Blood Brothers: How Illicit Economies Facilitate Corruption

Orga­nized crime and illic­it economies are increas­ing­ly promi­nent sources of polit­i­cal cor­rup­tion, as crim­i­nal net­works pour mon­ey into par­ties and forge alliances with offi­cials and their inter­me­di­aries. Transna­tion­al orga­nized crime gen­er­ates an esti­mat­ed $870 bil­lion in annu­al rev­enue, accord­ing to a report pub­lished in 2016 by the Glob­al Ini­tia­tive against Transna­tion­al Orga­nized Crime. Trans­ac­tion­al cor­rup­tion of law enforce­ment and pub­lic offi­cials diverts resources from the state, and increas­ing­ly, in coun­tries with poor insti­tu­tions, the receipt of a bribe is per­ceived as a right of office — while pay­ment of a bribe is seen as a cost of doing busi­ness. This has gen­er­at­ed dis­trust in politi­cians, dis­tort­ed mar­kets, under­mined pub­lic infra­struc­ture, and dis­en­gaged cit­i­zens.

Crime and cor­rup­tion are fur­ther facil­i­tat­ed by the decline of stig­ma asso­ci­at­ed with ille­gal acts; illic­it activ­i­ty is reg­u­lar­ly used to gain polit­i­cal pow­er, or to buy legit­i­ma­cy with the pub­lic. A lack of law enforce­ment, penal­ties, or any deter­ring gov­ern­ment pres­ence at all runs the risk of increas­ing com­plic­i­ty over time. The high-lev­el busi­ness and gov­ern­ment offi­cials who enable crim­i­nal behav­ior through neglect or com­plic­i­ty are exact­ing heavy cost on the soci­ety at large. Accord­ing to a UN esti­mate pub­lished in 2018 the annu­al cost of cor­rup­tion amounts to $3.6 tril­lion. That is almost 3 times the cur­rent mon­e­tary cir­cu­la­tion in the US.

How Does Illicit Economy Impact Macro-Structures In Society?

The effects of the illic­it econ­o­my are, of course, mul­ti­fac­eted. The exis­tence of crim­i­nal activ­i­ties hurts the entire sys­tem with the same mag­ni­tude, albeit in a dif­fer­ent man­ner. The impact of the illic­it econ­o­my on the macro-struc­tures of soci­ety can be defined as fol­lows:

Polit­i­cal: The biggest effect it can have on a country’s polit­i­cal land­scape is that it under­mines the growth of democ­ra­cy. Politi­cians who have the finan­cial back­ing of cor­rupt ele­ments often have great suc­cess­es in their polit­i­cal career. Crim­i­nal orga­ni­za­tions and cor­rupt politi­cians enter into the polit­i­cal are­na and enjoy big posi­tions only to prof­it off of state resources. Such prac­tices are an assault on rule of law. When the head of the state shows no qualms in engag­ing in cor­rupt activ­i­ties, peo­ple at all lev­els find it dif­fi­cult to resist the urge of par­tic­i­pat­ing in the illic­it econ­o­my. This leads to ram­pant cor­rup­tion that silent­ly erodes legit­i­mate soci­eties.

• Judi­cia­ry: Regard­less of it being inde­pen­dent, the judi­cia­ry can­not divorce itself from the infil­tra­tion of cor­rupt ele­ments. When such ele­ments find space inside the judi­cia­ry, they dis­rupt the work­ing of the law-enforce­ment agen­cies that find it increas­ing­ly dif­fi­cult to appre­hend peo­ple who are vio­lat­ing the law. The judi­cia­ry itself remains a pup­pet at the hand of pow­er­ful peo­ple who kill off or bribe judges, pros­e­cu­tors, and wit­ness­es to cre­ate fear and escape pun­ish­ment.
• Econ­o­my: Some argue that the illic­it econ­o­my results in eco­nom­ic ben­e­fits in the form of job oppor­tu­ni­ties. But this means that the accu­mu­la­tion of wealth is in the hands of a few peo­ple and the state is incur­ring a loss in rev­enue as the state can­not for­mal­ly charge income tax from these peo­ple who are employed by crim­i­nal groups. While there may exist a boon in cer­tain sec­tors, many oth­er sec­tors remain stag­nant result­ing in high infla­tion and down­ward tra­jec­to­ry of over­all eco­nom­ic growth.
• Envi­ron­ment: Illic­it trade of the wildlife in Africa and cer­tain coun­tries in South East Asia has con­tributed to the extinc­tion of some rare species. In Ama­zon and Con­go, ille­gal log­ging and infor­mal mines are silent­ly reduc­ing the reserves of rain forests. This decline in the for­est cov­er is con­tribut­ing to glob­al warm­ing and, ulti­mate­ly, the loss of species. In addi­tion, through illic­it smug­gling of tox­ic mate­r­i­al into water­ways, crim­i­nal groups are dam­ag­ing the world’s rich­est ecosys­tem.
• Secu­ri­ty: Illic­it economies hurt a country’s rule of law. Mil­i­tant groups rely on the illic­it econ­o­my to finance their train­ing. Many crim­i­nal groups grab people’s prop­er­ty and ask them for large amounts of mon­ey. The mon­ey is then used to prop­er­ly equip them­selves so that they can fight against the state.

La Linea (The Line) — The Paradigmatic Case of Guatemala

It was on Octo­ber 27, 2017, when the for­mer pres­i­dent of Guatemala, Otto Perez Moli­na, and his for­mer vice-pres­i­dent, Rox­ana Baldet­ti, were for­mal­ly accused of cor­rup­tion crimes by a Guatemalan judge. This hap­pened at least two years after mas­sive protests broke out in the coun­try in Sep­tem­ber 2015 when thou­sands of pro­test­ers took to the street to demand the res­ig­na­tion of the then pres­i­dent Moli­na.

The protests were fueled by the rev­e­la­tions of the Attor­ney Gen­er­al Office and the Inter­na­tion­al Com­mis­sion Against Impuni­ty in Guatemala (CICIG) that high­light­ed how a par­al­lel cus­toms office facil­i­tat­ed importers to avoid tax­es. All of this was being car­ried out in an orga­nized man­ner. The now-con­vict­ed pres­i­dent and the vice pres­i­dent appoint­ed high rank­ing offi­cials to man­age the par­al­lel office. These offi­cers laun­dered the mon­ey and col­lect­ed the bribes. Against this, the offi­cers were offered cash mon­ey, heli­copters, and man­sions. This judi­cial case and the sophis­ti­cat­ed crim­i­nal struc­ture that facil­i­tat­ed the crime is being called La Lin­ea (The Line). The name refers to the ‘phone line’ that importers called to request unlaw­ful assis­tance so that they can evade tax­es (the mon­ey that was the state’s right).

In an unprece­dent­ed move, Judge Miguel Angel Galves held that there was suf­fi­cient and appro­pri­ate evi­dence avail­able to back the claims of the Attor­ney Gen­er­al and the CICIG. At least 31 for­mer agents, some of who are for­mer gov­ern­ment offi­cers, cur­rent­ly face the sec­ond stage of judg­ment and are yet to hear their final sen­tences. The inves­ti­ga­tions into this case have led CICIG to uncov­er sev­en more cor­rup­tion schemes which are cur­rent­ly under probe.

But all of this has brought undue crit­i­cism for the CICIG which is being accused of being a tool for polit­i­cal vic­tim­iza­tion. Pow­er­ful cor­rupt sec­tors are argu­ing that the insti­tu­tion itself is a vio­la­tion of Guatemalan sov­er­eign­ty. But what­ev­er the cor­rupt seg­ment of soci­ety says, many peo­ple regard the CICIG as their only hope that will restore jus­tice in the coun­try. In fact, in August 2017, thou­sands of peo­ple showed sol­i­dar­i­ty to the CICIG when they protest­ed against the cur­rent Guatemalan pres­i­dent when he tried to fire the com­mis­sion­er of the CICIG after the author­i­ties launched an inves­ti­ga­tion against the president’s son.

Learnings and Recommendations

The fas­ci­nat­ing thing about La Lin­ea case was that it wasn’t used to sack only the pres­i­dent. When the case sur­faced, the Attor­ney General’s office uncov­ered the entire chain of cor­rup­tion. This means that the author­i­ties were com­mit­ted to find­ing out the loop­holes in the struc­ture that some­how facil­i­tat­ed the exe­cu­tion of crim­i­nal activ­i­ties. When it comes to polit­i­cal cor­rup­tion, the impor­tant thing is to work toward struc­tur­al improve­ments. Here’s a clos­er look at how the Guatemalan author­i­ties address the high-pro­file cor­rup­tion scan­dal:

1. In Guatemala, the author­i­ties didn’t sole­ly focus on the pres­i­dent, a high-pro­file offi­cial who gar­nered pub­lic atten­tion, and label the arrest as “the mis­sion accom­plished”, but they also looked into the inher­ent fault of the sys­tem that let crim­i­nal activ­i­ties pass through unde­tect­ed. Only pros­e­cut­ing a high-pro­file offi­cial would have allowed the author­i­ties to address only the symp­tom of a much larg­er prob­lem. But what the agen­cies did in Guatemala was that they uncov­er the entire rack­et that was involved in the crime. Around 30 peo­ple face pros­e­cu­tion in this case. The redres­sal of this prob­lem will only be made pos­si­ble if the coun­try car­ries out the struc­tur­al improve­ment to root out the pos­si­bil­i­ty of any cor­rupt activ­i­ties.
2. The Attor­ney Gen­er­al and the CICIG didn’t restrict their inves­ti­ga­tions to pub­lic ser­vants. In the sub­se­quent stage of the inves­ti­ga­tion, also called “The Coop­ta­tion” case, the author­i­ties includ­ed pri­vate actors. This means that besides appre­hend­ing gov­ern­ment offi­cers, the agen­cies inves­ti­gat­ed pri­vate play­ers as well who were lat­er con­vict­ed. The prece­dent set by the Guatemalan author­i­ties is like­ly to go a long way in dis­rupt­ing cor­rup­tion. Fol­low­ing suit, Brazil adopt­ed a sim­i­lar approach while inves­ti­gat­ing the Oberderetch case.
3. The CICIG took quick action to break the cycle of coop­ta­tion, cor­rup­tion, and infil­tra­tion that was neg­a­tive­ly impact­ing every Guatemalan insti­tu­tion. In a coun­try where the judi­cia­ry is weak and the law-enforce­ment agen­cies can­not per­form freely and state insti­tu­tions, includ­ing these two, are infil­trat­ed by crim­i­nal net­works, it is dif­fi­cult to tack­le cor­rup­tion. Keep­ing in mind these lim­i­ta­tions, the Guatemalan author­i­ties adopt an arrange­ment of a UN-sup­port­ed inde­pen­dent and inter­na­tion­al com­mis­sion to inves­ti­gate the case in an effi­cient man­ner.

These lessons, includ­ing those that are com­ing out of Brazil, should be looked into by the coun­tries that face the prob­lem of cor­rup­tion and where elite forces feed off the com­mon man’s mis­ery. Con­fronting the net­works and sys­tems of cor­rup­tion is not an easy task. The author­i­ties may even face the back­lash of soci­eties that have inter­nal­ized cor­rupt prac­tices. But tak­ing tough mea­sures is the only solu­tion to trans­form soci­eties.

Final Thoughts

Illic­it activ­i­ties con­tin­ue to grow at unprece­dent­ed rates, affect­ing par­tic­u­lar­ly regions with lack of gov­er­nance and social struc­ture. With scarci­ty of polit­i­cal sta­bil­i­ty in many regions around the world , it is even more impor­tant to address this issues.

Cur­tail­ing the illic­it econ­o­my requires a range of solu­tions that span from har­ness­ing tech­nol­o­gy to fight illic­it trade, iden­ti­fy­ing gov­er­nance gaps and shar­ing best prac­tices to the adop­tion of a mul­ti­dis­ci­pli­nary approach that intro­duces an inter­na­tion­al pub­lic-pri­vate part­ner­ship plat­form, where the knowl­edge, exper­tise and expe­ri­ences of var­i­ous actors can be shared to devel­op a glob­al gov­er­nance regime to deal with illic­it trade.