Startling revelations and powerful evidence of grand corruption implicating politicians from PW Botha to Jacob Zuma, global banks and corporations was presented at The People's Tribunal on Saturday and Sunday.
Overseen by an esteemed panel including former Constitutional Court Justice Zac Yacoob, the Tribunal has been set up by civil society groups to hear evidence on corruption, capture and economic crime over the last 40 years in South Africa.
The Tribunal has, thus far, heard evidence of covert networks of politicians, state companies and corporations involved in the systemic violation of the United Nations' weapons embargo on South Africa during apartheid.
Standing as a witness, author of "Apartheid Guns and Money" Hennie van Vuuren emphasised the importance of bringing this evidence to light is in recognising the actors that contributed to the gross violation of human rights during apartheid. Beyond the pursuit of justice, he said, the goal is also to recognise how these crimes are connected.
Apartheid's murderous military machine
At the heart of the arms machine, he said, was South African state-owned arms company Armscor which bought (and sold) weapons from abroad in contravention of a compulsory U.N. embargo on trading arms with the country.
Almost all military expenditure, which amounted to approximately 28% of the country's budget at the time or half a trillion rand in today's value, passed through the company, he said.
But to oil this military machine -- which was created in response to the "appetite for the apartheid government's involvement in conflict locally and on the continent" -- the company needed to circumvent the compulsory global sanctions. In come the French.
Die Groot Krokodil's deathly French Kiss
Realising weapons couldn't be procured from Pretoria, then-Prime Minister PW Botha ('Die Groot Krokodil') took business abroad. For some a city of love, South Africa's government made Paris, France, its city of bloodlust.
The South African embassy in Paris housed what was called the tegniese raad (technical council) from which Armscor would strike it's deals, which van Vuuren said was not known until they began researching years ago.
"This was there base... from which they'd go around Europe doing deals, in some instances liaising with partners in Africa (like Zaire)... and perhaps even China," he said.
Even leading figures in the anti-apartheid movement who tried to expose these links had no idea what was happening in Paris. Documentary evidence, van Vuuren said, showed how French intelligence would have regular meetings with Armscor officials on a regular basis in the 1970s and 1980s. That heads of intelligence from France and South Africa were meeting suggests politicians in the upper echelons of France's government were well aware of sanctions being broken, he said.
Central to this relationship, he added, was French arms company Thompson CSF -- today Thales -- which documentary evidence showed met with PW Botha's minister of defence to co-develop sophisticated missile technology for use in apartheid South Africa's warmongering locally and abroad.
Demonstrating just how far into the present dodgy relations continued, Van Vuuren highlighted that the same company, Thales, is implicated in paying bribes to now President Jacob Zuma through his financial adviser (and now convicted fraudster) Schabir Shaik.
"These are the 783 counts of corruption, fraud and money laundering [Zuma] currently faces today," he said.
The two faces of the international community
The story of the apartheid government's circumvention of sanctions, however, was more than just a French love affair with the Broederbond.
More than 50 countries were involved in sanctions-busting in one way or another, he said. Most notably, every single country on the United Nation's Security Council -- those very nations tasked with policing the sanctions that were imposed -- were all involved to some extent, he said.
Others included many countries across Europe and, notably, Israel. Armscor, he said, created offices in Tel Aviv which was "active in ensuring the relationship with Israel in the procurement and co-development of weapons could take place with a large contingent of officials based there".
Many of these nations, he said, voiced public opposition to apartheid while secretly adding fuel to the fire.
How to bankroll a bloody regime
Another key player, this time a bank, was Kredietbank in Belgium and its Luxembourg subsidiary.
Professor Bonita Meyersfeld, an academic and former director of the Centre for Applied Legal Studies at Wits, reiterated the bank's role in aiding Armscor: firstly, through creating shell companies to help erase the trail of money and, secondly, in creating access to bank accounts.
Through accounts managed by the bank, money to purchase arms could be transferred from Pretoria to the ultimate recipients without raising any alarms. More simply, by setting up fake companies and chanelling money through them, the apartheid regime was able to oil its military machine without let or hindrance.
"Countries such as Belgium, France, Portugal and others were able to utilise private entities to enter into engagements with banks that very elegantly set up these shelf companies," she said.
"There'd be hundreds of these across the world where a corporate actor in the Global North would take funds, channel them through shelf companies and money would land up in SA which then went to Armscor (and vice versa)".
"These are not just AK47s -- an image incalcated in films -- but parts of machine guns, helipcopters, parts used to maintain and facilitate this crime against humanity," she said.
Like a spy novel, though, they occurred in the back rooms of the very embassies that stood against apartheid, she said.
Why does this matter today?
In detailing the secret flow of money for arms, Meyersfeld said the purpose is to shine a light on the fact that there remains an urgent need to create a global body to regulate the conduct of banks.
"The reality is there is no international entity that can hold banks to account for their compliance or their non-compliance with standards around international banking, and more importantly for the participation in criminal activity," she said.
Despite the "accountability vacuum," one option she said was to use the OECD National Contact Point (NCP) which hears complaints from individuals who claim corporations are guilty of human rights violations. OECD countries adhering to guidelines on multinational corporations are required to setup NCPs which provide a mediation and conciliation platform for resolving issues involving those companies, she said.
While no silver bullet, this would be one currently available option for "some semblance of accountability" in relation to Kredietbank, she said. Reputation damage, she said, could ultimately result in operations closing or at the least spark efforts at reparations in the absence of a global entity with real teeth.
Insisting on the necessity of global institutions or mechanisms to ensure justice, Meyersfeld said corporations had gotten off scot-free for too long.
"They may not hold the gun to the mineworker at the mine, but they are the ones providing the funds to do this," she said.
When they do, she added, corporate social responsibility projects in response are not enough:
"Corporates can be the agent of harm and the agent of good. But you can't bomb an economy, then build a school".
Source: Marc Davies - Huffington Post
Showing posts with label Corruption. Show all posts
Showing posts with label Corruption. Show all posts
Monday, February 5, 2018
Thursday, April 21, 2016
Press Statement by Andrew Feinstein, Paul Holden and Hennie Van Vuuren regarding the release of the SERITI COMMISSION REPORT into the ARMS DEAL
On the 21st of April 2016, President Jacob Zuma announced the release of the report of the Commission of Inquiry into allegations of fraud, corruption, impropriety or irregularity in the Strategic Defence Procurement Package (the ‘Arms Deal’). During the same announcement, President Zuma provided a summary of the findings of the Commission.
The Commission found that there was nothing wrong with the Arms Deal in its conception, execution or economic impact, despite considerable evidence in the public domain to the contrary. Most importantly, it found that there was no evidence that any of the contracts in the Arms Deal were tainted by evidence of corruption, fraud or irregularity.
We are disappointed, but hardly surprised, that the Commission has come to these findings, which are tantamount to a cover-up. Indeed, it was abundantly clear during the work of the Commission that it was ill-disposed towards undertaking a full, meaningful and unbiased investigation into the Arms Deal. It routinely failed to either admit or interrogate any evidence of wrongdoing in relation to the Deal.
In August 2014, we withdrew from the Commission of Inquiry in protest at the manner in which it was conducting its investigation. Our withdrawal and subsequent refusal to testify before the Commission in October 2014 was supported by over forty civil society organisations who shared our concerns. We identified four primary problems, which we believed indicated that the Commission was failing to investigate the Arms Deal fully, meaningfully and without favour. These concerns were:
1. During the life of the Commission, a number of employees resigned in protest at the manner in which it was conducting its work. In at least two cases, the employees stated that they were resigning because the Commission did not intend to investigate the Arms Deal. Rather, the Commission was pursuing a ‘second agenda’, namely, to discredit critics of the Arms Deal and find in favour of the State and arms companies’ version of events;
2. The Commission refused to admit vital documentary evidence of wrongdoing during the public hearings. One such document was the Debevoise Plimpton Report, an internal audit of the arms company Ferrostaal, which received contracts in the Arms Deal. The Report indicated that Ferrostaal had made tens of millions of rands in payments to politically connected politicians and procurement officials. The report also quoted senior Ferrostaal employees as stating that the offset program was merely a conduit for bribes. In their resignation from the Commission, evidence leaders Advocates Barry Skinner and Carol Sibiya specifically pointed out that refusing to admit the Report ‘nullifies the very purposes for which the Commission was set up.’
3. The Commission refused to allow critical witnesses to testify about documents that they had not written, or events to which they were not personally witness. One major consequence of this is that the only people who could testify to corruption in the Arms Deal were those who paid or received bribes.
4. The Commission failed to provide documents to which we were entitled under the terms of our subpoena, despite repeated requests. The Commission claimed that it was refusing to do so as we were undertaking a ‘fishing expedition.’ The failure of the Commission to provide us with the documents to which we were legally entitled was typical of the Commission’s attitude of sometimes open hostility to critical witnesses.
Despite the above concerns, we are pleased that the Commission Report is now public. We look forward to interrogating its contents in full, and intend to provide a detailed response to the material therein at the earliest opportunity.
In addition, we are seeking legal advice as to the legality of the Commission’s conduct and the viability of a legal review to have the Report set aside. An announcement on this process will be made in due course.
We believe that the report represents a massive missed opportunity at arriving at the truth. However this is not the end of the road in the struggle for truth justice and accountability of corruption in the arms deal.
CONTACT
HENNIE VAN VUUREN
+27 82 902 1303
hennievvuuren@gmail.com
ANDREW FEINSTEIN
+1 929 392 0133
+44 7809728164
andrewfeinstein@me.com
PAUL HOLDEN
+44 795 088 3329
pauledwardholden@gmail.com
Source: Lawyers for Human Rights
The Commission found that there was nothing wrong with the Arms Deal in its conception, execution or economic impact, despite considerable evidence in the public domain to the contrary. Most importantly, it found that there was no evidence that any of the contracts in the Arms Deal were tainted by evidence of corruption, fraud or irregularity.
We are disappointed, but hardly surprised, that the Commission has come to these findings, which are tantamount to a cover-up. Indeed, it was abundantly clear during the work of the Commission that it was ill-disposed towards undertaking a full, meaningful and unbiased investigation into the Arms Deal. It routinely failed to either admit or interrogate any evidence of wrongdoing in relation to the Deal.
In August 2014, we withdrew from the Commission of Inquiry in protest at the manner in which it was conducting its investigation. Our withdrawal and subsequent refusal to testify before the Commission in October 2014 was supported by over forty civil society organisations who shared our concerns. We identified four primary problems, which we believed indicated that the Commission was failing to investigate the Arms Deal fully, meaningfully and without favour. These concerns were:
1. During the life of the Commission, a number of employees resigned in protest at the manner in which it was conducting its work. In at least two cases, the employees stated that they were resigning because the Commission did not intend to investigate the Arms Deal. Rather, the Commission was pursuing a ‘second agenda’, namely, to discredit critics of the Arms Deal and find in favour of the State and arms companies’ version of events;
2. The Commission refused to admit vital documentary evidence of wrongdoing during the public hearings. One such document was the Debevoise Plimpton Report, an internal audit of the arms company Ferrostaal, which received contracts in the Arms Deal. The Report indicated that Ferrostaal had made tens of millions of rands in payments to politically connected politicians and procurement officials. The report also quoted senior Ferrostaal employees as stating that the offset program was merely a conduit for bribes. In their resignation from the Commission, evidence leaders Advocates Barry Skinner and Carol Sibiya specifically pointed out that refusing to admit the Report ‘nullifies the very purposes for which the Commission was set up.’
3. The Commission refused to allow critical witnesses to testify about documents that they had not written, or events to which they were not personally witness. One major consequence of this is that the only people who could testify to corruption in the Arms Deal were those who paid or received bribes.
4. The Commission failed to provide documents to which we were entitled under the terms of our subpoena, despite repeated requests. The Commission claimed that it was refusing to do so as we were undertaking a ‘fishing expedition.’ The failure of the Commission to provide us with the documents to which we were legally entitled was typical of the Commission’s attitude of sometimes open hostility to critical witnesses.
Despite the above concerns, we are pleased that the Commission Report is now public. We look forward to interrogating its contents in full, and intend to provide a detailed response to the material therein at the earliest opportunity.
In addition, we are seeking legal advice as to the legality of the Commission’s conduct and the viability of a legal review to have the Report set aside. An announcement on this process will be made in due course.
We believe that the report represents a massive missed opportunity at arriving at the truth. However this is not the end of the road in the struggle for truth justice and accountability of corruption in the arms deal.
CONTACT
HENNIE VAN VUUREN
+27 82 902 1303
hennievvuuren@gmail.com
ANDREW FEINSTEIN
+1 929 392 0133
+44 7809728164
andrewfeinstein@me.com
PAUL HOLDEN
+44 795 088 3329
pauledwardholden@gmail.com
Source: Lawyers for Human Rights
Wednesday, January 21, 2015
Another delay in ‘Amigos’ trial
A year since their last court appearance, the accused in the so-called “Amigos” R144 million provincial government racketeering, corruption and fraud trial are no closer to standing trial.
When they appeared briefly in the Durban High Court on Tuesday, their case was adjourned for another year – to February 8, 2016 – because the main accused, Cape Town billionaire Gaston Savoi, had launched another “interlocutory application”, this time for a permanent stay of prosecution.
Savoi, who also represents his company, Intaka Holdings, and his colleague, Fernando Praderi, were again absent from court – with the blessing of the State.
Their advocate, Jimmy Howse, placed on record that this was the arrangement with all adjournments and warrants of arrest that were issued but stayed.
Before Acting Judge Eric Nzimande were the former head of the provincial Treasury, Sipho Shabalala, his wife, Beatrice, former heads of health Busisiwe Nyembezi and Ronald Green-Thompson, former health officials Victor Ntshangase and Alson Buthelezi, and advocate Sandile Kuboni.
The reason for the case’s adjournment in February last year was that Savoi was waiting for the outcome of his Constitutional Court challenge to sections of the Prevention of Organised Crime Act. He argued that these were vague and open to “personal and political manipulation” – and used as an example the withdrawal of charges against his former co-accused, ANC politicians Mike Mabuyakhulu and Peggy Nkonyeni.
The Constitutional Court handed down judgment in March last year, dismissing his attacks and finding unanimously that the definition of a “pattern of racketeering activity” was clear.
On the issue he raised about the act allowing “hearsay evidence”, the court said this did not render the trial automatically unfair and the trial court was best placed to deal with this issue.
Savoi has now launched another application in the Pietermaritzburg High Court for a permanent stay of prosecution.
Legal sources said there had been several “skirmishes” around this, particularly about provision of documents from the State. While all the papers had now been filed – and it was hoped it would be argued in March – the dispute had not been finally resolved and it would not be heard until later in the year.
“Of course, depending on the outcome, one or other party may wish to take it to a higher court on appeal, which will push any trial date further in the future,” a source said. Next year’s date remains a provisional one.
Savoi is accused of paying sweeteners to officials – including an alleged R1m to the ANC – to score contracts for the supply of water purification and oxygen plants to the departments of health and local government.
Initially there were 23 accused facing 54 counts. But the new indictment now lists only 17 charges.
In documents in support of an asset forfeiture application, the State put up transcripts of text messages in which some of the accused referred to each other as “Amigo”.
Source: Iol
When they appeared briefly in the Durban High Court on Tuesday, their case was adjourned for another year – to February 8, 2016 – because the main accused, Cape Town billionaire Gaston Savoi, had launched another “interlocutory application”, this time for a permanent stay of prosecution.
Savoi, who also represents his company, Intaka Holdings, and his colleague, Fernando Praderi, were again absent from court – with the blessing of the State.
Their advocate, Jimmy Howse, placed on record that this was the arrangement with all adjournments and warrants of arrest that were issued but stayed.
Before Acting Judge Eric Nzimande were the former head of the provincial Treasury, Sipho Shabalala, his wife, Beatrice, former heads of health Busisiwe Nyembezi and Ronald Green-Thompson, former health officials Victor Ntshangase and Alson Buthelezi, and advocate Sandile Kuboni.
The reason for the case’s adjournment in February last year was that Savoi was waiting for the outcome of his Constitutional Court challenge to sections of the Prevention of Organised Crime Act. He argued that these were vague and open to “personal and political manipulation” – and used as an example the withdrawal of charges against his former co-accused, ANC politicians Mike Mabuyakhulu and Peggy Nkonyeni.
The Constitutional Court handed down judgment in March last year, dismissing his attacks and finding unanimously that the definition of a “pattern of racketeering activity” was clear.
On the issue he raised about the act allowing “hearsay evidence”, the court said this did not render the trial automatically unfair and the trial court was best placed to deal with this issue.
Savoi has now launched another application in the Pietermaritzburg High Court for a permanent stay of prosecution.
Legal sources said there had been several “skirmishes” around this, particularly about provision of documents from the State. While all the papers had now been filed – and it was hoped it would be argued in March – the dispute had not been finally resolved and it would not be heard until later in the year.
“Of course, depending on the outcome, one or other party may wish to take it to a higher court on appeal, which will push any trial date further in the future,” a source said. Next year’s date remains a provisional one.
Savoi is accused of paying sweeteners to officials – including an alleged R1m to the ANC – to score contracts for the supply of water purification and oxygen plants to the departments of health and local government.
Initially there were 23 accused facing 54 counts. But the new indictment now lists only 17 charges.
In documents in support of an asset forfeiture application, the State put up transcripts of text messages in which some of the accused referred to each other as “Amigo”.
Source: Iol
Friday, August 15, 2014
NPA boss Nxasana wins battle against suspension - for now
The National Prosecuting Authority boss Mxolisi Nxasana appears to have won round one in his battle against President Jacob Zuma to keep his job.
Following a meeting between the parties today, Nxasana has not been suspended by Zuma, as had been widely expected this week, the Mail & Guardian has established.
Talks were held this morning after Nxasana filed an urgent court interdict on Tuesday to try to compel Zuma to provide him with further clarity on why he wants to suspend him.
The matter was postponed indefinitely but kept on the court roll, and efforts are being made to try to settle the dispute out of court.
Anticipating Nxasana’s suspension
The court action was seen by Zuma’s supporters as a pre-emptive strike, as they were anticipating Nxasana’s suspension by the President on Tuesday, said an NPA source.
Nxasana’s supporters believe attempts were made to get him to resign after the prosecuting authority moved to recharge suspended crime intelligence boss Richard Mdluli with fraud and corruption.
Trouble erupted seven months after he took up his post when Nxasana was asked in May by former justice minister Jeff Radebe to step down, as he had apparently failed his security clearance.
Nxasana pointed out in his court papers this week that Radebe had brought up cases from 30 years ago, and he had declared most of them.
One of these cases involved a murder charge he faced in court when he was 18, which he said he had not declared because he was acquitted on the grounds that he had acted in self-defence.
While some NPA legal figures have clashed with Nxasana, a number of NPA prosecutors have told the M&G they will not stand by and allow Nxasana to be removed from office, without good reason.
“We believe in his integrity and independence,” said a senior NPA prosecutor this week. “He is the only one who can restore our dignity and pride and bury the rot.”
Nxasana had a deadline for Tuesday to provide reasons why he should not be suspended.
Zuma wrote him a letter and made it clear that he intends to suspend Nxasana while he waits for a commission of inquiry into his fitness to hold office to be convened. However, Nxasana said he would not provide the President with reasons why he should not be suspended unless he has further details about why he wants to suspend him.
Nxasana and Zuma are expected to meet again next week, but the presidency is keeping mum on details.
Further court action could take place if Nxasana is not happy with the outcome, said NPA sources, if Nxasana is still not provided with further details on why Zuma wants to suspend him.
Zuma’s spokesperson Mac Maharaj confirmed in a press statement the President had met with the National Director of Public Prosecutions (NDPP) this morning and said they had discussed various matters around the President’s intention to hold an inquiry into the NDPP’s fitness to hold office.
“The President has taken note of the issues raised by the NDPP,” said Maharaj. “An announcement will be made when all the processes have been completed.”
Source: Mail & Guardian
Following a meeting between the parties today, Nxasana has not been suspended by Zuma, as had been widely expected this week, the Mail & Guardian has established.
Talks were held this morning after Nxasana filed an urgent court interdict on Tuesday to try to compel Zuma to provide him with further clarity on why he wants to suspend him.
The matter was postponed indefinitely but kept on the court roll, and efforts are being made to try to settle the dispute out of court.
Anticipating Nxasana’s suspension
The court action was seen by Zuma’s supporters as a pre-emptive strike, as they were anticipating Nxasana’s suspension by the President on Tuesday, said an NPA source.
Nxasana’s supporters believe attempts were made to get him to resign after the prosecuting authority moved to recharge suspended crime intelligence boss Richard Mdluli with fraud and corruption.
Trouble erupted seven months after he took up his post when Nxasana was asked in May by former justice minister Jeff Radebe to step down, as he had apparently failed his security clearance.
Nxasana pointed out in his court papers this week that Radebe had brought up cases from 30 years ago, and he had declared most of them.
One of these cases involved a murder charge he faced in court when he was 18, which he said he had not declared because he was acquitted on the grounds that he had acted in self-defence.
While some NPA legal figures have clashed with Nxasana, a number of NPA prosecutors have told the M&G they will not stand by and allow Nxasana to be removed from office, without good reason.
“We believe in his integrity and independence,” said a senior NPA prosecutor this week. “He is the only one who can restore our dignity and pride and bury the rot.”
Nxasana had a deadline for Tuesday to provide reasons why he should not be suspended.
Zuma wrote him a letter and made it clear that he intends to suspend Nxasana while he waits for a commission of inquiry into his fitness to hold office to be convened. However, Nxasana said he would not provide the President with reasons why he should not be suspended unless he has further details about why he wants to suspend him.
Nxasana and Zuma are expected to meet again next week, but the presidency is keeping mum on details.
Further court action could take place if Nxasana is not happy with the outcome, said NPA sources, if Nxasana is still not provided with further details on why Zuma wants to suspend him.
Zuma’s spokesperson Mac Maharaj confirmed in a press statement the President had met with the National Director of Public Prosecutions (NDPP) this morning and said they had discussed various matters around the President’s intention to hold an inquiry into the NDPP’s fitness to hold office.
“The President has taken note of the issues raised by the NDPP,” said Maharaj. “An announcement will be made when all the processes have been completed.”
Source: Mail & Guardian
Wednesday, July 16, 2014
The NPA's reputation is in tatters: Our state institutions need to be rescued
Speech by the DA's Shadow Minister of Justice, Glynnis Breytenbach MP during the budget vote debate on Justice, Parliament, July 15 2014:Our state institutions need to be rescued
South Africa has, if not the strongest, then one of the strongest constitutional legislative frameworks in the world. It is designed to ensure that all our citizens live in safety and security, and that everyone is equal before the law. It is these principles that should guide the criminal justice cluster in the performance of their duties, guided always by the prescripts of the Constitution and the principle of the Rule of Law.
However, this has not been done successfully or at all, and the web of terror that crime throws over South Africa is so strong and far-reaching that every South African has been constrained by it in some way. The lives of many committed and talented South Africans have been lost. Many are deeply traumatised. We have become suspicious of our fellow citizens and distrusting of the institutions that are supposed to keep us safe.
This has a negative effect on the fight against crime in general, and the fight against corruption in particular. This in turn has a disastrous effect on the economy and investment. International investors are hesitant to invest where they believe that they may have no recourse, where they have little faith in the ability of the legal framework to offer adequate protection. A knock-on effect is the high unemployment rate, and the inability to create jobs and employ particularly young people and young graduates.
The 2007 Cabinet adopted a so-called seven-point plan to review and revamp the Criminal Justice System. This, very briefly, was designed to address the most serious shortcomings of the Criminal Justice System, and was to create an effective and efficient so-called Integrated Criminal Justice System. We now find ourselves in mid-2014, and no closer to achieving even the most modest of the goals set out in that plan. Seven years of planning, budgeting and promises of implementation have left us nowhere. Billions have been spent by the Department of Justice and the Criminal Justice Cluster in pursuit of these goals, with very little or nothing to show for it.
This year, again, in his overview of the proposed budget, Minister Masutha refers to these goals, how they will be pursued and achieved and how much will be spent in the pursuit thereof. And this year, again, there can be no realistic expectation of any success in this regard.
The National Prosecuting Authority (NPA) is an important player in the Criminal Justice Cluster, and the institution upon which the achievement of these goals largely rests, is in disarray. It has been without a permanent head for long periods, and the ensuing chaos is as a direct result of this. Acting heads, who by their very nature are directionless, and unsuitable appointments have wreaked havoc on a once strong and dependable institution. This is, of course, the direct result of unabashed and undisguised political meddling in the affairs of the National Prosecuting Authority, and the Criminal Justice Cluster as a whole.
The National Prosecuting Authority is an institution that should have no dirty linen to wash, let alone to be washed in public. Yet week after week we see it lurch from one damaging scandal to the next. Its reputation is in tatters. It is constantly in the news, and never for the right reasons. The public at large has no faith in the organization to fulfill even its most basic mandate, and a budget of billions annually sees no real improvement in its daily functions. Millions are wasted on litigation for poor or no reasons.
The hapless Koki Mpshe was appointed after the inexcusable firing of Vusi Pikoli, solely to facilitate the withdrawal of the corruption and other charges against the President. The appointment of the wholly unsuitable Menzi Simelane was defended to the doors of the Constitutional Court, the equally unsuitable Nomcgobo Jiba was rushed up the corporate ladder in order to be able to replace him, and to oversee the continued stonewalling surrounding the spy tapes saga and the protection of Richard Mdluli, astonishingly even in the face of various court judgements. Under pressure from various sources, the President, having had plenty of time to apply his mind, appointed Mxolisi Nxasana, only to institute an enquiry into his fitness to hold office ten months later, and only after he called for the spy tapes and related documents and re-instituted the charges against Richard Mdluli. It takes no great amount of intelligence to glean the golden thread in this sad tale.
The only sensible thing to do now is for the President to widen the still to be announced terms of reference of the Commission to include an enquiry into the behaviour of other senior managers, notably Adv Jiba and Adv Mrwebi. Both were severely criticized in judgements in the High Court and the Supreme Court of Appeal. The top structure of the National Prosecuting Authority needs to be cleaned out so that those who remain can get on with the core business of the organization.
The Special Investigating Unit (SIU) has not fared much better than the National Prosecuting Authority. Beset by leadership issues the Special Investigating Unit has largely failed to fulfill its proclaimed goals, despite a year on year increase in its budget. Many investigations have dragged on for years, and appear to be nowhere near completion. The Bosasa matter has been live for more than 5 years now, still with no end in sight, and the Head, Adv Soni, admitted last week before the Portfolio Committee that he could give no indication as to when the Nkandla investigation and report would be finalized and placed before the President.
Despite the importance of and public interest in the matter, the Special Investigating Unit only managed to gain access to the premises at Nkandla on 3 July 2014. Adv Soni declined to say who was responsible for the delay, despite the parties involved being legally obliged to co-operate with him. Given the profile of this matter, and the obvious importance and pressure to finalize it, no real progress could be demonstrated, and certainly no will to drive the matter was discernible.
The current presentation before the Portfolio Committee reveals an enormous decrease in cases expected to be finalized, but despite this the Special Investigating Unit felt comfortable to approach Parliament and request an increased budget in order to meet its significantly decreased goals. There can be very little confidence that even these modest goals will be met. Again we see an important component in the Criminal Justice Cluster being reduced to a somewhat embarrassing ineffectiveness due to overt political meddling.
The office of the public protector is a chapter 9 institution and an independent body reporting to Parliament, whose mandate is being followed and fulfilled, but is clearly under fire due to the independence being exhibited. The Public Protector herself is vilified, accused of overreaching her mandate, accused of playing politics and the target of severe personal criticism from certain limited sources, simply because she refuses to bow to political pressure and refuses to allow political interference in the institution, which derives its independence from the Constitution.
Again, the thread of political interference in these institutions is glaring, and the attack on the independence of the Criminal Justice Cluster is palpable.
No amount of budget increases will fix this. No amount of money is going to make these institutions effective in the face of such interference. The interference must stop. And it is our duty, the duty of this fifth Parliament, to all those citizens who voted for us to sit here, to make it stop, and to work towards making the Criminal Justice Cluster effective and efficient, in order to fulfill the role it is enjoined to fill by the Constitution. If we allow the Rule of Law to be eroded any further, we will find it impossible to regain the lost ground.
The great Russian author, Aleksandr Solzhenitsyn wrote: " in keeping silent about evil, in burying it so deep within us that no sign of it appears on the surface, we are implanting it, and it will rise up a thousand fold in the future. When we neither punish nor reproach evildoers, we are not simply protecting their trivial old age, we are thereby ripping the foundations of justice from beneath new generations."
We are tired. We want justice now. Sikathele manje. Sifuna ukulunga.
Issued by the DA, July 15 2014
Source: Politicsweb
South Africa has, if not the strongest, then one of the strongest constitutional legislative frameworks in the world. It is designed to ensure that all our citizens live in safety and security, and that everyone is equal before the law. It is these principles that should guide the criminal justice cluster in the performance of their duties, guided always by the prescripts of the Constitution and the principle of the Rule of Law.
However, this has not been done successfully or at all, and the web of terror that crime throws over South Africa is so strong and far-reaching that every South African has been constrained by it in some way. The lives of many committed and talented South Africans have been lost. Many are deeply traumatised. We have become suspicious of our fellow citizens and distrusting of the institutions that are supposed to keep us safe.
This has a negative effect on the fight against crime in general, and the fight against corruption in particular. This in turn has a disastrous effect on the economy and investment. International investors are hesitant to invest where they believe that they may have no recourse, where they have little faith in the ability of the legal framework to offer adequate protection. A knock-on effect is the high unemployment rate, and the inability to create jobs and employ particularly young people and young graduates.
The 2007 Cabinet adopted a so-called seven-point plan to review and revamp the Criminal Justice System. This, very briefly, was designed to address the most serious shortcomings of the Criminal Justice System, and was to create an effective and efficient so-called Integrated Criminal Justice System. We now find ourselves in mid-2014, and no closer to achieving even the most modest of the goals set out in that plan. Seven years of planning, budgeting and promises of implementation have left us nowhere. Billions have been spent by the Department of Justice and the Criminal Justice Cluster in pursuit of these goals, with very little or nothing to show for it.
This year, again, in his overview of the proposed budget, Minister Masutha refers to these goals, how they will be pursued and achieved and how much will be spent in the pursuit thereof. And this year, again, there can be no realistic expectation of any success in this regard.
The National Prosecuting Authority (NPA) is an important player in the Criminal Justice Cluster, and the institution upon which the achievement of these goals largely rests, is in disarray. It has been without a permanent head for long periods, and the ensuing chaos is as a direct result of this. Acting heads, who by their very nature are directionless, and unsuitable appointments have wreaked havoc on a once strong and dependable institution. This is, of course, the direct result of unabashed and undisguised political meddling in the affairs of the National Prosecuting Authority, and the Criminal Justice Cluster as a whole.
The National Prosecuting Authority is an institution that should have no dirty linen to wash, let alone to be washed in public. Yet week after week we see it lurch from one damaging scandal to the next. Its reputation is in tatters. It is constantly in the news, and never for the right reasons. The public at large has no faith in the organization to fulfill even its most basic mandate, and a budget of billions annually sees no real improvement in its daily functions. Millions are wasted on litigation for poor or no reasons.
The hapless Koki Mpshe was appointed after the inexcusable firing of Vusi Pikoli, solely to facilitate the withdrawal of the corruption and other charges against the President. The appointment of the wholly unsuitable Menzi Simelane was defended to the doors of the Constitutional Court, the equally unsuitable Nomcgobo Jiba was rushed up the corporate ladder in order to be able to replace him, and to oversee the continued stonewalling surrounding the spy tapes saga and the protection of Richard Mdluli, astonishingly even in the face of various court judgements. Under pressure from various sources, the President, having had plenty of time to apply his mind, appointed Mxolisi Nxasana, only to institute an enquiry into his fitness to hold office ten months later, and only after he called for the spy tapes and related documents and re-instituted the charges against Richard Mdluli. It takes no great amount of intelligence to glean the golden thread in this sad tale.
The only sensible thing to do now is for the President to widen the still to be announced terms of reference of the Commission to include an enquiry into the behaviour of other senior managers, notably Adv Jiba and Adv Mrwebi. Both were severely criticized in judgements in the High Court and the Supreme Court of Appeal. The top structure of the National Prosecuting Authority needs to be cleaned out so that those who remain can get on with the core business of the organization.
The Special Investigating Unit (SIU) has not fared much better than the National Prosecuting Authority. Beset by leadership issues the Special Investigating Unit has largely failed to fulfill its proclaimed goals, despite a year on year increase in its budget. Many investigations have dragged on for years, and appear to be nowhere near completion. The Bosasa matter has been live for more than 5 years now, still with no end in sight, and the Head, Adv Soni, admitted last week before the Portfolio Committee that he could give no indication as to when the Nkandla investigation and report would be finalized and placed before the President.
Despite the importance of and public interest in the matter, the Special Investigating Unit only managed to gain access to the premises at Nkandla on 3 July 2014. Adv Soni declined to say who was responsible for the delay, despite the parties involved being legally obliged to co-operate with him. Given the profile of this matter, and the obvious importance and pressure to finalize it, no real progress could be demonstrated, and certainly no will to drive the matter was discernible.
The current presentation before the Portfolio Committee reveals an enormous decrease in cases expected to be finalized, but despite this the Special Investigating Unit felt comfortable to approach Parliament and request an increased budget in order to meet its significantly decreased goals. There can be very little confidence that even these modest goals will be met. Again we see an important component in the Criminal Justice Cluster being reduced to a somewhat embarrassing ineffectiveness due to overt political meddling.
The office of the public protector is a chapter 9 institution and an independent body reporting to Parliament, whose mandate is being followed and fulfilled, but is clearly under fire due to the independence being exhibited. The Public Protector herself is vilified, accused of overreaching her mandate, accused of playing politics and the target of severe personal criticism from certain limited sources, simply because she refuses to bow to political pressure and refuses to allow political interference in the institution, which derives its independence from the Constitution.
Again, the thread of political interference in these institutions is glaring, and the attack on the independence of the Criminal Justice Cluster is palpable.
No amount of budget increases will fix this. No amount of money is going to make these institutions effective in the face of such interference. The interference must stop. And it is our duty, the duty of this fifth Parliament, to all those citizens who voted for us to sit here, to make it stop, and to work towards making the Criminal Justice Cluster effective and efficient, in order to fulfill the role it is enjoined to fill by the Constitution. If we allow the Rule of Law to be eroded any further, we will find it impossible to regain the lost ground.
The great Russian author, Aleksandr Solzhenitsyn wrote: " in keeping silent about evil, in burying it so deep within us that no sign of it appears on the surface, we are implanting it, and it will rise up a thousand fold in the future. When we neither punish nor reproach evildoers, we are not simply protecting their trivial old age, we are thereby ripping the foundations of justice from beneath new generations."
We are tired. We want justice now. Sikathele manje. Sifuna ukulunga.
Issued by the DA, July 15 2014
Source: Politicsweb
Saturday, July 5, 2014
Zuma announces inquiry into NPA boss Nxasana
President Jacob Zuma instituted an inquiry into NPA boss Mxolisi Nxasana, the presidency announced on Saturday.
“President Jacob Zuma has, in terms of Section 12(6)(a)(iv) of the National Prosecuting Authority Act 32 of 1998 and after careful consideration of all the matters before him, decided to institute an inquiry into the National Director of Public Prosecutions, Mr Mxolisi Nxasana,” a statement from the presidency said.
Maharaj said details on whether Nxasana would be suspended will be announced in due course.
Nxasana was thrust into the limelight after he was denied a clearance certificate, when he did not disclose that he had killed a man when he was 18 years old.
Nxasana said he was acquitted of the murder, which took place in 1985 in Umlazi, outside Durban, but this had now come back to haunt him. Nxasana insisted this is part of factional machinations by his rivals at the NPA and politicians who want to get rid of him.
Circulating stories
In May, Nxasana told the Mail & Guardian: “There have been stories circulating, which I will tell a commission of inquiry if there is one,” Nxasana. “They have spread rumours that I want to reinstate charges against President Jacob Zuma, that I want to reinstate charges in the Amigos case in Durban [involving ANC politicians].”
A report by the Sunday Times, claimed that pensioner Aggrieneth Khumalo – the mother of Nxasana’s ex-girlfriend Joyce Khumalo – painted a picture of a man who was a “woman beater, bully and thug” when recalling her late daughter’s relationship with the NPA boss.
Khumalo died in 1998 in an unrelated incident after her relationship with Nxasana.
NPA spokesperson Bulelwa Makeke referred to the report as “an apparent crusade against Nxasana” and told the M&G that the prosecuting agency was not interested in giving the report “any credence”.
Earlier, Zuma denied reports in the New Age that he ordered Nxasana to resign or face being fired.
“The president has not met with Mr Nxasana and has not asked him to resign,” Maharaj said.
NPA spokesperson Nathi Ncube said the article was a lie. “The story is a pure fabrication by information peddlers with a very active imagination,” Ncube told a South African Press Association reporter via SMS.
Sources close to the NPA and the presidency reportedly told the New Age that Zuma met Nxasana recently to discuss Nxasana’s future. It was at that meeting that Zuma reportedly asked Nxasana to resign or face being fired.
Source: Mail & Guardian
“President Jacob Zuma has, in terms of Section 12(6)(a)(iv) of the National Prosecuting Authority Act 32 of 1998 and after careful consideration of all the matters before him, decided to institute an inquiry into the National Director of Public Prosecutions, Mr Mxolisi Nxasana,” a statement from the presidency said.
Maharaj said details on whether Nxasana would be suspended will be announced in due course.
Nxasana was thrust into the limelight after he was denied a clearance certificate, when he did not disclose that he had killed a man when he was 18 years old.
Nxasana said he was acquitted of the murder, which took place in 1985 in Umlazi, outside Durban, but this had now come back to haunt him. Nxasana insisted this is part of factional machinations by his rivals at the NPA and politicians who want to get rid of him.
Circulating stories
In May, Nxasana told the Mail & Guardian: “There have been stories circulating, which I will tell a commission of inquiry if there is one,” Nxasana. “They have spread rumours that I want to reinstate charges against President Jacob Zuma, that I want to reinstate charges in the Amigos case in Durban [involving ANC politicians].”
A report by the Sunday Times, claimed that pensioner Aggrieneth Khumalo – the mother of Nxasana’s ex-girlfriend Joyce Khumalo – painted a picture of a man who was a “woman beater, bully and thug” when recalling her late daughter’s relationship with the NPA boss.
Khumalo died in 1998 in an unrelated incident after her relationship with Nxasana.
NPA spokesperson Bulelwa Makeke referred to the report as “an apparent crusade against Nxasana” and told the M&G that the prosecuting agency was not interested in giving the report “any credence”.
Earlier, Zuma denied reports in the New Age that he ordered Nxasana to resign or face being fired.
“The president has not met with Mr Nxasana and has not asked him to resign,” Maharaj said.
NPA spokesperson Nathi Ncube said the article was a lie. “The story is a pure fabrication by information peddlers with a very active imagination,” Ncube told a South African Press Association reporter via SMS.
Sources close to the NPA and the presidency reportedly told the New Age that Zuma met Nxasana recently to discuss Nxasana’s future. It was at that meeting that Zuma reportedly asked Nxasana to resign or face being fired.
Source: Mail & Guardian
Tuesday, May 6, 2014
Abahlali baseMjondolo Press Statement: The ANC Must be removed from Office
For nine years our movement has boycotted elections. We have been clear that no political party represents the interests of the poor and that it was necessary for us to build our own power in order to present our own needs and demands to society. In these nine years we have won many victories but most of us remain in shacks. Twenty years of shack life is a disgrace in a democracy.
Corruption is also a disgrace. In Durban you get nothing without a membership card for the ANC. All development goes through the councillors and their ward committees and ANC branch executive committees. Development is there to make ANC leaders rich and to control the rest of us by only making it available to ANC members. Development is not for the people. This kind of corruption is a disgrace in a democracy.
But an even bigger disgrace is the repression that we have faced from the ANC, its members, its leaders and its assassins. They have banned our marches; attacked our marches; arrested us on trumped up charges; assaulted us in detention; used armed men to drive us from our homes with police support; used death threats, attacks in our homes and torture in police stations to intimidate people to manufacture evidence against us; detained us for months and months while we wait for a trial that gets thrown out of court because there is no evidence against us; used their anti-land invasion unit to evict us for political reasons and beaten and shot us in our communities. Senior members of the ANC and the Municipality have made public death threats against us. Two activists were assassinated in Cato Crest last year and another, an unarmed teenage girl, was executed by the police.
We cannot go on with this level of repression. As everyone knows we are not the only people who face this kind of repression. We all know about Andries Tatane and all the others murdered by the police on protests. We all know about the Marikana Massacre.
In Durban court orders are just ignored by the Municipality and so the courts cannot protect us. Mostly the media and civil society tend to agree that because we are poor and black we are automatically violent and criminal and too stupid to think our own politics and so we do not get that much protection from the media and civil society either. We have some valued comrades on the left among the middle classes but mostly this left just wants to bus us into its meetings so that it can look credible without having any interest at all in our struggles, our ideas or our safety. NUMSA asked us to support their march in Durban but they have not shown any concern to support us when we face repression. The EFF also asked us to support their march in Durban but, like NUMSA, they have not supported us when we face repression. So far our experience of both these organisations is that they are operating like the left NGOs – we are treated as if our only role is to provide the large numbers of people that they need to be bussed in to justify their politics.
Because we cannot carry on like this we took a decision to vote against the ANC. We did not want to split our vote. We decided to collectivise our vote in order to make it stronger. Our main priority was that the ANC must be removed from office. We knew that this will not happen in this election but we were still clear that if we can weaken the ANC then we must do that. Also we knew that if we collectivise our vote all the political parties will know that there is a large bloc of votes that will be available at the next election for the party that does the best job in opposing repression and takes the best position on shack settlements.
We decided that all political parties except the ANC would be invited to make a presentation to the movement. Some of our members did not want to invite the DA to make a presentation as they are known to represent the rich and, in Cape Town, they are no different to the ANC when it comes to illegal and violent evictions. However we debated this at length and decided to invite them to make a presentation on the grounds that the removal of the ANC was our first priority and the weakening of the ANC was our second priority.
The DA, EFF, NFP and WASP all accepted the invitation to make a presentation to our members at the Diakonia Centre on 25 April and they all came and made their presentations.
The delegates to that meeting then returned to their branches to discuss the presentations there. We met again on 2 May and held a general meeting. At this meeting the general leadership did not vote as their role was to facilitate the meeting. The rest of the delegates voted and the results were as follows:
2 - undecided
2 - WASP
16 - EFF
26 - NFP
146 – DA
The DA and the EFF returned to witness the voting. WASP did not return. The NFP arrived three hours late with lots of car, bodyguards and their senior people. But by that time we were already dispersing.
The whole meeting was recorded on video and this video can be made available. Even those who were very disappointed with the results agree that it was a highly democratic process. The collective discipline of a democratic organisation requires that we all accept this outcome. Of course this decision is only for this election and it does not bind our members in Cape Town. When the next election comes we will again decide whether or not to vote and, if so, which party to vote for.
The main reason why the majority of the delegates supported the DA was because they wanted to have the strongest possible opposition to the ANC to put the maximum pressure on the ANC and to prevent it from doing what it pleases – which includes murdering us. We negotiated a legal agreement with DA which commits them to support some of our more basic demands. We hope that they will stand up for these issues and that they, and all other parties, will realise that if they want the support of the shack dwellers they will have to support us rather than see us as a problem to be eradicated or forcibly removed from the cities and taken to the human dumping grounds.
We will vote, as one bloc, for the DA tomorrow. We will not take membership of the party, we do not endorse its policies and we will continue to insist that no one can hold a position as an elected leader in our movement if they join a political party. We do not love or trust the DA. Already they are telling lies about our choice and we are not surprised. We have made a purely tactical choice. We will certainly continue to organise against all and any attacks on the poor in Cape Town by the DA government there.
One of the lies that is being told is that the DA are saying that we have endorsed them for this election in the Western Cape. This is not true. Our Western Cape branch has endorsed our decision to make a tactical vote for the DA in KwaZulu-Natal. Our Western Cape branch has not decided to make any collective vote for any party in this election.
Over the last nine years we have protected our autonomy from NGOs very carefully even though we do work with some NGOs. Now that we feel that it is necessary for our safety and our ability to continue to organise to use our numbers to make deals with political parties we will protect our autonomy from political parties in the same way.
Our politics puts people first. We cannot do nothing but wait for socialism to come one day in the far distant future. Our children are dying from diarrhoea right now, our old people and disabled people are dying in shack fires right now, we are being evicted and disconnected right now and we are being beaten and shot during evictions and disconnections right now. We been repressed, and even murdered, right now. We have to act to do what we can to make our members’ lives better right now. We have to act to protect our ability to organise and to sustain our living politics right now. This does not mean that we have given up on our vision of a world where land, cities, wealth and power are shared fairly. We call this a living communism and we remain committed to it. But we also remain committed to the human beings that we are now and to our families, neighbours and comrades. We will make what deals we have to make to protect our politics and improve our members’ lives right now but we will not give up on our political vision. We represent thousands of people who live in shack settlements. Those people who sit in university offices and NGO offices only represent themselves. Their children are safe. Their lives are not at risk. They are free to put ideology before people because they are not accountable to oppressed people and because they are not themselves oppressed people. But the fact that we do not enjoy that freedom does not mean that we have given up our politics. It means that we are searching for a practical way forward in a difficult and dangerous struggle.
The new Abahlali electoral position has offered us a lot to learn about. There is a lot to learn about party politics and its dirty campaigning tactics. There is a lot to learn about the deeper politics of our time. And, yes, there is a lot to learn about who cares and doesn't care about the struggles of the poor and the working class.
Ideology and principle are vital but if they both fail to house the homeless and rescue the repressed and recognise the humanity of the inhumanized then the oppressed are not doing any harm to anyone in trying to emancipate ourselves by taking practical action now to keep people safe and to make their lives better while always keeping a bigger vision of freedom and justice in mind.
We share a sadness that we have had to make this decision. Very few people outside the movement have been witness to what we’ve been going through in the hands of the ANC. We do not have words to explain the pain many of us have gone through. We do not have words to explain our pain of twenty years of shack life and all the state repression that has come to us when we stood up for our humanity. Last year we came to the ceiling of hopelessness. It was clear that we are people that can be freely killed. The stress that this created led to some intense internal conflicts. We knew that we could not carry on with our old politics. Our new position has enabled us to rethink our struggle. It may not be the perfect way but it brought a robust discussion about us that was seriously trying to find ways of creating a new hope from no hope.
We are not surprised at the way some people on the so called left have reacted on our position. We are not surprised at the usual lies from the usual people on the internet. Many people and organisations on the left do not accept that we have the right to think our own struggle and to make our own decisions. They think that because they are on the left they have the right to tell us what to do. We do not accept this. These people see our decision as stupid and as a sell-out while they are nowhere to be seen in our times of great difficulty. It makes us to think that such people enjoy our suffering or even benefit from it. Why will people who claim to be in our support judge us instead of contacting us to first understand our decision? It may be a wrong decision but the reality is that we cannot deceive ourselves purposefully on our pain. Why should we be made to struggle in a way that is only designed to try and impress other people simple because they say that they are on the left? We will never do this. Our members must live in shacks and they must try and survive repression. Their organisation is theirs and it will be directed by their decisions. We have never compromised on this and for this we have always been attacked by the regressive left that only want us to take their money so that in exchange we can arrange for people to be bussed into their meetings. This is not emancipation. It is another kind of oppression.
Is the left doing enough to care about our struggle? Or do they see our struggles as projects from which they can prove and debate their findings and analysis rather than as a struggle to genuinely confront the forces of darkness? Our decision aims at trying to keep the space open for us to liberate ourselves by making a tactical move. We do not love the DA or agree with its policies. Why do people who failed to condemn the ANC attacks on us get so angry with us when we try to punish the ANC by making a tactical vote for its enemy? Maybe for these people it is better for us to be oppressed by the ANC than the DA. For us it is better not to be oppressed. Some of the left is just like some of the development NGOs and some of the state. They want to experiment on us, to use us for their own projects. We say no. On this there is no compromise. We continue to say ‘talk to us, not for us’ and ‘think with us not for us’.
Our position remains honouring those who have supported and who continue to support us. Since we all don't know the answers in this struggle to humanise the world we will keep hunting and trying. Sometimes we will make wrong decisions but at least we offer debate and learning for ourselves and all our friends and comrades.
The ANC are a serious threat to society and to right of the poor to organise freely in this society. They must be removed from office and until we can remove them we must do all that we can to weaken them.
For further information and comment please contact:
Mnikelo Ndabankulu on 081 263 3462
Zodwa Nsibande on 082 902 2960
Thembani Ngongoma on 084 613 9772
Nono Majola on 074 803 1986
Source: Abahlali baseMjondolo
Corruption is also a disgrace. In Durban you get nothing without a membership card for the ANC. All development goes through the councillors and their ward committees and ANC branch executive committees. Development is there to make ANC leaders rich and to control the rest of us by only making it available to ANC members. Development is not for the people. This kind of corruption is a disgrace in a democracy.
But an even bigger disgrace is the repression that we have faced from the ANC, its members, its leaders and its assassins. They have banned our marches; attacked our marches; arrested us on trumped up charges; assaulted us in detention; used armed men to drive us from our homes with police support; used death threats, attacks in our homes and torture in police stations to intimidate people to manufacture evidence against us; detained us for months and months while we wait for a trial that gets thrown out of court because there is no evidence against us; used their anti-land invasion unit to evict us for political reasons and beaten and shot us in our communities. Senior members of the ANC and the Municipality have made public death threats against us. Two activists were assassinated in Cato Crest last year and another, an unarmed teenage girl, was executed by the police.
We cannot go on with this level of repression. As everyone knows we are not the only people who face this kind of repression. We all know about Andries Tatane and all the others murdered by the police on protests. We all know about the Marikana Massacre.
In Durban court orders are just ignored by the Municipality and so the courts cannot protect us. Mostly the media and civil society tend to agree that because we are poor and black we are automatically violent and criminal and too stupid to think our own politics and so we do not get that much protection from the media and civil society either. We have some valued comrades on the left among the middle classes but mostly this left just wants to bus us into its meetings so that it can look credible without having any interest at all in our struggles, our ideas or our safety. NUMSA asked us to support their march in Durban but they have not shown any concern to support us when we face repression. The EFF also asked us to support their march in Durban but, like NUMSA, they have not supported us when we face repression. So far our experience of both these organisations is that they are operating like the left NGOs – we are treated as if our only role is to provide the large numbers of people that they need to be bussed in to justify their politics.
Because we cannot carry on like this we took a decision to vote against the ANC. We did not want to split our vote. We decided to collectivise our vote in order to make it stronger. Our main priority was that the ANC must be removed from office. We knew that this will not happen in this election but we were still clear that if we can weaken the ANC then we must do that. Also we knew that if we collectivise our vote all the political parties will know that there is a large bloc of votes that will be available at the next election for the party that does the best job in opposing repression and takes the best position on shack settlements.
We decided that all political parties except the ANC would be invited to make a presentation to the movement. Some of our members did not want to invite the DA to make a presentation as they are known to represent the rich and, in Cape Town, they are no different to the ANC when it comes to illegal and violent evictions. However we debated this at length and decided to invite them to make a presentation on the grounds that the removal of the ANC was our first priority and the weakening of the ANC was our second priority.
The DA, EFF, NFP and WASP all accepted the invitation to make a presentation to our members at the Diakonia Centre on 25 April and they all came and made their presentations.
The delegates to that meeting then returned to their branches to discuss the presentations there. We met again on 2 May and held a general meeting. At this meeting the general leadership did not vote as their role was to facilitate the meeting. The rest of the delegates voted and the results were as follows:
2 - undecided
2 - WASP
16 - EFF
26 - NFP
146 – DA
The DA and the EFF returned to witness the voting. WASP did not return. The NFP arrived three hours late with lots of car, bodyguards and their senior people. But by that time we were already dispersing.
The whole meeting was recorded on video and this video can be made available. Even those who were very disappointed with the results agree that it was a highly democratic process. The collective discipline of a democratic organisation requires that we all accept this outcome. Of course this decision is only for this election and it does not bind our members in Cape Town. When the next election comes we will again decide whether or not to vote and, if so, which party to vote for.
The main reason why the majority of the delegates supported the DA was because they wanted to have the strongest possible opposition to the ANC to put the maximum pressure on the ANC and to prevent it from doing what it pleases – which includes murdering us. We negotiated a legal agreement with DA which commits them to support some of our more basic demands. We hope that they will stand up for these issues and that they, and all other parties, will realise that if they want the support of the shack dwellers they will have to support us rather than see us as a problem to be eradicated or forcibly removed from the cities and taken to the human dumping grounds.
We will vote, as one bloc, for the DA tomorrow. We will not take membership of the party, we do not endorse its policies and we will continue to insist that no one can hold a position as an elected leader in our movement if they join a political party. We do not love or trust the DA. Already they are telling lies about our choice and we are not surprised. We have made a purely tactical choice. We will certainly continue to organise against all and any attacks on the poor in Cape Town by the DA government there.
One of the lies that is being told is that the DA are saying that we have endorsed them for this election in the Western Cape. This is not true. Our Western Cape branch has endorsed our decision to make a tactical vote for the DA in KwaZulu-Natal. Our Western Cape branch has not decided to make any collective vote for any party in this election.
Over the last nine years we have protected our autonomy from NGOs very carefully even though we do work with some NGOs. Now that we feel that it is necessary for our safety and our ability to continue to organise to use our numbers to make deals with political parties we will protect our autonomy from political parties in the same way.
Our politics puts people first. We cannot do nothing but wait for socialism to come one day in the far distant future. Our children are dying from diarrhoea right now, our old people and disabled people are dying in shack fires right now, we are being evicted and disconnected right now and we are being beaten and shot during evictions and disconnections right now. We been repressed, and even murdered, right now. We have to act to do what we can to make our members’ lives better right now. We have to act to protect our ability to organise and to sustain our living politics right now. This does not mean that we have given up on our vision of a world where land, cities, wealth and power are shared fairly. We call this a living communism and we remain committed to it. But we also remain committed to the human beings that we are now and to our families, neighbours and comrades. We will make what deals we have to make to protect our politics and improve our members’ lives right now but we will not give up on our political vision. We represent thousands of people who live in shack settlements. Those people who sit in university offices and NGO offices only represent themselves. Their children are safe. Their lives are not at risk. They are free to put ideology before people because they are not accountable to oppressed people and because they are not themselves oppressed people. But the fact that we do not enjoy that freedom does not mean that we have given up our politics. It means that we are searching for a practical way forward in a difficult and dangerous struggle.
The new Abahlali electoral position has offered us a lot to learn about. There is a lot to learn about party politics and its dirty campaigning tactics. There is a lot to learn about the deeper politics of our time. And, yes, there is a lot to learn about who cares and doesn't care about the struggles of the poor and the working class.
Ideology and principle are vital but if they both fail to house the homeless and rescue the repressed and recognise the humanity of the inhumanized then the oppressed are not doing any harm to anyone in trying to emancipate ourselves by taking practical action now to keep people safe and to make their lives better while always keeping a bigger vision of freedom and justice in mind.
We share a sadness that we have had to make this decision. Very few people outside the movement have been witness to what we’ve been going through in the hands of the ANC. We do not have words to explain the pain many of us have gone through. We do not have words to explain our pain of twenty years of shack life and all the state repression that has come to us when we stood up for our humanity. Last year we came to the ceiling of hopelessness. It was clear that we are people that can be freely killed. The stress that this created led to some intense internal conflicts. We knew that we could not carry on with our old politics. Our new position has enabled us to rethink our struggle. It may not be the perfect way but it brought a robust discussion about us that was seriously trying to find ways of creating a new hope from no hope.
We are not surprised at the way some people on the so called left have reacted on our position. We are not surprised at the usual lies from the usual people on the internet. Many people and organisations on the left do not accept that we have the right to think our own struggle and to make our own decisions. They think that because they are on the left they have the right to tell us what to do. We do not accept this. These people see our decision as stupid and as a sell-out while they are nowhere to be seen in our times of great difficulty. It makes us to think that such people enjoy our suffering or even benefit from it. Why will people who claim to be in our support judge us instead of contacting us to first understand our decision? It may be a wrong decision but the reality is that we cannot deceive ourselves purposefully on our pain. Why should we be made to struggle in a way that is only designed to try and impress other people simple because they say that they are on the left? We will never do this. Our members must live in shacks and they must try and survive repression. Their organisation is theirs and it will be directed by their decisions. We have never compromised on this and for this we have always been attacked by the regressive left that only want us to take their money so that in exchange we can arrange for people to be bussed into their meetings. This is not emancipation. It is another kind of oppression.
Is the left doing enough to care about our struggle? Or do they see our struggles as projects from which they can prove and debate their findings and analysis rather than as a struggle to genuinely confront the forces of darkness? Our decision aims at trying to keep the space open for us to liberate ourselves by making a tactical move. We do not love the DA or agree with its policies. Why do people who failed to condemn the ANC attacks on us get so angry with us when we try to punish the ANC by making a tactical vote for its enemy? Maybe for these people it is better for us to be oppressed by the ANC than the DA. For us it is better not to be oppressed. Some of the left is just like some of the development NGOs and some of the state. They want to experiment on us, to use us for their own projects. We say no. On this there is no compromise. We continue to say ‘talk to us, not for us’ and ‘think with us not for us’.
Our position remains honouring those who have supported and who continue to support us. Since we all don't know the answers in this struggle to humanise the world we will keep hunting and trying. Sometimes we will make wrong decisions but at least we offer debate and learning for ourselves and all our friends and comrades.
The ANC are a serious threat to society and to right of the poor to organise freely in this society. They must be removed from office and until we can remove them we must do all that we can to weaken them.
For further information and comment please contact:
Mnikelo Ndabankulu on 081 263 3462
Zodwa Nsibande on 082 902 2960
Thembani Ngongoma on 084 613 9772
Nono Majola on 074 803 1986
Source: Abahlali baseMjondolo
Wednesday, April 30, 2014
Why Only One Top Banker Went to Jail for the Financial Crisis
On the evening of Jan. 27, Kareem Serageldin walked out of his Times Square apartment with his brother and an old Yale roommate and took off on the four-hour drive to Philipsburg, a small town smack in the middle of Pennsylvania. Despite once earning nearly $7 million a year as an executive at Credit Suisse, Serageldin, who is 41, had always lived fairly modestly. A previous apartment, overlooking Victoria Station in London, struck his friends as a grown-up dorm room; Serageldin lived with bachelor-pad furniture and little of it — his central piece was a night stand overflowing with economics books, prospectuses and earnings reports. In the years since, his apartments served as places where he would log five or six hours of sleep before going back to work, creating and trading complex financial instruments. One friend called him an “investment-banking monk.”
Serageldin’s life was about to become more ascetic. Two months earlier, he sat in a Lower Manhattan courtroom adjusting and readjusting his tie as he waited for a judge to deliver his prison sentence. During the worst of the financial crisis, according to prosecutors, Serageldin had approved the concealment of hundreds of millions in losses in Credit Suisse’s mortgage-backed securities portfolio. But on that November morning, the judge seemed almost torn. Serageldin lied about the value of his bank’s securities — that was a crime, of course — but other bankers behaved far worse. Serageldin’s former employer, for one, had revised its past financial statements to account for $2.7 billion that should have been reported. Lehman Brothers, AIG, Citigroup, Countrywide and many others had also admitted that they were in much worse shape than they initially allowed. Merrill Lynch, in particular, announced a loss of nearly $8 billion three weeks after claiming it was $4.5 billion. Serageldin’s conduct was, in the judge’s words, “a small piece of an overall evil climate within the bank and with many other banks.” Nevertheless, after a brief pause, he eased down his gavel and sentenced Serageldin, an Egyptian-born trader who grew up in the barren pinelands of Michigan’s Upper Peninsula, to 30 months in jail. Serageldin would begin serving his time at Moshannon Valley Correctional Center, in Philipsburg, where he would earn the distinction of being the only Wall Street executive sent to jail for his part in the financial crisis.
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American financial history has generally unfolded as a series of booms followed by busts followed by crackdowns. After the crash of 1929, the Pecora Hearings seized upon public outrage, and the head of the New York Stock Exchange landed in prison. After the savings-and-loan scandals of the 1980s, 1,100 people were prosecuted, including top executives at many of the largest failed banks. In the ’90s and early aughts, when the bursting of the Nasdaq bubble revealed widespread corporate accounting scandals, top executives from WorldCom, Enron, Qwest and Tyco, among others, went to prison.
The credit crisis of 2008 dwarfed those busts, and it was only to be expected that a similar round of crackdowns would ensue. In 2009, the Obama administration appointed Lanny Breuer to lead the Justice Department’s criminal division. Breuer quickly focused on professionalizing the operation, introducing the rigor of a prestigious firm like Covington & Burling, where he had spent much of his career. He recruited elite lawyers from corporate firms and the Breu Crew, as they would later be known, were repeatedly urged by Breuer to “take it to the next level.”
But the crackdown never happened. Over the past year, I’ve interviewed Wall Street traders, bank executives, defense lawyers and dozens of current and former prosecutors to understand why the largest man-made economic catastrophe since the Depression resulted in the jailing of a single investment banker — one who happened to be several rungs from the corporate suite at a second-tier financial institution. Many assume that the federal authorities simply lacked the guts to go after powerful Wall Street bankers, but that obscures a far more complicated dynamic. During the past decade, the Justice Department suffered a series of corporate prosecutorial fiascos, which led to critical changes in how it approached white-collar crime. The department began to focus on reaching settlements rather than seeking prison sentences, which over time unintentionally deprived its ranks of the experience needed to win trials against the most formidable law firms. By the time Serageldin committed his crime, Justice Department leadership, as well as prosecutors in integral United States attorney’s offices, were de-emphasizing complicated financial cases — even neglecting clues that suggested that Lehman executives knew more than they were letting on about their bank’s liquidity problem. In the mid-’90s, white-collar prosecutions represented an average of 17.6 percent of all federal cases. In the three years ending in 2012, the share was 9.4 percent.
After the evening drive to Philipsburg, Serageldin checked into a motel. He didn’t need to report to Moshannon Valley until 2 p.m. the next day, but he was advised to show up early to get a head start on his processing. Moshannon is a low-security facility, with controlled prisoner movements, a bit tougher than the one portrayed on “Orange Is the New Black.” Friends of Serageldin’s worried about the violence; he was counseled to keep his head down and never change the channel on the TV no matter who seemed to be watching. Serageldin, who is tall and thin with a regal bearing, was largely preoccupied with how, after a decade of 18-hour trading days, he would pass the time. He was planning on doing math-problem sets and studying economics. He had delayed marrying his longtime girlfriend, a private-equity executive in London, but the plan was for her to visit him frequently.
Other bankers have spoken out about feeling unfairly maligned by the financial crisis, pegged as “banksters” by politicians and commentators. But Serageldin was contrite. “I don’t feel angry,” he told me in early winter. “I made a mistake. I take responsibility. I’m ready to pay my debt to society.” Still, the fact that the only top banker to go to jail for his role in the crisis was neither a mortgage executive (who created toxic products) nor the C.E.O. of a bank (who peddled them) is something of a paradox, but it’s one that reflects the many paradoxes that got us here in the first place.
Part of the Justice Department’s futility can be traced to the rise of its own ambition. Until the 1980s, government prosecutors generally focused on going after individual corporate criminals. But after watching their fellow prosecutors successfully take down entire mafia families, like the Gambino and Bonanno clans, many felt that they should also be going after more high-profile convictions and that the best way to root out corruption was to take on the whole organization. A long-ignored Supreme Court ruling, from 1909, conveniently opened the door for criminal charges against entire corporations. And in 2001, Michael Chertoff, George W. Bush’s new criminal division chief, arrived at the Justice Department ready to put it to use.
Chertoff, who worked at the U.S. Attorney’s office under Rudolph W. Giuliani, the godfather of the Wall Street perp walk, seemed like just the guy to jump-start the initiative — and he arrived at an opportune moment. Prosecutors were beginning their investigation of Enron and probe into Arthur Andersen, the accounting firm that had blessed the energy-trading giant’s phony balance sheets and shredded documents shortly after it detonated. Early in his tenure, Chertoff found himself sitting in a conference room at Justice Department headquarters on Pennsylvania Avenue, listening with growing irritation as lawyers for Arthur Andersen tried to dispose of the Enron case with yet another settlement. The company previously oversaw the fraudulent books of Waste Management and Sunbeam, and it dealt with those previous scrapes by reaching settlements and a consent decree with regulators, vowing never to commit such a crime again. For its Waste Management infractions, the firm paid $7 million. Then, it was the largest civil penalty ever paid.
Andersen was expecting the same kind of wrist-slap. As Chertoff recalls, one high-ranking executive noted brazenly that such settlements were merely “a cost of doing business” — the routine surcharges applied to the nation’s largest corporations. That comment enraged Chertoff, and soon after, his prosecutors indicted the firm. “Destroy documents?” he told me. “It’s hard to view that as a stumble outside of its core business.” In June 2002, Arthur Andersen was convicted by a jury, and within months, the firm closed down, costing tens of thousands of people their jobs.
The Andersen case was supposed to embolden the Justice Department, but it quickly backfired. Chertoff’s chutzpah shocked much of the corporate world and even many prosecutors, who thought the department had abused its powers at the cost of thousands of innocent workers. Almost immediately, the Andersen verdict resulted not in more boldness but in more caution on the part of federal prosecutors, including Chertoff himself. In 2003, his investigators were digging into questionable off-balance-sheet deals between the Pittsburgh-based PNC Bank and AIG Financial Products. They contemplated indicting the bank, which spurred Herbert Biern, at the time a top banking-supervision official at the Fed, to demand a meeting with Chertoff to warn him against it. Chertoff told Biern, according to attendees, that if the Justice Department “can’t bring these cases because it may bring harm, then maybe these banks are too big.” In the end, though, Chertoff and the Justice Department blinked. They didn’t indict, and PNC entered into a deferred prosecution agreement. No bank executives were prosecuted. Two years later, the Supreme Court overturned the Arthur Andersen conviction.
From 2004 to 2012, the Justice Department reached 242 deferred and nonprosecution agreements with corporations, compared with 26 in the previous 12 years, according to a study by David M. Uhlmann, a former prosecutor and law professor at the University of Michigan. And while companies paid large sums in the settlements — the days of $7 million cost-of-doing-business fees were over — several veteran Justice Department officials told me that these settlements emboldened defense lawyers. More crucial, they allowed the Justice Department’s lawyers to “succeed” without learning how to develop important prosecutorial skills. Investigations of individuals are more time-consuming and require a different approach than those of a corporation. Indeed, the department now effectively outsources many of its investigations of corporate executives to outside firms, which invariably produce reports that exculpate those at the top. Jed Rakoff, the U.S. District Court judge and former federal prosecutor who has become the most prominent legal critic of the Justice Department, explained the process to me this way: “The report says: ‘Mistakes were made. We are here to take our lumps’ ” — in other words, settlements and, if the transgressions are particularly bad, further oversight. “Lost in that whole thing,” Rakoff said, “was anyone trying to investigate whether the individuals did something wrong.”
The Bush administration may have earned a reputation as being friendly to business interests, but it wasn’t always that way. Around the time of the Andersen investigation, Larry Thompson, the deputy attorney general, was summoned to the White House to defend his department. He and Robert Mueller, the director of the F.B.I., met with the president in the Roosevelt Room of the White House, where they decided not to present legal theory but to show evidence that prosecutors had amassed in matters like the Enron case, demonstrating that executives had made up numbers and lied to the public. Bush seemed stunned. He turned to Mueller and Thompson and said, “Bobby and L.T., continue what you are doing.”
If Chertoff had signaled a green light for going after entire companies, Thompson drafted a memo in 2003 that offered a post-Andersen playbook that went right at the heart of how large corporations protected themselves. For years, big businesses, like tobacco companies, shielded questionable conduct by invoking attorney-client privilege, which could render details of troubling executive dealings inadmissible in court. If a company came under federal scrutiny, it typically paid its executives’ legal bills, hiring some of the nation’s best firms, those who could slow or derail any inquiries. And when multiple executives fell under suspicion, their lawyers would often sign joint defense agreements allowing them to share with one another what they learned about the feds’ case.
Thompson’s memo declared that prosecutors could, in essence, offer a deal, but it wasn’t a very generous one. Companies could win Brownie points for being cooperative only if they eschewed privileges like joint defense agreements. Almost immediately, members of the white-collar bar asserted that this overreach eroded a fundamental right, but they didn’t have to argue incessantly; once again, the Justice Department’s ambition backfired. In the summer of 2006, the government’s once-promising prosecution of executives from KPMG, an accounting and consulting firm suspected of selling illegal tax shelters to wealthy clients, started going bad. (The U.S. attorney’s office in Manhattan felt so confident that it indicted 17 KPMG executives.) The case fell apart when the judge ruled that those prosecutors had violated constitutional rights by pressuring the firm to waive attorney-client privilege and stop paying employees’ legal fees; the government’s zeal, he noted, had gotten “in the way of its judgment.” With the “greatest reluctance,” he threw out the cases against 13 of the executives. (Two others were convicted.)
Soon after, the counteroffensive to the Justice Department’s overreach peaked, led by the white-collar bar and corporate lobbies and aided by The Wall Street Journal’s editorial page, the U.S. Chamber of Commerce and even the American Civil Liberties Union. Senator Patrick Leahy, Democrat of Vermont, contended that the department was abusing corporations; his colleague Arlen Specter, then a Republican from Pennsylvania, readied a bill to prevent the Justice Department from receiving attorney-client privilege waivers. To cut that off, Paul McNulty, the deputy attorney general, released a revised set of rules stating, among other things, that no federal prosecutor could ask a company to waive attorney-client privilege without permission from higher-ups.
Over the years, the KPMG debacle and the corporate revolt would lead the Justice Department to roll back the Thompson memo to nearly the point of reversal. Today prosecutors are prohibited from even asking companies to waive their attorney-client privilege. They are also prohibited from pushing a company to cut off the legal fees for indicted executives or pressuring it to forgo joint defense agreements. “It was very much a game-changer in the business of investigating and defending in those cases,” says Michael Bromwich, a top white-collar lawyer and former inspector general of the Department of Justice.
In the decade since, the courts dulled other prosecutorial tools. A Supreme Court ruling allowed sentences to be set below previously determined mandatory minimums (which made executives less likely to “flip”). Another narrowed an often-used legal theory that said employees were guilty of fraud if they deprived their companies of “honest services” (which helped nab Enron’s former C.E.O., Jeffrey Skilling, among others). No change was momentous on its own — and some may have legitimately restored the rights of defendants — but taken together they marked a significant, if almost unnoted, shift toward the defense. After Lanny Breuer entered the Department of Justice, he testified in front of Congress to restore the honest-services charge for corrupt government officials. But he didn’t even try to broach the topic of a private-sector fix.
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Life on Wall Street is often portrayed as hours of kinetic fury with billions on the line, but the work is more often suited to wonks who are comfortable digesting Excel spreadsheets. Serageldin, who joined Credit Suisse’s information-technology department right out of Yale in 1994, was assigned the late-night job of “cracking tapes” — transferring magnetic tape reels of data, decoding them and running analyses. Senior bankers quickly identified his talent and brought him over to the moneymaking side, where he was soon working in the bank’s catastrophe-bonds business, or securities that transfer the risk of earthquakes and hurricanes from seller to investor. It required mastering geology, fault lines and property-damage projections. In order to achieve the kind of informational advantages that Wall Street requires to make money, Serageldin had to put the statistical runs on a personal computer, waking up in the middle of the night for days at a time to reset it. By 2007, he oversaw about 70 people and generated $1.3 billion in trading revenue.
Serageldin’s group made so much money that some colleagues believed his bosses gave him a pass on risk controls. But by disposition, and by practice, he was anything but a swashbuckler. When the value of mortgage securities began to crater, on what became known as the Valentine’s Day Massacre of February 2007, most traders kept trading, pumping out securities, boosting their personal earnings while endangering — and in some cases destroying — their institutions. Serageldin, however, began ordering his traders to get out of their riskiest positions. The bank’s head of fixed income at the time, James Healy, would later note that Serageldin’s decisions “took courage and personal conviction, in the face of immense pressure” from the sales force.
Yet Serageldin’s caution failed him in one crucial moment. Later that summer, traders in one of his portfolios began to avoid taking the necessary losses on their mortgage-backed securities. Traders are required to hold securities at their current value, known as marking to market, determining how much the portfolio made or lost that day. At one desperate point, one of Serageldin’s traders approached a friend at a small regional bank to give him a so-called independent price that happened to be nearly identical to the prices in the portfolio, enabling them to conceal the size of the losses. In early December, that spreadsheet tallying the losses made its way to Serageldin, who would later admit to recognizing that the prices should have been lower. He had assumed the positions were hedged, a friend of his told me, but instead of saying anything, he tried to protect his reputation. By early 2008, he was out at Credit Suisse. The bank reported him to the U.S. attorney’s office in the Southern District of New York.
In a matter of months, the markets plummeted in a financial crisis that made Enron look like small-time pilfering. And as tens of millions of Americans lost their jobs or homes, an inchoate but palpable demand for justice — for a crackdown — emerged. Breuer may have come with the right pedigree, but he now faced troubles that hurt as much as the debacles of Arthur Andersen and KPMG, or the retreat from the Thompson memo: austerity. The department faced periodic hiring freezes. The F.B.I., which assigned dozens of agents to Enron, had shifted resources to terrorism. The Postal Service wound down an elite unit that had specialized in complex financial investigations. President Obama’s Fraud Enforcement and Recovery Act, which was designed to give hundreds of millions to prosecute financial criminals, was able to deliver only $65 million in 2010 and 2011. Prosecutors reporting to Breuer proposed setting up a mortgage-fraud initiative, a “Prosecutorial Strike Force,” as one July 2009 memo put it, but the Justice Department dithered. Finally it set up the Financial Fraud Enforcement Task Force, an enormous coordinating committee with essentially no investigative operation. One former Justice Department official derided it as “the turtle.”
Resources aside, the erosion of the department’s actual trial skills would soon become apparent. In November 2009, the U.S. attorney’s office in Brooklyn lost the first criminal case of the crisis against two Bear Stearns executives accused of misleading investors. The prosecutors rushed into trial, failing to prepare for the exculpatory emails uncovered by the defense team. After two days, the jury acquitted the two money managers. “For sure,” one former federal prosecutor told me, “it put a chill” on investigations. “Politicos care about winning and losing.”
The fear first wrought by the Andersen case, meanwhile, ossified around financial firms. In early 2009, the Obama administration deliberated over serious tax misconduct by UBS, the Swiss bank, but top Treasury and Justice department officials worried about the effects criminal charges could have on the financial system. UBS settled with the government. Breuer had another shot, in 2012, when the department was moving toward a resolution of a six-year investigation into HSBC, which had become the preferred bank for Mexican and Colombian drug cartels and conducted transactions with countries under American sanctions, including Iran and Libya. Breuer surveyed Washington and London regulators and policy hands and sought assurance that the system could weather an indictment. A top Treasury Department official told Breuer, in carefully couched language, that an indictment could cause broader problems in the financial system. Breuer even went as far as discussing whether banks were too big to indict with H. Rodgin Cohen, a partner at Sullivan & Cromwell, who was representing HSBC in his very own case. Cohen told Breuer that while the Justice Department can’t have a rule not to indict a large bank, prosecutors should, well, take into account how the target has cooperated and what changes it has made to fix the problems. Of course, HSBC happened to have taken those very measures. The Justice Department blinked again. That December, the bank was fined $650 million and forfeited almost $1.3 billion in profits. No one went to jail.
It would be easy to blame the Justice Department’s ineptitude on past mistakes alone. But again, the very ambitions of its prosecutors played a prominent role. Top governmental lawyers generally don’t want to spend their entire careers in the public sector. Many want to score marquee victories and avoid mistakes and eventually leave for prominent corporate firms with starting salaries at 10 times what they make at the Department of Justice. According to numerous former criminal-division employees, Breuer almost immediately signaled his interest in bigger things. In October 2009, Steven Fagell, his deputy chief of staff and former Covington colleague, sent an email to the division. “Do you like giving toasts? Do you think it should have been you accepting the writing Emmy for ‘30 Rock?’ ” Fagell wrote. “If so, we need your wit, smarts and gift for the written word! We’re putting together a speechwriting team for the assistant attorney general.” Prosecutors developing cases against Mexican drug cartels and Al Qaeda members found it more than a little tone deaf. (Fagell says the email request was intended “both to foster internal morale and to send a message of deterrence to the public.”)
According to numerous sources from the Justice Department, the Breu Crew instilled a careerist culture that was fearful of sullying its reputation by losing cases. Kathy Ruemmler, who worked on the Enron task force and later became Obama’s counsel, would needle Breuer: “How many cases are you dismissing this week?” Later Ruemmler was upset when the Justice Department decided against retrying a case against Merrill Lynch executives who helped Enron boost its earnings with an infamous transaction involving a Nigerian barge. (Breuer was recused from the barge case.) A former prosecutor at the Justice Department in Washington concurred that Breuer’s staff didn’t “want to pursue cases where they feel the person is 100 percent guilty but they are only 70 percent sure they can win at trial.” Prosecutors contrasted that with previous eras, some fondly recalling a line favored by James Comey, who served as one of George W. Bush’s deputy attorneys general and emphasized the need for “real-time” white-collar prosecutions. “We have a name for prosecutors who have never lost — the ‘Chicken(expletive) Club.’ ” (In a statement, Breuer said he had a strong record of white-collar enforcement: “Where there were cases to bring, we brought them, and where there were not, we took a pass.”)
But given that Washington rejected a unified national task force, these career motivations would prove particularly relevant. When Preet Bharara, former chief counsel for Senator Charles E. Schumer, arrived in the Southern District of New York in 2009, he had a decision to make. There were cases arising from the financial crisis, which could take years to investigate and, after all that, never make it to a jury. Or there were insider-trading cases, which were far more straightforward. Someone improperly learns nonpublic details about a company and makes a killing on the stock market. “You do have a tough choice,” one former Southern District prosecutor says. “Am I going to chase after crimes I don’t know were committed and don’t know who by, or do we go after crimes we do know were committed and by whom?”
Bharara focused on insider trading, and his office has amassed a stunning 80-0 record of prosecutions, locking up the hedge-fund titan Raj Rajaratnam and Rajat Gupta, the former managing director of McKinsey & Company and a director at Goldman Sachs. They took down eight former employees of Steven A. Cohen’s notorious SAC Capital hedge fund. (Notably, however, they haven’t been able to bring charges against the man himself.) Time magazine put Bharara on its cover, with the bold headline: “This Man Is Busting Wall Street.” Yet Bharara didn’t touch Wall Street’s real players — top bankers. The former prosecutor was almost sheepish about the insider-trading cases when I spoke to him: “They made our careers, but they don’t change the world.” In fact, several former prosecutors in the office told me that going after bankers was never a real priority. “The government failed,” another former prosecutor said. “We didn’t do what we needed to do.”
As a result, Bharara and his team neglected seemingly winnable cases in their own backyard, including one particularly big one. After Lehman imploded, the Justice Department’s Washington headquarters split responsibility investigating what the bank’s executives knew among three U.S. attorney’s offices: the Southern and Eastern districts of New York and the New Jersey operation. But for all of that manpower, to those closest to the Lehman probe, the government’s case was seemingly conducted by one lawyer, Bonnie Jonas, an assistant U.S. attorney for the Southern District. She would make pilgrimages to the offices of Jenner & Block, a prestigious law firm that had been assigned to investigate the Lehman bankruptcy. Jonas would pore over the 40 million-odd pages of Lehman documents the firm assembled. (The Southern District says it devoted multiple people and ample resources to the investigation.)
Nonetheless, the Justice Department never aggressively pursued what may have been the most promising angle. On Sept. 10, 2008, the chief financial officer of Lehman Brothers, Ian Lowitt, told shareholders and the public that the bank had $42 billion of available cash, or liquidity. The bank’s position, Lowitt reassured, “remains very strong.” Lehman would file for bankruptcy five days later. “What they were saying was not just wrong but materially wrong,” Robert Byman, a Jenner & Block partner, told me.
Over 14 months, Jenner & Block would put about 130 lawyers on the case to prepare a report on the collapse. At one point, recalls Stephen Ascher, a partner, one of them discovered “this wonderful chart” breaking down the liquidity figure into three categories: high, moderate and low. Of those billions, $15 billion was in the “low” category, generally because it had been pledged as collateral to other banks. One former Lehman executive told me that several other company managers understood that they could not tap much, if any, of that encumbered money. And at least two executives objected to how the bank was representing its liquidity, including its international treasurer, Carlo Pellerani, according to the Jenner & Block report. The law firm found that regulators, credit-rating agencies and Lehman’s outside lawyer had no idea that the liquidity pool wasn’t, in fact, all that liquid. When Lowitt came to talk to Jenner & Block, he explained that he had not fully understood the issues when he assured investors of its liquid assets. That may be a reasonable defense, but it does not appear that prosecutors and federal investigators made a serious attempt to test how much Lehman’s chief financial officer knew about his own books. Three Lehman executives and one regulator at the Federal Reserve, all of whom were involved in the bank’s desperate attempts to keep itself liquid, told me they were never even interviewed by any federal-government officials.
When Wall Street bankers are arrested, they often do what is known in finance as an expected-value analysis: They weigh the cost of fighting, how long it would take and the chances of the best and worst outcomes. Serageldin was a Wall Street banker with a foreign name who helped make securities that played a role in blowing up the global economy. He seemed to reach a logical conclusion: Plead guilty and take his chances with a judge’s sentence. Other bankers made the opposite choice. After ignoring the risks of the housing and credit bubbles, they took the high-risk-high-reward gamble again, hiring top lawyers and claiming that they never intended to deceive. As it turned out, they benefited from a decade of subtle changes that favored corporate executives under investigation. Serageldin took the sucker’s bet. Prosecutors simply got their man by default.
In his first months in prison, Serageldin has tried to remain upbeat. The investment-banking monk is now spending his nights in a basketball-court-size room with about 70 others. If the problem sets don’t occupy him, he is allowed five books at a time. After explaining that he had lived abroad, Serageldin became known as London. The extent of his crime, meanwhile, has been revised. Initially prosecutors implied that the trader had been part of a conspiracy to hide $540 million worth of losses. By the time he was sentenced, the government was down to accusing him of conspiring to hide about $100 million. An internal Credit Suisse analysis put the misstatement at $37 million. “There’s not a moment’s doubt on my part” that such mismarking happened elsewhere during the crisis, Fiachra O’Driscoll, a friend and former colleague of Serageldin’s, who has been an expert witness in private litigation, told me. “I have seen evidence along the way that similar things happened dozens of times.”
Federal prosecutors have their own explanation for how only one Wall Street executive landed in jail in the wake of the financial crisis. The cases were complex to investigate and would have been infernally difficult to explain to juries, some told me. Much of the crisis and banker transgressions stemmed from recklessness, not criminality. They also suggest that deferred prosecutions — with their billions in settlements and additional oversights — can be stricter punishments than indictments. Still, while the Department of Justice has not been without its successes — it won a guilty plea from BP in the Deepwater Horizon spill, and it’s currently going after traders in the wake of the JPMorgan Chase London Whale trading loss — these remain exceptions even beyond the financial sector. Federal prosecutors almost never bring criminal charges against top executives of large corporations, from banking to pharmaceuticals to technology. In March, the Justice Department entered into a deferred prosecution against Toyota but did not indict the company or any top executives. As the economy limps back from the Great Recession, compensation has recovered, corporate profits are at record levels and executives see that few, if any, of their peers ever go to prison anymore. Perhaps one reason Americans have come to begrudge the wealthy is a resentment of their culture of impunity.
Larry Thompson became known for his memo, but back in the Clinton administration, the deputy attorney general Eric Holder laid out his own memo for strengthening corporate prosecutions. But he undermined his own words by also explaining that prosecutors needed to take into account the collateral economic consequences. In testimony in front of the Senate in March, Holder, who is now the U.S. attorney general, seemed to lament the position government enforcers had found themselves in. “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if we do prosecute — if we do bring a criminal charge — it will have a negative impact on the national economy, perhaps even the world economy.” Holder quickly walked back the remarks. Soon after, Lanny Breuer returned to Covington & Burling as a vice chairman.
Source: New York Times
Serageldin’s life was about to become more ascetic. Two months earlier, he sat in a Lower Manhattan courtroom adjusting and readjusting his tie as he waited for a judge to deliver his prison sentence. During the worst of the financial crisis, according to prosecutors, Serageldin had approved the concealment of hundreds of millions in losses in Credit Suisse’s mortgage-backed securities portfolio. But on that November morning, the judge seemed almost torn. Serageldin lied about the value of his bank’s securities — that was a crime, of course — but other bankers behaved far worse. Serageldin’s former employer, for one, had revised its past financial statements to account for $2.7 billion that should have been reported. Lehman Brothers, AIG, Citigroup, Countrywide and many others had also admitted that they were in much worse shape than they initially allowed. Merrill Lynch, in particular, announced a loss of nearly $8 billion three weeks after claiming it was $4.5 billion. Serageldin’s conduct was, in the judge’s words, “a small piece of an overall evil climate within the bank and with many other banks.” Nevertheless, after a brief pause, he eased down his gavel and sentenced Serageldin, an Egyptian-born trader who grew up in the barren pinelands of Michigan’s Upper Peninsula, to 30 months in jail. Serageldin would begin serving his time at Moshannon Valley Correctional Center, in Philipsburg, where he would earn the distinction of being the only Wall Street executive sent to jail for his part in the financial crisis.
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American financial history has generally unfolded as a series of booms followed by busts followed by crackdowns. After the crash of 1929, the Pecora Hearings seized upon public outrage, and the head of the New York Stock Exchange landed in prison. After the savings-and-loan scandals of the 1980s, 1,100 people were prosecuted, including top executives at many of the largest failed banks. In the ’90s and early aughts, when the bursting of the Nasdaq bubble revealed widespread corporate accounting scandals, top executives from WorldCom, Enron, Qwest and Tyco, among others, went to prison.
The credit crisis of 2008 dwarfed those busts, and it was only to be expected that a similar round of crackdowns would ensue. In 2009, the Obama administration appointed Lanny Breuer to lead the Justice Department’s criminal division. Breuer quickly focused on professionalizing the operation, introducing the rigor of a prestigious firm like Covington & Burling, where he had spent much of his career. He recruited elite lawyers from corporate firms and the Breu Crew, as they would later be known, were repeatedly urged by Breuer to “take it to the next level.”
But the crackdown never happened. Over the past year, I’ve interviewed Wall Street traders, bank executives, defense lawyers and dozens of current and former prosecutors to understand why the largest man-made economic catastrophe since the Depression resulted in the jailing of a single investment banker — one who happened to be several rungs from the corporate suite at a second-tier financial institution. Many assume that the federal authorities simply lacked the guts to go after powerful Wall Street bankers, but that obscures a far more complicated dynamic. During the past decade, the Justice Department suffered a series of corporate prosecutorial fiascos, which led to critical changes in how it approached white-collar crime. The department began to focus on reaching settlements rather than seeking prison sentences, which over time unintentionally deprived its ranks of the experience needed to win trials against the most formidable law firms. By the time Serageldin committed his crime, Justice Department leadership, as well as prosecutors in integral United States attorney’s offices, were de-emphasizing complicated financial cases — even neglecting clues that suggested that Lehman executives knew more than they were letting on about their bank’s liquidity problem. In the mid-’90s, white-collar prosecutions represented an average of 17.6 percent of all federal cases. In the three years ending in 2012, the share was 9.4 percent.
After the evening drive to Philipsburg, Serageldin checked into a motel. He didn’t need to report to Moshannon Valley until 2 p.m. the next day, but he was advised to show up early to get a head start on his processing. Moshannon is a low-security facility, with controlled prisoner movements, a bit tougher than the one portrayed on “Orange Is the New Black.” Friends of Serageldin’s worried about the violence; he was counseled to keep his head down and never change the channel on the TV no matter who seemed to be watching. Serageldin, who is tall and thin with a regal bearing, was largely preoccupied with how, after a decade of 18-hour trading days, he would pass the time. He was planning on doing math-problem sets and studying economics. He had delayed marrying his longtime girlfriend, a private-equity executive in London, but the plan was for her to visit him frequently.
Other bankers have spoken out about feeling unfairly maligned by the financial crisis, pegged as “banksters” by politicians and commentators. But Serageldin was contrite. “I don’t feel angry,” he told me in early winter. “I made a mistake. I take responsibility. I’m ready to pay my debt to society.” Still, the fact that the only top banker to go to jail for his role in the crisis was neither a mortgage executive (who created toxic products) nor the C.E.O. of a bank (who peddled them) is something of a paradox, but it’s one that reflects the many paradoxes that got us here in the first place.
Part of the Justice Department’s futility can be traced to the rise of its own ambition. Until the 1980s, government prosecutors generally focused on going after individual corporate criminals. But after watching their fellow prosecutors successfully take down entire mafia families, like the Gambino and Bonanno clans, many felt that they should also be going after more high-profile convictions and that the best way to root out corruption was to take on the whole organization. A long-ignored Supreme Court ruling, from 1909, conveniently opened the door for criminal charges against entire corporations. And in 2001, Michael Chertoff, George W. Bush’s new criminal division chief, arrived at the Justice Department ready to put it to use.
Chertoff, who worked at the U.S. Attorney’s office under Rudolph W. Giuliani, the godfather of the Wall Street perp walk, seemed like just the guy to jump-start the initiative — and he arrived at an opportune moment. Prosecutors were beginning their investigation of Enron and probe into Arthur Andersen, the accounting firm that had blessed the energy-trading giant’s phony balance sheets and shredded documents shortly after it detonated. Early in his tenure, Chertoff found himself sitting in a conference room at Justice Department headquarters on Pennsylvania Avenue, listening with growing irritation as lawyers for Arthur Andersen tried to dispose of the Enron case with yet another settlement. The company previously oversaw the fraudulent books of Waste Management and Sunbeam, and it dealt with those previous scrapes by reaching settlements and a consent decree with regulators, vowing never to commit such a crime again. For its Waste Management infractions, the firm paid $7 million. Then, it was the largest civil penalty ever paid.
Andersen was expecting the same kind of wrist-slap. As Chertoff recalls, one high-ranking executive noted brazenly that such settlements were merely “a cost of doing business” — the routine surcharges applied to the nation’s largest corporations. That comment enraged Chertoff, and soon after, his prosecutors indicted the firm. “Destroy documents?” he told me. “It’s hard to view that as a stumble outside of its core business.” In June 2002, Arthur Andersen was convicted by a jury, and within months, the firm closed down, costing tens of thousands of people their jobs.
The Andersen case was supposed to embolden the Justice Department, but it quickly backfired. Chertoff’s chutzpah shocked much of the corporate world and even many prosecutors, who thought the department had abused its powers at the cost of thousands of innocent workers. Almost immediately, the Andersen verdict resulted not in more boldness but in more caution on the part of federal prosecutors, including Chertoff himself. In 2003, his investigators were digging into questionable off-balance-sheet deals between the Pittsburgh-based PNC Bank and AIG Financial Products. They contemplated indicting the bank, which spurred Herbert Biern, at the time a top banking-supervision official at the Fed, to demand a meeting with Chertoff to warn him against it. Chertoff told Biern, according to attendees, that if the Justice Department “can’t bring these cases because it may bring harm, then maybe these banks are too big.” In the end, though, Chertoff and the Justice Department blinked. They didn’t indict, and PNC entered into a deferred prosecution agreement. No bank executives were prosecuted. Two years later, the Supreme Court overturned the Arthur Andersen conviction.
From 2004 to 2012, the Justice Department reached 242 deferred and nonprosecution agreements with corporations, compared with 26 in the previous 12 years, according to a study by David M. Uhlmann, a former prosecutor and law professor at the University of Michigan. And while companies paid large sums in the settlements — the days of $7 million cost-of-doing-business fees were over — several veteran Justice Department officials told me that these settlements emboldened defense lawyers. More crucial, they allowed the Justice Department’s lawyers to “succeed” without learning how to develop important prosecutorial skills. Investigations of individuals are more time-consuming and require a different approach than those of a corporation. Indeed, the department now effectively outsources many of its investigations of corporate executives to outside firms, which invariably produce reports that exculpate those at the top. Jed Rakoff, the U.S. District Court judge and former federal prosecutor who has become the most prominent legal critic of the Justice Department, explained the process to me this way: “The report says: ‘Mistakes were made. We are here to take our lumps’ ” — in other words, settlements and, if the transgressions are particularly bad, further oversight. “Lost in that whole thing,” Rakoff said, “was anyone trying to investigate whether the individuals did something wrong.”
The Bush administration may have earned a reputation as being friendly to business interests, but it wasn’t always that way. Around the time of the Andersen investigation, Larry Thompson, the deputy attorney general, was summoned to the White House to defend his department. He and Robert Mueller, the director of the F.B.I., met with the president in the Roosevelt Room of the White House, where they decided not to present legal theory but to show evidence that prosecutors had amassed in matters like the Enron case, demonstrating that executives had made up numbers and lied to the public. Bush seemed stunned. He turned to Mueller and Thompson and said, “Bobby and L.T., continue what you are doing.”
If Chertoff had signaled a green light for going after entire companies, Thompson drafted a memo in 2003 that offered a post-Andersen playbook that went right at the heart of how large corporations protected themselves. For years, big businesses, like tobacco companies, shielded questionable conduct by invoking attorney-client privilege, which could render details of troubling executive dealings inadmissible in court. If a company came under federal scrutiny, it typically paid its executives’ legal bills, hiring some of the nation’s best firms, those who could slow or derail any inquiries. And when multiple executives fell under suspicion, their lawyers would often sign joint defense agreements allowing them to share with one another what they learned about the feds’ case.
Thompson’s memo declared that prosecutors could, in essence, offer a deal, but it wasn’t a very generous one. Companies could win Brownie points for being cooperative only if they eschewed privileges like joint defense agreements. Almost immediately, members of the white-collar bar asserted that this overreach eroded a fundamental right, but they didn’t have to argue incessantly; once again, the Justice Department’s ambition backfired. In the summer of 2006, the government’s once-promising prosecution of executives from KPMG, an accounting and consulting firm suspected of selling illegal tax shelters to wealthy clients, started going bad. (The U.S. attorney’s office in Manhattan felt so confident that it indicted 17 KPMG executives.) The case fell apart when the judge ruled that those prosecutors had violated constitutional rights by pressuring the firm to waive attorney-client privilege and stop paying employees’ legal fees; the government’s zeal, he noted, had gotten “in the way of its judgment.” With the “greatest reluctance,” he threw out the cases against 13 of the executives. (Two others were convicted.)
Soon after, the counteroffensive to the Justice Department’s overreach peaked, led by the white-collar bar and corporate lobbies and aided by The Wall Street Journal’s editorial page, the U.S. Chamber of Commerce and even the American Civil Liberties Union. Senator Patrick Leahy, Democrat of Vermont, contended that the department was abusing corporations; his colleague Arlen Specter, then a Republican from Pennsylvania, readied a bill to prevent the Justice Department from receiving attorney-client privilege waivers. To cut that off, Paul McNulty, the deputy attorney general, released a revised set of rules stating, among other things, that no federal prosecutor could ask a company to waive attorney-client privilege without permission from higher-ups.
Over the years, the KPMG debacle and the corporate revolt would lead the Justice Department to roll back the Thompson memo to nearly the point of reversal. Today prosecutors are prohibited from even asking companies to waive their attorney-client privilege. They are also prohibited from pushing a company to cut off the legal fees for indicted executives or pressuring it to forgo joint defense agreements. “It was very much a game-changer in the business of investigating and defending in those cases,” says Michael Bromwich, a top white-collar lawyer and former inspector general of the Department of Justice.
In the decade since, the courts dulled other prosecutorial tools. A Supreme Court ruling allowed sentences to be set below previously determined mandatory minimums (which made executives less likely to “flip”). Another narrowed an often-used legal theory that said employees were guilty of fraud if they deprived their companies of “honest services” (which helped nab Enron’s former C.E.O., Jeffrey Skilling, among others). No change was momentous on its own — and some may have legitimately restored the rights of defendants — but taken together they marked a significant, if almost unnoted, shift toward the defense. After Lanny Breuer entered the Department of Justice, he testified in front of Congress to restore the honest-services charge for corrupt government officials. But he didn’t even try to broach the topic of a private-sector fix.
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Life on Wall Street is often portrayed as hours of kinetic fury with billions on the line, but the work is more often suited to wonks who are comfortable digesting Excel spreadsheets. Serageldin, who joined Credit Suisse’s information-technology department right out of Yale in 1994, was assigned the late-night job of “cracking tapes” — transferring magnetic tape reels of data, decoding them and running analyses. Senior bankers quickly identified his talent and brought him over to the moneymaking side, where he was soon working in the bank’s catastrophe-bonds business, or securities that transfer the risk of earthquakes and hurricanes from seller to investor. It required mastering geology, fault lines and property-damage projections. In order to achieve the kind of informational advantages that Wall Street requires to make money, Serageldin had to put the statistical runs on a personal computer, waking up in the middle of the night for days at a time to reset it. By 2007, he oversaw about 70 people and generated $1.3 billion in trading revenue.
Serageldin’s group made so much money that some colleagues believed his bosses gave him a pass on risk controls. But by disposition, and by practice, he was anything but a swashbuckler. When the value of mortgage securities began to crater, on what became known as the Valentine’s Day Massacre of February 2007, most traders kept trading, pumping out securities, boosting their personal earnings while endangering — and in some cases destroying — their institutions. Serageldin, however, began ordering his traders to get out of their riskiest positions. The bank’s head of fixed income at the time, James Healy, would later note that Serageldin’s decisions “took courage and personal conviction, in the face of immense pressure” from the sales force.
Yet Serageldin’s caution failed him in one crucial moment. Later that summer, traders in one of his portfolios began to avoid taking the necessary losses on their mortgage-backed securities. Traders are required to hold securities at their current value, known as marking to market, determining how much the portfolio made or lost that day. At one desperate point, one of Serageldin’s traders approached a friend at a small regional bank to give him a so-called independent price that happened to be nearly identical to the prices in the portfolio, enabling them to conceal the size of the losses. In early December, that spreadsheet tallying the losses made its way to Serageldin, who would later admit to recognizing that the prices should have been lower. He had assumed the positions were hedged, a friend of his told me, but instead of saying anything, he tried to protect his reputation. By early 2008, he was out at Credit Suisse. The bank reported him to the U.S. attorney’s office in the Southern District of New York.
In a matter of months, the markets plummeted in a financial crisis that made Enron look like small-time pilfering. And as tens of millions of Americans lost their jobs or homes, an inchoate but palpable demand for justice — for a crackdown — emerged. Breuer may have come with the right pedigree, but he now faced troubles that hurt as much as the debacles of Arthur Andersen and KPMG, or the retreat from the Thompson memo: austerity. The department faced periodic hiring freezes. The F.B.I., which assigned dozens of agents to Enron, had shifted resources to terrorism. The Postal Service wound down an elite unit that had specialized in complex financial investigations. President Obama’s Fraud Enforcement and Recovery Act, which was designed to give hundreds of millions to prosecute financial criminals, was able to deliver only $65 million in 2010 and 2011. Prosecutors reporting to Breuer proposed setting up a mortgage-fraud initiative, a “Prosecutorial Strike Force,” as one July 2009 memo put it, but the Justice Department dithered. Finally it set up the Financial Fraud Enforcement Task Force, an enormous coordinating committee with essentially no investigative operation. One former Justice Department official derided it as “the turtle.”
Resources aside, the erosion of the department’s actual trial skills would soon become apparent. In November 2009, the U.S. attorney’s office in Brooklyn lost the first criminal case of the crisis against two Bear Stearns executives accused of misleading investors. The prosecutors rushed into trial, failing to prepare for the exculpatory emails uncovered by the defense team. After two days, the jury acquitted the two money managers. “For sure,” one former federal prosecutor told me, “it put a chill” on investigations. “Politicos care about winning and losing.”
The fear first wrought by the Andersen case, meanwhile, ossified around financial firms. In early 2009, the Obama administration deliberated over serious tax misconduct by UBS, the Swiss bank, but top Treasury and Justice department officials worried about the effects criminal charges could have on the financial system. UBS settled with the government. Breuer had another shot, in 2012, when the department was moving toward a resolution of a six-year investigation into HSBC, which had become the preferred bank for Mexican and Colombian drug cartels and conducted transactions with countries under American sanctions, including Iran and Libya. Breuer surveyed Washington and London regulators and policy hands and sought assurance that the system could weather an indictment. A top Treasury Department official told Breuer, in carefully couched language, that an indictment could cause broader problems in the financial system. Breuer even went as far as discussing whether banks were too big to indict with H. Rodgin Cohen, a partner at Sullivan & Cromwell, who was representing HSBC in his very own case. Cohen told Breuer that while the Justice Department can’t have a rule not to indict a large bank, prosecutors should, well, take into account how the target has cooperated and what changes it has made to fix the problems. Of course, HSBC happened to have taken those very measures. The Justice Department blinked again. That December, the bank was fined $650 million and forfeited almost $1.3 billion in profits. No one went to jail.
It would be easy to blame the Justice Department’s ineptitude on past mistakes alone. But again, the very ambitions of its prosecutors played a prominent role. Top governmental lawyers generally don’t want to spend their entire careers in the public sector. Many want to score marquee victories and avoid mistakes and eventually leave for prominent corporate firms with starting salaries at 10 times what they make at the Department of Justice. According to numerous former criminal-division employees, Breuer almost immediately signaled his interest in bigger things. In October 2009, Steven Fagell, his deputy chief of staff and former Covington colleague, sent an email to the division. “Do you like giving toasts? Do you think it should have been you accepting the writing Emmy for ‘30 Rock?’ ” Fagell wrote. “If so, we need your wit, smarts and gift for the written word! We’re putting together a speechwriting team for the assistant attorney general.” Prosecutors developing cases against Mexican drug cartels and Al Qaeda members found it more than a little tone deaf. (Fagell says the email request was intended “both to foster internal morale and to send a message of deterrence to the public.”)
According to numerous sources from the Justice Department, the Breu Crew instilled a careerist culture that was fearful of sullying its reputation by losing cases. Kathy Ruemmler, who worked on the Enron task force and later became Obama’s counsel, would needle Breuer: “How many cases are you dismissing this week?” Later Ruemmler was upset when the Justice Department decided against retrying a case against Merrill Lynch executives who helped Enron boost its earnings with an infamous transaction involving a Nigerian barge. (Breuer was recused from the barge case.) A former prosecutor at the Justice Department in Washington concurred that Breuer’s staff didn’t “want to pursue cases where they feel the person is 100 percent guilty but they are only 70 percent sure they can win at trial.” Prosecutors contrasted that with previous eras, some fondly recalling a line favored by James Comey, who served as one of George W. Bush’s deputy attorneys general and emphasized the need for “real-time” white-collar prosecutions. “We have a name for prosecutors who have never lost — the ‘Chicken(expletive) Club.’ ” (In a statement, Breuer said he had a strong record of white-collar enforcement: “Where there were cases to bring, we brought them, and where there were not, we took a pass.”)
But given that Washington rejected a unified national task force, these career motivations would prove particularly relevant. When Preet Bharara, former chief counsel for Senator Charles E. Schumer, arrived in the Southern District of New York in 2009, he had a decision to make. There were cases arising from the financial crisis, which could take years to investigate and, after all that, never make it to a jury. Or there were insider-trading cases, which were far more straightforward. Someone improperly learns nonpublic details about a company and makes a killing on the stock market. “You do have a tough choice,” one former Southern District prosecutor says. “Am I going to chase after crimes I don’t know were committed and don’t know who by, or do we go after crimes we do know were committed and by whom?”
Bharara focused on insider trading, and his office has amassed a stunning 80-0 record of prosecutions, locking up the hedge-fund titan Raj Rajaratnam and Rajat Gupta, the former managing director of McKinsey & Company and a director at Goldman Sachs. They took down eight former employees of Steven A. Cohen’s notorious SAC Capital hedge fund. (Notably, however, they haven’t been able to bring charges against the man himself.) Time magazine put Bharara on its cover, with the bold headline: “This Man Is Busting Wall Street.” Yet Bharara didn’t touch Wall Street’s real players — top bankers. The former prosecutor was almost sheepish about the insider-trading cases when I spoke to him: “They made our careers, but they don’t change the world.” In fact, several former prosecutors in the office told me that going after bankers was never a real priority. “The government failed,” another former prosecutor said. “We didn’t do what we needed to do.”
As a result, Bharara and his team neglected seemingly winnable cases in their own backyard, including one particularly big one. After Lehman imploded, the Justice Department’s Washington headquarters split responsibility investigating what the bank’s executives knew among three U.S. attorney’s offices: the Southern and Eastern districts of New York and the New Jersey operation. But for all of that manpower, to those closest to the Lehman probe, the government’s case was seemingly conducted by one lawyer, Bonnie Jonas, an assistant U.S. attorney for the Southern District. She would make pilgrimages to the offices of Jenner & Block, a prestigious law firm that had been assigned to investigate the Lehman bankruptcy. Jonas would pore over the 40 million-odd pages of Lehman documents the firm assembled. (The Southern District says it devoted multiple people and ample resources to the investigation.)
Nonetheless, the Justice Department never aggressively pursued what may have been the most promising angle. On Sept. 10, 2008, the chief financial officer of Lehman Brothers, Ian Lowitt, told shareholders and the public that the bank had $42 billion of available cash, or liquidity. The bank’s position, Lowitt reassured, “remains very strong.” Lehman would file for bankruptcy five days later. “What they were saying was not just wrong but materially wrong,” Robert Byman, a Jenner & Block partner, told me.
Over 14 months, Jenner & Block would put about 130 lawyers on the case to prepare a report on the collapse. At one point, recalls Stephen Ascher, a partner, one of them discovered “this wonderful chart” breaking down the liquidity figure into three categories: high, moderate and low. Of those billions, $15 billion was in the “low” category, generally because it had been pledged as collateral to other banks. One former Lehman executive told me that several other company managers understood that they could not tap much, if any, of that encumbered money. And at least two executives objected to how the bank was representing its liquidity, including its international treasurer, Carlo Pellerani, according to the Jenner & Block report. The law firm found that regulators, credit-rating agencies and Lehman’s outside lawyer had no idea that the liquidity pool wasn’t, in fact, all that liquid. When Lowitt came to talk to Jenner & Block, he explained that he had not fully understood the issues when he assured investors of its liquid assets. That may be a reasonable defense, but it does not appear that prosecutors and federal investigators made a serious attempt to test how much Lehman’s chief financial officer knew about his own books. Three Lehman executives and one regulator at the Federal Reserve, all of whom were involved in the bank’s desperate attempts to keep itself liquid, told me they were never even interviewed by any federal-government officials.
When Wall Street bankers are arrested, they often do what is known in finance as an expected-value analysis: They weigh the cost of fighting, how long it would take and the chances of the best and worst outcomes. Serageldin was a Wall Street banker with a foreign name who helped make securities that played a role in blowing up the global economy. He seemed to reach a logical conclusion: Plead guilty and take his chances with a judge’s sentence. Other bankers made the opposite choice. After ignoring the risks of the housing and credit bubbles, they took the high-risk-high-reward gamble again, hiring top lawyers and claiming that they never intended to deceive. As it turned out, they benefited from a decade of subtle changes that favored corporate executives under investigation. Serageldin took the sucker’s bet. Prosecutors simply got their man by default.
In his first months in prison, Serageldin has tried to remain upbeat. The investment-banking monk is now spending his nights in a basketball-court-size room with about 70 others. If the problem sets don’t occupy him, he is allowed five books at a time. After explaining that he had lived abroad, Serageldin became known as London. The extent of his crime, meanwhile, has been revised. Initially prosecutors implied that the trader had been part of a conspiracy to hide $540 million worth of losses. By the time he was sentenced, the government was down to accusing him of conspiring to hide about $100 million. An internal Credit Suisse analysis put the misstatement at $37 million. “There’s not a moment’s doubt on my part” that such mismarking happened elsewhere during the crisis, Fiachra O’Driscoll, a friend and former colleague of Serageldin’s, who has been an expert witness in private litigation, told me. “I have seen evidence along the way that similar things happened dozens of times.”
Federal prosecutors have their own explanation for how only one Wall Street executive landed in jail in the wake of the financial crisis. The cases were complex to investigate and would have been infernally difficult to explain to juries, some told me. Much of the crisis and banker transgressions stemmed from recklessness, not criminality. They also suggest that deferred prosecutions — with their billions in settlements and additional oversights — can be stricter punishments than indictments. Still, while the Department of Justice has not been without its successes — it won a guilty plea from BP in the Deepwater Horizon spill, and it’s currently going after traders in the wake of the JPMorgan Chase London Whale trading loss — these remain exceptions even beyond the financial sector. Federal prosecutors almost never bring criminal charges against top executives of large corporations, from banking to pharmaceuticals to technology. In March, the Justice Department entered into a deferred prosecution against Toyota but did not indict the company or any top executives. As the economy limps back from the Great Recession, compensation has recovered, corporate profits are at record levels and executives see that few, if any, of their peers ever go to prison anymore. Perhaps one reason Americans have come to begrudge the wealthy is a resentment of their culture of impunity.
Larry Thompson became known for his memo, but back in the Clinton administration, the deputy attorney general Eric Holder laid out his own memo for strengthening corporate prosecutions. But he undermined his own words by also explaining that prosecutors needed to take into account the collateral economic consequences. In testimony in front of the Senate in March, Holder, who is now the U.S. attorney general, seemed to lament the position government enforcers had found themselves in. “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if we do prosecute — if we do bring a criminal charge — it will have a negative impact on the national economy, perhaps even the world economy.” Holder quickly walked back the remarks. Soon after, Lanny Breuer returned to Covington & Burling as a vice chairman.
Source: New York Times
Monday, February 17, 2014
Board Investigations and the Curse of the Mummy’s Tomb – Part I
On this day in 1923, the tomb of King Tut was opened. It created a worldwide stir that has in many ways continued down into the 21st century. Clearly, the boy ruler influenced Steve Martin , (How’d you get so funky?, Funky Tut). Moreover, when the King Tut exhibit first toured the US in the 1970s, it sold out everywhere that it went. And, of course, there was the Curse of the Mummy’s Tomb, which led to some great Universal classic horror pictures. This curse may have killed the dig’s benefactor, Lord Carnarvon who died just months after entering the tomb in November 1923, but the archeologist who discovered King Tut, Howard Carter, seemingly outlived the curse, dying at the age of 64 on the eve of World War II.
I thought about the techniques employed by these two archeologists in the Curse of the Mummy’s Tomb when I read an article in the Corporate Board magazine, entitled “Successful Board Investigations” by David Bayless and Tammy Albarrán, partners in the law firm of Covington & Burling LLP. Why the Curse of the Mummy’s Tomb? It is because if a Board of Directors does not get an investigation which it handles right, the consequences can be quite severe. Over the next two posts I will explore the article by Bayless and Albarrán. Today in Part I, I will review the author’s five key objectives, which they believe a board must pursue to ensure a successful investigation. Tomorrow. in Part II, I will review the authors seven considerations to facilitate a successful board investigation.
The authors recognize that the vast majority of investigations will be handled or directed by in-house counsel. However, if and when such an investigation is needed, it is critical that it be handled with great care and skill. The authors note that “While this task is fraught with peril, there are a number of steps a board can take to ensure that the investigation accomplishes the board’s goals, which will enable it to make informed decisions, and withstands scrutiny by third parties” because it is this third party scrutiny, in the form of regulators, government officials, judges/arbitrators or plaintiffs’ counsel in shareholder actions, who will be reviewing any investigation commissioned by a Board of Directors. The authors believe that there are five key goals that any investigation led by a Board of Directors must meet. They are:
Thoroughness - The authors believe that one of the key, and most critical, questions that any regulator might pose is just how thorough is an investigation; to test whether they can rely on the facts discovered without having to repeat the investigation themselves. Regulators tend to be skeptical of investigations where limits are placed (expressly or otherwise) on the investigators, in terms of what is investigated, or how the investigation is conducted. This question can be an initial deal-killer particularly if the regulator involved views an investigation insufficiently thorough, its credibility is undermined. And, of course, it can lead to the dreaded ‘Where else’ question.
Objectivity - Here the authors write that any “investigation must follow the facts wherever they lead, regardless of the consequences. This includes how the findings may impact senior management or other company employees. An investigation seen as lacking objectivity will be viewed by outsiders as inadequate or deficient.” I would add that in addition to the objectivity requirement in the investigation, the same must be had with the investigators themselves. If a company uses its regular outside counsel, it may be viewed with some askance, particularly if the client is a high volume client of the law firm involved, either in dollar amounts or in number of matters handled by the firm.
Accuracy - As in any part of a best practices anti-corruption compliance program, the three most important things are Document, Document and Document. This means that the factual findings of an investigation must be well supported. For if the developed facts are not well supported, the authors believe that the investigation is “open to collateral attack by skeptical prosecutors and regulators. If that happens, the time and money spent on the internal investigation will have been wasted, because the government will end up conducting its own investigation of the same issues.” This is never good and your company may well lose what little credibility and good will that it may have engendered by self-reporting or self-investigating.
Timeliness - Certainly in the world of Foreign Corrupt Practices Act (FCPA) enforcement, an internal investigation should be done quickly. This has become even more necessary with the tight deadlines set under the Dodd-Frank Act Whistleblower provisions. But there are other considerations for a public company such as an impending Securities and Exchange Commission (SEC) quarterly or annual report that may need to be deferred absent as a timely resolution of the matter. Lastly, the Department of Justice (DOJ) or SEC may view delaying an investigation as simply a part of document spoliation. So timeliness is crucial.
Credibility - One of the realities of any FCPA investigation is that a Board of Directors led investigation is reviewed after the fact by not only skeptical third parties but also sometimes years after the initial events and investigation. So not only is there the opportunity for Monday-Morning Quarterbacking but quite a bit of post event analysis. So the authors believe that any Board of Directors led investigation “must be (and must be perceived as) credible as to what was done, how it was done, and who did it. Otherwise, the board’s work will have been for naught.”
To help manage these five issues the authors have seven tangible considerations they suggest that a Board of Directors follow to help make an investigation successful. Tomorrow I will review and scrutinize these seven considerations.
Source: FPCA Compliance and Ethics Blog by Thomas Fox.
Thomas Fox has practiced law in Houston for 30 years. He is now an Independent Consultant, assisting companies with anti-corruption and anti-bribery compliance and international transaction issues. He was most recently the General Counsel at Drilling Controls, Inc., a worldwide oilfield manufacturing and service company. He was previously division counsel with Halliburton Energy Services, Inc. where he supported Halliburton’s software division and its downhole division. Tom is the author of the award winning FCPA Compliance and Ethics Blog and the international best-selling book “Lessons Learned on Compliance and Ethics”. His second book, “Best Practices Under the FCPA and Bribery Act” was released in April, 2013. He recently released his first eBook, “GSK In China: A Game Changer in Compliance”. He writes and lectures across the globe on anti-corruption and anti-bribery compliance programs.
I thought about the techniques employed by these two archeologists in the Curse of the Mummy’s Tomb when I read an article in the Corporate Board magazine, entitled “Successful Board Investigations” by David Bayless and Tammy Albarrán, partners in the law firm of Covington & Burling LLP. Why the Curse of the Mummy’s Tomb? It is because if a Board of Directors does not get an investigation which it handles right, the consequences can be quite severe. Over the next two posts I will explore the article by Bayless and Albarrán. Today in Part I, I will review the author’s five key objectives, which they believe a board must pursue to ensure a successful investigation. Tomorrow. in Part II, I will review the authors seven considerations to facilitate a successful board investigation.
The authors recognize that the vast majority of investigations will be handled or directed by in-house counsel. However, if and when such an investigation is needed, it is critical that it be handled with great care and skill. The authors note that “While this task is fraught with peril, there are a number of steps a board can take to ensure that the investigation accomplishes the board’s goals, which will enable it to make informed decisions, and withstands scrutiny by third parties” because it is this third party scrutiny, in the form of regulators, government officials, judges/arbitrators or plaintiffs’ counsel in shareholder actions, who will be reviewing any investigation commissioned by a Board of Directors. The authors believe that there are five key goals that any investigation led by a Board of Directors must meet. They are:
Thoroughness - The authors believe that one of the key, and most critical, questions that any regulator might pose is just how thorough is an investigation; to test whether they can rely on the facts discovered without having to repeat the investigation themselves. Regulators tend to be skeptical of investigations where limits are placed (expressly or otherwise) on the investigators, in terms of what is investigated, or how the investigation is conducted. This question can be an initial deal-killer particularly if the regulator involved views an investigation insufficiently thorough, its credibility is undermined. And, of course, it can lead to the dreaded ‘Where else’ question.
Objectivity - Here the authors write that any “investigation must follow the facts wherever they lead, regardless of the consequences. This includes how the findings may impact senior management or other company employees. An investigation seen as lacking objectivity will be viewed by outsiders as inadequate or deficient.” I would add that in addition to the objectivity requirement in the investigation, the same must be had with the investigators themselves. If a company uses its regular outside counsel, it may be viewed with some askance, particularly if the client is a high volume client of the law firm involved, either in dollar amounts or in number of matters handled by the firm.
Accuracy - As in any part of a best practices anti-corruption compliance program, the three most important things are Document, Document and Document. This means that the factual findings of an investigation must be well supported. For if the developed facts are not well supported, the authors believe that the investigation is “open to collateral attack by skeptical prosecutors and regulators. If that happens, the time and money spent on the internal investigation will have been wasted, because the government will end up conducting its own investigation of the same issues.” This is never good and your company may well lose what little credibility and good will that it may have engendered by self-reporting or self-investigating.
Timeliness - Certainly in the world of Foreign Corrupt Practices Act (FCPA) enforcement, an internal investigation should be done quickly. This has become even more necessary with the tight deadlines set under the Dodd-Frank Act Whistleblower provisions. But there are other considerations for a public company such as an impending Securities and Exchange Commission (SEC) quarterly or annual report that may need to be deferred absent as a timely resolution of the matter. Lastly, the Department of Justice (DOJ) or SEC may view delaying an investigation as simply a part of document spoliation. So timeliness is crucial.
Credibility - One of the realities of any FCPA investigation is that a Board of Directors led investigation is reviewed after the fact by not only skeptical third parties but also sometimes years after the initial events and investigation. So not only is there the opportunity for Monday-Morning Quarterbacking but quite a bit of post event analysis. So the authors believe that any Board of Directors led investigation “must be (and must be perceived as) credible as to what was done, how it was done, and who did it. Otherwise, the board’s work will have been for naught.”
To help manage these five issues the authors have seven tangible considerations they suggest that a Board of Directors follow to help make an investigation successful. Tomorrow I will review and scrutinize these seven considerations.
Source: FPCA Compliance and Ethics Blog by Thomas Fox.
Thomas Fox has practiced law in Houston for 30 years. He is now an Independent Consultant, assisting companies with anti-corruption and anti-bribery compliance and international transaction issues. He was most recently the General Counsel at Drilling Controls, Inc., a worldwide oilfield manufacturing and service company. He was previously division counsel with Halliburton Energy Services, Inc. where he supported Halliburton’s software division and its downhole division. Tom is the author of the award winning FCPA Compliance and Ethics Blog and the international best-selling book “Lessons Learned on Compliance and Ethics”. His second book, “Best Practices Under the FCPA and Bribery Act” was released in April, 2013. He recently released his first eBook, “GSK In China: A Game Changer in Compliance”. He writes and lectures across the globe on anti-corruption and anti-bribery compliance programs.
Sunday, February 2, 2014
Zuma buys time for Hawks
President Jacob Zuma and some of his ministers have asked the Constitutional Court for another 18 months to fix the legislation governing the Hawks, the unit that is meant to fight serious organised crime in South Africa.
Zuma, Justice Minister Jeff Radebe and Police Minister Nathi Mthethwa have indicated that they will appeal an order by the Western Cape High Court that found the act governing the Hawks still allows for too much political interference. This means the uncertainty over the Hawks, which replaced the Scorpions, will now drag into its sixth year. The Constitutional Court originally declared the act unconstitutional in 2011.
The current case follows the Western Cape High Court’s ruling in December, in favour of the Helen Suzman Foundation, which found that the police’s updated act was still unconstitutional.
The court ruled that adequate mechanisms to prevent political interference in the Hawks were still lacking.
The court gave Parliament a year to rectify this, but Zuma and his ministers have argued that this is not enough time. In court papers filed at the Constitutional Court, Zuma and his ministers ask that Parliament should be given 18 months to fix the legislation. This because “amendment is complex” and because “the period afforded to Parliament coincides with an imminent national election”.
A source familiar with the Hawks said the unit was demoralised and had lost some of its best investigative capacity from the days of the Scorpions. City Press has previously reported on the disagreement and the incoherence that has been caused by confusion over the fate of the unit.
The Helen Suzman Foundation has asked the court to confirm the order of constitutional invalidity. It is also asking the Constitutional Court to declare further sections of the act unconstitutional. One of the sections it is referring to includes a provision that empowers the minister to do “integrity testing” of Hawks members, which the foundation believes is an intimidation tactic. It believes this could include the bugging of Hawks officers’ phones.
Source: City Press
Zuma, Justice Minister Jeff Radebe and Police Minister Nathi Mthethwa have indicated that they will appeal an order by the Western Cape High Court that found the act governing the Hawks still allows for too much political interference. This means the uncertainty over the Hawks, which replaced the Scorpions, will now drag into its sixth year. The Constitutional Court originally declared the act unconstitutional in 2011.
The current case follows the Western Cape High Court’s ruling in December, in favour of the Helen Suzman Foundation, which found that the police’s updated act was still unconstitutional.
The court ruled that adequate mechanisms to prevent political interference in the Hawks were still lacking.
The court gave Parliament a year to rectify this, but Zuma and his ministers have argued that this is not enough time. In court papers filed at the Constitutional Court, Zuma and his ministers ask that Parliament should be given 18 months to fix the legislation. This because “amendment is complex” and because “the period afforded to Parliament coincides with an imminent national election”.
A source familiar with the Hawks said the unit was demoralised and had lost some of its best investigative capacity from the days of the Scorpions. City Press has previously reported on the disagreement and the incoherence that has been caused by confusion over the fate of the unit.
The Helen Suzman Foundation has asked the court to confirm the order of constitutional invalidity. It is also asking the Constitutional Court to declare further sections of the act unconstitutional. One of the sections it is referring to includes a provision that empowers the minister to do “integrity testing” of Hawks members, which the foundation believes is an intimidation tactic. It believes this could include the bugging of Hawks officers’ phones.
Source: City Press
Saturday, February 1, 2014
Flipping the corruption myth
Corruption is by far not the main factor behind persisting poverty in the Global South.
Dr Jason Hickel lectures at the London School of Economics and serves as an adviser to /The Rules
Transparency International recently published their latest annual Corruption Perceptions Index (CPI), laid out in an eye-catching map of the world with the least corrupt nations coded in happy yellow and the most corrupt nations smeared in stigmatising red. The CPI defines corruption as "the misuse of public power for private benefit", and draws its data from 12 different institutions including the World Bank, Freedom House, and the World Economic Forum.
When I first saw this map I was struck by the fact that most of the yellow areas happen to be rich Western countries, including the United States and the United Kingdom, whereas red covers almost the entirety of the global South, with countries like South Sudan, Afghanistan, and Somalia daubed especially dark.
This geographical division fits squarely with mainstream views, which see corruption as the scourge of the developing world (cue cliche images of dictators in Africa and bribery in India). But is this storyline accurate?
Many international development organisations hold that persistent poverty in the Global South is caused largely by corruption among local public officials. In 2003 these concerns led to the United Nations Convention against Corruption, which asserts that, while corruption exists in all countries, this "evil phenomenon" is "most destructive" in the global South, where it is a "key element in economic underperformance and a major obstacle to poverty alleviation and development".
There's only one problem with this theory: It's just not true.
Corruption, superpower style
According to the World Bank, corruption in the form of bribery and theft by government officials, the main target of the UN Convention, costs developing countries between $20bn and $40bn each year. That's a lot of money. But it's an extremely small proportion - only about 3 percent - of the total illicit flows that leak out of public coffers. Tax avoidance, on the other hand, accounts for more than $900bn each year, money that multinational corporations steal from developing countries through practices such as trade mispricing.
This enormous outflow of wealth is facilitated by a shadowy financial system that includes tax havens, paper companies, anonymous accounts, and fake foundations, with the City of London at the very heart of it. Over 30 percent of global foreign direct investment is booked through tax havens, which now collectively hide one-sixth of the world's total private wealth.
This is a massive - indeed, fundamental - cause of poverty in the developing world, yet it does not register in the mainstream definition of corruption, absent from the UN Convention, and rarely, if ever, appears on the agenda of international development organisations.
With the City of London at the centre of the global tax haven web, how does the UK end up with a clean CPI?
The question is all the more baffling given that the City is immune from many of the nation's democratic laws and free of all parliamentary oversight. As a result of this special status, London has maintained a number of quaint plutocratic traditions. Take its electoral process, for instance: More than 70 percent of the votes cast during council elections are cast not by residents, but by corporations - mostly banks and financial firms. And the bigger the corporation, the more votes they get, with the largest firms getting 79 votes each. This takes US-style corporate personhood to another level.
To be fair, this kind of corruption is not entirely out of place in a country where a feudalistic royal family owns 120,000 hectares of the nation's land and sucks up around £40m ($65.7m) of public funds each year. Then there's the parliament, where the House of Lords is filled not by election but by appointment, with 92 seats inherited by aristocratic families, 26 set aside for the leaders of the country's largest religious sect, and dozens of others divvied up for sale to multi-millionaires.
Corruption in US is only slightly less blatant. Whereas congressional seats are not yet available for outright purchase, the Citizens United vs FEC ruling allows corporations to spend unlimited amounts of money on political campaigns to ensure that their preferred candidates get elected, a practice justified under the Orwellian banner of "free speech".
The poverty factor
The UN Convention is correct to say that poverty in developing countries is caused by corruption. But the corruption we ought to be most concerned about has its root in the countries that are coloured yellow on the CPI map, not red.
The tax haven system is not the only culprit. We know that the global financial crisis of 2008 was precipitated by systemic corruption among public officials in the US who were intimately tied to the interests of Wall Street firms. In addition to shifting trillions of dollars from public coffers into private pockets through bailouts, the crisis wiped out a huge chunk of the global economy and had a devastating effect on developing countries when demand for exports dried up, causing massive waves of unemployment.
A similar story can be told about the Libor scandal in the UK, when major London banks colluded to rig interest rates so as to suck around $100bn of free money from people even well beyond Britain's shores. How could either of these scandals be defined as anything but the misuse of public power for private benefit? The global reach of this kind of corruption makes petty bribery and theft in the developing world seem parochial by comparison.
With the City of London at the centre of the global tax haven web, how does the UK end up with a clean CPI?
The question is all the more baffling given that the City is immune from many of the nation's democratic laws and free of all parliamentary oversight. As a result of this special status, London has maintained a number of quaint plutocratic traditions. Take its electoral process, for instance: More than 70 percent of the votes cast during council elections are cast not by residents, but by corporations - mostly banks and financial firms. And the bigger the corporation, the more votes they get, with the largest firms getting 79 votes each. This takes US-style corporate personhood to another level.
To be fair, this kind of corruption is not entirely out of place in a country where a feudalistic royal family owns 120,000 hectares of the nation's land and sucks up around £40m ($65.7m) of public funds each year. Then there's the parliament, where the House of Lords is filled not by election but by appointment, with 92 seats inherited by aristocratic families, 26 set aside for the leaders of the country's largest religious sect, and dozens of others divvied up for sale to multi-millionaires.
Corruption in US is only slightly less blatant. Whereas congressional seats are not yet available for outright purchase, the Citizens United vs FEC ruling allows corporations to spend unlimited amounts of money on political campaigns to ensure that their preferred candidates get elected, a practice justified under the Orwellian banner of "free speech".
The poverty factor
The UN Convention is correct to say that poverty in developing countries is caused by corruption. But the corruption we ought to be most concerned about has its root in the countries that are coloured yellow on the CPI map, not red.
The tax haven system is not the only culprit. We know that the global financial crisis of 2008 was precipitated by systemic corruption among public officials in the US who were intimately tied to the interests of Wall Street firms. In addition to shifting trillions of dollars from public coffers into private pockets through bailouts, the crisis wiped out a huge chunk of the global economy and had a devastating effect on developing countries when demand for exports dried up, causing massive waves of unemployment.
A similar story can be told about the Libor scandal in the UK, when major London banks colluded to rig interest rates so as to suck around $100bn of free money from people even well beyond Britain's shores. How could either of these scandals be defined as anything but the misuse of public power for private benefit? The global reach of this kind of corruption makes petty bribery and theft in the developing world seem parochial by comparison.
But this is just the tip of the iceberg. If we really want to understand how corruption drives poverty in developing countries, we need to start by looking at the institutions that control the global economy, such as the IMF, the World Bank and the World Trade Organisation.
During the 1980s and 1990s, the policies that these institutions foisted on the Global South, following the Washington Consensus, caused per capita income growth rates to collapse by almost 50 percent. Economist Robert Pollin has estimated that during this period developing countries lost around $480bn per year in potential GDP. It would be difficult to overstate the human devastation that these numbers represent. Yet Western corporations have benefitted tremendously from this process, gaining access to new markets, cheaper labour and raw materials, and fresh avenues for capital flight.
These international institutions masquerade as mechanisms for public governance, but they are deeply anti-democratic; this is why they can get away with imposing policies that so directly violate public interest. Voting power in the IMF and World Bank is apportioned so that developing countries - the vast majority of the world's population - together hold less than 50 percent of the vote, while the US Treasury wields de facto veto power. The leaders of these institutions are not elected, but appointed by the US and Europe, with not a few military bosses and Wall Street executives among them.
Joseph Stiglitz, former chief economist of the World Bank, has publicly denounced these institutions as among the least transparent he has ever encountered. They also suffer from a shocking lack of accountability, as they enjoy special "sovereign immunity" status that protects them against public lawsuit when their policies fail, regardless of how much harm they cause.
Shifting the blame
If these patterns of governance were true of any given nation in the global South, the West would cry corruption. Yet such corruption is normalised in the command centres of the global economy, perpetuating poverty in the developing world while Transparency International directs our attention elsewhere.
Even if we do decide to focus on localised corruption in developing countries, we have to accept that it does not exist in a geopolitical vacuum. Many of history's most famous dictators - like Augusto Pinochet, Mobutu Sese Seko, and Hosni Mubarak - were supported by a steady flow of Western aid. Today, not a few of the world's most corrupt regimes have been installed or bolstered by the US, among them Afghanistan, South Sudan, and the warlords of Somalia - three of the darkest states on the CPI map.
This raises an interesting question: Which is more corrupt, the petty dictatorship or the superpower that installs it? Unfortunately, the UN Convention conveniently ignores these dynamics, and the CPI map leads us to believe, incorrectly, that each country's corruption is neatly bounded by national borders.
Corruption is a major driver of poverty, to be sure. But if we are to be serious about tackling this problem, the CPI map will not be much help. The biggest cause of poverty in developing countries is not localised bribery and theft, but the corruption that is endemic to the global governance system, the tax haven network, and the banking sectors of New York and London. It's time to flip the corruption myth on its head and start demanding transparency where it counts.
Dr Jason Hickel lectures at the London School of Economics and serves as an adviser to /The Rules.
Follow him on Twitter: @jasonhickel
The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera's editorial policy.
Source: Al Jazeera
Dr Jason Hickel lectures at the London School of Economics and serves as an adviser to /The Rules
Transparency International recently published their latest annual Corruption Perceptions Index (CPI), laid out in an eye-catching map of the world with the least corrupt nations coded in happy yellow and the most corrupt nations smeared in stigmatising red. The CPI defines corruption as "the misuse of public power for private benefit", and draws its data from 12 different institutions including the World Bank, Freedom House, and the World Economic Forum.
When I first saw this map I was struck by the fact that most of the yellow areas happen to be rich Western countries, including the United States and the United Kingdom, whereas red covers almost the entirety of the global South, with countries like South Sudan, Afghanistan, and Somalia daubed especially dark.
This geographical division fits squarely with mainstream views, which see corruption as the scourge of the developing world (cue cliche images of dictators in Africa and bribery in India). But is this storyline accurate?
Many international development organisations hold that persistent poverty in the Global South is caused largely by corruption among local public officials. In 2003 these concerns led to the United Nations Convention against Corruption, which asserts that, while corruption exists in all countries, this "evil phenomenon" is "most destructive" in the global South, where it is a "key element in economic underperformance and a major obstacle to poverty alleviation and development".
There's only one problem with this theory: It's just not true.
Corruption, superpower style
According to the World Bank, corruption in the form of bribery and theft by government officials, the main target of the UN Convention, costs developing countries between $20bn and $40bn each year. That's a lot of money. But it's an extremely small proportion - only about 3 percent - of the total illicit flows that leak out of public coffers. Tax avoidance, on the other hand, accounts for more than $900bn each year, money that multinational corporations steal from developing countries through practices such as trade mispricing.
This enormous outflow of wealth is facilitated by a shadowy financial system that includes tax havens, paper companies, anonymous accounts, and fake foundations, with the City of London at the very heart of it. Over 30 percent of global foreign direct investment is booked through tax havens, which now collectively hide one-sixth of the world's total private wealth.
This is a massive - indeed, fundamental - cause of poverty in the developing world, yet it does not register in the mainstream definition of corruption, absent from the UN Convention, and rarely, if ever, appears on the agenda of international development organisations.
With the City of London at the centre of the global tax haven web, how does the UK end up with a clean CPI?
The question is all the more baffling given that the City is immune from many of the nation's democratic laws and free of all parliamentary oversight. As a result of this special status, London has maintained a number of quaint plutocratic traditions. Take its electoral process, for instance: More than 70 percent of the votes cast during council elections are cast not by residents, but by corporations - mostly banks and financial firms. And the bigger the corporation, the more votes they get, with the largest firms getting 79 votes each. This takes US-style corporate personhood to another level.
To be fair, this kind of corruption is not entirely out of place in a country where a feudalistic royal family owns 120,000 hectares of the nation's land and sucks up around £40m ($65.7m) of public funds each year. Then there's the parliament, where the House of Lords is filled not by election but by appointment, with 92 seats inherited by aristocratic families, 26 set aside for the leaders of the country's largest religious sect, and dozens of others divvied up for sale to multi-millionaires.
Corruption in US is only slightly less blatant. Whereas congressional seats are not yet available for outright purchase, the Citizens United vs FEC ruling allows corporations to spend unlimited amounts of money on political campaigns to ensure that their preferred candidates get elected, a practice justified under the Orwellian banner of "free speech".
The poverty factor
The UN Convention is correct to say that poverty in developing countries is caused by corruption. But the corruption we ought to be most concerned about has its root in the countries that are coloured yellow on the CPI map, not red.
The tax haven system is not the only culprit. We know that the global financial crisis of 2008 was precipitated by systemic corruption among public officials in the US who were intimately tied to the interests of Wall Street firms. In addition to shifting trillions of dollars from public coffers into private pockets through bailouts, the crisis wiped out a huge chunk of the global economy and had a devastating effect on developing countries when demand for exports dried up, causing massive waves of unemployment.
A similar story can be told about the Libor scandal in the UK, when major London banks colluded to rig interest rates so as to suck around $100bn of free money from people even well beyond Britain's shores. How could either of these scandals be defined as anything but the misuse of public power for private benefit? The global reach of this kind of corruption makes petty bribery and theft in the developing world seem parochial by comparison.
With the City of London at the centre of the global tax haven web, how does the UK end up with a clean CPI?
The question is all the more baffling given that the City is immune from many of the nation's democratic laws and free of all parliamentary oversight. As a result of this special status, London has maintained a number of quaint plutocratic traditions. Take its electoral process, for instance: More than 70 percent of the votes cast during council elections are cast not by residents, but by corporations - mostly banks and financial firms. And the bigger the corporation, the more votes they get, with the largest firms getting 79 votes each. This takes US-style corporate personhood to another level.
To be fair, this kind of corruption is not entirely out of place in a country where a feudalistic royal family owns 120,000 hectares of the nation's land and sucks up around £40m ($65.7m) of public funds each year. Then there's the parliament, where the House of Lords is filled not by election but by appointment, with 92 seats inherited by aristocratic families, 26 set aside for the leaders of the country's largest religious sect, and dozens of others divvied up for sale to multi-millionaires.
Corruption in US is only slightly less blatant. Whereas congressional seats are not yet available for outright purchase, the Citizens United vs FEC ruling allows corporations to spend unlimited amounts of money on political campaigns to ensure that their preferred candidates get elected, a practice justified under the Orwellian banner of "free speech".
The poverty factor
The UN Convention is correct to say that poverty in developing countries is caused by corruption. But the corruption we ought to be most concerned about has its root in the countries that are coloured yellow on the CPI map, not red.
The tax haven system is not the only culprit. We know that the global financial crisis of 2008 was precipitated by systemic corruption among public officials in the US who were intimately tied to the interests of Wall Street firms. In addition to shifting trillions of dollars from public coffers into private pockets through bailouts, the crisis wiped out a huge chunk of the global economy and had a devastating effect on developing countries when demand for exports dried up, causing massive waves of unemployment.
A similar story can be told about the Libor scandal in the UK, when major London banks colluded to rig interest rates so as to suck around $100bn of free money from people even well beyond Britain's shores. How could either of these scandals be defined as anything but the misuse of public power for private benefit? The global reach of this kind of corruption makes petty bribery and theft in the developing world seem parochial by comparison.
But this is just the tip of the iceberg. If we really want to understand how corruption drives poverty in developing countries, we need to start by looking at the institutions that control the global economy, such as the IMF, the World Bank and the World Trade Organisation.
During the 1980s and 1990s, the policies that these institutions foisted on the Global South, following the Washington Consensus, caused per capita income growth rates to collapse by almost 50 percent. Economist Robert Pollin has estimated that during this period developing countries lost around $480bn per year in potential GDP. It would be difficult to overstate the human devastation that these numbers represent. Yet Western corporations have benefitted tremendously from this process, gaining access to new markets, cheaper labour and raw materials, and fresh avenues for capital flight.
These international institutions masquerade as mechanisms for public governance, but they are deeply anti-democratic; this is why they can get away with imposing policies that so directly violate public interest. Voting power in the IMF and World Bank is apportioned so that developing countries - the vast majority of the world's population - together hold less than 50 percent of the vote, while the US Treasury wields de facto veto power. The leaders of these institutions are not elected, but appointed by the US and Europe, with not a few military bosses and Wall Street executives among them.
Joseph Stiglitz, former chief economist of the World Bank, has publicly denounced these institutions as among the least transparent he has ever encountered. They also suffer from a shocking lack of accountability, as they enjoy special "sovereign immunity" status that protects them against public lawsuit when their policies fail, regardless of how much harm they cause.
Shifting the blame
If these patterns of governance were true of any given nation in the global South, the West would cry corruption. Yet such corruption is normalised in the command centres of the global economy, perpetuating poverty in the developing world while Transparency International directs our attention elsewhere.
Even if we do decide to focus on localised corruption in developing countries, we have to accept that it does not exist in a geopolitical vacuum. Many of history's most famous dictators - like Augusto Pinochet, Mobutu Sese Seko, and Hosni Mubarak - were supported by a steady flow of Western aid. Today, not a few of the world's most corrupt regimes have been installed or bolstered by the US, among them Afghanistan, South Sudan, and the warlords of Somalia - three of the darkest states on the CPI map.
This raises an interesting question: Which is more corrupt, the petty dictatorship or the superpower that installs it? Unfortunately, the UN Convention conveniently ignores these dynamics, and the CPI map leads us to believe, incorrectly, that each country's corruption is neatly bounded by national borders.
Corruption is a major driver of poverty, to be sure. But if we are to be serious about tackling this problem, the CPI map will not be much help. The biggest cause of poverty in developing countries is not localised bribery and theft, but the corruption that is endemic to the global governance system, the tax haven network, and the banking sectors of New York and London. It's time to flip the corruption myth on its head and start demanding transparency where it counts.
Dr Jason Hickel lectures at the London School of Economics and serves as an adviser to /The Rules.
Follow him on Twitter: @jasonhickel
The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera's editorial policy.
Source: Al Jazeera
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