Development Channel

Report May Bring Down South Africa’s President New allegations may finally bring down teflon president Jacob Zuma. Despite his earlier legal protests, South Africa’s public protector’s office released a report suggesting that a wealthy family close to the president influenced government hires and used their ties to promote their private interests. It recommends opening a criminal investigation, a prelude to impeachment proceedings. While the African National Congress (ANC) party backed Zuma during a previous impeachment vote over the use of $16 million in state funds to renovate his private home, these new allegations are hurting him within his party. Already Zuma faces a no-confidence vote in parliament next week, and some ANC members are joining religious leaders, thousands of protestors, and forty South African CEOs in calling for his resignation. Going After Kleptocrats to Protect DRC’s Democracy As Democratic Republic of Congo (DRC) President Joseph Kabila clings to power, delaying elections even though his second and last term expires next month, the United States is pushing back. The Treasury Department already imposed financial sanctions on two top security officers who helped lead a violent crackdown against antigovernment protestors, opposition supporters, and the media. Now members of Congress want the White House to go after assets and ill-gotten gains of Kabila cronies. They hope President Obama will take actions similar to those against senior Venezuelan officials last year, imposing targeted economic sanctions on those who committed human rights abuses, undermined democracy, or were involved in public corruption. Africans Like China’s Growing Presence Africans across thirty-six nations view China’s involvement and investment—and the explosion in trade from $10 billion in 2000 to nearly $300 billion in 2015—in their countries favorably. A new Afrobarometer survey finds 63 percent rate Chinese economic and political influence as “somewhat” or “very” positive. China’s state-driven economic model now ranks second only to the United States as the preferred means for development. This suggests Africans focus more on the infrastructure, business, and cheap goods Chinese investment brings, and less on democracy and human rights concerns.

Brazil’s Plane Maker Fined in Bribery Case Spanning Five Continents Brazilian aircraft manufacturer Embraer will pay $205 million to U.S. authorities, including $20 million for Brazil, for bribing officials in Saudi Arabia, Mozambique, and the Dominican Republic. U.S. prosecutors worked with their law enforcement counterparts around the world—including Brazil, Switzerland, Uruguay, France, and Spain—to bring the Foreign Corrupt Practices Act case (Embraer is a U.S.-listed company). The legal cooperation has gone both ways, as U.S.-gathered evidence has spurred additional investigations by Brazilian and Saudi authorities; thirteen employees were charged with bribery. Now India is looking into kickbacks from Embraer’s air force contracts. Expect more cross-border cooperation in global corruption cases. British Firms Neglect Anti-Slavery Law One year in, the UK Modern Slavery Act, which requires firms to publicly show what they are doing to eradicate slavery and human trafficking in their supply chains, has not done much. Of the UK’s one hundred largest companies, only twenty-seven reported on their antislavery efforts to date. Nearly half of those did not meet the law’s basic requirements, including informing their boards and putting the results on their websites. And abuses continue—reports this week show Syrian refugee children are making clothes for prominent UK brands, including Marks and Spencer and ASOS, in Turkish factories—working for less than $1.50 per hour up to twelve hours a day. To see real progress, governments must go further by compelling companies to actually address abuse, and back up laws with sanctions. On Rule of Law Denmark Leads, Venezuela Lags The World Justice Project released its sixth annual Rule of Law Index, ranking 113 countries on perceptions of the fairness and effectiveness of their legal systems. They surveyed experts and average citizens on eight measures, including absence of corruption, basic human rights protections, and constraints on government power. Nordic countries Denmark, Norway, and Finland topped the list; Venezuela came in last. Regionally, South Asia lags behind the rest, pulled down by Afghanistan, Bangladesh, and Pakistan—all among the bottom ten. Iran, Argentina, and Nigeria improved the most, in large part owing to efforts to increase accountability, while President Buhari’s tough anticorruption campaign also helped boost the latter.  

The Brazilian Federal Revenue Secretariat (SRF) has some good news to cheer: a big haul of fines and taxes from assets held offshore by Brazilians. The deadline for filing under Brazil’s equivalent of the Offshore Voluntary Disclosure Program ends October 31, but news reports suggest that more than US$12.6 billion in foreign bank accounts held by more than 25,000 Brazilians have already been disclosed, leading to fines and taxes of nearly US$4 billion on money ferreted away in accounts that had previously been inaccessible to tax officials. More than a third of that money has been declared in the last week alone, suggesting that by the end of the month, the absolute volume of fines and taxes may be near the amounts collected under a sister program in the United States, whereby 45,000 taxpayers contributed $6.5 billion to the U.S. Treasury. The voluntary disclosure program is an important part of a broader push to improve government control over Brazilians’ assets abroad. Brazil in recent years has signed a number of agreements governing the bilateral exchange of banking information, and just this month came news that the Swiss high court had upheld efforts to share banking information on more than 1,000 Swiss bank accounts believed to be held by Brazilian politicians and former Petrobras executives. In the past two decades, Brazilian regulators have also closed various glaring loopholes in domestic regulations covering foreign exchange transactions. The SRF has gained personnel and seen its budget increased, enabling it to push for and enforce tougher laws, often in cooperation with the Ministério Público, Brazil’s quasi-autonomous prosecutorial service. Together, these improvements seem to be bearing fruit. Not coincidentally, the massive Car Wash operation began as a money laundering investigation, and revenue agents have played a significant role in the operation. The recent Panama Papers leaks, listing more than 1,300 offshore accounts held by 400 Brazilians, will add fuel to this effort. The speed with which the voluntary disclosure program has come down the pike in Brazil has been impressive. The U.S. Congress approved the Foreign Account Tax Compliance Act (FATCA) in 2010, and the U.S. government launched its program in July 2014. Prodded along by the global implementation of FATCA and associated agreements on the automatic exchange of financial information, the Brazilian Congress approved its Repatriation Law in December 2015 (in the midst of the political crisis that would eventually lead to President Dilma Rousseff’s impeachment), regulations were finalized by March 2016, and now the program is nearing completion. Although they may seem small as a share of the $3 trillion economy, the taxes and fines collected under the program are extremely significant. Global Financial Integrity estimates that each year between 2010 and 2012, on average Brazilians illicitly transferred more than $33 billion to accounts abroad. While the accounts disclosed under the repatriation program may not always be reflective of corruption or tax evasion, the fungibility of money and the multiple ways it can find its way from illicit to licit channels suggest that it would be ingenuous to assume the assets were all aboveboard. More important, by bringing even ostensibly licit funds into tax compliance, it will be increasingly difficult for major launderers or the corrupt to hide their ill-gotten gains in the murky backwaters of international finance. One reason for the apparent speed and success of the program is the prospect of heavy penalties that will hit Brazilians who fail to register. Under the program, participants agree to a 15 percent tax rate and a one-time 15 percent fine on previously undeclared assets. But in November, the tax rate will rise to 27.5 percent and the fine to as much as 225 percent, along with the increasingly credible and frightening prospect of criminal prosecution. Further, bilateral agreements on bank information sharing suggest the dragnet is closing, and it will be much harder to hide funds in future. SRF officials have made a concerted effort to drum home the costs of non-adherence to the program, noting that as of January 1, 2017, they will have in place agreements with 103 countries for automatic tax revenue information sharing, as well as bilateral agreements on investigation with 34 countries. Another recent report detailed the SRF’s analysis of nearly 1,000 high net-worth Brazilians with bank accounts in the United States, and authorities’ suspicions that nearly two-thirds of these were evading Brazilian taxes. While the admirable recent gains in Brazilian anticorruption efforts should be credited entirely to Brazilian authorities and their supporters in civil society, their recent successes will be helped along immensely by FATCA and the attendant effort to share financial data across borders. As one leading Brazilian tax official boasted, “the world is beginning to have no boundaries for the [SRF].” No longer will investigators lose track of the trail at the water’s edge; indeed, the information made available under the program should help to invigorate the increasingly bold efforts to curb massive corruption at the intersection of Brazilian politics and business.