Pakistan: Is PM Khan's government more corrupt than previous administrations?

Transparency International has ranked Pakistan 140th out of 180 countries in its latest Corruption Perceptions Index report. This deals a blow to Imran Khan, whose party promised to eradicate corruption from the country.


Khan presented himself as an 'alternative' to traditionally 'corrupt' politicians

The perception of corruption in Pakistan has worsened since Imran Khan came to power in 2018, according to Transparency International (TI).

In its Corruption Perceptions Index (CPI) 2021, the Berlin-based watchdog ranked the South Asian country 140th out of 180 countries, with 180th being the most corrupt country in the world.

Pakistan was ranked 124th in 2020, 120th in 2019, and 117th in 2018.

TI has been compiling the corruption index since 1995. It is based on 13 different sources that depict perceptions of corruption within the public sector, including experts and business people.

The sources also include the World Bank, the World Economic Forum, and private risk and consulting firms.

According to the CPI 2021, the "deteriorating rule of law" and "state capture" are the main reasons behind a significant rise of corruption in Pakistan.

Before coming to power in 2018, Khan, a populist politician, regularly cited TI's CPI as an "evidence" to malign his political opponents, mainly former Prime Minister Nawaz Sharif.

Khan's politics continue to revolve around punishing "corrupt politicians," who, according to him, are impeding Pakistan's progress.

Tables have turned

But the corruption perception has become starker since Khan took the reins. Thus, the latest TI report presents a chance for opposition leaders to mock Khan.

Shehbaz Sharif, opposition leader in the National Assembly (Pakistan's lower house of parliament), said in a tweet that Khan's government "has broken all records of corruption in the last 20 years," adding that when his brother Nawaz was in power, corruption had decreased in the country.

Shahid Khaqan Abbasi, a former prime minister associated with the opposition Pakistan Muslim League (Nawaz) party, told DW that corruption is all-time high under Khan's government.

He dubbed it "unprecedented" in Pakistan's history.

Zulfiqar Ali Bader, a spokesperson for the Pakistan People's Party chairman Bilawal Bhutto Zardari, said the prime minister must step down after the publication of the CPI report.

But Information Minister Fawad Chaudhry played down the seriousness of the issue and told DW that Pakistan's low CPI score was not due to financial corruption in the country. Still he admitted, "Yes, we need reforms in the areas of the rule of law and state capture as mentioned in the report."

Why is corruption increasing in Pakistan?

Analysts cite a myriad of reasons behind rising corruption in Pakistan.

"Transparency International makes a strong case that one can't divorce anti-corruption issues from the broader issue of democracy. When democracy takes a hit, anti-corruption efforts struggle because it's in strong and robust democracies where you can most expect to see transparency and probity," Michael Kugelman, a South Asia expert at the Washington-based Woodrow Wilson Center for Scholars, told DW.

"Pakistan's democratic backsliding, in effect for quite some time, has constrained anti-corruption," he added.

Elaborating on the issue of democratic backsliding, Amber Shamsi, a political analyst and journalist, said the CPI reflects the perceptions related to human rights violations, attacks on journalists and deteriorating rule of law in the country.

"There is no across-the-board accountability in Pakistan. Dozens of opposition figures were accused of corruption and put behind bars, but they have not been prosecuted," she told DW.

But Benazir Shah, a political analyst, says the CPI reports are not always accurate.

"The report is limited [in its scope] because it only takes into account the perception of corruption within the public sector, leaving out the private sector. Also, corruption [rates] within a country vary from city to city and sector to sector, which means that one ranking or score for a country can be misleading," she said.

Learning the hard way

Regardless, the Transparency International report has done a lot of damage to PM Khan's reputation as an "anti-graft crusader." Experts say it could even hurt him in the 2023 general elections.

"Khan's political identity is interwoven with the anti-corruption issue. The new TI report, in that regard, is problematic," according to Kugelman.

"The premier and his allies will seek to shrug off the TI rankings as an anomaly, or as a foreign conspiracy to malign Pakistan. In an ideal world, though, he and his party allies would introspect on the implications of these rankings. They say a lot not just about Pakistan's corruption challenge, but also about the democratic backsliding that exacerbates the corruption challenge," he added.

Khan's failure to revive the country's economy is already causing him political problems. Along with tax increases and higher energy prices, Pakistanis are also facing rising inflation, as the purchasing power of the rupee decreases. Pakistan's inflation rate hit 11.5% last November. The rupee also is also trading at record lows against the dollar.

"Khan's government has failed to deliver. There is no rule of the law [in the country], and he is suppressing opposition parties and curbing civil freedoms," said former PM Abbasi.

But Kugelman says there are no quick fixes to Pakistan's economic problems.

"Khan may have a genuine commitment to combat corruption, but the sheer scale of the problem — not to mention the power of vested interests that don't want a change in the status quo — underscores that this continues to be an uphill battle. Anti-corruption is one of those goals that is so much easier to envision when in the opposition than inside the system. Khan has learned that the hard way," he said.

WHO IS IMRAN KHAN, PAKISTAN'S PRIME MINISTER?

Affluent upbringing

Imran Khan was born in Lahore in 1952, the son of a civil engineer. Khan grew up with his four sisters in a relatively affluent part of the city. He received a privileged education, first in his hometown and then in Worcester, England. It was there that Khan's love and talent for the game of cricket became evident. In 1972, he enrolled at Oxford University to study politics and economics.

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VOICE OF XI
Global Times editorial: 

Anti-corruption, the vital starting point from where the world understands CPC


BEIJING, Oct. 19, 2022 /PRNewswire/ -- General Secretary of the Communist Party of China (CPC) Central Committee Xi Jinping stressed in a report to the 20th CPC National Congress that the CPC must meet the overall requirements for Party building in the new era and improve the system for exercising full and rigorous self-governance. Among them is "winning tough, protracted battle against corruption." Since the 18th CPC National Congress in 2012, the country's discipline inspection and supervision authorities have filed more than 4.6 million cases, with formal criminal cases brought against 553 centrally administered officials, 25,000 officials of leading roles of departments or equivalents and 182,000 officials at the county level. The "battle against corruption on a scale unprecedented in history" has achieved overwhelming victory and been fully consolidated.

People have noticed that the topic of anti-corruption has become less popular compared with 10 years ago, which is the true manifestation of the overwhelming victory in the fight against corruption at the social level. Relevant social controversies have become less, which shows that they have more trust and confidence in the anti-corruption work of the Party and the country. The iron-clad facts convince people that anti-corruption can be carried out so thoroughly - no one can be exempted, no matter the region or field, no matter in-service or retirement. Corrupt officials are bound to be held accountable. Now, who would consider this "a campaign-style approach to anti-corruption"? Who dares not to be in awe of the Party's Eight-Point Regulation?

If we look back today, we can feel more of the weight of the anti-corruption pledge Xi made after the 18th CPC National Congress, "No matter who it is, or how senior their position, if they violate Party discipline or national law, they will be seriously dealt with and punished. This is not an empty sentence." Frankly speaking, 10 years ago, there were indeed many people who doubted the CPC could completely fight corruption, and they even thought it was unsustainable. Corruption is a chronic disease that has not been eradicated in human society for thousands of years. It is still a common problem faced by all countries, especially in the process of industrialization. How will the CPC solve it?

The deterrence of "don't dare to be corrupt" is fully demonstrated, the cage of "can't be corrupt" is getting firmer, and the consciousness of "don't want to be corrupt" has been significantly enhanced. The overwhelming victory in the fight against corruption profoundly shows that the CPC is a party that has the courage to reform itself and fighting corruption is the most thorough kind of self-reform there is. In reality, a large number of developing countries have fallen into political turmoil due to the difficulty in solving the problem of corruption, and their economic and social development has also stagnated, while Western political parties are generally inseparable from capital, and they even speak on behalf of capital. "Legalizing corruption" and "compromising to corruption" are what many people think of Western polities.

Against this background, the great achievement the CPC has made in fighting corruption by relying on its institutional and legal advantages in the new era is not only historic, but also of global significance.

In the decade of the new era, the people's satisfaction with the construction of a clean government and anti-corruption work has risen from 75 percent 10 years ago to 97.4 percent. In this process, many misunderstandings have been corrected. The fantasies of "getting rich and being promoted" have fallen flat, and the admonition that "being an official and getting rich must be separated" is awakening; a large number of stubborn and chronic diseases have also been eliminated. The corruption on the tip of the tongue, the corruption on the wheel, and the unruly customs in the clubhouse have been lambasted. A few years ago, when the world was paying attention to China's miracle, Singapore's Lianhe Zaobao reiterated that in addition to the story of economic growth, China has a story that may be "less eye-catching" - a story of restoring civilization.

The reason why the CPC dares to reform itself is not only courage, but also its nature - it represents the fundamental interests of the vast majority of the Chinese people, it has no special interests of its own, and it never represents the interests of any interest groups, any power groups, or any privileged class.

It is precisely in order to ensure that the Party "preserves its essence, color and character" that came the political courage of "offending a few thousand rather than fail 1.4 billion," and the various campaigns of "fighting tigers," "swatting flies" and "hunting foxes." This is not only a vivid reflection of the purpose and nature of the CPC, but also an important starting point for the outside world to observe and understand the CPC in the new era.

In his report to the 20th CPC National Congress, Xi said, "As long as the breeding grounds and conditions for corruption still exist, we must keep sounding the bugle and never rest, not even for a minute, in our fight against corruption. "In a sense, the fight against corruption is also credibility building. The political commitment of the CPC is by no means just a lip service. The political character of fitting its deeds to its words and the political ability to do what it says are also demonstrated through the fight against corruption. Since the 18th CPC National Congress, the CPC in the new era has united and led the people to achieve the set goals with its unswerving commitment, be it the fight against poverty, the protracted battles of preventing and resolving financial risks, or the battle to bring back blue skies.

"It takes 10 years to forge a perfect sword." Time will continue to prove that with the Party's self-reform leading the social reform, the CPC has not only a clear attitude, but also real actions. This kind of endowment and characteristics and this vision and responsibility are the development logic and victory code of the world's largest ruling party.

Global Times: https://www.globaltimes.cn/page/202210/1277441.shtml

Cision

View original content:https://www.prnewswire.com/news-releases/global-times-editorial-anti-corruption-the-vital-starting-point-from-where-the-world-understands-cpc-301653178.html

SOURCE Global Times

PAKISTAN

Costs of corruption
Huma Yusuf

DWAN.COM

Published December 13, 2021 

WE were promised Riyasat-i-Madina. Instead, Transparency International’s National Corruption Perception Survey, conducted this year across all four provinces, reiterates how rampant corruption is in Pakistan. The report’s findings have already warranted economic and political analysis. But it’s time we also focused on the social consequences of endemic corruption.

TI’s survey found that 85.9 per cent of respondents consider the government’s self-accountability to be lacking. More tellingly, a majority (66.8pc) believe the government’s accountability drive is biased. The drivers of corruption are perceived to be weak accountability (according to 51.9pc of respondents) and the insatiable greed of the powerful (29.3pc). And almost 73pc of surveyed Pakistanis believe that the lack of local government structures has spurred public-sector corruption at the grassroots level.

The economic costs of rampant corruption are well known. Almost a decade ago, then NAB chairman Fasih Bokhari estimated that Pakistan loses around Rs7 billion per day to corruption. One can only imagine what that figure is today. Studies have also shown that corruption stunts economic growth (while making it less inclusive), limits tax revenues and deters both domestic and foreign investment. Corruption doesn’t just skew income distribution, it makes us all poorer.

The political costs are also apparent. The government maligned the opposition with charges of corruption, and now it faces the same allegations. Writing in The Friday Times, Najam Sethi last week described the perception statistics in TI’s report as a “damning indictment of the PTI regime”. He also implied that political corruption breeds corruption, arguing that the prime minister’s current attempts to undermine and browbeat the ECP are likely in anticipation of indictment in the foreign funding case. That long-running drama, which is now nearing conclusion, may reveal some PTI members to have diverted and benefited from foreign financial flows.

Corruption doesn’t just skew income distribution, it makes us all poorer.

The findings of the foreign funding case and the ECP showdown will lead to more political instability, and the revolving door of corrupt Pakistani leaders will continue to turn. And that’s why we must instead prioritise the social implications of rampant corruption.

TI’s report shows that the police (41.4pc), judiciary (17.4pc) and public procurement (10.3pc) are considered the most corrupt sectors. And sadly, in the year after a pandemic, the health sector has climbed to fourth place (the auditor general’s report last month claiming irregularities of up to Rs40bn in finances meant for the country’s coronavirus response may have caused this ranking to climb even higher). Respondents also emphasise the burden of paying a bribe to receive public services (such as water and sanitation). And the judicial backlog looms large, with more than 46,000 cases pending at the Supreme Court, and more than 1.7 million at district courts.

The institutions perceived as the most corrupt are those citizens turn to for security, justice, well-being and basic service provision. That most Pakistanis believe the state’s most fundamental offerings to be corrupt explains why there’s such little public trust in the Pakistani state. If daily interactions — basic expectations, and the only hope for recourse — are marred by venality, then how can there be trust in the state? Why shouldn’t it be reconceived as an extractive and exploitative service provider to protect and enhance the interests of the few at the expense of the many?

Here’s the rub. When you don’t trust the state, you turn elsewhere. To religious movements or violent extremist groups that offer alternative narratives of righteousness and restore your sense of empowerment. It may seem like a stretch to link perceptions of corruption with Priyantha Diyawadana’s brutal lynching, but it’s not.

Studies coming out of the US show that perceptions of corruption are higher among marginalised or discriminated against groups that are less likely to have access to power, political representation or justice. The widespread experience of corruption in Pakistan also likely drives feelings of marginalisation, which, when not routed through healthy channels (local government, civil society activism, student politics) increase susceptibility to radical thought and extremist movements. Enter the TLP. Other studies have established links between corruption and ethnopolitical violence.

The first formal response to the TI report has been the acceptance in a Gujranwala court of a petition against TI’s chairperson for targeting the judiciary. Rather than trying to silence the messenger, our state institutions need to heed the message. Corruption must be meaningfully tackled not just to drive prosperity and ensure political stability, but to prevent Pakistan’s social fabric from fraying any further.

The writer is a political and integrity risk analyst.

Transparency International: 

Wide corruption gap between low and high performing countries in Europe
Friday, 29 January 2021


Corruption Index 2020, credit: Transparency International

Transparency International published this week its annual Corruption Perception Index (CPI) covering 180 countries. A majority of countries are showing little to no improvement in 2020 in tackling corruption.

Last year, just before the outbreak of the coronavirus crisis, the organisation underlined that corruption is more pervasive in countries where big money can flow freely into electoral campaigns and where governments listen only to the voices of wealthy or well-connected individuals. This time, Transparency International (TI) focuses on the impact of corruption on the fight against COVID-19.

Persistent corruption is undermining health care systems and contributing to democratic backsliding amid the COVID-19 pandemic. Countries that perform well on the index invest more in health care, are better able to provide universal health coverage and are less likely to violate democratic norms and institutions or the rule of law.

”The pandemic has tested the limits of Europe’s emergency response, and in many cases, countries have fallen short of full transparency and accountability,” a spokesperson of TI’s EU office told The Brussels Times. Based in Berlin, TI aims at fighting corruption globally and has branches all around the world.

“In Hungary for example, which is one of the lowest scoring countries in the EU, the government has been repeatedly called out for attempting ‘power grabs’ during the crisis. These ‘emergency measures’ were also a big concern for civil society in Hungary.”

Among the Visegrád countries, Hungary’s anti-corruption performance has deteriorated the most since 2012. You are still expected to pay under the table for medical care but this form of petty corruption might disappear with newly announced salary increases for physicians, one of the few positive notes.

The index ranks the countries by their perceived levels of public sector corruption, according to experts and business people. It uses a scale of zero to 100, where zero is highly corrupt and 100 is very clean. A score under 50 indicates a serious problem.

Denmark and New Zealand top the index, with 88 points. War-torn countries and countries suffering prolonged political-economic crises, such as Afghanistan, Iraq, Libya, Syria, Somalia, Sudan, South Sudan, Yemen and Venezuela come last, with points ranging from 12 to 21.

Nearly half of countries have been stagnant on the index for almost a decade, indicating stalled government efforts to tackle the root causes of corruption. More than two-thirds score below 50.

Are the countries with a CPI below 50 corrupt or just countries with more corruption than those above 50? “The CPI does not categorise countries as ‘corrupt’ or ‘clean’ but rather puts them on a scale,” a spokesperson of the TI office in Berlin replied.

With an average score of 64 (a decrease by two points compared to 2019), the European Union (EU) is among the highest performing regions on the CPI, but is under enormous strain due to COVID-19 and rule of law crises. Denmark (88) is hitting the top spot, followed by Finland (85), and Sweden (85). Conversely, the lowest performers from the region are Romania (44), Hungary (44) and Bulgaria (44).

The best performing country among the member states that joined the EU in 2004 is Estonia with a score of 75 points, well before older member states such as Greece (50), Italy (53), Portugal (61) and Spain (62).

Countries at the top and the bottom

Countries with the highest scores in the ranking are not immune to corruption. Some of them have been rocked by money laundering scandals and other private sector corruption in trade with third countries.

“There are major gaps in the oversight of the financial industry in top-scoring countries,” according to TI. “Scandals from recent years have shown that banks in Denmark, Norway and Sweden have become easy targets of corrupt actors from around the world.”

The money-laundering scandal involved the Estonia branch of Danske Bank, the biggest lender in Denmark. New evidence that came to light last year has also revealed glaring gaps in oversight over Nordic banks, including in Sweden.

The shortcomings in supervision of the financial sector is a problem many top-performing countries face. In Germany, following the Wirecard scandal, for example, the authorities could not decide who should have been responsible for supervising the fintech company. “No country is safe from corruption, and we must keep up the fight against it to avoid backsliding.”

As regards the candidate countries, Turkey and the Western Balkans, the situation is even worse. Besides Montenegro (45) and Turkey (40), all of them have scores below 40. Worrying are the low scores in Albania (36) and North Macedonia (35) that soon are expected to start accession negotiations with the EU.

Has the fight against corruption been neglected during the pandemic?

”With an average score of 36, Eastern Europe and Central Asia is the second-lowest performing region on the CPI and vulnerable to corruption compounded by COVID-19,” the EU office of TI replied.” With a score of 38, Serbi earned its lowest score since 2012. The country’s biggest corruption challenges include serious rule-of-law issues, continued democratic erosion and efforts to silence critical voices.”

One interesting thing to note is that some countries in this region score better than EU member states. Georgia (56), Armenia (49) and Belarus (47), all have higher scores than Hungary, Bulgaria and Romania (44).

It is true that the validity of the ranking for a certain year and country can be put into question. However, the lack of improvement over time, despite EU support, does give rise to a useful debate on underlying casual factors and actual corruption cases.

The perception index cannot easily be dismissed as subjective. The index is based on several assessments made by banks and rating institutes. Perception matters. If a government or public administration is perceived as corrupt, citizens will have less trust in them and foreign investors may stay away.

M. Apelblat
The Brussels Times

New research explores how multinational firms can manage corruption

by Emily Collins, Lehigh University

Credit: CC0 Public Domain

For many developing countries, it is difficult to break the cycle of corruption on their own. Historically, multinational firms have assumed that they have two options available when dealing with corruption in developing countries: "play the game," meaning pay bribes or engage in corrupt activities, or "leave the table" by avoiding investing in countries where corruption is widespread. New research from Charles E. Stevens, associate professor of management in Lehigh's College of Business, shows firms taking a third approach-managing corruption by promoting positive engagement with the host country.


The study, "Avoid, acquiesce ... or engage? New insights from sub-Saharan Africa on MNE strategies for managing corruption," funded by a Social Sciences and Humanities Research Council of Canada grant, is published in the latest issue of Strategic Management Journal.

Using an inductive, qualitative research design, Stevens, in collaboration with Aloysius Newenham-Kahindi, associate professor at the University of Victoria, was able to better understand how and why issues relating to corruption arose and how firms dealt with them. According to Stevens, firms may typically "tread lightly," but his research shows firms having success by making deeper, long-term commitments.

"Within the last decade, a number of developing country firms, many of them from China, were taking a different approach that we termed an engagement strategy that, in many ways, was unexpected and counter-intuitive because it tended to involve greater commitment and greater investment to countries where there was more corruption," said Stevens.

Stevens and Newenham-Kahindi were curious to see if these firms were less concerned with corruption, but research found that was not the case.

"Many of these firms were following rather interesting and complex strategies, many that involved multiple actors that were designed at minimizing the ability of host-country actors to request bribes by maximizing their bargaining power or by minimizing the motivation of host-country actors to request bribes by increasing their legitimacy," explained Stevens.

Facing challenges related to studying corruption due to the illegal activity often being hidden, Stevens and Newenham-Kahindi surveyed those who experience dealing with corruption directly. Among those interviewed for the study were 445 individuals representing industries such as construction, mining, manufacturing, energy, and telecommunications in both developed and developing country firms; 126 host country government officials and employees; 34 local private sector employees; 44 local institutional researchers; and 142 members of the general public.

According to Stevens, this paper fills an important gap in corruption literature by increasing the understanding of the options and strategies that firms have at their disposal when they invest in countries where corruption is a greater problem.

With this study, the researchers are hoping to change policies and practices by both firms and governments.

"We hope that this research allows firms, governments, and the general public to achieve economic prosperity, reduce corruption, and create mutually-beneficial solutions through investment and growth," said Stevens. "Firms shouldn't automatically be afraid to invest in countries where risks like corruption are present. Such countries present many challenges, but for firms that go in with a comprehensive plan, are prepared to make a long-term commitment, and find ways to leverage partnerships with governments and other firms, the rewards can be worth the risks."

Explore further

State-level public corruption affects firm value, transparency: study

More information: Charles E. Stevens et al, Avoid, acquiesce … or engage? New insights from sub‐Saharan Africa on MNE strategies for managing corruption, Strategic Management Journal (2020). DOI: 10.1002/smj.3228

Provided by Lehigh University

New research explores how multinational firms can manage corruption

Findings from Lehigh University College of Business professor provides unique insights on ways multinational firms can manage corruption

LEHIGH UNIVERSITY

Research News

 

IMAGE: CHARLES E. STEVENS IS AN ASSOCIATE PROFESSOR OF MANAGEMENT IN LEHIGH UNIVERSITY'S COLLEGE OF BUSINESS view more 

CREDIT: CHARLES STEVENS/LEHIGH UNIVERSITY

For many developing countries, it is difficult to break the cycle of corruption on their own. Historically, multinational firms have assumed that they have two options available when dealing with corruption in developing countries: "play the game," meaning pay bribes or engage in corrupt activities, or "leave the table" by avoiding investing in countries where corruption is widespread. New research from Charles E. Stevens, associate professor of management in Lehigh's College of Business, shows firms taking a third approach-managing corruption by promoting positive engagement with the host country.

The study, "Avoid, acquiesce ... or engage? New insights from sub-Saharan Africa on MNE strategies for managing corruption," funded by a Social Sciences and Humanities Research Council of Canada grant, is published in the latest issue of Strategic Management Journal.

Using an inductive, qualitative research design, Stevens, in collaboration with Aloysius Newenham-Kahindi, associate professor at the University of Victoria, was able to better understand how and why issues relating to corruption arose and how firms dealt with them. According to Stevens, firms may typically "tread lightly," but his research shows firms having success by making deeper, long-term commitments.

"Within the last decade, a number of developing country firms, many of them from China, were taking a different approach that we termed an engagement strategy that, in many ways, was unexpected and counter-intuitive because it tended to involve greater commitment and greater investment to countries where there was more corruption," said Stevens.

Stevens and Newenham-Kahindi were curious to see if these firms were less concerned with corruption, but research found that was not the case.

"Many of these firms were following rather interesting and complex strategies, many that involved multiple actors that were designed at minimizing the ability of host-country actors to request bribes by maximizing their bargaining power or by minimizing the motivation of host-country actors to request bribes by increasing their legitimacy," explained Stevens.

Facing challenges related to studying corruption due to the illegal activity often being hidden, Stevens and Newenham-Kahindi surveyed those who experience dealing with corruption directly. Among those interviewed for the study were 445 individuals representing industries such as construction, mining, manufacturing, energy, and telecommunications in both developed and developing country firms; 126 host country government officials and employees; 34 local private sector employees; 44 local institutional researchers; and 142 members of the general public.

According to Stevens, this paper fills an important gap in corruption literature by increasing the understanding of the options and strategies that firms have at their disposal when they invest in countries where corruption is a greater problem.

With this study, the researchers are hoping to change policies and practices by both firms and governments.

"We hope that this research allows firms, governments, and the general public to achieve economic prosperity, reduce corruption, and create mutually-beneficial solutions through investment and growth," said Stevens. "Firms shouldn't automatically be afraid to invest in countries where risks like corruption are present. Such countries present many challenges, but for firms that go in with a comprehensive plan, are prepared to make a long-term commitment, and find ways to leverage partnerships with governments and other firms, the rewards can be worth the risks."

###

Ukraine's parallel war on corruption to unlock door to West

U.S. President Biden welcomes Ukraine's President Zelenskiy at the White House in Washington


Dan Peleschuk
Thu, December 22, 2022

KYIV (Reuters) -To an outsider, it may seem an unlikely time for Ukraine to double down on the battle against corruption, as missiles rain down on cities and citizens fight for their lives.

Nonetheless, anti-graft agencies have revived a years-old investigation into an official scheme they say led to electricity customers overpaying by more than $1 billion, plus a case that stalled in 2020 into the alleged theft of over $350 million in assets and funds from a state-controlled oil company.

They've launched new actions too, including this month the arrest in absentia of an ex-state bank boss over his suspected role in the embezzlement of $5 million. He denies wrongdoing.

"Every week, there are one or two big developments plus seven or eight smaller ones that are still important," said legal expert Vadym Valko, who monitors the work of anti-corruption authorities in Ukraine, which is fighting to rid itself of oligarchs and strengthen its vulnerable institutions.

The activity reflects a parallel war Kyiv is waging against high-level graft, according to Reuters interviews with half a dozen Ukrainian anti-corruption monitors and officials. The drive is deemed urgent enough for the government to devote resources to, even during Russia's invasion.

Indeed, anti-corruption agencies flag their work almost daily in a flurry of statements and social media posts. In November alone, they reported having launched investigations into 44 new criminal cases, issued 17 notices of suspicion to people being investigated and sent six indictments to court.

In 2022, prosecutors have filed at least 109 indictments in 42 cases, the Specialized Anti-Corruption Prosecutor's Office (SAPO) told Reuters, adding that 25 convictions had been handed down.

The work can't wait, according to the people interviewed, because curbing endemic corruption is key to reassuring Western partners preparing to send tens of billions of dollars of aid that will be needed to rebuild the country in coming years.

It would also be crucial, they say, to winning a status that guarantees Ukraine's long-term security from any future aggression: membership of the European Union, which says getting on top of graft is a must for candidacy talks to begin.

"It's extraordinarily important right now for Ukraine to demonstrate itself as a predictable partner," said Yaroslav Yurchyshyn, first deputy head of the parliamentary committee on anti-corruption policy, referring to Western donors.

"In reality there are two wars going on in Ukraine at once: an open one with Russia, and another with the post-Soviet corrupt past that's happening within."

ZELENSKIY ON BOARD

The anti-corruption drive is backed by President Volodymyr Zelenskiy, who vowed this month that Ukraine would fight both high-level corruption and Russia's invasion at the same time.

"The story of reform continues," the actor turned wartime leader, who was elected in 2019 on pledges to clean up Ukraine, said in his nightly address.

"It continues even during this kind of war."

Anti-corruption efforts, which continued after the Feb. 24 invasion, were stepped up over the summer under a new director of SAPO, according to the experts and officials.

Oleksandr Klymenko took the position in July after Zelenskiy publicly demanded that his appointment be confirmed because the committee that had selected him more than half a year earlier still hadn't formally signed off on the move.

"Without a full-fledged head of such an institution, its full-fledged functioning is impossible," Zelenskiy said at the time.

Klymenko has provided the administrative muscle to kickstart some cases that had been gathering dust, while also advancing new ones, the people said.

For example, SAPO announced in late September that Klymenko had reopened the case over the scheme that allegedly overcharged electricity consumers. It had been repeatedly opened and closed for two years due to procedural errors and shortcomings, SAPO prosecutors said at the time of the hold-ups.

In announcing its revival, Klymenko's office said the case files hadn't been reviewed by prosecutors thoroughly enough and assigned a new team to the investigation, which involves at least 15 suspects, mostly current and former officials.

In late October, anti-corruption officials announced they had issued new notices of suspicion in the case, when suspects are informed they are being investigated.

In the alleged plot to take more than $350 million from the oil company, prosecutors in early September issued eight people with notices of suspicion that had been awaiting approval from SAPO since early 2020.

New anti-corruption cases include a probe launched in October into a former tax chief suspected of taking more than $20 million in kickbacks. Reuters was unable to contact the ex-official for comment.

A SAPO spokesperson said Klymenko was not prepared to comment on his work. The agency did not comment on the individual cases and the recent flurry of activity, but said it was currently working on 693 cases with its sister agency, the National Anti-Corruption Bureau of Ukraine (NABU).

PROSECUTORS: $2,500 A MONTH

The United States, which is supplying Ukraine with billions of dollars of weaponry to fight Russia, supports Kyiv's concurrent drive to root out corruption.

"We are actively engaged with the government of Ukraine to ensure accountability, even amidst the challenging conflict environment," a U.S. State Department spokesperson said.

There is the prospect of more money on the way as donors weigh the scale of their contributions to Ukraine's anticipated reconstruction, a project largely dependent on foreign aid.

Central Bank Governor Andriy Pyshnyi said this month he expected 18 billion euros ($19 billion) from the EU and $10 billion from Washington next year in immediate budgetary aid alone.

An EU Commission spokesperson said that financial, political and logistic support for Ukraine "will be linked to the accession agenda."

"Reform benchmarks will be key in this context," the spokesperson said. "These will initially be adapted and suited for war times, but should evolve towards strengthening in particular rule of law and anti-corruption."

Beating graft won't be easy in a country where experts say much of it is rooted in the chaos that followed the collapse of the Soviet Union.

Despite the progress of recent years, Ukraine still ranks 122 out of 180 countries in Transparency International's latest Corruption Perceptions Index.

Andrii Borovyk, executive director of Transparency's Ukraine office, welcomed the current anti-corruption drive but said the true measures of success would be the number of convictions and the state's success in recovering proceeds from corruption as well as its enforcement of asset declarations.

"We'll need to see what the final output will be," he told Reuters.

The stakes have never been higher since Kyiv embarked on an anti-graft campaign after the 2014 "Maidan" revolution cemented Ukraine's pro-European course.

Both SAPO and NABU were established in 2015. SAPO oversees investigations launched by NABU and sends them to the anti-corruption court, which began its work in 2019.

Collectively, they comprise the core of Ukraine's anti-graft law enforcement infrastructure, a collection of professional outfits where employees are comparatively well-paid.

SAPO prosecutors, for instance, earn at least $2,500 per month, or six times more than the Ukrainian monthly average. Business is brisk; the agency is currently in the process of hiring eight new prosecutors.

NABU is also searching for a new director, which the EU has said is a key position to fill for Ukraine's anti-graft efforts.

THE PEOPLE ARE WATCHING

Even amid the turmoil of war, the agencies are now more productive than in previous years, according to Olena Shcherban, deputy executive director of the Anticorruption Action Centre in Kyiv, a nonprofit think-tank partly funded by Western nations that campaigns for reforms and tracks Ukraine's progress.

"NABU and SAPO are working more effectively now than in the last couple of years combined," she said.

Anti-corruption authorities in Kyiv are aware that the West is watching.

Kateryna Butko, a civic activist serving on the SAPO selection committee, acknowledged that Ukraine's fight against graft is often plodding. She added that foreign donors had a clear incentive to ensure it succeeds by continuing to provide strong policy guidance.

"The work of our anti-corruption institutions is a guarantee that Western money won't be stolen," she said.

Ordinary Ukrainians will also be watching, as Kyiv's recent battlefield victories have buoyed hopes that the country can prevail in the war and successfully rebuild.

An October survey by the Kyiv International Institute of Sociology found at least 88% of the country believes Ukraine will be a prosperous EU member within 10 years.

Kyiv resident Kateryna, who was visiting the capital's Christmas tree with a friend, said that securing a military victory was the top priority for Ukraine.

But the 27-year-old, who didn't give her surname, said it was also important to establish a fair society to live in, instilled with a clear sense that no-one was above the law.

"We don't have that kind of understanding here yet."

(Reporting by Dan Peleschuk; Additional reporting by Humeyra Pamuk and Andrea Shalal in Washington; Editing by Mike Collett-White and Pravin Char)

Should we care about what Transparency International has to say on corruption in Pakistan?

While the findings must be viewed cautiously, a decline in the index is bad for a country that is seeking foreign investments.

Uzair M. Younus

Updated about 24 hours ago

Every year before coming into power, the Pakistan Tehreek-e-Insaf (PTI) had a field day with the Transparency International's (TI) annual report on corruption perceptions in Pakistan. The party's leaders used it as vindication of their stance that corruption was rampant in the country and that the PTI alone could rid the nation of this menace.

Now that the tables have turned and Prime Minister Imran Khan finds himself on the other side of the proverbial aisle, his coterie of advisers and spokespersons will have you believe that the TI is "biased" and its report is essentially flawed.

So what is the truth? And why is it important to understand it?

For those who have been living under a rock, the Transparency International’s 2021 Corruption Perceptions Index (CPI) revealed that despite all the brouhaha around PTI’s anti-corruption and accountability agenda, the situation is grim.



According to the latest data, Pakistan has fallen by 16 spots, ranking 140 out of 180 countries in the index. The country’s score has declined to 28 in 2021, compared to 31 in 2020, representing a decline of 9.7 per cent. On surface value, the decline shows that all is not well when it comes to the fight against corruption, but a deeper assessment is still necessary before drawing any conclusions.

What is the Corruption Perceptions Index?

The Corruption Perceptions Index or CPI, according to Transparency International, “measures how corrupt each country’s public sector is perceived to be, according to experts and businesspeople.

This means that the score and rankings are based on the opinions of a narrow, but relatively influential and well-heeled segment of society. The public sector corruption measured by the CPI includes “bribery, diversion of public funds, nepotistic appointments in the civil service, and state capture by narrow vested interests”, among others.

Transparency International agrees that corruption is “very difficult to measure” which is why it relies on “carefully designed and calibrated questionnaires, answered by experts and businesspeople” to develop the index.

What all the above means is that just coming up with a number to rank a diverse group of countries is a very difficult task. Therefore, we must use the CPI cautiously as a data point to argue whether corruption has increased in society.
Is perception really important?

Having said that, it is important to recognise that a sustained decline in corruption perceptions is bad for a country, especially one seeking foreign direct investment. As someone who has worked with foreign investors seeking to deploy capital abroad, I am quite familiar with the way a country is ranked among a peer group before a decision is made to conduct a deep dive into the political economies of a shortlist.

The initial task of conducting this exercise falls to a small team of analysts, mostly below 30 years of age. These analysts collect data such as the World Bank Ease of Doing Business rankings (before it was scrapped by the World Bank), the World Economic Forum’s Competitiveness Index, the Economist Intelligence Unit’s Country Risk Ratings, and Transparency International’s CPI. All this data is tabulated in an Excel file and relative weights are given to each measure based on the type of investment being considered.

For example, a major infrastructure project with high government involvement and debt financing will command higher weightage to country risk ratings and corruption perceptions, while a funding round for a technology startup will focus more on indices measuring digital connectivity and internet access.

Based on this tabulation, a shortlist of countries is prepared for deeper assessment to determine political risk, financial risk, execution risk, etc. As this process is conducted, investment teams project the risk premium in a financial model and develop high-level budgets for things like compliance monitoring, legal support, etc. These budgets are determined based on initial conversations with in-country experts as well as a country’s trajectory in rankings and scores across a whole host of indices, including the CPI.

What this means is that a country like Pakistan, which is experiencing a declining score in the CPI and witnessing economic and political instability (as evidenced by rising inflation, debt, and extremist violence), will find it difficult to make it to the shortlist. And even if it does, the risk premium in the financial models being developed to seek the investment committee’s approval will be high. This would then make the overall project costlier compared to other countries with a lower risk profile, meaning that the investment committee would likely decide against choosing Pakistan.

It is for this reason that improving rankings in indices such as the CPI is vital. Without doing so, the risk premium on a country like Pakistan will remain above the tolerance levels of a significant portion of international investors looking at Pakistan and other peer economies.

Victims of rhetoric

Another reason why the declining score in the CPI ought to concern Pakistanis is because the ruling party’s rhetoric about corruption has not translated into an improvement in perceptions among a narrow segment of society. As detailed CPI data shows, Pakistan’s score has declined significantly in four of the eight measures that make up the CPI:
Bertelsmann Foundation Transformation Index = -16 per cent
Economist Intelligence Unit Country Rankings = -46 per cent
Global Insights Country Risk Ratings = 0 per cent
PRS International Country Risk Guide = 0 per cent
Varieties of Democracy Project = -26 per cent
World Bank CPIA = 0 per cent
World Economic Forum EOS = -0.05 per cent
World Justice Rule of Law Index = -18 per cent

Finally, there is the baggage of the ruling PTI’s own rhetoric, where senior leaders including Prime Minister Imran Khan used to chide the opposition about corruption using CPI data. Now that they are in power, the party’s leaders and social media teams are spinning a different narrative.



Despite the political rhetoric on either side of the aisle, it is important to remember that the CPI is at best a flawed indicator of corruption in any society. The index may have some value for some actors, but it does not tell the full story when it comes to corruption in a society. To credibly deal with the corruption challenge, it is important for successive governments to focus on improving the rule of law, promoting transparency, and reducing bureaucratic red tape.

These actions, as I argued in another article, must “be informed by research that highlights why corruption is pervasive, what its transmission mechanisms are and the type of systemic reforms that may succeed in reducing the incentive for people to grease the system.”

Only then, I would argue, can Pakistan develop a more equitable and transparent economy which is attractive to foreign investors.

Header illustration: Ok Sotnikova/ Shutterstock.com



The writer is the director of the Pakistan Initiative at the Atlantic Council’s South Asia Center and host of the podcast Pakistonomy.

A Ukrainian arms dealer accused of corruption is now one of the country's top weapons suppliers

Charles R. Davis
Sat, August 12, 2023

Ukrainian soldiers load ammunition into a 2s9 artillery vehicle in Donetsk Oblast on April 14, 2023.

Diego Herrera Carcedo/Anadolu Agency via Getty Images


Ukrainian Armored Technology has emerged as a top weapons supplier for Kyiv.


The company, whose sales have skyrocketed, is believed to be controlled by Serhiy Pashinsky.


Before the war, Ukrainian President Volodymr Zelenskyy described Pashinsky as a "criminal."

A Ukrainian arms dealer widely suspected of corruption before Russia's full-scale invasion has now emerged as a top weapons supplier for the government in Kyiv.

Serhiy Pashinsky, a former member of parliament, is today head of Ukraine's arms trade association. Sales at his company, Ukrainian Armored Technology, have jumped from less than $3 million before the war to hundreds of millions of dollars today, The New York Times reported Saturday.

Ukrainian Armored Technology has since February 2022 helped secure scores of bombs and bullets across Europe for use by the country's armed forces, according to the Times. Since the war began, it has been one of Kyiv's most reliable suppliers.

That's despite the fact that Pashinsky, before the war, was a pariah, a man who was put under house arrest over a road rage incident and described by Zelenskyy himself as a "criminal" amid allegations of corruption.

But, according to the Times, Pashinsky's ties to arms dealers made officials overlook those earlier accusations. Bulgaria, for example, would not sell Ukraine the Soviet-era ammunition it needs, the Times reported, fearing it would invite retaliation from Russia. Pashinsky was able to negotiate a deal whereby the ammunition was sold to a middleman in Poland who in turn passed it on to Ukraine, for a cost.

Ukrainian Armored Technology experienced a windfall. In 2021, according to the Times, it reported just $2.8 million in sales. In 2022, that figure rose to more than $350 million.

The company's use of middlemen may have been essential in the early days of the war. But Ukraine's reliance on them is a reminder of the country's decades-long struggle with corruption, one that its leadership is once again taking steps to publicly address.

The Times noted that Pashinsky and Ukrainian Armored Technology are once again the subject of an anti-corruption investigation. And the outlet's report comes a day after Zelenskyy announced the firing of military officials tasked with recruitment, citing reports that some were accepting bribes in return for exempting men from the draft. Ukraine, Zelenskyy said earlier this year, will not "return to the way things used to be."

"Of course, now the main focus is the issue of defense, this is the issue of foreign policy, this is the issue of war," he said. "But this does not mean that I do not see and hear what is being said in society at various levels, both at the central level and in the regions."

Despite concerns about corruption in Ukraine, however, experts told Insider last year that there's no evidence that weapons meant for the front lines are being diverted to the black market in any sizable numbers.

Zelenskyy fires recruitment officials for accepting $10,000 bribes. Almost all Ukrainians think the country has a problem with corruption, survey suggests.

Nathan Rennolds
Updated Sun, August 13, 2023 

Ukrainian President Volodymyr Zelenskyy said via his Telegram channel on Friday that he'd dismissed the heads of Ukraine's regional-military committees as investigations into corruption in Ukraine's armed-forces recruitment continue.

Efrem Lukatsky/AP Photo


In one poll, 77.6% of surveyed Ukrainians said Zelenskyy was responsible for government corruption.


The survey included 2,011 interviews with people from 135 settlements in Ukraine.


It came out as Zelenskyy dismissed all the heads of Ukraine's regional-military committees.

Nearly all surveyed Ukrainians — 89% — in a newly released survey said corruption was the country's most serious problem after the war against Russia. The poll came out as Ukrainian President Volodymyr Zelenskyy launched an investigation into bribery related to military recruitment.

A survey by the Kyiv International Institute of Sociology, in cooperation with the US Agency for International Development project "Support of Leader Organizations in Combating Corruption in Ukraine," found that: "Second only to the war, corruption is perceived as the most serious problem in Ukraine by 89% of citizens.

"Despite a notable improvement in the public perception of corruption prevalence, 94% of respondents still consider corruption to be pervasive across Ukraine."

The survey was conducted in winter and included interviews with over 13,000 people, including internally and externally displaced Ukrainians.

Meanwhile, over 75% of Ukrainians in a second survey said they believed that Zelenskyy was responsible for corruption in the country's military and government administrations, Interfax-Ukraine, a Ukrainian news agency, said.

Interfax reported that in the survey — which it said the Kyiv International Institute of Sociology carried out for the Ilko Kucheriv Democratic Initiatives Foundation think tank — 77.6% of surveyed Ukrainians said they believed that the president was "directly responsible" for the corruption. The report cited a statement by the think tank's executive director, Petro Burkovskyy.

"Procrastination in solving problems that undermine people's faith in victory will also hit the president himself," Burkovskyy said.

The Interfax-Ukraine report said that for the second survey, the institute carried out 2,011 interviews in July with people from 135 settlements in Ukraine.
Zelenskyy: Recruitment bribes at a time of war is 'high treason'

On Friday, Zelenskyy said he dismissed the heads of Ukraine's regional-military committees as investigations into corruption in Ukraine continued, particularly in its armed-forces recruitment.

"We are dismissing all regional military commissars," a statement on Zelenskyy's official Telegram channel said. "This system should be run by people who know exactly what war is and why cynicism and bribery during war is high treason."

The military officials are accused of taking cash and cryptocurrency bribes or helping people eligible to be called up to fight to flee Ukraine, Zelenskyy said in a video posted on social media, BBC News reported.

Last month, Ukrainian investigators detained the former military commissioner of the Odesa region on charges of illegal enrichment, dereliction of duty, and evading military service, local reports said.

Investigators allege that he and his family bought property in Spain and luxury automobiles worth $4 million.

There are about 1,795 military commissars in Ukraine, of whom about 135 are under surveillance by the National Agency on Corruption Prevention, Newsweek reported.

The commissars, Zelenskyy's Telegram message added, will be replaced by "soldiers who have been to the front or who cannot be in the trenches because they have lost their health, lost their limbs, but have retained their dignity and have no cynicism — they can be entrusted with this recruitment system."

Corruption scandals have plagued Ukraine during recent years, with then-Vice President Joe Biden saying in 2015 that it was eating the country "like a cancer."

Vietnam reels from historic €11.4 billion corruption scandal

David Hutt

DW
12/01/2023

The largest corruption scandal in Southeast Asia's history has shaken Vietnam's anti-graft drive. Experts have warned that the country's economic stability may be at stake.

The Vietnamese government has been clamping down on widespread corruption

Image: Pascal Deloche/Godong/picture alliance

Vietnam has been rocked by its largest corruption scandal to date after authorities last month arrested a prominent real estate developer over allegedly embezzling nearly €11.4 billion ($12.4 billion), the equivalent of more than 3% of the country's GDP.

In 2016, Vietnam's governing Communist Party began conducting a sweeping anti-corruption campaign. Since then, it has brought down a national president and senior government ministers, but the scale of the alleged graft involved in the latest scandal it uncovered raised questions about the true state of Vietnam's banking and property sectors.
The biggest corruption scandal in Southeast Asian history

On November 17, the Ministry of Public Security alleged that Truong My Lan, the chairperson of real estate developer Van Thinh Phat Holdings Group, had embezzled 304 trillion dong (€11.4 billion) from Saigon Commercial Bank, of which she was a majority stakeholder, over several years.

According to the ministry's statements, My Lan, who was first arrested last year, operated a vast network of more than 1,000 domestic and foreign subsidiaries as well as further shell companies that took out more than €40 billion in loans from the Saigon Commercial Bank, appropriating about a third of it through "ghost companies" she and her family and associates created.

In mid-November, the Ministry of Public Security also recommended the prosecution of a further 85 people, including 24 government officials and associates of Van Thinh Phat Holdings Group and Saigon Commercial Bank.

Days later, the Internal Affairs Commission of the Communist Party's Central Committee recommended opening investigations into another 23 state officials, including 12 from the State Bank of Vietnam, the country's central bank.

It is arguably the largest corruption scandal in recent Southeast Asian history. By comparison, the well-documented 1MDB scandal in Malaysia in the 2010s, which led to Malaysia's dominant party losing power for the first time ever, involved the theft of €4.1 billion from the country's sovereign wealth fund.
Hanoi's anti-corruption campaign

The Communist Party of Vietnam embarked on its "blazing furnace" anti-graft campaign when Nguyen Phu Trong, the party's general secretary, defeated rival Nguyen Tan Dung — Dung was prime minister at the time and seen by many as allowing corruption to thrive.

Ex-Deputy Minister of Foreign Affairs Do Anh Dung was taken to court in July 2023

Image: Anh Tuc/AFP/Getty Images

The anti-corruption campaign has resulted in hundreds, if not thousands of party and government officials being dismissed in recent years.

In January, Nguyen Xuan Phuc resigned as state president and two deputy prime ministers were sacked over alleged corruption in the government procurement of coronavirus testing kits and the repatriation of Vietnamese nationals during the COVID-19 pandemic.

Speaking this month, after the revelations about the latest scandal, Prime Minister Trong said Communist authorities, "need to conduct the anti-corruption fight faster and in a more efficient manner." He added, "We won't stop here but will continue for the long term."

Officials under the graft spotlight

Tuong Vu, a political science professor at the University of Oregon in the US, said Prime Minister Trong could now have his sights set on some more big-name targets, including the former party boss of Ho Chi Minh City, Le Thanh Hai, who is known as "the most corrupt official in Vietnam."

Hai was the political boss of the southern business hub for decades, and although he was given a wrap on the knuckles in 2020, when the corruption-busters found his committee had engaged in improprieties, he has so far avoided any real punishment for his alleged wrongdoings.

"It is possible that Hai is next. He's also known to be close to former Prime Minister Nguyen Tan Dung, who may still be a target," said Tuong Vu, referring to the political heavyweight whom Trong defeated in 2016.

Indeed, it had been suggested by analysts that Hai and Dung may have been the two richest people in Vietnam at some point in the 2010s thanks to their alleged oversight of vast graft networks in southern Vietnam.

"There is no doubt that more major scandals and arrests are forthcoming," said Michael Tatarski, a journalist living in Ho Chi Minh City who writes about Vietnamese politics in his Vietnam Weekly blog.

"A significant investigation into sand mining is underway," and it appears police are looking closely at the renewable energy sector and Vietnam Electricity, the country's largest power company, he added.

However, there are concerns that the scale of graft now being uncovered is denting economic stability.

Private sector feels the heat

When a number of private sector companies were hit with corruption allegations last year, it was suggested the anti-graft campaign was starting to affect business confidence. Reports leaked in the media claimed local government officials and civil servants were refusing to sign off on much-needed infrastructure investment deals for fear they would later be accused of corruption if the development projects didn't go according to plan.

Is Vietnam set to replace China as the world's factory?  02:55

Nguyen Khac Giang, a visiting fellow at the Vietnam Studies Programme at the ISEAS – Yusof Ishak Institute in Singapore, pointed out that this is not the first significant investigation into a private company, but it is by far the largest.

He says that in 2022, Trinh Van Quyet, chairman of property and leisure company FLC Group and its subsidiary Bamboo Airlines, was arrested on charges of stock market manipulation; while months later, Do Anh Dung, chairman of the Tan Hoang Minh property development group, was detained on suspicion of fraudulent appropriation of assets.

Tran Qui Thanh, chairman of Tan Hiep Phat Group, the country's largest private-sector beverage producer, was arrested in April over alleged misappropriation of assets.

Given what has transpired so far, the latest corruption scandal "might not further deteriorate business confidence in Vietnam, nor instill fear of being investigated," Giang said.

Indeed, other sources have made similar arguments, saying business confidence was more shaken by the first investigations into private sector corruption and that the business community in Vietnam has now become somewhat accustomed to the idea that the Communist Party might be staring over its shoulder.

'Total regulatory failure'

Among the many allegations against Truong My Lan and her associates were accusations that they had bribed investigators for years to get them to overlook Saigon Commercial Bank's financial discrepancies. This includes bribes reportedly paid to the then-chief of the State Bank of Vietnam's Inspectorate and Supervision Department.

"This was a total regulatory failure," said Zachary Abuza, a professor of national security strategy at the US National War College in Washington, who added that it should raise questions about the business practices of other banks, too.

"If Lan could bribe regulators with $5.2 million to overlook non-performing loans and other criminal behavior at [the Saigon Commercial Bank], why not other banks?" Abuza queried.

US, Vietnam upgrade relations  02:10

The latest corruption scandal also raises questions about political stability. Trong, the party chief, has torn up informal agreements on term limits and retirement ages that the Communist Party agreed to in the 1990s.

Trong, 79, is now in his third term in office and seemingly cannot step down as he's unable to find a trusted successor — the reason why he took on a third term in 2021, most pundits say. It remains unclear if he will try to run for a fourth term at the next National Congress in early 2026.

"Anti-corruption has evolved from a means, to an end in itself. Combating corruption is seen as a way to uphold the party's legitimacy," said Giang. "This is the new normal of Vietnamese politics."

Edited by: Alex Berry

The Ponzi Scheme That Broke Lebanon

U.S. Ties to the Country’s Elites Will Test Biden’s Anticorruption Agenda

By Sam Heller

April 18, 2022

Protesting in front of Parliament in Beirut, Lebanon, February 2020

Mohamed Azakir / Reuters

For the last two and a half years, Lebanon’s economy has been in free fall. The country’s currency, the lira, has lost more than 90 percent of its value against the U.S. dollar; GDP has shrunk by nearly 60 percent; and close to 80 percent of Lebanese have slipped below the poverty line, along with practically all of the 1.5 million Syrian refugees living in Lebanon. Hundreds of thousands of people have fled the country.

The crisis, which is among the worst to hit any country in modern history, was precipitated by the collapse of what UN Secretary General António Guterres described as “something similar to a Ponzi scheme”: for years, the country’s central bank used ordinary bank depositors’ money to finance the corrupt and wasteful spending of successive Lebanese governments. Participants in the scheme reaped huge returns—until 2019, when it all came tumbling down. The pyramid scheme may not have been technically illegal, but it nonetheless amounted to corruption on a grand scale: Lebanese elites made a killing, spirited their ill-gotten gains abroad, and left millions of their impoverished countrymen holding the bag.

But the crisis wasn’t just caused by greed and corruption; it has been prolonged by the unwillingness of those who are responsible to change their ways or to assume their fair share of the country’s massive financial losses. International donors are willing to discuss a bailout that could right the economy, but Lebanese leaders have resisted even the most basic reforms that lenders have demanded as a precondition for a rescue package. The country’s political and financial elites have benefited handsomely from the current system, and they stand to lose from any ordered resolution of Lebanon’s national bankruptcy. According to the World Bank, Lebanon is now mired in a “deliberate depression,” one that has been “orchestrated by the country’s elite that has long captured the state and lived off its economic rents.”

Lebanon’s predicament poses a unique challenge for the Biden administration, which hopes to prevent the total collapse of the country and has declared fighting corruption a national security priority. In line with President Joe Biden’s global anticorruption agenda, U.S. officials have pushed Lebanese leaders to rein in corruption and make the reforms that would enable an international bailout. But few in Lebanon take the United States at its word, since Washington has long tolerated corruption among its partners in Lebanon and weaponized anticorruption measures against its enemies.

Even now, American messaging on corruption and reform suffers from a conspicuous—and deadly—omission: U.S. officials have remained largely silent on the grandly corrupt scheme that precipitated Lebanon’s national bankruptcy, and in which key U.S. partners are implicated. When it comes to corruption in Lebanon, the United States has a credibility problem—one that the Biden administration will need to remedy if it wants to be a useful partner in reform. The administration’s approach to Lebanon, where fighting corruption and preventing state collapse necessarily go hand in hand, is a vital test of its commitment to combating corruption globally.

CORRUPTION OF A STATE

Lebanon is governed by an unwieldy sectarian system that divides political representation among 18 officially recognized sects—each with its own political boss and patrimonial fiefdom. By divvying the top government positions among Sunnis, Shiites, and Christians, however, this system has facilitated the capture of state institutions by elites, enabling them to exploit public resources for private gain and to solidify their hold on their sectarian constituencies.

Corruption in Lebanon, however, is not just a matter of political patronage and rotten public contracting. For decades, Lebanon’s largely unproductive economy relied on regular infusions of foreign capital to function. When those inflows slowed because of deepening political disfunction and conflict—including in neighboring Syria—the country’s central bank resorted in 2016 to what it called “financial engineering” to fund government deficits and maintain an artificially high value for the Lebanese lira. In short, the central bank paid Lebanese commercial banks exorbitant interest rates for dollar deposits, and those banks in turn offered their own generous returns to lure more depositors. Everyone involved made a lot of money, even as the country’s financial sector stealthily took on huge systemic risk.

Financial engineering wasn’t just a high-risk move to prop up Lebanon’s government and currency. It was also the latest version of a decades-old compact between government and financial elites in which public resources feed the country’s oversized banking sector. Lebanon’s political class is deeply enmeshed with its financial elites. In the most prominent example, Saad Hariri, son of former prime minister and business tycoon Rafik Hariri who served as prime minister himself from 2009 to 2011 and from 2016 to 2020, is the main shareholder in one of the country’s largest banks. It may not have been illegal for Lebanese officials to benefit from the central bank’s ruinous policies, but it was certainly corrupt.

Lebanese elites made a killing and left millions of their impoverished countrymen holding the bag.

And it all fell apart in October 2019, when already struggling Lebanese banks reacted to massive antigovernment protests by shutting their doors and denying depositors access to their accounts. This apparent attempt to preempt a bank run sparked a fatal crisis of confidence in the country’s banking sector, rendering Lebanon’s private banks, central bank, and state all suddenly insolvent. Total losses to the country’s financial sector are estimated in the tens of billions of U.S. dollars. The arrival of the coronavirus pandemic in early 2020 compounded the country’s economic misery, as did a catastrophic explosion at the port of Beirut in August of that year, which killed more than 200 people and caused billions of dollars of damage.

Foreign donors have conditioned the massive bailout needed to stabilize Lebanon’s economy on an agreement between Lebanon and the International Monetary Fund (IMF) that would require fiscal discipline and reform. Yet Lebanon’s leaders—and their allies in the banking sector—have not cooperated. Instead, they have resisted any resolution of the country’s national bankruptcy that would disadvantage bank shareholders or top depositors. They also have yet to carry out basic measures—including approving a plan to restructure Lebanon’s external debt and unifying the country’s multiple exchange rates—that the IMF has required as preconditions for a bailout. In the meantime, private banks have allowed elites to move their money out of the country while restricting ordinary depositors’ access to their accounts, meaning that the heaviest burden from Lebanon’s economic losses has fallen on those least able to bear it.

TAKE A STAND

Ever since Biden unveiled a new strategy for fighting corruption last year, U.S. officials have placed greater emphasis on tackling the problem in Lebanon. U.S. Treasury Department officials have urged Lebanese leaders and bankers to step up due diligence efforts and improve transparency and accountability. In October 2021, the United States imposed sanctions on two politically connected Lebanese businessmen and one member of Parliament for illicit enrichment and undermining the rule of law. And in December, Dorothy Shea, the U.S. ambassador in Beirut, presented a Lebanese investigative journalist with an anticorruption award, using the occasion to emphasize Washington’s newfound commitment to battling corruption.

None of this is especially convincing, however, given that the United States is seen as close to some of the Lebanese officials most responsible for the current crisis. Central bank governor Riad Salameh, in particular, has long worked with the United States to counter Hezbollah financing. In addition to bearing responsibility for the central bank’s policy of financial engineering and the country’s economic collapse, Salameh faces serious allegations of self-dealing and illicit enrichment. Yet until recently, many in Lebanon regarded him as untouchable because of his relationship with Washington, and not without reason. In May 2020, Shea gave a television interview in which she defended Salameh, saying that the United States “has worked very closely with him over the years” and that “he enjoys great confidence in the international financial community.” That interview came at a pivotal moment in Lebanese politics, just as Lebanese news outlets reported that Salameh, along with the country’s banking lobby and many of its allies in Parliament, was opposing a Lebanese government financial recovery plan that was supposed to serve as the basis for negotiations with the IMF and that would have disadvantaged financial sector interests. Salameh and his allies won out, talks with the IMF collapsed, and Lebanon’s economic crisis has dragged on for two more years.

But the problem is not just that the United States has looked away from corruption in the past, it’s that it has also allowed anticorruption efforts to be politicized in a way that undermined their credibility. In 2020, for instance, the Trump administration used the Global Magnitsky Act to sanction the leading Maronite Christian politician Gebran Bassil, ostensibly for corruption but really because he is an ally of Hezbollah. David Schenker, who served as assistant secretary of state for near eastern affairs from 2019 to 2021, admitted as much after leaving office. “We leveled a series of sanctions against Hezbollah and its Lebanese allies,” he said, “including, importantly, non-Shia, culminating in the Global Magnitsky designation of Gebran Bassil for corruption.” The Biden administration’s October 2021 anticorruption sanctions could likewise be plausibly construed as targeting Hezbollah allies, given the individuals targeted.

The U.S. needs to prioritize Lebanon’s economy over preserving relationships with the leaders who tanked it.

If the Biden administration wants Lebanon’s leaders to take its concerns about corruption seriously, it needs to shed the United States’ reputation for tolerating corruption among friendly elites and dispel the impression that anticorruption measures such as sanctions are really tools to curtail Hezbollah’s influence in Lebanon.

To that end, Washington will have to stress the necessity of reform to its Lebanese interlocutors, coordinating closely with allies such as France. U.S. officials should push Lebanon’s leaders to meet the IMF’s preconditions for assistance, including by taking steps to restructure the financial sector, consolidate its failing banks, and audit the central bank—measures that Lebanese elites have sought to obstruct. In addition, the United States should insist that any economic recovery plan must protect small depositors and provide social support for the country’s most vulnerable.

But really fighting corruption in Lebanon will require more than just condemning corruption in rhetorical terms and advocating for specific reforms. It will require Washington to break publicly with financial elites such as Salameh who bear responsibility for the country’s collapse. This is vital because the domestic political fight over who should be blamed for the crisis and who should bear its costs is still ongoing. Lebanon’s central bank and commercial banks deny responsibility for the country’s current predicament. They have argued that they should be made whole at the Lebanese public’s expense. In this internal debate, elites seeking to stymie reform draw strength from their ties with the United States—which is why they have consistently sought to portray interactions with U.S. officials as affirmation from Washington. The United States should not be seen as siding with the same elites who are resisting necessary reforms.

In addition to calling out Lebanese officials for their role in the current crisis, the Biden administration can signal its seriousness about fighting corruption by imposing new sanctions on corrupt Lebanese figures across the sectarian and political spectrum. It should follow up its October 2021 anticorruption sanctions by targeting additional politicians, bankers, and media figures implicated in public corruption, including individuals associated with traditionally U.S.-friendly parties.

Taking a harder line on corruption will inevitably damage some longstanding U.S. relationships with Lebanese politicians and financial elites. But these figures have little choice but to cooperate with Washington on U.S. priorities such as countering terrorism financing and excluding Hezbollah from international banking networks, given that the United States can effectively shut noncompliant banks out of the global financial system. And in any case, the United States needs to prioritize rescuing Lebanon’s economy over preserving relationships with the leaders who tanked it. That requires promoting painful reforms at the expense of Lebanese elites, including those seen as friendly toward the United States.

Lebanon is a major test of the Biden administration’s anticorruption agenda. What the United States does there won’t just affect the odds of a rescue package that could prevent the Lebanese state from failing; it will also demonstrate to corrupt regimes around the world that Washington is serious about fighting corruption. To do that, however, the Biden administration will have to show Lebanese leaders that it will no longer tolerate the kind of grand corruption that cratered Lebanon’s economy. Failing that, Biden’s anticorruption rhetoric will be just words.