E&E and corruption

Extractives and corruption in Latin America: Looking outside the box for solutions

Leonardo Sempertegui (lsv@sempertegui.com)

Once again, Latin America is experiencing a multitude of corruption cases, probably to an extent never seen before. The characteristics of the corruption system found in the Odebrecht case are appalling, not only for the amounts involved,

but also for the sophistication of the system and its capture of almost all offices and agencies involved in awarding contracts and monitoring their performance. In this context, the uncertainty about the use of future resources coming from extractive industry (EI) projects (mining and oil & gas) is immense and social and environmental implications.

To solve the problem, the region needs to look beyond its borders for solutions that have worked in other contexts. The development of technology can also offer opportunities for citizens will to get involved in exercising greater oversight over the government. Transnational solutions could include the following:

1. Create and strengthen international entities: Whether through the Organization of American States (OAS) or another entity, solutions for internal challenges may be found precisely outside of the boundaries established by traditional domestic legal systems.

The European Union and other European fora are the best example that the region can look to. A requisite to access (and stay in) these compacts is the strict observance of its rules, among others, against breaches of rule of law and corruption. Several recent cases come to my mind that were duly curtailed by the European institutions. Poland preparing legal reforms to place the judiciary branch under control of the executive branch, or Romania eliminating criminal punishments for some bribery cases, among others, are examples where the intervention (and pressure) of EU authorities played a role in preventing governments from following through on measures that would have seriously eroded the rule of law. It is true that there were important public protests in both cases, however another key element was, doubtless, pressure from the EU (see Corruption, Rule of Law and EU oversight in Romania).

All countries in the Americas have signed the UN Convention against Corruption (UNCAC), but recent corruption revelations raise questions about whether it can be implemented more forcefully. To improve the impact of UNCAC, countries could consider giving real powers of oversight in corruption matters to supranational entities with capacity to enforce international anticorruption standards decisions within national judicial systems. An independent monitoring function with real enforcement capacity, such as that which exists for human rights, should be considered. In fact, given the nexus between corruption and human rights, the human rights system itself could be employed for this purpose.

In a scenario where supranational entities can tackle corruption cases, probably EI cases would be the first to be submitted, since they are widespread in the region and some of them involve transnational activity, which would strengthen the case for international oversight.

2. Commit to voluntary international transparency initiatives: Private international organizations have done exceptional work to bring transparency to the extractive industries. The Extractive Industries Transparency Initiative (EITI) is a project that has had success in several countries, especially Africa, in revealing what the real amount earned by extractive exploitation is, and what is being done with the profits.

There are other relevant initiatives, such as Transparency International (TI) and its world-wide project to combat corruption in mining licenses approval, or the Publish What You Pay (PWYP) initiative to reveal EI contract information and create knowledge about the damage caused by lack of transparency and data.

States can support and facilitate EI transparency by joining these initiatives where relevant, or by allowing the collection of information on licensing, contracting, and revenues. Colombia, Peru, Honduras, Dominican Republic and Guatemala have already joined EITI, and some other countries, such as Mexico and Argentina, are considering doing so.

3. Apply multilateral development bank sanctions at the national level: Finally, there are some encouraging corruption fighting efforts being executed by international entities such as the World Bank Group, EBRD, IADB, among others. These actions are primarily directed at protecting the funds of such organizations from fraudulent or corrupt actions of contractors (private corporations) in projects executed by national governments.

These sanctions systems are aimed at preventing corporations involved in fraud and/or corruption from being contracted with funds from the international development banks. While these are sophisticated systems, they nonetheless have a limited reach: government officials cannot be sanctioned under these rules, so accountability for corrupt behavior by public officials is left to national governments. Nonetheless, governments could take steps to enforce the sanction system created by international organizations in several ways:

- Sign cooperation agreements with the international organizations under which governments exclude officials involved in corruption cases from managing public funding.

- Reform national legislation to make this kind of sanction a mandatory trigger for investigation of public officials and require completing such investigation as a prerequisite for future lending or technical assistance to the country.

The path towards a corruption-free environment in Latin America is far from easy. However, strengthening the involvement of international entities can make a difference.