CORRUPTION IN TUNISIA PART II: THE ANATOMY OF EXPLOITATION

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
--------------

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
--------------

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
--------------

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
--------------

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