Why graft thrives in postconflict zones

Five Polish peacekeepers are arrested for allegedly taking $90,000 worth of bribes in Iraq. Several Sri Lankan officials are suspended for mishandling tsunami aid. US audits show large financial discrepancies in Iraq. Reports of aid abuse taunt Indonesia.

Two of the world's biggest-ever reconstruction projects - Iraq and post-tsunami Asia - are facing major tests of credibility, as billions of dollars of aid and reconstruction money pour in.

And according to a major report released Wednesday by Transparency International (TI), an international organization that focuses on issues of corruption, the omens are not good.

From Iraq and Afghanistan to Cambodia and Bosnia, from the wrecked coasts of Asia to the kleptocratic carve-up in some African countries, crisis zones are proving to be fertile soil for corruption, the report argues.

"Many postconflict countries figure among the most corrupt in the world," says Philippe le Billon of the University of British Columbia, Canada, in the TI report. "Corruption often predates hostilities and in many cases it features among the factors that triggered political unrest or facilitated conflict escalation."

The report cites weak government, haphazard law and order, armed factions that need appeasing, and a scramble for rich resources as factors that render a country prone to corruption.

Nations that face security threats are even more vulnerable, since they require protection money and may not be able to keep monitors safe.

Bosnia is a good example. During the breakdown of communism in the late 1980s, factions scrambled for assets by plundering state companies, a situation exacerbated by the 1992-1995 war.

Wartime sanctioned nefarious activity. Criminal gangs became cherished paramilitary groups; black markets flourished; underworld players became rich and powerful. After peace was declared in 1995, the world community was wary of upsetting the status quo. It's still unclear how much of the $5 billion spent on aid after the war ended up in the pockets of shady characters.

"These elements were either part of the ruling political parties, or criminal elements that were financing the ruling political parties," says James Lyon, an analyst in Belgrade with the International Crisis Group.

In Iraq, allegations range from petty bribery to large-scale embezzlement, expropriation, profiteering and nepotism. The TI report says it could become "the biggest corruption scandal in history."

"I can see all sorts of levels of corruption in Iraq," says report contributor Reinoud Leenders, "starting from petty officials asking for bribes to process a passport, way up to contractors delivering shoddy work and the kind of high-level corruption involving ministers and high officials handing out contracts to their friends and clients."

The recent elections may help, he adds, but already he notes a tendency for political bargaining indicative of "dividing up the cake of state resources."

But it is not just about Iraqis dividing up the cake. US audits of its own spending have found repeated shortcomings, including a lack of competitive bidding for contracts worth billions of dollars, payment of contracts without adequate certification that work had been done, and in some cases, outright theft.

A report on the disbursement of Iraqi oil revenues to ministries by the Coalition Provisional Authority, which governed Iraq until last July found a $340 million contract awarded by the electricity ministry without a public tender.

A January report by special inspector Stuart Bowen found that $8.8 billion dollars had been disbursed from Iraqi oil revenue by US administrators to Iraqi ministries without proper accounting.

And earlier this week, it emerged that the Pentagon's auditing agency found that Halliburton, the Houston oil services giant formerly run by Vice President Dick Cheney, overcharged by more than $108 million on a contract.

A Halliburton subsidiary, Kellogg, Brown and Root, faces a number of investigations for overcharging, including one case where it charged the Army more than $27 million dollars to transport $82,000 worth of fuel from Kuwait to Iraq, according to excerpts of the report released this week by Rep. Henry Waxman (D) of California.

In a written statement. Halliburton defended the cost, explaining that delivering the fuel was "fraught with danger."

Analysts also point to an entrenched culture of graft in the Iraqi government.

It doesn't help that much of Iraq needs physical rebuilding, which involves the sector more vulnerable to corruption than any other: construction.

"Public works and construction are singled out by one survey after another as the sector most prone to corruption - in both the developing and the developed world," says TI chairman Peter Eigen.

Construction is considered prone to sleaze for several reasons: the fierce competition for "make or break" contracts; permits and approvals that are open to requests for backhanders; opportunities for delays and overruns; and the physical cover-up opportunity presented by plaster and concrete.

With whole swaths of Southeast Asia requiring rebuilding after the tsunami, experts worry that construction corruption could take a deadly toll.

"The cost will be lives lost," said Eigen, noting that cheap materials and corner-cutting can prove lethal in earthquake-prone parts of the world.

So how to battle corruption? Good governance is clearly the No. 1 priority, but TI identifies several other initiatives that can help improve probity.

These include vetting contractors and blacklisting those with shady records, ensuring competitive bidding for deals and assuring independent auditing and multilayered monitoring involving local communities, rotating staff in sensitive positions, and encouraging donors to disburse funds in a timely fashion to reduce pressure on local officials and prevent accounting trickery.

"We are simply making the case that a series of norms should be applied which make it much more feasible to avoid the kind factors driving corruption," says Lawrence Cockcroft, chairman of TI UK.

• Dan Murphy in Baghdad, Beth Kampschror in Sarajevo, and Peter Ford in Paris contributed to this report.