The United Nations is a unique organization made up of 193 member nations which is a combination of wealthy donor countries and impoverished beneficiary countries. The UN obtains its financial backing from donor countries and funds various initiatives and projects to alleviate suffering from terrorism and genocide and improve the quality of life in the developing world. With a $50 billion annual budget, the UN’s mission is noble and critically important to the well-being of billions of people worldwide. It is also a tempting target for dishonest businesspersons, corrupt politicians and transnational criminals.
The United Nations and its various agencies are much more susceptible to corruption than most organizations given the unique nature of how donor countries, beneficiary countries and local and national government officials interact. The US Foreign Corrupt Practices Act makes it unlawful to pay or offer a bribe to a foreign official the definition for which includes any employee of a public international organization. A public international organization is an organization formed by two or more governments. The United Nations is probably the largest and most complex public international organization. The nature of how the UN is funded and disperses funds for large scale infrastructure building, healthcare services, facilities and medication, education and peacekeeping operations in disproportionately high corruption risk countries, and the fact that its employees and officers are foreign officials under the law, the UN represents a perfect storm of corruption risk. Indeed, there’ve been numerous high-profile corruption investigations in which UN agencies and officials were at the center of the storm. The UN has dedicated considerable resources over the years to root out fraud and corruption within the UN and its agencies.
In a recent episode of the Fraud Eats Strategy podcast, Olshan Frome Wolosky LLP partner Bob Appleton joined me to discuss UN corruption. Bob previously served as chief of the first-ever UN anti-corruption unit, the Procurement Fraud Task Force, which existed between 2006 and 2010.
To effectively investigate corruption within the UN, investigators need to understand the inner workings of how the UN raises money and funds its projects. The UN has the benefit of what is called privileges and immunities. In summary, neither the UN nor its officials are subject to anyone’s national laws in the countries in which they operate. They are immune. This immunity can and does get exploited quite often. It is also critical for national authorities, investigators and compliance officials to understand that that the UN and other public international organizations play a large role in many of the most important programs and projects intended to positively impact humanitarian health and development throughout the world. Much of what the UN does involves large amounts of money that are donated, spent and directed towards these projects and programs in very high-risk environments. It is critical to understand not only the way these projects come about but how they’re also carried out. In many instances, the projects themselves are undertaken with very little oversight which makes them highly susceptible to fraud and corruption and can significantly undermine the underlying objective of the projects to achieve their very important objective of alleviating human suffering and improve quality of life.
Other factors make the UN uniquely susceptible to fraud and corruption. The UN is responsible for self-policing, carrying out oversight and ensuring that the programs are free of fraud and corruption. A national authority will not conduct investigations of fraud or corruption involving the UN because they are not permitted to do so without the UN’s approval. Instead, the UN takes the lead and they have the authority to decide whether to divest themselves of the authority and involve a government law enforcement agency in an investigation.
The cross-border nature of what the UN does can make UN decision-making as to whether to involve a national authority in an investigation even more complex since at times it is both of question of whether to involve a national government and if so, which country since there may be multiple countries who are impacted.
Much of what the UN does across the world is to improve healthcare, clean water, or educational infrastructure. Many FCPA enforcement cases related to the construction of plant facilities, toll roads, rail systems, airports, or other significant construction or infrastructure projects. Not surprisingly, many UN projects entail the award of construction contracts. There are several UN investigations of fraud and corruption in construction projects that can be instructive.
During his four years of shining a spotlight on corruption within the UN, he investigated numerous construction-related corruption cases. He provided some examples. The UN Procurement Fraud Task Force investigated the food services contract for all the peacekeeping troops in a mission relating to telecommunications. There was a case where one senior official was steering a hundred million dollars’ worth of telecommunications contracts and equipment to a preferred vendor. There were several huge cases involving high dollar amount manpower contracts to support peacekeeping operations and several involving construction and road-building contracts in many developing areas. In many of these cases which each involved very large contract awards, they were brokered through third-party intermediaries and sales agents. The thinking then was that the use of third-party intermediaries would somehow distance the corrupt UN officials from the corrupt activity which is, of course, wrong-headed and the UN has since imposed numerous controls and safeguards governing the use of third-parties and making it clear that their actions in no way relieve UN officials of their responsibilities and accountability for any wrongdoing.
Within the UN ecosystem, donor countries are known to wield a certain amount of influence as to which projects receive funding and what local contractors may be eligible to bid on a project. These donors sometimes played a role in defending companies from their countries from corruption investigations which undermine the integrity of the competitive bidding processes that are in place and creates clear conflicts of interest.
When the Procurement Fraud Task Force was in operation, they encountered this scenario quite often and were very surprised when they identified corruption issues with certain companies and then ran into interference on the part of the national government where the corrupt company was based, irrespective of what they had done. Bob shared his views on how to mitigate the risk of donor countries wielding undue influence over contract awards and thwarting investigations. Take the politics out of oversight and accountability. There has to be protection built into the system to weed out the bias and protect the investigators and the framework of the overall contract award and investigative systems. The organization and everyone involved including all the member countries have to get behind this overlay of transparency and accountability and have a uniform and universal ban on this kind of behavior that disallows fraud, corruption, and other forms of coercion and illegality from being permissible. Without a zero-tolerance policy, the UN is never going to be able to change things for the better. Corruption inhibits and skews programs and organizations.
The terrible irony is that the primary public international organization dedicated to the deterrence of corruption and the human suffering that it causes has itself been significantly undermined by that same corruption. Donor countries need to take the lead and redouble efforts to mitigate corruption and the undue influence that they wield over project funding and the award of contracts so that more of the badly needed support that the UN provides to alleviate suffering is not diverted by the poison that is greed and corruption.
To hear the full Fraud Eats Strategy podcast episode with Bob Appleton, click here.
Note: The postings on this site are my own and do not necessarily represent FTI Consulting’s positions, strategies or opinions