Watchdog says U.S. aid money in Afghanistan may be fueling insurgency

The United States' inability to control the billions of dollars of American aid flowing into Afghanistan every year is increasing the risk that some of that money is inadvertently fueling the Afghan insurgency, according to a scathing new report by one of the U.S. government's own watchdogs.

The audit by the Special Inspector General for Afghanistan Reconstruction paints a dispiriting picture of a massive U.S. aid effort that's effectiveness has been seriously impaired by a lack of effective oversight and an Afghan government that refuses to rein in corruption.

The United States has spent more than $70 billion on security assistance and development projects in Afghanistan since 2002, and the Obama administration has made clear that it will continue sending extensive financial aid to the impoverished country even after the U.S.-led war winds down in 2014. Absent far-reaching policy changes, the report says much of that money may be misspent, embezzled, or passed into the hands of the country's militants.

"While U.S. agencies have taken steps to strengthen their oversight of U.S. funds flowing through the Afghan economy, they still have limited visibility over the circulation of these funds, leaving them vulnerable to fraud or diversion to insurgents," the staff of acting Special Inspector General for Afghan Reconstruction Herbert Richardson wrote in the report released on Wednesday. "We found that agencies have not instituted sufficient controls over U.S. funds, limiting their oversight."

The political debate over Afghanistan focuses on the uncertain state of the U.S.-led military campaign, but the report concentrates on an equally important aspect of the broader war effort: the ongoing U.S. push to find ways of limiting the endemic corruption sapping public confidence in President Hamid Karzai's government.

Corruption has emerged as one of the biggest sources of tension between Washington and Kabul, which have been publicly feuding over the issue for months. Last fall, Afghan Finance Minister Omar Zakhilwal said the United States and its allies were responsible for billions of dollars in cash flown out of Afghanistan and believed stolen. "We strongly believe that the bulk of this money is from the huge contracts that our international partners have given out directly to big companies, particularly private security companies, without any involvement from the Afghan government," Zakhilwal said at the time.

The accusations infuriated many senior U.S. officials. Shortly before leaving Afghanistan this summer, then-Ambassador Karl Eikenberry lashed out at Karzai for arguing that U.S. aid programs were to blame for the country's pervasive corruption.

"When we hear ourselves being called occupiers and worse, and our generous aid programs dismissed as totally ineffective and the source of all corruption, our pride is offended and we begin to lose our inspiration to carry on," Eikenberry said during a speech at Herat University in northern Afghanistan.

Indeed, the new audit -- the product of nearly eight months of work by U.S. investigators -- highlights multiple instances where the Karzai government went out of its way to hamper anti-corruption efforts.

In one example cited in the report, Treasury Department officials forwarded the names of 21 Afghans suspected of committing financial crimes to the Afghan Attorney General's office, but the Afghans only opened up four formal prosecutions, angering the Treasury personnel. In May, meanwhile, the Karzai government banned American advisers from working at the country's central bank and made clear they wouldn't be allowed to return.

"Treasury currently has no plans to reengage at the Central Bank as the working conditions for advisers there have become hostile," the department noted in a memo published in the audit.

The report made clear that the Afghans don't deserve all of the blame, however. It criticized the United States for failing to record the serial numbers of the aid money given to contractors and other recipients, making it virtually impossible to track the money's movement. The report also faulted the United States for allowing prime contractors to pay their Afghan partners through unlicensed wire-transfer companies, again making it difficult to ensure aid money ends up in the right hands.

"The United States is unable to record information on these funds when they enter Afghanistan's economy, and the Afghan and U.S. governments are unable to track these funds as they move from person to person," the report concluded.

Although careful to argue that both the U.S. and Afghan governments bear some responsibility for the lack of effective oversight, the report cites numerous examples of Afghan government misconduct.

Last year, the U.S. government purchased two custom-built bulk currency counters for the customs area at the Kabul airport to make it harder for Afghans to smuggle large sums of money out of the country. But the report notes that the machines weren't installed for seven months because of "disagreements over where to place" them. Afghan VIPs, meanwhile, are allowed to board planes without having their cash scanned by the machines or being forced to submit to any form of search by U.S. or Afghan officials, the report said.

The auditors also note that Afghan officials spent eight months arguing with the United States over the installation of signs at the airport reminding travelers that they had to declare if they were carrying more than $22,000 in cash. The Afghans finally signed off on putting up the signs, but refused to install them at the entrance to the airport, where they would be seen by passengers before they passed through customs, meaning "passengers are not informed of the requirement to declare their currency until it is too late" to actually do so. Afghan officials told their American counterparts that they wanted to reserve all of the space near the airport's entrance "for advertisements."