Winner Best NPO Anti-Corruption Consultancy Firm

Integritas360 has been awarded the Best NPO Anti-Corruption Consultancy Firm by APAC Insider in the recent 2020 Australian Enterprise Awards.

“The Australian Enterprise Awards returns seeking to acknowledge those businesses and individuals who have played a pivotal role in the resurgence of one of the world’s biggest economies. As one of the top 15 highest-grossing economies in the world, Australia boasts many individuals and organisations from across a myriad of sectors and industries deserving praise and recognition.” – APAC Insider

Integritas360 CEO Jeremy Sandbrook said it was a wonderful achievement. “We are extremely proud to have been chosen as the winner in this category, as it not only highlights the importance of the charity and Non-profit-organisation (NPO) sector, but the role integrity and compliance plays in it”

Launched just over five years ago, Integritas360 specialises in providing anti-fraud and corruption prevention, compliance, governance, AML/CTF, risk and whistleblower advisory and assurance services and training to the charity, NFP/NGO and international development sectors.  Their aim is to raise integrity in international development by helping charities, non-profit-organisations (NPOs) create a strong ethical culture and associated framework to protect their integrity.

Clients have included multi-laterals such as the World Bank Group, national regulators including the Australian Charities and Not-for-profit Commission (ACNC),  NSW Government Departments, and charities and NGOs such as WorldVision International, Islamic Relief Australia, Save the Children Australia, TransformAid International and SOS Children’s Villages International.

“With extensive experience in both the corporate and international development sectors, Integritas360 works with organisations to design and implement cost-effective solutions designed to improve an organisation’s ethical culture, while at the same time reducing integrity risks such as fraud and corruption.” Sandbrook said.

The Australian Enterprise Awards process takes six months. With nominations received, researched, shortlisted, judged and evaluated.  The full list of award winners is available on the APAC Insider website.

You can find out more about us here, or contact us at info@integritas360.org

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Are good intentions enough?

Despite their good intentions, when it comes to compliance and the NGO sector, scratch the surface too much and what you see may not necessarily be what you get.  Although ranked as the most trusted sector in the world, NGOs and charities (as with any other organisation) are not immune from compliance risks.  If anything the complexity of the environment they operate in make it even more challenging, as at the heart are a number of unique internal and external compliance risks.

Internal compliance risks

The first of these is the absence of a profit motive.  Unlike other sectors, NGOs tend to be extremely mission driven.  This can at times result in a potential governance issue being overshadowed by programmatic pressure, in particular during humanitarian relief operations, where the imperative to help those in need is the primary focus.  This focus, when coupled with a strong reliance on the use of volunteers, also creates a compliance challenge, as it creates an operational environment built on an extremely high-level of trust.  While extremely positive, when it comes to compliance, it can act as a double-edged sword.  While a focus on mission and speed are essential, it can also result in a failure to implement key internal controls, or – in more extreme circumstances – the same key internal controls are viewed as an unnecessary level of bureaucracy, and circumvented, if they are viewed as slowing down key operational processes.

External compliance risks

In addition to these internal risk factors are a number of external ones.  A key ingredient to maintaining a high level of integrity is the implementation of an appropriate external regulatory environment, as this is crucial to setting minimum compliance standards for the sector.  Unlike the commercial and governmental sectors, NGOs (in many jurisdictions) tend to be subject to a light regularity touch regime.  In many cases, minimum standards are extremely low, meaning that NGOs are subject to a lower level of oversight and scrutiny from authorities.  When combined with an automatic presumption of honesty given by the general public, it results in a lack of robustness in the external checks and balances needed to create a healthy balance compliance environment.

External standards are not enough

While the bulk of compliance risks can be offset and minimised by a robust integrity and anti-corruption framework, many NGOs rely on externally mandated standards, which – for the reasons outlined above – tend to be insufficient to properly minimise the risk.  A good example of this is a recent review I undertook of an Australian-based NGO.

The initial assessment confirmed that it was fully compliant with all of the regulatory requirements laid down by the national charities and NGO regulator.  It has also implemented the various anti-corruption related standards contained in the Council for International Development’s (Australia’s peak NGO body’s) code of good practice.   Despite this, when assessing potential vulnerabilities in its fraud prevention processes  (using a standard, risk-based, anti-fraud diagnostic tool), the NGO scored four out of a total of 100 points available (where a score of less than 100 indicated a weakness in a specific area).

What this clearly highlights is that the NGO and charity sector, despite being guided by good intentions, is not immune from corruption or other forms of compliance risks.  If anything, the unique environment in which NGOs operate in makes it more of a challenge to manage effectively.  Unless NGOs embrace this risk, and start proactively managing it, their reputations – and the associated public confidence – built up over many years, could be seriously affected.

About the author: Jeremy Sandbrook is the Chief Executive of Integritas360, a global social enterprise that helps charities and NGOs/NFPs  ‘corruption-proof’ themselves. An internationally recognised anti-corruption expert, he has spent the last decade working in the international development sector, predominantly in Africa, Europe and Australasia. Jeremy also lectures on the topic at the University of Sydney’s Centre for Continuing Education. 

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While acknowledged by many NFPs as a problem for the sector, corruption is rarely viewed as an issue when it comes to assessing their own organisation. Unless NFPs recognise, and start to properly manage fraud and corruption risks, the reputations and public confidence – built up over many years – could be wiped out overnight.  So where does this apparent reluctance to deal with the issue come from?

The Unravelling of an NFP fraud scheme

A recent fraud investigation I carried out for a large international NFP is a textbook example of how fraud can occur in the sector. Despite one of its humanitarian projects being externally audited four times (two external financial audits, a capacity audit and a specific project audit), vague mutterings continued to circulate about improprieties. None of the four audits had highlighted any irregularities.  On the contrary, the capacity audit stated that the project had been “appropriately designed, well planned, and effectively managed,” while the project audit confirmed that all relief items had been physically delivered to all beneficiaries.

The six-month project had been designed and managed by a highly respected, trusted senior manager.  Acknowledged as a leading expert in his field, he regularly presented on the topic at various regional and continental forums. It was the third such relief project he had initiated in the last four years.

While on the surface there were no anomalies, closer inspection of the beneficiary sign-off forms highlighted a number of irregularities.  The same pen had been used to complete all 2,500 forms, while the beneficiary’s thumbprints (confirming physical receipt of the items) became successively lighter each month. This became the starting point for unravelling a long-standing, well-entrenched fraud scheme. Perpetrated by the senior manager himself, it was made up of a network of staff from all levels of the organisation, who together had conspired to bypass and undermine key internal controls (and various other operational processes and procedures put in place).

Its starting point had been the fraudulent overstatement of the real needs on the ground, enabling ghost beneficiaries to be included in the project. Various front companies were then established, with staff members involved colluding to ensure they were successfully awarded key supply  and transportation contracts. A number of these companies then purchased relief items from other staff members, one of whom was the Chair of the NFP’s in-country board.

While a small portion of the items (sufficient to provide a semblance of legitimacy) were delivered and subsequently handed-out, proof of delivery documentation was falsified and stock records manipulated to give the impression that all items had been properly accounted for. Those beneficiaries who did exist had been coerced into signing distribution sheets for items never received, while the independent government representative (who had confirmed that the distributions had indeed taken place), admitted that he had only done so because he been promised a job in return. Information at all levels was manipulated, and reports sent to senior management and donors delayed and falsified.

So why are NFPs vulnerable to fraud and corruption?

The absence of a profit motive has resulted in many NFPs being extremely mission driven. This, coupled with an over-reliance on the use of volunteers, has resulted in an environment reliant on a high level of internal trust.  This in turn is paralleled by an even higher level of external trust, where those working for NFPs are afforded an almost automatic presumption of honesty and moral authority (by the general public).  As a result, governance can at times be viewed as being secondary to the organisation achieving its mission.

In addition, the NFP sector has traditionally been inwardly focused and closed to external forces that traditionally provide an appropriate level of checks and balances. Unlike other sectors, in many jurisdictions NFPs have tended to be subject to a lighter regulatory approach — leading to a lower level of oversight and scrutiny by authorities. When combined with low salaries, or no salaries in the case of volunteers, the sector has inadvertently created an environment that provides individuals with opportunity, motive and rationalisation: the three components of the traditional Fraud Triangle.

For those NFPs with an international presence, the risk factors are even greater. This is because the standard international NFP’s global footprint involves:

• Programs that operate in jurisdictions characterised by high levels of corruption and a low-level of governance and accountability.
• Comparative to other sectors, a relatively high level of ongoing resource flows (usually kept in hard currency, as it is a reliable store of value which can be traded globally); and a heavy reliance on cash-based distribution systems.
• Cultural issues that also increase fraud risk — an example being neo-patrimonialism, still prevalent in many parts of the world, where an organisation’s resources are distributed by the office-holder in return for personal support and loyalty.

Conclusion of the fraud case

While the fraud scheme outlined above finally made it before the courts, it took two years, and only got there after concerted efforts by a number of highly placed individuals with close connections to the accused, failed to have the investigation and subsequent court case discontinued.   This included the NFPs own board, which twice attempted to halt proceedings.  Notwithstanding the evidence uncovered, the manager at the centre of the scheme was held in such high esteem that even a guilty verdict was insufficient for many within the organisation to believe he was actually guilty — proof that NFPs still have a long way to go regarding the ‘F’ word.

About the author: Jeremy Sandbrook is the Chief Executive of Integritas360, a global social enterprise that helps charities and NGOs/NFPs  ‘corruption-proof’ themselves. An internationally recognised anti-corruption expert, he has spent the last decade working in the international development sector, predominantly in Africa, Europe and Australasia. Jeremy also lectures on the topic at the University of Sydney’s Centre for Continuing Education. 

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Is your corruption prevention program going to deal you a winning hand, or will it collapse like a house of cards?

In Part 1 of this two-part series, I’ll outline the essential building blocks that should be included in an effective anti-corruption framework.

How a failure to prevent corruption by employees led to a US$772 million penalty

While the resources needed to develop a robust corruption prevention framework may seem significant, the financial risks of not investing are even higher.  First and foremost are the direct financial and reputational losses caused by the act itself. This is highlighted by the ACFE’s annual global fraud surveys, which consistently estimate that the typical organisation loses 5% of its annual revenue to fraud alone.

These are not the only risks.  In a growing number of jurisdictions, the failure to implement processes that prevent employees or agents from offering bribes to facilitate business, will have a direct (material) impact on the size of the financial penalties levied should the organisation be prosecuted for corruption.  While the largest fine to date has been US$772 million, last year marked the largest number and highest dollar-value of FCPA (Foreign Corrupt Practice Act) enforcement actions in a single year, with US$2.43 billion of monetary penalties paid by 27 corporate entities.  As the number of countries enacting anti-bribery legislation containing extra-territorial reach grows, so does the potential risk of double or even triple- jeopardy, with organisations risking prosecution in multiple jurisdictions for the same crime.

While there is no silver bullet or ‘one-size-fits-all’ approach to designing and implementing a robust anti-corruption framework, there are a number of critical elements that should be included.  A number of these are covered below.

Key elements of an anti-corruption framework

For anti-corruption efforts to be effective, they must be part of an integrated holistic approach. The structure needed for this, is made up of a number of inter-related elements, each playing a critical role in countering corrupt behaviour, while at the same time helping to develop a strong ethical culture.

So what does such a framework look like?  While tailored to meet an organisation’s unique fraud and corruption-risk profile, an example of a generic anti-fraud and corruption framework is outlined in the Figure below.  Made up of a series of interlocking components, it can be broken down into three main parts: the pillars, or building blocks, which hold it up; the foundation on which they are built; and the overarching structure that binds it together.

The building blocks

Strong, well-designed anti-fraud and anti-corruption pillars are critical.  When taken together, they form the framework’s main building blocks. While the number used will vary depending on the organisation’s context, the framework outlined above is made up of six. As a general rule, they should be constructed around the three inter-related elements of corruption prevention, detection and response.

It is also important that the pillars focus not just on the implementation aspects, but include continuous monitoring and improvement features as well.  While the number – and content of each – will differ (depending on an organisation’s context), a brief description of each of the six pillars outlined below:

Pillar 1 – Fraud and corruption control plan

An integrated fraud and corruption control plan is an essential component of any anti-corruption framework.  The plan should document the organisation’s approach to controlling fraud and corruption at a strategic, tactical and operational level.  It should also outline the actions that need to be taken to implement and monitor the organisation’s individual corruption prevention, detection and response initiatives.

To be effective, the plan should be positioned within a broader enterprise-risk management system (see Pillar 3 below), and reviewed on a regular basis to take into account any changes in the internal and/or external environment.

From an accountability perspective, ownership of it should be assigned to an individual with the appropriate seniority, skill-set and gravitas.

Pillar 2 – Code of ethics / Code of conduct

A key strategy in corruption prevention is the development of an ethical organisational culture. Central to this is a comprehensive code of ethics. Containing a high-level aspirational statement of values, it should also include specific details of the types of behaviour the organisation deems as unacceptable.  To be as effective, it needs to be aligned with the organisation’s corruption prevention policy.

Pillar 3 – Corruption risk management

At the heart of corruption prevention efforts is a proactive risk-based management approach.  Knowing the organisation’s fraud and corruption-risk profile will enable the it to develop the appropriate risk-mitigation strategies, and assign corruption prevention resources to where they are needed most.  A comprehensive assessment should be carried out (at least annually) in which all potential fraud and corruption risks are identified, analysed and evaluated.

Pillar 4 – Detecting corrupt practices

Effective detection systems are also vital, as preventative methods may not always be successful.   Early detection is critical to limiting the spread of corrupt conduct and minimising any financial and reputational damage caused by it. While the majority of cases are reported by tip-offs, managers play a key role by ensuring they provide the appropriate level of supervision and checking.

An effective organisational internal reporting system, sound complaint and grievance processes, and a comprehensive internal audit and work review programme, also facilitates detection. The implementation of a whistleblower system is an essential component of this.

Pillar 5 – Responding to corrupt conduct

Responding effectively to suspected cases of fraud, corruption and other compliance breaches is critical. This involves a well conducted internal – and if necessary, external – investigation to ascertain the facts.  If proven, prompt reporting and appropriate disciplinary action is essential.  This includes referring the matter to the police in cases where a law may have been broken.

The information gained and lessons learned from each case should form part of an on-going review of fraud and corruption prevention controls, to ensure they are as comprehensive and effective as possible.

Pillar 6 – Education and awareness

The most important anti-corruption resource at an organisation’s disposal is its own staff.  In the majority of cases, employees will come forward if they know what to look for and feel safe reporting it.

For this reason, formal and informal education and corruption awareness raising is essential.  Encouragement and space should be provided to allow staff to openly talk about the topic, making them more comfortable in coming forward should they subsequently suspect corruption (or other compliance breaches) to have taken place.

Many fraud and corruption cases continue for years before they become known to the organisation, as managers and staff are either not aware of the warning signs, or the atmosphere is not conducive to reporting them.

So what does all this mean?

While a number of essential corruption prevention building blocks have been covered in this article, it is only the first step in developing a robust fraud and anti-corruption compliance framework.  Just as important is the foundation on which it is built, and the cement which binds it all together.  Both of these, along with a number of other key aspects that also need to be considered, will be covered in Part 2 of this series.

About the author: Jeremy Sandbrook is the Chief Executive of Integritas360, a global social enterprise that helps charities and NGOs/NFPs  ‘corruption-proof’ themselves. An internationally recognised anti-corruption expert, he has spent the last decade working in the international development sector, predominantly in Africa, Europe and Australasia. Jeremy also lectures on the topic at the University of Sydney’s Centre for Continuing Education. 

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Acknowledging the elephant in the room

A simple litmus test for this is to ask an NGO’s leadership the following question: ‘Is corruption a problem within your organisation?’  In a 2014 survey of Australian and New Zealand NGOs, while 90% felt that corruption was a problem for the sector, 72% (or three out of four) stated that it was not an issue for their organisations.  In other words, while it was a problem, it wasn’t theirs, but someone else’s! So if most non-profit leaders don’t see corruption as an issue, why should their staff?

Leadership: The key anti-corruption variable

A study of corruption within an INGO’s operations in Southern Africa (over a seven-year period) highlights the impact leadership can have on the issue.  In the first four years, the INGO recorded just four cases of corruption.  In Year 5 however, the number suddenly spiked, with 34 cases being recorded in that year alone.  The surge continued, with a total of 67 (known) cases taking place over the next three years: an increase of 1,600% (see Figure 1).

So what caused this sudden spike?  The only change was the appointment of a new country director (see Figure 2).

The natural assumption from this is that the country director must be the cause of the up-surge.  While technically correct, rather than being part of the actual ‘problem’, the new country director turned out to be part of the ‘solution’!

 A simple shift in perspectives

The change in leadership had actually brought with it a rethinking of the way corruption was viewed.  Instead of treating it as an overhead – as is traditionally the case – the new country director viewed anti-corruption related costs as programme related.  In other words they were seen as an essential direct element in securing a positive development outcome.

This re-definition led to a change in focus, with a number of key anti-corruption and accountability related initiatives being implemented in the six to twelve months leading up to the corruption surge (see Figure 3).

The result of this was the spike in corruption cases reported (in Year 5).  Also of interest was the fact that further analysis indicated that the surge related to an increase in detection rates; as opposed to a proliferation in the underlying corruption level.

When surveyed (in Year 7), staff overwhelmingly stated that corruption within the INGO had dramatically declined.  The overwhelming reason given for this: “management is now serious”!

Turning a corruption threat into an opportunity

One of the 34 cases of corruption uncovered in Year 4, was a long running fraud scheme involving multiple staff members.  Taking two years to finalise, the issue was taken as an opportunity to showcase (to stakeholders) the organisation’s attitude to corruption.

By dealing with it in a proactive, open and transparent manner, the organisation was able to transform a potentially serious threat, into a strategic opportunity.  The result was a triple-helix effect which:

1. Created a strong deterrent  – by sending a clear message to staff on the consequences of acting corruptly, resulting in a decrease in the level of internal corruption;
2. Increased accountability and deeper engagement with beneficiaries – by confirming that the organisation held itself, and – more importantly – its staff, accountable; and
3. Signalled to donors that it was an ethical and trustworthy organisation – by showing them that it acted in accordance with its stated values (two of which included ‘courage’ and ‘accountability’).

Rather than having a negative impact on the organisations reputation, it had the opposite effect, with the same donor deciding to substantially increase its budgetary support the following year.  Their rationale: they would rather support an organisation that was genuinely committed to dealing with such issues, rather then ones whose mantra was ‘corruption is not an issue for us’!

The challenge to both NGO leaders, and the broader NGO and NFP (not-for-profit) sector is: are they prepared to emulate the above approach?  

I invite NGOs, activists, anti-corruption advocates and others to share their perspectives on how NGOs (and NFPs) can truly embrace anti-corruption practices, and imbed them into their organisations.  Are their examples of other successful, cost-efficient and effective anti-corruption practices that NGOs can embrace?  If so, what are they?

About the author: Jeremy Sandbrook is the Chief Executive of Integritas360, a global social enterprise that helps charities and NGOs/NFPs  ‘corruption-proof’ themselves. An internationally recognised anti-corruption expert, he has spent the last decade working in the international development sector, predominantly in Africa, Europe and Australasia. Jeremy also lectures on the topic at the University of Sydney’s Centre for Continuing Education. 

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Proof that corruption is truly a global issue, the list de-bunks the myth that cases of grand corruption (and kleptocratic regimes responsible for it), are limited to certain parts of the world.  Of the ten world leaders who made the list: three are from Africa, three from the America’s, two from Asia, and two are from Europe.

Most corrupt world leaders of recent history

In reverse order, the tend most corrupt world leaders of recent history (measured in absolute terms) are:

10. Arnoldo Aleman, President of Nicaragua (1997 – 2002)

Amount Embezzled: $100 million | Years in Office: 5

Soon after leaving office in 2002, the 81st President of Nicaragua, Arnoldo “El Gordo” Aleman, was arrested on corruption charges involving $100 million of state owned funds.  He was convicted of money laundering, fraud, embezzlement and electoral crimes the following year, and sentenced to 20 years imprisonment.  The corruption uncovered within his administration was so rife that it led to the arrest of a further 14 people, including a number of close family members.

Renowned for his use of a bottomless government credit card for personal expenditure, the amounts charged included $25,955 for a honeymoon in Italy, $68,506 for hotel expenses and handicrafts while on vacation in India (with his wife), and $13,755 for a night at the Ritz Carlton hotel in Bali.

According to the World Bank  and UNODCs Stolen Asset Recovery Initiative (StAR), a 2008 publication by the US Immigration and Customs Enforcement Agency, stated that a Nicaraguan investigation found that (between 1999 and 2002), Aleman and his cronies allegedly embezzled an estimated $100 million of government funds. The money was laundered through shell companies and fraudulent investment accounts in Panama and the United States, then used to purchase high-value assets including real estate and certificates of deposit. The accounts were also used to dispense embezzled funds to Aleman’s family members.

In January 2009, the Nicaraguan Supreme Court controversially overturned Aleman’s corruption conviction and set him free.  While never made public, it is thought that his release was part of a secret power-sharing arrangement made with Nicaragua’s current president Daniel Ortega.

Return of assets: While there are on-going asset recovery cases in the Philippine’s, Singapore and the United States, the only completed case has been the forfeiture and repatriation of approximately $2.7 million of Aleman’s assets to the Nicaraguan government (by the United States) in 2004.

9. Pavlo Lazarenko, Prime Minister of Ukraine (1996 – 1997)

Amount Embezzled: $114 million to $200 million | Years in Office: 1

An official count by the United Nation’s found that Pavlo Ivanovych Lazarenko, the 5th Prime Minister of the Ukraine, had allegedly siphoned off $200 million from state coffers (half a million dollars for each day as Prime Minister).  The funds were funnelled through various bank accounts in Poland, Switzerland and Antigua, then laundered through a shell company in the United States, and used to purchase various properties.

In December 2008, Lazarenko was detained by Swiss authorities on money-laundering charges as he crossed the border from France, but was released a few weeks later after posting a $3 million surety.  A few months later the Ukraine stripped him of his immunity, and he fled to the United States.

Detained on suspicion of improperly entering the country, he was subsequently indicted on 53 counts of conspiracy, money laundering, wire fraud, and interstate transportation of stolen property. In November 2009, he was sentenced by a California court to 97 months’ imprisonment, and ordered to pay over $9 million in fines and forfeit $22.8 million in various other assets.  Lazarenko was released from a United States federal prison in November 2012.

Return of assets: While Swiss authorities returned an unspecified amount to the Ukraine in 2001, there are still ongoing asset recovery cases in Liechtenstein (amount unspecified), Antigua and Barbuda ($87.1 million), the United States ($271 million), Guernsey ($150 million), Lithuania ($29 million) and Switzerland ($5.4 million).

8. Alberto Fujimori, President of Peru (1990 – 2000)

Amount Embezzled: $600 million  | Years in Office: 10

The son of a Japanese immigrant, Alberto Fujimori was Peru’s 45th President.  An authoritarian ‘strongman’, he was credited with crushing a number of nationwide terrorist insurgencies, while at the same time rescuing the country from economic collapse.  Notwithstanding these achievements, according to the historian Alfonso Quiroz, between $1.5 billion and $4 billion was lost to corruption, making the  Fujimori’s regime the most corrupt in Peruvian history.  During his decade in power, Fujimori is alleged to have illegally accumulated over $600 million in public funds.

In April 2001, four months into his third term, Fujimori fled to Japan after a $1 billion corruption scandal broke involving the country’s national intelligence chief (who was caught on video bribing an opposition senator to join Fujimori).  On arrival, Fujimori attempted to resign his presidency via fax, a move rejected by the country’s Congress, whose preference was to remove him by impeachment.

Four-and-a-half years after going into exile, Fujimori announced his intent to launch a new bid for the presidency.  In November 2005, he flew to Chile (from Japan) was arrested, and extradited back to Peru to face trial.  After admitting to diverting $15 million of public funds to his intelligence chief, Vladimiro Montesinos, he was found guilty of embezzlement, and in July 2009, sentenced to seven and a half years in prison. Two months later he pled guilty to another bribery charge, and was given an additional six-year term.  In 2015, Fujimori pled guilty to further bribery and graft charges (his fifth such conviction) and issued with an additional eight-year sentence.

Fujimori’s trials are historic in that they mark the first (and only) time that a democratically elected head of state has been extradited to his own country, put on trial, and found guilty.

Ironically, despite still being in jail, his daughter (Keiko Fujimori) was narrowly defeated in Peru’s recent Presidential elections, losing by just 43,597 votes!

Return of assets: While there have been no asset recovery cases specifically involving Fujimori, a combined $172.5 million worth of funds – related to Vladmiro Montesinos (see above) – has been returned by: Switzerland ($93 million), the Cayman Islands ($44 million) and the United States ($35.5 million).  Cases are still pending in Luxembourg, Panama, Mexico and the United States.

7. Jean-Claude Duvalier, President of Haiti (1971 – 1986)

Amount Embezzled: $300 million to $800 million  | Years in Office: 15

Jean-Claude “Baby Doc” Duvalier inherited Haiti’s presidency (aged 19) on the death of his father François “Papa Doc” Duvalier, in April 1971.  While implementing a number of reforms demanded by Haiti’s key ally, the United States, he maintained his father’s terror apparatus – including the infamous Tontons Macoutes (or ‘bogeyman’) – and added a raft of new techniques for skimming hundreds of millions of dollars from the country’s already poor coffers.

The year Baby Doc took over, The US Commerce Department reported that 64% of the government’s revenue had been misappropriated, with millions diverted for “extra-budgetary” expenses, including deposits made into Baby Doc’s Swiss bank accounts.  During his 15-year reign, Duvalier and his cronies allegedly amassed between $300 million and $800 million.  In 1980, the IMF provided Haiti with $22 million in aid.  Twenty million of this was allegedly siphoned off, with $16 million going to the Duvalier family and the balance to the Tonton Macoutes.  Two years later, when Mexico supplied the country with $11 million of oil, the regime’s middlemen attempted to bypass international sanctions and sell it to Apartheid South Africa.  In another moneymaking scheme, blood was bought from Haitian donors for $5 a pint and sold to Americans for $35 a pint.  Duvalier also made millions from involvement in the narcotics trade, as well as in selling body parts. The result? A flourishing cadaver market in which at one point, a ‘supply shortage’ lead to the regime raiding funeral parlours for bodies.

In 1985, after a referendum supported by 99.9% of the population, Duvalier was made President for life.  Despite this, he was ousted by a popular uprising the following year and fled to France, where he lived in self-imposed exile for the next 25 years.  He unexpectedly returned to Haiti in 2011, and was promptly arrested and charged with corruption and embezzlement.  Pleading not guilty, the case was never heard, as Duvalier died of a heart attack (at his villa in an affluent suburb in the hills overlooking Port-au-Prince) in October 2014, aged 63.

Return of assets: Apart from a case being appealed in Switzerland (of $6.5 million), the only other asset recovery related case recorded, is the long running proceedings involving Duvalier assets held in the name of the Foundation Brouilly.  Based in Liechtenstein, the Brouilly Foundation is owned by a Panama based company, which in turn is owned by members of the Duvalier family.

6. Slobodan Milosevic, President of Serbia/Yugoslavia (1989 – 2000)

Amount Embezzled: $1 billion  | Years in Office: 11

Slobodan Milosevic spent two-terms as Serbia’s President (between 1990 to 1997) before becoming President of the Federal Republic of Yugoslavia.  He is however, best known for his role in the Yugoslav wars, where he presided over the mayhem and mass murder that took place in Kosovo, Croatia and Bosnia in the nineteen-nineties.  The International Criminal Tribunal for the former Yugoslavia (ICTY) subsequently indicted him for war crimes and crimes against humanity; the first international war crimes tribunal held since the 1945 International Military Tribunals (held in Nuremberg and Tokyo).

Following the disputed 2000 presidential elections, Milosevic resigned his presidency.  He was subsequently arrested by authorities and charged with corruption, the abuse of power and embezzlement.  When the investigation faltered over a lack of evidence, he was extradited to The Hague to face the ICTY charges.  Defending himself, Milosevic refused to recognise the court’s legitimacy, as it had not been mandated by the UN General Assembly.

According to the Washington Post, initial evidence uncovered by a joint investigation by Yugoslavia, the U.S. Treasury Department and the UN’s chief war crimes prosecutor, suggested that Milosevic, his family and a network of up to 200 loyal “businessmen-politicians”, had embezzled several billion dollars of public funds for personal use.  While Yugoslavia’s central bank speculated that as much as $4 billion had been taken, the amount includes funds thought to have been used to keep Serbia functioning through a decade of UN economic sanctions.  Notwithstanding this, insiders (including Milosevic’s close relatives) are believed to have laundered hundreds of millions of dollars through dozens of Cypriot front companies, with the trail pointing to Switzerland, Greece, France, Germany, Italy, Lebanon, Israel, Russia, China, Britain, Liechtenstein and South Africa.

In perhaps the biggest single case investigated, Yugoslav officials attempted to track the proceeds from the sale of the state-owned cell phone company PTT Serbia to a consortium of Italian and Greek phone companies.  Sold for around $1 billion, $200 million was never deposited into state accounts, and an additional $350 million allegedly went to companies controlled by Milosevic’s friends.

Milosevic died of a heart attack in March 2006, before the trial could be concluded.

Return of assets: Despite the amount allegedly stolen, there are no asset recovery cases on record.

5. Zine Al-Abidine Ben Ali, President of Tunisia (1987 to 2011)

Amount Embezzled: $1.0 billion to $2.6 billion | Years in Office: 23

The second President of Tunisia, Zine Al-Abidine Ben Ali came to power in November 1987, after ousting President Habib Bourguiba in a bloodless coup.  Once there, he remained in power for the next 23 years, each time being ‘re-elected’ by margins exceeding 90%.

Under Ben Ali’s administration, Tunisia’s GDP grew by an average of nearly 5% (year-on-year) for 20 years, with Per capita GDP tripling from $1,201 in 1986 to $3,786 in 2008.  So stunning was its growth, that in 2009, a Boston Consulting Group report listed the country as one of Africa’s “Lions”.

While Ben Ali’s reforms halved the country’s poverty rate (from 7.4% in 1990 to an estimated 3.8% in 2005) high unemployment – particularly among the youth – a disenfranchised rural and urban poor, and continued repression, led to increasing unrest.  The situation came to a head on 18 December 2010, when Mohamed Bouazizi (a 26-year-old fruit-seller) set himself alight after being humiliated by local policemen.  Sparking off  what soon became the Arab Spring, a wave of demonstrations and protests exploded across the country, and within a month Ben Ali and his wife fled the country.  Denied refuge in France, Ben Ali was offered asylum in Saudi Arabia, and currently lives in Jeddah (the same city where Uganda’s infamous Idi Amin, lived in exile until his death in 2003).

According to a 2015 World Bank research report, Ben Ali’s family and members of his inner circle are alleged to have defrauded the state of between $1 billion and U$2.6 billion over a seven-year period.  At one stage it is thought that privileged insiders were capturing 21% of all Tunisia’s private sector profits,  mostly through the illegal appropriation of national assets and skimming wealth from most sectors of the country’s economy.

Following Ben Ali’s departure, an investigation into his wealth resulted in the new government confiscating the assets of 114 members of the Ben Ali Clan (including Ben Ali himself).  Items seized included 550 properties, 48 boats, 40 share portfolios, 367 bank accounts and over 400 enterprises. The total combined value of these assets was approximately $13 billion, more than one-quarter of Tunisia’s 2011 GDP.

In June 2011 Ben Ali and his wife (Leila Trabelsi) were convicted by a Tunisian court, in absentia, for theft and unlawful possession of cash and jewellery and sentenced to 35 years in prison (NB when Leila fled Tunisia, she is reported to have taken with her over one-and-a-half tons of gold valued at $50 million).  While an international arrest warrant has been issued for Ben Ali’s arrest, Saudi Arabia has consistently refused Tunisia’s request to extradite him.

In a dramatic about face, the Tunisian government sparked controversy when they tabled the draft National Reconciliation Act (in June 2015), paving the way for a potential amnesty.  This followed a decision by Tunisian courts to annul the 2011 decree that had confiscated Ben Ali and his families assets, ordering that the be returned.

Return of assets: To date funds totalling $68.8 million have been returned: $28.8 million from Lebanon  (being the proceeds from a bank account held in the name of Ben Ali’s wife), and $40 million from Switzerland.  Apart from this, are asset recovery cases pending in Switzerland ($28.5 million) and Canada ($2.6 million).

4. Sani Abacha, President of Nigeria (1993 – 1998)

Amount Embezzled: $2 billion to $5 billion | Years in Office: 5

The first Nigerian Soldier to make full General without missing a single rank, Sani Abacha led the country’s ninth military coup since its independence, when he overthrew the transitional government of Chief Ernest Shonekanon in August 1993.  The country’s seventh military head of state, Abacha was a serial coup d’état instigator, having previously played key roles in the 1966 counter-coup, and the 1983 and 1985 coups.

Although promising a return to democracy, Abacha’s actions where anything but democratic.  A year after taking power, he issued a decree that placed his government above the jurisdiction of the courts, a move that gave him absolute power.  Backed by the Special Body Guard Unit (an armed force of between 2,000 to 3,000 men based at the presidential villa), Abacha purged the military, banned political activity and took control of the press.

Despite appalling human rights abuses (which at one stage lead to the Commonwealth Heads of Government Meeting approving the unprecedented step of suspending Nigeria from the Commonwealth) – from an economic perspective – Abacha’s five-year rule was a miracle.  External debt was reduced from $36 billion to $27 billion, foreign-exchange reserves increased from $494 million to $9.6 billion, and inflation was slashed from 54% to 8.5%.

While still shrouded in mystery, Abacha’s rule was cut short when he died of a suspected heart attack on 8 June 1998.  During his five years in power, he and his family allegedly embezzled between $3 billion and $5 billion.  According to the World Bank, part of this wealth was obtained through bribes paid by foreign companies doing business in Nigeria, and part stolen directly from the country’s Central Bank.  The funds were laundered through a network of front companies in several jurisdictions, before being deposited into bank accounts (controlled by Abacha and his family) in Switzerland, Luxemburg, Liechtenstein, Jersey and the Bahamas.

In February 2014, sixteen years after his death, Abacha was (posthumously) awarded a Centenary Award as part of Nigeria’s 50th Independence Celebrations.  According to the government, the award was in recognition of his “immense contribution to the nation’s development”.

Return of assets: The return of the Abacha fortune remains one of the most colourful of all the leaders on the list.  In return for dropping criminal prosecution (in 2002), the Abacha family agreed to return $1.2 billion taken from the Central Bank.  Jersey returned a further $160 million the same year.   This was followed by Switzerland, who in June 2006 (after numerous failed appeals by the Abacha family) agreed to repatriate $505 million.  Ironically, according to Swiss and Nigerian advocacy groups, around half of this amount may have since been ‘re-stolen’ by corrupt officials!

After a hiatus of five years Jersey returned a further $36 million and Liechtenstein $225 million (after the longest running financial court case in the principality’s history).  In August 2014, a further $480 million worth of Abacha related bank deposits were frozen by the United States Department of Justice, the largest forfeiture in the agency’s history.  Switzerland returned a further $380 million a year later.

While over $2.5 billion has been returned to date, asset recovery cases are still pending in the Bahamas, Ireland, United Kingdom and the United States.

3. Mobutu Sese Seko, President of Zaire now Democratic Republic of the Congo (DRC) (1965 – 1997)

Amount Embezzled: $4 to $5 billion  | Years in Office: 32

The product of a missionary school education, Mobutu Sese Seko Koko Ngbendu wa za Banga (meaning “the all-powerful warrior who, because of endurance and an inflexible will to win, will go from conquest to conquest leaving fire in his wake”), was a serial coup plotter.  During the 1960 Congo Crises, he led the coup that ousted Patrice Lumumba, the country’s first democratically elected leader.  In return, he was appointed commander-in-chief of the armed forces.  Less than five years later he led a second coup, installing himself as President.  Declaring a regime d’exception, he assumed sweeping powers, and went on to rule the country for almost a third of a century.

The original  ‘Big Man’ of Africa, Mobutu consolidated and kept power by creating a vast patronage network.  Built on the exploitation of the country’s immense mineral wealth, Mobutu used it to effectively nullify any opposition.  Endemic governmental corruption, mismanagement and neglect over a number of years, led to hyperinflation (4,000% p.a. by 1991), a large external debt, and massive currency devaluations.  Civil unrest soon followed.

Amidst all of this, Mobutu managed to amass one of the largest personal fortunes in the world.  While the actual amount will never be known, he is alleged to have embezzled between $4 billion to $5 billion (an amount almost equivalent to the country’s foreign debt at the time it was forced to default on its international loans in 1989).  His excesses where legendary, and included having the world’s leading pastry chef, Gaston Lenôtre, flown in from Paris by Concorde to personally deliver his birthday cake.  While not publically condoned, corruption was so systemic under Mobutu, that at one stage he advised party delegates that “if you steal, do not steal too much at a time.  You may be arrested … Yibana mayele – Steal cleverly, little by little”!

Holding onto power for 32 years, Mobutu proved himself adept at maintaining rule in the face of internal rebellions, external invasions, and attempted coups. He finally relinquished power in May 1996, following an uprising led by Laurent Kabila (a Zairian Tutsi).  In the space of just three weeks, the uprising turned into to a full-scale political rebellion.  Mobutu, already terminally ill, fled to Togo and then to Morocco, where he died from prostate cancer the following year.

Aside from the title as Africa’s most corrupt ruler, Mobutu is best known for his role in hosting the heavy weight world championship title fight between Muhammad Ali and George Foreman, in Kinshasa in October 1974.  Known as the ‘Rumble in the Jungle’, each fighter was paid $5 million for their appearance.

Return of assets:  While there has been talk of a complex network of Cayman Island shell companies, apart from a few Swiss bank accounts, little is known of the whereabouts of Mobutu’s wealth.  In 2009, Switzerland unfroze $6.68 million worth of Mobutu’s assets, ending a failed 12-year attempt to repatriate funds back to the Democratic Republic of the Congo (DRC).  At the centre of this decision was a lack of “cooperation” from the DRC government, who’s Deputy Prime Minster was one of Mobutu’s son.  This lack of cooperation resulted in the funds being handed back to the Mobutu family.

2. Ferdinand Marcos, President of the Philippines (1965 – 1986)

Amount Embezzled: $5 billion to $10 billion | Years in Office: 21

Claiming to be the country’s ‘most decorated war hero’ (a title now discredited, with only 3 of the 27 medals he claimed to have been awarded during the Second World War shown to be true), Ferdinand Marcos was elected the 10th President of the Philippine’s in 1965.  In September 1972, mid-way through his second term, fears of a communist takeover resulted in Marcos dissolving Congress and declaring martial law.  It stayed in place for the next decade.  He was finally ousted by the People Power Revolution in February 1986, and fled to the United States, where he lived in exile until his death in Hawaii three-and-a-half years later.

During his 21 years in power, the Philippines became one of the most heavily indebted countries in Asia.  External debts increased from $360 million (in 1962) to $28 billion (by 1986). Wages fell by roughly one third, and the number of people living below the poverty line almost doubled (from 18 million to 35 million).

Over the same period, Marcos is alleged to have embezzled between $5 billion and $10 billion.  According to the World Bank, the bulk of this wealth was accumulated through six key channels: takeover of large private enterprises; creation of state-owned monopolies in key sectors of the economy; awarding of government loans to private individuals acting as fronts for Marcos or his associates; directly raiding the country’s treasury and other government financial institutions; kickbacks and commissions from firms working in the Philippines; and skimming off foreign aid and other forms of international assistance. The proceeds were laundered through shell corporations, then invested in real estate within the United States; or deposited into various domestic and offshore banking institutions, using a mixture of pseudonyms, numbered accounts and code names.

Known for their lavish living, an inventory of assets left at the Malacanang Palace in Manila (taken soon after their exile) included over a thousand pairs of shoes belonging to the First Lady, 888 handbags, 71 pairs of sunglasses and 65 parasols.  On their arrival in the United States, jewellery, now valued at over $21 million, was seized by the US Bureau of Customs and returned to the Philippines.  Currently being used as a “virtual exhibit” in an online anti-corruption campaign, the current government has recently announced plans to auction if off.

While Imelda Marcos was found guilty on corruption charges in the mid-1990s and sentenced to a minimum of 12 years in prison, the conviction was overturned on appeal.  She is currently a member of the House of Representatives, while her son, Ferdinand Jr., is a Senator (having recently failed in his bid to become the country’s Vice President in the May 9 presidential polls).  Her daughter, Imee, is the governor of their home province, Ilocos Norte.

Return of assets:  Since its inception in 1986, The Presidential Commission on Good Government (PCGG), a quasi-judicial agency established to recover the ill-gotten wealth accumulated during the Marcos regime, has managed to recover nearly $3.6 billion in assets.  Included in this is $688 million returned by Switzerland in 2004.  The total costs incurred in achieving this have been  around $61 million.  If civil asset recovery cases still pending in Switzerland, the Philippines, Singapore and the United States are successful, recovery efforts could reach $4.2 billion by the time the PCGG winds-up.

1. Mohamed Suharto, President of Indonesia (1967 – 1998)

Amount Embezzled: $15 billion to $35 billion | Years in Office: 31
Taking top spot in our list of most corrupt world leaders of recent history is President Mohamed Suharto of Indonesia. The country’s second president, Suharto gained control of the government in 1967 (soon after a failed left-wing coup) and went on to rule for the next 31 years.

Suharto’s ‘New Order’ policy (implemented soon after taking power) was built on a strong, centralised military-dominated government, which became critical to maintaining stability over a diverse, sprawling country of over 13,000 islands.  A strong anti-Communist stance won him economic and diplomatic support from the West; while rapid and sustained economic growth, and dramatically improving health, education and living standards, guaranteed him popular support at home.

Between 1965 and 1996, Indonesia’s GNP averaged a remarkable 6.7% per annum, with GDP increasing from $806 to $4,114 per capita.  By 1997, Indonesia’s poverty rate had fallen to 11% (from 45% in 1970), life expectancy was 67 years (up from 47 years in 1966), infant mortality had been cut by more than 60%, and the country had reached rice self-sufficiency (an achievement which earned Suharto a gold medal from the FAO).

By the mid-1990s however, growing authoritarianism and widespread corruption had sown the seeds of discontent. The same economic growth that had ensured Suharto’s popularity in the 1970s and 1980s, had resulted in a rapid expansion of what Indonesians had dubbed KKN: Korupsi (corruption), Kolusi (collusion) and Nepotisme (nepotism).

Using a system of patronage to ensure loyalty, Suharto managed to amass a fortune of between $15 billion and $35 billion.  The control of state-run monopolies, access to exclusive supply contracts and special tax breaks were given to companies owned by his four children, family members and close friends.  Many organisations included a Suharto crony in various business activities, as it became the only way of reducing the ‘uncertainties’ caused by bureaucratic red tape.  In return, kickbacks and tribute payments (usually cloaked as charitable donations) were made to dozens of foundations (‘yayasams’) overseen by Suharto.  While created to ‘assist’ with the construction of rural schools and hospitals, they effectively functioned as the President’s personal piggy bank. Donating millions to yayasams became part of the cost of doing business in Indonesia, with financial institutions required to contribute 2.5% of their annual profits each year.  According to Robert Elson, Suharto’s biographer:

“corruption [was] a well-managed franchise, like McDonald’s or Subway … Everybody knew how much you had to pay and to whom.  Suharto didn’t invent the depth and breadth of corruption. What he did was to manage it on a scale that no one had ever been able to do before.”

In 1998 the tide turned when the Asian Financial Crises took Indonesia to the brink of economic collapse.  Rising discontent led to riots and demonstrations forcing Suharto to resign.  Two years later he was charged with misusing $550 million from seven charities he controlled while president, and temporarily placed under house arrest.  Pronounced to ill to stand trial, another attempt (two years later) ended the same way.  Finally, in July 2007, a $1.5 billion civil lawsuit was filed against Suharto.  The case was never heard, as he died a few months later.

Return of assets:  In 2010, the Indonesian government successfully brought a private civil action against the Suharto family for the recovery of $307.4 million.  Apart from this (and the cases mentioned above), the only other case recorded, relates to $50.4 million worth of assets controlled by Suharto’s son, “Tommy”, which was frozen by Guernsey in 2002.  Tommy subsequently served five years of a 15-year prison sentence for ordering the murder of the Indonesian Supreme Court judge who convicted him of corruption in connection to a (unrelated) multimillion-dollar real estate scam case.

Other contenders for the most corrupt world leader

While the ten leaders listed above stood out, they were not the only ones vying  for the title of the world’s most corrupt leader.  Other strong contenders included Ukraine’s Viktor Yanukovych, who is alleged to have kept a log book showing that he had paid $2 billion in bribes while in office (or $1.4 million for each day he was president).  Then there is Teodoro Obiang Nguema Mbasogo, President of Equatorial Guinea.  With a personal fortune thought to be around $600 million, in 2003, Obiang took personal control of the country’s treasury, arguing that this personal ‘intervention’ was the only way to prevent civil servants from being ‘tempted’ to engage in corrupt practices. The following year he transferred $700 million into various US bank accounts controlled by himself and his family.

Another potential candidate worth mentioning (as no list would be complete without him) is Italy’s enigmatic Silvio Berlusconi.  With a personal net worth thought to be around $9 billion, Berlusconi estimated (in 2009) that his 2,500+ court appearances, in 106 corruption related trials spanning two decades, had cost him more than $200 million in legal fees!  Notwithstanding this, Italians still elected him president!

Finally, in an effort to ensure gender equality, it is worth mentioning that a lone female also made the list of contenders.  While President Marcos of the Philippines managed to make it to number two on the list of most corrupt world leaders of recent history, a 2007 poll carried out by Pulse Asia, indicated that 42% of his countrymen (and women) felt that Philippine’s most corrupt leader of all time wasn’t Ferdinand Marcus … but Gloria Macapagal Arroyo!

Is there a world leader that you feel should have made the list but didn’t? If so, share it with us in the comments section below, as I’d love to hear from you.

About the author: Jeremy Sandbrook is the Chief Executive of Integritas360, a global social enterprise that helps charities and NGOs/NFPs  ‘corruption-proof’ themselves. An internationally recognised anti-corruption expert, he has spent the last decade working in the international development sector, predominantly in Africa, Europe and Australasia. Jeremy also lectures on the topic at the University of Sydney’s Centre for Continuing Education. 

Key sources: While the above rankings were based on information sourced from various articles, heavy reliance was placed on the Stolen Asset Recovery (StAR) Initiative (established by the World Bank Group and the United Nations Office on Drugs and Crime (UNODC) in 2007) and Transparency International.

The post The 10 Most Corrupt World Leaders of Recent History appeared first on Integritas 360.

Sports NGOs and ‘Corruption as usual’

It seems that barely a month passes without yet another report of corruption in sports being splashed across newspaper headlines. In relation to large sports NGOs, these have included: members of FIFA’s executive committee accepting bribes, a former president of CONCACAF being charged with fraud and money laundering, hosting nations paying bribes to win Olympic hosting rights, match-fixing, and the IAAF’s involvement in corruption and cover ups.

This phenomenon isn’t just limited to football and athletics however, as corruption is far more widespread, as shown by the following examples:

• Cricket has witnessed allegations of both spot-fixing and match-fixing involving players from Pakistan, England, New Zealand, India, South Africa, Sir Lanka and Kenya.  There have also been constant match-fixing allegations in relation to the Indian Premier League (the most lucrative cricket event in the world), with two of the league’s eight teams recently suspended for two years over a corruption scandal;
• Tennis is currently undergoing a crisis as allegations of match-fixing engulf the sport;
• Cycling has for many years been dogged with allegations of illegal doping, with the issue only coming to a head when the International Cycling Union was accused of knowingly protecting Lance Armstrong – cycling’s long time poster boy – against doping allegations; and
• Badminton, boxing, handball and other sports, including US collegiate sports, have all suffered from similar credibility gaps

It is clear from this that there are serious underlying issues that sports NGOs need to address in order to clean up their respective sports.  But given its nature – and the amount of global revenue involved  (estimated to be $145 billion as at 2015) – how can they combat the risk of corruption? Are they able to recover from the repercussions of fraudulent activities that have already occurred? And, is it possible for them to regain the public’s trust in spite of the sector’s terrible track record of dealing with the issue?

Let’s begin tackling these questions by exploring in greater detail, examples of the types of corruption that have occurred in sports NGOs.

Fraudulence in FIFA: A Decade of Bribes

Allegations of corruption regarding football’s world governing body, FIFA (The Fédération Internationale de Football Association) have been swirling around for decades.  In 2015 however, a multi-jurisdictional investigation into current and former FIFA executives, unearthed long buried cases of corruption and unethical behaviour.  While still on going, 16 FIFA official and senior executives have now been indicted on various corruption related charges (see the following timeline).

Within two days of the first round of arrests, Sepp Blatter, FIFA’s long time president, was re-elected unopposed by FIFA’s 209 members.  Despite protestations of his innocence, Blatter and his heir apparent, UEFA’s president Michel Platini, were subsequently found guilty of corrupt dealings, involving a $2 million (£1.3 million) “disloyal payment” made to Platini in 2011, and banned from all football related activities for eights years by their own ethics committee.  Blatter is now being investigated, by the FBI, for his role in a bribery scandal where $100 million was paid to FIFA officials.

At the heart of the initial investigation was former general secretary of CONCACAF (the Confederation of North, Central American and Caribbean Association Football) Charles Blazer – known as  ‘Mr Ten Percent’ – whose statements shed light on just how corrupt the organisation was.  Amongst other things, Blazer revealed that he and other members of the FIFA executive committee accepted bribes in exchange for the selection of South Africa as the host of the 2010 World Cup (money which FIFA is now trying to claw back).  He also admitted that bribes were taken in relation to the CONCACAF Gold Cup Tournaments in 1996, 1998, 2000, 2002, and 2003 (see below).

Not surprisingly, these allegations have brought into question the legitimacy of the decision to award the next two World Cups to Russia and Qatar respectively. In the case of Qatar, the decision was particularly controversial, not only due to the country’s lack of any football pedigree, but more importantly over the intense heat a summer World Cup would bring (an issue which an official FIFA bid evaluation at the time labelled as “a potential health risk”).  The award was subsequently mired in numerous allegations of bribery, and both Qatar’s and Russia’s bids are now being formally investigated.

While the original US investigation is still on-going, it’s not FIFA’s only headache, as Australia, Colombia, Costa Rica, Germany and Switzerland have all opened (or intensified) separate criminal investigations into FIFA corruption.  If this isn’t enough, FIFA’s current President, Gianni Infantino, has since been drawn into the infamous ‘Panama Papers‘ scandal, when (yesterday) Swiss police raided the European soccer body UEFA to seize documents related to a contract he signed when he was UEFA‘s director of legal services.

CONCACAF: Caught Up in the Corruption of FIFA

Following in the seemingly fraudulent footsteps of FIFA, leading members of CONCACAF have faced charges of corrupt activities in recent months.  They include former presidents Jeffrey Webb and Jack Warner, and interim president Alfredo Hawit.

Prosecutors have claimed that Hawit (who is also a FIFA vice president) and other senior members, accepted hundreds of thousands of dollars in bribes in exchange for awarding marketing rights to the Gold Cup and other events.  While initially claiming to be innocent, Webb has pled guilty to charges of racketeering, wire fraud, and money laundering, and agreed to forfeit of $6.7 million.

Illicit Activities in IAAF: Bribes, Doping, and Cover Ups

The story of corruption in the IAAF (International Association of Athletics Federation) is long and complex, but at the heart of it is doping, involving the winner of the 2010 London Marathon, and second fastest female marathon runner in history: Liliya Shobukhova.

Details were revealed by the Russian sports agent Andrey Baranov, that violations in Shobukhova’s athlete biological passport were covered up in exchange for a £335,000 bribe  (paid to senior Russian officials). This allowed her to compete when she should have been banned for the use of illegal substances.

It was also revealed that IAAF officials were involved in extortion. In exchange for accepting a suspension, Shobukhova was given a €300,000 ‘refund’, paid to her husband’s bank account from a company linked to a senior member of the IAAF, Papa Diack.

Shobukhova broke her silence on the matter, and while her story was ‘entirely consistent’, the accounts of those involved in the cover up – including Papa Diack – were ‘riddled with implausibilities, inconsistencies, transparent lies and dubious documents.’

In a twist to the story, Papa Diack is the son of Lamine Diack, the former president of the IAAF, who was subsequently found in a damning World Anti-Doping Agency report, to have blackmailed athletes and covered up organised doping (while senior officials within the sports body looked the other way).

IOC: Buttered Up during the Bidding Process

FIFA’s illicit activities also appear to be a clone of the IOC’s (International Olympic Committee’s) bidding process for the 2002 Winter Olympics, with the Salt Lake Organising Committee (SLOC) found to have given gifts and bribes to IOC members in an attempt to influence their vote.

After revelations that SLOC had paid $108,350 in tuition fees for an IOC member’s child, more details of corruption began to surface.  In total over $1m was spent on 24 of the 114 IOC members, in Utah’s efforts to ‘secure’ the games.

Six IOC members were subsequently expelled when an investigation found them to have received money from SLOC in the form of direct payments, land purchase agreements, tuition assistance, political campaign donations, and charitable donations.

While the ensuing scandal resulted in a major re-writing of the Olympic Charter, it was unfortunately not an isolated incident, but a long standing catalogue of errors of judgement, as evidenced by the revelations exposed in Andrew Jennings’ 1996 book ‘The New Lords of the Rings: Olympic Corruption and How to Buy Gold Medals’.

For those interested in a more in-depth analysis of the SLOC affair, the ISOH has released an excellent article titled ‘The Olympic Bribery Scandal’, which is well worth reading.

So why are sports NGOs so prone to corruption?

For many years, sport’s bodies have been left to police themselves.  In many cases vested interests have been allowed to take absolute and unfettered control, leading to unethical and questionable behaviour.

The consequence of this has been a huge accountability and governance vacuum within the sector. For example, whilst FIFA are officially governed by Swiss law, until recently, very little has been done by Swiss authorities to prevent the scurrilous goings on behind the scenes.

While major sports NGOs such as FIFA, the ICC, and IAAF are not for-profit organisations, they accrue billions of dollars a year in television rights and sponsorships, making it extremely lucrative for those involved in the decision making process (e.g. FIFA made a $2.6 billion net profit on the 2014 Football World Cup alone).  This, a one-member-one-vote system, and the fact that those in control are also responsible for deciding which member countries receive funding for ‘development projects’, encourages ‘loyalty’ to the leadership and increases the chances of patronage and bribery being used to influence decisions.

As long as these (usually entrenched) vested interests are free to continue spreading largesse amongst individual member, there is little political will – or incentive – for sports NGOs to actively tackle the issue, as it remains more lucrative for members to maintain the status-quo then to agitate for change.

While at times sports NGOs appear to be tackling the issue, their actions don’t always stand-up to scrutiny. For example, despite the recent scandal involving alleged match-fixing in tennis, the Tennis Integrity Unit (TIU) admitted that it only had six staff and an annual budget of just $2 million, making it highly dependent on tip-offs from betting companies and players. This ‘fig-leaf’ funding begs the question as to whether the sport is genuine about tackling corruption, with the head of the TIU recently admitting to the UK’s culture, media and sport select committee hearing that he had no idea who the 16 players alluded to in the BBC and BuzzFeed articles (that first uncovered the issue), actually were.

Sports NGOs are also vulnerable because of the way they are set up and overseen.  The cases highlighted above reveal that much of the corruption stretches right to the top: they involve senior members of the organisations. Because sports NGOs tend to be federations governed by their own membership, there is a lack of external oversight to enforce regulations and ensure integrity is maintained .  NGOs rely on their own control frameworks, which at times gives members free reign to run the organisation as they see fit. This means morally questionable and outright unlawful strategies for securing ‘victory’, are not out of the realms of possibility.

In such an environment, it should come as no surprise that engaging in illicit activities becomes the modus-operandi, as it would be relatively easy for a person’s own moral bounds to be lowered by influence until it’s seen as “the way things are”; creating a vicious cycle of corruption.   All it takes is for one or two leading member’s to have skewed moral perceptions to affect an organisation’s practices, and the rest may simply follow suit.

Can corruption in sports NGOs be combatted?

While a good start, it would be idealistic to simply suggest that putting in a whistleblowing regime and educating members about corruption would be the best way to combat it. The sad fact is that many organisations have had procedures in place that have been either ineffective, or blatantly ignored.

Sebastian Coe (president of the IAAF) when asked if athletics will ever be clean stated:

“No, the practicality is there will always be a few people who try to step beyond the moral boundaries. It is our responsibility to make sure the right systems are in place and the right people [are in place] to uphold these systems.”

In other words, no matter how dedicated your organisation is to combatting corruption, some individuals will still be tempted to engage in unlawful activities, as it’s a short, fast, and profitable route to victory. Given the amounts of money involved, this is particularly true in the case of the sporting industry.

While organisations can put processes in place to reduce the chance of corruption occurring at the start, it is not always enough, with many anti-corruption programmes failing before they even get of the ground.  In the case of sports NGOs, an effective tool that will help counter current corrupt practices is increased transparency.

Sports NGOs and the need for transparency

Shining the light on corrupt or illicit activities (when they happen) is one strategy for preventing corruption from taking place.  While regaining public trust after a corruption case is reported will never be straightforward, it is crucial that an organisation shows it has the political-will to actively address, and learn from, the issue.

Humanitarian director Lisa Henry of DanChurchAid (DCA), a large Danish NGO, strongly advocates this approach. Their organisation has been publishing an annual corruption report every year since 2008.  She stated that:

“The most effective way to fight corruption is to expose it. We carefully publish our findings with an emphasis on ‘lessons learned’ and we use them as active learning cases, and don’t sit and wait passively for the next case to surprise us.”

Doing this will not only help build a stronger anti-corruption culture, but show that that the NGO is actually living a ‘zero-tolerance’ approach.  If sports NGOs show they are not afraid to confront their shortcomings and learn from their mistakes, they will – only then – be in a position to win back the trust of their fans and the public in general.

But is it possible for sports NGOs to put this principle into practice?

But do Sports NGOs really want to make changes?

What can be done to change the murky nature that currently exists?

One such proposal is to root out vested interests by changing the body’s executive boards. Cricket writer Scyld Berry proposed that the ICC have a nominations committee made up of people of integrity (without vested interests), who should select the body’s executive board. This would ensure accountability from the very top.

Another idea is to encourage governments and sports NGOs to work together, as without some form of national or international governance, sports NGOs may continue turning a blind eye to the current issue. A good example of this is WADA (the World Anti-Doping Agency), which was formed through the support of 120 governments around the world. It was WADA who uncovered the IAAF corruption example referred to earlier in this article.

But would all this work?

So what can be done to make sports NGOs take corruption seriously?  There is a growing feeling amongst many that this will only happen if it impacts their hip pockets.  If correct, then at the heart of this dilemma, is for sponsors or members to have sufficient political will to simply walk away.

While in the past this would be unthinkable, there are signs that it may be changing.  While in many cases sponsors are still reluctant to walk away from major sporting tournaments, a number of companies have stopped sponsoring FIFA since the bribery scandals engulfed the organisation.  That being said, their refusal to publicly criticise what took place, has meant that the positive impact of their departure was lost.

Whilst some subtle wording in statements from major sponsors have suggested unhappiness with the governing of FIFA, the financial worth of an existing sponsorship deal has meant that companies – and television broadcasters – simply can’t afford to walk away. An example of this is Adidas, whose World Cup sponsorship is said to generate billions of dollars in profits for them.  Given this – and the fact that Adidas have publicly advised that the FIFA scandal has had no negative impact on their brand, is it realistic to expect a sponsor to cut ties and simply walk away?  Unfortunately the issue is best summed up by comments made by Andrew Woodward, the former head of communications for Visa’s global sponsorship, who claimed that sponsors would be mad to dump their deals. “The FIFA World Cup is the most popular sporting event in the world,” he wrote  “People love it. They don’t care about the corruption.”

What about the role of a sports NGO’s member? Imagine a World Cup without Germany, Italy, Argentina or Brazil?  The loss of these, or other major teams, would certainly force a change in the way FIFA behaves. As is the case for sponsors though, how easy would it be for national associations to tell their sports stars – or a country’s fans – that they, or their team, will not be allowed to perform at the highest level of competition?

Sporting fans hold the key to change

In light of all of the vested interests involved, in the short-term, real and meaningful change is unlikely.  Given this, maybe the only way to set the necessary wheels in motion to force a change in the governance of sports NGOs, is for fans to vote with their feet.  A boycott of World Cups in 2018 and 2022, would be the ultimate signal that fans are fed up with the status quo, and that corruption in sports must stop. It is only by hitting sports NGOs (and the sponsors who fund them) where it hurts most – their wallets – that we would quickly see the necessary motivation needed to start genuinely tackling corruption in sports.

About the authors:

Jeremy Sandbrook is the Founder and Chief Executive of Integritas360, a global social enterprise that helps charities and NGOs/NFPs ‘corruption-proof’ themselves.  An internationally recognised anti-corruption expert, he has spent the last decade working in the international development sector, predominantly in Africa, Europe and Australasia. Jeremy also lectures on the topic at the University of Sydney’s Centre for Continuing Education.

Liz Burton is a Content Author at High Speed Training: a UK-based online learning provider that offer business-related training courses, including Anti-Bribery and Anti-Money Laundering (AML) and Financial Crime. Liz has authored a variety of courses and regularly writes informative, business-related articles for their blog, the Hub.

The post For the Love of the Game: Corruption and Sports NGOs appeared first on Integritas 360.

The following article was originally published in Ethical Boardroom Magazine Winter 2016 Edition.

Eight mistakes that boards & management need to be aware of when establishing anti-corruption programmes

Unfortunately, a growing number of anti-corruption programmes are failing to meet this new challenge; the most recent being the French industrial group Alstom. Despite having an integrity and anti-corruption programme in place, Alstom was recently fined US$277.3 million to resolve criminal charges relating to a widespread corruption scheme. The scheme involved the payment of at least US$75 million in secret bribes to government officials around the world.

So what went wrong? Why was it that its anti-corruption programme failed and failed so miserably? While there is no silver bullet to guarantee success, there are a number of common pitfalls, which, if avoided, can dramatically decrease the chance of failure.

While not exhaustive, outlined below are the most common mistakes that boards and management need to be aware of when establishing anti-corruption programmes.

(1) Lack of political will and commitment at the top

The strongest influence on the direction of an organisation’s ethical compass is its leadership, making the ‘tone set at the top’ the most important influence in shaping the success – or failure – of its anti-corruption programme. This requires genuine commitment. It is not simply a matter of making anti-corruption an organisational priority, but having sufficient political will to prioritise principle over economic pressures. Too often, a blind eye is turned when questionable behaviour is needed to ‘win’ business or meet revenue targets.

Without genuine commitment at the top, even the best anti-corruption programme will end up as window dressing. Put simply, if its leaders are not authentic about countering it, why should its managers and staff be? A prime example is FIFA, which had an extensive ethics and anti-corruption programme in place (see Box 1, below). Despite this, it is embroiled in multiple corruption probes that has led to the suspension of its long-standing president and seen 23 of its senior officials charged (along with two other officials and five corporate executives) with racketeering, wire fraud and money-laundering spanning a 24-year period.

Tip: A simple litmus test to gauge leadership’s commitment to an anti-corruption programme is to ask how many senior managers have attended the standard anti-corruption training workshop traditionally advocated for staff?

(2) Inadequate resources being made available

While making necessary resources available is a sine qua non of any anti-corruption effort, it is often overlooked. According to PwC’s 3rd Annual State of Compliance Survey, while 80 per cent of respondents had a global turnover in excess of $1billion, 41 per cent had a compliance budget of just $500,000 (or 0.05 per cent of their turnover) or less.

If we overlay this with the Association of Certified Fraud Examiners (ACFE) statistic that the typical organisation loses five per cent of revenues each year to fraud, the $500,000 compliance budget above is expected to tackle nominal annual fraud seepage of $50 million or more. In other words, for every $100 in fraud incurred, the organisation makes $1 available to counter it: a ratio of 100:1. When factoring in non-fraud-related forms of corruption, this ratio widens even further, making the $500,000 budget appear somewhat symbolic.

Tip: While resources are a key enabler for a successful anti-corruption programme, throwing money at a problem is no guarantee of solving it. Just as important is ensuring that the resources made available are of the right mix

(3) Using a generic ‘one size fits all’ approach

While corruption is a generic problem, it has no generic solution. Differences in cultural beliefs, value systems and norms mean that what is acceptable in one country or society (in particular when defining corruption) is inappropriate in another.

Anti-corruption and compliance efforts traditionally use a ‘factor approach’, which relies on the use of a checklist of actions or components that need to be included within various anti-corruption initiatives. Overly generic in nature, this ‘one-size-fits-all’ approach ignores the contextual differences highlighted above.

The issue here is flexibility. An anti-corruption programme needs to take general factors into account, while at the same time, being sensitive to differences in local circumstances. How corruption in Sub-Sahara Africa (which is generally opportunistic in nature) is tackled, is different to how corruption in parts of Asia or Eastern Europe (which is far more systemic) is countered. If an anti-corruption programme does not take these differences into account, success will at best be limited.

Tip: While the basic foundation for an anti-corruption framework should be built around a common set of principles, the individual components (and stepping stones) that go into each of its pillars need to be tailored to meet the particular corruption context faced.

(4) Absence of ownership in the middle

While the ‘tone set at the top’ is critical to establishing the foundations of a successful anti-corruption programme, ownership ‘in the middle’ is vital for embedding it. While leaders set the direction, middle management is where the rubber meets the road. This group – more then any other – have direct influence on an employee’s day-to-day behaviour, creating a multiplier effect that places them at the front-line of entrenching corruption prevention. If middle managers feel they don’t own the initiative, the risk of failure is high.

This is supported by the results of a series of internal KPMG staff focus groups, which found that a staff member’s immediate supervisor was the first person they would turn to in the event of a potential problem or ethical question. In this context, it was the firm’s third- and fourth-year associates who were identified as being the critical link in setting the tone and driving leadership’s ethics and anti-corruption-related compliance messages throughout the organisation.6

Tip: Given their direct influence over day-to-day staff behaviour and the multiplier effect they can have, middle managers need to be the focus of additional anti-corruption training/sensitisation.

(5) Failure to strongly enforce wrongdoing

When a long-standing chairman of a leading anti-corruption agency was asked what (in his opinion) was the most effective deterrent to corruption, he responded: “Executing somebody!” While extreme, the underlying message is clear: the penalty for being caught needs to far outweigh any potential benefits that can be gained from wrongdoing. Failure to strongly and consistently enforce punitive sanctions will directly undermine the credibility of an organisation’s anti-corruption programme.

The importance of this is highlighted in the case of a large multi-national with extensive operations in Southern Africa. When a forensic audit found its local CEO had acted corruptly, rather then risk an expensive court case that would generate negative publicity, they instead offered him a golden handshake. The message sent to staff (who had all been closely following the case) was clear: it paid to be corrupt. Not only do you get to keep what you took, but you are then paid to leave! While this decision may have seemed logical at the time, the direct result was a marked increase in corruption cases throughout the region.

Tip: Strong, consistent enforcement of anti-corruption sanctions need to be viewed by the organisation as an opportunity (not as a threat), as it remains one of the single most effective anti-corruption deterrents available.

(6) Over-reliance on hard controls

Many anti-corruption programmes focus on the use of ‘hard controls’, such as structures, policies and procedures, forms and rules etc. Based on a system of ‘checks and balances’, these controls work by simply being in place. This makes them relatively easy to test and audit, hence their popularity when ‘results’ need to be shown.

The downside, however, is that the increasing complexities of today’s business environment means that as each additional risk is identified, there is a tendency for organisations to react by overlaying one set of hard controls over another. This layering effect can rapidly result in an environment where managers (and staff) bypass the system simply to ‘get things done’. Once this becomes the modus operandi, the control system as a whole becomes redundant.

Tip: An anti-corruption programme should be made up of a mix of hard and soft controls (see the Table below). Performed by people, soft controls (such as an ethical culture, competence, a commitment to quality and fairness) are active in nature, and harder to audit. They are, however, extremely effective when it comes to corruption prevention.

Table 1: Hard vs. Soft Controls

(7) Ignoring the ‘design-reality gap’

While many anti-corruption programmes tend to fail during the implementation phase, in many cases the underlying cause can be traced back to a mismatch between the expectations built into the programme’s design and the actual realities on the ground. The larger the gap, the greater the risk of failure.

A successful anti-corruption programme requires a clear understanding of both the ‘who’ and the ‘how’ in the design process. The problem here tends to be twofold: first those tasked with design have a lack of understanding or exposure to the realities on the ground; and secondly the ‘design’ objectives aren’t aligned with the ‘real’ objectives and values of delivery stakeholders. The result? An over-assessment of what the programme can effectively achieve.

Tip: Ensure that implementation stakeholders are included in the programme’s design phase. This, and breaking each initiative down into ‘bite-sized’ chunks, will help minimise the residual design-real it y gap within each component, making successful implementation more likely.

(8) Inadequate training and sensitisation

Training is an area that is consistently identified in anti-corruption enforcement actions as being inadequate. Too often organisations assume that circulating a policy on anti-corruption is sufficient in itself and fail to provide the training and sensitisation necessary to anchor it.

As behavioural change is at the heart of corruption prevention, training is a v ital. ingredient to a successful anti-corruption programme. Staff and managers alike need to understand how the organisation defines corruption and what types of conduct may constitute corrupt or unethical behaviour. If they are unable to recognise the warning signs and red flags that indicate the presence of corruption, or are not equipped with a framework on how they should act – and react – when faced with corrupt activity, an organisation’s anti-corruption programme will fail to tap into its key anti-corruption resource: its own staff.

Tip: An anti-corruption programme should include training, training, and more training! Sensitisation and training workshops need to be tailored to specific corruption risks and responsibilities and should clearly communicate that compliance is the responsibility of all staff.

But is getting it right as easy as it sounds ….?

While not exhaustive, the above tips will dramatically increase the chances of a successful anti-corruption programme. There is, however, no quick fix. Even among organisations where anti-corruption compliance is well-established, sustained, on-going commitment and energy is essential. Anti-corruption efforts in general should not be viewed as static, but iterative in nature. To be effective, a programme must be able to anticipate and adapt to new risks as the organisation and its environment changes. Regardless of this, one thing is clear – given the increasing penalties now being levied for breach of anti-corruption legislation around the world (in particular in the US and UK), boards can no longer afford to ignore the topic – or the associated risk it poses to their organisation.

About the author: Jeremy Sandbrook is the Chief Executive of Integritas360, a global social enterprise that helps charities and NGOs/NFPs  ‘corruption-proof’ themselves. An internationally recognised anti-corruption expert, he has spent the last decade working in the international development sector, predominantly in Africa, Europe and Australasia. Jeremy also lectures on the topic at the University of Sydney’s Centre for Continuing Education. 

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The following article was subsequently published by Pro bono Australia.  Titled ’10 Corruption Risks Keeping NFPs awake at night’, it appeared in their Hot Topics section on 15 October 2015.

While Charities are the most trusted institutions in the world …

I’m always surprised when talking with people working in the charity/NGO sectors, at how little many of them know about the inherent corruption risks facing their industry.  While consistently ranked as the most trusted institutions’ globally (topping the Edelman Trust Barometer for the last seven years in a row), the sector faces a number of inherent vulnerabilities that significantly raises its overall corruption risk ranking.  Having a knowledge of these is essential if a charity/NGO is to put an appropriate risk mitigation strategy in place.

Inherent fraud and corruption-risks facing NGOs and charities

While not exhaustive, outlined below are what I believe are the top 10 interconnected corruption risks inherent to the NGO and charity sector:

(1)  A tendency to be ‘mission-driven’: While the last decade has seen a growing professionalisation of the sector, it continues to be characterised by a relatively high level of  ‘missionary’ zeal.  In such an environment, governance becomes secondary to the organisation’s mission, with adherence to the ’cause’ used to justify placing the action of the organisation – and its staff – above the law (a simple example of this is bribing a public official to release a container of humanitarian aid, the rationalisation being that helping those in need outweighs paying the bribe).  The extent of governance issues is highlighted by a recent compliance report by Australia’s charities and non-for-profits regulator, which stated that 72% of complaints substantiated by them, directly related to breaches of governance standards.

(2)  The presumption of ‘moral authority’: A recent consultation paper by the NSW’s Independent Commission Against Corruption, states that “while the vast majority of NGOs and staff are dedicated to helping others, there are those that see government money as an opportunity for self-interested behaviour”.

While many of us believe that those working for NGOs and charities are naturally good, the most prevalent form of NGO and charity fraud is the embezzlement and miss-management of funds by employees and volunteers. As a charity’s employees are perceived to work for more than just financial gain, salaries in the sector are kept low, making both honest and dishonest employees more susceptible to the temptation of padding out a relatively small pay check (especially when oversight is less than rigorous).  This risk is heightened by the fact that in many parts of the developing world, jobs in the formal sector are few and far between, with many staff working in NGOs – not out of a deep-seated belief in a ‘cause’ – but out of simple economic necessity.

(3)  A high level of volunteerism:  A culture of mutual trust, and the presumption that people volunteer for an agreed common good, are (in part) what makes charities so effective.  Use of volunteers also ensures that costs are kept to a minimum.  Despite this, a qualitative empirical study by Nichole Georgeou (in his book ‘Neoliberalism, Development, and Aid Volunteering’) found that volunteers working in the development sector expressed a sense of entitlement to receiving privileges (even though agreeing they were undeserved); the same sense of entitlement used by fraudsters to justify or rationalise their behaviour.  This risk is exacerbated when operating in an environment where ‘volunteerism’ (a relatively Western concept) is new, as those involved may well have a preconceived expectation of being ‘rewarded’ for their efforts.

(4)  The propensity to be closed to external forces:  Unlike other sectors, NGOs and charities tend not to be imbedded into broader external processes, resulting in a narrow frame of reference and a natural predisposition to be inwardly focused and closed to change.  This insularity can easily make an organisation – and those in it – myopic to the broader environment (and the risks within it).

(5)  A low level of accountability:  NGO accountability is primarily enforced through self-regulatory mechanisms and internal rules and procedures.  Unlike other development players, most of who are subject to rigorous integrity regimes (e.g. internal and external oversight bodies), an NGO’s integrity predominantly relies on the effectiveness of its governance system, and the robustness of its internal control framework.  Add to this the tendency to focus only on donor (or ‘upward’) accountability, precludes charities from implementing more effective anti-corruption accountability mechanisms. For more on this see Trouble in Paradise: NGO Accountability & Corruption.

(6)  Weak regulatory framework’s: NGOs and charities tend to fall through a regulatory crack, as most of them are neither corporate entity’s, nor do they form part of government.  This grey area is characterised by minimal regulations and a lack of robust external oversight.  Even in cases where an industry regulator may be present, resource constraints tend to make effective oversight challenging. This is evidenced by the rise of the BINGO (or briefcase NGOs) whose sole purpose is to tap into development funds for the benefit of its owners.

(7)  Exposure to highly corruption-prone countries:  The average charity’s footprint often includes exposure to programmes operating in some of the most corruption-prone areas on the globe. Notwithstanding this, specific controls needed to address the increased local corruption risks are often over-looked, with most head-office staff having little real exposure to (or understanding of) the realities on the ground.  In the case of one large well established INGO with operations in over 100 countries, despite 80% of its annual funds being channelled to highly corrupt jurisdictions (the bulk of which were classified as being – or at risk of becoming – a failed state), only minimal financial controls had been implemented.

(8)  The use of local delivery partners: Many small and medium sized charities sending funds overseas rely on local or in-country delivery partners.  While there are a number of obvious advantages to this, it brings with it an additional layer of risk.  In many cases formal due-diligence processes – common in the commercial world – are yet to be adopted as standard practice within the charity sector.  In addition, key oversight mechanisms used, tend to be restricted to the provision of ongoing programme reports, annual financial audits, and a programme visit.  While each is an essential control, they are unreliable indicators of the presence of fraud or corruption (including the presence of  ‘double dipping’, where a partner has sought or accepted funds for (part of) the same project from multiple donors).

(9)  An over-reliance on external audits: Despite the external audit process not being designed to detect fraud or corruption, NGOs and charities continue to rely on it as confirmation of a ‘clean bill of health’.  In a survey of Australasian charities, while 90% of respondents felt that fraud was a “problem” for their sector, 83% believed their own charity to have a low fraud risk.  The main reason for this?  The external audit process.  The ACFE’s annual global fraud survey however, have shown this trust to be misplaced, as external financial audits detect just 3% of frauds.  Over twice that number (6.7%) are uncovered by accident, making it a more effective fraud detection mechanism.  That being said, audits still act as a valuable deterrence to some potential fraudsters.

(10)  The difficulty of beneficiary verification: One of the largest on-going challenges faced by NGOs in the developing world is beneficiary verification, an issue made more problematic when operating in countries (for example Malawi), where birth certificates have not been mandatory. In one investigation I was involved in, 56% of the NGO’s registered programme beneficiaries were found to be non-existent.  Despite being  “ghost” beneficiaries they had received 48% of all programme aid distributed!  While various technologies have been used to make the process more transparent, no cost-effective solution has yet been identified.

What are the consequences of all of this?

The consequence of these vulnerabilities have been that the NGO and charity sector has been viewed as an easy target – not only by fraudsters – but by organised crime and terrorists groups, who have traditionally used them as conduits for money laundering and terrorism funding.

In the case of Australia, while the creation of the ACNC (the Australian Charities and Not-for-profits Commission) has ensured that questionable activities by charities and Not-for-Profits are less likely to go undetected, its overall effectiveness is hampered by limited resources and its mandate as a “light touch regulator”.

So what is the solution?

While a number of generic steps can be taken to reduce the risk of corruption taking place, the first, and most effective is for a charity or Not for Profit to fully understand its unique corruption-risk profile.

Based around analysing and assessing the risk of corruption across a number of interrelated perspectives, if done properly, it should help identify the crucial building blocks needed to mitigate the organisation’s key risks.   Until charities and NGOs start proactively dealing with this, many will continue to leave themselves exposed to unnecessarily high levels of preventable corruption.

About the author: Jeremy Sandbrook is the Chief Executive of Integritas360, a global social enterprise that helps charities and NGOs/NFPs  ‘corruption-proof’ themselves. An internationally recognised anti-corruption expert, he has spent the last decade working in the international development sector, predominantly in Africa, Europe and Australasia. Jeremy also lectures on the topic at the University of Sydney’s Centre for Continuing Education. 

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Despite the growing level of funds channelled through NGOs (or maybe because of it), fraud and corruption continue to be a highly sensitive topic, with most NGOs reluctant to openly discuss it.  This was highlighted a few years ago, when Médecins du Monde initiated a study in an attempt to open up discussion on corruption within the humanitarian aid sector (one of the most corruption prone areas of development).  Of the 17 largest French NGOs contacted for a confidential interview, accounting for more than 80% of all French humanitarian aid, 11 refused to participate. Attitudes such as this, a general lack of transparency within the sector, and a scarcity of empirical evidence available on fraud and corruption, has resulted in the topic avoiding appropriate scrutiny.

Following on from my article on NGO accountability, this is the second in a series of three articles examining NGO accountability and corruption.  Its focus will be on what we know about actual corruption within the NGOs.

‘Rose-tinted’ glasses’:  Corruption only happens in NGOs working in the developing world … or does it!

When the topic of corruption is raised, the natural inclination is to point the finger elsewhere.  In the case of Northern NGOs, this tends to be at their counter-parts operating in the developing environments of the South.  This was brought home to me in a discussion with a CEO & President of a North American based INGO last week, who stated with absolute conviction, that the ‘real’ need for anti-corruption measures was in Southern NGOs, as those in the North (like his) could safely “rely” on their external auditors and internal risk management systems to prevent it from happening.  When I pointed out that the latest ACFE fraud survey showed that he had twice the chance of uncovering a fraud within his INGO by accident (at 6%) then it being uncovered by his external auditors (at 3%), he was a little taken aback.  That aside, just how accurate was his assertion that the problem of fraud and corruption within the NGO / non-profit sector is limited to certain parts of the world?

While research available on NGO corruption is predominantly drawn from newspaper articles of fraud reported in national NGOs in the North, it represents the tip of the iceberg, as a KPMG survey has found that 77% of all fraud investigations never reach the public domain, and 54% are not even communicated internally.  In a 2014 survey into fraud in the Australian NGO sector, 54% of respondents advised that they did not report fraud to the Police because of “concerns relating to the impact of future funding opportunities, and potential damage to the organisation’s reputation”. While over 90% of respondent’s viewed it as a problem for the non-profit sector as a whole (in another show of ‘finger pointing’), only 1 in 4 saw it as a problem for their own organisation!

Those in Glass Houses Shouldn’t throw stones: Fraud and corruption is in our own backyard

Despite the ‘cone of silence’ built up around the topic, fraud and corruption within the NGO / non-profit sector is not limited to certain parts of the world only.  Supporting  this are the following:

1. A Working Paper by The Hauser Center for Nonprofit Organizations at Harvard University, found that a significant problem existed within the NGO sector, and that fraud amongst non-profit entities in the North was on the rise.  Action to counter it was not always taken, due to a growing lack of regulatory resources.
2. The UK’s National Fraud Authority found that in 2012, fraud was estimated to have cost the charity sector in England, Scotland and Wales £1.1 billion annually, with serious incidents reported to the UK Charity Commission almost doubling in the previous year
3. In October 2013, The Washington Post published an article highlighting the potential extent of fraud and corruption within the US non-profit sector. Analysing the annual returns filed between 2008 and 2012, they found that over 1,000 NGOs had checked the box indicating that the organisation had ‘become aware of a significant diversion of assets during the year’; attributable to theft, investment fraud, embezzlement and other unauthorised uses of funds. Most of these were of a serious nature and not publicly reported.  Important details were routinely omitted from the filings, with around half of the organisations not even disclosing the total amount lost.
4. According to the Economist (February 2014), a 20-month police investigation, uncovered evidence of widespread misuse of funds provided to around 600 Greek NGOs working overseas between 2000 and 2008; and, last month, the head the country’s public administration watchdog advised that 9 out of 10 NGOs subjected to checks by the national tax office officials appeared “problematical”.
5. While the list continues, one thing is clear, Northern NGOs are not immune to fraud and corruption, and cannot rely on their “external auditors and risk management systems” to deal properly with the issue.

Who are committing these frauds?

An exploratory study of NGO corruption (again in the North) published in the International Journal of Voluntary and Nonprofit Organizations, found that all of the irregularities examined involved money, were opportunistic in nature, and were motivated by self-interest (greed), perceived entitlement, or sexual fulfilment. Of greater importance though, was the finding that the majority of cases involved the elite of the organisation (principally the CEO or CFO), pointing to key failures in overall governance and oversight at board level.  This was mirrored in a global KPMG fraud survey carried out in 2011, which indicated the ‘typical fraudster’ to be a senior manager within an organisation.

What all of these, and other studies and surveys have shown, is that the accumulating number of alleged and substantiated cases of fraud and corruption, are not isolated or sporadic events limited to particular countries or parts of the world, but are a function of a broader global problem.

Corruption within development NGOs in the South

Having briefly looked at the North, how sure are INGOs and other development actors who rely on Southern delivery partners, that the funds transferred into their care are used for the intended purpose?

While the Internet is littered with stories of Southern NGO corruption, and the rise of BINGOs (or briefcase NGOs), research on the topic of actual corruption within Southern NGOs is all but non-existent.  What is available has tended to primarily focus on development INGOs that straddle the North/South divide (i.e. raising funds in the North to pay for the delivery of programmes in the South).

While far from scientific, a cursory Google search of the terms ‘corruption’ and ‘development INGOs’, highlighted only four cases of actual corruption (outlined below):

In the case of the Oxfam Aceh incident, the following comment – by Nicholas Stockton of Humanitarian Aid Accountability International – is worth noting (as it supports the earlier assertion that most cases of NGO fraud and corruption are not reported): “I hope that this isn’t interpreted … as Oxfam being the only one with problems.  They are, in fact, the only ones to come out to deal with the problem”

Types of corrupt practices

Notwithstanding the small number of cases highlighted above, an analysis of four donor agencies and four INGOs in 2011, found that the risk of internal corruption in NGO operations was significant, and that many international donors – and NGOs themselves – had not taken a comprehensive approach to managing corruption risks.  It found that the range of potentially corrupt practices committed by development NGOs was “extensive”, and that many of these practices took place within routine institutional operations, as well as within programme and project activities.  The five most commonly documented forms of corruption identified were:

1. Inflated, duplicate, or fictitious invoices for goods and services procured for a project
2. “Ghost” employees, participants or beneficiaries that inflated the cost of project activities
3. Kickback arrangements in procurement of goods or services or in hiring of project staff
4. “Double-dipping”, or seeking or accepting funds from more than one donor for (parts of) the same project.
5. Fictitious NGOs, or politically connected organisations set up to win public contracts (including those setup to act as delivery partners for INGOs)

While it covers the main forms of financial corruption, I would argue that the list is incomplete, as it excludes any form of non-financial or social corruption (such as favouritism and conflict of interest) embedded in many parts of the developing world.  While no explanation has been given for this exclusion, one reason could be the difficulty of outsiders getting close enough to view or record it.

The above findings are further supported by a case study of corruption within in an NGO operating in Malawi, which not only highlighted the nature and extent of internal corruption, but indicated that NGOs and INGOs were subject to the same – or similar – types and levels of corruption confronted by the society’s in which they operated.

So what does this all mean?

While the bulk of cases never reach the public domain, fraud and corruption is increasing, and is affecting NGOs operating in both the North and the South.  So insidious is it, that unless action is taken to manage it, the moral authority that the non-profit sector currently enjoys will soon be reduced to a thin veneer, which if splintered, has the potential to undermine the (public) trust on which the industry is built.

Having covered the issue of NGO accountability (Part 1), and examined the issue of actual fraud and corruption within the NGO / non-profit sector (Part 2), the final blog in this series will assess progress made in NGO anti-corruption efforts, and offer a set of broad recommendations on how organisations can start ‘corruption proofing’ themselves and their industry.

About the author: Jeremy Sandbrook is the Chief Executive of Integritas360, a global social enterprise that helps charities and NGOs/NFPs  ‘corruption-proof’ themselves. An internationally recognised anti-corruption expert, he has spent the last decade working in the international development sector, predominantly in Africa, Europe and Australasia. Jeremy also lectures on the topic at the University of Sydney’s Centre for Continuing Education. 

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