Back to 4. Corruption in sustainment and contracting
Risk Areas
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 2015, the World Bank noted that agents and intermediaries played a significant part in 6 out of 9 substantiated cases of fraud and corruption in its supply chain: payments were made to undisclosed agents who would then transfer funds to government officials as bribes. In 2013, more than 90 per cent of reported US Foreign Corrupt Practices Act (FCPA) cases were found to have involved third party intermediaries.
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
Poor reputation for business and social conduct
Subcontractors, agents and intermediaries providing gifts and hospitality to officials
Signs that agents, intermediaries or subcontractors could be shell companies (no premises, no staff, recent incorporation and little or no verifiable performance record)
Unusually high payments to agents, intermediaries or subcontractors
Main contractors directing payments through an agent or intermediary
Pressure for payments to be made urgently or ahead of schedule
Large-scale subcontracting with limited visibility of who is doing the actual work
Lack of transparency on who the subcontractors are and what their remit is
Subcontractors or intermediaries appearing after the contract is negotiated and the bidder selected
Engagement of subcontractors or intermediaries whose work appears to be different than required, or whose staff size or profile does not correspond to contract needs
Very little or no verifiable information about the subcontractor; predominantly anecdotal evidence of performance and work history
No compliance or anti-corruption programmes for agents, intermediaries, contractors or subcontractors
Submission of false invoices, often lacking necessary detail and/or photocopied
Significantly higher or lower use of materiel than estimated
Excessive stocks of products, either because it sits unused or because wrong quantities have been delivered
Product substitution: products of lower quality than foreseen are delivered
Poor product quality and/or product failure
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.