When NGOs break the law: Consequences for fraud risk

The 1986 movie Top Gun, starring Tom Cruise, opens with a fantastic scene of aerial derring-do.

In this fictional scenario, American planes are engaged by a rival power’s ‘Mig’ aircraft, one of whom activates its missile lock on an American aircraft. The pilot calls out to Tom Cruise’s character to ‘get the [guy] off’ him. As I understand it, what Maverick apparently should have done was to fly behind the Mig and engage his own missile lock, deterring the Mig from firing at his comrade. Maverick doesn’t do that. He’s got his own plan.

4It’s a great scene, and we celebrate Maverick’s daring heroics. But let’s be clear, this wasn’t what he was supposed to do. It was dangerous. We only celebrate because Maverick pulled it off. If something had gone wrong, Top Gun wouldn’t be a heartwarming movie about a young pilot’s quest for meaning, love and success. It would be a dark political thriller about a world on the brink of nuclear war following a mid-air collision caused by a reckless American pilot.

From time to time in my work with NGOs, I’ve caught glimpses of internal cultures where compliance is not as valued as one might expect. When the organisation’s overall aims are moral, getting away with non-compliance might even attract honour. But just as would be the case with Maverick’s airborne antics, there are consequences if risk catches up with reality.

PASSPORT 5Some international NGOs are tempted to break the laws and regulations of their countries of operation, registration, or both. Here we don’t so much mean situations where legal authority is unclear, or regulations and obligations are ill-defined or differently interpreted, or laws which violate human rights. Here we’re focussing on a situation where an NGO wilfully or negligently breaks legitimate, clearly-defined and communicated local laws and regulations. Temptations might include, particularly:

  • Breaching immigration, tax or employment law;
  • Procuring on the black market;
  • Conducting projects outside the authorised parameters;
  • Breaching NGO regulations or directives (e.g. reporting).

INGOs do complex work in complex places. Common reasons why staff or managers may take this action (or indeed, inaction) might include:

  • A tension between the time it takes to negotiate labyrinthine or contradictory local bureaucracies versus their urgent humanitarian objectives or donor expectations;
  • A disconnect between headquarters expectations versus local realities;
  • Failing to invest in the preparation and planning necessary to properly identify relevant regulatory factors and formulate organisational responses to them;
  • Failing to maintain proper oversight to ensure that staff are delivering objectives lawfully – sometimes potentially deliberately (‘don’t ask, don’t tell’);
  • Internal cultures where ‘getting the job done’ is valued more highly than compliance.

This exposes an international NGO to a wide array of risks. Now, this is not a legal blog and I am not a lawyer, but I do note that some possible consequences of non-compliance might affect an NGO’s ability to reduce its risk of fraud and corruption. In this article we’ll suggest three such areas.

The impact upon responding to fraud incidents

file2831269190184When an incident of fraud takes places in a project where the NGO was working unlawfully,  managers may then be incentivised against taking civil or criminal justice action for fear of drawing attention to the project’s own misdemeanours. This may significantly hamper the prospect of redress (getting our money back), and impact upon the available sanctions for a perpetrator. This, in turn, could damage the NGO’s ability to deter fraud and corruption if a potential perpetrator knows that such an outcome is unlikely.

The impact upon counter-fraud culture

My book suggests four characteristics of such a culture, one of which is that ‘all commit to, and participate in, reducing fraud and corruption to an absolute minimum.’ It is not hard to see how the toleration of unlawful activity can contradict this. As a previous blog post has mentioned, how can we ask our employees to role-model accountability and transparency if the managers of our organisations are not doing it?

file4081251141923The risk goes even further, however. While international staff may be able to hop on the next plane home if things get too hot with local authorities, local staff can’t press that escape button. They may therefore bear the greatest risk of consequences like prosecution. This outrageous burden is hardly helpful to the positive workplace relationships necessary to help deter corruption and promote whistleblowing.

Similarly, we need to consider how expecting or allowing workers to break the law, or breaching their employment rights, might disenfranchise them. A breakdown in the relationship between employee and employer – particularly where an employee feels wronged – might, in some cases, contribute to the rationalisation of occupational fraud.

The impact upon preventing fraud and corruption

Operating unlawfully could contribute to a country’s wider crime problem and undermine the legitimate state. In this sense, we help to sustain the environments of complexity and injustice that make transparent and accountable work so difficult – not alleviate them. In turn, this helps to maintain the risk of fraud and corruption in our operations there.

DSC06922An area where this ‘do-no-harm’ themed risk is particularly evident is where NGOs procure from the black market, an option that can arise during scenarios such as the recent fuel crises in Yemen and Nepal. Doing so makes an NGO part of an opaque supply chain and financial flow – where did the product really come from, and where is your money really going? The transparency of your contacts is in no way incentivised, and they are unlikely to volunteer to whom or what they are linked (think Six Degrees of Separation).

Subsequently, an NGO could easily appear in a network that features terrorist groups or those subject to financial sanctions, or in which the financial flow benefits those involved (or ultimately supports investment) in other forms of state-destabilising serious organised crime. Being a black marketplace buyer can make an NGO part of a network in which its donors and supporters might be surprised to see it.

How can these organisations claim to help the nation’s development when, through corruption, they weaken the rule of law? How can we deal with this hypocrisy?

Ingrid Nanne, What happens when NGOs break the law?

Conclusion

Humanitarian and global development work is complex, and programmes are often under pressure from multiple sources. However, operating unlawfully carries a range of risks, and the crystallisation of some of those might damage a programme’s resilience to fraud and corruption.

Managers need to take these risks seriously. This means avoiding the blanket application of a ‘humanitarian need’ trump card to all their operations, and instead ensuring that a nuanced and considered approach to business planning and risk management identifies and caters for foreseeable tensions with legitimate local laws and regulations. The days of ‘don’t ask, don’t tell’ need to be a feature of history textbooks, not modern programme doctrine.

FFCHGDSFind out more about the risk that fraud and corruption pose to humanitarian and global development organisations, and how they can better deter, prevent, detect and respond to it, in my book! Click here to get your copy of Fighting Fraud and Corruption in the Humanitarian and Global Development Sector from the Routledge website or Amazon!

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