Corruption: How bad was it?

Syria

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Since the Syrian retreat last April and the euphoria of the Cedar Revolution a month earlier, more and more examples of how public money was squandered, stolen or simply squirreled away have come to light, strengthening the case for privatization and even leading to calls for a formal audit of the handling of public finances over the last 15 years.

We always knew it was going on. A 1995 World Bank study among Lebanese expatriates concluded that “there is a perception that corruption has become institutionalized in networks of protection, beyond the law, for self-dealing, bribes and the bartering of favors and influence.” A 2001 report by the UN Center for International Crime Prevention stated that 43% of Lebanese companies “frequently” paid bribes and 40% “sometimes” did, while Lebanon ranked 97 out of 145 countries on the 2004 annual corruption index issued by Transparency International. Now, those who move and shake in the new Lebanon want answers.

Exposing the extent of it

But we never really knew how much was going on and what it was costing us. Now, Lebanese businessman and outspoken critic of corruption, Joe Faddoul, has taken it upon himself to reveal all. According to Faddoul, there is no use talking about solutions to tackling the national debt without looking at the main cause, which he sees as corruption. In recent months, the founder of the software company Istisharat, has gained something of a reputation as a whistle blower, following a presentation to the French Senate and the publication of an extensive list citing the main money drains. “The total of direct and indirect levies from racketeering,” Faddoul estimated, “amounts to a total of $26 billion for the post-war period since 1992. Add interest and you can pay off the national debt.”

The case for an investigation is compelling and Faddoul does not mince his words in describing the old “system,” in which the Syrian regime granted its Lebanese surrogates crumbs of power and money by appointing them as MPs or ministers. “In return, the appointees covered Syrian racketeering practices and certain political positions. This post-war system of racketeering, shared between Syrian and Lebanese officials, drained the country of an estimated $2 billion a year.” According to Faddoul, one of the most telling and blatant examples took place in the largely government owned Casino du Liban, where every morning, employees from the ministry of finance would collect the previous night’s takings as is their job. They did not however empty the slot machines, which were emptied by other state officials. No one knows exactly how much money was diverted, but Faddoul estimates a siphoning off of $50 million a year. The practice stopped as soon as the last Syrian soldier left Lebanese soil. “Before Hariri’s death,” said Faddoul, “the price of a casino share stood at $146. Despite the political turmoil in recent months, the insecurity and consequently the decline in tourist arrivals, the share price has since risen and by August stood at $345.”

Trouble at the port

Faddoul continues that like the Casino du Liban, certain areas of the Beirut Port were no-go areas for Lebanese custom officials, as they stood under the direct control of the Syrian intelligence and much of the customs tariffs paid on imports were diverted towards Damascus. In 2001, the Dubai Port Authority (DPA) canceled its 20-year Furnish, Operate and Own (FOO) contract regarding the port terminals signed in 1998, officially due to disagreements over compensation for contractors at the port. Many insiders however, whispered that the DPA was just not able to operate in a Beirut harbor, infected as it was by corruption. It would be too simple however, to only blame Syria for these shadowy practices. Lebanese were only too happy to enter into these joint ventures, as is illustrated by the example of incoming international phone traffic which should officially pass through the Ministry of Telecommunications. According to Faddoul, however, three illegal operators were established to handle roughly half of all incoming international calls: one in the Bekaa Valley (allegedly run by the brother of an ex-minister), one in Beirut’s southern suburbs and a third in the Keserwan region (owned by a former minister). Normally it would take a hefty investment for an operator to install a network, but not so in Lebanon. The illegal operators simply subscribe to a few hundred government-owned lines. “This just shows you the level of complicity between the government, the illegal operators and their sponsors,” said Faddoul. In 2002, the former minister of telecommunications, Jean Louis Qordahi, announced that an estimated 30 million minutes a month ran through the illegal companies, which with an average price of $0.70 cents a minute amounts to a loss of $262 million a year. The illegal phone traffic is typical of the general pattern of racketeering, in which part of Lebanon’s political and economic elite shared cuts, spills and kickbacks.

Lights on, no-one home

No doubt, one of the heaviest burdens on Lebanon’s national treasury is Electricite du Liban (EDL), which makes an estimated loss of $500 million a year. Referring to a report written by the head of the Electricity Authority, Faddoul estimated that 30% of produced electricity is stolen through illegal connections, while 15% is lost due to technical shortcomings. Only 50% is billed, of which only half of that is actually collected. In effect, only 25% of Lebanon’s electricity is paid for.

However, this is not EDL’s only problem. According to Faddoul, it was common practice for ministers and state officials to take commission on any construction or maintenance contract that needed their signature. As always, “profits” were shared with “associates and protectors.” Former minister of electricity, the late Elie Hobeika, is said to have taken a 10% cut on any EDL transaction and is understood to have set up a special office complete with a secretary to run this lucrative side business.

His successor, Mohammad Abdul Hamid Beydoun, continued this proud tradition, before being sacked for not sharing the spoils.

And then there is EDL’s fuel purchasing policy. For the import of oil and gas, a government permit is needed, which has been issued to five companies that all belong to high-profile politicians and that effectively operate as a cartel. Like anyone in Lebanon, EDL is forced to buy its fuel for a fixed (read inflated) price. The practice is so lucrative that the electricity plants of Badawi and Zahrani, which at the cost of some $800 million were transformed to operate on gas, still to this day burn fuel oil. With an estimated loss of $4 billion to $5 billion over the last decade, the EDL is arguably one of the least profitable companies in the world.

Bloated bureaucracy

And then we come to the bloated and inefficient public sector. Until its restructuring in 2002, Lebanon’s national airline MEA lost $80 million a year, employing 4,000 staff. (For an airline with nine planes the international norm is less than 20% of this number). “After the war, there was a deliberate policy to employ as many ex-militiamen into state service as possible,” said Reinoud Leenders, a former senior analyst for the International Crisis Group. “The number of civil servants increased after the war by some 50,000, while the state’s contribution to GDP remained at some 7%. Not surprisingly, a 1997 government report concluded that 60,000 employees could be made redundant without affecting productivity.” Regarding clientalism, Leenders dug out a depressing litany of abuse. “Reading a list of contractors in state-financed road construction is like reading an inventory of Lebanon’s political elites, their associates and relatives.” According to Leenders, one of the most notorious examples concerned a road construction contract in South Lebanon, where a Syrian company was awarded a contract to build highways, even though the price of $4 million per kilometer was four times the price of a similar stretch of road in California.

Where to now?

The Syrian withdrawal has no doubt had a positive influence on Lebanon’s financial health (one only has to look at the Casino du Liban’s share price), but her role in the ethical deterioration of a nation must not overshadow the complicity of the Lebanese themselves, especially the public figures whose shady business dealings are common knowledge, accepted and in some cases even applauded by those who admire such behavior. Nonetheless, Joe Faddoul remains positive about the future. “The time that ministers and politicians could abuse their positions is over. It is now an open system of checks and balances, so they can not get away with things that easily any longer,” he said, adding: “Look, I just collected the bits and pieces, which were already out in the public domain, be it in a very fragmented manner. I hope others will pursue the case from here.”
 

As a matter of procedure Executive contacted the public bodies mentioned in this article, but in every case they were unavailable for comment.
 

Peter Speetjens

Peter Speetjens is a Dutch journalist & analyst based in Brazil.

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