Foreign Aid

Foreign aid in Afghanistan: what goes in must come out

(July 2) Brady Yauch writes that Afghanistan is, once again, facing allegations of corruption.

Decades of evidence show that billions of dollars in foreign aid has lined the pockets of corrupt government leaders and undermined political accountability. Recent reports [PDF] from Afghanistan that billions of dollars are being openly shipped from Kabul International Airport—with much of this money, authorities believe, siphoned from aid programs—provides more evidence that foreign aid can benefit the few at the expense of the many.

The Wall Street Journal is reporting that U.S. authorities believe top Afghan officials and their associates have openly shipped more than $3-billion in cash over the past three years to bank accounts abroad. According to the report, officials believe that most of the cash comes from funds skimmed from Western aid projects and U.S., European and NATO contracts to provide security, supplies and reconstruction work. Profits from opium and extortion are also believed to be a source of the money.

“It’s not like they grow money on trees here,” said one U.S. official investigating corruption and Taliban financing. “A lot of this looks like our tax dollars being stolen. And opium, of course.”

Annually, more cash is being flown out of the Kabul airport than the Afghanistan government collects through taxes and customs revenue.

High-ranking officials in President Hamid Karzai’s administration—including Vice President Mohammed Fahim, and one of the president’s brothers, Mahmood Karzai, an influential businessmen—are all believed to be involved in the shipped money.

Mahmood Karzai denied the allegations that he was transferring illicit cash, saying that, “Yes, millions of dollars are leaving this country but it is all taken by politicians. Bribes, corruption, all of it.”

The majority of funds being shipped through the airport are being moved by “hawalas”— unregulated and private money transfer businesses. Hawalas are far more prominent in Afghanistan than formal banks, accounting for 80% to 90% of all financial transactions in the country, according to the State Department.

Hawalas work on the honour system, with the customer receiving a code after depositing money at one dealer. The code is then supplied by the recipient at the receiving end of the money transfer.

The couriers who transfer the money are supposed to provide their own names and the origins of the money—but in Afghanistan they often simply record the name of the hawalas transferring and receiving the money, with the name of the actual sender of the money unknown. Officials say nearly all of the money is being sent to Dubai—where, for years, wealthy Afghans have taken their legal and illegal cash. Investigators admit that it is extremely difficult to trace where the money goes after it reaches Dubai.

And while the official Afghan customs records show that $3.18-billion has left the country through the airport over the past three years, U.S. officials believe the number could be much higher.

According to a senior U.S. official, citing other documents, one courier alone shipped more than $2.3-billion between the second half of 2008 and the end of 2009.

Still, the official records of money leaving the country may just be the tip of the iceberg says Gen. M. Asif Jabar Khail, the chief customs officer at Kabul’s airport. According to General Asif, hundreds of millions of undeclared dollars, maybe billions, are being carried across Afghanistan’s porous border with Iran and Pakistan, where a number of Afghan hawalas have branches.

General Asif and U.S. and Afghan officials also claim, according to the Wall Street Journal, that the “cash also moves easily without detection or declaration through the airport’s VIP section, where officials aren’t searched and often driven straight up to their planes.”

According to General Asif, he has been pressured by senior officials in the Afghan government in the past when he tried to prevent a “pile of millions of dollars,” all undeclared, from boarding a flight.

Both Afghan and Western officials say that as much as $10-million may be leaving Afghanistan daily—amounting to $3.65 billion a year and more than a quarter of the current GDP.

The report from the Wall Street Journal is not the first to highlight the fraud and corruption that often accompanies billions of dollars of foreign aid. But it does seem to be grabbing the attention of U.S. lawmakers.

Representative Nita Lowey, chairwoman of the House subcommittee responsible for foreign aid, has removed $3.9-billion in funding for Afghanistan [PDF] after the report from the Wall Street Journal was made public.

“I do not intend to appropriate one more dime for assistance to Afghanistan until I have confidence that U.S. taxpayer money is not being abused to line the pockets of corrupt Afghan government officials, drug lords, and terrorists,” Ms. Lowey said.

Canadian officials, meanwhile, don’t seem to share the same concern with U.S. lawmakers about missing aid dollars—even though Canada’s aid agency, CIDA, is on track to spend $1.9-billion in aid [PDF] for Afghanistan between 2001 and 2011, making it one of Afghanistan’s largest donors. Overall, according to the OECD, Afghanistan received more than $20-billion in Official Development Assistant (ODA) from developed countries between 2001 and 2008. It now seems as if a large portion of those funds may have ended up in private bank accounts in Dubai.

Patricia Adams, Executive Director of Canadian-based aid and corruption watchdog, Probe International, says that in light of the recent revelations, Canada’s Auditor General should launch an investigation into the use of Canadian aid dollars in Afghanistan. “The government should welcome the Auditor General’s assistance in this job if it is serious about ridding aid expenditures of corruption,” Ms. Adams says.

Brady Yauch, Probe International, July 2, 2010.

Further Reading from Probe International:

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