Much of the money donated after disasters is stolen

IN A shelter in Juchitán, in southern Mexico, in September, two sisters sat at a table nursing their children. Mexico had suffered its strongest earthquake in a century, followed two weeks later by one closer to Mexico City, which proved the country’s deadliest since the great quake of 1985. In Juchitán, where 37 people died and the town hall collapsed, talk turned to rumours that a politician with an eye to next year’s elections was grabbing donated supplies. “We don’t know what he’s planning to do with the goods,” said Maritza Ortiz, a resident. “Guard them? Save them? Hide them? 2018 is approaching.”

Such gossip finds a ready hearing in a country where corruption is rampant. And more solid accusations of fraud have since come to light. Newspapers have reported on people unaffected by the earthquakes posing as victims in order to claim assistance meant for those who lost their homes. In Oaxaca a man claiming to be a government official demanded advance payment for fuel for an aid delivery. He vanished, and the aid never arrived. Residents of Morelos have accused the state governor of trying to confiscate private donations, either to hoard them or relabel them as aid from a state agency. (He has denied wrongdoing.)

So far, though, the cases have been isolated. The president, Enrique Peña Nieto, is desperate to avoid unflattering comparisons to 1985, when the government of the day was excoriated for allowing aid to be funnelled to cronies. He does not want to hand political ammunition to Andrés Manuel López Obrador, a left-wing populist who is the front-runner in next year’s presidential race. To reduce the risk that aid is diverted, the government has decreed that only the army and Mexican Red Cross may distribute it. In a village in rural Oaxaca, a volunteer points to the Red Cross stickers slapped on food supplies, which are supposed to make them harder to resell. “Everyone is alert,” says Alejandro Pérez Díaz Felguérez, the president of a local branch of the Red Cross.

Rich pickings

Disasters are often followed by a wave of opportunistic crimes. The rush to help people rebuild offers fraudsters opportunities all along the line from donor to recipient. But those involved in gathering and distributing aid often look the other way. Charities do not want to deter donors, whether governments or individuals. Aid workers on short-term contracts who witness fraud or theft fear that if they report it they may be sacked and perhaps blacklisted. And no politician wants to admit to taxpayers that their money has gone astray.

The conspiracy of silence means the scale of the problem is hard to gauge. But judging by the occasional audit of overseas aid, it is considerable. A report in 2010 for the UN Security Council estimated that approaching half of food aid to Somalia ended up in the hands of corrupt contractors, armed groups and even some local UN staff. It took aim at some of the country’s richest men—including one whose wife worked for an aid agency, for which his company made deliveries. It accused him of staging the hijacking of his own trucks, in order to steal and sell their contents.

The longer the chain between donor and recipient, the more opportunities there are for money to be siphoned off. In a report last year the Special Inspector General for Afghanistan Reconstruction, an American official, said that contracts had been given to large contractors who subcontracted to smaller ones, who subcontracted to Afghan NGOs, who subcontracted to local firms. By the time the local firms got the money and paid off corrupt officials, too little was left to build a proper road or school.

The sums involved in reconstruction are huge, making it a magnet for all manner of fraudsters. In 2014 the Louis Berger Group, an engineering firm, along with its chairman and its president, pleaded guilty to charges of defrauding USAID, America’s main aid agency, of billions of dollars by padding reconstruction contracts in Afghanistan, Iraq and other countries over a period of 20 years. Mexico’s federal government has already allocated 48bn pesos ($2.6bn) to post-earthquake reconstruction. The eventual cost of rebuilding in Syria is expected to be around $200bn. “There are going to be billionaires made,” says an experienced aid worker. Replacing the homes, businesses and infrastructure lost to Hurricanes Harvey and Irma in America will cost something similar.

Foreign aid has come in for a bashing in recent months. President Donald Trump is keen to slash America’s, and tabloids in Britain are leading a campaign to get the government to abandon an overseas-aid target of 0.7% of GDP. But critics mostly focus on systemic waste and corruption in development aid, rather than the leakage of emergency humanitarian spending. And a good share of the money spent on recovering and rebuilding after disasters in the developed world also leaks—although through different channels.

Rich countries do not have warlords who must be bribed to allow aid deliveries to pass. But more of their cars, homes and businesses are insured—and even in a normal year, around a tenth of all claims are thought to be fraudulent. After disasters, rich countries have more money swirling around, too. Charitable individuals may be more ready to open their purses for their compatriots, and governments spend more freely on their own taxpayers than on foreigners. An audit by America’s Government Accountability Office, an independent congressional body, found that as much as $1.4bn of the $6bn in federal emergency relief for victims of Hurricanes Katrina and Rita in 2005 went on improper or fraudulent payments.

One legacy of that investigation is that America has become more active than most other countries in seeking to uncover and punish opportunistic crimes after disasters. In late 2005 the Department of Justice set up an agency to investigate hurricane-related charity scams, fake insurance claims and contract and procurement fraud. Now renamed the National Centre for Disaster Fraud, its remit covers all natural and man-made disasters. The charges it has brought suggest the inventiveness of fraudsters, for example against a couple it accuses of claiming $750,000 to rebuild a house after Hurricane Sandy that they had abandoned months before, and a woman it says used 62 fake identities to collect more than $150,000 in aid after last year’s flooding in Louisiana. In the month following this year’s hurricanes it received 400 tip-offs, a number officials expect to soar in the coming months.

A statement by Eric Schneiderman, New York’s attorney-general, about charitable giving following Hurricane Harvey illustrates how adept criminals have become at exploiting ordinary people’s generosity, especially online. He warned Americans to be wary of fake charity websites, spam e-mails and texts soliciting donations and appeals on crowdfunding sites. In the three months following the flooding in Louisiana, at least 6,400 campaigns appeared on GoFundMe, one such site. Fraudsters were quick to realise that such “drive-by philanthropy” appeals to people who want an easy way to feel they have done something, says Adrienne Gonzalez, whose website, GoFraudMe, tracks questionable crowdfunding campaigns. After a natural disaster her site’s standard fare of fake cases of cancer and stories of sick children copied from other people’s Facebook pages is spiced up with displaced families and flooded homes. (A spokesman for GoFundMe said measures are in place to protect users.)

Those seeking to stop fraudsters are also turning to technology. Online bidding for reconstruction projects, for example, can help avoid the kickbacks and inflated prices that often afflict post-disaster procurement. And insurers have started to use forensic meteorologists, who can verify conditions for exact locations and times, to help spot false weather-related claims. In Mexico, after the first emergency deliveries of food, clothing and toiletries, the government switched to handing out electronic cash-cards. To ward off corruption and misuse, these can only be used to buy construction materials. All payments are tracked via GPS. Alas, distribution has been slower than expected. And the cards some recipients were given turned out to have been cloned and drained of cash.

Humanitarian groups working in conflict zones such as Afghanistan, Sudan and Somalia say that, compared with trucking supplies to remote areas, distributing cash cards allows them to bypass bribe-seeking militias and price-gouging by suppliers of goods and transport. But in an indication of how hard it is to stop emergency aid leaking, when Transparency International, an anti-corruption advocacy group, studied their use by Syrian refugees in Lebanon, it found that price-gouging had simply moved closer to the victims, as merchants recognised a captive market and upped their prices.

A more profound benefit from the spread of technology could be to make it easier to track flows of aid. When victims of disasters have smartphones and access to the internet, they can report suspected frauds straight away. Techfugees, a network of people in the technology industry set up by Mike Butcher of TechCrunch, an industry website, runs conferences and hackathons to solve common difficulties experienced by refugees, such as proving their identities and getting health care. At the group’s conference in Paris last month, a representative of the World Food Programme talked about issuing refugees with biometric identity cards. Though the aim is to make it easier for them to buy supplies, the idea should also reduce fraud.

Efficiency drive

Governments and other donors might be persuaded to do more to cut post-disaster fraud if it is framed as part of making aid more effective. It should be seen as part of efficient disaster recovery, says Dan Laufer, a crisis-management specialist based in New Zealand. Christos Stylianides, the European Union’s commissioner for humanitarian aid and crisis management, says efficiency is one of his priorities. His department is reviewing humanitarian aid in that light.

In 2016, 51 large donors and aid providers signed up to a “grand bargain” on development aid that included the promise to publish transparent, timely and comparable data. The intention was to provide citizens in both donor and recipient countries with the information they need to hold their governments to account. Yet cutting corruption should be a welcome side-effect. If the approach is extended to humanitarian aid, it will make it easier to spot fraud and theft. Only if it becomes clearer where disaster relief is going will more of it end up where it is supposed to.