Key Points
• An investigation by CONNECTAS highlights systemic problems in awarding government contracts in Ecuador, including private security contracts being given to companies linked to organized crime.
• Similar issues exist worldwide, with instances revealing closed-tender processes and “one-horse races” that raise concerns about the lack of due diligence and integrity in public contracts for private security.
• Poor public contracting processes in private security can lead to fraud and often result in poor-quality services, prompting calls for reforms, such as those proposed in conjunction with the planned revision of the EU Public Procurement Directive.
Money Laundering, Organized Crime, and Government Security Contracts
A recent investigation by news platform CONNECTAS reveals systemic problems in the awarding of government contracts in Ecuador, including a particularly disturbing case involving CELEC, the state-owned electricity company, and the Ministry of Public Health.
In those cases, $2.4 million dollars’ worth of private security contracts were awarded to a family security firm, Agusegpro, even as its founder was under investigation (and later arrested) for involvement in illegal drug shipments linked to the Albanian mafia in Ecuador and Spain. “Even when police intelligence is after people linked to organized crime, their dealings in contracts paid for with public funds continue because of the disarticulation between authorities,” the CONNECTAS investigation concluded.
The report says it’s not unusual for drug traffickers to operate front businesses, most commonly in Security, Heavy Transport, and Construction industries. Since 2010, 97 public contracts (for at least 13.5million dollars) were allocated to 24 suppliers linked to organized crime, CONNECTAS found.
Organized crime is particularly interested in public contracting as a way to launder money, and they often have the upper hand when it comes to winning bids. One expert noted that drug lords take contracts without even asking for the corresponding advanced payment, something that budget-strapped public entities see as attractive.
More foundational to the problem in Ecuador, according to another expert in public contracting, is that contracting public entities don’t have sufficient power to inspect the origin of offerors’ resources, as nothing in the law forbids contracting with a company that has resources of suspicious origins.
A Global Concern
While striking, the Ecuador case is not unique, as problems in public security contracts can be found around the world. A few years ago, for example, uproar followed revelations that a tiny security company won an AUS $423 million contract on Manus Island as part of a closed-tender process that was criticized as a “one a one-horse race.” The contract, and the lack of due diligence in firm selection, prompted Australian Labor Senator Murray Watt to ask, “how on earth did this tiny unknown company with no track record ever get $423 million in contracts from the Australian taxpayer?”
“How on earth did this tiny unknown (security) company with no track record ever get $423 million in contracts from the Australian taxpayer?” — Murray Watt, Australian politician
Poor public contracting processes in private security contracts can result in high profile cases of fraud and abuse, but they more commonly result in poor quality services, which has an insidious impact on society and poses a threat to public safety.
A recent investigation into public tenders in Europe by the International Security Ligue finds good procurement practices are followed less often in contracts for security services than in contracts for other—arguably less consequential—services (such as pest control, sound equipment installation, and library services). The review also revealed that public tenders for security services are not improving and are at a 5-year low for rating based on integrity and transparency measures. The data set was thousands of public tenders in Europe compiled by The Government Transparency Institute, a non-partisan thinktank that seeks to improve government accountability.
Opportunity for Change in Europe
Proposed revision of the EU Public Procurement Directive, announced in the European Commission President’s 2024-2029 Political Guidelines, is being welcomed by the security industry—offering an opportunity to simplify rules and provide legal certainty for buyers to select only compliant bidders, and award on quality in support of EU strategic goals, notably public security and resilience.
As noted in the most recent European Parliament Study on Public Procurement, 60 to 95% of public tenders in EU Member States are based solely on the lowest cost. The planned revision affords officials an opportunity to remove “race to the bottom” incentives and instead prioritize quality jobs, innovation, and resilience. Specifically, there is the need to base at least 51% of a contract award on quality criteria.
“The current directive does not do enough to ensure quality in public procurement of security services, or to recognize the special importance of these arrangements,” explained Stefan Huber, Director General of the Internation Security Ligue. “So, the Ligue strongly supports the planned revision and will be working to assist regulators in making changes and we are already in conversation with other security organizations and groups committed to transparency in public contracts to help ensure our concerns are heard.”