(2025-01) Rapò Dyagnostik Gouvènans - Ayiti

TECHNICAL ASSISTANCE REPORT HAITI Governance Diagnostic Report JANUARY 2025 Prepared By: Ms. Tina Burjaliani, Ms. Ivana Rossi, Ms. Paula Paixao e Silva Zarazinski, Mr. André Benjamin Kahn (LEG); Mr. Anthony Ramarozatovo, Mr. Jean Pierre Nguenang, Mr. Abdoulahi Mfombouot (FAD) Authoring Departments: Legal Department Fiscal Affairs Department Monetary and Capital Markets Department DISCLAIMER The contents of this document constitute technical advice provided by the staff of the International Monetary Fund to the authorities of Haiti (the "CD recipient") in response to their request for technical assistance. This document (in whole or in part) or summaries thereof may be disclosed by the IMF to the IMF Executive Director for Haiti, to other IMF Executive Directors and members of their staff, as well as to other agencies or instrumentalities of the CD recipient, and upon their request, to World Bank staff, and other technical assistance providers and donors with legitimate interest, unless the CD recipient specifically objects to such disclosure (see Operational Guidelines for the Dissemination of Capacity Development Information). Publication or Disclosure of this report (in whole or in part) to parties outside the IMF other than agencies or instrumentalities of the CD recipient, World Bank staff, other technical assistance providers and donors with legitimate shall require the explicit consent of the CD recipient and the IMF’s Legal department, Fiscal Affairs Department and Monetary and Capital Markets department. Table of Contents ACRONYMS AND ABBREVIATIONS _________________________________________________________3 PREFACE_______________________________________________________________________________________5 EXECUTIVE SUMMARY _______________________________________________________________________7 SECTION I. SEVERITY OF CORRUPTION AND ITS IMPACT ON HAITI’S FRAGILITY _____ 14 A. Analysis of Severity of Corruption_________________________________________________________ 14 B. Relationship Between Corruption on Fragility in Haiti ____________________________________ 20 SECTION II. RULE OF LAW, ANTI-CORRUPTION AND ANTI-MONEY LAUNDERING FRAMEWORKS______________________________________________________________________________ 23 A. Impact of Corruption on The Rule of Law: Judicial Integrity ______________________________ 23 B. Effectiveness of Anti-Corruption and Anti-Money Laundering Frameworks ______________ 26 SECTION III. GOVERNANCE WEAKNESSES LINKED WITH CORRUPTION VULNERABILITIES IN FISCAL GOVERNANCE___________________________________________________________________ 32 A. Revenue Administration___________________________________________________________________ 32 B. Public Financial management _____________________________________________________________ 42 SECTION IV. GOVERNANCE WEAKNESSES IN FINANCIAL SECTOR OVERSIGHT _______ 52 A. Overview of the financial sector___________________________________________________________ 52 B. Governance of the Supervisory Authority _________________________________________________ 53 C. Prudential regulation and oversight of the FI governance ________________________________ 54 ANNEXES____________________________________________________________________________________ 56 1. Anti-Corruption Institutions _______________________________________________________________ 56 2. Location of Customs Offices and Trends in Number and Value of Goods Released for Consumption or Admitted under Suspensive Regime_______________________________________ 58 3. Procedures and Timeline for Response by the Government and Taxpayer_______________ 59 4. Organizational Structure of the Directorate General for Budget __________________________ 60 5. Economic Governance Reform Plan _______________________________________________________ 61 BOXES 1. The PetroCaribe Case______________________________________________________________________ 15 2. Key Political Economy Actors in Haiti _____________________________________________________ 17 3. Multilateral and Unilateral Sanctions ______________________________________________________ 19 4. Proposed Structure of the AC Pôle________________________________________________________ 30 5. Priority recommendations for programming and budgeting public investments_________ 44 6. Haiti - Monitoring of government nonfinancial assets ____________________________________ 47 IMF | Technical Assistance Report – Haiti Governance Diagnostic Report | 1 7. Haiti – Public Procurement ________________________________________________________________ 49 FIGURE 1. Perception of corruption ____________________________________________________________________ TABLES 1. Priority Recommendations ________________________________________________________________ 13 2. DGI. Number of Taxes and Share of Tax Revenue Collected ______________________________ 34 3. Table of Priority Recommendations _______________________________________________________ 61 IMF | Technical Assistance Report – Haiti Governance Diagnostic Report | 2 Acronyms and Abbreviations AC Anti-Corruption AML Anti Money Laundering ADG General Customs Administration APB Professional Association of Banks BAFE Office of Financial and Economic Affairs BCP Basel Core Principles BRH Bank of the Republic of Haiti (Central Bank) BPH Banque Populaire Haïtienne CPI Corruption Perception Index CSCCA Court of Accounts and Administrative Disputes CSPJ High Judicial Council DACIP Directorate of Analysis and Monitoring of Public Investments DCF Directorate of Financial Control DIF Tax Inspection Directorate DIV Public Investment Directorate DNFBP Designated Non-Financial Business and Profession DPD Expenditure Programming Paper DSBIF Directorate of Supervision of Banks and other Financial Institutions DIGCP Directorate of General Inspection of Credit Unions DGB Directorate General of Budgets DGI Directorate General of Taxes DZF Free Trade Area Directorate EMA National School of Magistrates FIs Financial Institutions FCS Fragile and Conflict-affected State GD Governance Diagnostic GDP Gross Domestic Product GFCF Gross Fixed Capital Formation HNP Haitian National Police IMF International Monetary Fund IGF General Finance Inspectorate LEELF Law on Preparation and Execution of Finance Law MLA Mutual Legal Assistance IMF | Technical Assistance Report – Haiti Governance Diagnostic Report | 3 MPCE Ministry of Planning and External Cooperation MSS Multinational Security Support Mission PEP Politically Exposed Person PI Public Investment PFM Public Financial Management PPM Public Procurement Plan RGCP General Public Accounting Regulations STR Suspicious Transaction Report TSA Treasury Single Account UCREF Unité Centrale de Renseignements Financiers (Financial Intelligence Unit) ULCC Unité de Lutte Contre la Corruption UNCAC United National Convention Against Corruption UNHCHR United Nations High Commissioner for Human Rights IMF | Technical Assistance Report – Haiti Governance Diagnostic Report | 4 Preface At the request of the authorities of Haiti, a Governance Diagnostic (GD) mission was conducted by the International Monetary Fund (IMF) staff during September-December 2023. The GD was launched by an inter-departmental1scoping mission held on September 11-15, 2023, followed by the main mission, which was conducted in two parts: a virtual mission on November 27 - December 1st, 2023, and an off-site mission in Panama on December 11-15, 2023.2 These missions were followed and complemented by extensive desk review of available reports and studies. The mission team benefited from discussions with international organizations and development partners of Haiti, governmental and non-governmental stakeholders and advice of short-term experts on political economy of corruption in Haiti. The mission was guided by IMF’s 2018 Framework on Enhanced Fund Engagement on Governance3(2018 Framework) and 2022 Strategy on Fragile and Conflict Affected States (FCS).4 The 2018 Framework aims to promote more systematic, effective, candid, and evenhanded engagement with member countries regarding governance and corruption issues that are critical to macroeconomic performance. The FCS Strategy requires IMF staff to factor corruption risks in defining policy priorities in the FCS context. GDs are designed to assess the severity of corruption risks, identify macro-critical governance weaknesses associated with corruption vulnerabilities in key state functions provided by the 2018 Framework,5 and propose concrete reform measures. GDs also consider the soundness and alignment of the legal and organizational arrangements for fighting corruption with international standards and good practices, and the appropriateness of the anti-corruption strategies in light of the corruption risks that are present in the key state functions. 1IMF’s Legal Department, Fiscal Affairs Department and Monetary and Capital Markets Department conducted the GCD in close coordination with the Western Hemisphere Department. 2 Due to Haiti’s rating as a category 3 High Risk Location, an in-person mission takes place off-site. Panama was selected taking into consideration the simplified visa requirement (e.g., citizens of Haiti with service passport can travel without visa) and available flights. 3IMF Framework on Enhanced Fund Engagement on Governance, 2018. 4IMF Strategy for Fragile and Conflict-Affected States, 2022 5 The 2018 Framework identifies the following key state functions: fiscal governance, central bank governance and operations, financial sector oversight, market regulations, anti-money laundering (AML), and rule of law (judicial integrity, enforcement of contracts and protection of property rights.) The exact scope of a GCD is defined by the IMF staff in consultation with the authorities and other stakeholders. The GCD focuses on the governance weaknesses in the key state functions associated with corruption. IMF | Technical Assistance Report – Haiti Governance Diagnostic Report | 5 GDs are forward-looking exercises focused on identifying ways to strengthen governance and integrity in order to support strong, stable, and inclusive economic development. The analysis and recommendations of diagnostics do not cover individual corruption cases or allegations, but structural policy issues, as well as near and longer-term reform measures. Since the adoption of the 2018 Framework, 20 GDs have been completed with the issuing of a final report, and several assessments are underway. The mission for Haiti was led by Ms. Tina Burjaliani and comprised of Ms. Ivana Rossi, Ms. Paula Paixao e Silva Zarazinski, Mr. André Benjamin Kahn, Mr. Anthony Ramarozatovo, Mr. Jean Pierre Nguenang, Mr. Abdoulahi Mfombouot and Mr. Patrick Le Clerc. The mission was assisted by short-term political economy experts Dr. Robert Muggah, Professor David Carment and Ms. Alexandra Wishart. The mission wishes to express its sincere appreciation for the support and cooperation provided in this challenging environment by officials and staff of various Haitian public institutions, Ms. Vanette Vincent and others at the Ministry of Economy and Finance (MEF) of Haiti who coordinated the authorities’ engagement with the mission. The mission is grateful to civil society, academia, legal professionals, private sector representatives, staff of international organizations, and bilateral and multilateral donors for sharing information and providing valuable insights. The mission appreciates the support provided by Ms. Patrizia Tumbarello (Mission Chief for Haiti, IMF), Mr. Jean Frederic Noah Ndela Ntsama (deputy Mission Chief for Haiti, IMF), Mr. Arsene Kaho (Senior Economist, WHD), Gabriel Berny Duvalsaint (Economist, IMF). The mission is thankful for the administrative coordination provided by Ms. Alexandra Rajs and Ms. Young Kim. IMF | Technical Assistance Report – Haiti Governance Diagnostic Report | 6 Executive Summary Haiti is a fragile state with a population of approximately 11 million, about half of which resides in the capital Port-au-Prince and its surroundings. Haiti shares a 390-kilometer land border with the Dominican Republic. Currently, Haiti is the poorest country in the Latin American region in terms of per capita income and one of the poorest countries globally.6In recent years, more than half of Haiti's population has shifted from rural to urban areas. Poverty and lack of basic services have led to a large-scale deforestation, degradation, and soil erosion, with forested areas now constituting only 12.6 percent of the country as of 2020.7 The continued decline of arable land poses a long-term threat to Haiti’s economy due to its heavy dependence on agriculture. Over 96 percent of Haiti’s population is exposed to natural hazards, including hurricanes, floods, and earthquakes.8 Climate change-induced migration has placed increased pressure on urban areas, as displaced populations seek new homes and opportunities. Access to basic services, such as sanitation, clean water, healthcare, education, has been deteriorating, especially since the 2010 earthquake and the 2016 Hurricane, both of which devastated Haiti’s infrastructure and economy. The 2021 earthquake restressed already ruptured faults. This is particularly problematic considering Haiti’s lack of preparedness to absorb such shocks. A lack of security and violence have been identified as some of the most significant overarching challenges, and key contributors to Haiti’s fragility. Violence has been a major trend throughout the last few decades in Haiti, though it has intensified in recent years. The diminishing security is attributed to increased violence by gangs, some of which are reportedly affiliated with several influential members of political and economic elite.9 Gang actions range from assassinating10 and kidnapping key figures to the disruption of public and private institutions. For example, in June 2022, a gang took control of Port-au-Prince’s Palace of Justice, “forced judicial officials out, injured a prosecutor, and stole computers, desks, and other assets.”11 Between September and November 2022, another gang took control of the Varreux terminal–a key fuel depot in Haiti–and imposed a two-month fuel blockade in response to a decree which cut fuel subsidies.12 Gang violence intensified further in 6 Haiti Overview: Development news, research, data | World Bank 7Id. 8Jérémy Cotton, Mark Hammel, Luna Noofoory, 2023 Haiti Fragility Brief, Carlton University, NPSIA 9 Since November 2022, the U.S. and Canada have imposed dozens of sanctions on Haitian politicians and businessmen over drug trafficking and gangsterism, the most significant bilateral sanctions regime in the country’s history. See U.S. Imposes Sanctions on Two Haitian Politicians over Drug Trafficking, Reuters, December 2, 2022, sec. Americas. https://www.reuters.com/world/americas/us-imposes-sanctions-two-haitian-politicians-over-drug-trafficking-2022- 12-02/ ; Robertson, Dylan, Canada Imposes Sanctions on Three of Haiti’s Wealthiest People, Accuses Them of Empowering Gangs, The Globe and Mail, December 5, 2022. 10 Assassination of President Jovenel Moïse in July 2021 is one of the recent acts of political violence. 11 Human Rights Watch, Haiti: Wave of Violence Deepens Crisis, (blog), July 22, 2022; at https://www.hrw.org/news/2022/07/22/haiti-wave-violence-deepens-crisis. 12 Luxama, Pierre-richard, Key Fuel Depot in Haiti Reopens for 1st Time since September, November 8, 2022, at https://www.ctvnews.ca/world/key-fuel-depot-in-haiti-reopens-for-1st-time-since-september-1.6144640. IMF | Technical Assistance Report – Haiti Governance Diagnostic Report | 7 January 2024. The violence that broke up on February 29 in Port-au-Prince led to prison breaks, throwing the capital and its neighboring areas into more insecurity. More than 2,500 people were killed or injured during January-March 2024, according to the UN, and nearly 95,000 people have fled Port-au-Prince during the same period. The number of Haitian refugees and asylum seekers had increased to half a million by May 2024.13 The country’s main port where most goods and products transit, was looted. The Varreux terminal was blocked by gangs, raising concerns about fuel shortages.14 The violence disrupted economic activities across the city, further destabilizing already very fragile system of basic services delivery in Haiti. Creating security conditions conducive to an inclusive political process, and free and fair elections remains a priority.15 The deployment of the first contingent of the UN Security Council-approved Multinational Security Support (MSS) Mission, led by Kenya, creates a momentum for a stabilization. The MSS mission, approved in October 2023,16 was initially scheduled for deployment as early as January 2024. However, the initial plan for earlier deployment was derailed due to the sharp deterioration of security situation followed by the resignation of the Prime Minister in February 2024. Approximately 1,000 Kenyan police officers along with additional 2,000 personnel from other countries will operate in coordination with the Government of Haiti, with financial support from voluntary donations managed by a UN trust fund.17 As an urgent temporary measure, the mission was requested in response to the increasing violence, criminal activities, and human rights violations undermining peace, stability, and security. The MSS Mission is expected to protect state institutions as well as critical infrastructure and transport hubs, and work with the Haitian National Police (HNP) to deter gangs. Further clarity over the mission’s goals and rules of engagement, the establishment of robust oversight mechanisms, and a detailed handover plan will be critical to ensuring the mission can effectively support Haiti while paving the way for long-lasting peace and security. A major concern however is the entrenched corruption vulnerabilities within the HNP, which may severely undermine the effectiveness of the MSS and other efforts to stabilize the country and maintain public order.18 Haiti’s political system has been susceptible to shocks, characterized by short presidencies and prolonged periods of instability. Although some progress has been made in establishing representative institutions of government in recent decades, the system remains vulnerable.19 Haiti is 13 Some 362,000 people are currently displaced in the country, up from 314,000 at the end of 2023. See Haiti Emergency Situation Report No. 4 (As of 8 March 2024) - Haiti | ReliefWeb 14 Id. 15 Security Council Press Statement on Haiti | Meetings Coverage and Press Releases 16 There have been over six United Nations missions in Haiti16 since the 1990s, and a new UN-sanctioned multinational security force is expected to be deployed in 2024. The United Nations Stabilization Mission in Haiti (MINUSTAH), which ended in October 2017, was not fully successful in stabilizing Haiti politically, although the presence of MINUSTAH coincided with an increase in Haiti’s GDP.16 After the expiry of MINUSTAH, the United Nations Integrated Office in Haiti (BINUH) was launched in June 2019.16 17 S/RES/2699 (2023) | United Nations Security Council 18 See Muggah, Robert, Haiti’s Criminal Markets, 2023; UNODC Report, https://www.unodc.org/documents/data-and analysis/toc/Haiti_assessment_UNODC.pdf Haiti’s Gangs: Can a Foreign Mission Break Their Stranglehold? | Crisis Group 19 Haiti: Pathways to Responding the Recurrent Crisis and Chronic Fragility, Systematic Country Diagnostic Update June 2022, International Bank for Reconstruction and Development / The World Bank. IMF | Technical Assistance Report – Haiti Governance Diagnostic Report | 8 a presidential republic with national elections, which have been consistently contested as illegitimate. Of the fifty-four Presidents elected since 1806, only nine completed the full term.20 The Haitian National Assembly is a bicameral institution composed of the Senate and the Chamber of Deputies. According to the amended 1987 Haitian Constitution, the Prime Minister is appointed by the President while the Assembly has the duty of ratifying the policies of the Prime Minister and Cabinet. There have been no elections in Haiti since 2016. The country has had no sitting parliament since 2020 and no President since the assassination of President Moïse in 2021. The Prime Minister’s office has governed by decree. Elections that were scheduled for February 2024 were postponed on the grounds that conditions were not safe enough. The appointment of a new interim Prime Minister and the Cabinet of Ministers has renewed prospect for stabilization. A nine-member transitional Presidential Council (seven members of which have voting rights) was officially established on April 25, 2024, with support from the Caribbean Community. The Council will serve as the country’s presidency until February 7, 2026, with the chair rotating among the seven members. A new interim Prime Minister was appointed on May 27, 2024 and the transitional government was installed on June 11, 2024. The interim government is expected to remain in power until February 7, 2026, with the mandate to restore security, and implement constitutional reforms. General elections are planned for the end of December 2025, marking the first elections since 2016. The GD requested by the authorities in May 2023, and supported by the current administration, analyze the most critical governance weaknesses and corruption vulnerabilities and proposes reforms. Based on a political economy analysis, the GD examines the nature and severity of corruption, its role in Haiti’s fragility, and its impact on the effectiveness of anti-corruption and anti-money laundering (AML) frameworks, as well as the rule of law (particularly judicial integrity). The GD also discusses governance weaknesses associated with corruption vulnerabilities in the fiscal governance and financial sector oversight - the priority areas of the key state functions identified during the scoping mission in consultation with the authorities and the other stakeholders. The GD does not cover central bank governance and operations, another important key state function provided in the 2018 Framework, but IMF staff is engaged with the authorities on this matter in a separate format. A recurring concern with respect to anti-corruption and anti-money laundering efforts is their uneven enforcement. At the most basic level, key laws, regulations and standards are not enforced owing to a lack of independence from elite interferences, insufficient capacity and resources. The legal and institutional frameworks are inadequate to address the existing risks and vulnerabilities. Impunity has been the norm for some time and has gotten worse in the last few years. For example, the official procedures required by the Constitution such as the declaration of assets by senior public officials have never been fulfilled and not a single high-ranking official has been prosecuted for corruption offences, despite multiple investigations launched and referred to the judiciary by the anti-corruption unit (ULCC). Specific governance weaknesses and associated corruption vulnerabilities in the areas covered by the diagnostic are summarized below: 20 Buss and Adam Gardner, Haiti in the Balance, Brookings Institute Press, 2008, at Inside.qxd (carleton.ca) IMF | Technical Assistance Report – Haiti Governance Diagnostic Report | 9 • Despite the progress made in Public Financial Management (PFM), especially in the areas of publication of multi-year fiscal and budget frameworks (structural benchmark under the IMF-supported Staff Monitored Program), preparation of cash management tools, gradual consolidation of the treasury single account (TSA), major governance weaknesses and vulnerabilities to corruption remain. These weaknesses and vulnerabilities are present in the critical areas such as (i) budget preparation/programming and public investments (PI) budgeting, (ii) budget execution and cash management, (iii) public procurement, (iv) fiscal reporting, and (v) internal and external audit. • Despite the recent reforms introduced by the new Tax and Customs Code, the tax and customs administrations remain vulnerable to arbitrariness and corruption, due to the complex system, inequitable processes and the low level of digitalization. Overall lack of transparency and accountability, weak integrity standards and oversight mechanisms leave officials and executives of tax and customs administrations exposed to corruption risks, despite the initial efforts to digitalize the main customs procedures. The legal and institutional frameworks for Financial Sector Oversight are largely in line with international standards (Basel Core Principles for Effective Banking Supervision 1 and 2 in particular), but their implementation has been severely affected by the deteriorated security situation and the associated loss of capacity attributed to the staff departures. The finalization of the prudential regulations and other projects, such as the risk-based supervision, are being slowed down, but not abandoned. While, according to the BRH, off site and on-site supervision has been maintained, it is difficult to sustain effectiveness and appropriate scope. • The Anti-Money Laundering (AML) framework has been recently upgraded but its effectiveness is yet to be demonstrated. In September 2023, a new Decree was adopted aiming at reinforcing the operational autonomy and independence of the Financial Intelligence Unit known as UCREF (Unité Centrale de Renseignements Financiers) providing it with a clear mandate to conduct operational and strategic analyses on ML and predicate crimes, and ensuring it has the power to cooperate and share information with domestic and international counterparts. Additionally, an April 2023 Decree (discussed below) which overhauled the broader AML/CFT framework, gives tools to prosecutors and investigative judges to effectively investigate financial crimes. It also mandates preventive measures with regards to politically exposed persons (PEPs) and their family members and close associates, as well as measures to ensure greater transparency of the beneficial ownership (BO) of legal persons. Concurrently, the Central Bank has issued several circulars and guidance documents, which aim at fostering the implementation of AML preventive measures, including with respect to PEPs. Despite the security challenges, the internal training of inspectors and awareness-raising among financial institutions about their obligations under the new AML framework has improved, a new supervision unit dedicated to microfinance institutions has been created, and on-site inspections of two banks were carried out since September 2023. However, these recent improvements in the AML legal framework have not yet led to a significant increase of effectiveness across all AML authorities. Factors such as corruption, human resources constraints, insufficient training of personnel and the degraded security situation, impact the work of UCREF, the judiciary and, though to a lesser extent, the Central Bank. IMF | Technical Assistance Report – Haiti Governance Diagnostic Report | 10 • The Rule of law is weak and judicial integrity is severely impacted by corruption vulnerabilities. The legal framework related to judicial appointments and promotions allow the process to be influenced by political connections and patronage, undermining merit-based selection processes. Key stakeholders in Haiti note the absence of a robust professional ethical culture, including among judges, court staff, and law enforcement personnel. There is a common concern that this is exacerbated by low salaries and poor working conditions, all of which increases the likelihood of bribery. As a result, there is a low level of public trust and loss of confidence in the judiciary’s ability to deliver impartial justice. Measures to prosecute corruption committed by influential individuals virtually always fail. Cases are frequently prematurely closed, delayed or blocked. These governance weaknesses and associated corruption vulnerabilities appear within the environment of instability, weak institutions, weak rule of law and accountability systems. The relationship between fragility and governance weaknesses, particularly those associated with corruption vulnerabilities, is complex in Haiti. Political instability and a lack of security have negative impact on the institution-building and their effective operation. However, there are pockets of excellence within the public sector that should be supported and leveraged to strengthen governance, reduce corruption and help put Haiti on the path to overcome fragility. Strengthening governance and reducing corruption vulnerabilities are essential for Haiti to exit fragility. Building basic institutional capabilities can help raise public confidence, thereby enhancing the legitimacy and effectiveness of the institutions. Together, the proposed reforms can improve legal and institutional frameworks related to economic governance and contribute to sustainable inclusive growth. The IMF’s FCS Strategy calls for a tailored approach and careful prioritization, determined by an analysis of the country’s specific context, institutional constraints to reform implementation, the distribution of corruption rents. and political economy considerations.21 The mission recognizes that improved security and a political settlement with a potential to result in a legitimately elected government are necessary conditions for the sustainability of the proposed reforms. Therefore, the mission encourages the authorities to take all necessary measures to restore security and build political stability in accordance with the Constitution of Haiti and the UN SC Resolution 2699. Addressing pervasive corruption, strengthening governance, the rule of law and accountability cannot be achieved in the context of endemic violence, where legitimacy of state institutions is undermined. Consequently, the authorities should make every effort to rebuild security and political stability while pursuing the proposed reforms. Strategic engagement by the international community and development partners - focused on institution-building through country-tailored carefully prioritized reforms - can support Haiti’s domestic efforts of breaking fragility. Recognizing the need to prioritize and sequence reforms, a set of Priority Recommendations is outlined in Table 1 as the foundation for more comprehensive economic governance reforms, which are detailed in Annex 5. These recommendations align with the nature, severity, and risks of corruption, aiming to reverse the legacy of impunity and promote transparency and 21 IMF FCS Strategy, 2022 IMF | Technical Assistance Report – Haiti Governance Diagnostic Report | 11 accountability in the public sector. They are informed by political economy analysis and recognize the need for extraordinary measures to rebuild legitimacy and public trust in institutions, as well as for creating momentum for economic governance reforms. These priority recommendations, as detailed in the sections that follow, have the potential of creating a sufficiently effective foundation for implementing the reforms outlined in the Economic Governance Reform Action Plan in Annex 5. IMF | Technical Assistance Report – Haiti Governance Diagnostic Report | 12 Table 1. Priority Recommendations Measure Authority and the required action Objective Timeline22 1 Create, on the basis of existing anti-corruption institutions, and operationalize an Anti-Corruption Pôle - an ad hoc mechanism - to investigate and prosecute the most significant corruption, organized crime and money laundering cases, including those involving PEPs. (See Box 4 for the framework) The PM should issue a Decree creating the AC Pôle. Other relevant agencies, such as MEF, ULCC, UCREF, HNP, Ministry of Justice, Judiciary and Prosecution should participate. Strengthen accountabili ty for corruption ST 2 Facilitate investigation of laundering of proceeds of Haitian corruption and organized crime abroad by, in particular, - Strengthening legal framework to align domestic legislation on criminalization of corruption and related offenses with the UNCAC - Collecting and publishing online asset declarations of all senior officials including in the judiciary and law enforcement, as well as candidates for senior public offices. Mandate the disclosure of assets and interests (including bank accounts) held directly and through beneficial ownership abroad. - Strengthening the legal and institutional framework for MLA in respect to all offenses established in accordance with UNCAC - Concluding agreements to enhance legal basis for MLA in all offenses established in accordance with UNCAC and enhance implementation capacity of judicial officials. Revising the legal framework requires Parliament’s action, Meanwhile, PM, ULCC, UCREF, MOJ, Judiciary are advised to take all necessary measures to enforce existing legal framework, and prepare the necessary amendments to address its shortcomings Strengthen accountabili ty for corruption and ML MT 3 Based on the corruption risks identified in the customs and tax administrations, develop, implement and monitor a strategy to promote integrity and reduce illegal activities through customs and tax administrations. PM and MEF should lead the process of developing and monitoring the strategy, which is based on an independent, reputable study of corruption risks in the customs and tax administrations. Strengthen revenue administrati on reduce risks of corruption ST 4 Work with international development partners, civil society organizations and private companies to ensure greater coordination, transparency, accountability and efficiency in foreign assistance management. In particular, encourage all domestic and international implementing partners to produce data in line with the International Aid Transparency Initiative standards,23 and make the information public; PM and MEF Strengthen transparenc y, integrity and efficiency in internationa l aid ST 5 Mandate ex ante evaluations for all internally financed projects and make them public, while strengthening the project selection framework. MEF and Ministry of Planning and External Cooperation Strengthen planning, allocation in PIM ST 6 Strengthen public financial management by - Reinstate the financial controller’s prerogatives about a priori control of public investment expenditure, (ST) - adopt a budgetary control guide (MT) - adopt a renovated expenditure execution manual.(MT) MEF Strengthen transparenc y and accountabili ty in PFM ST/MT 7 Strengthen the governance of the BRH as banking supervisor. In particular - Revise the decision-making structure and process related to banking supervision to ensure independence and transparency; (MT) - Meanwhile, as a provisional measure, pending legal amendments, delegate the supervisory decision-making powers to a specialized committee of the BRH Council (ST) Revising the legal framework requires Parliament’s action. Meanwhile, BRH Board should delegate the power by a Board decision. Strengthen financial sector oversight and reduce corruption risks ST/MT 22 The recommendations are classified as Immediate – to be implemented in up to 6 months, ST – Short Term to be implemented in six to twelve months, MT – Medium Term that may require up to 24 months. 23 See IATI Standard - iatistandard.org IMF | Technical Assistance Report – Haiti Governance Diagnostic Report | 13 Section I. Severity of Corruption and its Impact on Haiti’s Fragility This section based on political economy analysis, examines the severity of corruption in Haiti and how it relates to the country’s fragility. The core structural elements of fragility - authority, legitimacy, and capacity – are collectively known as ALC.24 Fragile countries typically display low levels of administrative capacity, limited provision of rule of law and basic services to the population, and high levels of social polarization.25 As a result of the uneven delivery of public goods, elite capture or corruption, governments in FCS are generally lacking public trust and legitimacy.26 In many FCS, weak governance and high level of corruption are among the key drivers of fragility.27 Corruption has been named as a major contributor to poor capacity of state institutions in Haiti, which has impact on both authority and legitimacy of the institutions and therefore contributes to the fragility.28 A. ANALYSIS OF SEVERITY OF CORRUPTION Corruption vulnerabilities have profound impact on Haiti’s macro-economic stability, inclusive economic growth and fragility. While there are examples of successful reforms and resilient public institutions, governance weaknesses and corruption vulnerabilities still permeate most parts of Haitian public sector and economy. The magnitude of the corruption is confirmed by several overlapping indices. Haiti scores 17/100 in the Transparency International’s 2023 Corruption Perceptions Index (TPI).29 The TPI score has remained largely unchanged in the last Figure 1: Perception of Corruption (by TI) Source: TI CPI 2023 24 David Carment, Joe Laundry, Yiagadeesen Shamy and Scott Shaw, Towards a Theory of a Fragile State Transition : Evicence of Yemen, Bangladesh, Lao, 2015, Third World Quarterly, 36:7, 1316 1332, DOI: 10.1080/01436597.2015.1037830 25 FCS Strategy, IMF 2022 26 Id. 27 Id. IMF 2022 recognizes that many FCS end to be the lowest performing in the Worldwide Governance Indicators (WGI) and in Transparency International’s Corruption Perception Index, and factors corruption and weak governance in the Fund’s engagement. 28 See for instance, Robert Muggah, Haiti is on the Brink of State Failure, Foreign Policy, February 17, 2023, at https://foreignpolicy.com/2023/02/17/haiti-crisis-corruption-criminal-gangs-violence-humanitarian-assistance-state failure-sanctions/; Gangs of Haiti: Expansion, power and an escalating crisis | Global Initiative. 29 2023 Corruption Perceptions Index: Explore the… - Transparency.org. The Corruption Perceptions Index (CPI) is the most widely used global corruption ranking in the world. It measures how corrupt each country’s public sector is perceived to be, according to experts and businesspeople. Each country’s score is a combination of at least 3 data sources drawn from 13 different corruption surveys and assessments. These data sources are collected by a variety of reputable institutions, including the World Bank and the World Economic Forum. IMF | Technical Assistance Report – Haiti Governance Diagnostic Report | 14 decade, except for spikes in 2017 and 2021, which quickly backslide (Figure 1). The Global Competitiveness Index, measuring the quality of institutions and the ensuing human capital and economic ecosystem,30 and the World Bank’s Worldwide Governance Indicators (WGI) both score Haiti strikingly low.31 These statistics reflect a perennial challenge for successive Haitian governments to effectively direct human, financial, administrative, and legal resources to achieve sustainable economic and social development. Beyond the indices, the severity of corruption in Haiti is well illustrated in the reports prepared by the Court of Accounts and Administrative Disputes in the PetroCaribe case, which is one of the most egregious corruption cases involving political and economic elites (see Box 1). Box 1: The PetroCaribe Case In 2006, Haiti joined the PetroCaribe program established by then the president of Venezuela to give oil to Caribbean countries as a form of aid. The agreement allowed Caribbean states to defer payment on (% variable from 5% to 70% depending on the price of oil) for up to 25 years, charging a low rate of interest for the debt. Recipient governments generated significant cash, which was supposed to be used for development projects. Over the course of the program, the government of Haiti claimed to have funded social projects using almost $4 billion dollars raised by PetroCaribe oil between 2008 and 2016. In 2017, the Haitian Parliamentary Special Commission of Investigation issued an extensive report detailing widespread corruption in managing $2 billion under three successive governments during 2008-2016. On January 31 and May 31, 2019, the Superior Court of Auditors and Administrative Disputes issued reports on the government’s spending of PetroCaribe funds between 2008 and 2018 alleging misappropriation, overbilling, collusion, favoritism, and embezzlement. Based on the report, the prosecutor filed charges against several former government officials and transferred the case to the judiciary. On July 15, 2019, the investigative judge assigned to the PetroCaribe case issued subpoenas for two former prime ministers and several other high-level officials to answer questions. In August 2020, a third report issued by the Superior Court of Auditors and Administrative Disputes stated more than 140 billion Haitian gourdes (HTG) (estimated USD $2 billion) in PetroCaribe funds had been embezzled or wasted in “worthless” projects. Sources: Court of Accounts and Administrative Disputes; 246.pdf (cscca.gouv.ht) One of the characteristics of corruption in Haiti is the interconnection between politics, economics and organized crime. The vast majority of Haiti's economy has been controlled by a small group of political and economic elites (on key political economy actors See Box 2). The elites are incentivized to preserve their collective interests politically and economically. They have resources to influence and sabotage the democratic process when the government begins to threaten their interests. They defend their interests partially through their own means such as the occasional distribution of guns and bribes to gangs, assassinations, intimidation, cronyism, and partially by 30 WEF_TheGlobalCompetitivenessReport2019.pdf (weforum.org) 31 Home | Worldwide Governance Indicators (worldbank.org) IMF | Technical Assistance Report – Haiti Governance Diagnostic Report | 15 capitalizing on international aid.32 Allegations of corruption are commonplace among political rivals, contributing limited public trust in the institutions. Gangs have been increasingly important actors in Haiti. Before the February-March 2024 security melt-down, it was estimated that more than 60 percent of Port-au-Prince, including key areas of economic activities, such as major roads in and out of Port-au-Prince, the commercial district, industrial zone, was controlled by gangs, drawing revenue from customs, public markets, water and electricity distribution networks, and public-transport stations.33 Conflicts between rival gangs are fought over territory and economic resources. Gangs impose tariffs on their territory with impunity, including the extortion of police stations, and have been reported freely using police-owned equipment such as armored vehicles. Several prominent gangs have set up ‘courts’ in their territories by which they punish civilians in their fiefs.34 Gangs are also reportedly connected in many cases to community structures, evolving "social foundations" to ensure legitimacy. They often present themselves as "benefactors" to the community and seek to display a positive image. The absence of state presence - from law enforcement to social services - has greatly amplified the reach and influence of gangs and splinter factions. In strategic areas, such as ports and oil terminals, businesses are forced to deal with gangs for the survival of their businesses, and thus they are highly lucrative areas for gangs to control.35 Politically exposed persons (PEPs)36 have a history of financing and arming gangs in exchange for votes and protection.37 While the relationship between gangs and political and economic elites is complex and ever-changing, there are multiple reports of them benefiting from each other.38 The UN SC established a sanctions regime for Haiti in 2002. Since then, individuals affiliated to gangs were sanctioned for their role in organized crime and illicit financial flows.39 Unilateral sanctions are also frequently imposed against Haitian individuals affiliated with gangs, political and economic elites.40 (on sanctions See Box 3). 32 See The Political Anatomy of Haiti’s Armed Gangs | NACLA; 2023 Haiti fragility brief (carleton.ca) 33 See Insecurity Insight, Haiti: Situation report: Gangs and the Haitian state, 11 November 2021, at https://insecurityinsight.org/wp-content/uploads/2021/11/Haiti-Vigil-Insight-Situation-Report-11-November 2021.pdf 34 Réseau National de Défense des Droits Humains. Violent Clashes between Armed Gangs: RNDDH Demands Protection of the Haitian Population; May 10, 2022. https://web.rnddh.org/violent-clashes-between-armed-gangs-rnddh demands-protection-of-the-haitian-population/?lang=en 35 See GITOC-Gangs-of-Haiti.pdf (globalinitiative.net) 36 A politically exposed person (PEP) is an individual who is or has been entrusted with a prominent function. Many PEPs hold positions that can be abused for the purpose of laundering illicit funds or other predicate offences such as corruption or bribery. Because of the risks associated with PEPs, the FATF Recommendations 12 and 22 require the application of additional AML/CFT measures to business relationships with PEPs. 37 See GITOC-Gangs-of-Haiti.pdf (globalinitiative.net) 38 See for instance the UNODC Report submitted under UN SC Resolution 2692(2023), October, 2023. 39 UNODC Report submitted under UN SC Resolution 2692(2023), May 2024. 40 For example, two senior politicians (the former and then-current Presidents of the Senate) were subject to bilateral financial sanctions by the United States and Canada in November 2022 for “protect[ing] and enabl[ing] the illegal activities of armed criminal gangs, including through money laundering and other acts of corruption;” See https://www.canada.ca/en/global-affairs/news/2022/11/canada-imposes-sanctions-against-haitian-political elites.html IMF | Technical Assistance Report – Haiti Governance Diagnostic Report | 16 Box 2: Key Political Economy Actors in Haiti Political elites: Haiti’s political elites are made up of current and former politicians. They span dozens of political parties and are present across the civil service and judiciary. The last Parliament, for example, is made-up of over 20 parties. Most of them are formed around clan chiefs, and they have frequently made use of gangs to sway elections. Campaigns involve handouts and promises of patronage and are supported by economic elite often in exchange of anticipated rewards. Many political actors also employ gangs.41 Economic Elites: The community of economic elites in Haiti is relatively small but it holds significant influence over politicians. Like politicians, some of economic elites employ gangs for close protection, recruit police as mercenaries to stimy rivals, frequently use intermediaries to bribe police and customs officials, and in some cases may work with criminal organizations to advance other legal and illegal business interests. Reportedly, the economic elites often manage to exploit aid programs to accumulate wealth at the expense of the population.42 Gangs: Gangs have significant influence on governance and engage in full scale disruption of economic activities in Haiti. There are now an estimated 200 gangs operating across Haiti, and around 95 in the capital, Port-au-Prince, alone.43 Many if not all gangs regularly cooperate with elites to serve oligarchic interests through kidnapping, murder, and the intimidation of neighborhoods.44 Private sector, civil society and the international community: These actors have substituted for the state across a number of sectors, with minimum oversight, coordination and regulation. Haiti has long been described as a “the Republic of NGOs.” NGOs and civil society are essential players in Haiti, particularly in order to ensure civilians receive basic needs. Before 2010 earthquake, reportedly 70 percent of healthcare and 85 percent of education was provided by NGOs.45 The most engaged is the Montana Accord, a coalition formed in August 2021 to support the Montana Accord.46 Diaspora: Haiti has large diaspora abroad, which has played an important role in defining economic and political landscape. Haiti has a large diaspora that exists in several countries but mainly in the United States, Canada, Dominican Republic, Cuba, and France.47 The World Bank estimates that in 2021 about a quarter of Haitian GDP came from diaspora remittances, making the Haitian diaspora a key player in the Haitian economy.48 The diaspora can have much great role in social, political and economic processes in Haiti beyond providing remittances and humanitarian aid. 41 See, for example, Kolbe, A., Revisiting Haiti’s Gangs and Organized Violence, 2013, HA