Testimony before the House Committee on Foreign Affairs, Subcommittee on the Western Hemisphere

Central America and the Mérida Initiative:

A Governance Perspective

Testimony by:
Beatriz C. Casals
Casals & Associates, Inc.
President and CEO

May 8, 2008

Rayburn House Office Building, Room 2226

Mr. Chairman,

It is an honor to speak before you and your distinguished colleagues on the important initiative being discussed by the House Committee on Foreign Affairs’ Subcommittee on the Western Hemisphere, the Mérida Initiative. I am here representing Casals & Associates, Inc. (C&A), an international consulting firm specialized in designing and implementing programs to strengthen democratic governance around the world. For more than twenty years, C&A has supported governments and civil society organizations in virtually every country in Latin America. In Central America, in particular, C&A was a pioneer in designing and implementing transparency, accountability and anti-corruption programs at a time when the word corruption was virtually unmentionable in the community of development practitioners and scholars.

Since the 1990s, we have witnessed the rapid rise of organized crime, violence and drug trafficking in Mexico and Central America. From our perspective, Central American countries have become particularly vulnerable to crime, violence and drug trafficking because they have weak governance structures and more specifically, despite much progress since the transition to democracy, they still suffer from entrenched and systemic corruption.

Corruption, the abuse of entrusted authority for private gain, undermines the government’s ability to provide adequate public services, create jobs, attract investment, increase economic opportunities for all, protect citizens, provide fair and equal access to justice, and build trust in democratic institutions. In short, corruption exacerbates poverty, obstructs economic development, and generates cynicism among citizens for adhering to the law.

We strongly believe that the high levels of criminality, violence and drug trafficking in Central America are the reflection of poor governance resulting from endemic corruption. Breaking the cycle of bad governance, corruption, poverty and crime is a challenging undertaking that calls for innovative and comprehensive solutions.  While enhancing the capacity of law enforcement institutions is essential, it is inadequate on its own to address the underlying problems that afflict many of these countries

The Mérida Initiative responds to the urgency of addressing the problem of crime, violence and drug trafficking. Given our long standing experience in the region, my goal is to contribute to this discussion by addressing these problems and the proposed Mérida Initiative from the perspective of governance.

Crime, Violence, and Drug Trafficking: A Governance Problem

The problem of drug trafficking, organized crime and gang violence in Mexico and Central America poses a significant threat to economic development and democratic governance. Violent crime is not caused by poverty and underdevelopment; on the contrary, crime exacerbates poverty by increasing the risks for investors, motivating skilled and highly educated individuals to emigrate to safer countries, encouraging less skilled individuals to seek job opportunities outside their countries, whether legally or illegally, and losing citizens’ confidence and trust in democratic institutions. Violent crime is very often caused by the failure of government institutions to meet the demands and needs of its citizens.

In Central America in particular, organized crime, violence and drug trafficking is the most radical expression of citizens who having emerged from a legacy of violent civil wars and repressive authoritarian governments, and do not feel adequately serviced and represented by the new democratic institutions. Citizens who have suffered from years of impunity; have not had access to good public services, especially education and health; have witnessed severe economic inequalities in their countries and believe they lack economic opportunities; resent many of their democratically elected leaders for abusing their power to benefit their families and friends; and perceive, and rightly so, the weakness in the judiciary and law enforcement agencies. For many of these people, the opportunities and rewards of joining a gang and engaging in criminal behavior outweigh the costs. Violence is indeed the cry of desperation of angry individuals who believe they have nothing else to lose.

Combating crime, violence and drug trafficking requires a balanced approach; one that is able to address the causes of this problem and not only its symptoms.

Democratic Governance: Progress and Challenges in the Region

Since the transition to democracy, Mexico and Central American countries have made significant progress. Fair and free elections have generated more incentives for governments to become more accountable for their actions and more responsive to citizens’ demands and needs. Most countries have made significant improvements in the modernization of their financial management systems and the strengthening of their Supreme Audit Institutions. Moreover, most countries have made progress in improving their constitutional, legal and institutional frameworks. Some have passed constitutional amendments to increase the independence and professionalization of the judiciary and have strengthened their public prosecutors and Attorney General Offices. Others have introduced freedom of information laws, career civil service laws and procurement laws.

Awareness about the problem of corruption, its costs and consequences has significantly increased throughout the Latin American region. In contrast to the past, corruption is a problem that is openly and widely discussed as part of the policy agenda. Mexico and Central American countries have signed and ratified international anti-corruption conventions. In November 2006, the Central American presidents attending the 12^th International Anti-Corruption Conference (IACC) in Guatemala, of which C&A was one of two corporate sponsors, issued a statement pledging to combat corruption and build more transparent and accountable institutions. Governments are being forced to address corruption by both domestic and external pressures, as a growing consensus emerges that failing to address corruption effectively undermines the countries’ abilities to attract foreign assistance and investment opportunities.

Finally, business associations and civil society organizations are increasingly becoming more important partners in the promotion of greater transparency and accountability of governments. In most countries, civil society organizations are significantly improving their technical skills to monitor and oversee their governments and their performance. New groups of social auditors are emerging with the mandate to keep their governments in check, particularly at the sub-national level. Business organizations are implementing corporate governance programs that include anti-bribery commitments. Universities in the region are playing an increasingly important role in analyzing corruption, creating indicators, training public officials.

In spite of this progress, many countries face high unemployment rates, low secondary school enrollment rates, and one of the world’s highest murder rates. Moreover, a legacy of corruption and impunity still undermines the effectiveness and legitimacy of democratic institutions in many of these countries. It is no coincidence that during the past ten years, Central America has been able to produce some of the most “prominent” examples of worldwide corruption. Former Nicaraguan President Arnoldo Aleman, for example, is considered amongst the ten most corrupt leaders worldwide for embezzling an estimated sum of $100 million from one of the poorest countries in the hemisphere. Panama, Guatemala and Costa Rica have former Presidents charged with corruption who are either in jail or in exile. Similarly, despite the growing optimism in the region about the ability of their countries to control and combat corruption in the future (57 percent of respondents in the 2007 Latinobarometro survey thought that future generations in the region will see less corruption), the majority of citizens in the region still perceive that the majority of civil servants are corrupt. The police and the courts are regarded as the most corrupt institutions. These are the institutions that are vital to the success of the Mérida Initiative.

In our experience, successful efforts for controlling and combating corruption has required a comprehensive approach that focuses on prevention, detection, prosecution, and law enforcement. While it is critical to punish the corrupt in order to increase the consequences of engaging in corrupt behavior, it is equally important to reduce the motives and opportunities that generate corruption in the first place. Moreover, and equally significant, anti-corruption efforts require the participation of government, civil society organizations, and the media.

We believe that this comprehensive approach is also appropriate for addressing the problem of organized crime. When crime is understood more broadly as a governance problem and not only as a problem of security and law enforcement, the benefits of this comprehensive approach become more evident. We have a good example in Colombia, a country that has suffered from violent crime, drug trafficking and terrorism. After years of bloody conflict, the City of Bogotá embarked on a comprehensive project of enhancing citizen security. The program contained an important law enforcement component, but it also included programs to improve the quality of public services, restore public spaces, build recreational facilities, increase transparency and accountability in government, engage civil society in community oversight projects (veedurías), and restore the dignity of the police force within the community. Crime rates in Bogotá significantly decreased and the example has been followed successfully by other Colombian cities like Medellín and Cali.

I would like to describe a few examples of initiatives we have successfully implemented, particularly in the Central American region. These examples will highlight the opportunities for expanding the scope and impact of the Mérida Initiative so that it can be linked and effectively support other governance programs already sponsored by the US government in the region.

Leverage International Anti-Corruption Conventions to Promote Regional Cooperation

International and regional anti-corruption conventions are key instruments to strengthen democratic governance. They are also excellent instruments to promote regional consensus and cooperation on issues important to addressing crime, violence and drug trafficking in Central America. All of the Central American countries and Mexico have ratified the Inter-American Convention against Corruption and the United Nations Convention against Corruption. They are binding government agreements that recognize corruption as a global and cross-border problem, and express a shared high-level political commitment to address this problem individually and collectively. The conventions establish frameworks of rules and standards to promote domestic action and facilitate international cooperation. These conventions take a selective approach and address key governance areas, such as access to information, civil service reform, judicial reform, institution building, anti-money laundering mechanisms, law enforcement and citizen participation.

In this context, C&A under the USAID-funded Central American and Mexico (CAM) Transparency/Anticorruption Program is assisting the governments of Guatemala, Nicaragua, Panama, and El Salvador, in complying with the provisions of these conventions. Since 2005, C&A has been providing technical assistance so these four countries can develop anti-corruption strategies, and strengthen their governmental entities that are responsible for implementing the conventions. Public knowledge about the content and importance of these conventions and the regulatory measures that countries in Central America and Mexico must undertake is minimal. C&A has provided training to nearly 4,000 key stakeholders, such as judges, public officials, legislators, mayors, ministers and civil society and private sector leaders. C&A has also supported regional video conferences on the United Nations Convention against Corruption involving high level Central American and Mexican officials, as a cost-effective means to exchange experiences and information and follow-up progress. Since the conventions also call for the participation of civil society organizations to maintain the political will and momentum reflected in anti-corruption conventions, C&A has also supported an array of citizens and civil society initiatives aimed at monitoring compliance with the provisions of the conventions and generating indicators and benchmarks.

The regional and international anticorruption conventions provide an excellent mechanism to build a regional approach to fight violence, crime and drug trafficking and to promote greater collaboration between law enforcement agencies across countries. The Mérida Initiative could support these recognized and legitimate conventions by providing assistance to countries for the introduction of whistle blower protection against criminals, enhancing the capacity of prosecutors in investigating crime, strengthen anti-money laundering provisions by urging governments to deny safe heavens to corrupt officials and criminals, and promoting greater collaboration across countries, assist countries in finding the appropriate legal instruments to extradite criminals and repatriate their assets.

The Mérida Initiative, in tandem with the conventions could introduce measures to deter criminal financial transactions. Differences and inconsistencies between money laundering legislation across countries create incentives for criminals to seek jurisdictions with weak and ineffective controls, where they can move their funds more easily. If countries in Central America fail to address money laundering issues adequately, crime can become more entrenched. Moreover, the perception that a country’s commercial and financial sectors are vulnerable to money laundering may also deter foreign direct investment.

Strengthen the Judiciary

Until relatively recently, judicial systems in many Central American countries did not prosecute corrupt officials. Corruption and other forms of crime, particularly organized crime and drug trafficking, have gone largely unpunished. Combined with other factors (e.g. low wages and few employment opportunities), such impunity enhances the allure of the many corrupt opportunities that may tempt Central Americans at all economic levels. A weak anti-corruption control system in the judiciary increases the margin of discretion of justice officials and reduces the risks of to corrupt behavior.

In spite of judicial reforms (i.e., penal codes, re-training of judges and the creation of oversight institutions), judges still retain enormous discretion; money can buy favorable court decisions; and there is limited training and resources. Systems seem to be overwhelmed and people, particularly the poor, are deterred from using them. The judiciary is unable to apply criminal law effectively, thus contributing to impunity. At the same time, systems do not protect civil and property rights, contributing to a weakening of the rule of law and adversely affecting potential economic activity (investment and competitiveness).

Once corruption creeps into the justice system, it undermines the quality of services, including access to justice, quality of rulings, and the capacity and effectiveness of law enforcement agencies to comply with their mandates.

In most countries, filing of citizen complaints about corruption is not easy. Those channels that do exist are not trusted, and many people do not know of their existence. Complaints that are received can be filed away without action or are simply “lost.” There is no protection for whistleblowers, who can suffer a variety of acts of retribution.

A deficient legal framework also promotes impunity. Conflict of interest, influence peddling and illegal enrichment are not yet recognized as crimes. Cases processed through the governments’ principal anti-corruption bodies and the court system may be arbitrarily dropped, lost or indefinitely delayed. Even when cases are processed through the justice system, there is little assurance that any penalties imposed will be actually carried out.

Under several USAID-funded projects, C&A has been supporting activities to strengthen the judiciary. One activity promoted under the USAID-funded Central American and Mexico (CAM) Transparency/Anticorruption Program was a Central American Regional Workshop of Attorneys General under the theme “Identification and Adoption of Effective Strategies for the Criminal Prosecution of Corruption,” held in August 2006. The event gathered five attorneys general, and other high-level representatives, who discussed and identified best practices in the investigation of corruption and the recovery of ill-gained assets. The three attending prosecutors assessed the strengths and challenges for the implementation of corruption prosecution techniques in their respective countries in the following areas: 1) Inter-agency coordination mechanisms; 2) International cooperation procedures; 3) Plea bargaining strategies; and 4) Cautionary measures that precede a judicial process.

The Workshop’s major conclusions resulted in a regional consensus to improve criminal investigations of corruption. It intends to do so, for instance, by revisiting long-standing mechanisms characterized by an excess of formalisms and lengthy procedures.

The Mérida Initiative offers a unique opportunity to strengthen U.S. assistance to increase the judicial capacity of Central American governments to detect, investigate and prosecute corrupt behavior as well as other forms of crime. The Mérida Initiative must comprehensively enhance the enforcement and ethical capacities of prosecutors and the police, and promote the independence and accountability of the judicial systems. It also needs to emphasize a comprehensive improvement to the overall management cycle of cases, from detection to prosecution. Typically, government agencies identify, document, file cases and turn them over to the appropriate prosecuting agencies. Often, these agencies perform these responsibilities without appropriate capacity and resources. If and when prosecuting agencies receive the cases, they either refuse to give priority to the cases and/or have little or no capacity to handle corruption cases. Even when the prosecuting agency handles the case and turns it over to the judicial system, the courts might be weak or too dependent on the executive to effectively pass judgment and punish responsible individuals and/or groups. Moreover, when courts finally are able to sanction cases, it is generally against petty offenders sparing the “big fish.”

The Mérida Initiative also needs to support aggressive accountability, integrity, and professional responsibility practices and techniques that are found in modern police organizations, including the development of specialized units: Financial Intelligence Units, Internal Affairs, Inspections, and Background Investigation units. All of these need to be developed in close coordination with the prosecutor's office responsible for prosecuting government employees in order to enhance public acceptance. These should also coordinate with other government offices and programs. In countries that believe the police are incapable of monitoring themselves the Mérida Initiative should be encouraged to form a well-trained Civilian Oversight Board, either temporary or permanent, as a means to build community trust.

Promote Access to Information to Enhance Transparency and Accountability

Access to Information is a key empowerment tool for democratic governance. It is vital for strengthening accountability, transparency, participation and the rule of law. Accessible, useful and timely information is an important democratic governance element, which enables citizens to participate in policy making processes and the decisions that affect their lives. In that context, C&A has been supporting a number of initiatives in Mexico and throughout the Central American Region. For example, under the USAID-funded Greater Government Transparency and Accountability in Mexico, C&A worked with state and local governments to implement the freedom of information laws, both at the federal and sub-national levels. Similarly, under the USAID/Central American and Mexico (CAM) Transparency/ Anti-corruption Program, C&A is working in the implementation and passage of freedom of information legislation. C&A efforts in 2006-2007, supporting a coalition of civil society organizations in Nicaragua and a number of public awareness campaigns, were instrumental to pressure legislators to approve a Freedom of Information Law in April 2007, making Nicaragua only the third country in the region with a Freedom of Information Law. In Guatemala, since 2005 C&A has been working with the Presidential Transparency Commission not only to implement an Executive Decree that guarantees access to information in entities of the Executive Branch, but also to promote the passage of a full freedom of information law that would cover all governmental entities. Also in El Salvador, since 2005 C&A has been supporting advocacy efforts of a coalition of civil society organizations to pass a freedom of information law.

By focusing more on access to information, the Mérida Initiative could encourage and promote more domestic demand for a stronger judiciary and more acceptable law enforcement. Public demand for Central American governments to become more transparent and accountable is increasing as these countries follow the path towards more democratization. The Mérida Initiative could ensure that a number of key transparency mechanisms are strengthened. For example, as related to the selection and promotion of judges, the effectiveness of control agencies, the use and possible abuse of public resources, and the application of public policies. In promoting more access to information, the risk of interest groups and/or criminal organizations capturing the state and laundering resources could be reduced, and could help to monitor and verify the financing of political party activities and the quality of legitimate procedures in public-sector decision making (at the judicial, administrative and legislative levels).

Build capacity of Municipal Governments for Greater Transparency and Accountability, and Social Audit as a Form of Citizen Control

One of the most profound governance trends in Central America and Mexico is the move to devolve decision making, revenue generation and spending authority from national to sub-national (Mexico) and municipal governments where, in most instances, mayors and members of governing councils now are elected. The current dynamism of local government in Mexico and Central America, in large part, is reflected in the implementation of national decentralization strategies, the promotion of citizen participation at the local level and an emerging generation of local leaders in government and society at large. While there has been some progress made, the reality is that decentralization, particularly in Central America, is still in the early stages of evolution. Improvements have been rapidly implemented but weakly institutionalized.

C&A has supported a number of initiatives to strengthen municipal governance and social audit under different USAID funded projects. Under the USAID/Honduras Hurricane Reconstruction Transparency and Public Awareness Program, from 2000-2004, C&A began implementing a program to assist with the country’s reconstruction efforts and then to support the then newly elected President Ricardo Maduro’s commitment to anti-corruption goals. C&A also provided financial and technical support to civil society organizations and newly formed social auditing committees, for the conduct of several large-scale public outreach campaigns to support the overall audit and oversight effort and to educate the Honduran population about the importance of transparency and probity in the reconstruction effort and eventual transformation of the country.

Under an USAID funded regional anticorruption program in the Americas (1993-2006), C&A designed and implemented a number of initiatives in Central America and Mexico, including the promotion of local government accountability and transparency, citizen participation, and media training, as well as municipal integrated financial management systems. More recently, under the USAID/Central American and Mexico (CAM) Transparency/ Anticorruption Program, C&A has supported a number of initiatives to strengthen local governance and citizen participation. For example, in El Salvador C&A worked with the National Commission for Local Development (CONADEL), supporting efforts to tax property reform and decentralization policy. Also, C&A has worked with a number of CSOs to promote transparency and accountability in local governance, in particular, promoting the introduction of information and communication technology initiatives (e-government) to improve government efficiency, effectiveness, transparency and accountability.

In Nicaragua, working with more than 20 municipalities C&A promoted an array of social audit exercises that monitored public policy at the local level. These exercises are helping to promote meaningful public participation and oversight. C&A also supported a number of activities aimed at strengthening citizen participation in anti-corruption policy; promoting advocacy skills, enabling citizens and civil society to serve as reform advocates, monitor government processes, and function as anti-corruption watchdogs to increase government accountability and transparency.

The Mérida Initiative could contribute to increasing stability, good governance, transparency and accountability by focusing on the need to increase the capacity of municipal governments, particularly those that are vulnerable to crime, violence and drug trafficking. National governments remain relatively reluctant to delegate more responsibilities to local governments and transfer resources not only for the delivery of public services, but also to develop local police capacities. An obvious gap and vulnerability is observed between the powers turned over to the municipalities and their institutional capability to provide security, services and development. The lack of municipal administrative and management capacity can become an obstacle to achieve public policy and security results. To complement support for local governance, the Mérida Initiative could also promote opportunities for citizens to participate in policy processes to produce improvements in the delivery of public services, demand accountability and monitor and track the performance of law enforcement agencies. Good governance is, to some extent, a function of accountability and of citizen participation, particularly when the relationship and interaction between government and citizen is enhanced. While building institutions from the top down is a valid objective, equally valuable if not more important is sustaining them from the bottom up.

Strengthen Internal Controls as a Way to Prevent and Reduce Corruption

Internal control is an integrated financial and administrative oversight system that must be adopted by an organization to ensure that its activities, processes, operations, performance, information and resources are implemented and administered in accordance with established legal and normative frameworks and within the operational context. An internal control system is a powerful tool to improve the efficiency and effectiveness of the organization. It involves the establishment of principles, norms, and procedures and the development of monitoring and evaluation mechanisms. In controlling corruption, internal control systems play a critical role in the detection and prevention of corrupt behavior within an organization. As such, an effective internal control system enables to manage risks and monitor the reliability and integrity of behavior, information, and decisions. It constitutes the first filter for the detection and prevention of corrupt behavior. If this preventive shield is weak or non-existent, the other elements of the corruption control structure become overloaded and increasingly inefficient.

Since the 1990s, under various USAID funded projects C&A has been implementing internal control initiatives in Central America both directly, and/or as part of integrated financial management systems. C&A has brought together a broad coalition of government agencies to strengthen internal control, promote transparency in the use of public resources, and strengthen the capacity of public entities to prevent and detect public fraud. C&A has helped to establish legal frameworks that comply with international standards and set the rules and parameters to standardize the internal control system. C&A has trained Supreme Audit Institutions, ministries and agencies in how to evaluate their current internal control systems and adapt them to international standards. C&A has also trained controller general's offices and auditor general's offices in controlling and evaluating these systems, ensuring the proper use of public resources at all levels of government. Also it has assisted attorney general's offices and prosecutors to strengthen their ability to investigate and prosecute instances of public sector corruption. C&A has also been involved in building the capacity of sub-national and municipal government officials in internal control, financial management and public ethics in order to mirror the systematization of internal control taking place at the national level.

For example, under the USAID/Nicaragua Financial Management Improvement Project (1996-2001), C&A spearheaded one of the first USAID country-specific multi-year efforts to combat corruption. The first phase of the project improved the government’s ability to plan, administer and control public funds, thereby reducing the potential for waste, fraud and abuse of the country’s resources through technical assistance and training to realize the establishment of an Integrated Financial Management and Audit System (SIGFA). For the first time in the country’s history, the government and civil society cooperated to carry out a public awareness campaign to promote a government program, SIGFA, of benefit to all Nicaraguans.

Under a USAID funded regional anticorruption program in the Americas (1993-2006), C&A also supported the design and implementation of the Integrated Internal Control Framework for Latin America (MICIL). C&A collaborated with the Federation of Internal Auditors of Latin America (FLAI).  The MICIL was modeled on the internal-control standards for small, medium and large businesses developed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the 1980s. In the preparation of MICIL, C&A experts worked closely with the leadership of professional associations committed to enhancing government accountability and transparency, in particular, the FLAI and the Internal Audit Technical Committee of the Inter-American Accounting Association. This product, that is similar to a manual, became an important technical reference for Latin American professionals in businesses and governments in the design, development and use of effective internal control standards for public- and private-sector organizations that desire to operate with efficiency, transparency and effectiveness.

The Mérida Initiative plans to work with a number of institutions in Central America, such as courts, prosecutor’s offices, prisons and police. By incorporating as part of the institutional building activities internal control as a key component, the Mérida Initiative would ensure that proper detection and prevention mechanisms are in place to prevent corrupt behavior. Internal controls can provide the glue that holds systems together and will offer reasonable assurance that operations are functioning properly. It will help confirm that information is correct and that applicable rules and regulations are in compliance. Properly applied, internal controls can be strategic tools that would help effective and efficient institutional building and rule of law.

Conclusions and Next Steps

Good governance is an effective deterrent to crime, violence and drug trafficking. Effective, transparent, and accountable government institutions significantly increase the costs of illegal and violent behaviors while substantially raising the rewards for adhering to the rule of law. Drawing from our past experience in Latin America, and particularly, in Central America, we believe the Mérida Initiative could be significantly enriched to work in tandem with other governance programs already being implemented in the region. The following are a few recommendations that can guide efforts to enrich the Mérida Initiative in ways that consistently and effectively expand the impact of ongoing governance programs:

1. Coordination of different US government assistance programs is essential to increase effectiveness and impact. While this might seem self evident, coordination is difficult to achieve and does not always exist. Successful coordination requires the creation of appropriate institutional mechanisms that allow different actors to come together, share their views and plan their actions.

2. A more balanced approach to address the problem of violence, crime and drug trafficking includes prevention as well as enforcement programs. Both sides of the equation require adequate funding.

3. Country ownership is essential: countries should demonstrate their political will and commitment to address the problem of crime, violence and drug trafficking by investing significant resources in addressing these problems

4. Civil society is a vital partner to ensure the sustainability of donor funded assistance programs. Supporting law enforcement agencies is necessary, but civil society should be engaged in tracking and monitoring the performance of these agencies, making recommendations and thereby, increasing the trust and confidence of citizens in these agencies.

5. One size does not fit all: crime, violence and drug trafficking might “look the same” but the nature, severity and scope of these problems varies significantly from country to country. It is imperative that programs designed to address these problems are adequately tailored to the needs and peculiarities of each country.

Thank you again for this opportunity to address the Western Hemisphere Subcommittee of the House Committee on Foreign Affairs this morning. We at Casals & Associates are available if we can be of further assistance in helping the people of Central America to remove the scourge of crime, violence and drug trafficking in their communities.