In recent weeks we’ve watched the massive Petrobras scandal in Brazil spread wider and wider, taking down politicians and business figures, big and small, until it finally reached the most powerful person in the land: the country’s corrupt president, Dilma Rousseff. She is now facing impeachment.
On April 20, Shannon Sims of Forbes reported on the novel responses by Rousseff’s stooges to the legislature’s vote to impeach her. Some of them are describing it as a “right-wing coup” – a ridiculous way to characterize a constitutionally legitimate action that is amply justified by Rousseff’s conduct in office. There are other, equally absurd takes on the impeachment: Congressman Jean Wyllys has called it “sexist,” an effort by anti-woman reactionaries to unseat Brazil’s first female head of state.
Rousseff herself is one of those who have called the impeachment a coup. She’s responded in a characteristically authoritative way, threatening to have Brazil removed from Mercosur, the South American common market, if she’s removed from office. She’s accused her potential successor, Vice-President Michel Temer, of being a leader of the “coup” – a charge that he denied angrily, rejecting the notion that Brazil is “some minor republic where coups are carried out.”
Meanwhile one David Miranda contributed an articleto the Guardian in which he purported to explain the “real reason Dilma Rousseff’s enemies want her impeached.” Never mind her corruption in office. Rousseff, insisted Miranda, was being targeted by “rich and powerful” conservatives and the major corporations they own, for no other reason than that they oppose her left-wing politics.
Who is David Miranda? You may have run across his name while reading about the scandal surrounding Edward Snowden, the former contractor for the U.S. National Security Agency who stole sensitive secret papers and passed them on to journalist Glenn Greenwald, who in turn published them in the Guardian. At the height of the controversy, in August 2013, U.K. police detained Greenwald’s husband at Heathrow Airport on his way from Berlin to Rio de Janeiro and seized thumb drives containing tens of thousands of classified British Government documents. They’d been given by Snowden, who’d received asylum in Russia, to Laura Poitras, a partner in Snowden’s scheme, who’d then passed them on to Greenwald’s husband so that he could deliver them to Greenwald, with whom he lives in Rio.
The name of Greenwald’s husband? David Miranda.
This past January, Britain’s Court of Appeal ruled Miranda’s detention at Heathrow legal. The editors of The Spectator approved, describing Miranda as “a mule for industrial-scale sabotage” and arguing that “the right to a free press [does not] extend to the indiscriminate release of secret documents which put agents’ lives in danger, or alert terrorists to the gaps in our capabilities.” Indeed, as The Spectator pointed out, many of Miranda’s staunchest champions in Britain, who invoked the freedom of the press in his defense, are not consistently fans of press freedom; on the contrary, their real reason for standing with Miranda was patently that his actions were potentially very harmful to the U.S. and Britain and very helpful to those countries’ jihadist enemies.
It is no coincidence that Miranda, who in his capacity as Greenwald’s “mule” acted against the interests of the U.S. and Britain, is now standing shoulder to shoulder with the socialist regime of Brazil. His claim? That the massive, ever-growing street rallies against Rousseff’s corrupt regime are something of an artificial phenomenon – almost a mirage. The protests, he maintains, didn’t happen organically: they were incited by the anti-Rousseff media. Moreover, being “disproportionately white and wealthy,” the protesters themselves are “not remotely representative of Brazil’s population.” Miranda, as it happens, had already made much the same argument in an earlier article, published in March and written in collaboration with Greenwald and Andrew Fishman.
Attentive readers of this website may recall that supporters of the corrupt, authoritative governments of the late Hugo Chávez and his anointed successor, Nicolás Maduro, in Venezuela, have used much the same arguments (they’re rich, they’re white, they’ve been ginned up by the media) to discredit opponents of chavismo. The Tea Party movement in the U.S. has also been dismissed in similar terms. Somehow protesters aren’t authentic if they don’t fit the right demographic.
It’s worth noting, by the way, that the chavistas in Caracas have longstanding ties to Rousseff and her predecessor, Luiz Inácio Lula da Silva, in Brasilia. And the ideological continuities are obvious. And just as the chavistas’ incompetent administration, socialist policies, and corrupt conduct have combined to drag Venezuela’s economy into the gutter, so it has become increasingly obvious that the exact same attributes on the part of Brazil’s rulers threaten to bring down its own economy, which not long ago seemed to be on the verge of First World-level prosperity.
In any case, whatever you may think of Greenwald’s other activities, it’s certainly interesting to see him and Miranda – who made their names trying to compromise American and British security, all the while seeking to paint themselves as principled – shamelessly carrying water for the socialist thugs who run Brazil.
Not only was George Orwell one of the most brilliant writers of the twentieth century; he was the indispensible observer of twentieth-century totalitarianism, clear-eyed about the tyrannies of both left and right – and about the stooges of tyranny that crossed his path. This week we’ve been looking at Orwell’s 1949 list of colleagues he suspected of being “crypto-communists” or “fellow travellers” and therefore unfit for employment by the British government’s Ministry of Information. When the list came to light decades later, as we’ve noted, Orwell was savaged by many of his fellow leftists for being a traitor to his own side; in fact, the British Stalinists working to destroy Western freedom and replace it with totalitarianism were the traitors.
Among the names on the list were those of Peter Smollett, a British official who tried to quash the publication of Orwell’s masterpiece Animal Farm and who (years after his death) was revealed to have been a Soviet spy, and beloved Scottish poet Hugh MacDiarmid, a fan of both Mussolini and Stalin who (in one posthumously published poem) expressed indifference to the Nazi bombing of London. Another name: E.H. Carr (1892-1982).
Who was Carr? He was a historian who taught at Cambridge, Oxford, and the University of Wales and who was best known for his fourteen-volume (!) History of Soviet Russia. Like MacDiarmid, he was capable of warming up to fascists and Communists alike. All in all, the stooges on Orwell’s list were a pretty loathsome crew, but Carr may well hav been the most loathsome. As British historian David Pryce-Jones wrotein a 1999 essay, this was a man who nursed an intense “belief in power”; who was unwavering in his conviction “that his own country could do no right”; who was certain that “[c]apitalism and democracy were doomed” and that “[t]he individual had to belong to the collective.”
At first, the collective he admired was the one Hitler was fashioning in Germany. Carr publicly defended Nazi aggression and considered its victims “beneath notice.” But then he exchanged Adolf for Uncle Joe. When Stalin swallowed the Baltic states, he said that their forced absorption into the USSR was better than incorporation into the Nazi empire. Carr wasn’t alone in undergoing this conversion: Orwell himself commented at the time that “all the appeasers, e.g. Professor E. H. Carr, have switched their allegiance from Hitler to Stalin.” Thereafter, Carr considered the Soviet Union, in Pryce-Jones’s words, “the model society of the future,” and said so frequently in the British media, notably the Times. In his view (to quote Pryce-Jones again), “Communist governments imposed by Stalin in the satellites of eastern Europe ought to be recognized. The Communists had both the right and the authority to take over Greece…..The Soviet suppression of uprisings in Hungary and Czechoslovakia hardly ruffled him. Soviet force and terror were automatically equated with red-baiting and McCarthyism in America.” In his Soviet history, “[t]he indifference to the murdered millions is astounding.”
To be sure, like many Communists in the West, he was a model hypocrite: “While maintaining that capitalism was dead, he was constantly on the telephone to his stockbroker. His letters beseeching for funds and grants from the Rockefeller Foundation or university sponsors refer to his need to be comfortable.” Also like many Western Communists, he labored to demolish his ideological enemies: “Hugh Seton-Watson, Edward Crankshaw, George Katkov, David Footman, and his own former pupil Norman Stone were among the many colleagues against whom Carr intrigued or whom he openly criticized, in the hope of destroying them and their professional reputation.” Finally, like many fervent disciples of extreme ideologies that profess concern for the powerless, he was brutal to his several wives. Pryce-Jones:
Enclosed in his ego, he paid no attention to any of them, discarding them like tissues….The nastiness was unlimited. Anne developed a sarcoma, and, on the day that one of her daughters was due to have a very serious operation, Carr informed her that the marriage was over, that he was leaving her for Joyce. In due course he left Joyce for her closest friend, Betty Behrens. …Soon Betty had a nervous collapse and moved to an asylum, whereupon Carr tried to take some of her considerable fortune.
As Pryce-Jones sums up: “here was someone who would have had no trouble at all signing death warrants in a police state.” But of course that’s precisely the type of person who, living in freedom, is attracted to murderous totalitarian regimes. They never identify with those dispatched to the Gulags or death camps; they always see themselves in the role of commissar, warden, executioner. That’s one of the many things that Orwell, in his time, certainly understood – and to which we, in our own time, in a world no less threatened than Orwell’s by liberty-crushing ideologies and their fans, should be constantly alert.
This week we’re poking through George Orwell’s 1949 list of writers and journalists whom he suspected of being “crypto-communists, fellow travellers or inclined that way,” and therefore not to be trusted by the British government. We’ve seen that in one case after another, Orwell was right on the money.
Hugh MacDiarmid (1892-1978) was widely considered the great Scottish poet of his day, and is now viewed as something of a Scottish hero. He was also a Stalinist and self-declared “Anglophobe.” Born under the name Christopher Murray Grieve (MacDiarmid was a nom de plume), he was, in the 1920s, an enthusiastic supporter of Mussolini – and of fascism in general, which he considered a version of socialism. In 1923, he “argued…for a Scottish version of Fascism, and in 1929 for the formation of Clann Albain, a Fascistic para-military organisation that would fight for Scottish freedom.” In 1928 he helped found the Scottish National Party and became a leading champion of Scottish independence. In the 1930s he joined and was expelled from the British Communist Party; in 1956 (the year Soviet tanks crushed Hungary’s democratic revolution) he rejoined the Party.
Some of his wartime writings – which weren’t published during his lifetime – reveals a mind drawn even more passionately and perversely to totalitarianism than most of his published work suggested. In a 1940 letter, he wrote that while “the Germans are appalling enough…the British and French bourgeoisie…are a far greater enemy.” In June of the same year, on the eve of the Battle of Britain, he wrote (but didn’t publish) a poem that included these lines:
Now when London is threatened
With devastation from the air
I realise, horror atrophying me,
That I hardly care.
The next year, writing to his friend and fellow poet Sorley MacLean, MacDiarmid maintained that while the Axis powers might be “more violently evil for the time being,” they were, in the long run, “less dangerous” than the government in London and in any event “indistinguishable in purpose.” In other words, Scotland might well be better off under Hitler than under Churchill. (MacLean disagreed: “I cannot see what the Nazis would give Scotland when they give Vichy to France, Franco to Spain and Quisling to Norway.”)
These documents, note well, didn’t come to light until recently – the letters in 2010, the poem in 2013 – when they were discovered by scholars in the archives of the National Library of Scotland. Their publication made headlines; as James MacMillan wrote three years ago in the Telegraph, they reveal MacDiarmid to have been “a clear and Scottish example of that melding of nationalism, fascism and Leftism which seemed so seductive to young idealists at the time.” But Orwell didn’t need to see that poem or those letters to know just what a foul stooge for totalitarianism – of whatever stripe – Hugh MacDiarmid really was.
Yesterday we discussed George Orwell’s 1949 list of literary and journalistic colleagues whom he viewed as “crypto-communists, fellow travellers or inclined that way.” Among them, we pointed out, was New York Times correspondent Walter Duranty, who at the time was considered the ultimate authority on the Soviet Union – but whose name has since become synonymous with shameless journalistic dishonesty and the systematic whitewashing of tyranny.
Another name on Orwell’s list was that of Peter Smollett. Born in Vienna in 1912 as Hans Peter Smolka, he relocated in 1933 to Britain, where, according to writer Daniel J. Leab, he “wrote pro-Soviet travel journalism for various US outlet during the 1930s, became a naturalized British subject in 1938, changed his name, and after the war’s outbreak joined the Ministry of Information, where he energetically organized pro-Soviet propaganda and suppressed ‘unfavorable comment’ on Stalinist Russia.”
His titleat the Ministry was Head of Soviet Relations. At the height of the war, when Orwell sent Animal Farm, his classic indictment of Soviet Communism, around to various publishers, one of them, Jonathan Cape, was “reported to be initially keen on the manuscript,” but “bowed out after consulting an ‘important official’ at the Ministry of Information, who advised against publication.” That official was Peter Smollett. On his list, Orwell described Smollett as “a very slimy person” who was “almost certainly [an] agent of some kind.”
He was right. After his death in 1980, Smollett/Smolka was revealed to have been an agent of the NKVD, the People’s Commissariat for Internal Affairs, which, in addition to performing espionage, ran the Gulag labor camps, conducted mass executions, and carried out mass deportations of various minorities and farmers. The Mitrokhin Archive, which we discussed a while back, records that Smollett was recruited as a spy in 1939 by double agent Kim Philby, one of the notorious Cambridge Five, and that his NKVD cover name was ABO. Smollett’s wartime NKVD work, notesHenry Hemming, “was held in high regard by Moscow.” Not only did he pass top-secret information on to the Kremlin (working first under Philby and later under another one of the Cambridge Five, Guy Burgess); he was also an invaluable pro-Soviet propagandist. In communications to higher-ups at the Ministry,
Smollett would exaggerate Soviet concerns, refuse to give in to them and then suggest as a quid pro quo a more Soviet-friendly stance on other issues. He maintained, for example, that the Soviets were exceptionally thin-skinned and, as such, no stories about Stalinist persecution could be broadcast. Smollett encouraged the BBC to run stories that exaggerated the revival of the Russian Orthodox Church in the USSR….Elsewhere Smollett pushed the idea that after the war the USSR would be too weak to do anything other than rebuild.
The result of Smollett’s efforts was substantial. Hemming describes it as a “red haze” that “swept over Britain after the entry of the USSR into the war.” What he means is that Britain, thanks in large part to Smollett’s initiatives, was given a consistently prettified image of life under Stalin. As Hemming puts it, Smollett “helped to blur the line between the heroic Russians and the brutal Soviet regime.”
Smollett, Hemming points out, “was not unmasked during his lifetime, and instead enjoyed a successful post-war career as a respected Times correspondent and was even awarded an OBE.” But Orwell knew.
We here at Useful Stooges would not presume to compare ourselves with George Orwell, the great English man of letters and enemy of tyranny in all its forms, but we have at least one thing in common with him. Our website could be described as a catalogue of people – some past, most present – who, as we put it on our “About” page, are “pawns of tyrants in our own time” who “either admire despotism or have figured out ways…to profit from their cynical support for it.”
Orwell made a list, too. In 1949, the year he published his classic novel 1984 and not long before he died, he provided the Information Research Department, a newly established propaganda unit of the British Foreign Office, with the names of “journalists and writers who in my opinion are crypto-communists, fellow travellers or inclined that way, and should not be trusted.” In other words: people who, if hired or used in any way by British intelligence, would be likely to become double agents.
In 1996, when the existence of Orwell’s list became widely known, and again in 2003, when the list itself became public, many of his fellow men of the left condemned him as a McCarthyite, a blacklister, a rogue. Communist historian Christopher Hill called him a traitor to his side. (It is worth noting that Hill also despised Animal Farm for attacking Communism.)
But Orwell’s friend David Astor, the longtime editor of the Observer, had a clearer view of things: “Orwell wasn’t betraying the left – the pro-communists were betraying us.” For Britain’s misguided left, Orwell’s crime was simple: he recognized that totalitarianism in the name of Communism was no better than totalitarianism in the name of Nazism. In short, he hated Stalin every bit as much as he hated Hitler. And that was inexcusable.
But Orwell requires no defense from us; anyone who wants one need only consult the splendid essay on the subject that was published in 2002 by the estimable Christopher Hitchens. (It appears in Hitchens’s Why Orwell Matters, in his posthumous collection, And Yet…, which appeared last year, and is also behind a firewall at the New York Review of Books website.)
To this day, Orwell’s list is worth perusing. Because he was right. The people he named – journalists, historians, scientists, professors, even a couple of actors, a Member of Parliament, and a noted clergymen – deserved their places on that list. Orwell knew them for what they were. The problem is that we don’t. Most of the names on his list mean nothing to most people in the English-speaking world nowadays. That’s a shame. Because their stories illustrate that, then as now, it’s far from uncommon to find fans of totalitarianism in positions of power and influence in free countries.
One of the names on Orwell’s list is that of Walter Duranty, our archetypal useful stooge. Duranty was the New York Times‘s man in Moscow from 1922 to 1936; he won a Pulitzer Prize in 1932. At the time Orwell included Duranty’s name on his list, Duranty was still a highly respected journalist. Not until years later would his dispatches from Russia come under serious scrutiny. Robert Conquest, in his 1968 book The Great Terror, condemned Duranty for systematically whitewashing the evils of Stalinism and trying to cover up the Ukrainian famine. The publication in 1990 of Sally J. Taylor’s biography of Duranty, which was appropriately entitled Stalin’s Apologist, helped trigger a serious effort to have Duranty’s Pulitzer Prize revoked. In 2003, however, the head of the Pulitzer board declined to withdraw the prize. He still didn’t get it; Orwell had gotten it more than a half-century earlier.
Another useful stooge whose number Orwell had early on was a Daily Express editor named Peter Smollett, who years later would be identified as a Soviet spy. We’ll look at Smollett tomorrow.
The other day we delved into a recent New York Times op-edthat sought to whitewash the massively corrupt Kirchner kleptocracy in Argentina, to demonize its creditors, and to defend its indefensible economic policies. The author of the op-ed was none other than the chief architect of those policies, and one of the Kirchners’ more prominent foreign courtiers and sycophants – economist Joseph E. Stiglitz.
This wasn’t Stiglitz’s first appearance here at Useful Stooges. In several articles last October, we pondered his perverse enthusiasm for command economies, his championing of a socialist U.N. superstate, and other perverse positions that make one wonder just how this character ever managed to score the Nobel Memorial Prize in Economic Sciences.
We were still shaking our heads over Stiglitz’s Times op-ed when his name again made a prominent appearance in the press. On April 13, the Guardian mentionedStiglitz in connection with the internationally notorious Panama Papers case.
You’ve heard of the Panama Papers, of course? They’re a trove of some 11.5 million documents that, leaked last year to the Süddeutsche Zeitung and first reported on earlier this month, have caused worldwide scandal. They describe in detail the use of various shell companies by powerful figures (including UAE president Khalifa bin Zayed Al Nahyan, Ukrainian president Petro Poroshenko, Saudi King Salman, and Icelandic premier Sigmundur Davíð Gunnlaugsson) for nefarious purposes ranging from fraud to tax evasion. The Guardian article outlined plans by the so-called JITSIC network – a task force of 31 major Western nations, plus China, Japan, South Korea, and South Africa – to take aggressive action against these activities.
How does Stiglitz figure in all this? Well, it turns out that while those responsible-minded JITSIC countries were criticizing Panama’s longtime willingness to host shady shell companies and cover up their crooked activities, Panama was handing Stiglitz a new gig. As the Guardian put it, “The Panama government announced that Joseph Stiglitz…would be one member of an international panel formed to review Panama’s legal and financial practices and recommend improvements.”
To us, this sounds like an exceedingly fishy development. First of all, Panama doesn’t need a Nobel Prize-winning economist to tell it to clean up its act; if it wants to be regarded as a transparent financial actor, what it has to do is pretty obvious. Second, given Stiglitz’s track record as an apologist for corrupt regimes, he’s highly unlikely to recommend that Panama institute any meaningful reforms.
What’s going on here, then? Most likely, Stiglitz is providing air cover – lending his name to Panama in its effort to whitewash its reputation as a cash hideout. Is he being paid for this? That’s one question the JITSIC countries might want an answer to – although even if he’s not collecting a fee this time around, his readiness to play ball with the creeps who run Panama deserves scrutiny. For this guy is looking more and more like an ambulance-chaser for unsavory governments.
Why does any of this matter? Well, one reason it matters is that places like the New York Times stilltake Stiglitz seriously as a wise, objective commentator on economic affairs. Another reason is that he’s on the faculty of Columbia University, which expects from its professors a high level of transparency – including full reporting to the college administration of any possible “financial conflicts of interest in research.” But although Stiglitz’s résumé repeatedly cries out “conflict of interest,” he hasn’t reported any such conflicts.
Just look at some of the folks he’s been in deep with over the years. In 2009, the generals who rule Myanmar took him on as a “consultant.” How much was he paid? What was the relationship between his work for the generals and his glowing public statements on Myanmar’s economy?
Stiglitz also “counseled” former Greek Prime Minister George Papandreou. Again, what was his fee? Were his positive comments about Greece’s financial health compromised by these arrangements? In 2013 he invited Panandreou to speak at the Columbia World Leaders Forum – but, in violation of the university’s guidelines, he didn’t disclose their financial connection.
Was the invitation some kind of quid pro quo?
The same question arises in the case of the late Ethiopian Prime Minister Meles Zenawi, whom Stiglitz viewed as a close friend, whose economic policies he praised, and whom he invited to speak at the 2010 Columbia World Leaders Forum. That invitation brought fierce criticism on the website of the Columbia Spectator, where scores of Ethiopians charged the university with legitimizing a “tyrant” who was guilty of “genocide, ethnic cleansing…and other…atrocities.” Jagdish Baghwati, an Ethiopian economist at Columbia, condemned the invitation as the act of academic “entrepreneurs” who were using the college to “ingratiate” themselves with criminal regimes “to get PR and ‘goodies’ for themselves at African summits.” And in a letter to the university’s president, Ethiopian journalist Serkalem Fasil described how she was imprisoned for doing her job, gave birth prematurely as a result of abuse there, and, in the ultimate example of “incomprehensible vindictiveness,” was denied by Zenawi the incubator doctors said her baby needed.
And what about China? Stiglitz has some kind of relationship with the Renmin University of China Institute of Economic Research – which, of course, amounts to having a relationship with the Chinese state. Again, he hasn’t made public any information about income he’s earned from this gig. What he has madepublic is his supposed enthusiasm for an alternative to the single reserve currency – a position neatly in line with Beijing’s – and his claim that concerns about risks to the Chinese economy are overblown.
Then there’s Bolivia, where in a single day Stiglitz received two honorary doctorates. After meeting in 2006 with Evo Morales, that country’s socialist strongman (and longtime Castro chum), Stiglitz began speaking out in favor of Morales’s nationalization of private property. What happened at that meeting? Did money change hands? Or did Evo – who’s not exactly famous for his eloquence – dazzle Stiglitz with the brilliance of his argument for expropriation?
Are you beginning to discern a pattern here?
These aren’t the only leaders who’ve availed themselves of Stiglitz’s “services.” Others include Fernando Lugo, former president of Paraguay, and José Luis Rodríguez Zapatero, former prime minister of Spain. Stiglitz has been a “financial consultant” to the Icelandic government and has given “expert testimony” on Ireland’s sovereign wealth fund.
What did he pocket? Who knows? In none of these cases has Stiglitz disclosed how much he’s been paid for his work – or, for that matter, exactly what his “work” has consisted of. How much of his “consulting” for heads of state and government has involved actual consulting – and how much of it has amounted to nothing more than an agreement to publicly promote their horrible economic policies? In other words, is he simply raking in cash from leftist governments in exchange for positive PR – like a crooked film critic selling a movie producer a rave?
Stiglitz hasn’t only done deals with governments. He’s delivered speeches under the auspices of a long list of Funds and Centers, Institutes and Coalitions, Foundations and Iniatitives, Councils and Commissions. How much did they pay? Again, mum’s the word. (Even Hillary Clinton makes public her lecture fees.) But more to the point: what were they really paying for? Did Stiglitz give these institutions tough, smart advice that they perhaps didn’t want to hear – or, as with his governmental clients, did he affirm their own wisdom to their faces and then come away touting it to the world?
To be sure, if Stiglitz is monetizing his Nobel, he wouldn’t be the first to do so. But there can’t be too many other Nobelists who’ve been so aggressive about it. Put it this way: if they awarded a Nobel Prize for using your reputation as a serious economist to help prop up unscrupulous autocrats, he’d have no competition.
We’ve been looking at some of the more colorful Brazilian stooges whose careers have gone belly-up as a result of the massive corruption scandal surrounding Petrobras, the state-run oil giant. Here are three more.
Let’s start with Alberto “Beto” Youssef. A Bloomberg profile last year described him as “Brazil’s black-market central banker” – meaning that over the years he’s “smuggled cash for the rich and powerful” as part of a plethora of sleazy schemes. As a result of all this sordid activity, he’s been arrested nine times on a wide range of charges.
But his most recent role is definitely the role of a lifetime. Youssef was none other than the bagman in the Petrobras affair. Which means that when a blizzard of construction firms “bribed politicians and executives to look the other way as they inflated contracts” with Petrobras and other government-owned firms, Youssef played banker. He’s fessed up about all this to prosecutors – and, in the process, has also fingered other participants in the scheme, all the way up to President Dilma Rousseff herself, who ran the oil firm from 2003 to 2010. In return for his cooperation, his prison sentence of nine years and two months for money-laundering was reduced to three years.
Working as Youssef’s “money mule” in the Petrobras affair was a guy named Rafael Angulo Lopez, who “flew around the world with shrink-wrapped bricks of cash strapped underneath his clothing.” Last August, the New York Times quoted his lawyer as saying that Lopez “took hundreds of trips…with portable fortunes cinched under his clothing.” On one occasion, he traveled with five hundred thousand euros in cash on his person. “He wore the sort of socks favored by soccer players,” reported the Times, “and, when the haul was especially large, an orthopedic undershirt.”
The Independent providedeven more details: Lopez would wrap “piles of bills in plastic wrap, pricking the packages and then squeezing them to get all the air out.” He then “stuck the packages to his legs, torso and arms and concealed them with elasticated clothing like Spanx and compression socks, underneath a baggy suit.” In this way, he managed to transport “up to $1.4 million to Europe on his body on commercial flights.” Quartzsuggested that the story be turned into “a Brazilian version of Wolf of Wall Street, with middle-aged couriers in baggy suits and compression vests in place of Swiss misses in stilettos and bikinis.”
Then there’s Paulo Roberto Costa, Petrobras’s former director of refining and supply, whose acceptance of a $78,000 Land Rover from Youssef marked the genesis of Operation Car Wash and whose confirmation of Youssef’s testimony – and implication of several dozen politicians in the scheme – helped widen the probe dramatically.
It also brought his sentence down to time served – a year in the can – plus another year’s house arrest. “Without my tip-off, the probe would not have existed,” he bragged in November. He’s now writing a book about his experiences. Presumably he’ll make a nice little sum off of that.
To an extraordinary extent, the Brazilian investment bank BTG Pactual – described by Dan Horchjan of the New York Times as one of the rare Latin American firms of its kind that rival the top Wall Street and European banks – owes its existence, and its years of spectacular success, to a single individual: its self-made founder and CEO, André Esteves. As people in his line of work go, he’s been an unusually prominent figure in Brazil. “More than any other financier,” Horchjan wrote recently, Esteves “was the face of Brazil’s global ambitions during the country’s recent, short-lived boom – in a hurry to grow and unafraid to compete against anyone, anywhere.” Esteves, whom Bloomberg has called the “golden boy” of Brazilian banking, used to say that the letters BTG in the name of his firm stood for “better than Goldman.”
To be sure, the company has had its share of controversies. In 2007, Esteves was convicted of insider trading. In 2013, BTG Pactual partner Charles Rosier was found guilty in the largest insider-trading case in French history. Other accusations of questionable conduct have been made by high-profile observers but not acted upon. In 2006, for example, Esteves sold BTG Pactual’s predecessor, named simply Pactual, to UBS, the Swiss financial-services company, for $2.6 billion (becoming Brazil’s youngest self-made billionaire), only to buy it back three years later for a smaller sum and combining it with his new firm, BTG, to create BTG Pactual. More recently, Esteves and a BTG Pactual director, Huw Jenkins, were sued in a Hong Kong court for $20 million for making “fraudulent misrepresentations” to secure a deal. Three times since 1999, BTG Pactual has been taken to court by Brazilian authorities for shifting money around to mask profits and thus shirk taxes.
But all of this is now mere background – perhaps even just a series of footnotes. We talked yesterday about the arrest and conviction of Latin America’s #1 construction contractor, Marcelo Odebrecht, as part of Operation Car Wash, the massive probe into corruption surrounding Brazil’s state-owned oil firm, Petrobras. After his arrest last June, Odebracht tried to slip a note to his lawyers asking them to destroy e-mails that implicated Esteves. The note found its way into the wrong hands, so that Odebrecht inadvertently ended up fingering Esteves. Esteves’s name was also mentioned in a recorded conversation in which suspects in Operation Car Wash – notably Delcidio do Amaral, the top-ranking Senator in the Workers’ Party – discussed plans to pay a potentially unfriendly witness, Nestor Cervero, the former head of Petrobras’s international division, to leave the country. And police found a note suggesting that BTG Pactual had bribed a congressmen to the tune of millions of dollars. On November 25, Esteves was arrested – and so was Amaral, who became the first sitting legislator to be swept up as a result of the Petrobras probe.
In a January report on his downfall, the Times‘s Horchjan highlighted “its apparent senselessness.” He quoted analyst Luis Miguel Santacreu as saying that BTG Pactual’s deals with Petrobras and the Brazilian government “were relatively small and had nothing to do with the bank’s core business, which was very profitable….They didn’t need any of these deals to keep on growing.” Felipe Monteiro, a French professor of strategy, made the same point in a comment to Bloomberg: “He epitomizes the idea of a private, successful, entrepreneurial generation of Brazilian bankers,” and so his involvement in “the most classic type of old politics is somehow strange.” It’s especially strange given that BTG Pactual actually lost money on its government deals even as it was turning tidy profits on its core, non-state-related business.
As Marcelo Odebrecht’s ruin sent the Brazilian construction sector tumbling, so the destruction of Esteves’s career shook the country’s financial sector to its roots. Now BTG Pactual’s shares are worth half of what they were. Its bonds are considered junk.
Back in October we spent a few days pondering the Nobel Prize-winning economist Joseph E. Stiglitz, whose curious views are taken far more seriously in the corridors of power than they deserve. Stiglitz, as we pointed out, has called for a socialist U.N. superstate; so preoccupied is he with income inequality, moreover, that he views the Great Depression more fondly than he does the 1980s. Financial analyst Peter Tenebrarum has legitimately ridiculed Stiglitz’s claim that corporate tax rates have “little effect on investment,” observing that only “a life-long leftist academic and bureaucrat who has never created one iota of real wealth in his life” could ever utter such drivel.
Then there are Stiglitz’s deep and longstanding ties to the corrupt Argentinian President Néstor Kirchner (2003-7) and his wife and successor, Cristina Fernández de Kirchner (who left office in December). Stiglitz, who’s been a paid Kirchner advisor and consultant, filed an amicus curiae brief when Argentina defaulted on its debt in 2001; when it did so again in 2014, he once more took the Kirchners’ side.
Quite admirably, Argentina’s new president, Mauricio Macri, is trying to clean up the mess that his crooked predecessors created. To this end, he’s reached an agreement with his country’s major creditors that will set Argentina back on the road to fiscal responsibility and international respectability. Any sensible observer who respects the rule of law would applaud.
Not Stiglitz. In an April 1 New York Times op-ed, co-written with his protégé and frequent collaborator Martin Guzman, Stiglitz slammed Macri’s move – and Argentina’s creditors.
The very title of the op-ed was a lie: “How Hedge Funds Held Argentina for Ransom.” Ransom? When a government run by thugs – kleptocrats who’ve looted their country’s treasury – refuses to pay debts ruled legitimate by two U.S. courts, it’s not ransom. It’s the rule of law.
Let’s parse the op-ed’s first sentence. “Perhaps the most complex trial in history between a sovereign nation, Argentina, and its bondholders – including a group of United States-based hedge funds – officially came to an end yesterday when the Argentine Senate ratified a settlement.” Readers might assume, quaintly, that since this piece appeared in America’s so-called newspaper of record, there must’ve been some fact-checking. But apparently not.
First of all – and this is hardly a tiny detail – there has been no trial.
A trial generally indicates that there is some dispute over the facts of a case involving evidence that must be examined, typically by a jury. But no one ever disputed that Argentina defaulted on more than $80 billion in 2001 and refused to pay certain creditors in violation of their contractual agreements. The lawsuits over Argentina’s bonds were not disputes over these indisputable facts, but rather processes to determine the proper remedies for these violations. Furthermore, lest we be accused of being nitpicky about the terminology, it is also incorrect to say that this litigation “came to an end” last week. In fact, the litigation is ongoing, with important legal questions about Argentina’s settlement offers still pending before a U.S. Court of Appeals.
Second, the mention of hedge funds was a slick move, plainly intended to set knees jerking among anti-capitalist types for whom hedge funds are, by definition, pure evil. Never mind that there are other people – some of them citizens of Argentina – who also hold Argentinian bonds. In fact, it is precisely these small Argentinian bondholders who continue to litigate against Argentina due to the fact that Argentina has for some reason offered them less than it offered the hedge funds. (Stiglitz and Guzman would know this if they bothered to read the news sections of … the New York Times!) Thus, these small bondholders are doubly inconvenient for Stiglitz and Guzman – their existence both contradicts the pair’s erroneous declaration that the Argentinian debt saga has ended while simultaneously undermining their blatant attempt to blame the “evil” hedge funds for all of Argentina’s problems.
Third, the Argentinian Senate did not ratify a settlement. What it did was agree to lift the Kirchner-era laws that were intended to frustrate U.S. court rulings – and that led New York District Judge Thomas Griesa to hold Argentina in contempt.
The op-ed’s first sentence, then, was a minor masterpiece of misrepresentation. Perhaps we should thank Stiglitz and Guzman for making it clear from the git-go that what followed wasn’t going to be factually reliable.
“The resolution,” Stiglitz and Guzman went on to say, “was excellent news for a small group of well-connected investors, and terrible news for the rest of the world, especially countries that face their own debt crises in the future.” No: it was excellent news for the health of the international credit market, and terrible news for irresponsible governments that are inclined to pursue serial defaults.
Stiglitz and Guzman proceeded to describe Argentina as “[u]nable to pay its creditors” (a questionable contention) and to describe holdout investors as having “earned the name vulture funds.” Funny way to put it: these investors didn’t “earn” that name; it was coined by their debtor, the Argentinian government, and was taken up by Stiglitz and his ilk as a glib way of smearing creditors who’ve asked only to be paid what they’re owed. By obscuring the origins of the term “vulture funds,” of course, Stiglitz and Guzman were giving legitimacy to it – and providing themselves with a veneer of justification for repeatedly (and childishly) hurling this slur throughout their piece.
In what was perhaps the most dishonest part of their op-ed, Stiglitz and Guzman purported to sum up Griesa’s 2012 ruling. As they put it, he “threw the game in the vulture funds’ favor” by “blocking Argentina from paying” creditors who’d agreed to reduced settements “until it had paid the vultures in full.” The ruling “gave the vultures the weapon they needed: Argentina had to either pay them off or renege on the default they had negotiated, ruining the country’s credit in the future and threatening its recovery.” Omitted entirely from this tendentious summary – which makes it sound as if Griesa did something shady – is Griesa’s rock-solid legal reasoning: under the pari passu (or “equal footing”) clause in the bond agreement, Argentina was strictly forbidden from paying off some creditors while stiffing others. What Stiglitz and Guzman neatly sidestepped, in other words, is the fact that if Argentina had honored the pari passu clause, all its creditors could have been paid. The point, quite simply, is that Cristina Kirchner didn’t want to pay.
The op-ed’s mendacity continued with the claim that Macri’s deal “will carry a high price for the international financial system, encouraging other funds to hold out and making debt restructuring virtually impossible.” Nonsense. In fact, the market has already adjusted: in place of paripassu clauses, sovereign-debt agreements now include collective-action clauses. Stiglitz and Guzman would have us believe that nations like Argentina can’t protect themselves and can’t structure loans as they wish; instead of worrying about that, we should be concerned about those nations’ continued ability to default and force terms on bondholders.
“Most countries,” maintained Stiglitz and Guzman, “are intimidated by the creditors and accept what is demanded.” Intimidated? Was Cristina Kirchner intimidated when she maligned her creditors as “vultures” and basically gave Judge Griesa the finger? Our heroes then called sovereign-debt restructurings destructive – after all, they’re are often “followed by another restructuring or default within five years.” And what example did they cite? That of Greece, which underwent restructuring in 2012 and is already “in desperate need of more relief.” But the case of Greece doesn’t prove anything about restructuring; all it proves is that if a country is economically irresponsible on a colossal scale, the chickens will eventually come home to roost.
How, then, to resolve sovereign-debt conflicts? Easy: Stiglitz and Guzman touted a set of sovereign-debt “principles” that they themselves proposed to the U.N. General Assembly, which approved them overwhelmingly last September. Among those “principles”: that indebted nations should be immune from foreign courts’ verdicts and that creditors should be compelled to accept restructuring deals approved by a majority of their fellow debt holders. Predictably, the six countries that voted against the resolution were those whose citizens tend to be on the creditor end of these arrangements – Canada, Germany, Israel, Japan, Britain, and the U.S. The countries that approved the measure were, in effect, asserting their own right to dodge repayment of debts – not just debts owed to hedge funds, but debts owed to mom-and-pop investors, too. Some justice.
“Many countries have bankruptcy laws,” concluded Stiglitz and Guzman. “But there is no equivalent framework for sovereign bankruptcies….The United Nations has taken the lead to fill this vacuum, and as Argentina’s case proves, the initiative is more important than ever.” Saying this, however, doesn’t make it so. What Argentina’s case proves is that some countries, like some people, are deadbeats; if permitted to do so, they’ll default repeatedly on their debt for no other reason than that the law lets them.
None of this is new, of course – we already knew where Stiglitz stood on Argentina’s deadbeat behavior. In fact, he’s become something of a broken record on the subject. Take his hyperbolic claim in the op-ed that “[t]he resolution … [will make] debt restructuring virtually impossible.” He’s plagiarized this same claim from himself many times in commenting on various cases, at least once using virtually identical language in the same newspaper. Each time, he is proven wrong by subsequent sovereign debt restructurings that are successfully concluded via constructive, good-faith negotiations with creditors (i.e., the opposite of the coercive approach that he and Cristina Kirchner favor) – most recently in Ukraine.
So why now? Why has Stiglitz chosen this moment to repeat the same tired justifications of the Kirchners’ behavior and vilifications of Argentina’s creditors? For answers, look at the headlines surrounding the deal, and it seems clear at once: As the praise for Macri’s economic policies in general and his handling of the debt dispute in particular pours in from around the world, defenders and abettors of the Kirchners’ disastrous policies are looking worse and worse in retrospect. And, as you might expect, some have lashed out with desperate attempts to justify their actions and/or sabotage the Macri administration. Each is doing it with the tools at hand: For instance, former Kirchner Economy Minister Axel Kicillof now has a seat in Congress, so he is trying mightily to derail Macri’s settlement and keep Argentina mired in default. By contrast, Stiglitz has a standing invitation to bloviate on the op-ed pages of the Times. So bloviate he does.
But no amount of retrospective whitewashing can change the fact that the policies Stiglitz advocated as an advisor to the Kirchners were followed, and followed faithfully, with disastrous consequences for Argentina’s citizens. The Kirchners’ refusal to fully resolve the 2001 default in order to spite its creditors led directly and indirectly to the years of grinding legal battles, the punitive interest rates that Argentina was forced to pay as a result of its status as the world’s worst deadbeat, the falsified economic statistics that undermined its government’s credibility with everyone except for a handful of despots, the cozying up to said despots that further undermined its global reputation, the spiraling inflation that punished its citizens as access to dollars became scarcer and scarcer – Stiglitz was there every step of the way, cheering for Cristina in the international media. And now that she’s gone and someone more responsible is trying to clean up the mess that he helped make, Stiglitz is still there, jeering from the sidelines, and pointing the finger of blame somewhere else.
The Odebrecht Group is one of those conglomerates whose international reach and level of diversification make one’s head spin. It’s the largest construction outfit in Latin America; Braskem, one of its innumerable subsidiaries, is Latin America’s biggest petrochemical producer.
“They are more than a company,” a Brasilia-based consultant, Thiago de Aragão, told the Wall Street Journal recently; “they are a symbol of modern Brazil.”
Indeed. It’s Odebrecht that is responsible for Miami’s $213-million American Airlines Arena, where the Miami Heat play. It’s Odebrecht that is Angola’s top private employer, with over 24,000 employees in that country alone. At this moment, among many other projects, Odebrecht is building a highway in Ghana that will connect the capital, Accra, to remote eastern regions of the country; it’s expanding and adding bridges to a highway that links Guatemala’s main ports with the Mexican border; it’s upgrading a major airport in Mozambique; it’s constructing an elaborate hydroelectric facility in Portugal; it’s installing “the world’s deepest and most complex sewage pump station” in Abu Dhabi. In 2014 the group celebrated its seventh decade in business.
On March 8, the firm marked another milestone. That was the day on which its CEO, Marcelo Odebrecht, the grandson of the company’s founder, was sentencedto 19 years in prison after being convicted of paying $30 million in exchange for contracts and influence at Petrobras, the state-owned Brazilian oil firm that is at the center of the massive corruption probe known as Operation Car Wash. According to prosecutors, Marcelo’s firms “used Swiss bank accounts to launder nearly $270 million in bribes” between 2006 and 2014.
The presiding judge, Sergio Moro, said Marcelo Odebrecht was “directly involved” with this systematic bribery and money-laundering and “guided the work of others.” This intimate involvement was demonstrated by (among other things) incriminating messages stored on eight cellphones found at Marcelo’s home. While other construction executives nabbed in the probe have bought themselves shorter sentences by turning state’s evidence, Odebrecht refused to spill the beans, saying that he would punish his own kids more harshly for tattling than for cheating.
Given the conglomerate’s dimensions and its importance to the Brazilian economy, the arrest and conviction of Marcelo – who took over the reins of the family firm in 2008, at age 40, and whose nickname is “Prince of the Contractors” – is of obvious significance. According to the Journal, Marcelo’s arrest in June of last year caused an economic earthquake, contributing to the onset of Brazil’s current recession. But what makes these developments even more momentousness is Marcelo’s intimate relationship with the Rousseff administration. When the president met with business leaders, Marcelo was invariably present. “Some of the other executives,” one São Paulo businessmen told the Journal, “were jealous that he always got invited and they had to fight for a seat at the table.”
Marcelo is close not only to Dilma Rousseff but to her predecessor and mentor, former President Luiz Inacio Lula da Silva, who is himself being investigated for allegedly accepting illegal funds from Odebrecht.
One thing about having global reach is that when you get in trouble, the investigations, too, will have a global reach. Swiss and Portuguese authorities are now looking into charges of wrongdoing by Marcelo, and several other countries are considering similar probes.