 Key
revenue streams include fees paid to government officials for services rendered, kickbacks from
government contractors, commission fees received from weapons purchases, military-owned
industries and businesses, involvement in illegal businesses, and tax evasion.66Security aid and
assistance from the U.S. government and international development aid are also considered as
key revenue streams.67 The main foreign enablers are the United States of America and the
Chinese government. Both of them are not full network members. Corruption is an unintended
consequence of U.S. counterterrorism and security aid.68 With no firm oversight or mechanism to
make sure that the money is going where it needs to go, a lot of security aid goes into pockets of
64
According to the South Asia security expert at the American University who asked not to be named,
these are main elements of state function that have been captured and repurposed. According to the survey by the
Transparency International, 96 percent of the respondents experienced corruption when they dealt with officials
from the judiciary branch. The judiciary members are handpicked by the networks so that they can provide impunity
for networks’ members. Furthermore, the 2015 Government Defence Anti-Corruption Index claims that Pakistani
defense and security sector run the highest risk of corruption. This is due to the lack of oversight from the civilian
body over the military sector. Dr. Daniel Markey also mentions that the Ministry of Defense enjoys a great degree of
autonomy when it comes to defense policies and budget allocations.
65
Malik Ayub Sumbal, “Political Elites, Accountability, and Corruption in Pakistan,” International Policy
Digest, February 29, 2016, http://intpolicydigest.org/2016/02/29/political-elites-accountability-and-corruption-inpakistan/.
66
Marie Chene, “Overview of corruption Pakistan,” U4 Anti-Corruption Resource Centre, August 8,
2008, https://issuu.com/cmi-norway/docs/expert-helpdesk-174?e=1246952/2658016.
67
Azeem Ibrahim, “U.S. Aid to Pakistan – U.S. Taxpayers Have Funded Pakistan Corruption,” Belfer
Center Discussion Paper 6 (2009) : 3-44,
http://belfercenter.hks.harvard.edu/files/Final_DP_2009_06_08092009.pdf.
68
Azeem Ibrahim, “U.S. Aid to Pakistan – U.S. Taxpayers Have Funded Pakistan Corruption,” Belfer
Center Discussion Paper 6 (2009) : 3-44,
http://belfercenter.hks.harvard.edu/files/Final_DP_2009_06_08092009.pdf.
24
corrupt military and government officials. The Chinese, on the other hand, capitalized on the
networks’ corruption and lack of transparency.69
A lot of money is leaving the country to international financial safe havens. According to
the Global Financial Integrity, average illicit financial flow from Pakistan to developed countries
and financial safe havens between 2004 and 2013 is 192 million USD.70 The British Virgin
Islands, the Channel Islands, Switzerland, and London are popular international safe havens for
Pakistan’s illicit money flow.71 While a lot of money is leaving the country, vast amount of the
money is staying in domestic financial firms.
Thailand
There are three powerful kleptocratic networks in Thailand; the Anand-Prem Joint
network, the Military network, and the Thaksin network. As of now, the Military network is the
most powerful network because it is the government of Thailand.72
Thailand’s kleptocratic networks are both vertically and horizontally integrated.
However, the horizontal dimension is more significant because it is what really wreaks havoc
to the nation. The networks are vertically integrated in the way that money can go both up
and down depending on the natures of the state bodies. In the armed forces, the money is
distributed down the chain of command in order to ensure loyalties of the subordinates.
However, in the police and the Thai bureaucratic system, the money goes up the hierarchy in
69
Saba Imtiaz, “In Pakistan, U.S. Aid Agency’s Efforts Face Skepticism,” The New York Times, September
12, 2015, http://www.nytimes.com/2015/09/13/world/asia/in-pakistan-us-aid-agencys-efforts-produce-dubiousresults.html?_r=0.
70
Del Kar and Joseph Spanjers, "Illicit Financial Flows from Developing Countries: 2004-2013," Global
Financial Integrity, December 8, 2015, http://www.gfintegrity.org/wp-content/uploads/2015/12/IFF-Update_2015Final.pdf.
71
Junaid Malik, “Corruption in Pakistan,” Pakistan Today, January 10, 2015,
http://www.pakistantoday.com.pk/2015/01/10/comment/corruption-in-pakistan-3/.
72
Based on an interview with Dr. Vuthiphong Priebjrivat. He is the president of a nonprofit public policy
research institute, Sahasavas Institute. Previously, he served as a member of the Thai National Legislative Assembly
(2006-2008); and as a board member and acting president of TOT Corp, Thailand’s telecom company (2007).
25
return for protection and impunity granted by the superiors. As for the horizontal dimension,
the government and private sector actors such as gigantic industrial and financial firms are
interweaved into one big powerful network.73 Once the money enters the networks, it
circulates around the government and private sector actors in order to support networks‘
operation. It is also distributed among key figures within the networks. Criminal
organizations like human trafficking groups or drug cartels are partially integrated in the
horizontal dimension of the networks. This is because only some high-ranking government
officials or military officers collaborate with the criminal organizations.
State bodies those are captured and repurposed by the current Military network to play
key roles in maximizing revenue and enforcing obedience includes the Ministry of Defense,
the Ministry of Interior, the Ministry of National Resource and Environment, the Ministry of
Commerce, the Ministry of Justice, and the Ministry of Energy. Three branches of the armed
forces; army, navy, and air force, are also under the network’s control. Apart from the
ministries and the armed forces, state’s agencies such as the National Anti-Corruption
Commission, the National Legislative Council, the Judiciary Branch, the Royal Thai Police,
the Office of the Election Commission of Thailand, and parts of the National Human Rights
Commission also exist to serve the network’s interest.74 Key revenue streams include fees
paid to bureaucrats for service rendered, commission fees from public projects and
megaprojects, cuts from granted subsidies, the bending of law enforcement and judicial
73
Vuthiphong Priebjrivat mentioned that both the government and private sector actors develop beneficial
relationship when it comes to granting concessions and contracts for megaprojects. According to professor Pasuk
Phongpaichit, a lot of military officers and government officials are appointed on boards of directors of many
private firms and companies, while they are still holding important government positions. The example can be the
Thai Airways, Thailand’s national carrier, where almost half of boards of director are high-ranking air force officers.
http://thai.listedcompany.com/directors.html.
74
According to an interview with Vuthiphong Priebjrivat, practically every element of state function: from
executive, legislative, judicial, administrative and so on fell under the network’s control. The junta leader
handpicked his deputies and appointed them as the head of every ministry in the state.
26
processes, position buying or selling, and commission fees received from weapons
purchase.75 The main foreign enabler of this network is the Chinese government and its state
enterprise. However, China is not a full network member. It only capitalized on the network’s
corruption and lack of transparency.76 Between 2014 and 2015, US foreign assistance to
Thailand dropped sharply. This was likely due to the military’s overthrow of a democratically
elected government.77
Since financial firms are already horizontally integrated as parts of the network, this
network doesn’t require international havens for illicit revenue. However, there is still a lot of
money leaving the country. According to the Global Financial Integrity, average illicit financial
flow from Thailand to developed countries or financial safe havens between 2004 and 2013 is
19,177 million USD.78 The British Virgin Islands, Singapore, Switzerland and the Cook Islands
are popular international safe havens for Thailand’s illicit money flow.79
Analysis: Countries At Risk of Experiencing a Security Crisis
Ethiopia
Ethiopia’s single corrupt network is a classic case of state capture; the Tigrayan People’s
Liberation Front (TPLF) played a critical role in the overthrow of the military-socialist Derg
75
According to Nirun Pitakwatchara, a former commissioner of the National Human Rights Commission
of Thailand, corruption is likely to occur when construction firms are under contract to construct projects for the
government. According to Vuthiphong Priebjrivat, it is common that government officials who supervised a project
take 20 percent from total project cost as “commission fees”. Businessmen are willing to pay commission fees from
their own pockets because they know that they will recover from the project cost.
76
Based on the interview with Professor Pavin Chachavalpongpun, an associate professor at the Center for
Southeast Asian Studies at Kyoto University
77
Lean Alfred Santos, “After military coup, foreign aid to Thailand under review,” Devex, May 27, 2014,
https://www.devex.com/news/after-military-coup-foreign-aid-to-thailand-under-review-83563.
78
Del Kar and Joseph Spanjers, "Illicit Financial Flows from Developing Countries: 2004-2013," Global
Financial Integrity, December 8, 2015, http://www.gfintegrity.org/wp-content/uploads/2015/12/IFF-Update_2015Final.pdf.
79
Prangtip Daorueng, Prasong Lertrattanavisuth, Sanoh Sukcharoen, and Montree Juimoungsri, "Crony' of
African Strongman Among Thai Names in Secret Offshore Files," International Consortium of Investigative
Journalists, April 3, 2013, https://www.icij.org/offshore/mugabe-crony-among-thai-names-secret-offshore-files.
27
regime in 1991. Following the collapse of the Derg, the TPLF used its political influence and
martial strength to dominate governance of Ethiopia. The TPLF is the dominant entity in the
ruling Ethiopian People’s Revolutionary Democratic Front (EPRDF) party, and has dominated
all state institutions and bureaucracy for 25 years. The TPLF’s kleptocratic network is
horizontally integrated, connecting government officials and state institutions to “parastatal”
business entities, foreign investors, and the Endowment Fund for the Rehabilitation of Tigray
(EFFORT). TPLF associates and former government ministers hold key positions in major
private sector entities. For example the recently exited CEO of the massive Saudi Star
Agricultural Development PLC had previously held the position of Minister of Urban
Development, Housing, and Construction.80 Saudi Star itself is a subsidiary of Mohammed
International Development Research and Organization Companies (MIDROC), owned by Sheik
Mohammed Hussein Al Amoudi, a close associate of the TPLF and the single largest actor in
Ethiopia’s private sector. EFFORT is classified as a non-profit endowment, but in reality
manages a group of dozens of profit-taking companies.81 Azeb Mesfin, widow of the late Prime
Minister and co-founder of the TPLF Meles Zenawi, acts as CEO of the EFFORT group.82 The
network is vertically integrated in the sense that top level TPLF officials offer political and legal
protection to regional officials who engage in low level corruption, in exchange for loyalty to the
party and enforcement of the TPLF agenda at woreda and kebele levels.83 Kebele administration
is composed of a seven to eight member cabinet of TPLF officials who manage food assistance,
health care, employment, agricultural inputs, and local courts at the village or neighborhood
80
“New CEO Appointed to Head Saudi Star.” October 17, 2014.
https://www.sheikhmohammedalamoudi.info/home/news/new-saudi-star-ceo.
81
Chala, Endalkachew. Interview by Jack Brosnan. Washington, DC, February 22, 2016.
82
“‘TPLF-firms’ Recovering from Debts, Losses: CEO Azeb Mesfin ~ Horn Affairs English,” Horn
Affairs English, August 13, 2014, http://hornaffairs.com/en/2014/08/13/ethiopia-tplf-effort-company-azeb-mesfin/.
83
Horne, Felix. Interview by Jack Brosnan. Washington, DC, February 19, 2016.
28
level.84 In some areas the kebele administration is by an informal local militia. Captured state
institutions are used to extract revenue and enforce obedience: the Ministry of Agriculture is the
sole source of agricultural inputs such as seed and fertilizer, and is used to enforce political
obedience on a population who are primarily engaged in agrarian activity.85 State security
apparatuses including the Information Network Security Agency and the National Intelligence
and Security Service operate an extensive network of grassroots and telecommunications
surveillance.86 The National Parliament and the Ministry of Justice are responsible for the 2009
passage and continued use of a widely criticized “Anti-Terrorism Proclamation” which is
employed as a means of repressing political dissent and media criticism of the TPLF.87 A
“Federal Ethics and Anti-Corruption Commission” was established both to satisfy calls by the
international community to address corruption, and to monitor the activity of party members and
associates as a means of ensuring loyalty.88 The Central Bank and the Privatization and Public
Enterprises Supervising Agency are complicit in the sale of nationalized industries to private
investors with close relationships to the regime, and provision of easy credit to TPLF-friendly
businesses. Critical revenue streams for the network include the “big 5” nationalized
corporations, businesses operated by the EFFORT group, land administration revenues, military
operated manufacturing, foreign aid, and production of non-food cash crops. There have been
unconfirmed reports of involvement in human trafficking and drug smuggling by TPLF officials
84
“Suppressing Dissent: Human Rights Abuses and Political Repression in Ethiopia’s Oromia Region:
Mechanisms Used by the Ethiopian Government to Control Rural Communities in Oromia,” Human Rights Watch,
May 05, 2005, https://www.hrw.org/reports/2005/ethiopia0505/6.htm.
85
Horne, Felix. Interview by Jack Brosnan. Washington, DC, February 19, 2016.
86
“Defending Against Overreaching Surveillance in Ethiopia: Surveillance Self-Defense Now Available in
Amharic,” Electronic Frontier Foundation, October 1, 2015, https://www.eff.org/deeplinks/2015/09/defendingagainst-overreaching-surveillance-ethiopia-surveillance-self-defense-n-0.
87
“Ethiopia’s Anti-Terrorism Proclamation and the Right to Freedom of Expression,” Freedom Now,
August 30, 2013, http://www.freedom-now.org/news/ethiopias-anti-terrorism-proclamation-and-the-right-tofreedom-of-expression/.
88
Hailu, Asme. Interview by Jack Brosnan. Washington, DC, February 21, 2016.
29
in the Ministry of Foreign Affairs, using Ethiopian embassies as network nodes for transit and
concealment of illicit flows. Capital flight from Ethiopia has become a growing concern as year
on year totals have increased significantly since 2009, however it is largely unclear what the
destination of these flows are. Some international havens for extracted revenue include banks in
Indonesia, Malaysia, and China89, and real estate in the United States.90
Kazakhstan
Systemic corruption in Kazakhstan prospers on the nation’s oil and mineral wealth, as
well as a lack of government transparency. Bribery is most common on the middle and low
levels of the Kazakh bureaucracy due to low salaries, but political elites are more involved in the
country’s shadow economy. Since 1989, Nursultan Nazarbayev has presided as Kazakhstan’s
president, consolidating his powerful grip over the economy, political process, as well as the
media.91 Nazarbayev routinely engages in managing information and discouraging opposition
while encouraging pro-regime authorities.
His family has used his position to wield significant influence and throughout the
country. While this is the most significant network, numerous other networks exist.92 Routine
high-profile corruption scandals involving government officials have become a normal fixture
within the political community, but these accusations of corruption are used by warring political
89
Chala, Endalkachew. Interview by Jack Brosnan. Washington, DC, February 22, 2016.
“Samuel Tafesse Flashes His Wealth – in America,” Ethiopian Review, August 24, 2010,
http://www.ethiopianreview.com/index/28922.
91
The Economist, “No Choice,” April 4, 2015. There are virtually no opposition parties who have ever run
against Nazarbayev. He frequently moves forward presidential elections in snap elections, not to contest the current
leadership, but to demonstrate his populous support as well as give an impression that the government is attempting
to highlight the nation’s economic problems and that political change is welcome.
92
Other networks are the “old guard” and regional and clan heads. The old guard consists of a group of
political elites leftover from the Soviet era Nazarbayev has kept in positions of power around him. The regional and
clan heads are the lesser-powerful group, not independently powerful since they are all appointed by the president.
90
30
factions to remove rivals from power.93 All influential political and economic players publically
loyal to Nazarbayev yet are highly fragmented, competing among themselves for influence and
resources, resulting in primarily horizontally integrated kleptocratic networks.94
As time moves forward the question of President Nazarbayev’s successor and fate of the
nation has loomed overhead.95 When Nazarbayev eventually departs from power, a complex and
destabilizing power struggle will most likely erupt between major business groups, powerful
presidential relatives, and influential individuals. Adding to a potentially catastrophic outcome is
the growing financial crisis in Central Asia, prompted by the drastic fall in oil prices. Once rich
with cash when crude was $100 a barrel, oil has accounted for more than 50 percent of the
nation’s budget revenue. In the new era of cheap oil, Kazakhstan’s leadership has grown worried
about potential populous opposition, as inflation has risen to 15 percent as the currency recently
lost 45 percent of its value.96
Kazakhstan is also surrounded by other former satellite states who have proven to have
unstable regimes and is in a region which is an important route for Afghan drugs making their
way to European markets. The Kyrgyz-Kazakh border is extremely porous, and has created
ample opportunity for criminal organizations to traffic drugs and human cargo with little
resistance from authorities. Officials have been known to engage in establishing protection
rackets for traffickers as well as legitimate businesses crossing the borders, as well as turning a
93
Global Witness, comp. Mystery on Baker Street. Publication. London: Global Witness, 2015. In 2007,
there was a falling out with Nazarbayev, with Rakhat Aliyev, his son-in-law and once rumored potential successor.
Rakhat fled the country as Kazakh authorities charged him with the murder of Kazakh opposition leader, Altynbek
Sarsenbayev, as well as two cases of kidnapping. Rakhat claimed they were politically motivated. In February 2015,
he was found dead in an Austrian jail cell.
94
Stodghill, Ron, “Oil, Cash and Corruption,” The New York Times, November 5, 2006. The most
notorious of corruption scandals, “Kazakhgate,” involved channeling more than $78 million in bribes to Mr.
nazarbayev and the head of the nation’s oil ministry. The money was given by American companies wanting access
to Kazakhstan’s oil reserves, and went towards the purchase of expensive jewelry, fur coats, and speedboats.
95
Michel, Casey. Interview by Rebecca Palizza. Washington, DC, March 18, 2016.
96
Nurshayeva, R., & Afanasyeva, A, “Kazakhstan nervous of tougher Russia/Ukraine oil sanctions,”
Reuters. April 8, 2014.
31
blind eye.97 Drug seizures are virtually non-existent, if they do occur, it accounts for
approximately less than 1% of the total estimated flow going through the country.98
Adding to potential unrest is the simmering ethnic tension between the Russian minority
who make up approximately 24% of the population and the Kazakh majority. The government is
known to discriminate in favor of ethnic Kazakhs in senior government employment and
minorities, not only Russians, experience ethnic prejudice and hostility, including insults,
humiliation, and discriminations against employment and job retention.99 The tension existing
between Russians and Kazakhs have left the Russians feeling marginalized, as there has been a
significant reduction in the number of Russian-language schools, even though the language
maintains official status.100
While Kazakhstan is eager to be seen as tackling corruption, these initiatives purely exist
on theory and has proven difficult to actually combat. This has resulted in a pervasive social
perception that the use of state’s resources for the enrichment of one’s family, friends, and
personal networks is natural and inescapable.101 As the population is resigned to the existence of
corruption, the many have become skeptical of the government’s claims to deliver on promises
of democratic development, creating a crisis of confidence and potentially fueling future unrest
in the country.102
97
Nurgaliyev, Bakhyt, Kuatzhan Ualiyev, and Branislav Simonovich, 2015, "Police Corruption in
Kazakhstan: The Preliminary Results of the Study," Review of European Studies 7, no. 3 140.
98
UNODC, “Opiate Flows Through Northern Afghanistan and Central Asia,” United Nations, 2012.
99
Significant ethnic populations include Turkish, Kyrgyz, Uzbek, Ukrainian, German, Tartar, Korean,
Chechen, and Uygur.
100
Kazakhstan has three official languages, Kazakh, Russian, and English.
101
Lillis, Joanna. Interview by Rebecca Palizza. Washington, DC, March 31, 2016.
102
Civil liberties, including the right to public protest have been curtailed, including authorities clamping
down on rallies that have erupted in protest of the current mortgage crisis. The three remaining independent media
outlets have been closed as well as continued raids on places of worship and arrests of religious leaders.
32
Moldova
Moldova’s one main kleptocratic network is headed by Vladimir Plahotniuc, a private,
wealthy Moldovan businessman. Although Plahotniuc has controlled many state institutions
since 2009, he captured full control of the state in October 2015 when he directed anti-corruption
police to arrest his main political rival.103 His network is horizontally integrated, crossing over
both public and private sectors. Plahotniuc uses payments and blackmail to control Moldova’s
prime minister, parliament, judiciary, law enforcement, national anti-corruption center, Ministry
of Economy, national bank, and election authority, as well as private-sector businesses, banks,
and media.104 One of Plahotniuc’s primary ways of capturing public funds is to direct officials in
the Ministry of Economy to require that Moldovans use an unnecessary intermediary company to
import a certain good, raising the price of the good and allowing government capture of the tariff
amount. Government contracts are also routinely inflated and awarded to in-network companies;
telecommunications, railways, metals trade, and bakeries are key sectors for Ministry of
Economy schemes.105 In addition, large-scale theft has recently occurred when Plahotniuc’s
partners who lead private banks made a series of large, intentionally bad loans to shell companies
that are part of the kleptocratic network. Private bankers also allow their banks to expose
themselves to large risks, and the banks come close to collapse and must be bailed out by the
state.106 Bribed judges protect banking, customs, and other officials from prosecution. The
network’s key enforcement arms are the national anti-corruption center and law enforcement
103
Vladimir Socor, “Moldovan Political Leader Filat Arrested in Intra-Coalition Coup,” Jamestown
Foundation, October 19, 2015.
104
Vladimir Socor, “Plahotniuc’s Power Base in Moldova: Allies and Instruments (Part One),” Jamestown
Foundation, January 12, 2016.
105
Information compiled from multiple sources. For example, see Vladimir Socor, “Plahotniuc’s Power
Base in Moldova: Allies and Instruments (Part Two),” Jamestown Foundation, January 12, 2016, and “Mysterious
company from Switzerland, to which Moldovans pay for international calls,” Jurnal.md, December 30, 2015.
106
Paul Radu, Mihai Munteanu, and Iggy Ostanin, “Grand Theft Moldova,” Organized Crime and
Corruption Reporting Project, July 24, 2016.
33
bodies, which are known to compile files containing compromising materials on other officials
and which pursue anti-corruption cases when deemed necessary.107
The network is also vertically integrated: portions of bribes captured at low levels of
government are passed upward to ministerial levels, and high-level officials protect subordinates
from anti-corruption reforms or criminal prosecution. For example, portions of bribes paid to
teachers in exchange for higher grades are passed to the ministry head, and the ministry directs
the judiciary to block reforms that would cause corrupt teachers to lose their jobs.108 Bribery is
most rampant in the judicial, health, and education fields.109 Key revenue streams include trade
misinvoicing, skimming from government contracts, deposits diverted from private banks,
bribes, and foreign donor assistance.
Key international havens for illicit revenues include shell companies in Scotland, Cyprus,
the Netherlands, and the U.S. State of Delaware.110 In 2015, the IMF, EU, and World Bank froze
all foreign aid to Moldova after expressing concern over a lack of anti-corruption and judicial
reforms.111 The U.S. however, continues to support and provide aid to the nominally proEuropean government that is unofficially led by Plahotniuc.112 Mass public protests against
public corruption and Plahotniuc in the capital, Chisinau, peaked in January 2016.113 The
government has since reassert control, but external donors have provided the government with
107
108
2016.
30.
109
110
Socor, “Plahotniuc’s Power Base in Moldova: Allies and Instruments (Part One).”
Former high-level official in Moldova Ministry of Education, in discussion with the author, March
“National Integrity System Assessment Moldova 2014,” Transparency International Moldova, 2014,
Radu, Munteanu, and Ostanin,
Kinga Jaromin, “EU freezes funding for Moldova,” EurActiv, July 20, 2015.
112
“Congressional Budget Justification, Foreign Operations, Appendix 3, Fiscal Year 2017,” United States
Department of State, February 2016.
113
Vladimir Socor, “Regime Change in Moldova: Accomplished but Not Irreversible,” Jamestown
Foundation, January 21, 2016.
111
34
lists of demanded reforms, and as of March 2016 civil society groups were calling for snap
parliamentary elections.
Conclusion
The structure and operations of kleptocratic networks identified in the 10 case studies
reveal that acute corruption is not a result of state failure but a functioning system in which
ruling networks use state institutions to capture specific revenue streams for self-enrichment.
This disputes current anti-corruption policies, which focus on capacity building and make a
sweeping assumption that corruption is a result of government inadequacy to achieve measurable
or sustainable results. Moreover, networks in Honduras, Mexico, and Pakistan reveal that
corruption contributes toward both, cooperative relationships between the state and transnational
organized crime networks. As demonstrated in Iceland and Moldova, kleptocracy causes
economic disruptions. Security crises and corruption morph daily and they do not know
boundaries. This is most evident in the success of transnational criminal networks in Central
America and the United States as well as in the existence of foreign actors as enablers of
corruption in each case study. Finally, social uprisings against corruption in countries that
experience one or more risk factors unrelated to corruption, like Guatemala and Kyrgyzstan,
underscore Sarah Chayes’ argument that systemic corruption combined with other political,
social, economic risk factors evokes anger in populations and run the risk of a socially disruptive
security challenge.
In conclusion, similarities amongst the 10 countries studied prove that corruption
manifests in different ways and it is linked to disruptive social unrest. Policy makers, aid donors,
and corporations will enhance current generic anti-corruption and counter terrorism policies by
developing an in-depth understanding of corruption as a functioning system, which, Sarah
35
Chayes argues, will contribute to a more accurate calculation of the real trade-offs when foreign
policy and investment priorities compete; depict a more detailed picture of how different
interventions play out in environments marked by acute corruption; and prevent donors and
governments from becoming unwitting supporters of corrupt regimes thereby undermining their
counter terrorism efforts.
36
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