CORRUPTION IN TUNISIA PART II: THE ANATOMY OF EXPLOITATION

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C O N F I D E N T I A L TUNIS 001630

SIPDIS

NOFORN

SIPDIS

STATE FOR NEA/MAG - HARRIS

STATE PLEASE PASS USTR - BELL

USDOC FOR CLDP - TEJTEL AND ITA/MAC/ONE (NMASON)

E.O. 12958: DECL: 06/28/2016

TAGS: PREL, ECON, PGOV, EFIN, ETRD, EINV, TS

SUBJECT: CORRUPTION IN TUNISIA PART II: THE ANATOMY OF

EXPLOITATION

REF: TUNIS 1622

Classified By: AMBASSADOR WILLIAM HUDSON FOR REASONS 1.4 (b) AND (d)

1. (C) SUMMARY: This is the second of a four cable series on

corruption's impact on the Tunisian economy and Tunisia's

political future. Despite the Tunisian economy's success,

Tunisians increasingly complain about corruption's negative

impact. Traditional corruption and bribery exists in Tunisia

as elsewhere in the world, but most complaints focus

specifically on the disproportionate power and influence

wielded by a few elites, chief among them Tunisia's First

Family: President Ben Ali, wife Leila (Trabelsi) Ben Ali and

their extended clan. While the extent of this corruption is

rumored to encompass all the major sectors of the economy and

is impossible to accurately measure, the domestic frustration

the subject generates is perhaps more significant than the

facts on the ground. Part two of this series addresses how

corruption has manifested itself in the Tunisian context.

END SUMMARY.

CATEGORIES OF CORRUPTION

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2. (C) SIMPLE: There are four main categories of corruption

in Tunisia. First, there is basic bribery and extortion,

which most commonly is seen among the police and security

forces. Tunisia's "police state" image includes a policeman

on nearly every corner, whose main job appears to be checking

car paperwork, identification cards and generally

intimidating citizens. Any infraction can result in the

seizure of one's documents, which requires hours of

subsequent bureaucratic red tape to resolve. Thus, for a

small fee, one can avoid any potential negative consequence

of the stop and proceed normally. Given the low salaries

paid to police officials (approximately TD 300/USD 230 per

month),it is no surprise this has become increasingly

widespread as civil servants try to cope with a rising cost

of living. However, this type of simple corruption has yet

to become a phenomenon in Tunisia.

>3. (C) BUREAUCRATIC: This type of corruption is the main

target of GOT efforts to investigate, convict and punish

offenders. Usually identified among mid-level civil

servants, this type of corruption can involve everything from

bribes paid to "experts" who provide evidence in court cases

to siphoning from government accounts. For example, one FSN

reported that he had to bribe a series of experts to conduct

the property assessments needed to finalize the inheritance

issues related to his father's death. He believed that

without bribes, the case could have dragged on unresolved for

years. Investigated by the Tunisian equivalent of the U.S.

Government Accountability Office, such cases - when

identified - typically result in conviction and punishment.

However, the fact that only mid-level officials ever seem to

be investigated leads many to assume that this system is

simply designed as a bureaucratic facade. The GOT can claim

to take anti-corruption steps without addressing the major

corruption that causes economic distortion. Meanwhile,

Tunisians increasingly feel this type of corruption is

pervasive, and that only by manipulating the system or

bribing an official, can they obtain the desired result.

4. (C) INFLUENCIAL: While the first two categories of

corruption are widely accepted as present in Tunisia by the

GOT, which has developed control mechanisms to contain them,

the third type is not publicly addressed, as it involves more

senior government officials such as ministers. Generally,

this type of corruption involves the misuse of official

government entitlements for personal benefit. For example,

some military officials who receive government cars and

drivers are rumored to use this transportation to take their

children to school or go to the beach on the weekend.

Ministers are also believed to utilize their name and

influence in order to purchase government property at

discounted prices. Further, it is assumed that ministers

utilize influence and information to ensure business contacts

-- including family and friends -- have inside details on

government contracts, which lead to profitable kickbacks.

Regardless of the extent of this type of corruption,

Tunisians generally consider such officials technocrats more

than politicians. Thus, few complain significantly about

this phenomenon although many wish a stronger system of

checks and balances existed to root it out.

5. (C/NF) FIRST FAMILY: The last type of corruption is that

about which Tunisians from all strata of society are

complaining: President Ben Ali and his family's exploitation

of the Tunisian economy for personal gain. Despite

increasingly liberal economic legislation, all key decisions,

especially related to investment and privatization, are made

at the highest levels of the government -- probably by the

President himself. This arrangement has permitted President

Ben Ali's extended family (siblings, in-laws, and distant

relatives) to become aware of, to assert interests in, and to

carve out domains in virtually every important sector of the

Tunisian economy. This dominance leads Tunisian public

perception to believe that connections to the First Family

(if not outright partnership with them) are essential for

businesses of any significant size to survive. Worse, people

are now convinced that the First Family is an insatiable

economic animal bent on gratuitous enrichment and unchecked

influence-wielding.

THE FAMILY BUSINESS

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6. (C/NF) The Family's interests are rumored to extend to

virtually every corner of the economy from information and

communication technology, to manufacturing, retail,

transportation, tourism, banking, and agriculture and food

processing. The EU ambassador to Tunisia notes that foreign

direct investment has stalled in recent years due largely to

perceptions that "political control has grown to such a level

that all goes up to Carthage (the Presidential Palace) for

decision." He added that the family uses tactics such as

"compulsory partnerships," and that he has heard "countless

examples of threats (to extort) when companies are get too

big or become too successful," which further limits economic

growth and entrepreneurial activity for fear of attracting

the first family's attention.

7. (C/NF) Every Tunisian seems to have an account of how the

Trabelsi or Ben Ali clan has intimidated legitimate

businessmen or manipulated regulations for its own benefit.

A local journalist told Poloff that a government office for

real estate was opened on a Sunday so no one would see

property registered in the name of Ben Ali's son. The

journalist also reported laws are being altered to allow a

son-in-law to gain control of a major commercial port.

(NOTE: A detailed list of family members and their alleged

business holdings will be reported in part four of this

series. END NOTE.) Political connections are also believed

to be behind the circumvention of investment policies

regulating French mega-distributor Carrefour's entrance in

the market. Another son-in-law is rumored to have assisted

Carrefour's launch of the first international franchise

operation here, enriching first family members in the process

through ownership stakes.

8. (C/NF) These tactics have also negatively impacted U.S.

investment -- the prime example of which is McDonald's

unsuccessful seven-year effort to invest in Tunisia in the

1990s. McDonald's undertook lengthy market research,

obtained necessary licenses and real estate leases, entered

commercial agreements, secured a local partner, and

established necessary product supply chains. Their

investment, however, was scuttled by a last minute

intervention by First Family personalities who reportedly

told McDonald's representatives that "they had chosen the

wrong partner." The implication was clear: either get the

"right" partner or face the consequences: McDonald's chose

to pull out completely at great cost. Tunisian business

contacts decry the McDonald's case as a black mark on

Tunisia,s international investment reputation, as it

indicates Tunisia does not play fairly or always act

rationally. This example is also frequently related to

illustrate the First Family's tactics and ultimate influence.

HOW IT'S RUN

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9. (C/NF) While widespread, such rumors of coercion or

extortion may be overblown, in part due to tight control over

Tunisia's media that prevents public airing of corruption or

improper influence. The editor of the only independent

newspaper, al-Mowqif, told Poloff the paper cannot report on

the corruption issue without documentary evidence that would

stand up in the Tunisian legal system. Regardless of the

rumors, Ben Ali and his family have clearly benefited from

their unique access to key business and economic information.

In fact, it appears that the link between state-managed

growth programs and personal interests have overlapped in the

form of privatization. A main driver of the Tunisian

economy, privatization and liberalization plans that were

launched in the 1990s seem to have also directly enriched the

Ben Ali clan. The family is believed to have gained control

of several key industries through privatization, and has also

benefited from GOT efforts to encourage competition. For

example, Leila Ben Ali's brother successfully launched a new

airline Karthago, in part due to GOT privatization

incentives. Lucrative charters that state-owned Tunisair had

previously operated were transferred to Karthago, which also

borrows Tunisair planes when needed.

10. (C/NF) The family further benefits from a general lack of

transparency in the Tunisian economy. Zoning laws have

allegedly been manipulated to allow family members and other

insiders to buy agricultural lands at low prices before

developing the land as profitable commercial or residential

real estate. Tunisians allege that Ben Ali's relatives have

also exploited the parallel market, illegally importing

everything from cars to electronic goods. The weak financial

system has also been manipulated. One local financial expert

blames the Family for chronic banking sector woes due to the

great percentage of non-performing loans issued through crony

connections, and has essentially paralyzed banking

authorities from genuine recovery efforts.

FIGHTING BACK

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11. (C/NF) While every Tunisian seems to have a story about

how Ben Ali's family has exploited Tunisia's economy for its

own benefit, some have successfully protected their business

interests from family interference. Senior officials from

Tunisiana, the profitable private mobile phone services

company, report no one has ever contacted them about giving

the Family a cut of their business. A local shipping magnate

says shipping is "too complicated" for the First Family,

which has never suggested they wanted in on her successful

operations. (COMMENT: Nonetheless, this businesswoman was

approached for a donation to a Leila Ben Ali-associated

charity. When she declined, her firm was subject to a

"random" state audit that ended when she wrote a laudatory

press article about the President. END COMMENT.) A

Tunisia-based regional advertising firm reports that,

although it has faced pressure from Ben Ali's relations, the

firm has simply refused to be cowed. Thus, like all types of

corruption in Tunisia, it remains unclear how much of the

phenomenon is exacerbated by fearful businesses giving in to

extortionary tactics. One businessman who has gone head to

head with the Trabelsis on two occasions (once outmaneuvering

a Trabelsi to take over a TV licensing contract the Trabelsi

had held) says, "We are a nation of ten million cowards. You

have to stand up. If you do, they will move on to an easier

target."

12. (C/NF) COMMENT: The extent to which the President

personally benefits from his own economic activities or those

of other family members remains unclear. One European

ambassador reports that seven employees manage Ben Ali's

investments in that country alone. Contacts have conflicting

reports - some believe nothing happens without his knowledge,

others say his family and advisors hide their corruption from

him. Whatever the case, Tunisians now ruefully comment that

if first president Habib Bourguiba thought he was the

"father" of Tunisia, Ben Ali acts like its "owner". The

political implications of this impression will be reported in

part three of this series. END COMMENT.

HUDSON

CORRUPTION IN TUNISIA PART II: THE ANATOMY OF EXPLOITATION

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