Foreign aid corruption case puts Canada on trial

(August 20, 1999) ‘Corruption has to be tackled head on,’ declared Diane Marleau, Canada’s minister for foreign aid this spring, two months after Canada adopted the OECD’s anti-corruption convention by making bribery of foreign public officials a criminal offence. But on the eve of the world’s first foreign aid-related corruption court case — one involving Canadian engineering giant Acres International — the government agencies concerned mostly appear to be abdicating responsibility.

 By Patricia Adams for the National Post, August 20, 1999

On Aug. 31 in Lesotho, a tiny country landlocked within South Africa, Masupha Sole, the former CEO of a $2.4-billion (all figures in U.S. dollars) dam-building development scheme called the Lesotho Highlands Water Project, will stand trial on charges of taking some $2-million in bribes from Acres International and 11 other international dam-building companies, including the Swiss-Swedish giant ABB, Italy’s Impregilo, and Germany’s ED Zueblin. Although the alleged bribes were probably paid before the Corruption of Foreign Public Officials Act, Canada’s freshly minted anti-corruption legislation, came into effect, Canada’s response to the allegations involving Acres will demonstrate just how tough — or not — Canada will get with allegations of corruption. Acres denies making any payments to Mr. Sole, and has not been charged.

South African and Lesotho officials, who are working closely together on the case, informed the Canadian High Commissioner at a recent briefing session that the government of Lesotho was intending to press charges against Mr. Sole. Lesotho and South Africa then asked Canada for assistance of a “general nature, to pave the way for future requests for co-operation,” according to Mike Muller, director-general of the South African Department of Water Affairs and Forestry. That future co-operation is far from assured, despite the OECD convention’s requirement that countries “provide prompt and effective legal assistance . . . for the purpose of criminal investigations.”

When I asked Department of Foreign Affairs and International Trade officer Richard Chappell how the Canadian government was treating this case, he stated that it is “not treating this issue at all,” adding that this is the “first I’ve heard there is any media interest in this.” When I asked if Canada would give Lesotho “mutual legal assistance” in collecting evidence for this case, as legislation provides, the Department of Justice’s senior counsel in the international assistance group, Kimberly Prost, had “no comment.” When I asked the Canadian International Development Agency, which paid more than $100,000 to Acres International for its work on the Lesotho dam project, what it would do should wrongdoing be established — CIDA has a formal anti-corruption policy — it said it would consult the appropriate Canadian authorities, presumably the same Departments of Foreign Affairs and Justice that are sitting on their hands.

Before the trial surfaced, the Canadian government decried corruption and its evils, calling it “a blight on our efforts to achieve sustainable development [that] deters investors, limits competition . . . undermines the morale of people . . . and makes the public cynical.” Now, when faced with a live case, the government seems inert. Even if the alleged offences had occurred after the anti-corruption act was in place, Foreign Affairs spokesman Sean Rowan reasons, the law has limited applicability outside the country. Canada would be obliged to act, he explained, only if a foreign public official — say, an ambassador — was bribed in Canada. If the alleged crime took place outside its borders, the law might not apply.

This is confirmed in an analysis by Canadian criminal lawyers Edward Greenspan and Don Jack, who explain that the U.S., along with many European countries, base their jurisdiction on the offender’s nationality rather than the location of the offence. “Parliament could have, but did not, deem activities which occur abroad to have occurred in Canada, as it did in the area of war crimes, air piracy and the protection of nuclear material,” Mr. Greenspan said.

While Canada is doing its utmost to stay mum, Switzerland’s highest court, acting on a request from the government of Lesotho, decided on May 20 to give that country legal assistance in its case against Mr. Sole. The Swiss did so after ordering an investigation by the district attorney in Zurich, which found that 12 firms had paid money directly to the Zurich and Geneva bank accounts of Mr. Sole, or to bank accounts of third parties. Because Mr. Sole could not give reasonable answers to questions about the nature of the money, the court ruled that the suspicion against Mr. Sole and the 12 firms warranted the Swiss authorities’ assistance in this case. The Swiss court documents, when publicly disclosed, blacked out the names of the 12 firms.

Even the World Bank — once notorious for turning a blind eye to corruption — has commended the Lesotho and South African governments for taking this matter to court, and offered to help investigate the allegations. The World Bank, which has financed some $155-million of this dam scheme, will also launch its own internal investigation to see if corruption occurred in its contracts. If it did, under the World Bank’s new campaign of zero-tolerance, the corrupt companies could be barred from bidding on future World Bank contracts. Since the 12 firms implicated in the Lesotho trial are among the world’s leading large dam builders and the World Bank is the world’s leading financier of large dams, this outcome could seriously stem their revenue stream.

If the World Bank sticks to its guns, credit must go to James Wolfensohn, the World Bank president. In 1995, when Mr. Wolfensohn took over the World Bank, its general counsel told him he could not use the “C” word — “corruption” — because if he did, he would have a terrible time with his board of executive directors. Nevertheless, Mr. Wolfensohn embarked on a campaign to rid the world of the “cancer of corruption.” As if to pressure him to stop, last week the World Bank’s acting general counsel, Daoud Khairallah, told The Washington Post that the bank would bar firms only if it could prove that World Bank funds had been tampered with; simply being found guilty of corruption on a World Bank-financed project would not be enough.

Around the world, those fighting corruption are engaging in this debate, recognizing that the Lesotho trial could be a landmark in setting standards for appropriate conduct. Transparency International, the non-governmental organization credited with pressuring governments to stamp out corruption, is incredulous that the World Bank and government organizations such as CIDA might continue awarding contracts to companies found guilty of corruption. Concludes TI executive director Jeremy Pope: “If you’re bribing, you’re bribing; and if you’re unfit to be bidding for business, you’re unfit.”

Patricia Adams is an economist and executive director of Probe International, a Toronto-based organization that monitors aid and trade relations.

National Post, Patricia Adams, August 20, 1999

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