Development Cooperation Forum

Development Cooperation Forum

Corruption Update

10 March 2008

1. Objective of the meeting

To agree a common position on: 1) the key issues relating to grand corruption generally, and 2) the way forward to addressing them.

2. Government Achievements

a)Government has recently enacted important laws and established new organisations that improve its ability to prevent and combat corruption. These include:

i.The Public Procurement Act of 2004 that has led to the establishment of the well-functioning Public Procurement Regulatory Authority and the Public Procurement Appeals Authority;

ii.The Anti-Money Laundering Act of 2006 that has led to the establishment of the Financial Intelligence Unit in the BoT; and

iii.The Prevention and Combating of Corruption Act of 2007 that increases from 20 to 24 the number of offenses that the PCCB can now investigate and prosecute to punish people found guilty of corruption.

b)Government has initiated and publicised investigations into major cases of alleged corruption and, in some cases, recovered some stolen assets and taken preliminary administrative measures pending further investigation to sanction individuals who are suspected to be guilty of corrupt practices. These cases include:

i.The External Payment Arrears Account of the BoT; and

ii.The Richmond Development Company power supply case.

c)Government has also made considerable progress in investigating the 11 cases of Grand Corruption PCCB listed during the GBS Annual Review in Nov. 07.

3. Main Concerns and Specific Issues

a)Development Partners appreciate from experience in their own countries the sensitivity, difficulty and complexity of investigating and prosecuting cases of Grand Corruption, especially those that may involve the political, public service and business elites in the country.

DPs note however that there have been no significant examples since Tanzania’s independence in 1961 of successful prosecutions, punishments or recovery of assets involving senior public officials, politicians or business people involved in Grand Corruption. This increases the fiduciary risk for DPs who provide GBS and other development assistance. DPs applaud the measures that have been initiated regarding the BoT and Richmond cases and expect that once the respective investigations are completed, culprits will be prosecuted, assets recovered and risk mitigation strategies enforced; they look forward to progress reports on the other cases of Grand Corruption that were presented to the GBS AR, and to Government’s meeting its PAF objective of prosecuting annually five cases of Grand Corruption.

b)The BoT Case:Given the above, DPs are concerned about the ability of the Government team and the criminal justice system to bring the BoT investigation to a successful conclusion that punishes criminals, recovers assets and initiates mitigatory measures to minimise the possibility of a recurrence of such mis-management of the EPA Account.

c)The Richmond Case: DPs look forward to Government’s response to the PSC Report and its recommendations, the conclusions of the Task Force, and to substantive follow-up via the criminal justice system;

d) The Capacity of the Criminal Justice System

i. The credibility of the DG of the PCCB, the Attorney General and other officers has been called into question in public. Will this affect PCCB’s and DPP’s abilities to play their roles in meeting the PAF objective of preparing 5 cases of Grand Corruption for prosecution by October 2008;

ii.The need to strengthen significantly the independence and competence of criminal justice, accountability and integrity organisations (PCCB, DPP, Judiciary, Ethics Secretariat, PPRA and PPAA) to minimise recurrence of Richmond-like cases.

4. Possible Next Steps on the Anti-Corruption Agenda

Mobilise the PCCB and the DPP with DP assistance to investigate and prosecute cases of Grand Corruption in accordance with the PAF objective;
Proceed with re-visiting the Public Leadership Ethics Code Act to accord with the President’s recent announcements regarding conflict-of-interest and corruption in leadership ranks;
Proceed with reviewing the Political Parties Act and the Elections Act in order to control the financing of politics and political campaigns;
Proceed with the preparation of the Freedom of Information Bill and the Whistleblower Bill.

5. Background/Overview

Tanzania has a panoply of laws, regulations and organisations intended to prevent or investigate and sanction corrupt practices. They are considered generally to be “technically” adequate, but the professional abilities of legal-judicial organisations and/or their freedom to act are seriously wanting--there has not been a single instance of successful investigation, prosecution, sentencing and punishment for Grand Corruption (GC) since independence in 1961.

This preoccupies Tanzanians and donors alike, especially since cases of GC have dominated the headlines in recent months, e.g., the External Pay Arrears (EPA) account of the Bank of Tanzania (BoT); the Richmond Energy Case and, most recently, the Mahalu Real Estate Case. Tanzanian politicians and officials involved in the BoT and Richmond case have so far been dealt with through administrative or political measures, although investigations are under way that could lead to criminal proceedings. The Mahalu case is currently before the courts.

This sanctioning and prosecuting of high-profile figures is without precedent and may signal the dawn of an era in which impunity for the corrupt is not a given. It could also presage a shift in the balance of power from the presidency towards the parliament… It may also have stressed the political system to the limit of what it might tolerate at this juncture. Donors should be aware of this.

The Parliamentary Select Committee (PSC) on the Richmond Affair and others MPs have called for the resignation of both the Director General of the PCCB whose organisation investigated the infamous Richmond case and the Attorney General whose office was involved in the public procurement process that selected Richmond. The negative publicity about the PCCB in the media has sullied seriously the reputation and even the legitimacy of the PCCB in the public eye.

In their dialogue with GoT about corruption matters, donors have progressed towards results-based rather than activity-based management, e.g., within the GBS/PAF framework, GoT has agreed with donors a results-related indicator requiring it to prepare five cases of Grand Corruption for prosecution by October 2008.

6. Current issues, allegations of corrupt practices, GoT responses, etc.

GoT has completed the external audit of the External Pay Arrears (EPA) account of the Bank of Tanzania (BoT), fired and replaced the former Governor of the BoT, established a new Board of Directors, revised internal audit procedures, and formed a high-level, 20-person, investigative team under the Attorney General to investigate the embezzlement of some TSh 133 billion. The team includes staff from the Office of the AG, the PCCB and the TPF.

The PSC has found that the Richmond Development Company (RDC) who was awarded a contract had no valid registration in the US or Tanzania[1]. Nor had it the expertise or experience required to execute the power generation project. The PSC concluded there was massive misprocurement in this process implicating senior politicians and public servants. The PM and two Ministers thus resigned; Cabinet was dissolved, and then re-instituted with down-sizing and a massive reshuffle. The PSC and some MPs have called for the resignation of senior officials. Government has established a Special Task Force under the Prime Minister to study the 23 recommendations of the PSC and advise by early March how to proceed. The Task Force’s mandate includes recommending what sort of action should be taken against each official named in the report.

Former President Benjamin Mkapa has come under increasing criticism for not having complied with the Public Leadership Code Act by operating a company from State House whilst he was in office. Allegations of his involvement in a number of other corruption scandals are also gaining strength and frequency.

Allegations that some of the money from the BoT/EPA affair was used for President Kikwete’s presidential and electoral campaigns are gaining credibility.

The DG of the PCCB was elected in the week of February 11 by agency heads to the chairmanship of the East African Association of Anti-Corruption Authorities. This could be interpreted in a number of ways, but it was possibly a public vote of confidence and support for a colleague by his peers who work within political boundaries and who could identify viscerally with his circumstances.

The DG of the PCCB reported to the AR that the following cases of GC are currently under investigation. PCCB reports that the files for six of them have been submitted to the DPP to obtain sanction to prosecute:

Radar deal with BAE
BoT, Twin Tower scandal
Alex Stewart (ASSAYERS)
Buzwagi contract
Mchuchuma’s mining deal
Mwananchi Gold deal

Meremeta Limited
Tangold Limited
Mwananchi Trust Co. Ltd
Chimela Co. Ltd
VMB holdings Co. Ltd

Annex 1 is an incomplete list of other alleged cases of Grand Corruption that have been covered in the media but not reported to be under investigation.

7. Detailed Briefing and Highlights of DP Support for NACSAP II – See Annex 2

Annex 1

Cases of Alleged Grand Corruption not Reported to be Under Investigation

Deep Green Finance Company Limited

Independent Power Tanzania Limited (IPTL)

Lake Victoria-Shinyanga Water Line

LogScam

Loliondo Hunting Blocks

Mafuta House

Quality Plaza

Sale of Government Houses

Serengeti National Park Privatisation Project

Tanzania International Container Terminal Services

Ubongo Godowns

Annex 2

Detailed Briefing and Highlights of DP Support for NACSAP II

1. Overview

Tanzania has developed over 50 years a panoply of laws, regulations and organisations intended to prevent or investigate and sanction corrupt practices. It encompasses a code of ethics for leaders and senior officials, institutions designed to permit citizens to bring complaints against public officials and obtain redress for wrongs, as well as anti-corruption and law enforcement agencies to investigate, prosecute, adjudicate and punish wrongdoing, and recover corruptly acquired assets.[2] Generally, this framework of anti-corruption laws, rules and institutions is considered “technically” to be adequate, especially since the enactment of the Prevention and Combating of Corruption Act of 2007 that redressed several if not all the weaknesses identified in the former Act.

The Warioba Commission made clear in 1996, however, that it is the failure to enforce the formal rules, or the wilful circumvention of them, and the weaknesses of the organisations set up to deal with corruption, that are responsible for corruption’s continuing, and especially for Grand Corruption (GC) to be a major concern.

This view was publicly endorsed recently: “The Anti-Corruption Squad formed by Mwalimu Nyerere in 1973 gave way to the PCB under President Mkapa in 2002. It was reborn as the Prevention and Combating of Corruption Bureau under President Kikwete in 2007. None of the three has had a single proven case of major proportions to show for its 'efforts' … despite being directly under the thumb of the nation’s Number One Corruption Buster, the president!”[3]

Several on-going, donor-supported reforms address corruption, viz., the public service, public financial management, legal sector and local government reforms, NACSAP and deregulation, but their effects tend to be longer term and they have not impeded the establishment of elite networks of politicians, public servants and business people who appear to thrive at the public trough. GoT has dismissed some corrupt public servants, sanctioned a few senior officials, and is strengthening some anti-corruption regulations and institutions, but there is a general perception that the actions taken since the Warioba Report have been insufficient to seriously address GC. The recent sacking of the BoT Governor, the resignation of the Prime Minister and two other Cabinet Ministers on the basis of allegations of corruption and the subsequent re-appointment of a cabinet from which several high-profile figures were dropped are without precedent and may signal the dawn of an era in which impunity for the corrupt is not a given. These events may also presage a shift in the balance of power from the presidency towards the parliament… They may also have strained the political system to the limit of what it might tolerate at this juncture. Donors, in pursuing the anti-corruption agenda, will have to practice “the art of the possible.”

In their dialogue with GoT about corruption-related matters, donors have progressed somewhat towards results-based rather than activity-based management. Within the GBS/PAF framework, for example, GoT has agreed a results-related indicator requiring it to prepare five cases of Grand Corruption for prosecution by October 2008. Payments under the new Norwegian and British projects to support the tackling of Grand Corruption will be based upon agreed, results-based performance reports. In other areas though, agreed results-based reporting is proving difficult to achieve. Government has indicated, for example, that it is unable to report the amount of state revenues collected as a percentage of revenues “due,” as set out in the PAF, i.e., it can tally the amount it collects but is unable to calculate how much it should collect. This is significant with respect to focusing strategically on areas susceptible to Grand Corruption because, as the TRAFFIC study on forestry established, there have been enormous amounts of revenue due to the state that have not been collected because of systemic corruption.

The Parliamentary Select Committee (PSC) on the Richmond Affair and others MPs have called for the resignation of the Director General of the PCCB whose organisation investigated the infamous Richmond case under the old corruption law, and determined that, under its provisions, there were “just small shortcomings which did not constitute any criminal offence” in its supervision and implementation. The negative publicity the PCCB has since received from the media’s and the PSC’s presentation of the information pertaining to this case have sullied seriously the reputation and even the legitimacy of the PCCB under its current DG. The ineptness of the PCCB in communicating with the public, regardless of the technical merits of its investigation, has contributed to its loss of credibility. Other senior officials including the Attorney General have also been tarnished by the Richmond affair.

2. Current issues, allegations of corrupt practices, GoT responses, etc.

The Chairman of the PSC presented to the National Assembly on 6th February 2008 its report on the process by which the Richmond Development Company (RDC) had been awarded the contract to supply emergency electricity to the Tanzania Electric Supply Company Limited (TANESCO). The Committee found that RDC had no valid registration in the US or Tanzania at the signing of the contract in 2006 and had neither the expertise nor experience required to execute the power generation project. It thus concluded there was massive misprocurement in this process implicating the Prime Minister, other Ministers, other politicians and senior public servants. The PM and two Ministers have resigned over this issue; Cabinet was dissolved, and then re-instituted with down-sizing and a massive reshuffle. The PSC and some MPs have called for the resignation of other officials including the Director General of the PCCB and the Attorney General. Government has established a Special Task Force under the Prime Minister to study the 23 recommendations of the PSC and advise by early March on how to proceed. The Task Force’s mandate includes determining what short of action should be taken against each official named in the report.

The key issues that ensue from the Richmond case will be:

a) Government’s response to the PSC Report and its recommendations, the conclusions of the Task Force, and the extent of substantive follow-up via the criminal justice system,

b) Whether the DG and possibly other officers of the PCCB, as well as the Attorney General are required to resign and, if so, how this will affect PCCB’s and DPP’s abilities to play their roles in meeting the PAF objective of preparing 5 cases of Grand Corruption for prosecution by October 2008.

c) Whether the independence and competence of the main accountability and integrity institutions (PCCB, DPP, Judiciary, PPRA) will be strengthened sufficiently to minimise the recurrence of Richmond-like cases.