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German NGO in Paraguay confronts allegations of embezzlement

Paraguay has a long history of corruption. In the capital city of Asuncion, the Kolping Institute has been accused of covering up the embezzlement of development funds, raising questions about the transparency of NGOS.

Money being tucked away in jacket

Up to 1 million euros is unaccounted for at Kolping Paraguay

The Cologne-based Adolph Kolping Institute - a development organization with Catholic roots - works for the common good and the preservation of Christian values in society and the state, according to its website.

Kolping's branch in Paraguay built an education center in the capital city of Asuncion in pursuit of these ends. The European Union and the German Ministry for Development contributed funds toward the project. However, Brigitte Fuzellier - managing director Kolping Paraguay - claims that the center hides a secret that contradicts Kolping's stated values.

The education center cost 1.4 million euros ($1.8 million), according to Kolping's books. Yet an independent appraisal firm hired by Fuzellier valued the building at 400,000 euros. So what happened to the other 1 million?

Lack of transparency

Kolping headquarters in Cologne sent Fuzellier to Asuncion in 2007 to investigate rumours of irregularities. But what Fuzellier uncovered has created controversy within the organization itself.

Kolping Paraguay did not keep records of its internal finances, Fuzellier told Germain daily Die Tageszeitung in a recently published article. Documentation only exists for projects conducted with the EU and Germany's Ministry for Development.

In 2007, Fuzellier issued Kolping Paraguay's first financial statement. She tried in vain to acquire documents from Maximo Samaniego, who at that time was the organization's managing director.

The Kolping Institute in Paraguay

The Kolping Institute has reportedly been loathe to release financial documents

Fuzellier then hired the independent appraisal firm that revealed the education center was overvalued. She also discovered that 14 cars had gone missing. Ultimately, Kolping fired Samaniego due to irregularities, and the authorities pressed charges against him.

"Just an example: We have to prove that the institute's cars were sold under the table without any official contract or sales receipt," Fuzellier told the Tageszeitung. "We are missing 14 cars and nobody knows where they are."

She subsequently notifitied Kolping headquarters about the irregularities and asked for assistance. But Fuzellier claims that Peter Schwab, Kolping's Latin America coordinator, tried to cover up the findings. She has since filed charges against him.

"I am personally worried in how far this old baggage could create problems with the EU and the Ministry for Development. We cannot afford that," Schwab wrote Fuzellier in an email obtained by the Tageszeitung.

After Fuzellier filed charges against Schwab, Kolping headquarters in Cologne retaliated by filling charges against Fuzellier for libel, slander and defamation.

Culture of corruption

Kolping works in a country that has a long history of rampant corruption. Transparency International ranks Paraguay as number 154 in its annual study comparing corruption in 180 nations.

The Colorado Party has ruled Paraguay for more than 50 years through a system of nepotism and patrimonialism that silences the opposition with money. A lack of political competition creates a culture of unaccountability in which poorly paid civil servants have an incentive to siphon off public funds.

Handcuffed hands holding money

People are rarely held accountable for corruption in Paraguay

And the corruption is not just limited to the public sector. The culture of impunity within government has undermined the social taboos normally associated with corruption. In civil society and the private sector, where Kolping does most of its work, a large informal economy competes with the formal one. Since the informal economy is cheaper, people have little incentive to earn their money through legal means.

A 2004 study commissioned by USAID - the US government's development agency - reports that "Paraguay has a culture that is widely believed to have accepted and made its peace with the practice of corruption...The small bribe is looked on by many no differently than someone might consider a tip to a waiter."

While the irregularities within Kolping Paraguay are far from small, they occurred in the second-poorest nation in Latin America. In a country where corruption pays but legal work does not, people have an incentive to embezzle money.

Independent investigation?

With Kolping unresponsive, Fuzellier informed the Ministry for Development that the funds it donated to the education center may have been embezzled. The ministry subsequently hired the accounting firm PriceWaterhouseCoopers (PWC) to conduct an initial assessment of Kolping Paraguay. PWC reported that the organization's accounts needed to be urgently investigated.

The ministry then decided to open its own investigation without the assistance of PWC. Instead, Kolping will work in tandem with ministry officials to get to the bottom of the irregularities in Asuncion.

Fuzellier claims that this arrangement undermines the independence of the investigation. Peter Schwab, who Fuzellier accused of trying to cover up her findings, will take part in the investigation.

Fuzellier has even gone so far as to claim that the Ministry for Development is trying to obstruct an objective and transparent investigation.

Ministry officials, however, do not see a problem in allowing Kolping to take part in the investigation. And Kolping says it is fully cooperating.

"We support the inquiry without reservation," Schwab said. "At the moment I assume that it will be shown that nothing was embezzled."

Authors: Rosa Munoz Lima, Pablo Kummetz (sk, epd)
Editor: Rob Mudge

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