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In Other Words

Corruption’s True Face

Ojos Vendados: Estados Unidos y el negocio de la corrupción en América Latina (Blindfolded: The United States and the Business of Corruption in Latin America) By Andrés Oppenheimer 318 pages, Buenos Aires: Editorial Sudamericana, 2001 (in Spanish) Pity the poor U.S. multinational corporation. Constrained by the Foreign Corrupt Practices Act (FCPA) of 1977, which prohibits ...

Ojos Vendados: Estados Unidos y el negocio de la corrupción en América Latina (Blindfolded: The United States and the Business of Corruption in Latin America)
By Andrés Oppenheimer
318 pages, Buenos Aires: Editorial Sudamericana, 2001 (in Spanish)

Pity the poor U.S. multinational corporation. Constrained by the Foreign Corrupt Practices Act (FCPA) of 1977, which prohibits bribing foreign government officials to obtain business abroad, American companies and policymakers have long argued that U.S. firms operate at a severe disadvantage vis-à-vis their bribe-happy global competitors. "For more than 20 years," then U.S. Commerce Secretary William Daley complained in 1998, "the United States has enforced our anti-bribery legislation while other countries have given tax deductions to companies for their bribes." Similar arguments spurred the Organisation for Economic Co-operation and Development’s (OECD) antibribery convention, which entered into force in February 1999 and by the end of January 2002 had been ratified by more than 30 countries.

Yet if the OECD convention proves as effective as the FCPA, corrupt public officials the world over have little cause for concern. Just ask Argentine journalist Andrés Oppenheimer, author of Blindfolded: The United States and the Business of Corruption in Latin America, a fast-paced investigative look into the seedy dealings of U.S. multinationals in Latin America. Blindfolded reads like a good detective thriller — rife with dirty politicians, ruthless executives, and quixotic government investigators crusading for the truth. A long-time Miami Herald columnist with a Pulitzer Prize to his credit, Oppenheimer spent four years conducting 300 interviews in five countries for this book. Published in Buenos Aires in March 2001, Blindfolded quickly reached Argentina’s bestseller list and has been widely read and reviewed throughout Latin America.

Oppenheimer makes a simple argument: Yes, Latin democracies suffer from pervasive corruption, and the region’s politicians ought to foster greater accountability. But the foreign companies and international banks who pay bribes and help hide illicit earnings are also guilty. Without stricter laws over the foreign operations of U.S. and European multinationals, warns Oppenheimer, Latin America will never defeat corruption.

Oppenheimer’s account of the IBM scandal in Argentina in the mid-1990s helps make his case. Seeking to modernize the country’s creaky banking system, Argentina’s government sought bids in late 1993 for a major information-technology services contract at Banco Nación, the country’s largest bank. IBM’s local subsidiary decided to submit a proposal. Given the magnitude of the undertaking, IBM headquarters dispatched systems manager Steve Lew to Buenos Aires to oversee the proposal’s final stages. In February 1994, IBM-Argentina won the $250 million contract.

Barely a year later, Argentine tax authorities visited the offices of an obscure IBM-Argentina subcontractor, Rural Training and Computing (CCR), after discovering a $10.6 million payment the IBM subsidiary made to CCR, ostensibly for services provided in the Banco Nación project. They found two minuscule rooms, one phone, and a lone secretary. Investigators soon learned that CCR’s main service had been to funnel some $4.4 million in "gifts" to two Banco Nación directors involved in the bid selection. The matter made national headlines and quickly erupted into a political scandal.

Investigators from the U.S. Justice Department pounced on the case but were unable to prove that IBM’s U.S. executives had directly authorized the bribes, as was then required to bring charges under the FCPA. (The law was amended in November 1998 to include the activities of overseas subsidiaries.) IBM’s U.S. officials deflected attention onto local staff, in particular IBM-Argentina President Ricardo Martorana. While Martorana protested that Lew had approved the proposal, including payments to CCR, Lew claimed he had reviewed only the technical, and not the financial, aspects of the proposal. Martorana was forced to resign, while IBM’s U.S. headquarters paid only a $300,000 fine in December 2000 following a Securities and Exchange Commission investigation. "The U.S. law was porous, and its implementation was weak," Oppenheimer concluded.

The porosity of U.S. anticorruption laws also looms large in Blindfolded‘s examination of Citibank’s Latin American operations. Oppenheimer begins with the unlikely experience of Juan Miguel Ponce, the brash Interpol chief in Mexico who tracked drug kingpins throughout Latin America. While pursuing Juárez drug cartel boss Amado Carrillo Fuentes from Cuba to Chile to Argentina during the mid-1990s, Ponce chanced upon a letter of reference from Citibank’s Mexico City branch for a Mr. Juan Arriaga, described as a "well-known cattleman" from Mexico. But as Ponce knew, Juan Arriaga was an alias for Carrillo Fuentes, who later used the letter to clear his way into Chile’s financial sector. The befuddled Citibank staffer who signed the June 1997 letter apparently acted out of negligence rather than criminal intent, but Oppenheimer calls the incident "a perfect example of the ease with which drug traffickers avail themselves of international banking services" to hide their illicit earnings.

The activities of Citibank’s private-banking department in New York provide a similarly apt example. A key figure in this tale is Amy Elliott, a Cuban émigré and Citibank executive specializing in banking services for rich Mexican clients. On March 1, 1995, Elliott learned that one of her clients, Raúl Salinas — brother of then Mexican President Carlos Salinas — had been arrested the day before for the suspected murder of a prominent Mexican politician. Even more worrisome for Elliott, Mexican prosecutors were looking into Salinas’s finances due to suspicions of influence peddling. (In Mexico, Salinas had earned the nickname "Mr. 10 Percent" for his reputed habit of skimming off the top of government contracts with which he was even tangentially involved.)

Over the three prior years, Oppenheimer explains, Salinas had transferred more than $100 million from Mexico into his Citibank account in New York — an unlikely sum for a man who earned $190,000 per year in a public post. Yet Elliot had never seriously questioned the source of the funds nor even completed the paperwork required to open such an account. Instead, she frantically began filling out the forms the day she heard of his arrest, while her coworkers in London and Zurich debated whether to cover their tracks by moving Salinas’s funds to Switzerland. Little surprise that an internal Citibank audit of the private-banking department in 1996 determined that the department’s priorities centered on serving clients, even if it meant compromising the bank’s internal controls.

Following inquiries by U.S., Swiss, and Mexican investigators, the U.S. Senate Subcommittee on Investigations held hearings in November 1999 on Citibank’s connections with Salinas. The star witness, Elliott, settled into her chair "with the confidence of one who has learned her script by heart," describes Oppenheimer. But under the methodical questioning of U.S. Senator Carl Levin, Elliott acknowledged she had failed to fully comply with the bank’s internal controls. Citibank chief executive John Reed also testified, admitting that "like all similar institutions, we have had problems and made mistakes." Levin was not swayed, decrying Citibank’s "elaborate ritual of secrecy" in the Salinas case and accusing the bank of maintaining a "rogue’s gallery" of private clients. But again, U.S. authorities could do very little. To implicate Citibank with money laundering in the Salinas case, Oppenheimer writes, prosecutors would have had to prove a direct connection of the funds to drug trafficking or bribery — an exceedingly difficult task. "Official corruption or the theft of public monies," explains the author, "were not among the crimes that could qualify as money laundering."

Ultimately, Oppenheimer believes that the problem is not that American multinationals break laws when they enable corruption in Latin America, but rather that the relevant U.S. laws are often weak and useless. Yet despite the corporate corruption Oppenheimer so skillfully chronicles, the author still believes that the "globalization of decency" is possible if legislators, government officials, journalists, and "enlightened" private-sector executives join together to bar the proceeds of corruption from the global financial system. Perhaps he is right. But if Blindfolded proves anything, it is that calls for decency and rectitude carry little weight in international financial circles. Even the governments of rich nations — perhaps distracted by generous corporate campaign contributions — have been less than forceful in disciplining their more wayward companies. Indeed, it has taken the war on terrorism for officials from the United States and other industrialized countries to finally push money laundering to the forefront of the global agenda. In the end, it may not be that governments in rich nations are blindfolded to global corporate corruption, but rather that they willingly avert their eyes.

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