As the coronavirus spreads around the world, the rushed global response could create opportunities for graft, including fraud and bribery stemming from critical emergency cash flows and medical supply shortages. If safeguards are not put into place quickly, the scale of this corruption could be vast. Lessons learned from responses to past emergencies such as the 2004 Banda Aceh earthquake and the 2014 Ebola outbreak show that close and continuing oversight of procurement contracts and the movement of funds, as well as inspections of purchased and donated supplies, can limit graft and fraud. Experts say those measures, along with consumer education, must be in place from the start.
Items in high demand and short supply, such as personal protective equipment (PPE), swabs, ventilators, and potential therapeutic medicines, are especially vulnerable to fraud. “Whenever there is a need for supplies and services very quickly, the procurement system is at great risk for corruption,” said Jessica Tillipman, a law professor at the George Washington University and an anti-corruption expert.
On March 17, the World Bank approved $14 billion in financing to support countries in their response to the pandemic. Much of the funding will support manufacturing and tourism, industries that have been hit hard, particularly in developing countries. The bank’s International Finance Corp. said it would apply the same accountability standards while providing the support “as quickly as possible.”
But experts caution that the large influx of money to countries and sectors affected by the pandemic raises questions of accountability. Experience shows that in emergency situations, “anti-corruption protections get waived or ignored, oversight becomes more lax, and people take advantage of the situation,” Tillipman said.
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In the United States, federal agencies are already warning the public about fraud. Shortages of basic medical supplies have caused price gouging and counterfeiting, such as the fake COVID-19 test kits intercepted at Los Angeles International Airport on March 12. Better regulation, enforcement, and education could help. Last month, President Donald Trump signed an executive order prohibiting price gouging and stockpiling of certain medical resources. The U.S. Justice Department is designating a coronavirus fraud lead prosecutor in each of the 93 U.S. attorney’s offices nationwide.
The Justice Department and other agencies have told citizens to look out for scammers selling fake cures online. The department has already taken action against a website touting a nonexistent COVID-19 vaccine. Andrew Weber, a senior fellow with the Council on Strategic Risks who helped coordinate the U.S. response to the Ebola crisis, said consumer education is critical. “These miracle cures people will be trying to sell have no validity, but there’s nothing people won’t do if they are desperate,” he said.
The government also cautions against phishing emails purportedly from federal agencies such as the Centers for Disease Control and Prevention and fraudulent charitable organizations. The Justice Department is now warning that scammers may try to defraud recipients of the economic impact checks issued under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
In the interest of moving supplies quickly during a disaster or health crisis, countries and organizations may forgo normal safeguards used in procurement contracts such as scope, technical specifications, and response time. For example, requests for bids may be written so narrowly that only one or two suppliers meet the outlined specifications. These conditions can lead to bid rigging and kickbacks to government officials who notify only certain bidders. Companies can also collude to set prices for bids, pretending to compete but in reality working together to ensure that only they win the contracts.
Anti-corruption officials warn that companies could cut corners and provide substandard equipment and supplies, endangering the health of those suffering from the disease. For example, during a crisis it is common for some suppliers to substitute lower-quality components, causing equipment to function less effectively or even degrade rapidly—requiring more orders.
A well-known case of counterfeiting involved the Global Fund to Fight AIDS, Tuberculosis and Malaria. In 2010, it paid millions of dollars to procure more than 6 million insecticide-treated nets for use against malaria in Burkina Faso. Nearly 2 million of the nets turned out to be counterfeit. The head of one of the two companies that supplied them was indicted in the United States.
Experts say that to mitigate the potential for exploitation and financial loss, the massive funding that accompanies disaster response must have controls in place from the beginning. “Whenever there is an opportunity to skim—it can happen in Texas as much as in Afghanistan—if all of a sudden there is a flood of money, and not enough people are checking how the money is actually being used, money will disappear,” said Pascale Dubois, an international anti-corruption expert. “In this international health crisis, when actual lives are at stake, you want every single penny that’s given to kill the virus to actually be spent on killing the virus.” Experts say that even in crises, governments, international financial institutions, aid organizations, and others dispersing funds can require rigorous vetting and establish auditable chains to track financial flows, especially as funds now move electronically. In order to ensure the quality of supplies, spot inspections, publicized complaint mechanisms, and whistleblower protections are especially important in emergency response.
Experts and former government officials are drawing on past disaster responses for lessons in how to approach COVID-19 and put in place safeguards to avoid corruption.
Elizabeth Ashbourne, the executive director of Partnership for Quality Medical Donations (PQMD), an alliance of more than 40 companies and nonprofit organizations, said the organization came together after the 2004 Indian Ocean earthquake and tsunami that claimed around 230,000 lives in more than a dozen countries. Nearly 170,000 people were killed in Indonesia alone after the earthquake struck near the town of Banda Aceh.
“That’s how PQMD was born—because of the recognition that a disaster can be like the Wild West, with limited attention being spent on assuring quality standards and efficacy of those drugs and medical supplies being offered for free,” Ashbourne said. “In Banda Aceh, mixed in with all the products and pharmaceuticals of highest value and quality, people were sending counterfeit drugs—some expired, poor quality, or no evidence of the quality.”
PQMD developed guidelines for such donations. The guidelines are voluntary, but many of the PQMD members use them as best practice. Amid the coronavirus pandemic, PQMD’s members continue making regular donations, and some—including the pharmaceutical companies Pfizer, Merck, and AbbVie—are responding to the crisis by donating funds, PPE, education, and medical systems support.
The emergency response to the Ebola outbreak in Sierra Leone, Liberia, and Guinea in 2014 demonstrates the need for vigilance as money and supplies are doled out. Weber, who helped lead the U.S. Ebola response, blamed “endemic corruption in West African governments” for the loss of some funds. “We had federal funds being used to support the salaries of individuals who were there staffing the burial teams or contact tracing, and we found that officials were padding the names, making up people and stealing money that way,” he said.
The International Federation of Red Cross and Red Crescent Societies (IFRC) has put new measures in place following the fraud it uncovered during the outbreak. An internal investigation revealed in 2017 that some $6 million was lost to corruption during the crisis, finding “likely collusion” between former IFRC officials and a bank in Sierra Leone as well as other fraud, such as payments to nonexistent relief workers in Liberia. The IFRC has a full-time auditor in place for its COVID-19 response. “IFRC has zero tolerance for fraud and is committed to full transparency and accountability to our partners and the communities we stand with,” said Laura Ngô-Fontaine, an IFRC senior communications officer.
Corruption in the wake of Hurricane Katrina in Louisiana in 2005 and Hurricane Maria in Puerto Rico in 2017 has led to multiple prosecutions, the ouster government officials, and the adoption of new practices by government agencies including the U.S. Federal Emergency Management Agency (FEMA). After Katrina, the Justice Department brought more than 1,300 prosecutions on charges including bribery and extortion by public officials and false benefits claims and identity theft.
Amid the coronavirus pandemic, FEMA is providing training to states and individuals on available assistance. If fund recipients do not conduct rigorous self-audits, they can lose access to automated reimbursements. One FEMA official said the agency has “learned that local and county officials must be held to the same level of accountability, and we have trained our states on how to do that.”
While governments, nonprofit organizations, and corporations all need to be vigilant, the situation is far from hopeless. According to Alexandra Wrage, who runs the anti-bribery organization TRACE, “We’ve been developing a more sophisticated understanding of how to prevent and detect financial misconduct for decades. We know what to do—we just need to ensure that we have controls in place to meet the higher risk associated with disrupted supply chains, fragile governance, and distracted governments.”
But Weber, with the Council on Strategic Risks, warned that the fraud challenge could be much larger than the United States has seen in the past. “Corruption that FEMA deals with when they respond to a hurricane—it will be those times 100, probably more, because of the magnitude” of the pandemic, he said.
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