Cuba: catching kleptocrats

HAVANA, Cuba — “Centralization” has become a bad word in the Cuban lexicon lately, blamed by President Raul Castro as the source of the island’s enervating bureaucracy and economic stagnation.

As part of his economic reform push, Castro wants to give more independence to Cuba’s state companies and local governments, freeing them from the need to obtain Havana’s permission for every little decision and expenditure.

But a series of corruption scandals among Cuban executives in recent months has been a reminder as to how the island’s state-run economy got so centralized in the first place. As soon as the government eases up its controls, company managers steeped in graft tend to get even greedier.

Nearly a dozen executives from Cuba’s Habanos S.A. tobacco company are now in police custody, suspected of taking bribes and kickbacks on millions worth of premium Cuban cigars, The Economist reported last week.

It was hardly the worst recent case of Cuban managers appropriating “social property” as their own. Rogelio Acevedo, the country’s former top aviation official, was arrested last year for allegedly running a side business that chartered jets of the national airline, Cubana de Aviacion, for outrageous personal profit. There are also new reports this week that executives in the country’s lucrative nickel-processing industry are in custody and facing corruption charges.

The wave of arrests is no fluke. Castro created a special Comptroller General’s Office in 2009 to audit and investigate state companies, and it’s unknown how many crooked administrators have been snared since then. The closer scrutiny is a key part of Castro’s plan to give Cuban managers more administrative leeway in order to make their state-run business more profitable, while also adding new layers of oversight.

In his speech to open last month’s Communist Party Congress in Havana — the first major event of its kind in 14 years — Castro described Cuban administrators as frozen with inertia and unable to make decisions on their own.

“The lesson taught by practical experience is that an excessive centralization inhibits the development of initiatives in the society and in the entire production line, where the cadres got used to having everything decided ‘at the top’ and thus ceased feeling responsible for the outcome of the entities they headed,” Castro said.

Still, it’s not hard to imagine the temptations faced by Cuba’s captains of socialist industry. While working long hours for miniscule pay, they are expected to uphold the ideals of self-sacrifice and austerity, yet their lifestyles and business relationships require them to wine and dine with fantastically wealthy capitalist counterparts. Many have tens of millions of government dollars under their management, despite drawing salaries that — at least officially — amount to not much more than the average Cuban wage of $20 a month.

The rise and fall of top Cuban executive Pedro Alvarez is a case in point, and one of the more embarrassing ones for the Cuban government. As the longtime head of the state food import agency, Alimport, Alvarez arranged billions’ worth of bulk food purchases abroad, much of it from the United States under a special exemption to the Cuban embargo.

For the U.S. farmers and agricultural executives who did business with Cuba, Alvarez was the face of the Castro government. In 2008, he negotiated the purchase of $711 million worth of U.S. foodstuffs, an all-time high.

Only now Alvarez is reportedly living in Tampa, after fleeing Cuba in December amid rumors he’d skimmed a personal fortune from the food deals. According to Miami news accounts, Alvarez left the island by sneaking through the Havana airport dressed as a woman.

Historically, the Cuban government has promoted military officers to executive positions at state companies in part to discourage corruption, but they have hardly been immune to the temptations of high-volume commerce.

Acevedo, the disgraced aviation official, was a Cuban army general who fought as a guerrilla soldier under the original icon of Cuban workplace rectitude, Ernesto “Che” Guevara. And Cuba’s most notorious corruption case came in 1989 with the stunning trial of top military commander Gen. Arnoldo Ochoa, who was convicted of treason and sent to the firing squad for his role in a drug-trafficking scheme.

On balance, Cuba tends to rank relatively low on corruption indices in comparison to other countries in the region, rated 69 out of 178 nations evaluated last year by Transparency International. Among Latin American states, only Chile, Uruguay and Costa Rica ranked better.

Still, kickbacks and “commissions” are standard practice among Cuban executives who make bulk purchases abroad on behalf of the government. They then stash the money in foreign bank accounts or with relatives abroad.

Cuba’s Comptroller General Office’s is currently engaged in an audit of 750 state companies, sending 3,000 investigators to look into “all sectors, all organizations and territories” and evaluate “discipline, legality and economic control,” Comptroller General Gladys Bejerano announced on state television last month. So more managers may fall in the coming weeks.