Government Corruption Scandals to Watch in 2015

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Corruption is depressingly common across the world, and is a particular blight on frontier markets. However, in the digital age it is heartening to see corruption being exposed and erupting into scandals for the whole world to see. This is happening even in frontier markets, where information may have been too scarce before to cause a stir.

We see government corruption scandals as potential opportunities; the corruption was always there so the scandal in itself is not negative. Instead, the fact that the corruption has been exposed and is being investigated is a positive development with the potential for change in the future. We’ve found that strong government institutions are a key ingredient for success and sustainable growth.

We’ve compiled a list of the currently ongoing government corruption scandals to watch for in 2015, with a focus on emerging and frontier markets.

Brazil

Corruption Perceptions Index (CPI) 2014 Ranking: 69//175
Amount stolen: Petrobas had write-downs of 6.2 billion BRL ($2.1 billion USD) for graft and 44.6b BRL ($15.1b USD) for overvalued assets
Summary:

  • “Operation Car Wash” was an investigation into the corruption at SOE Petrobras, where bribery and money laundering was rampant, leading to massive write-downs in April
  • Nine different Brazilian construction forms are also under investigations as the ones who bribed Petrobas executives
  • Current Brazilian president, Dilma Rousseff, chaired the board of Petrobras from 2003-2010, while multitudes of other politicians have been implicated in the current scandal

Egypt

CPI Index 2014 Ranking: 94/175
Amount Stolen: Over $1million USD in bribes
Summary:

  • In September 2015, the whole Egyptian government resigned, led by Prime Minister Ibrahim Mehleb
  • Agriculture Minister Selah Eddin Helal was arrested as part of the corruption investigation, and trials began this month
  • This is one of the smaller amounts involved we’ve seen, but has led to the most drastic action

Guatemala

CPI Index 2014 Ranking: 115/175
Amount Stolen: Over $100million USD in government revenue, $3.7m USD in bribes for the President
Summary:

  • Six months of anti-corruption protests resulted in President Otto Perez Molina resigning on Sept 2 on bribery allegations; government has a long history of being bankrolled by organized crime
  • 20 officials/businessmen were arrested for tax and customs fraud worth $100 million USD
  • Comic-actor Jimmy Morales was elected in September as an outsider candidate aimed at cleaning up corruption

Kenya

CPI Index 2014 Ranking: 145/175
Amount Stolen: Annual audit of government accounts revealed only 1.2% of the $16 billion USD budget was properly accounted for, 60% of the budget had issues, $4.43 billion USD was unaccounted for
Summary:

  • The annual audit on the government’s budget was released in August and revealed rampant misspending by the government, with just over 1% of expenditures properly expensed
  • Notable expense items included $85 for pens, $1000 for wheelbarrows, computers for $11,000 and sex toys listed as public assets
  • Sadly this was an improvement on last year, and corruption in the judicial system is also getting worse

Malaysia

CPI Index 2014 Ranking: 50/175
Amount Stolen: $700million USD transferred to the Prime Minister’s own accounts, $11 billion USD in debt that is unable to be paid back
Summary:

  • Current Malaysian Prime Minister Najib Razak set up a state investment fund named 1MDB in 2009
  • Investigation is underway into how $700m USD ended up in Najib’s personal accounts, which has been claimed to be a “donation” from the Middle East
  • 1MDB missed debt payments on the $11 billion USD in debt it amassed, and investigations in 5 countries have begun while Najib remains in power

Moldova

CPI Index 2014 Ranking: 103/175
Amount Stolen: $1 billion USD missing from the banking system
Summary:

  • In 2014, about $1billion USD disappeared from three local banks when funds were loaned/transferred to offshore accounts in the UK and Hong Kong, putting them into bankruptcy and forcing the government to bail them out
  • It is the biggest corruption scandal in the country’s history, and none of it has been recovered
  • Protests ensued, the prime minister was eventually arrested and the government dismissed in October

Vanuatu

CPI Index 2014 Ranking: not ranked
Amount Stolen: $320k USD payments to 13 MPs to buy their votes
Summary:

  • In 2014, the opposition leader Moana Carcasses gave $300k USD to 13 other MPs to support a no-confidence vote; they were convicted in October of bribery
  • In an odd twist, while the sitting president was out of the country, the second-in-command and temporary head of the country, Marcellino Pipite, used his temporary powers to pardon himself and the 13 others convicted of bribery
  • The president rescinded the pardons when he returned, but there remains a lot of corruption and uncertainty in parliament

Conclusion

These are the main government corruption scandals we’re currently watching, and it is a depressing list of greed and audacity when factoring how large some of the amounts are. If you know of other corruption scandals with investigations underway that we should be monitoring, please let us know in the comments!

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