In this episode of NOW With Bill Moyers a six-month investigation reveals a story about law and order and politics, as practiced by Big Tobacco — companies so huge, their revenues dwarf the Gross National Product of some countries. Have those companies grown so powerful they can disregard international law?
MOYERS: Welcome to NOW.
We begin with a story about law and order and politics, as practiced by Big Tobacco.
By Big Tobacco, we mean companies so huge, their revenues dwarf the gross national product of some countries; companies so powerful they can become a law unto themselves.
While our report begins with revelations about cigarette smuggling, the heart of the matter is the new global economy, and the ability of the legal system to hold US corporations accountable for accusations of wrongdoing overseas.
Tonight, a six-month investigation by THE NATION Magazine, The Center for Investigative Reporting, and NOW.
Our story is reported by Oriana Zill and Mark Schapiro.
MOYERS: A dramatic shoot-out in Italy. It looks like a terrorist attack or a bank robbery, but it’s not. These Italian customs agents are chasing cigarette smugglers.
Around the world, cigarette smuggling is a growth industry, earning huge profits. Both the Mafia in Italy and drug cartels in Colombia have been linked to the smuggling.
It’s very widespread. Fully one-third of all cigarettes produced in the world end up being smuggled.
And it’s not only organized crime groups doing it. The trail leads right to the big cigarette companies themselves, say government investigators and lawyers.
CARLOS ACEVDEO, LAWYER FOR THE EU AND COLUMBIAN STATES: The major multinational tobacco companies invented large-scale smuggling.
MOYERS: Carlos Acevedo is one of the lawyers representing the European Union and Colombian states in lawsuits against the tobacco companies, alleging those companies are behind the smuggling.
ACEVDEO: They are the jockeys, if you will, and they usher the product through this distribution channel.
MOYERS: It’s all part of a strategy, says Acevedo, to avoid taxes, which lowers the price and lets the companies compete head to head with local cigarette producers abroad.
ACEVEDO: Whatever they can do to lower the price gives them a competitive edge, and that’s why it’s done.
MOYERS: But the accusations go beyond smuggling; lawsuits charge the smuggled cigarettes are paid for with illegal money, in some cases drug money, and they accuse the tobacco companies of laundering that money.
Faced with these charges, the tobacco lobbyists took action. They worked the corridors of Congress to derail the federal court cases against them, according to Congressman Henry Waxman. He says the tobacco companies did this by manipulating The Patriot Act, the Congressional response to September 11.
CONGRESSMAN HENRY WAXMAN (D-CA): The tobacco companies are famous in the Congress for working behind the scenes, often without people being aware of what they are doing.
MOYERS: The story about Big Tobacco and smuggling starts in an unlikely place. Here on this remote peninsula called La Guajira, part of Colombia, South America.
The native Wayu’u people have been smugglers since colonial times, manning the vessels that brought goods into Colombia from the Caribbean islands.
During the 1990s, that cargo became millions of dollars worth of illegal cigarettes.
HUGO GONZALEZ IGUARRAN (TRANSLATED): My name is Hugo Gonzalez Iguarran, born in Nazarette. I am 68 years old. Most of my life I worked transporting cigarettes.
MOYERS: Gonzalez told us that in the early ’90s, the cigarette contraband became a flood, with tens of thousands of cartons coming in every week.
GONZALEZ (TRANSLATED): Ultimately, they brought in 20,000 or 30,000 cartons in boats weekly.
MOYERS: Nessier Perez is a Wayu’u lawyer.
NESSIER PEREZ, WAYU’U LAWYER (TRANSLATED): It’s true that through the peninsula of La Guajira, millions of Marlboro cigarettes were brought in. Boats full.
MOYERS: The Wayu’u say they picked up the loads of cigarettes on the Caribbean island of Aruba.
This footage, shot in 1997, shows the Wayu’u unloading smuggled Marlboros.
No Colombian import documents were ever filed, say Perez and Gonzalez.
NARRATOR (IN SPANISH): So when the boat got there, there were no authorities there. What was your job in the business?
GONZALEZ (TRANSLATED): I have my little truck. I carried loads of cigarettes from Puerto Estrella to Maicao.
MOYERS: Maicao, across the desert from the port, is the staging area for large scale smuggling of many types of goods into the interior of Colombia.
Along the town’s muddy roads and low-slung stucco buildings, kiosks advertise the logos of smuggled American goods. Armed men stand in the doorways, guarding the products.
Wayu’u drivers brought the cigarettes here and then smuggled them to the big Colombian cities, where they were sold on the street corners by small vendors, or in large semi-legal bazaars, called San Andresitos.
Ricardo Ramirez is Chief of Customs for Colombia. He says no government taxes or import tariffs were paid during any part of this process in the 1990s.
RICARDO RAMIREZ ACUNA, DIRECTOR DE ADUANA DEL DIAN (TRANSLATED): Boats were arriving from Panama and Aruba through La Guajira, and they were coming in without any reporting to customs or any ability for us to detect them. This was open contraband.
MOYERS: By the mid 1990s, the lost tax revenues from the smuggled cigarettes were adding up to the equivalent of hundreds of millions of dollars.
And American smuggled brands were making up more than a third of the cigarette market here, seriously undercutting the local industry.
Colombia’s Minister of Foreign Trade at the time, Carlos Ronderos, began to take notice.
CARLOS RONDEROS, FORMER COLOMBIAN MINISTER OF FOREIGN TRADE: We were trying to struggle against contraband, because it was basically the main competition for domestic industry.
RAMIREZ (TRANSLATED): We contacted the multinational companies and told them, “your products are being misused.”
RONDEROS: They denied any involvement with that business. They said the business was so big that it was very difficult for them to trace where the cigarettes came from.
MOYERS: So in early 1998, Ronderos turned to the U.S. Government for help. Then U.S. Treasury Investigator Al James brought a team to Colombia.
AL JAMES, FORMER U.S. TREASURY INVESTIGATOR: We were able to learn that U.S. cigarettes, while slightly more expensive than the Colombian cigarettes had a very large market share.
MOYERS: And behind that large market share, James suspected, was some organizational muscle.
JAMES: I can’t believe that the cigarette companies did not know how this process worked.
MOYERS: Their suspicions were confirmed by a surprising source — the files of the tobacco companies themselves. Back in the U.S., state lawsuits were forcing long secret tobacco papers out into the open.
MICHAEL MOORE, ATTORNEY GENERAL FOR MISSISSIPPI (FROM TAPE, March 20, 1997):These were documents we were never supposed to see.
MOYERS: Among the revelations — that smuggled cigarettes were regularly included in the companies’ marketing strategies under the terms “transit” or “duty not paid.”
The Philip Morris strategic plan for Latin America in ’91-’93 lists the “tax-free” customers, including a famous Wayu’u Senator and cigarette smuggler, Santo Lopesierra, who in Colombia is dubbed, “The Marlboro Man.”
This 1992 memo from one of its subsidiaries estimates British American Tobacco’s share of the transit — or smuggled — market at 45%.
ACEVDEO: In the case of Colombia, we see that the multinational tobacco companies — specifically Philip Morris and BAT through Brown and Williamson — are at every step of the distribution chain into Colombia.
MOYERS: But what drove these companies to break into foreign markets? Here in America, the companies were on the run. Fewer people were smoking.
CONGRESSIONAL HEARINGS (FROM TAPE, APRIL 14, 1994): Do you swear that the testimony you are about to give is the truth, the whole truth and nothing but the truth?
MOYERS: And the public was outraged as one after another tobacco executives…
TOBACCO EXECUTIVE (FROM TAPE, APRIL 14, 1994): I believe that nicotine is not addictive.
MOYERS: …appeared to lie under oath.
TOBACCO EXECUTIVE (FROM TAPE, APRIL 14, 1994): I believe that nicotine is not addictive.
TOBACCO EXECUTIVE (FROM TAPE, APRIL 14, 1994): I too, believe that nicotine is not addictive.
MOYERS: They needed a competitive edge abroad, but countries like Colombia had high tariffs and thriving tobacco industries of their own.
ACEVEDO: Whatever you can do to lower the price of the product that you’re getting to your consumer translates into a competitive edge.
MOYERS: Avoiding taxes lowered prices, and ad campaigns encouraged people to buy.
Advertising was something Big Tobacco knew how to do. Polished campaigns started showing up in a country unaccustomed to such marketing.
In the United States, the tobacco settlement required companies to reduce their advertising, but there was no such requirement overseas. So in Colombia during the 1990s, the Marlboro Man was everywhere.
JAMES: One of the U.S. companies advised us that they, on the one hand, lost several million dollars a year in this market, and on the other hand, spent several million dollars a year in advertising.
RONDEROS: Over $5 million in publicity, hardly any sales. And a huge loss. Then we asked them, “Why is that?” And they say, “We love Colombia. So we don’t mind losing money here.” So we didn’t quite believe that story.
MOYERS: British American Tobacco’s own reports show, in fact, that the advertising was paying off in sales of smuggled cigarettes.
In 1994, while all legal imports were making less than 2% of the total Colombian cigarette market, smuggled cigarettes were 36%.
And as we learned in the secret tobacco papers, British American Tobacco was aware of the duplicity.
(QUOTE FROM DOCUMENT): Can we pursue the approach…i.e., continuing with duty paid and duty not paid in parallel…and be seen as a clean and ethical company?”
Brown and Williamson and their parent company, British American Tobacco, declined to comment on any of these allegations, citing a British government investigation now underway.
Philip Morris sent us this memo denying any control over the smuggling problem.
ACEVEDO: If a tobacco company says that they can’t control where their product is going, that would be believable if we’re talking about 1,000 cases or 2,000 cases of cigarettes.
But if we’re talking about literally hundreds of 40-foot containers that are each worth hundreds of thousands of dollars, it is part of a regular business operation to know where your containers are going.
MOYERS: Here’s where they were going: the free trade zone of Aruba. This Caribbean island, just off Venezuela, was the perfect transit point, according to U.S. and Colombian customs officials. Cigarettes could be shipped from the U.S. through Aruba without paying any taxes.
In Aruba, two family-owned businesses controlled the cigarette trade. The Mansurs were distributors for Philip Morris from the 1920s until late 1998.
The Harms family and their company, Romar, worked primarily for British American Tobacco and their U.S. subsidiary, Brown and Williamson.
Both the Mansur and Harms families refused to speak with us, but we learned a lot from a former employee named Alex Solognier.
ALEX SOLOGNIER: My issue was that British American Tobacco misused the facilities we have here in Aruba to organize and control a smuggling route, knowingly and willingly. Romar started in this building.
MOYERS: Solognier worked with the Harms family as an accountant and financial director.
MOYERS: He showed us where the containers of cigarettes were broken down and loaded onto freighters bound for Colombia.
Romar was the intermediary, Solognier says, but it was British American Tobacco that controlled the smuggling aimed at winning those markets.
SOLOGNIER: I firsthand got instructions from British American Tobacco officials telling me, “Look, this client, your client, sell him this because I need him to get this product into Santa Marta.”
MOYERS: Colombian government investigators and Solognier say that Philip Morris operated the same way.
SOLOGNIER: As a competitor, we knew they were doing the same.
MOYERS: Solognier is speaking out about these charges, he says, because he complained internally about the activity and was then accused of stealing from the company. An Aruban court eventually cleared Solognier of the allegations.
SOLOGNIER: I don’t want to get even. I lost everything, but I’m not going to lose my honor. What I am telling is the truth.
MOYERS: Romar denies any involvement in smuggling and told us their “Involvement ends at delivery at the docks in Aruba, where the goods are delivered to, and received by the Colombian traders.”
British American Tobacco and its subsidiary Brown and Williamson e-mailed us that: “Sales to Romar for resale in the freezone are completely legal sales.”
RONDEROS: If all the people in Aruba smoked all the cigarettes they import, every man, woman and baby would have to have at least 20 packs a day. So that, definitely, you must know that that’s not for their market.
JAMES: No other U.S. manufacturer that I know of stops evaluating their market at the… At the distribution point.
They all go right down to the retail level because that’s how they increase their market share, that’s how they know what they’re doing.
MOYERS: British American Tobacco’s own documents show they knew what they were doing- trying to increase their market share in Colombia with the smuggled product in the 1990s.
Former Trade Minister Ronderos says he repeatedly tried to convince the companies to stop the smuggling.
RONDEROS: That it was not something that happened behind their backs, like they claimed.
MOYERS: But it did no good. So in the year 2000, Colombian state governors filed suit in Federal Court in New York, claiming the companies were involved in a “massive ongoing smuggling scheme.” Lawsuits by ten European countries and Canada were also filed.
The suits stirred up so much media attention, the cigarette companies were forced into an agreement with the Colombian government. Without admitting any wrongdoing, they promised to help stop the smuggling.
RAMIREZ (TRANSLATED): We told them, “either cooperate or there will be a big scandal about this. They cooperated.
MOYERS: And the smuggling of cigarettes through La Guajira has now slowed to a trickle. Even so, the story’s not over. To understand it, we have to follow the money.
ACEVEDO: They develop these routes and they invent, if you will, not only how to get the product into the market, but they also invent how to get the money out of the market.
MOYERS: That money is the key. The lawsuits against the companies actually charge them with money laundering because illegal funds were being used to buy the cigarettes.
Furthermore, government investigators told us some of these companies knew that the illegal funds were drug money.
ACEVEDO: Simply put, large-scale cigarette smuggling could not occur without large-scale money laundering.
In Colombia, narcotics proceeds are made available and used by the smugglers to pay for the smuggled cigarettes.
MOYERS: These checks have been introduced as evidence in the lawsuits against the tobacco companies.
Acevedo says they show that distributors in Aruba accepted drug money for cigarettes and deposited it into bank accounts,
ACEVEDO: From those bank accounts, this narcotics money is then wire transferred to Philip Morris accounts in the United States or in Switzerland.
MOYERS: Al James learned how the process worked when he came to Colombia as an investigator for the U.S. Treasury Department.
JAMES: We began to understand that what they were calling contraband smuggling, was actually the other side of the narcotics money laundering that we were seeing.
MOYERS: During the 1990s, Bogota Colombia was awash in drug money from a flourishing narcotics business. Then Minister of Foreign Trade saw a link between a sharp rise in cigarette smuggling and widespread money laundering.
RONDEROS: More and more so we began to be aware that behind this contraband there was a money laundering operation through a system later to be known as the peso broker.
MOYERS: their name for it is the “Black Market Peso Exchange.” It’s a complex system, aimed at hiding the fact that the source of the money for the cigarettes and other products is drug sales.
We’ll follow the money and see where it goes.
Colombian drug lords smuggle drugs into the United States and sell them for U.S. dollars.
Those dollars are sold to a peso broker, who has offices in both the U.S. and Colombia.
The broker gets rid of those dollars in America by offering them to Colombian importers to pay for U.S. goods, like cigarettes.
The peso broker sends the dollars directly to U.S. companies to pay for the goods, which are shipped off to Colombia, sometimes smuggled in.
The importers sell the goods in Colombia for pesos.
The peso broker takes his profit and places the rest of the money into the bank accounts of the Colombian drug lords.
Everyone in this system makes a profit. The drug lords want to collect their profits as pesos in Colombia, while the Colombian importers need dollars in the United States to pay for goods. And when those goods are smuggled American cigarettes, the tobacco companies increase foreign sales.
“RAUL”, PESO BROKER: If you were buying a black market dollars during this time, in Colombia, you were buying drug money.
MOYERS: Raul is not his real name; if his identify were known, he could be killed. He worked as a peso broker during the 1980s and ’90s. Part of his job was to take drug cash off the streets and put it into banks as a first step in turning it into legitimate money.
RAUL: You would give somebody a $100,000 in cash and they would give you $100,000 in checks.
MOYERS: Raul used banks to turn large amounts of cash into paper — personal checks, money orders and bank checks — all in amounts under $10,000 to avoid currency reports. Raul used these checks to pay for goods.
RAUL: We would also pay directly to some manufacturers.
MOYERS: Raul says he sent dozens of small personal checks to distribution companies to pay for goods. And even though this is a strange way of doing business, Raul says, the distribution companies always accepted them.
RAUL: The companies don’t ask, “Are these drug dollars?” When you send them a check. They never ask.
MOYERS: Cigarettes were one of the most popular U.S. goods to buy with this money in the 1990s, says Raul. And Aruba was where they bought them.
RAUL: Cigarettes is a big part of the smuggling business in Colombia because they pay a lot of duty. They smuggle them in from Aruba, they’re always buying black market dollars.
MOYERS: Because the Aruba free trade zone in the ’90s was the staging area for so much cigarette smuggling into Colombia, investigators say it also became the collecting point for the drug dollars.
And those two companies involved in the smuggling- companies run by the Harms and Mansur families — well, investigators said, they received the payments.
SOLOGNIER: In the beginning, everything was cash. Small packages, wrapped in cellophane and duct tape.
MOYERS: When Alex Solognier was financial manager for the Harms family company, Romar, he says he personally processed massive quantities of black market dollars in cash, money orders and personal checks.
SOLOGNIER: We had clients paying us with personal checks, bank checks, U.S. checks, for $5,000, $9,000 dollars.
MOYERS: And these checks from the early 1990s show that Mansur trading, was also accepting money this way. These third-party checks, investigators told us, point right at the Black Market Peso Exchange.
Mike Wald is a former FBI agent now working as a government investigator into money laundering in southern Florida.
MIKE WALD, GOVERNMENT INVESTIGATOR: If I were a business in Aruba or Panama or even Miami — those locations are big shopping areas, if you will, for Colombian businessmen — and then I would receive 100 checks, from every subway stop in Queens, New York.
That is a pretty awkward form of payment, is it not? Why is a Colombian businessman paying me with a whole bunch of small checks from different bank accounts?
That means they’re being paid through the black market dollar peso exchange and I would bet the ranch it’s drug money. In fact, I know it’s drug money.
MOYERS: While it was the distributors in Aruba receiving the drug money directly, investigators say the money trail finally led to Philip Morris and British American Tobacco.
JAMES: U.S. Anti-money laundering laws basically state that if you knowingly enter into a transaction where you know that the money is from an illegal activity, and in fact it is from an illegal activity, then you’re guilty of money laundering. So it’s knowledge that makes the distinction.
MOYERS: We requested interviews with Philip Morris and British American Tobacco so that we could ask them about the money laundering charges facing them.
BAT Refused citing an ongoing British investigation.
Philip Morris sent us this memo, saying they “do not condone money laundering, nor do our business practices facilitate it.”
But in Aruba Alex Solognier insists the company he dealt with British American Tobacco, knew that they were accepting drug money for cigarettes.
SOLOGNIER: I can remember one time we had three British American Tobacco officials in ’91. We just had a collection coming in of cash, more than $500,000 in cash on the table. And we opened the door and we showed them. And they knew exactly what was happening.
MOYERS: This secret, internal British American Tobacco memo from 1991, released in a U.S. lawsuit, supports Solognier.
The company’s Latin American regional director discusses a trip to Aruba when Harms- that’s Solognier’s boss — told him about a “murky business, being whether drugs money could be being used.”
WALD: I think they would like not to know that it’s drug money. But I think that, being rational human beings, being businessmen, understanding the markets, understanding who was buying the cigarettes, and why they were being paid that way, and why they were so awkward, that yes, indeed, it was probably drug money.
MOYERS: And Al James, the former U.S. Treasury investigator, says that both Philip Morris and British American Tobacco knew about the drug money because in February 1998, he warned them.
JAMES: I warned them when we were in Colombia. I explained this process to them. I explained our concerns, and I’ve told you what their reaction was. It was kind of, “What can we do?”
MOYERS: Philip Morris told us that they did “enhance their policies” to prevent their distributors from accepting third party checks or any other form of payment associated with the Black Market Peso Exchange.
But the Colombian states’ lawsuits allege that during the 1990s, the Aruban tobacco distributors — the Mansurs and the Harms families — were following instructions from above.
ACEVEDO: The real group that controlled the activity and gave them instructions were the multinational tobacco corporations themselves. The distributor in Aruba was just a pawn, if you will, in the smuggling chess match.
MOYERS: The companies in Aruba also provided a convenient scapegoat when law enforcement began to investigate.
JAMES: I talked to Philip Morris directly. Their reaction was that, “Hey we sell cigarettes to distributors. What they do with them is not our problem.”
MOYERS: But why would a multinational company continue to sell to distributors who they knew were accepting money in these unbusinesslike ways? The answer is simple — sales.
The Black Market Peso Exchange, U.S. Customs estimates, launders approximately $5 billion a year. And it’s not only cigarettes.
RAUL: It was very widespread. Cars, dishwashers, refrigerators, all kinds of products were bought with black market dollars.
WALD: Colombian Black Market Peso Exchange, money laundering, may not be a good thing, but it certainly has not hurt the U.S. economy.
It keeps dollars in circulation, it keeps U.S. goods moving, it keeps the entire economy moving. It may not be a good thing, but economically, it may not be a bad thing.
MOYERS: Government officials told us money laundering is a tough nut to crack, because U.S. law isn’t clear enough for them to prosecute, even where the company is ignoring all the warning signs.
And that’s unfortunate, they say, because when any of America’s largest companies get involved in money laundering, there are disturbing implications for efforts to stop international crime.
JAMES: Money is the driver here, and as long as criminal enterprise can get their money and can move it back into the legitimate financial systems, they’re going to continue to exist.
MOYERS: In the meantime, the tobacco companies have increasingly moved their international distribution business abroad.
Recently, Philip Morris, for one, transferred its entire overseas branch from New York to Switzerland, where financial records are protected by strict secrecy laws.
In the U.S., the tobacco companies moved quickly to defend themselves. Last fall in Washington, Big Tobacco went straight to one of its most potent allies, the United States Congress, to try to protect itself from those smuggling and money laundering lawsuits.
It happened four weeks after the September 11 attacks. Congress was in chaos. A letter tainted with anthrax had been found, offices were evacuated, staffers tested for infection.
In the midst of the confusion, Congress was debating The Patriot Act, legislation designed to meet the threat of terrorism.
SENATOR DASCHLE (FROM TAPE): It addresses money laundering, it addresses all the needs that have been brought to our attention by the Attorney General and this administration.
MOYERS: Among other things, The Patriot Act expanded law enforcement’s ability to go after the money for terrorism, drug trafficking, and other organized crime.
REP. HENRY WAXMAN (D-CA): The bill had a provision that would expand the definition of money laundering to include those kinds of strategies like cigarette smuggling that would have defrauded foreign governments. It defrauds them because they’re not able to collect their taxes.
MOYERS: Those exact charges were made in the lawsuits the tobacco industry was facing in Federal Court in New York — those cases, remember, brought by the states of Colombia, the European Union and Canada.
WAXMAN: The governments of Canada and the European Union and in Colombia are suing the tobacco companies, and they want to sue them in the United States. The issue, however, is whether they have standing to sue. And so far, the courts have said that they don’t have standing to sue in the United States.
MOYERS: The companies argued in court those lawsuits should be thrown out because of an 18th century law called the Revenue Rule, which said foreign countries cannot use United States courts to collect their taxes.
The Patriot Act would have changed that. It would have given those countries the legal basis to sue Big Tobacco and other companies in U.S. Courts.
So the tobacco lobby turned to the White House and the U.S. Chamber of Commerce for help, and they asked Congress for changes in The Patriot Act.
WAXMAN: Now the strange thing was that when The Patriot’s Bill, the omnibus anti-terrorist legislation, reached the House floor, that provision was dropped from the bill.
CONGRESSIONAL HEARING FROM TAPE: Gentlemen from Ohio, Mr. Oxley is recognized for three minutes.
MOYERS: It was eliminated, Waxman told us, by Michael Oxley, the Ohio Congressman who chairs the Financial Services Committee. On his side was the powerful Majority Whip, Tom Delay, one of the biggest supporters of big tobacco and one of the biggest recipients of big tobacco’s money.
The Congressmen were acting at the request of the Bush administration, which has also received large donations from the tobacco companies.
WAXMAN: The tobacco companies outside of the view of the public and even members of Congress, struck the provision that would have expanded the definition of money laundering to protect themselves from being sued.
MOYERS: It happened behind closed doors, and it went unnoticed, says Waxman, in all the consternation surrounding the anthrax and terrorism attacks.
WAXMAN: It was the perfect time with all the distractions that would keep anybody who might have caught this change from taking place from even knowing what was going on with that particular provision.
The tobacco companies are famous in the Congress for taking care of themselves even though it might be against the public interest and in the case of The Patriot Act, I believe against the national interest.
MOYERS: Four months later, in February of this year, the suits against the tobacco companies were dismissed on grounds that those countries could not sue in U.S. Courts to collect their taxes. Big Tobacco had won.
The legal battles go on. Canada, the European Union, and Colombia are appealing those lawsuits that were dismissed, and there may be a new suit filed against tobacco companies on separate money laundering charges.
The plaintiff’s difficulty in establishing jurisdiction is a key issue here, and it goes beyond tobacco. If it’s not possible to assure an honest and ethical playing field among foreign trading partners, the very idea of globalized free trade is dead on arrival.
For more on this, and on Big Tobacco’s campaign contributions, read Mark Schapiro’s full report in THE NATION magazine, and go to pbs.org.
MOYERS: The Bush administration has been warning countries around the world they’re either with us or against us in the fight to defend freedom and democracy.
So what was our government doing encouraging a plot to remove Venezuela’s freely elected President from power?
Granted, President Hugo Chavez is hardly a textbook model of governance. And he’s irritated Washington by selling oil to Anti-American dictators and becoming Fidel Castro’s best buddy. But he was elected for better or worse, fair and square.
Yet here’s the world’s oldest and greatest democracy, the United States, sneakily meeting with the military that threw him out and installed in his place an official of the Chamber of Commerce.
I’m not making this up.
The Bush administration gleefully applauded as the newly-minted leaders dissolved the national assembly. The coup didn’t last long.
Friday, Chavez was out. Sunday, he was back.
And suddenly the Bush administration, which had called Latin American diplomats to a meeting and rationalized the coup as not a coup, well, suddenly Uncle Sam has egg all over his face.
We’ll talk about this with my guest tonight, Hernando de Soto. He’s one of Latin America’s most provocative thinkers and entrepreneurs, and the author, most recently, of THE MYSTERY OF CAPITAL.
He’s been sought out by governments the world over for his ideas on economic reform, including making the poor into capitalists.
In his native Peru, Hernando de Soto founded the Institute for Liberty and Democracy, acknowledged to be one of the most influential think tanks in the world.
Thank you for joining us today.
MOYERS: Help to us sort out what has happened in Venezuela over the last ten days.
DE SOTO: I would say that essentially it is all about finding out who can really help Venezuela develop the best.
And one of the problems that we have is that none of the sides seems to understand that the solution is not to see what you do with the oil, but what you do with poor people. Not because poor people need your help, but essentially because I am convinced, though I don’t have the hard numbers on Venezuela — I have them for other countries — that what poor people are producing in Venezuela today is a lot more than the value of their oil.
Traditional classes or empowered classes of Venezuela tend to talk about market economics but pay no attention to the fact that the majority of the people cannot enter the market economy because they don’t have the legal tools to do so.
That doesn’t of course create a majority of support.
And President Chavez, on the other hand, who seems to have a lot of concern for the poor, lacks the knowledge of the tools that are necessary to help the poor help themselves, which is the rule of law.
MOYERS: The rule of law, that’s been what you’ve been writing about, what you’ve been reporting, what you’ve been arguing for, for so long now.
DE SOTO: Yes, essentially what we are arguing is that what makes your economy in the United States great is essentially a legal construction.
What you have is a system of rules that allows you to accumulate capital, that allows to you trade with comparative advantage, that allows to you spread your wealth more evenly than happens in developing countries. But that’s not economics; that’s law.
And we have never emphasized law sufficiently as being the fundamental base of a market economy that provides equal opportunity for all.
MOYERS: What’s the most important thing one can do down there that would not only help the poor but help people like Chavez accomplish their goals?
DE SOTO: Well, it’s what you did in the United States starting in the 18th and 19th century, which is create a legal environment where people can become entrepreneurs, where people can increase the value of things through trade, and where you can actually create capital and use capital.
Those requirements, which are satisfied by property rights and the rule of law in general, is simply not accessible to the majority of the population in Venezuela or anywhere else in the third world, as a matter of fact. And that’s one of the main reasons of why all of us are poor.
MOYERS: I go all the way back to John F. Kennedy’s Alliance for Progress, 40 years ago when I was a young man in Washington. So many things have been tried and so many things have been failed in Latin America that nothing seems to work. The majority of the people remain poor.
How do you accomplish this worthy ambition you have of making capitalists out of them when so many of the powers that be — military, church, political authorities, oligarchs — are opposed to this?
DE SOTO: I don’t think that the majority of powers are opposed to the fact that the poor should become more prosperous. I think that they just don’t know. They don’t know that what actually makes good economics is good law.
A market economy, which is the environment which you Americans have produced wealth and so have the Europeans, and the Japanese, and the four Asian Tigers, is essentially a set of rules.
It’s like a chess game. You take away the rules and the chess game doesn’t work.
It’s like a football game. You take away the rules and there’s no football game.
The rules to make entrepreneurship among the poor prosper — entrepreneurship there is, it’s just not very prosperous — are simply not in place in Latin America. And if you look at even most of the assistance that you give abroad, it’s not directed towards creating the rule of law.
MOYERS: Where does it go?
DE SOTO: Oh, it goes to poverty relief, for example, all of which is, of course, welcome and very necessary. But it does not go towards creating the environment which allows the game of the market to work towards creating prosperity. And that’s the basic reason.
But for all practical effects, the majority of the people, whether it be Asia, Africa, or Latin America, are outside the system. They work in the black market. So they do not benefit of the rules and therefore cannot cooperate so as to create wealth. That is the main problem, and it’s taking us time to understand that.
MOYERS: Was it your insight? Did you think that Chavez wanted to go beyond the traditional leftist ideology in Latin America to reach toward the kind of steps towards market reform that you talk about and write about in THE MYSTERY OF CAPITAL?
DE SOTO: My impression is, although I’ve only met him for a few hours, my impression was that he was well intentioned, but that he didn’t have the appropriate tools to do it.
He was a little bit like Marx, more outraged about the inequality than familiar with what you do… had to do to create wealth.
I know that he was very interested in what we were doing, but it never got to the point that he started trying to implement it. It was just an interest of his. I think his outrage was stronger than his desire to objectively look for reform.
Hopefully, he has learned the lesson that outrage is important, but it’s not enough. We’re all outraged.
MOYERS: One can hardly blame Washington for wanting him out. I mean, he thumbed his nose at the U.S., he embraced Qaddafi and Hussein and Castro, he even opposed American efforts in Afghanistan. I mean, you can understand Washington’s frustration.
DE SOTO: I think there we will probably see some reforms or changes. At least, I hope so.
MOYERS: Now that he’s back in power. Well, yes, it’s a lesson…He’s got the message…
DE SOTO: Well, I suppose that if you’re a politician, the first thing you have to know is what the powers that roam the world are and how strong they are or not strong.
The symbols of talking to Qaddafi, the symbols of talking to Saddam Hussein, or embracing a Fidel Castro, and the rhetoric, all have costs.
And as a politician, he should be able to evaluate the costs.
I think most of that will change because I think he’s an intelligent man.
Anyhow, I certainly hope that Venezuela gets out of its dilemma as soon as possible.
MOYERS: What’s at stake there?
DE SOTO: Well, what’s at stake essentially like in all developing countries is that we’re all sitting on a potential explosion.
If you have 80% of the population that is not able to create prosperity and the 20% or 30% that more or less gets along and survives in a developing country, you’ve created the conditions that Marx sort of called “alienation” or the contradiction of class interests, that’s very explosive.
MOYERS: Well, I have appreciated your work because you remain optimistic, despite all evidence to the contrary and I like that about somebody who’s trying to bring about reform.
DE SOTO: But I’m not too sure that the evidence is to the contrary. You see, one of the things we do throughout the world is measure how much the… how many assets the poor have produced since the Second War until today.
MOYERS: What do you mean?
DE SOTO: What I mean is the following thing. We go into shanty towns, we go in shanty towns and look at the buildings, we survey them, we survey the businesses that are all working in the black market, extra legal market, or informal sector, if you wish, and we come out with results that are very hopeful.
MOYERS: Such as?
DE SOTO: Such as, for example, we’re working in Egypt with the Egyptian government and what we have discovered together is that the poor in that country own about 245 billion dollars in assets, which is about 55 times all foreign investment in Egypt over the last 200 years, including the Suez Canal and the Aswan Dam.
What I’m saying. basically, is the poor, if you look at them today, not necessarily through the Discovery Channel, which focuses on differences, not necessarily through the NATIONAL GEOGRAPHIC magazine, which can focus on contrast.
But if you compare them to where they were 50 years ago, they in fact have assets worldwide much larger than the 20 most prosperous stock exchanges of the Western world.
What happened is that they’re repressed. What happens is that they can’t be leveraged. What happens is that it can’t be globalized.
DE SOTO: They can’t be globalized because essentially to make a deal internationally, you’ve got to be able to make it according to the rule of law.
Let me explain. You want to export something from Venezuela to elsewhere, you need a bill of lading. The majority of the poor don’t even have a legal address. The majority of the poor in their enterprises are not even identified.< Their houses are not in the local records, as a result of which, they can’t even participate in the national economy. They participate in local economy.
So the question is how do you title poor people and their assets so they can enter the market, and that means credit and that means assets and that means the possibility of expanded sales.
Nobody drives 10,000 cows into the Chicago Mercantile Exchange.
What you bring are documents that indicate your ownership and the quality of the goods. And they have much more information than by looking at the cows themselves.
MOYERS: How do you bring the rule of law to those poor people? One reason I admire your work is that you go out and do your reporting, you go to the shanty towns, you go to the streets.
How do you bring rule of law when so many people in a society are opposed to it, except as it benefits them?
DE SOTO: Right. The first thing to understand about the law is that the law is discovered. It isn’t made.
What you did in the United States, as opposed to what many of your historians think, is you didn’t just import common law from Britain to here, but you started finding out how it worked at the grassroots level.
That’s what you did in California. The Miner Claims Association didn’t import the common law.
And a lot of the property in the West wasn’t built according to common law, but according to different legal preemption acts that Congress brought out to improvise to fit all the squatter population of the United States. And the people who violated the railroad grants and the people who didn’t really conform to the common law in the country.
So you restructured law according to what Americans understood.
Now, what happens in developing countries is simply that the law is a copy of Western law, but it has no local roots.
And therefore it is not recognized by people.
We have a tendency to copy law from Spain, which is a very different reality today from ours.
People, for example, from Peru, have looked at traffic law inside the country and realized that it is very bad traffic law. You know, it is about 11 deaths per bus in average in Peru. So they went to Zurich and saw that there were a lot many deaths. So they took the traffic statute to Zurich, translated it from SudDeutsch into Spanish and we’re still having the same amount of accidents because rules are brought up from people’s behavior.
And all those mechanisms that you have in the United States to make sure that the rules are understood by everybody and are borne from a consensus which constitutes the Social Contract, comment and notice periods, cost benefit analyst of the law, referendums, Congressmen or Congress persons elected by districts so that they’re accountable to specific people. That doesn’t exist in Latin America.
And that’s why the results are bad rules, because our democracy is not really a channel between the majority of the people and government.
What we do is get a chance in general once every five years or six years to elect a dictator, because once we’ve elected them, their powers are enormous.
There’s no way that you can control them.
In my country, for example…
DE SOTO: Peru.
The President of the country, once he’s elected, can actually — and in average since the Second World War — actually makes 28,000 laws a year. That’s 106 a day.
Without comment and notice periods, without referendums, without free publication of the drafts, without in any way being accountable for the population. He’s got a checkbook.
Now, what happens is we all look at him and say, he was elected, yes, he was elected.
But democracy is more than just getting elected. Democracy is keeping people in control and accountable and their acts transparent.
MOYERS: What’s the best thing we could do right now to meet the world situation, as it seems to be, exploding?
DE SOTO: Well, the first thing is let’s talk about responsibility. Development is essentially the responsibility of developing countries. It’s not the responsibility of the United States. It is not the responsibility of Western Europe or Japan.
It’s up to us, because putting in the rule of law, that’s a system of market mechanisms that is amenable to the poor, that allows them to commit, is essentially a national and sovereign responsibility.
Now, what you have to do if you really want to help us, is put teeth into that, which means pass from the rhetoric to actually give an idea of how it should be done or start the debate on how it should be done.
And that will allow many people in our countries who are unfortunately just blindly follow whatever happens in the West, you’re so glamorous, you’re so powerful, you’ve been so successful, and that will allow us to redirect the reference to creating the kind of democratic institutions which create prosperity. Because at the end, property is based, to an enormous degree, on democracy.
MOYERS: Thank you very much, Hernando de Soto, THE MYSTERY OF CAPITAL.
DE SOTO: Thank you, sir.
NARRATOR: Stories coming up on npr radio this weekend.
SCOTT SIMON: Hi, I’m Scott Simon of NPR NEWS.
Tomorrow on your radio, we’ll follow the proceedings inside and protests outside at the IMF meeting in Washington, D.C.
Scott Turow talks about some of the reforms he helped propose this week to the death penalty in Illinois.
And tape of a remarkable moment, a prayer service in the Bergen-Belsen Concentration Camp as it was liberated 57 years ago.
To find your local public radio station, check our web site, npr.org.
Hope you can join us.
MOYERS: On this night, in 1865, mourners in Washington, D.C. wound their way up Pennsylvania Avenue bearing the casket of the assassinated President, Abraham Lincoln.
Just a few days earlier, the Confederacy had surrendered at Appomatox.
All these years later, stories of the Civil War continue to fascinate us.
One of those stories is the subject of our essay this evening by NPR’s cultural correspondent, Vertamae Grosvenor, herself a native of the South Carolina Low Country.
Her subject is Mary Bowser, a slave who secretly helped Abraham Lincoln and the Union.
VERTAMAE GROSVENOR: Mary Bowser was born a slave of John Van Lew, a wealthy merchant who lived in Richmond, Virginia. When he died, his daughter Elizabeth freed Mary and all his other slaves
Elizabeth Van Lew, who never married, was known as an eccentric who sometimes walked down the streets of Richmond, head bent to one side, holding conversations with herself. Some called her “Crazy Bet.”
“Crazy Bet” inherited a lot of money. She used some of it to send Mary to school up North and later used her social connections to get Mary a servant’s job — in President Jefferson Davis’ Confederate White House. Mary appeared to be hard-working, but dull-witted and uneducated. She was, in fact, a spy.
Daily tasks could hide secrets — in a basket of eggs; one empty shell filled with military plans; a tray loaded with food and messages concealed in its false bottom; laundry hung on the line in code. A white shirt next to an upside-down pair of pants meant “General Hill moving troops West.”
As Mary Bowser dusted and served she used her photographic memory to record military documents she found on the President’s desk and conversations she overheard in the dining room.
When the war between states ended General Grant paid tribute to “Crazy Bet” and her effort to the Union’s cause but Mary Bowser’s story went largely untold.
More then a century later during Black History Month, a soldier’s daughter read a pamphlet about Mary Bowser, showed it to her father — who showed it to his commander, who researched the story.
In June, 1995, Mary Bowser was inducted into the US Army’s Intelligence Hall of Fame.
JACK WELCH, FORMER CHAIRMAN OF GENERAL ELECTRIC:: Jack Welck wants the Hudson cleaner. Very much wants The Hudson cleaner. I know how to clean it.
MOYERS: But if this was put to a vote, Jack.
WELCH: I’d lose.
MOYERS: That was Jack Welch, a few months ago, when he was still Chairman of General Electric.
Jack Welch is one of the people you’ll meet in our PBS documentary special AMERICA’S FIRST RIVER to be broadcast next week.
It’s quite a river, the Hudson, flowing from near the Canadian border down past New York Harbor to the Atlantic.
And it’s quite a story we report, from the American Revolution to the epic battle between Jack Welch and people up and down the Hudson who fought him tooth and toenail over PCBs dumped in the river by G.E..
The good news is that the Hudson is no longer on the list of America’s Most Endangered Rivers.
The bad news is that many of our other famous rivers are still in trouble.
A list of America’s most endangered rivers has just been published, in time for Earth Day next Monday.
First on the list, Lewis and Clark’s mighty Missouri, touching seven states.
Then there’s the Sunflower River in Mississippi, the Klamath in California and Oregon, the Kansas, the Powder River in Wyoming, the Altamaha in Georgia, the Allagash in Maine, the Canning in Alaska, the Guadalupe in Texas, and the Apalchicola in Florida.
But all is not yet lost.
What happened on the Hudson can happen elsewhere, if people love something enough to fight for it.
You can see it for yourself in our upcoming documentary, AMERICA’S FIRST RIVER.
Here’s an excerpt.
MOYERS: The Hudson River, America’s First River.
GENERAL DAVE PALMER: We’re standing right smack at the strategic center of the American Revolution.
General Washington called it the key to the continent.
MOYERS: For 200 years, writers and painters flocked to the Hudson Valley like migrating birds, captivated by the grandeur of the mountains and the river’s ever-changing moods and mists and light.
Their paintings gave us the American landscape.
BARBARA NOVAK, ART HISTORIAN: Everywhere I looked. Every bit of research that I unearthed yelled, “God!” It was the most amazing thing.
MOYERS: It was where writers gave us America’s first stories, and it was in the Hudson Valley we began the slow awakening to the perils we pose to nature.
BILL MCKIBBEN, AUTHOR OF THE END OF NATURE: What’s really interesting, this place is that it’s the story of redemption. It’s a story of Eden lost and then regained.
MOYERS: The Hudson Valley is where we found America the beautiful, and almost lost it.
MOYERS: Remember pbs.org for more about AMERICA’S FIRST RIVER, airing next Tuesday and Wednesday on your public television station, and for more about the endangered river near you.
For now, I’m Bill Moyers.
This transcript was entered on March 18, 2015.