Curtailing the Supply and Demand of Corrupt Money

The effects of fraud and corruption have a way of reverberating through society. They erode economies, disrupt the proper functioning of government and divert resources from investments in education, health care and infrastructure. But those effects don’t just linger at the highest echelons — eventually they seep into the lives of regular citizens.

How fraud and corruption corrode every level of society was Dr. Ngozi Okonjo-Iweala’s message to 36th Annual ACFE Global Fraud Conference attendees during the opening General Session Monday morning. Okonjo-Iweala is the director-general of the World Trade Organization (WTO) and this year’s recipient of the Donald R. Cressey Award, the Association of Certified Fraud Examiners’ (ACFE) highest honor for a lifetime of achievement in detecting and deterring fraud.

“Corruption is theft from the rest of society and from the future,” Okonjo-Iweala told the international audience of fraud fighters who traveled to Nashville, Tennessee, or tuned in virtually for her keynote speech. “Fraud and corruption are moral and legal issues, but they are much more than that. Stopping them isn’t just about stopping people from doing bad things or breaking the law. Fraud and corruption are also economic issues and development issues.”

According to Okonjo-Iweala, fraud and corruption are also “socially corrosive.” They can influence the most minute details of a person’s life and shape how they view the world around them.

“Being shaken down for bribes by local police or government officials might be called petty — petty corruption in the academic literature — but it’s one of the most convincing ways to make ordinary people feel like the system is rigged against them.”

Okonjo-Iweala described to attendees how the corrupt system and abuses of power affect the most vulnerable. “A girl from my village, the first in her family to go to university, was pressured for sex in return for greed. Not only is sexual abuse and exploitation appalling and unacceptable at the individual level, but its pernicious effects extend even further than you’d think.” She then described how these abuses stymie the development of a skilled workforce and discourage women and girls from continuing with their education.

As the former finance minister of her home country, Nigeria, she saw firsthand how corruption diverted resources from those who needed them to those who didn’t. When she served as Nigeria’s finance minister, she tackled those sources of corruption. One of those sources was thousands of ghost employees who were drawing salaries from the government.

“During that time that I was in office, I’m proud to say that we tackled this effectively by tightening gaps in our controls.” She explained to attendees this was accomplished by implementing biometrics that registered each government civil servant within an integrated payroll and personal information system. According to Okonjo-Iweala, this control removed 65,000 fictitious employees from the public payroll, saving taxpayers and the government “$1.1 billion in annual costs.”

Then there was the matter of “grand corruption,” in the form oil subsidies. In Nigeria, the government had long subsidized the cost of petrol (aka gas) at the pump. This made it cheaper for consumers, but the real benefits were going to a cadre of wealthy and powerful oil marketers. According to Okonjo-Iweala, those marketers were vastly overstating how much fuel they were importing then “pocketing the difference between the global market rate and the subsidized domestic price.” 

“During my first time in government from 2003 to 2006, this subsidy amounted to about $2 billion per year,” said Okonjo-Iweala. When she returned to the government to serve a second stint as finance minister in 2011, the cost of subsidies had grown to $12 billion. “I felt that this couldn’t be explained by population growth and increased demand alone.”

She explained that after an audit of $8.4 billion in expenditures she and her team found $2.5 billion in fraudulent claims. “This was larger than the country’s education budget.” With that information, then-President Goodluck Jonathan stopped paying those fraudulent claims.

But Okonjo-Iweala learned firsthand that not everyone appreciates the fight against fraud and corruption. Addressing the subsidies made Okonjo-Iweala a target of threats — people connected to oil marketers even kidnapped her mother and held her hostage until Okonjo-Iweala agreed to resign as finance minister. Thankfully, her mother was able to escape from her captors. Okonjo-Iweala was firm in her resolve to remain finance minister.

“As I learned, fighting corruption is dangerous.” (This is also the title of her book, “Fighting Corruption Is Dangerous,” in which she recounts tackling oil subsidies and the threats she and her family faced on account of her efforts.)

As finance minister, Okonjo-Iweala also saw the international reach of corruption. “Fraud and corruption can manifest in illicit financial flows that cross international borders; illicit financial flows across Africa, estimated at $90 billion a year, according to the United Nations Conference on Trade and Development.”

“I have argued there is a supply and demand side to corruption, and when it comes to illicit financial flows, if Africa is the supply side, the demand side is those countries in Europe, the Americas, the Middle East and elsewhere that receive these flows.”

As current leader of the WTO, Okonjo-Iweala says that she can see how sound trade policies can have a positive impact. “Trade policy can diminish opportunities for corruption. When tariffs are low, businesses have less incentive to lobby for or bribe their way to exemptions. When border processes are streamlined or digitized, customs agents have few opportunities to gain engage in corrupt practices.”

But trade also has negative consequences. “Miss-invoicing commodity exports is a key vehicle for illicit financial flows. One estimate puts the cost to Africa of this invoicing for gold alone at roughly $30 billion at the WTO.”

Okonjo-Iweala concluded her speech with a message of encouragement for attendees in what she calls the “lifelong challenge” of fighting fraud and corruption. “One needs constant vigilance. That’s why I’m so grateful for an association like yours with members who’ve devoted their professional lives to fighting corruption and fraud.”

After her address, Okonjo-Iweala sat down for a conversation with ACFE Chief Training Officer Andi McNeal, CFE, CPA, in which they discussed the WTO’s role in promoting fair and transparent trade, how to encourage stronger institutions in developing countries, and the struggles and triumphs of being a woman in a leadership role. (Okonjo-Iweala is the first woman and Nigerian to lead the WTO.)