Back to 4. Corruption in sustainment and contracting
Risk Areas
Contracting relationships not only create tangible financial flows, but also result in intangible, social and political links between mission forces and local service and goods providers. As local contracts become the sources of key supplies needed by the missions, financial, political and social relationships grow on that basis. They can be an important resource for local stakeholders, who can use them to build up their own political and economic position.
This can be helpful if it serves to differentiate the host nation power base and support change agents attempting to build resilient, inclusive governance structures. But reflexive and unscrutinised support of local powerbrokers who could supply land, building materials and labour force for the construction of military bases can also enable the creation of vertically integrated criminal syndicates, hollowing out security institutions and extorting the population. In Afghanistan, for example, the twin levers of financial and political support for local actors supported malign networks and effectively undermined ISAF’s ability to achieve its goals, including provision of security, stability and governance.
Case Study: Afghanistan: Corruption and the making of warlords
In the southern province of Kandahar, a close relationship between warlord and governor Gul Agha Sherzai and the forces of Operation Enduring Freedom enabled Sherzai to build up a privileged position in supplying labour and materiel to international forces, often at extortionate prices. At the same time, US political support and significant amounts of money allowed Sherzai to consolidate a political and economic empire in the province, feeding (often criminal) patronage networks and controlling the populations’ access to resources and jobs.
View case study“In a few swift strokes, he made the desert bloom with American installations — and turned an extravagant profit in the process. He swiped land and rented it to U.S. forces to the tune of millions of dollars… He furnished American troops with fuel for their trucks and workers for their projects, raking in commissions while functioning as an informal temp agency for his tribesmen.”
Anand Gopal, No Good Men Among the Living
Case Study: Afghanistan: Corruption and the making of warlords
The Host Nation Trucking contract, which as of 2009 covered over 70% of the US Department of Defense’s transport needs inside Afghanistan, quickly became a vehicle of illicit enrichment and had significant force protection repercussions. With at least $360 million available annually to each one of 8 contractors, the contract was a significant source of income and resources. Widespread subcontracting to unvetted companies with links to the insurgency; allowing companies to act as security-providing militia; and lack of response to reports of widespread bribery-for-passage schemes and contractors’ collusion with the insurgency created an opportunity for resources to flow to adversaries and in effect endanger the force.
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Refusal to divulge the identity of beneficial owners and/or company officers, i.e. those who draw benefits from companies and those who direct companies' actions.
Shareholders, owners or company officers who are, or have recently been, public officials
History of allegations and investigations against companies or individuals
History of companies or individuals being suspended or debarred by governments or international institutions
Overcharging for services - rates above reasonable/market rates
Reports of bribery and extortion
Requests for payments in cash or other untraceable instruments
Requests for payments to offshore companies
Requests for advance payments with no subsequent accounting for expenditure
Requests for additional payments or contract modification after the bidding process is concluded (it could indicate that the initial offer was under-valued in order to influence the bidding process)
Poor or no documentation for travel and other expenses
Use of ‘general purpose’ or ‘miscellaneous’ accounts/line items in budgets
Use of shell companies (no employees, no offices, little or no work history) and/or subcontractors whose role is unclear
Discrepancies between the details contained in bids and specifications in the final contract
Company refusal to agree to audits and/or adopt compliance measures
Contractor willingness to violate or evade laws
Attempts to explain misconduct by referring to ‘customs’ or ‘the way it is done’
Product substitution: products of lower quality than foreseen are delivered
One person or group becoming the key contractor and intelligence source at the same time
Contracting relationships not only create tangible financial flows, but also result in intangible, social and political links between mission forces and local service and goods providers. They can be an important resource for local stakeholders, who can use them to build up their own political and economic position.
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Collusion – illegal cooperation or conspiracy aimed at distorting the tendering and procurement process – can create the appearance of competition while in fact directing resources to particular powerbrokers through a network of seemingly independent companies.
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The fragmentation of the supply chain to include significant numbers of subcontractors, agents and intermediaries has been identified as key a contributor to corruption risk. In 2013, more than 90 per cent of reported US Foreign Corrupt Practices Act (FCPA) cases were found to have involved third party intermediaries.
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Disposal of mission assets, usually coming at a point when international forces are winding down, transitioning or withdrawing, poses significant corruption risks. While they might no longer be significant for the mission itself, these assets, if they make their way into the hands of malign networks, can prolong conflict and strengthen spoiler groups.
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These are specific measures that can help mitigate corruption risks in sustainment and other areas of activity that include contracting, such as humanitarian aid and reconstruction.
Promoting strong integrity standards among mission personnel can help set expectations for relations with the host nation, and prevent creation of new opportunities for corrupt networks.
Ensuring that financial flows do not exceed the host nation’s absorptive capacity will diminish the risk of diversion by corrupt networks; tying funding and assistance to improvements in governance can help create momentum for reform.
Civil society organisations can be valuable allies in the fight against corruption: they can help set strategies, understand what could be improved and how, and oversee specific projects using mission funds.
Stronger oversight of mission resources will help limit opportunities for corrupt networks, and helping develop host nation or civil society oversight mechanisms will help create longer-term accountability of host nation forces.
Ensuring that the international mission is able to receive and process signals of wrongdoing from those familiar with the projects it finances increases the likelihood of detection and diminishes the appeal of corruption.