Remarks Prepared for Delivery by Special Inspector General John F. Sopko at the Graduate School of Public and International Affairs, University of Pittsburgh, Pittsburgh, PA

“An Existential Threat: U.S. Oversight of and Responses to Corruption in Afghanistan”

Thank you, Dean Keeler, for that kind introduction. I also want to especially thank Professor Murtazashvili for her invitation to come speak to you all today and for all her assistance in arranging this visit.

It is a real honor to be with you here today. For fifty years, the University of Pittsburgh's Graduate School of Public and International Affairs has been producing leaders in the field of foreign affairs. As the next generation of foreign affairs professionals, you have no doubt learned a good deal in your classes about international security, economic development and intelligence, just to name a few of your specializations. I am sure many of you have also studied America's 15-year-long engagement in Afghanistan and understand the difficulty of rebuilding states in post-conflict situations.

I suspect, however, that you are less familiar with the subject of my talk today, which is the need to fight corruption. And yet I would submit to you that nothing is a greater threat to the United States' efforts to rebuild Afghanistan and other countries like it.

But first let me back up and tell you something about my agency, and don't feel bad if you don't know much about Inspectors General in general or Special Inspectors General specifically. You are not alone, many at State, USAID, DOD, and even Congress don't either.

Congress established the Special Inspector General for Afghanistan Reconstruction in 2008 to watch over the American tax dollars being spent on reconstruction in Afghanistan, and to identify and prevent the waste, fraud, and abuse of such funds. With a staff of nearly 200 employees, including 29 in Afghanistan, SIGAR is a small agency by Washington standards, but we have an important job to do. To date, Congress has appropriated more than $113 billion to reconstruct Afghanistan. We at SIGAR have the unique responsibility of overseeing all of it.

Unlike the Department of Defense, State and USAID IGs, we do not belong to any specific agency. Instead SIGAR can perform oversight on any agency that spends money on reconstruction. We have broad authority to examine any and all Afghanistan reconstruction activities, regardless of agency ownership. This is significant because, in a conflict zone like Afghanistan-or in any future conflict zone, for that matter-federal agencies must work together to tackle key problems. In carrying out our oversight mission, SIGAR is, as required by its authorizing legislation to be independent and objective.

Finally, we are temporary. SIGAR's enabling legislation requires that we wind down once the balance of undisbursed funds for Afghanistan reconstruction falls below $250 million. With approximately $11.5 billion still in the pipeline for Afghanistan, that day is a ways off. Nevertheless, we believe that time is of the essence.

We issue audits and reports highlighting the problems and challenges we find, make recommendations wherever we can, and even arrest criminals who steal from the U.S. government. Sadly, the thieves include U.S. military officers and enlisted personnel, and federal civilians. Since SIGAR's creation, we have issued more than 210 audits, inspections, alert letters, and other products, totaling more than 630 recommendations. In addition, our investigations unit has conducted nearly several hundred investigations, resulting in 103 arrests, 139 criminal charges, 103 convictions or guilty pleas, and 86 sentencings. Altogether, SIGAR has saved the taxpayer more than $2 billion. In addition to this work, SIGAR, and only SIGAR, is charged by statute with assessing the reconstruction effort and making recommendations based on the "whole of government" approach to reconstruction in Afghanistan.

President Obama appointed me Special Inspector General in 2012. As a former state and federal prosecutor with the Department of Justice's Organized Crime and Racketeering Section and a longtime congressional investigator, I thought I knew all about corruption, but I can tell you that what I have seen and heard in the last four years in Afghanistan puts to shame what we call corruption here. And this pervasive corruption poses a deadly threat to the entire U.S. effort to rebuild Afghanistan.

Corruption was not always at the top of the U.S. agenda in Afghanistan. In fact, some would argue that it still is not given the importance it deserves. SIGAR has created an office on Lessons Learned from Afghanistan and is preparing a report on how the U.S. government understood corruption there and sought to combat it. It will show that the U.S. government initially had little understanding that corruption could threaten its entire security and state-building mission. Indeed, during the U.S. invasion of Afghanistan in 2001 and for some years to follow, the United States partnered with abusive warlords and their militias to pursue al-Qaeda and the Taliban, and supported the installation of these warlords and their militias at high levels of the Afghan government. The United States also failed to recognize that vast sums of money injected into the Afghan economy, with limited oversight and pressures to spend, created conditions for corruption.

Not until 2009-eight years into the reconstruction effort-did the U.S. government begin to understand the connections among a vast, interdependent web of corrupt Afghan officials, criminals, drug traffickers, and insurgents. At that time, a consensus emerged that corruption threatened our core goals: Corruption undermined the legitimacy and viability of the Afghan state, fueled grievances that strengthened the growing insurgency, and sapped resources from the reconstruction effort.

The problem, then and now, was that combatting corruption required the cooperation and political will of Afghan elites whose power relied on the very structures that anticorruption efforts sought to dismantle. While President Ghani has declared a "national jihad" on corruption, as Afghan National Security Advisor Rangin Dadfar Spanta told high-level U.S. officials in 2010, "corruption is not just a problem for the system of governance in Afghanistan; it is the system of governance."[1] And since corruption is embedded in the state, it is difficult to root out without destroying the state in the process.

What does corruption look like in Afghanistan? When I speak of corruption, I am referring to "the abuse of entrusted authority for private gain," a definition used by the U.S. Agency for International Development. The distinction between "private" gain versus "personal" gain is important in a kinship-based society like Afghanistan, where an individual is likely to engage in corruption not merely for personal profit, but to benefit a larger family or tribal network.

Because corruption is hidden behavior, it is difficult to measure in any country. However, surveys and international indices give some idea of the scope of the problem in Afghanistan. According to Transparency International, Afghanistan in 2015 ranked 166th-worst out of 168 countries, ahead of only Somalia and North Korea when it comes to public perceptions of corruption.[2] Ninety percent of Afghans say that corruption is a problem in their daily lives.[3] From 2006-2015, more than 76% of Afghans surveyed, on average, said that corruption is a major problem in the country.[4]

Afghans regularly report having to pay bribes to a variety of Afghan government service providers, including the police, the courts, health personnel, and educators. The United Nations Office of Drugs and Crime (UNODC) reported that in 2012, "half of Afghan citizens paid a bribe while requesting a public service." Last year, over half of Afghans said they paid a bribe to the police. Sixty-three percent of Afghans who had contact with the courts say they paid a bribe to judicial officials. More than half of the Afghans who had contact with the public healthcare system reported paying a bribe.

There are numerous reports of the Afghan government paying for non-existent ghost teachers, ghost schools, and ghost police. According to a leaked copy of a recent Afghan presidential task force report obtained by Tolo News, hundreds of ghost schools and thousands of ghost teachers have been uncovered. The task force also reportedly found millions of dollars have been embezzled, unfinished projects have been reported complete, and records of student education, registration, and attendance are riddled with discrepancies. All of this creates opportunities for corruption. [5] Recently, the head of the provincial council in volatile Helmand Province estimated that 40% of the Afghan security forces assigned to the province simply do not exist.[6]

Corruption on this scale is a costly drain on the Afghan economy that Afghans can ill afford. The World Bank has said that "corruption creates an unfavorable business environment by undermining the operation efficiency of firms and raising the costs and risks associated with doing business." Inefficient regulations present opportunities for bribes. In 2014,[7]

• Firms in Afghanistan were asked or expected to pay a bribe 35% of the time when soliciting six different public services, permits or licenses.
• About 35% of firms in Afghanistan were expected or required to give bribes in meetings with tax inspectors
• About 48% of firms in Afghanistan were expected to give gifts or pay bribes to secure a government contract.
• 60% of firms in Afghanistan were expected to give gifts or pay bribes to secure a construction permit.
• About 24% of firms in Afghanistan were expected to give gifts or pay bribes to secure an import license.

Estimates for total bribes paid by individual Afghans are between $2 billion (according to Integrity Watch Afghanistan in 2014) to $4 billion (according to UNODC in 2012).[8] Integrity Watch Afghanistan also said the average bribe paid rose from $191 in 2012 to $240 in 2014.[9] According to the World Bank, gross national income per capita was $680 in 2014, [10] so if these numbers are reasonably accurate, then the average bribe must be powerfully magnified by some very large outliers at the top end of the scale. Either way, bribes would seem to constitute a huge burden on an average Afghan's income. [11]

While the direct costs of corruption may be massive, the indirect costs are arguably more serious. According to the World Bank's 2011 World Development Report, corruption fuels grievances and undermines the effectiveness of government institutions and social norms. [12]

After 2009, the United States sought to get a handle on corruption in Afghanistan. In 2010 the U.S. Embassy in Kabul drafted a strategy for anticorruption that contained far-reaching goals. In total, the U.S. has set up 13 ad hoc U.S. and Coalition entities to address different aspects of corruption including the U.S. role in exacerbating it. The United States also has helped the Afghan government establish no less than 11 Afghan anticorruption bodies, such as the Major Crimes Task Force (MCTF) within the Ministry of Interior and the Anticorruption Unit (ACU) in the Attorney General's Office.

However, the impotence of all these measures was exposed by a pair of scandals in 2010. The first was the arrest of Mohammed Zia Salehi, a key aide to President Karzai, for obstructing an investigation into a money transfer firm suspected of moving billions of dollars out of Afghanistan for crooked Afghan officials, drug traffickers, and insurgents. Although Salehi was captured on a wiretap soliciting a bribe, President Hamid Karzai ordered his release within hours of his arrest. U.S. law enforcement officials had considered the Salehi case a test case for prosecuting high-level corruption. The way it backfired demonstrated not only that the Afghan political commitment to fight corruption was absent, but that the political elite were willing to powerfully resist the U.S. push for accountability.

That message was reinforced when a second, even larger scandal began to unfold. In September 2010, Kabul Bank, the second largest bank in Afghanistan, collapsed amidst publicity that the bank was insolvent. The bank had operated as a massive pyramid scheme; hundreds of millions of dollars had been fraudulently lent to fictitious companies, with no loan ever paid off. Two of the principal beneficiaries were the President's brother, Mahmoud Karzai, and the First Vice President's brother, Haseen Fahim. Although 36 individuals were ultimately convicted in the nearly $1 billion theft from the bank, few of the politically connected defendants have served jail time or repaid significant portions of their debt.

The two scandals made clear that corruption was far more deeply entrenched than the United States had understood. By 2013, the outgoing International Security Assistance Force (ISAF) commander, General John Allen, concluded that "Corruption is the existential, strategic threat to Afghanistan." A year later in 2014, testifying before the U.S. Senate, retired General Allen said the Taliban are "an annoyance compared to the scope and magnitude of corruption with which [Afghanistan] must contend."[13]

According to a report commissioned by General Joseph Dunford, General Allen's successor and the current Chairman of the Joint Chiefs of Staff, "Corruption directly threatens the viability and legitimacy of the Afghan state." Additionally, "Corruption alienates key elements of the population, discredits the government and security forces, undermines international support, subverts state functions and rule of law, robs the state of revenue, and creates barriers to economic growth."[14]

Although the United States is more outspoken today about corruption in Afghanistan, the performance of many of the anticorruption bodies established with U.S. support over the past decade has been disappointing. Several of the anticorruption organizations lack enforcement tools. Instead, they are concerned with maintaining focus and raising awareness of the corruption issue. However, raising the issue without being able to do anything about the issue is a recipe for frustration.

For example, the Joint Independent Anti-Corruption Monitoring and Evaluation Committee (MEC) has been very useful in bringing corruption challenges to light, but lacks the authority to do more than illuminate poor or corrupt practices.[15]Another example is the Major Crimes Task Force. Despite being able and motivated to investigate corruption, it routinely saw its cases stymied by the Afghan Attorney General's Office.[16]

The Department of Defense has called the creation of other types of anticorruption organizations, particularly within the Afghan government, "illusory corruption reform" efforts.[17] These organizations, such as the High Office of Oversight (HOO), received international assistance but in many cases failed to live up to their initial promise. For example, USAID has reported that the HOO was dysfunctional, ineffective, and highly politicized.[18]

Afghanistan's dependence upon foreign assistance means that donors will continue to play an important role in defining and enforcing corruption-related conditions for aid. However, the fear of Afghan state failure has tempered the application of truly painful conditions.

The international community has established a host of accountability measures, but most have so far been weakly defined and weakly enforced.

For example, although the 2012 Tokyo Mutual Accountability Framework (TMAF) listed fighting corruption as one of its governance indicators, the United States withheld only $15 million in 2014 when the Afghan government failed its TMAF requirement to collect asset-declaration forms for senior Afghan government officials.[19]

Nor has Afghanistan suffered significant consequences by donors for its poor performance under the IMF's most recent Extended Credit Facility (ECF) arrangement, which provides assistance to countries with protracted balance of payment problems. The three-year, $129 million loan agreement expired in November 2014.[20] The existence of an approved ECF was important to the international community because it demonstrated the Afghan government's political will to enact necessary anticorruption reforms. Adherence to the IMF benchmarks and fulfilling macroeconomic requirements also was supposed to have a direct effect on levels of foreign aid from the international community to the Afghanistan Reconstruction Trust Fund.

And yet, while ECF reviews were postponed and previously agreed-to benchmarks and reforms were modified, the international community did not threaten to or actually withhold significant amounts of funding. The ECF just ended quietly with nary a word. A nine-month IMF informal program called a Staff Monitoring Program (with no direct funding incentives) concluded in December 2015, with mixed results. It is unclear what the IMF, World Bank, or the international community intend to do next.

There are, however, some positive developments. The U.S. fight against internal corruption at the turn of the twentieth century shows that what is needed is the political will to reform and the creation of some incorruptible entities to pursue the task of fighting corruption. In Afghanistan's current President Ashraf Ghani and his colleague Chief Executive Abdullah Abdullah, Afghanistan may have found the political will for that it needs.

For example, in 2014, SIGAR discovered that four companies bidding on a nearly $1 billion Ministry of Defense fuel contract funded by the U.S. government had colluded to fix prices and rig bids. The investigation revealed that the companies prevented two competitors from submitting bids. When SIGAR briefed the case to President Ghani on February 1, 2015, he immediately cancelled the MOD contract, saving the U.S. government over $200 million. He also ordered an investigation into the corruption allegations and invited SIGAR to start attending the weekly meetings of the National Procurement Commission (NPC) that he chairs along with Chief Executive Abdullah.

Numerous corruption allegations had been made against Afghanistan's previous attorney general, but President Ghani recently nominated a highly respected former member of the country's human-rights commission, Mohammed Farid Hamidi, as attorney general.[21] If Hamidi is confirmed by Parliament, Ghani has pledged that he will completely overhaul the Attorney General's office and work with SIGAR to issue a report on the MOD fuel case.

President Ghani has also requested SIGAR's help with his government's efforts to repatriate the funds stolen from the Kabul Bank by way of fraudulent loans, especially funds that have been moved to the United States. He has asked SIGAR to become part of a new task force that he plans to create that will be made up of the Ministry of Finance, the Attorney General's office, and the Kabul Bank Asset Recovery Commission. He told me at our most recent meeting that SIGAR would have full access to the relevant banking and financial records.

These are positive steps, but there is more to be done. I believe donors can help by laying down smart donor conditions for assistance. Smart donor conditions can enable Afghan reformers the political "top cover" to implement changes they might not otherwise have been able to implement due to push-back by corrupt political elites

As an example of smart conditionality, the United States, through a bilaterally negotiated agreement with the Ghani government, conditioned $20 million of aid on a requirement that government officials declare their assets. This condition was satisfied in time for the December 2015 deadline. [22]

In another example, in 2014, SIGAR issued an audit in which U.S. government officials hypothesized that Afghanistan could potentially double the amount of customs revenue to the central government if corruption were significantly reduced or eliminated.[23] International donors made increased revenue collection a key target for the Afghan government. According to a recent report by the United States Institute of Peace, in spite of the overall decrease in macroeconomic conditions, the Afghan government was able to improve revenue collection in 2015, including customs, thanks to strong, focused Afghan government leadership and tight monitoring. Forty corrupt or inefficient senior staff-10 customs and revenue directors, and 30 managers-were fired instead of being transferred to another department, as was past practice. The Afghan government also introduced efficiencies in customs collection by converting formerly corrupt private rent-seeking into state revenue. [24] This was a welcome development.

Finally, the Afghan government, with USAID assistance, introduced several electronic customs (eCustoms) collection pilot programs, allowing customs duties to be paid from any commercial bank, rather than at central bank offices within customs houses. The State Department said electronic payments expedite the release of goods at the border, reduce the need to carry cash, and reduce opportunities for graft. USAID told SIGAR that eCustoms have increased government revenues and been generally successful.

While the picture is not entirely bleak, Afghanistan is running out of time when it comes to tackling corruption. Surveys show that Afghan optimism about the future and confidence in the government are at the lowest point in a decade. [25] After insecurity and unemployment, corruption was the most important reason that Afghans felt their country was moving in the wrong direction. [26]

It is true that the governing coalition in Afghanistan remains fragile. As Director of National Intelligence James Clapper recently testified, in 2016, the Afghan government faces the risk of a political breakdown. [27] But we at SIGAR are convinced that the dangers of letting corruption run rampant are greater than the risk of disrupting the entrenched practices of Afghan officials. With that, I welcome your questions. Thank you!