Examination of Witnesses (Questions 1
- 19)
TUESDAY 31 OCTOBER 2000
MR RICHARD
MANNING, DR
ELAINE DRAGE,
MR GORDON
WELSH, MR
CERI SMITH
AND MS
LORNA HARRIS
Chairman
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.
Chairman
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.
Chairman
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.
Chairman
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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