Law360 | June.23.2020
The COVID-19 pandemic has now swept through over 213 countries causing unprecedented societal and economic disruption. There have been over 7 million confirmed cases resulting in over 400,000 deaths worldwide, and the numbers will continue to rise. Financially, the pandemic is predicted to result in a loss of nearly $8.5 trillion over the next two years, functionally erasing the gains of the previous four years.
The COVID-19 pandemic is not the first time a public health crisis has caused massive disruption — albeit on a smaller scale. The 2014 Ebola outbreak, which primarily affected three countries in West Africa (Guinea, Liberia and Sierra Leone), resulted in over 28,000 confirmed cases, 11,000 deaths and $2.8 billion in economic loss.
It affected a region already plagued by widespread corruption. For example, a survey conducted by Transparency International found that during the first 18 months of the Ebola outbreak, nearly 75 million people in sub-Saharan Africa had paid a bribe to access public services in the preceding 12 months — most frequently for public health care services and official documents.
As a result of the disruption caused by COVID-19 and in recognition of the fact that this disruption creates a welcome environment for fraud, Attorney General William P. Barr has directed federal prosecutors to prioritize the "detection, investigation, and prosecution of all criminal conduct related to the [COVID-19] pandemic."
During a May 20, webinar, senior officials from the U.S. Department of Justice, U.S. Securities and Exchange Commission and Federal Bureau of Investigation asserted that their agencies have maintained their capacity and resolve to investigate and prosecute fraud, corruption, and other bad acts both related and unrelated to the pandemic.
What occurred during and as a result of the Ebola outbreak is informative of what companies may face in the wake of the COVID-19 pandemic.
During a crisis, millions of dollars in donations are commonly, and unfortunately, lost to fraud or mismanagement. Between 2014 and 2016, the International Federation of the Red Cross, or IFRC, received millions of dollars in funds to combat the Ebola outbreak. Following a fraud allegation in 2016, the IFRC launched an internal investigation and found that approximately $6 million in donations had been diverted or lost to fraud.
The investigation found that in Sierra Leone, Red Cross employees likely colluded with bank workers to set exchange rates, resulting in over $2 million in losses. In Liberia, inflated prices for relief items and payroll costs resulted in over $2.7 million in losses. And, in Guinea, a customs clearance service provider overbilled and submitted fake invoices resulting in $1 million in losses.
The COVID-19 pandemic continues to impact governments' resources and ability to provide public services. Many governments have turned not only to public international organizations like the IFRC but also to the private sector for financial support and other in-kind donations, such as personal protective equipment and medical supplies. However, as even the IFRC found, the need and desire to provide a rapid response sometimes leads to relaxed processes, procedures and internal controls, which increases the risk of fraud and corruption.
For ongoing contributions, the company should carefully diligence the purpose of the payment and whether any government officials are associated with the charitable entity.
Management, along with oversight by the audit committee, should develop an audit schedule to review the funds and other charitable donations dispersed in high-risk markets during the COVID-19 epidemic. To the extent the charitable donations are ongoing, the company should consider conducting a real-time audit on those funds and how they are used. Questions to consider include:
Did the resources make it to the stated end user?
Did donations — particularly those occurring outside of the company's existing contractual obligations — comply with local law?
Companies should review the file for each donation and ensure any exception from normal procedure has been documented along with a rationale. This will provide future guidance for employees and a record in case the donation ever becomes of interest to a regulator.
To the extent one is not already in place, the company should prepare and document a procedure for how to handle expedited requests while allowing for the flexibility required in an emergency or crisis.
Contracts with government entities come with increased risk during emergency scenarios where compressed timelines can lead to reduced oversight and fewer controls for both the government and the contractors.
In Sierra Leone, during the Ebola crisis, governments widely disregarded procurement procedures, which resulted in mismanagement of public funds. A February 2015 audit by the Sierra Leone auditor general concluded that from May to October 2014, there was a "complete disregard for the law on public procurement."
The report discovered that contracting officials had falsely claimed that procurement laws had been waived and found that ensuing contracts had been intentionally drafted to permit additional costs, thereby preventing a "transparent, competitive and cost effective procurement" process.
Similar risks are now present. Governments seeking to quickly acquire goods and supplies may relax procedures to expedite procurement. However, the expedited process creates increased risk of fraud and corruption (e.g. bid-rigging and kickbacks). Moreover, however necessary the process might be to address the lack of goods or supplies, that may not militate against the risk of a U.S. government enforcement action.
Audit committees and management should develop an audit schedule to review the government contracts entered into during the COVID-19 epidemic.
Companies should ensure they understand local laws and adhere to internal and external procurement procedures.
Border Crossings and Public Health Laws
During the Ebola outbreak, some countries closed their borders to travelers from Ebola-affected countries. Others only permitted entry from Ebola-affected countries if travelers presented medical certificates stating they were free from the disease. Travelers who could not produce evidence that they were disease-free were denied entry into the country or quarantined.
In addition, Guinea, Liberia and Sierra Leone imposed quarantines and other containment measures on individual houses, neighborhoods, villages and sometimes administrative districts. However governments did not always provide adequate basic services, such as food and water, within the quarantined area, and the disease spread within densely populated quarantine areas. As a result, many people bribed soldiers and police officers to release them from quarantine.
Recently, there have been reports of bribes paid to evade COVID-19 quarantines in several African countries, including Cameroon, Malawi, Kenya, Ghana, Nigeria, South Africa and Uganda. And, as borders reopen and business travel resumes, it is likely that travelers will be subject to ongoing health checks at borders and subsequent quarantines. It is important that companies be conscious of potential pressures on business travelers to make payments to gain entry into a country or to obtain release from quarantine.
Companies should track and disseminate local laws regarding health checks, forced quarantine and other public health requirements to ensure employees and agents know what is required and permitted for travel within in each market.
Companies should issue guidance and training for travel post-COVID-19 and instruct employees on company policy for managing the types of health and safety risks they might encounter.
Companies should encourage employees and agents to quickly report any payments demanded by government officials to allow border crossing or release from quarantine. Ensure that these payments are clearly documented in the company's books and records.
Payments for Passes
During the Ebola outbreak, governments accepted payments to allow individuals and companies to avoid certain policies or gain access to government-issued relief. In Liberia, families bribed body retrieval teams so that they would issue a "clean death certificate," certifying that the cause of death was something other than Ebola. This allowed families to avoid the stigma of an Ebola-related death and allowed families to give their loved ones a traditional burial.
Now, some governments are considering solutions that will allow individuals to opt out of social distancing measures imposed to control the spread of COVID-19. One such measure is the use of an "immunity" passport — a digital or physical document that certifies that an individual has been infected by and is now immune to COVID-19. These passports would allow individuals to return to school, work and potentially gain entry to certain countries.
Like the clean death certificates and certificates of medical clearance, immunity passports could be ripe for corruption. Given the economic devastation many have experienced, some may be incentivized to bribe a medical official to obtain a certificate in order to return to work or travel. If immunity passports become reality, companies operating in jurisdictions issuing them should implement controls to ensure their employees and third parties (e.g., salespersons or distributors who need to travel in order to make sales) do not engage in illicit measures to obtain such passports.
Where national institutions have been damaged by corruption and other unethical behavior, a crisis such as COVID-19 exacerbates business pressures and compliance risks. Corporate compliance and legal teams can learn from risks and responses during the Ebola outbreak to anticipate and address similar fraud, corruption and compliance risks caused by the COVID-19 pandemic.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
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