Hasty COVID-19 Responses Open Windows for Corruption
In the West Africa Ebola outbreak of 2014–2016, the International Federation of Red Cross and Red Crescent Societies (IFRC) played a pivotal role in disease prevention. Teams of volunteers provided treatment and care, as well as burying victims of the disease, preventing as many as 10,500 additional cases, IFRC estimates. However, where there is money being spent on crisis response, there is opportunity for fraudsters to take action.
Transparency International warned that the influx of funds and donations into the region would make response efforts vulnerable to fraud and corruption. In a subsequent investigation, IFRC uncovered millions of dollars’ worth of fraud across the humanitarian organization’s operations in West Africa. Of the more than $124 million handled by the organization during the Ebola epidemic, approximately $6 million was lost through collusion between former IFRC staff and bank employees in Sierra Leone, overbilling and fake billing by a customs clearance provider in Guinea, and inflated prices for goods and services in Liberia.
Today, the wider scale of the coronavirus pandemic, which has touched six continents, also presents a wider stage for corruption, backroom deals, and fraud.
According to Transparency International, corruption in the health sector causes losses of more than $500 billion every year, even without the extreme circumstances of a pandemic. Health sector corruption often involves solicited informal payments from patients in exchange for treatment; theft and embezzlement of money, medicine, or medical equipment and supplies; favoritism for certain patient groups over others; and data manipulation, such as fraudulent billing.
“In a time of crisis, when resources are scarce and the stakes are high, eliminating corruption in the response to an emergency is literally a matter of life and death,” says Irem Röntgen, business integrity program coordinator for Transparency International. “Yet, with large amounts of resources suddenly available and a rush to get it to those most in need, there are sadly still those who will seek to take advantage for their own benefit.”
In the coronavirus pandemic, this behavior was quickly apparent. In late May, the U.S. Federal Trade Commission (FTC) announced it had received more than 52,000 reports of COVID-19 related scams since the beginning of 2020, resulting in almost $39 million in losses. The average consumer lost $470.
“Sadly, corruption often flourishes in times of uncertainty and could undermine the response to the pandemic,” wrote Lisa Ventura, practice lead of the Partnering Against Corruption Initiative at the World Economic Forum, in a recent article. While the response to COVID-19 should focus on saving lives and addressing health and socio-economic consequences quickly and effectively, she added, “principles of transparency, justice, and good governance need to underpin all measures at all times.”
“Transparency and accountability must not be lost in the haste to respond to COVID-19,” she wrote.
As governments enacted emergency legislation to bypass typical checks and balances on public spending to expedite health crisis response measures, transparency may have already been left by the wayside. According to a report by the Lawyers Council for Civil and Economic Rights at the Cyrus R. Vance Center for International Justice, Corruption in Times of COVID-19: A Regional Perspective on Public Procurement, corruption related to public procurement for pandemic response has been alleged in at least 12 countries across North and South America as of April 2020.
“While corruption risks always exist, the costs of these risks are higher during the emergency as already limited public resources are syphoned off due to corruption,” the report warned. The lawyers’ report highlighted misappropriation of public goods and increases in direct purchases and contracts for health-related equipment and services, instead of acquiring goods through more transparent public bid processes. These shifts may produce short-term results but long-term risks of increasingly corrupt government systems and national processes, which threatens both citizens and private organizations.
“Essentially, corrupt political systems become less responsive to the needs and interests of ordinary citizens,” Röntgen says. “We see that countries with more corrupt public sectors have fewer opportunities for diverse groups to engage in decision making, for example. For businesses, this can mean that only those companies with close links to those in power are able to win contracts or take advantage of government incentives for the private sector.”
In addition, some key materials—such as personal protective equipment (PPE)—have been in short supply in different regions affected by the pandemic. In the environment of high demand and low supply, governments, private companies, and individuals are forced to compete to gather the necessary PPE, leading opportunists and bad actors to take advantage of the situation to sell counterfeit or shoddy goods, price gouge, or seek favors or bribes.
According to the UN Office on Drugs and Crime, between 10 and 25 percent of all money spent on procurement globally is lost to corruption. In the European Union, 28 percent of health corruption cases are specifically related to medical equipment procurement, Transparency International reported.
“Public procurement of emergency equipment has quickly emerged as an area to watch closely, as governments relax procurement regulations in order to quickly obtain essential goods,” Röntgen says. “This opens the door for back-handers, price gouging, and conflicts of interest. It is essential that there is transparency about how governments are spending funds to fight the pandemic, so that any abuse can be identified and those responsible held accountable.”
Writing for Pillsbury Law, Aaron Hutman, Jenny Sheng, and David Oliwenstein warn that the COVID-19 pandemic exposes a large number of organizations and individuals to legal risk, as well as the risks associated with falling prey to a scam or risking the purchase of ineffective PPE. “In the aftermath of the COVID-19 pandemic, we expect to see widespread enforcement actions by the U.S. government, other national governments, and multilateral development banks. Companies will face large penalties, and individuals who participated in unlawful activity or looked the other way may face criminal liability,” they wrote.
“At some point in the next 12 to 24 months, the world will return to some level of economic normalcy. Politicians, the media, watchdogs, and whistleblowers will begin to shine daylight on the activity that took place during the chaos of the pandemic. If past crises are any guide, public outcry for accountability will ensue,” they added.
“In one sense,” Röntgen notes, “COVID-19 will be a litmus test for businesses and governments alike to show their commitment to serving all stakeholders. With companies vying with each other to receive large amounts of loans and other financial assistance, transparent business conduct will be more crucial now than ever.”