Exclusive: U.S. Foreign Aid Group May Ignore Its Own Rules and Give Cash to Corrupt Regimes

A U.S. government-funded foreign aid organization is considering sending hundreds of millions of dollars in grants to countries whose flawed, corrupt or undemocratic governments should almost certainly be ineligible for the money according to the agency’s own internal guidelines.

The Millennium Challenge Corporation, or MCC, is an independent U.S. foreign aid agency dedicated to "advancing American values" by reducing poverty, advancing good governance, and weeding out corruption. But people familiar with the matter say that the MCC — led by Colorado banker Daniel Yohannes (pictured above, left) — is seriously contemplating giving money to Sierra Leone and Benin, which fail to meet its "control of corruption" requirements, and Liberia and Morocco, which meet less than half of the organization’s 20 requirements for civil liberties, sound economic policies, and other measures. If approved, each country could receive hundreds of millions of dollars of U.S. government funding over the next few years.

At least one member of the MCC’s eight-person board of directors has argued against giving money to the four countries, but it’s not clear if that opposition will be enough to sway the rest of the board, which meets next month to review all of its current and potential projects. This is the first time in the MCC’s nine-year history that so many potential recipients of its money have failed to meet the grant requirements. And it comes at a sensitive time for Yohannes; on Thursday, the Senate Foreign Relations Committee is considering his nomination to be America’s representative to the Organization for Economic Cooperation and Development.

It’s far from a simple issue of bureaucratic infighting. If everything breaks right, the MCC money could give a quartet of poor countries the money they need to build new airports and take other steps to juice their economies. If the MCC bets on the wrong countries, by contrast, huge amounts of American money could disappear into the pockets of corrupt government officials or business leaders.

An MCC official, speaking on condition of anonymity, said the four countries had met all of the requirements in past years but fallen short this time around. The official said the scorecard was the first thing the board would look at, but that the country’s failures to pass the requirements wouldn’t necessarily disqualify them from continuing the negotiations over future aid packages.

"The board has discretion," the official said. "They scorecard is always the starting point, and its very important to the process, but nothing is automatic."

The MCC’s internal debate over whether to provide funding to the four countries highlights the low-profile organization’s unusual history and mission. Funded by Congress, the MCC is an independent aid agency that isn’t part of the State Department or the U.S. Agency for International Development. That means that it does not provide general aid to countries like Israel or fund large-scale infrastructure projects in places like Afghanistan or Mali. Its sole mission, according to the agency’s Web site, is to "reduce poverty through economic growth."

Countries that want a piece of the MCC’s roughly $2 billion in annual funding have to go through a laborious, multi-year process that requires repeatedly passing a set of fairly stringent criteria.

The first hurdle is a scorecard of 20 measurements of things like a country’s fiscal and trade policies, immunization rates and educational spending. Countries need to score above 50 percent on at least 10 of those indicators. Liberia and Morocco each only passed 9 of them.

The second requirement is that applicants notch scores of at least 51 percent on a subset of specific measurements of their levels of corruption, rule of law, civil liberties and other democratic rights. Benin and Sierra Leone failed to hit those targets.

The four countries’ failings pose a difficult policy choice for the MCC’s board, whose members include high-ranking members of the Obama administration like Secretary of State John Kerry and Treasury Secretary Jack Lew and outside experts like Lorne Craner, the president of the International Republican Institute. The board had opened formal negotiations with the governments of Benin, Liberia, Morocco and Sierra Leone over the past two years. The question the MCC’s leadership will face next month is whether to continue their work with those governments despite their failures to meet the MCC’s internal guidelines.

One member of the board has already urged his colleagues to sever the MCC’s relationships with the four countries, but it’s not yet clear what the rest of his colleagues think. The board operates by simple majority, and an official familiar with the matter said the December meeting would culminate in one of the toughest votes in the MCC’s history. Asked to predict the outcome, the official had a blunt response: "ask me at the end of next month."