Select Committee on International Development Minutes of Evidence

Examination of Witnesses (Questions 1 - 19)




  1. May I welcome you once more in front of the Committee, Mr Richard Manning, and also for the first time, of course, that a Select Committee is meeting in public in the new Portcullis House, which we hope will be more convenient to all of us. May I ask you to introduce your colleagues to us from various other departments than the Department of International Development and, of course, others who work with you.

  (Mr Manning) Thank you very much, Mr Chairman. On my extreme right is Lorna Harris, who is Head of the UK Central Authority at the Home Office; on my immediate right, Ceri Smith, who is Head of the Financial Crimes Branch of HM Treasury; on my left, Elaine Drage, who is the Director in the Department of Trade and Industry responsible for what we call new issues in developing countries, which includes among other things the OECD Convention on Bribery; and on her left, Gordon Welsh, who is the Director of Business Development at the Export Credits Guarantee Department. As you see, there is quite a squad of us also behind, which includes Roger Wilson, the Head of our Governance Department in the DFID. On his right, perhaps I should also introduce specifically Phil Mason, who has recently been appointed to that Department as DFID's Anti-Corruption Co-ordinator, where that will bring together a lot of the work on this. The size of the team and the range of departments present illustrates the multi-faceted nature of the subject and the interests of many government departments in it.

  2. Yes, indeed. It is such a broad subject, corruption as a whole, as we try to define it. I think you will remember, Mr Manning, the Committee had a seminar on private sector investment which, of course, is designed—and we recognise and the Department recognises—as the main vehicle for expansion in developing countries; and the major obstacle to private sector investment was the level of corruption, so they said. Therefore, this inquiry arises directly from that seminar. We must, of course, try to define our terms of it and focus a little bit if we are going to make any meaningful recommendations. We have got a lot of questions but we are going to divide them into large overall subject matters, which you have given to us, thank you very much, in your report. So what we thought we would do is to go straight into questions, because your report is very wide-ranging, and to concentrate on issues specifically of interest to international development. This is because, as your team suggests, there are a lot of other aspects which will certainly not go uninvestigated during the course of this inquiry. Could I go straight into trying to define, in our terms, the nature of corruption. How does government define corruption and what are the different forms of corruption which affect developing countries? Who pays the final price for corruption?
  (Mr Manning) Starting with the last point first, it has increasingly been borne out to us that a very large part of the price of corruption is ultimately paid by the poor in developing countries. It is not just by the poor but we were very struck by the evidence in the Voices of the Poor Report, which the World Bank commissioned for its latest development report, the extent to which poor people in developing countries feel themselves to be exposed to this. There are some very striking figures, which were well put in the evidence that you have had from Transparency International, of the sheer scale of this. Secondly, the poor lose also because, (the point you have already alluded to), there is increasing evidence that corrupt societies over the long haul do less well than less corrupt societies. This has implications for a sustainable level of growth without which, of course, there will be no escaping from poverty. It is tempting to say that one can make a neat division of corruption into grand corruption and petty corruption. Again, the Transparency International evidence shows quite neatly how these two things can be linked, and possibly you should not put everything into one box or another. An example they gave was that of a police force where corruption was maybe small-scale, but that bribes extracted lower down were then channelled up the system. It is perhaps too simplistic to say that everything is either grand corruption or petty corruption. If you are in a corrupt system there is a corruption at all levels and one has to work with that. Nevertheless, it is quite a helpful way of looking at it because clearly there are certain policy measures one can take for different kinds of corruption within the system. I have thought, Mr Chairman, of giving you a one-sentence definition of corruption. It is a difficult subject but I think we all know it when we see it. Essentially, we are talking obviously about people acting in ways they should not otherwise act, as a result of financial or other inducements. That covers, of course, a wide range of behaviour in both the public and private sector.

  Chairman: Yes, indeed. I think I am going to go straight into protecting the developing assistance programmes from corruption. Andrew Robathan, will you lead us on that.

Mr Robathan

  3. As the Select Committee for International Development, certainly for some of us our primary concern is, and also the concern of many of our constituents, that aid is spent wisely, not frittered into others' pockets. Have you made any check of the amount of bilateral aid lost to corruption over the last ten years? If you have, are there particular countries where the losses have been significant? Have we learnt any lessons from that? This is a bunch of questions but perhaps I could have quite a broad answer as well as the specific. Is there anything that represents an acceptable level of loss? Is there a tacit level of loss? And does humanitarianism raise a different set of problems?
  (Mr Manning) You may need to remind me if I have not answered all of these. First of all, we have not made a calculation of the kind that you describe. Indeed, both the present Government and its predecessor would assert, with some reason, that if you look at the specific procurement arrangements which cover the handling of British bilateral aid, there should not be any significant scope for corrupt practice within that. I must warn the Committee that, by no means, would that be the end of the story. We can ensure and do ensure that by competitive bidding practices, by financing consultants to oversee procurement, by using procurement agents that have been properly qualified, and all the rest of it, we can ensure to a large extent that within the scope of a particular piece of procurement activity, we can control events. So it is implausible that British aid money will have been used on any significant scale for corrupt practice. However, it is impossible for anyone involved in procurement activity to know what is going on outside what is directly being paid for. The fact that we may be entirely secure that a particular contract has not involved any creaming off of the funds within that, does not mean to say that things may not be going on outside the scope of the contract which we cannot see.

  4. Could you illustrate that for us. Could you explain further.
  (Mr Manning) Let us suppose we go through an international competitive bidding procedure, which is properly vetted by the consultants, where the procedures are as transparent as possible, at the end of the day we are satisfied that value for money has been achieved by the processes of competition from the point of view of our providing the funds: we are therefore getting what we paid for, if you like. By the use, particularly of proper consultants or whatever procurement, we can be fairly sure that the procurement decision is clean as far as we can achieve it. However, we cannot be sure whether everyone involved in that procurement decision has not had some kind of conversation with companies involved and we cannot know what goes on outside that. That must be the case for any procurement activity of any kind, whether in the United Kingdom or overseas. It is that kind of hesitation I have in trying to give you any blanket assurance. What I can say is that both for the Department, as it stands, and in days of the past where we have done much more project activity than we are currently doing, the Department has always gone through very transparent procedures, has looked extremely closely at what is being financed, and has been able to give confident assurances about value for money being achieved.

  5. So your Department says there is no acceptable level of loss?
  (Mr Manning) That is certainly correct, yes.

  6. Does humanitarian aid produce particular problems?
  (Mr Manning) Humanitarian aid could potentially. There again, I would argue that the way we choose to handle humanitarian aid has very significantly limited the risks to the United Kingdom. In particular, we have done two important things in the humanitarian aid situations. First of all, we greatly increased our capacity to understand the reality of what is going on. We are much more proactive in sending missions, consulting others, and establishing facts. Secondly, we have made strong use of efficient and very experienced (usually British) but also international non-governmental organisations, in whose systems we have a lot of confidence. We have been very reluctant to take snap decisions, to send lots of things to the developing countries in a humanitarian situation, without looking very carefully at whether they can be properly used, and without assuring ourselves that there are transparent procedures.


  7. There are very serious areas in which you give either sums of money or, alternatively, food or things like tents and blankets. For example, we were talking to the ECHO people in the European Community. When we asked them: was there any truth in the statement that much of the humanitarian aid to Southern Sudan was, in fact, ending up in the hands of the Army—food, blankets, tents and other things intended for the people affected by the situation in Sudan and the poor people in Sudan—they said: "Yes, it does, but on the other hand a certain percentage does get to the people we intend it to." There is a level of corruption which you are willing to accept—not you, but the agency to which you contribute—is willing to accept a degree of corrupt practice in the distribution in emergencies of a humanitarian situation.
  (Mr Manning) Indeed. You will recall that the Secretary of State took a high profile view of the Southern Sudan, precisely because of her concerns that humanitarian aid not provided by the United Kingdom was, in certain circumstances, seen as continuing to fuel the conflict for the sorts of reasons that you have given. At the same time, we faced in 1998 a major humanitarian situation which we could not stand aside from. We were trying to steer our way through that by ensuring that relief got to people who needed it in Bahr el Ghazal and elsewhere, while being extremely strong in our dialogue with the international agencies, in particular, on the use of funds and looking very carefully at the request for additional funds. An example, which might be of interest to the Committee, is that of Liberia. Three or four years ago, the NGO community involved in humanitarian aid in Liberia took the view that an unacceptable degree of ripping off (if I can put it crudely) was going on within that country, and as a group they told the authorities in Monrovia that they would stop all humanitarian aid—despite the concern that this would directly affect poor people—unless the Liberian authorities put a stop basically to road blocks and all the rest of it, pinching supplies. That was a very successful example, as I understand it. I have not followed the case since then. But we need to be ready, with the rest of the international community, to pursue that kind of approach quite aggressively when the situation demands that. That does require a degree of comprehension politically and in the media because it is all too easy for an approach to be immediately followed by scare stories, that action taken by the United Kingdom or other governments is being taken with the effect of ending the lives of poor people suffering from the relief situation. Those are the kinds of judgments we need to make and we do need a degree of comprehension in the media and the public to ensure that we can take as firm a line as we would certainly like to.

Mr Rowe

  8. Two points. One of our pieces of written evidence suggests, for example, that in Kenya there was a situation where after a certain amount of investigation, it was discovered that some of the contractors had actually been corrupt and the corruption had actually meant that they had bribed Arap Moi and his circle. The result was that they then had a moratorium on aid to Kenya for three years. That seemed to be to me an extraordinary way of punishing the poor for bad behaviour of western firms. I would like you to comment on that. The other is, what are the norms? How do you establish the norms? It is quite clear that some companies have defended themselves against charges of ripping off contracts by saying that their fee was well within the international norm, even though to most observers it clearly was not. I just wonder how these norms are set.
  (Mr Manning) On Kenya, first of all, I do not think that we should apologise for taking a strong line on corruption in Kenya. You will have seen our Country Strategy paper on Kenya a couple of years ago which set out very explicitly, which set out specifically, a high case and low case scenario. This was very much built up around the question of whether the Kenyan Government would take a number of measures which were widely thought to be appropriate, not least in the area of accountability and good government. I am happy to say that we do now see a rather new attitude in Kenya. We have been responding to that in a very positive fashion. I think the approach taken not just by the United Kingdom but by the donor community is generally one which I would not feel apologetic about. On the second point, I do not think it is for me to say what the appropriate going rate is in any country. It is not a concept which I wish, in any way, to endorse. You will have seen, I am sure, the interesting bribery index which Transparency International have now produced, in which they attempt to list which countries are most prone to offering bribes. Of course, all these situations require someone to offer a bribe and someone to receive it. We would certainly not condone, in any way, either the taking or giving of bribes.

Ann Clwyd

  9. To go back to Southern Sudan, is it not inevitable that in a situation of conflict, where at the same time the public are seeing pictures of starving people on television, that with the best will in the world you are bound to react to that situation by providing the humanitarian aid that is being called for. It is almost impossible to safeguard the aid going into certain directions in a situation like that.
  (Mr Manning) I went to Loki-Chokio in Northern Kenya in late 1998 (I think it was) and saw the extraordinary relief operation that goes on there. You have probably been yourselves. There is an enormous encampment, in which there are 100 different NGOs. I flew over the Southern Sudan in a South African Hercules, dropping food on to the airstrip below. I talked a lot to the agencies who are working in that area. I think one can conclude from that two things. First of all, that the heavy supervision by the agencies was of some value. They were clear about what they were targeting; which areas were the most important. Rational decisions were being taken on where the food was going. Secondly, everyone recognised there was a problem once the food got on the airstrip. Even in cases where the food was being given initially in a well controlled manner, it was not clear that ultimately the food stayed with the mothers or children who were at the front of the queue, if I may put it like that. It was clear to me that one had to go on providing an intelligent and well supervised operation because the situation in some parts of Southern Sudan at the time was of absolute crisis proportion. However, at the same time one needed a strong effective dialogue with the authorities on both sides of the Sudan, which required a degree of common working between the various donors, the agencies, and in particular Operation Lifeline Sudan, which one has to continue to work on. It is only if there can be a united front among the various donor agencies, including the key NGOs, that one is going to achieve the results which I am sure you and I would like to see in those circumstances.

Mr Robathan

  10. If I may take a specific instance, leaving aside humanitarian aid, and going on to corruption. DFID's strategy paper particularly says and I will quote: "In the past some donor-funded projects probably fuelled corruption in Indonesia. Transparency International suggest that Indonesia is one of the most corrupt countries in the world." First, how did past donor funds fuel corruption in Indonesia? Why is DFID increasing its aid to Indonesia if Indonesia is so corrupt? How can you protect your spending in such a corrupt environment?
  (Mr Manning) Again, I would assert, that where we have funded projects to Indonesia in the past, we have looked extremely carefully at some of the points you mentioned. In particular, where under the old Aid and Trade provision we were funding projects which were on a negotiated contract basis, we looked carefully to see how the contract price was made up and did so to ensure that the price of what was provided was reasonable. The point made in the Indonesian Country Strategy paper has a wider resonance, it seems to me, however: a resonance which is possibly even stronger in countries which were more aid dependent than Indonesia. This is that if you are in a country where aid accounts for a lot of public spending, it does tend, if you are not careful, to undermine local accountability. This is particularly true where donors provide support through dedicated project units; where things escape from the local audit process; where the local equivalent of the Public Accounts Committee does not have full oversight. This is one of the genuine problems in any situation where a large proportion of public investment is being funded by external sources. One has to work at the same time, to strengthen internal accountability bodies, to get on top of the issue. So we think it is extremely important for donors, in general, to provide their aid in as transparent way as possible and be subject, as much as possible, to local democratic scrutiny through the Parliamentary and civil society processes. The previous Government in Indonesia was not famous for its public accountability. Civil society was, in many ways, extremely weak. It was all too easy for the Indonesian Government and agencies and international donors to put together proposals, which were not the subject of any serious discussion outside narrow government circles in Indonesia. As to the approach which we are currently adopting in Indonesia, one has to start from the recognition that we have a new Government and new situation in Indonesia. That Indonesia is the world's third largest country by population with a very large number of very poor people. That the kind of programme running is something totally different from the kind of programme run in previous days. The Indonesian programme has turned round very radically from the one which was very much dominated by the previous Government's Aid and Trade provision, to one which is very strongly centred on building civil society, building government institutions. A very interesting recent example we are putting in place: the forestry sector is one of the key sectors for development in this country. We are just embarking on a new round of assistance to the forestry sector and instead of, as in the past, just working with the Forestry Department on the various operational things, we are using a lot of our resources to try and build much more of a policy dialogue in Indonesia, involving many stakeholders outside the narrow area of the Forestry Department, to look at the really serious problems of forest policy and how you sustainably exploit the forest resources in Indonesia. We think that is a real contribution which an outsider can help to make. So that is the current direction in which our Indonesian policy is moving.

Ann Clwyd

  11. I would like to ask you some more questions about Indonesia. You implied in your answer there that British aid previously was possibly used corruptly in Indonesia. I wonder if you have any precise examples of that. Secondly, whether the charges currently being made against Suharto in the previous regime involved any British aid money.
  (Mr Manning) On the first point, I certainly did not intend to give that impression. I thought I was giving the impression that we attempted very carefully under the previous Government to ensure, where we were financing projects, that they were properly scrutinised, ex ante, to look at the price, the way the price was made up, and the rest of it. I would not want to be on the record as endorsing the point you have just made. On the second point, I am not aware of any current investigations in Indonesia involving any British aid projects, but I will check that out and let the Committee know on that.[6]

  12. But you may remember that the National Audit Office, in its report on Aid to Indonesia a few years ago, did point to certain projects on which they raised questions about funding. I wonder if you recall any of those.
  (Mr Manning) I certainly do. For example, I am sure you and I both recall the case of the coal mine in Sumatra, where the equipment was basically very heavy and ineffective. I would argue that it was not obvious that this was a matter of corrupt practice, but it was certainly evidence of a very poorly specified project that provided equipment which was not appropriate to organisations who were not properly trained to use it.


  13. Mr Manning, do you ever think of carrying out an independent audit of your aid programmes by an organisation, such as the National Audit Office, as to what has been achieved by your giving of the aid; how it has been used; the whole process; and whether there was any corruption involved, which you have not been aware of; for them to ask that question and to answer it for you independently?
  (Mr Manning) Of course, Mr Chairman, the NAO itself looks very carefully at all these things and has produced several reports about the achievements or lack of achievements of the British aid programmes over these years. We welcome these reports. We learn a lot from them. The NAO continue to have a programme in this area. Basically, we do look, as a matter of routine, at whether aid is properly accounted for—not least in order to certify our accounts on an annual basis - but value for money investigations will also look at things of this sort. We have also made use of them, for example, to strengthen our dialogue with the audit agencies of recipient countries. For example, we have done some very constructive work with the Comptroller and Auditor General in India, to look at how our projects are being audited in India. There is scope for greater work with the audit community more generally to strengthen audit capacity in developing countries because, coming back to the point I made before, we are not going to get to the bottom of many of these things until we strengthen the in-country systems that deal with this. There is always going to be a difficulty for any external agency to go beyond a certain point of the chain. We have to rely ultimately on civil society, government, public accountability in developing countries, and that is what we have to strengthen if we are going to make progress in anti-corruption.

  Mr Rowe: There has grown up an assumption of the aid and trade provisions always corrupting. I did actually, in a previous incarnation, attend a meeting in Indonesia, in which a project was put before the British Minister for Trade. What really happened was that they said, "You have this budget line available. Can we not find a way of defining some part of the contract to make it eligible for that particular budget line?" Since one of the things of that line was training for personnel, the training need of that particular project was attributed to the aid and trade provision. So it is corrupting in that sense but it is not corrupt in the sense that has quite popularly become—you know—

  Ann Clwyd: You will have to give some examples.

  Mr Rowe: I am not saying it was always so. What I am saying is that it was not always so.


  14. Have you a comment on that?
  (Mr Manning) I have nothing further to add.

Mr Worthington

  15. We have been talking about bilateral aid and the mechanisms we have. I am concerned about money that would be given to multilateral organisations, whether it is the European Community, or say UNHCR, or the World Bank. Would it not be true to say that, in fact, our mechanisms for scrutiny and our mechanisms for taking remedial action are very, very weak indeed?
  (Mr Manning) Do you mean our British ability to influence the World Bank or the World Bank's collective ability to control its own programmes, for example?

  16. I am concerned that a significant amount of our development budget is given to other organisations to implement, and what you have said about the mechanisms put in place by DFID would not apply there. I am asking you whether you think there are ways in which we could strengthen our grip on money, which may be used in a wrongful way to the irritation of the British taxpayer.
  (Mr Manning) The present situation is that it is about 48 per cent of our total aid going through some multi-lateral agency, including multi-lateral agencies for this purpose, the European Commission. We look very carefully, when we make a contribution to these organisations, as to how effective they are from all points of view. One part of this is what degree of confidence we have in our systems for procurement and applying their funds effectively. It is fair to say we have been very heartened by the way, under Jim Wolfenson, the World Bank has given much higher profile to this. Apart from the World Bank, it was in many ways the organisations that sent a message round the multi-national system. I think the very upfront stance that Jim Wolfenson has personally taken on this has sent some very useful messages through the World Bank. I am sure you have seen the World Bank documentation on this. I can talk more about that if you like. Clearly, the World Bank has strengthened its approaches to minimising fraud and corruption in its own projects. Equally, it has become a very significant agency in working with others to helping developing countries to attack these problems. But focussing just on the first point, it is interesting that the US General Accounting Office, which follows these things fairly closely, recognises that the World Bank has made a serious effort. You will be aware of a number of steps that the Bank has taken to publicise companies which it considers to have acted fraudulently. We believe the World Bank controls are up to the mark internationally in this respect. That, in itself, has sent a useful message round the regional banks. There has been quite a lot of work done in each of the regional banks on strengthening their own procurement systems. Again, we can send you more information about that.[7]

  17. Where are you not heartened?
  (Mr Manning) One has to say that we have significant concerns about the European Commission. You will be aware of the circumstances that led to the downfall of the last set of Commissioners. We are putting a lot of confidence in the reform process that the Commission has launched but we do need to see this role now to be working more effectively. Some of the European Commission systems in the past, for example, have had 40 or 50 different procurement mechanisms, which have now fortunately been significantly rationalised. They face, as many of us do, the conflict between what you authorise centrally and what you authorise in a decentralised way. I think it has to be said that in the European Community, there is this culture of seeking to secure accountability by everybody being responsible and thus nobody being responsible. You need a formidable number of signatures within the European Commission to authorise payment. This means that it is very difficult to hold anyone personally to account for what actually happens. We would like to see a system which is closer to the system with which we are familiar with the British Government Civil Service, where authority is devolved quite extensively—it is devolved very extensively in my own Department—but it is devolved against a system of checking up whether it has been properly applied and where people are held accountable. If people get things wrong, something happens. In the European system the tradition has been to make sure that everybody's signature is on the document. That has tended to weaken rather than strengthen accountability. So if I was looking at one solution in particular, it would be the follow-through of the reforms that Neil Kinnock and Romani Prodi are putting in place. We are following that process pretty actively.

  18. The UN organisations?
  (Mr Manning) The UN organisations are also significant. It is difficult to make a simple generalisation about them. I suppose there has been a particular focus on effectiveness on some of the humanitarian agencies. It is no secret that we have had some concerns about some aspects of the operations of some of those. We are working constructively with them.

  19. Which ones?
  (Mr Manning) I think you, yourselves, have been party to looking at the operations of the UN High Commissioner for Refugees on the ground. But this has been more in terms of the effectiveness than of more narrowly conceived corruption issues. We could provide further information, if you like, about specific UN agencies[8], but there is a very wide range and I do not want to make too many generalisations about them.

6   See Evidence p. 35. Back

7   See Evidence pp. 35-38. Back

8   See Evidence pp. 38-41. Back

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