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WATCH THIS SPACE: New U.S. Development Agency for High-Risk Investment in Developing Countries a Magnet for Fraud

Posted  December 21, 2018

Combine 60 billion U.S. dollars, newly authorized private investment, vulnerable foreign countries, and competition with Russia and China – What could go wrong? Amid the daily D.C. drama plaguing the fall of 2018, Congress quietly passed the Better Utilization of Investments Leading to Development (BUILD) Act to create a new U.S. development agency: the U.S. International Development Finance Corporation (IDFC). The Act is a shot in the arm for U.S.-backed development finance for private sector projects in low income countries; it streamlines investment processes, doubles the prior investment cap, and, for the first time, permits equity financing. The IDFC is expected to bring jobs, roads, and electricity to poor countries. The stated goals are to develop these economies and create strong trading partners.

In addition to incentivizing private investment in fragile countries that might not otherwise attract commercial financing, the IDFC targets areas considered important to foreign policy and national security. A soft-power tool, the agency’s new investment capabilities aim to compete with China and Russia for U.S. commercial engagement in frontier markets. China is a particularly powerful presence in the global economy with investment activities in Latin America, Southeast Asia, and Africa.

The IDFC combines the existing U.S. Overseas Private Investment Corporation (OPIC) and private capital functions of the U.S. Agency for International Development (USAID). While the powerful functions of the new IDFC are key to U.S. goals, funded projects are vulnerable to abuse and fraud by unscrupulous opportunists. IDFC’s predecessor programs in OPIC and USAID are no strangers to fraud. The U.S. Department of Justice has prosecuted those caught defrauding OPIC in obtaining loans for overseas investments and submitting false claims for contracts funded by USAID. Cheating these programs harms taxpayers and underlying U.S. objectives.

Troublingly, some of the fragile markets into which new US investment will flow suffer from desperate poverty, drug cartels, armed conflict, and other fundamental human rights deficiencies. Thus, like its predecessors the IDFC will provide funding with conditions such as not supporting terrorism or human trafficking, not benefiting from forced labor, and a certain amount of transparency to avoid bribery and conflicts of interest. These unacceptable practices are rampant in opportunity-rich but high-risk areas such as sub-Saharan Africa, and parts of the Middle East and South America. Violation of important conditions may lead to government prosecution or whistleblower claims.

Along with its laudable goals, the IDFC will bring pressure to invest and beat foreign competitors, tempting some to cut corners, lie, and cheat. In fragile markets highly vulnerable to fraud, the effects could be profound. The desperate conditions in such areas may mean that fraud goes undetected and wrongdoers are never held accountable unless someone steps forward. In some cases, whistleblowers who are able to come forward may bring claims under the reward structures of the SEC, IRS, and False Claims Act. WATCH THIS SPACE for a brave whistleblower exposing IDFC fraud.

If you know of fraud in development financing and would like to talk with someone about a potential whistleblower case, click here.

Tagged in: FCA Federal, Financial and Investment Fraud, International Whistleblowers, Securities Fraud,