Monday, October 16, 2017



Working for a charity or NGO? Getting enough sleep at night? If you’ve answered ‘yes’ to both these questions, then you should be asking yourself how much you really know about corruption risks within the non-profit sector.

While Charities are the most trusted institutions in the world …
I’m always surprised when talking with people working in the charity/NGO sectors, at how little many of them know about the inherent corruption risks facing their industry.  While consistently ranked as the most trusted institutions’ globally (topping the Edelman Trust Barometer for the last seven years in a row), the sector faces a number of inherent vulnerabilities that significantly raises its overall corruption risk ranking.  Having a knowledge of these is essential if a charity/NGO is to put an appropriate risk mitigation strategy in place.

Inherent fraud and corruption-risks facing NGOs and charities
While not exhaustive, outlined below are what I believe are the top 10 interconnected corruption risks inherent to the NGO and charity sector:

(1)  A tendency to be ‘mission-driven’: While the last decade has seen a growing professionalisation of the sector, it continues to be characterised by a relatively high level of  ‘missionary’ zeal.  In such an environment, governance becomes secondary to the organisation’s mission, with adherence to the ’cause’ used to justify placing the action of the organisation – and its staff – above the law (a simple example of this is bribing a public official to release a container of humanitarian aid, the rationalisation being that helping those in need outweighs paying the bribe).  The extent of governance issues is highlighted by a recent compliance report by Australia’s charities and non-for-profits regulator, which stated that 72% of complaints substantiated by them, directly related to breaches of governance standards.

(2)  The presumption of ‘moral authority’: A recent consultation paper by the NSW’s Independent Commission Against Corruption, states that “while the vast majority of NGOs and staff are dedicated to helping others, there are those that see government money as an opportunity for self-interested behaviour”.
While many of us believe that those working for NGOs and charities are naturally good, the most prevalent form of NGO and charity fraud is the embezzlement and miss-management of funds by employees and volunteers. As a charity’s employees are perceived to work for more than just financial gain, salaries in the sector are kept low, making both honest and dishonest employees more susceptible to the temptation of padding out a relatively small pay check (especially when oversight is less than rigorous).  This risk is heightened by the fact that in many parts of the developing world, jobs in the formal sector are few and far between, with many staff working in NGOs – not out of a deep-seated belief in a ‘cause’ – but out of simple economic necessity.

(3)  A high level of volunteerism:  A culture of mutual trust, and the presumption that people volunteer for an agreed common good, are (in part) what makes charities so effective.  Use of volunteers also ensures that costs are kept to a minimum.  Despite this, a qualitative empirical study by Nichole Georgeou (in his book ‘Neoliberalism, Development, and Aid Volunteering’) found that volunteers working in the development sector expressed a sense of entitlement to receiving privileges (even though agreeing they were undeserved); the same sense of entitlement used by fraudsters to justify or rationalise their behaviour.  This risk is exacerbated when operating in an environment where ‘volunteerism’ (a relatively Western concept) is new, as those involved may well have a preconceived expectation of being ‘rewarded’ for their efforts.

(4)  The propensity to be closed to external forces:  Unlike other sectors, NGOs and charities tend not to be imbedded into broader external processes, resulting in a narrow frame of reference and a natural predisposition to be inwardly focused and closed to change.  This insularity can easily make an organisation – and those in it – myopic to the broader environment (and the risks within it).

(5)  A low level of accountability:  NGO accountability is primarily enforced through self-regulatory mechanisms and internal rules and procedures.  Unlike other development players, most of who are subject to rigorous integrity regimes (e.g. internal and external oversight bodies), an NGO’s integrity predominantly relies on the effectiveness of its governance system, and the robustness of its internal control framework.  Add to this the tendency to focus only on donor (or ‘upward’) accountability, precludes charities from implementing more effective anti-corruption accountability mechanisms. 

(6)  Weak regulatory framework’s: NGOs and charities tend to fall through a regulatory crack, as most of them are neither corporate entity’s, nor do they form part of government.  This grey area is characterised by minimal regulations and a lack of robust external oversight.  Even in cases where an industry regulator may be present, resource constraints tend to make effective oversight challenging. This is evidenced by the rise of the BINGO (or briefcase NGOs) whose sole purpose is to tap into development funds for the benefit of its owners.

(7)  Exposure to highly corruption-prone countries:  The average charity’s footprint often includes exposure to programmes operating in some of the most corruption-prone areas on the globe. Notwithstanding this, specific controls needed to address the increased local corruption risks are often over-looked, with most head-office staff having little real exposure to (or understanding of) the realities on the ground.  In the case of one large well established INGO with operations in over 100 countries, despite 80% of its annual funds being channelled to highly corrupt jurisdictions (the bulk of which were classified as being – or at risk of becoming – a failed state), only minimal financial controls had been implemented.

(8)  The use of local delivery partners: Many small and medium sized charities sending funds overseas rely on local or in-country delivery partners.  While there are a number of obvious advantages to this, it brings with it an additional layer of risk.  In many cases formal due-diligence processes – common in the commercial world – are yet to be adopted as standard practice within the charity sector.  In addition, key oversight mechanisms used, tend to be restricted to the provision of ongoing programme reports, annual financial audits, and a programme visit.  While each is an essential control, they are unreliable indicators of the presence of fraud or corruption (including the presence of  ‘double dipping’, where a partner has sought or accepted funds for (part of) the same project from multiple donors).

(9)  An over-reliance on external audits: Despite the external audit process not being designed to detect fraud or corruption, NGOs and charities continue to rely on it as confirmation of a ‘clean bill of health’.  In a survey of Australasian charities, while 90% of respondents felt that fraud was a “problem” for their sector, 83% believed their own charity to have a low fraud risk.  The main reason for this?  The external audit process.  The ACFE’s annual global fraud survey however, have shown this trust to be misplaced, as external financial audits detect just 3% of frauds.  Over twice that number (6.7%) are uncovered by accident, making it a more effective fraud detection mechanism.  That being said, audits still act as a valuable deterrence to some potential fraudsters.

(10)  The difficulty of beneficiary verification: One of the largest on-going challenges faced by NGOs in the developing world is beneficiary verification, an issue made more problematic when operating in countries (for example Malawi), where birth certificates have not been mandatory. In one investigation I was involved in, 56% of the NGO’s registered programme beneficiaries were found to be non-existent.  Despite being  “ghost” beneficiaries they had received 48% of all programme aid distributed!  While various technologies have been used to make the process more transparent, no cost-effective solution has yet been identified.

What are the consequences of all of this?

The consequence of these vulnerabilities have been that the NGO and charity sector has been viewed as an easy target – not only by fraudsters – but by organised crime and terrorists groups, who have traditionally used them as conduits for money laundering and terrorism funding.
In the case of Australia, while the creation of the ACNC (the Australian Charities and Not-for-profits Commission) has ensured that questionable activities by charities and Not-for-Profits are less likely to go undetected, its overall effectiveness is hampered by limited resources and its mandate as a “light touch regulator”.
So what is the solution?
While a number of generic steps can be taken to reduce the risk of corruption taking place, the first, and most effective is for a charity or Not for Profit to fully understand its unique corruption-risk profile.
Based around analysing and assessing the risk of corruption across a number of interrelated perspectives, if done properly, it should help identify the crucial building blocks needed to mitigate the organisation’s key risks.   Until charities and NGOs start proactively dealing with this, many will continue to leave themselves exposed to unnecessarily high levels of preventable corruption.

Thursday, September 14, 2017




On Saturday, September 23rd, Harvard Law School, in collaboration with the University of Chicago’s Stigler Center, will host a one-day conference entitled “Populist Plutocrats: Lessons from Around the World.” The conference will focus on an important and dangerous phenomenon: political leaders who successfully exploit anti-elite sentiment in order to achieve power, but who, once in office, seem primarily interested in enriching themselves, along with a relatively small circle of family members and cronies. Many Americans might find that this description accurately captures President Trump, who campaigned as a populist, but who is governing as more as a “crony capitalist” plutocrat—or, some would allege, as a quasi-kleptocrat.
Americans seeking to understand the challenges our country is now facing might do well to look abroad. After all, while Trump’s leveraging of the power of the presidency for personal enrichment—enabled by anti-elite sentiment among his supporters—may well be unprecedented in modern U.S. history, it is not, alas, unprecedented in the modern world. Indeed, while every country’s experience is different, and we must always be careful not to overstate the parallels, many other democracies have had leaders who could be described as populist plutocrats, or even populist kleptocrats, in something like the Trump mold. While such resemblances have occasionally been noted (see, for example, hereherehere, and here), but there has not yet been much of a sustained attempt to understand populist plutocracy/kleptocracy and closely related phenomena in comparative perspective. The September 23 conference will seek to initiate more sustained exploration of these issues, and will also provide an opportunity for experts from other parts of the world–who have more experience with political leaders who combine populist rhetoric with self-interested profiteering and cronyism–to offer a distinct perspective on the challenges the United States is currently facing.
The conference will feature the following panels:
The conference is free and open to the public. More information, as well as a registration page, is available here. For more background on the motivation of the conference, Professor Zingales and I also have a short piece on the Stigler Center blog.) I hope to see many of you in a couple weeks here in Cambridge. For those who are interested but cannot make it, the conference will be live-streamed and video-recorded; more information on the live-stream will be available soon.

Sunday, August 6, 2017

After Sarawak Report's defamation campaign against Corruption Watchers and Rewcastle's total disregard to the allegations made in our previous article, we hereby present you the evidence of the dirty Pestalozzi-CRB connection, which worth to Rewcastle no less than Half a Million Euros.

As most of you must remember, on our recent entry of Corruption Watchers, we have revealed the dubious connection between British blogger and nature advocate, Clare Rewcastle Brown, the founder and Editor-in-Chief of Sarawak Report, and the anonymous Swiss billionaire Martin O. Pestalozzi. We showed you how Pestalozzi, who is deeply invested in the wood exporting business uses Brown, her public persona and mass media access in his plan to gain field dominance over the global teak industry. The main reason behind the decision we took to go heads deep with this story was the fact that we could not just stand on the sidelines and stomach the thought that someone who is wearing the shield of a corruption fighting knight, swings his "justice sword" for a whole different and rather shady agenda.

Soon after the release of the article, Corruption Watchers became the target of a non-stop, massive slur campaign. This crusade was led by Brown herself and backed up by her angry mob of a devoted yet blind supporter community. Their main dispute over our arguments was that the evidence and sources we have mentioned to have before do not exist. That was part of the reasons we decided to release a follow-up piece, this time with cold hard proofs to back us up.
On July 10th, Brown has uploaded her response to the facts we published to her blog, Sarawak Report. In her post, instead of responding to the allegations against her and her platform, she chose instead to attack our intentions and tried to smear Corruption Watchers' reputation as an impartial source of information. We couldn't even begin to explain how out of touch with reality and bizarre were her accusations against us, claiming we are a "pen to hire" working for Najib Razak, the Malaysian Prime-Minister.




















Clare Rewcastle Brown has knowingly decided to avoid any real reference to the facts we initially published- namely Pestalozzi being a donor of hers as well as his financial interests to invest in her blog. Instead, she essentially "walked between the raindrops" in her response, evading any factual argument while trying to deceptively move the focus to our own alleged "hidden" motives.
We can reassure you, dear readers, that we have released our last article based on a long process of data gathering from various reliable sources, and that it was done for the sole purpose of revealing the misconduct of someone we once considered to share a common goal with. We do not hold anything against Ms. Brown and have no connection to her adversaries; on the contrary, a rapid glance over our older posts will demonstrate to any reasonable individual we take pride in our objectivity and our relentless battle with corruption. 
Here before you is a fragment of the evidence and documents that led us to publish our last entry, for your judgment and conclusions. We truly hope Ms. Brown would come to her senses and release a proper and sincere announcement regarding her relations with Pestalozzi, and her problematic funding sources.
Clarification: Some of the materials presented before you were edited out or partially redacted, that is in order to keep the privacy of individuals who were not directly involved with Pestalozzi's scam, as well as the discretion of our sources. Although we currently possess more of these incriminating files, we believe that the documents disclosed here are plenty enough to prove our arguments.


The two-facedness of Clare Rewcastle Brown –The evidence come to light


Mail correspondence showing Bruno Manser Fonds (BMF) and Clare Rewcastle Brown as main beneficiaries of the multi-million fund, the Pestalozzi Foundation. Brown's name is mentioned alongside Pestalozzi's most notable charity organizations.
























We could not help ourselves but wonder, how exactly a British blogger that devoted her life to the sole purpose of uncovering corruption in Malaysia, fits in with the rest of these beneficiaries?




Pestalozzi Foundation Limited, the vehicle Martin Pestalozzi uses to transfer the money into Brown's bank account, is registered (conveniently enough) in a very "offshore-like" manner on the British Virgin Islands, the well-known tax heaven. We must say it was quite a surprise to discover Clare Rewcastle Brown is being paid via a BVI offshore. With the echoes of Panama Papers still resonate all over the globe, a corruption fighter with pure intentions of bringing justice across such as her, should definitely know better.

As you can see in the following scheme, for paying his beneficiaries Pestalozzi uses the combination of tax heaven registered entities and tax exemptions granted for his so called "donations":




Our source in the BVI has provided us with another example of a trust owned by Pestalozzi, registered on BVI lands - Round Enterprises Ltd.



   




According to our source, over the course of 3 years, more than half a million euros found their way into Brown's Lost World Productions bank account. The money was channeled directly from Pestalozzi's foundation fund.

It seems that sometime during the year of 2015, both sides realized the dangers of this relationship becoming public, and decided to move the transactions into a more secured channel. Our sources have provided us with findings regarding the transactions beyond 2015, we are currently cross-examining it, before releasing it in a detailed comprehensive report.
  
If you made it this far down you can tell it yourself by now, it does not take a genius or an imaginative mind full of conspiracies to see why Ms. Brown will keep avoiding Corruption Watchers' allegations. As her problematic financial connection to Pestalozzi runs deeper than what we thought at first. The symbiotic nature of Rewacstle-Pestalozzi's harmonization puts one big question mark above all of Clare's agenda and purpose.    
It is now for you alone to judge, should you blindly trust future publications of Sarawak Report or will you try to look harder and see the hidden "Pestalozzian" agenda being promoted between the lines.  

We are still waiting for a decent response out of Ms. Brown (or Pestalozzi), this time we hope it will come without trying to brand Corruption Watchers as cheap propaganda while falsely diverting the focus towards us.
    






Wednesday, July 19, 2017

Wednesday, July 5, 2017

Exclusive: British blogger and nature advocate, Clare Rewcastle Brown who dedicated her life work to battle corruption and saving the forests of Malaysia, is being sponsored by a wood exporting Swiss tycoon.  

According to new evidence, recently presented to Corruption Watchers by our sources, for the last few years, hundreds of thousands of euros were secretly channeled into Brown's business bank account, with the mysterious donor being Swiss billionaire Martin O. Pestalozzi.

What does this magnate from Switzerland have to do with a London based free-lance journalist who protects nature?   

Clare Rewcastle Brown is probably known best for her belligerent coverage of the deforestation phenomenon in Malaysia over the pages of her blog, Sarawak Report. Throughout the years she has revealed countless occurrences of corruption and misconduct, fighting for the environment and for justice. Another "quality" Brown is well-known for is her a total and utter vagueness surrounding her funding sources, the shocking revelations now clarify the reason behind this ambiguity.  
  
The perturbing new evidence reveals that Pestalozzi himself is the co-founder and owner of an international company exporting the tropical precious wood called Teak. Pestalozzi's company not so hidden goal is obtaining monopoly over the global Teak market or in their words: "become of the preferred suppliers of manufacturers around the world" (According to our source, the majority of the blog's revenue is constituted of Pestalozzi's hefty grants).  
But what role exactly does Brown play in Pestalozzi's "wood cartel"?





Ms. Brown and her noble (?) cause

Clare Rewcastle Brown, a well-known British investigative journalist and blogger was born in 1960, colonial Sarawak (nowadays federal state of Malaysia), to this day Brown holds a special place in her heart for the Southeast Asian country, as it clearly shows in her agenda and  her day to day "journalistic" work.

In 2010, Clare has founded the Sarawak Report, a highly acclaimed anti-corruption blog, that alongside its sister organization, Radio Free Sarawak, serves as a platform meant to bring corruption in Malaysia to light and to give a voice for those being denied the access to the media in their own country.

Since then, Sarawak Report and Brown as its Editor-In-Chief have been at the forefront of exposing the logging and timber related corruption in Malaysia . Brown used to write exclusively about the environment in Sarawak and what she sees as political connections and corruption related to the destruction of the land. For the last couple of years Brown's most covered topic on her blog was the 1Malaysia Development Berhad Scandal (1MDB), as alleged, the affair involving Malaysia's Prime Minister, Najib Tun Razak, who supposedly channeled over RM2.67 billion (approx. USD 700 million) from a government-run strategic development company fund to his personal bank accounts. Brown's fierce and uncompromising investigative efforts  won her in July 2015 the dubious honor of being the first news site to be officially blocked in Malaysia by the governmental censors.  

But where does the money come from?

As we Corruption Watchers know best, fighting corruption sometimes can be a "luxury" of sorts. Though spiritually and communally rewarding, extremely rare are the instances in which one is actually able make a living out of it. As the best majority of justice fighters do what they do voluntarily and willingly out of ideology, most of them (within the working age) also have full time jobs.

One of Sarawak Report's most noted qualities as a blog is its frequency of publication (4-7 pieces a week to be precise), this high rate combined with the fact Clare often partakes in non-profitable projects (the amazing "The Borneo Case" documentary for example) begs the inevitable question: how is Ms. Brown financially able to continue her devoted work with no other income? You may assume that the "make a donate" section in her site could solve this riddle but as you will find out shortly, there is a completely different opera here.      
Brown's source of revenue remained a mystery throughout the years, whenever she was asked about it by the media the answers provided were always short, vague and evasive.
Clear example of Brown's ambiguous and furtive behavior surrounding her funding can be showed during a trip abroad (September 2016) when Brown was asked about her funding by a Malaysian reporter she replied: "I have done some travels, and that is largely being funded by my radio project for which I did have a grant from a European based donor, who was donating on rainforest and human rights issues".




The Journalist, the Swiss Billionaire and the NGO

As stated by our source, the words Brown chose to describe her "one-time" donor resonate well with a certain Swiss NGO, one she have been publicly cooperating with for years - Bruno Manser Fonds. The aim of this Basel based organization, named after its long lost founder and the famous environmental activist Bruno Manser, is to "stand for fairness in the tropical rainforests" and "to respect all human rights". With BMF's projects and campaigns focusing mainly in Switzerland and Malaysia (Sarawak) it was only natural for a strong bond to be formed between Brown and Lukas Straumann, BMF's Executive Director. Over the years those two had some very successful collaborations, "The Borneo Case" movie and Strauman's book from 2014, "Money Logging: On the Trail of the Asian Timber Mafia" are just a drop in the sea of this fruitful duo.
But how exactly this heaven-made match occurred?, the answer seems to reside with the recent rather concerning materials provided to Corruption Watchers by our sources.
Other than sharing the same spirit and ideology, Brown and BMF happen to share another major element – the same generous and secretive sponsor, the Swiss billionaire, Martin Otto Pestalozzi.


Born in 1931 ,Zurich and with estimated net worth of  1.25 Billion Swiss Francs (USD 1.28 Billion), Mr. Pestalozzi has founded a financial entity named the "Pestalozzi Heritage Foundation" (PHF), which states the protection of rainforests and fighting corruption as its main goals.
Surprisingly enough, both Brown and the Bruno Manser Fonds organization are part of PHF's very exclusive (and rather short) beneficiary list. The one thing that drew our attention most when we began going over the documents was the fact that over the course of only 3 years (between 2012 and 2015) Pestalozzi via his foundation has donated Brown with over 500,000 euros (!!!). The transfers were made through Brown's company – "Lost World productions limited". We could not help ourselves from wondering why are the sums so ridiculously high and what does Pestalozzi get out of it except for a clear "ecological conscience"? – The answers are surprising.


Pestalozzi's interest/ Brown's Hypocrisy

You may think that long retired Pestalozzi's only sin is being a philanthropic old fella who shares his hard-earned wealth with those who try to save nature while fighting corruption, but then again, evidence recently presented to Corruption Watchers indicate otherwise.
The documents in our possession show that except from financially aiding Brown and BMF, Pestalozzi as an entrepreneur has another grand environmental project – the Novelteak company, started in 1989 with the goal of becoming an alternative Teak wood exporter and counterweight deforestation, this ambitious corporation desires to replace the existing traditional Teak exporters and to become the largest and most preferred traders of manufactures all around the world.

Let's take a step back and explain the shady connection between Novelteak Malaysia and Ms. Brown life work; Teak is a tropical tree indigenous to South East Asia, as of today most Teak comes from managed plantations in India, Indonesia and Malaysia. Malaysian Teak tree is considered of the highest quality in the world due to its texture, color and hardness. Another interesting and relevant fact about the Malaysian teak – most of its plantations are being owned by the government and semi-governmental agencies.

After putting the pieces of the puzzle together you can clearly see now why Brown investigative work is very beneficial for Martin Pestalozzi.  By non-stop targeting of Malaysian officials and the daily criticizing of the deforestation in the country Brown sabotages Malaysia's legitimacy as a traditional wood exporter, by that actually serving Novelteak main objective – eliminating competition in the Teak exporting field.




By doing she does that Brown has blatantly desecrated one of the core principles of journalism – Independence.
Journalists must be independent voices; we should not act, formally or informally, on behalf of special interests whether political, corporate or cultural. We should declare our editor – or the audience- any of our political affiliations, financial arrangements or other personal information that might constitute a conflict of interest.

Another major principle Ms. Brown violates regularly by promoting Pestalozzi's agenda is Impartiality, as most stories have at least two sides there is no obligation to present every side in every piece, stories should be balanced and add context. Objectivity is not always possible, and may not always be desirable, but impartial reporting is crucial to building trust serving the facts.    

Clare Rewcasle Brown is obviously no stranger to hypocrisy and two-facedness and as a justice advocate you would expect her to keep a safe distance from everything that even hints towards dishonesty, The towers of secrecy Brown used to cover  her funding and donors begs the following questions, what other hidden skeletons does she have in her closet? Are there other interests being served by her seemingly legitimate work?
   
We truly hope that Ms. Brown is fighting her battles unknowingly of Pestalozzi business, but as the evidence piled up on our desk we find that possibility to be quite far-fetched. We strongly demand that Brown will go out publicly and declare that she would not accept further donations/payments from Martin O. Pestalozzi. That is the least we expect from a veteran journalist such as her.
We have tried to contact Ms. Brown several times for her response prior to publishing the piece, unfortunately without success.  

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