Multilateral Development Bank Monitorships

Introduction

Monitorships are now a routine part of the sanctions systems at the World Bank Group (World Bank or WBG) and other multilateral development banks (MDBs). The World Bank has been utilising independent monitors since 2011, when it made debarment with conditional release its baseline sanction for corruption, fraud and other forms of misconduct.^[2] Under a debarment with conditional release, a sanctioned party is ineligible to participate in World Bank-financed activity for a specified amount of time. If, at the end of the specified period, the sanctioned party has met certain conditions, the most common of which is the implementation of an integrity compliance programme, the sanctioned party will be released from debarment and will again become eligible to participate in World Bank-financed projects. Independent monitors have become a key part of the effort to assess whether companies have met the conditions for release.

MDB monitorships^[3] have many of the same characteristics as other monitorships: independent review and assessment, reporting to a third-party regulatory or administrative body, review of records, interviews with management and employees, and testing of controls. However, MDB monitorships have their own unique characteristics, both in process and execution. This chapter highlights some of these unique characteristics.

Context – MDB sanctions regimes and history of monitorships

MDBs play an increasingly significant role in policing corruption, fraud, collusion and other forms of misconduct throughout the world. Leading MDBs, including World Bank, African Development Bank (AfDB), Asian Development Bank (ADB), Inter-American Development Bank (IADB) and European Bank for Reconstruction and Development (EBRD), have established administrative sanctions systems to identify and punish misconduct, including fraud, corruption and collusion (referred to as sanctionable practices or prohibited practices) by parties participating in transactions financed or otherwise managed by the MDB. The sanctions systems allow for the imposition of sanctions against companies or individuals shown to have participated in a sanctionable practice or a prohibited practice. MDBs can assert ‘jurisdiction’ over companies and individuals of any nationality and in any location, so long as those companies or individuals participated in a project financed or administered by the MDB. MDB sanctions can be imposed as a result of contested or uncontested sanctions proceeding or through a settlement between the sanctioned party and the MDB.

In April 2010, the leading MDBs entered into the Agreement for Mutual Enforcement of Debarment Decisions, under which certain sanctions imposed by the signatories are recognised by other MDBs. Consequently, a decision by the AfDB to debar a company may not only prohibit the debarred company from participating in projects financed or administered by the AfDB, but may also result in ineligibility to participate in projects financed by the ADB, IADB, EBRD and World Bank.^[4]

For many years, MDBs relied primarily on fixed periods of debarment to sanction companies and individuals found to have engaged in sanctionable practices. This approach changed in around 2011 when the World Bank shifted to a three-year debarment with conditional release as the baseline sanction for engaging in sanctionable practices. Other MDBs followed suit. The shift to debarment with conditional release reflected a recognition that one of the most effective ways to achieve the goals of the sanctions systems (i.e., to ensure that funds entrusted to the MDBs are used for the purposes intended) would be to increase the number of qualified contractors who are committed to integrity compliance. Conditional release offered an excellent opportunity to rehabilitate sanctioned parties before allowing them to once again participate in MDB projects. Policy statements on the sanctions regimes of the AfDB, EBRD and World Bank stress the importance of the sanctions systems in protecting bank assets by deterring bad actors and by addressing deficiencies in corporate controls and improving a sanctioned party’s compliance programme.^[5]

To monitor integrity compliance by sanctioned companies and assess whether companies have met the conditions for release, the World Bank created the position of Integrity Compliance Officer in September 2010.^[6] The Integrity Compliance Officer was later joined by a team, now referred to as the Integrity Compliance Office. The AfDB took a similar approach and created an Integrity and Prevention Division of the office, now referred to as the Office of Integrity and Anti-Corruption (PIAC).^[7] Not all MDBs created separate offices. At the ADB, for example, the Office of Anti-Corruption and Integrity, which is responsible for investigating incidences of alleged sanctionable practices, is also responsible for assessing whether a respondent has met the conditions for release.^[8]

As the investigation and sanctioning activity at MDBs increased, more companies were subject to debarment with conditional release. That meant more companies for the World Bank Integrity Compliance Office, the Integrity and Prevention Division of PIAC and similar offices at other MDBs to monitor. According to the World Bank’s latest Sanctions System Annual Report, the Integrity Compliance Office worked with 118 debarred (or conditionally non-debarred)^[9] companies in 2021 towards meeting their conditions for release.^[10] Given the large workload, MDBs have turned to independent third-party monitors to help ensure that sanctioned parties are adopting appropriate and effective compliance programmes and otherwise meeting their conditions for release.

Monitors are appointed to oversee enhancements to the sanctioned party’s integrity compliance programme and corporate governance framework,^[11] supervise the adoption and implementation of their anti-corruption action plans,^[12] and report on and analyse the sanctioned party’s compliance programme, including by identifying gaps, addressing deficiencies and making relevant recommendations.^[13] At the conclusion of the sanction period, the monitor gives its views on whether the sanctioned party has met its obligations and is eligible for release. However, the relevant MDB division (e.g., Integrity Compliance Office) ultimately determines whether the conditions for release have been satisfied.

MDB monitorships, like many others, are forward-looking exercises and are not meant to reinvestigate the misconduct that led to the sanctions. However, monitors may request materials relating to the past misconduct to understand any control failures and ensure that those failures have been remediated. In addition, negotiated settlement agreements may include a requirement that a sanctioned party retain an independent ‘investigator’, who will work with the sanctioned party to investigate an agreed number of past MDB projects and report the findings to the MDB. The sanctioned party receives immunity from the MDB for any misconduct discovered during these investigations. The role of the investigator is separate and distinct from a monitor and is not a focus of this chapter.

Authority to impose monitors

The AfDB, ADB, EBRD, IADB, European Investment Bank (EIB) and World Bank all have the ability to impose monitors as a condition for release from debarment or non-debarment pursuant to the institutions’ broad powers to impose conditions for release from debarment, including as a means to verify improvements to the sanctioned party’s compliance programme.^[14] Monitors are imposed both as an agreed term in a negotiated resolution or settlement agreement and as a condition unilaterally imposed by the MDB following a contested or uncontested sanctions proceeding.

Although the appointment of a monitor as part of a settlement agreement has long been accepted and understood, it was not generally recognised in the sanctions procedures or other formal documentation by the MDBs until recently. In July 2021, the World Bank, ADB, AfDB, IADB, EBRD and EIB adopted the MDB General Principles for Settlements, which sets out agreed common features of settlements of investigations into sanctionable practices.^[15] The Principles formally identified the engagement of a third-party monitor as a condition of a settlement agreement.^[16]

The unilateral imposition of a compliance monitor following a sanctions proceeding may come as a surprise to sanctioned parties as it is not clearly described in many of the MDBs’ public sanctions procedures. Of the large MDBs, only the World Bank and EIB specifically cite the appointment of independent compliance monitors as an illustrative compliance condition for release from debarment or conditional non-debarment in formal sanctions procedures.^[17]

Procedures and framework

Selection process

The process for selecting a monitor varies between MDBs. Some MDBs require that a sanctioned party propose multiple candidates to be considered for the monitorship role. Both the World Bank and AfDB, for example, require companies to propose at least three candidates for consideration. Although in each instance the final selection of the monitor is left to the sanctioned party, the World Bank and AfDB maintain the right to veto any candidates who lack sufficient independence or qualifications. If more than one proposed candidate is satisfactory, the sanctioned party can select its preferred candidate. Other MDBs, including the ADB, typically allow a sanctioned party to select a monitor, subject to approval by the Office of Anti-Corruption and Integrity.

Regardless of the nomination process, potential monitors must have sufficient experience in evaluating corporate compliance programmes to international standards and sufficient capabilities to manage the work required for the specific assignment. Candidates must also be independent and free from conflicts. A monitor candidate (and the candidate’s firm) should not previously have been engaged by the sanctioned party, nor can there be other personal or professional connections between the candidate and the sanctioned party. MDBs also generally require that sanctioned parties refrain from engaging the monitor (and the monitor’s firm) for any other matters for at least one year (and up to three or more) following the end of the monitorship.

If none of the monitorship candidates proposed by a sanctioned party is acceptable to the MDB for reasons relating to qualifications, capabilities, independence or otherwise, the MDB may offer recommendations or other guidance to help the sanctioned party identify more suitable candidates. Some MDBs maintain a ‘soft list’ of qualified candidates that companies can reference, many of whom have previously served as monitors.

Once a sanctioned party and the MDB have agreed on a candidate for the monitorship, the sanctioned party is responsible for negotiating the engagement agreement. Some MDBs are more involved in this process than others; for instance, some review and approve all terms, including the proposed fees, and even sign the engagement letter. MDBs may also require that certain provisions be included in the agreements, including specific provisions concerning confidentiality, independence and MDB privileges and immunities. The sanctioned party is responsible for all costs and expenses associated with the monitorship, even in instances where the MDB is a formal signatory of the engagement agreement.^[18]

Structure of the monitorship

The structure of monitorships imposed by MDBs can vary depending on the facts and circumstances and the MDB involved. The World Bank uses a traditional model, which usually includes intensive review and testing activities, including collection and review of relevant documents regarding the sanctioned party’s activities and compliance controls, on-site visits and interviews to better understand the sanctioned party’s operations and test the implementation of its compliance controls, and evaluation of internal controls and accounting practices, including, in certain instances, through the use of forensic analysis. These monitorships resemble those imposed by national enforcement authorities such as the US Department of Justice (DOJ) or the UK Serious Fraud Office.

The AfDB often uses a hybrid model involving both self-reports from the sanctioned company and active review and reporting by the monitor. The sanctioned party (often through counsel) will prepare written implementation reports, with supporting documentation, that describe its efforts to implement a compliance programme. The implementation report is provided both to the AfDB and the monitor. The monitor will follow up with assessment reports, in which the monitor will assess the information provided by the sanctioned party in the implementation reports. To further test the implementation of the compliance programme and the information provided in the implementation reports, the hybrid model often includes a limited number of site visits by the monitor.

In limited circumstances, certain MDBs may limit a monitorship to a desktop review. In this model, the monitor does not conduct site visits or interview employees, but carries out a review of policies and records from his or her desk. Sometimes these desktop reviews are supplemented by self-reports from the sanctioned company itself on its progress with implementing the compliance programme. There is a recognition that a desktop review will not be as thorough and probing as the more traditional monitorship. As a result, its use is limited, typically to situations where the misconduct was minor and the sanctioned party already has a well-established compliance programme.

Both the desktop review model and the hybrid model are recognised as being generally less burdensome than more expansive arrangements. However, they can still place significant burdens on sanctioned parties, particularly if the sanctioned party is required to provide detailed reports on its compliance activities to the monitor.

Scope of review

The scope of an MDB monitor’s review can vary greatly and is dictated in the first instance by the conditions imposed on the sanctioned party for release. Although the most common condition for release is the implementation of an integrity compliance programme, MDBs have discretion in customising conditions based on the facts and circumstances. MDBs have been known to limit compliance conditions to a specific activity (e.g., bidding controls), geographical scope or corporate entity under the right circumstances.

Beyond the conditions for release imposed by the MDB, the scope of review is largely determined by the circumstances presented in the specific case. Key factors that influence the scope and structure of the review include, among other things, the length of the period of debarment or conditional non-debarment, the size and makeup of the sanctioned party’s operations, the type of misconduct that led to the sanction, and the sanctioned party’s existing compliance programme. The scope of the monitorship may also be affected by whether the sanction is imposed through sanctions proceedings or a settlement agreement. When a monitorship is imposed through sanctions proceedings, the company will have almost no input into the scope of the review. As a result, such monitorships tend to be more expansive than could potentially be negotiated through a settlement agreement.

Standards of review

Monitors measure a sanctioned party’s compliance programme implementation against standards adopted by the relevant MDB. In addition to the specific benchmarks set by the MDB, monitors frequently assess a sanctioned party’s performance in areas that have been identified as hallmarks of effective compliance programmes, including whether the party:

• has adopted appropriate risk-based policies and procedures;
• has a sufficiently independent and adequately staffed compliance function;
• provides regular training and communication;
• conducts proper due diligence of its business partners; and
• has mechanisms to detect and remediate misconduct.

The AfDB and the WBG have adopted a set of Integrity Compliance Guidelines that serve as a framework for what will be considered an effective compliance programme.^[19] For World Bank and AfDB monitorships, the Integrity Compliance Guidelines guide the monitor’s review. The monitor is expected to evaluate the extent to which the company has met the requirements of each guideline, always through the prism of the company’s unique risk profile.

MDBs that have not specifically adopted a set of compliance guidelines will either require the monitor to ensure that the entity has met certain specific requirements or otherwise adopted a compliance programme that is consistent with international standards. Some MDBs do both. For example, the ADB may require a company sanctioned for fraud in the bid process to demonstrate that it has established bidding controls that include specific standards identified by the Office of Anti-Corruption and Integrity and bring its code of ethics and anti-corruption controls to an ‘acceptable international standard’.

Techniques and methodologies

Document requests and reviews

A fundamental element of MDB monitorships is a review and assessment of relevant compliance documents. The quantity and nature of documents collected and reviewed by a monitor will vary greatly depending on the circumstances, but MDB monitorships will almost always include a review of, at a minimum:

• existing policy documents;
• evidence of training provided to employees;
• key governance documents; and
• evidence of implementation of compliance policies (e.g., certain completed forms and files).

In monitorships that cover the sanctioned party’s full compliance programme, the document collection and review will be broad and will include data and information concerning business operations, organisational charts, records of disciplinary proceedings, internal investigation reports, due diligence files, training materials, audit reports, financial documents, background check materials, and records of gifts and hospitality, donations and sponsorships, and other similar expenditures.

Document collection and review is a critical part of a monitorship, and successful monitors devote significant time to planning and considering document requests throughout the course of the monitorship. Successful monitorships conduct more targeted document reviews as a part of the site visits (described below).

For the sanctioned party, document production can be a significant burden throughout the monitorship. Not only does the sanctioned party need to identify and produce the requested materials, sometimes from affiliates or branches in various parts of the world, but the sanctioned party may be required to translate the documents as well (if they are not in English). Making matters worse, these tasks often fall to the compliance department, which is already burdened with implementing new or enhanced compliance controls under the watchful eye of the monitor and the MDB.

Site visits and interviews

Another common feature of an MDB monitorship is a site visit. This is one of the most important tools that monitors have at their disposal to assess and test the implementation of a compliance programme or other release conditions. During a site visit, a monitor can thoroughly test the implementation of compliance controls across the entity through a targeted review of records and interviews with employees.

The location and number of site visits is typically determined by the monitor in consultation with the sanctioned party and the MDB. For small to medium-sized companies, or companies with a smaller scope of operations, monitors may attempt to visit every location. For larger organisations, a monitor is likely to select locations that are considered high risk or that offer a representative sample. A monitor is also likely to seek to visit locations associated with the misconduct that led to the sanction.

Interviews with employees and managers are an essential part of a site visit and offer the monitor the opportunity to test whether relevant controls are properly understood by individuals at various levels within the entity. Interviews also allow the monitor to test the information in the records provided by the sanctioned party. For example, an interview may provide the monitor with the opportunity to discuss a due diligence file directly with the compliance officer who conducted the due diligence to understand the process that was used and to assess the ability of the compliance officer to analyse relevant risks. Finally, interviews are the best way to assess whether management has created a proper culture and tone in respect of compliance.

Site visits may also allow an opportunity for various forms of observation. The monitor may be able to observe compliance training, allowing it to better understand the trainers’ capabilities and the audience’s level of engagement. The monitor can also observe the physical environment for signs demonstrating the importance of the compliance programme; for example:

• Where and how are the compliance personnel positioned in the office?
• Are they in a back corner or positioned in a way that minimises their importance?
• Has the sanctioned party put up any posters or notices that publicise or encourage the compliance programme in a meaningful way?

Review and testing of financial controls

Many MDB monitorships include a review of internal financial or accounting controls. Monitors may assess policies and procedures around financial and accounting controls and interview individuals involved in these processes. Monitors may also request other financial records, including general ledgers, vouchers, invoices, purchase orders and other documentation as part of a testing of the financial and accounting controls.

Depending on the facts and circumstances, a more detail evaluation and assessment of the financial controls, including testing by forensic accountants, may be appropriate. This typically depends on the nature of the misconduct that led to the sanction, the size of the entity and the concerns regarding the entity’s financial controls. Whether and to what extent this more detailed testing is appropriate will be determined by the MDB in consultation with the monitor.

Reporting

Monitors submit their findings to both the MDB and the sanctioned party through formal written reports. The fundamental role of the monitor is to provide an independent analysis of whether the sanctioned party has satisfied the compliance requirements as set out in its sanction or settlement. The monitor’s reports regularly analyse the sanctioned party’s progress towards meeting these requirements throughout the course of the monitorship, and make recommendations to help the company shore up any areas where its progress is lacking.

As with other elements of the monitorship, the frequency of reports is determined by the MDB depending on the circumstances. The most common arrangement involves reporting biannually. Both the World Bank and AfDB have adopted a practice whereby the monitor provides an initial report within the first few months of the monitorship, followed by periodic reports on a regular schedule. The initial report often focuses on the initial status and design of the compliance programme and controls. The periodic reports provide the monitor’s findings with respect to the sanctioned party’s implementation of the compliance programme and any recommendations made by the monitor and the MDB regarding the same.

Written reports serve as an opportunity for the monitor to make recommendations and track the company’s progress as the monitorship progresses. Recommendations are commonly made at all stages of the monitorship, but often decrease in number with each successive report. Even when a recommendation is made orally by the monitor directly to the sanctioned party during a site visit or other interaction, the monitor often includes such a recommendation in the next report so that it can be catalogued and tracked.

Benefiting from the monitorship – implementing recommendations

Where MDB monitors are tasked with performing independent reviews of sanctioned parties’ progress in establishing compliance programmes or otherwise meeting their conditions for release, monitors are often more than disinterested observers. Instead, MDB monitors regularly play a key role in assisting sanctioned parties in improving their compliance programmes, in both design and implementation. The constructive feedback provided by the monitors, who are experts in their field, helps guide companies in developing their integrity culture and improving their compliance programmes. Monitors have also been known to take steps such as providing training sessions for sanctioned parties on high-risk areas or more complex compliance concepts.

MDB personnel are also a key part of the monitorship process and in working with the sanctioned party to improve its compliance programme. Indeed, MDBs often engage with the sanctioned party directly for clarification, recommendations or additional requirements. At a minimum, representatives from the relevant MDB review and comment on the monitor’s reports and may offer guidance to the monitor on its findings and additional areas of interest. Representatives from the MDBs may also take a more active role in the process, including by participating in site visits or meetings between the monitor and company personnel.

The existence of the monitorship creates an environment of urgency and accountability at the sanctioned entity. When the monitor makes recommendations, the sanctioned party knows that the monitor or the MDB (or both) will be testing their implementation, and is thus incentivised to adopt them rapidly. This can lead to the expeditious development or enhancement of a compliance programme across a large organisation, often in a much shorter time than would happen organically.

The history of MDB monitorships includes many stories of impressive success and progress, two of which are discussed below.

Case study: SNC-Lavalin

In April 2013, the World Bank announced the debarment of SNC-Lavalin Inc (SNC-Lavalin) for 10  years following allegations of corruption by SNC-Lavalin in connection with the Padma Bridge project in Bangladesh. The sanction, which was reached as part of a negotiated settlement with SNC-Lavalin, included the opportunity for early release from debarment after eight years if SNC-Lavalin met all the conditions in the settlement agreement, including the adoption of an integrity compliance programme.^[20] This settlement was one in a string of scandals that SNC-Lavalin endured over a number of years. Most prominently, in December 2019, SNC-Lavalin pleaded guilty in Canada and admitted to paying more than C$45 million in bribes between 2001 and 2011 to the son of Libyan dictator Muammar Ghaddafi.^[21]

While these scandals were surfacing, SNC-Lavalin engaged a World Bank monitor and, during the course of eight years, made significant changes and improvements to its compliance programme framework. In April 2021, despite continued news about the organisation’s prior misconduct and ongoing prosecutions, the World Bank granted SNC-Lavalin early release from its debarment, in large part based on its progress in implementing an integrity compliance programme. In granting an early release, the integrity compliance officer referenced SNC-Lavalin’s meaningful engagement with the officer and the monitor as well as the company’s adoption of the monitor’s recommendations to address its integrity compliance gaps.^[22] These recommendations, among other measures, helped SNC-Lavalin Group develop a comprehensive framework for its integrity compliance programme in line with the World Bank Integrity Compliance Guidelines and secure an early release from debarment.^[23]

Case study: Alstom

In February 2012, the World Bank announced that it had reached a negotiated resolution agreement (NRA) with Alstom Hydro France and Alstom Network Schweiz AG (Switzerland), two subsidiaries of Alstom SA (Alstom), regarding a corrupt practice on a project in Zambia.^[24] Alstom Hydro France and Alstom Network Schweiz AG (Switzerland) were debarred from participating in World Bank-financed projects for three years, with release conditioned on Alstom meeting certain conditions in the agreement. Among other conditions, Alstom was required to improve its compliance programme to meet the standards of the World Bank Integrity Compliance Guidelines and retain an independent compliance monitor.^[25] During the following three years, Alstom worked to improve its compliance programme under the watchful eye of an independent monitor and with support and input from the World Bank Integrity Compliance Office.

Almost three years later, in December 2014, Alstom pleaded guilty in the United States to violations of the US Foreign Corrupt Practices Act, agreeing to pay a US$772 million criminal penalty,^[26] which was, at the time, the largest-ever foreign bribery resolution with the DOJ. Alstom’s plea related to what the DOJ referred to as ‘a widespread scheme involving tens of millions of dollars in bribes in countries around the world, including Indonesia, Saudi Arabia, Egypt, and the Bahamas’.^[27] Despite the breadth of the misconduct, the DOJ did not require Alstom to retain a compliance monitor. Rather, in a first-of-its-kind arrangement,^[28] Alstom was permitted to self-report to the DOJ regarding the implementation of its compliance programme in lieu of requiring a monitor, provided that it satisfied the monitoring requirements in its NRA with the World Bank. The DOJ specified that it would consider the monitoring requirement satisfied if the Integrity Compliance Office concluded that Alstom had ‘implemented a Corporate Compliance Program that complies with the World Bank’s integrity compliance policies and practices, particularly those reflected in the World Bank’s Integrity Compliance Guidelines’.^[29]

The DOJ’s decision to reference and rely on the Integrity Compliance Office served as a testament to how comprehensive and mature the World Bank’s monitoring process had become in just a few short years and lent additional credibility to the work being done by the MDBs and its independent monitors to enhance and assess the compliance programmes of international companies.

The future of MDB monitorships

All indications are that the conditional release process has been hugely successful. Hundreds of companies have worked cooperatively with the MDBs to improve their compliance frameworks and rejoin the eligible pool of bidders. Monitors are likely to continue to be a large part of this increasingly important and prominent process.

The covid-19 pandemic had a significant impact on the way in which MDB monitorships could be conducted. Beginning in March 2020, travel to many parts of the world became unsafe, impossible or otherwise impractical. As in other aspects of life, monitors and sanctioned parties adjusted. The document collection and review process became more central to the monitorships. In place of in-person site visits, monitors conducted interviews through ‘virtual’ site visits when necessary. These virtual exercises allowed the monitorships to continue to progress through unprecedented times.

For many reasons, virtual visits and interviews are not as effective as the in-person versions. Observation of training and other interactions is far more difficult in a virtual setting. Observations of the physical space and arrangements is almost impossible. Although interviews can be conducted in largely the same manner, many of the side conversations and informal discussions that help a monitor understand a company and its culture are harder to replicate in a virtual setting. For these reasons, in-person site visits are likely to resume as soon as it is safe and practical to do so.

However, some efficiencies may be gained from lessons learned from monitorships conducted during the pandemic. For example, the relative success of virtual interviews may enable monitors and MDBs some flexibility when structuring and planning monitorships. A new hybrid model, involving a mixture of in-person and virtual visits, may emerge. Without the travel cost and time for every visit, monitors may be inclined to visit more locations than they would have in the past. Given these lessons, it is likely that the pandemic will change the way MDB monitorships are conducted in the future, although the extent and nature of that change is yet to be determined.

Footnotes