THE
OUTFLOWS OF ILLICIT CASH FROM LATIN AMERICA ARE A STAGGERING TAX ON ITS
CITIZENS.
The leaders of major LATIN AMERICAN countries
– ARGENTINA, BRAZIL. CHILE and MEXICO – are enmeshed in scandals.
Background
Information:
CRIME AND
CORRUPTION ARE TWO OF THE WORLD'S LARGEST MULTINATIONAL INDUSTRIES
CRIMINAL
ORGANIZATIONS OFTEN THRIVED BECAUSE THEY PROVIDE UNAVAILABLE SERVICES OR
FILLING THE NEEDS THAT TRADITIONAL POLITICAL STRUCTURES COULD NOT FILL
MEXICAN
president ENRIQUE PENA NIETO could have been speaking for
the whole continent, not just his own country, when he stated in a recent
interview, “Today there is, without doubt, a sensation of incredulity and
distrust…there has been a loss of confidence and this has sown suspicion and
doubt.”
Corruption is nothing new to LATIN
AMERICA. To be sure, the plethora of current prominent scandals is setting some
new records. But public distrust has increased to no small degree by the
growing understanding that the seemingly endless corruption is directly causing
enormous economic problems for almost all citizens.
NOT DAY TO DAY
PETTY CRIME BUT ORGANIZED CRIME SYNIDCATES AND CORRUPTION THAT COMES WITH IT IS
THE TRUE CANCER OF LATIN AMERICA
According to
estimates by the Institute of
International Finance, real economic growth in the region was an estimated 0.4%
for 2014. The IIF forecasts that it will be a scant 0.2% in 2015.
And, in the midst of this virtual
economic stagnation, the region is being drained on a massive scale of “dirty”
cash, flowing overseas to be laundered on behalf of LATIN AMERICAN tax evaders,
criminal networks, and corrupt politicians and public officials.
Meanwhile,
according to Global Financial
Integrity, illicit financial flows out of LATIN AMERICA are running at
around an annual 3% of GDP.
This is probably a conservative
estimate, because it is largely based on analysis of official trade and balance
of payments statistics, which cannot capture illicit funds from all criminal
organizations.
Given those numbers, just imagine how
different public attitudes might be if all that stolen cash, resulting from
corruption and crime and fleeing the continent, were not the spoils of thievery
— but were instead legitimately invested in new jobs and the domestic economies
of LATIN AMERICA.
LATAM - FROM STABLE AND RISING
REAL ECONOMIC GROWTH TO STAGNATION
The outflows of illicit cash from the
region are a staggering tax on its citizens. They are now taking a continent
from the road of stable and rising real economic growth to stagnation.
There is nothing new about the scale
of the illicit outflows, but for much of the last dozen years, they were seen
against the background of strong LATIN AMERICAN growth. This was a period, for
example, when the percentage of very poor people in LATIN AMERICA fell from 42%
to 25%.
But today, governments in many
countries are under siege as a direct result of scandals, and their economic
policies seem uncertain, while slowing world economic growth is adding to
difficulties.
The economy of the largest country in
the region, BRAZIL, is, as The Economist magazine reported in early March, “in
its worst mess since the early 1990s.” Indeed, the current corruption scandal
surrounding PETROBRAS is the largest in the country’s history.
It is totally diverting the attention
of the BRAZILIAN government and parliament from addressing the formidable
economic challenges that the country now confronts. Moreover, over $50 billion
in PETROBRAS’S stock market value has been lost over the last six months
because of the scandal, which in turn has had a major negative impact on the
overall BRAZILIAN stock exchange
PETROBRAS, the mostly state-owned
largest corporation in BRAZIL, illustrates part of the broader problem in many LATIN
AMERICAN countries of close corrupt relationships between major enterprises,
corporate executives, and powerful politicians and the political parties. For
many years, top executives of the company took large kickbacks from domestic
and foreign companies in return for allocating major contracts.
Based on information from former PETROBRAS
executives, public prosecutors are now firing on all cylinders as they file
arrest warrants on a wholesale scale. In mid-March, the treasurer of the ruling
Workers’ Party and 26 others were formally charged with corruption.
The leaders of both the upper and
lower houses of parliament are being investigated. So far, President DILMA
ROUSSEFF, who a few years ago served as the board chairman of PETROBRAS, is not
on the investigation list. However, hundreds of thousands of BRAZILIANS took to
the streets to protest and call for her impeachment.
The kickbacks from domestic and
foreign companies at PETROBRAS and at its affiliates, went into the pockets of
the PETROBRAS officials, as well as into the hands of prominent politicians and
political party campaign funds. Many of the bribes were paid into secret SWISS bank
accounts.
CORRUPTION IS EVERYWHERE
In MEXICO, both president NIETO and
Finance Minister LUIS VIDEGARAY are now under investigation for having bought
grand homes for allegedly very low prices from business people who have won
lucrative government contracts.
In CHILE, President MICHELLE BACHELET
is under fire, not only because her son has allegedly obtained major funding
from firms allegedly involved in government deals, but also because one of the
country’s largest ever political corruption scandals is unfolding, which
involves major financial institutions and several key government ministries.
Not to be undone, ARGENTINA’S
president CHRISTINA KIRCHNER is besieged by scandals, ranging from allegations
that she has vastly enriched herself while in office, to allegedly being
involved in the alleged murder of a prominent lawyer.
Another aspect of the problem
involves organized crime. For example, monitors at Transparency International –
COLOMBIA note that at the core of the country’s corruption is state capture by
illegal actors.
According to known sources, some of
the biggest corruption involves secret payments by multinational oil and mining
companies to local authorities and the guerrilla groups to ensure their basic
security as well.
GFI develops its data from official
statistics, mostly on the balance of payments, and it may understate the true
volume of illicit financial flows by not entirely capturing the cash of
organized crime.
What is very clear is that the huge
amount of illicit flows from the region is massively undermining trade and
commerce and making it extraordinarily difficult for honest business people to
compete.
HOW THE MONEY FLOWS
RAYMOND BAKER, GFI’s founder and
president, said that, “Misinvoicing – the deliberate misrepresentation of the
value of goods being shipped – is not a source of black money; it is the
mechanism through which black money leaves a country.
Recent data show that on average (on
a global basis), close to 80% of all cross-border illicit flows move through
this method.”
GFI’s research suggests that the LATIN
AMERICAN countries that suffer the greatest impact in this regard are MEXICO
and BRAZIL.
Corrupt politicians, officials, their
business partners and gangsters all seek to transfer their ill-gotten gains
into solid investments in major foreign business centers, where the real
ownership of the assets is totally secret.
Much of the illicit financial
outflows from LATIN AMERICA undoubtedly find their way into fine art, blue chip
corporate stocks and ritzy apartments and mansions in MIAMI and in NEW YORK.
The corrupt employ armies of lawyers,
consultants, accountants and bankers to create foreign holding companies
registered in places like the BRITISH VIRGIN ISLANDS where no questions are
asked about the origin of the wealth.
These shell companies hide the true
beneficial owners of the assets and are used as the investment vehicles to
launder the illicit cash.
PRESSURE IS MOUNTING, BUT IS IT ENOUGH?
The only good news is that pressures
are mounting on banks from public prosecutors and bank regulatory authorities
to end the secrecy that enables the corrupt to park their cash far from the
location of their crimes.
In January 2013, HSBC, one of the
world’s largest banks, agreed to pay a $1.92 billion fine to U.S. authorities
for allegedly laundering MEXICAN drug cartel money into the UNITED STATES.
This case has served to encourage
greater investigations of major global banks and the effort has now been given
a boost by the very high profile disclosure of 100,000 secret accounts at
HSBC’s private bank in GENEVA, as reported by the International Consortium of
Investigative Journalists.
Rarely before have so many political
leaders in LATIN AMERICA been as low in the popularity opinion polls as today.
Corruption scandals are taking a far heavier toll than in the past it seems.
The major cause for this is the painfully evident ties between corruption and
stagnant economic growth.
But, important, the current mood has
been sharpened by courageous journalists and judges: the former have exposed
corruption cases with great zeal, while the latter are showing exceptional
courage by confronting political establishments.
Adapted by Geopolitical Analysis and
Monitoring from the original article written by Frank Vogl via The Globalist
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