Global Investigations Review - The law and practice of international investigations

Americas Investigations Review 2020

Enforcer Overview: World Bank

World Bank Group

Investigation and sanctions at the World Bank: tackling fraud and corruption in World Bank-financed projects

In its 2018 fiscal year, the World Bank Group committed more than US$66 billion in financing, supporting projects in virtually every developing country and spanning nearly every sector. [1] In April 2018, the World Bank Group’s shareholders endorsed an ambitious package of measures that included a US$13 billion paid-in capital increase, a series of internal reforms and a set of policy measures to strengthen the institution’s ability to deliver on its mission to end poverty and boost shared prosperity. As a fiduciary for its member countries’ funds, the World Bank has a duty, as set forth in its articles of agreement, to ensure that these funds are used for their intended purposes, with due attention to economy and efficiency. [2] The World Bank Group’s systems for detecting and deterring fraud and corruption are grounded in this fiduciary duty and are designed to protect the integrity of World Bank-financed projects and deter future wrongdoing.

This article describes the basic features of the World Bank’s sanctions system from the start of an investigation through to the administrative proceedings that may lead to the suspension and debarment of firms and individuals who have engaged in sanctionable misconduct. To date, the World Bank has debarred or otherwise sanctioned more than 900 individuals and firms. [3]

Introduction to World Bank sanctions

The purpose of the World Bank’s sanctions system is to safeguard the integrity of Bank-financed projects and ensure that the proceeds of World Bank financing are used only for the purposes intended. [4] To that end, the World Bank’s sanctions system seeks to create both negative and positive incentives by sanctioning firms and individuals for engaging in misconduct: sanctions create negative incentives by discouraging the sanctioned party and others from engaging in future misconduct, and create positive incentives by encouraging prevention, remediation and rehabilitation. [5] Administrative sanctions imposed by the World Bank are ‘intended to deter but not to punish’ misconduct in Bank-financed contracts, and are not intended to replace the role of ‘criminal, civil or administrative measures by national authorities.’ [6]

For investment projects approved after July 2016, the World Bank’s standards regarding fraud and corruption are set out in the World Bank Procurement Regulations for Borrowers (the Procurement Regulations). [7] Specifically, Annex IV of the Procurement Regulations outlines the relevant fraud and corruption provisions applicable to World Bank-financed projects, including the definitions of the five types of misconduct that are subject to sanctions: fraud, corruption, collusion, coercion and obstructive practices. [8] These are the only ‘sanctionable practices’ for which the World Bank can sanction firms and individuals. [9] Annex IV references another set of guidelines designed to address the risks of fraud and corruption on Bank-financed projects, known as the World Bank’s Guidelines: On Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants (the Anti-Corruption Guidelines). [10] The Bank incorporates by reference the Anti-Corruption Guidelines into the relevant legal agreement with the borrowing country. By incorporating the Anti-Corruption Guidelines into the legal agreement, and through related provisions in the Procurement Regulations and related bidding documentation, the World Bank seeks to highlight the consequences of engaging in sanctionable misconduct to all parties involved in Bank-financed projects.

The World Bank’s two-tiered sanctions system

The decision to publicly sanction an entity or individual for fraud or corruption can have a significant impact on the sanctioned party. Accordingly, the World Bank has implemented a two-tiered administrative sanctions system to ensure that every sanctions decision follows a thorough investigative process and is subject to independent adjudication.

The process starts with the Integrity Vice Presidency (INT), the World Bank unit responsible for investigating allegations of sanctionable misconduct in World Bank-financed projects. Upon receiving an allegation of a sanctionable practice, INT decides whether to launch an investi­gation. If, after concluding its investigation, INT believes it has uncovered evidence that a firm or individual has engaged in one of the five sanctionable practices, it may submit a statement of accusations and evidence (SAE) to the World Bank’s Chief Suspension and Debarment Officer (SDO), who heads the Bank’s Office of Suspension and Debarment (OSD). OSD is the first tier in the World Bank’s two-tiered adjudicative system. [11]

The SDO is tasked with evaluating whether INT’s allegations as presented in its SAE are supported by ‘sufficient evidence’, meaning that it is ‘more likely than not’ that the alleged misconduct occurred. If the SDO determines that there is insufficient evidence to support one or more of the accusations, the SDO refers the case back to INT for revision or – if none of the accusations are supported – closes the case.

When the SDO determines that there is sufficient evidence for each of INT’s accusations, the SDO issues a notice of sanctions proceedings (Notice) to the accused firm or individual, known as the ‘respondent’. The SDO attaches INT’s SAE and the evidentiary record to the Notice, giving the respondent the opportunity to review the case against it. In the Notice, the SDO also specifies a recommended sanction for the respondent, which is imposed if the respondent chooses not to appeal.

Any respondent for which the SDO recommends a debarment of six months or more is temporarily suspended, which means that, from the moment the SDO issues the Notice, the respondent is no longer eligible to receive new World Bank-financed contracts. The temporary suspension remains in place until the conclusion of the sanctions proceedings. Information about temporary suspensions is made available to World Bank staff and member country counterparts through the World Bank’s ‘Client Connection’ extranet, but the Bank does not publicly announce temporary suspensions.

Respondents in World Bank sanctions proceedings may be represented by legal counsel and are afforded a series of opportunities to contest INT’s accusations and the SDO’s recommended sanction. First, a respondent has 30 days after receiving the Notice to send the SDO a written explanation, in which the respondent may present arguments and evidence as to why the case against it should be withdrawn or the SDO’s recommended sanction should be revised. The respondent also has 90 days from receipt of the Notice to submit a response, including written arguments and evidence, to the World Bank Group Sanctions Board (the Sanctions Board) – the second tier in the World Bank Group’s sanctions system. INT, in turn, may submit to the Sanctions Board a reply within 30 days from receipt of the respondent’s response. The Sanctions Board, which is composed of seven members all external to the World Bank Group and is assisted by a permanent secretariat, conducts a de novo review of all contested sanctions cases and is not bound by the findings or recommended sanctions of the SDO. The Sanctions Board may hold a hearing at the request of INT, the respondent, or at the discretion of the Sanctions Board Chair. In addition to resolving contested sanctions cases, the Sanctions Board reviews cases where a sanctioned party contests the integrity compliance officer’s determination that the party did not comply with the conditions for release from sanction. The Sanctions Board also reviews cases where a party contests a determination by the World Bank Group that it is a successor or assignee of a sanctioned entity and subject to that sanctioned entity’s sanction. To date, the Sanctions Board has resolved appeals from 163 respondents. Its fully reasoned decisions have been published and are made available on the World Bank’s public website since 2012.

If a respondent does not appeal its case to the Sanctions Board within 90 days after receiving the Notice, the SDO imposes the recommended sanction and issues a notice of uncontested sanctions proceedings, which is posted on the World Bank’s public sanctions website. About two-thirds of respondents choose not to appeal to the Sanctions Board.

The complete list of firms and individuals that are currently debarred can be found on the World Bank’s public website. [12]

Recommending the appropriate sanction

When determining the appropriate sanction, the SDO or the Sanctions Board will consider the Bank Procedure: Sanctions Proceedings and Settlements in Bank Financed Projects (the Sanctions Procedures) [13] and the World Bank Group Sanctioning Guidelines (the Sanctioning Guidelines). [14] There are five potential sanctions:

  • debarment with conditional release;
  • conditional non-debarment;
  • fixed-term debarment;
  • letter of reprimand; and
  • restitution.

The default or ‘baseline’ sanction is debarment with conditional release. A respondent subject to debarment with conditional release is ineligible to receive World Bank-financed contracts for a period of time, [15] and is not released from debarment at the end of that period until it fulfils certain conditions to the satisfaction of the integrity compliance officer. The conditional release process generally requires the respondent to implement an integrity compliance programme. The World Bank Group Integrity Compliance Guidelines (the Integrity Compliance Guidelines) detail the elements that should be included in a respondent’s integrity compliance programme, such as:

  • a clear prohibition of misconduct;
  • the creation and maintenance of a trust-based, inclusive organisational culture that encourages ethical conduct; and
  • a commitment to compliance with the law. [16]

The Integrity Compliance Guidelines encourage the respondent to carry out a comprehensive risk assessment and address shortcomings. Other considerations listed in the Integrity Compliance Guidelines include developing and maintaining clear internal policies designed to ‘prevent, detect, investigate and remediate’ misconduct, implementing internal controls, providing training, establishing lines of communication, providing incentives and establishing reporting policies.

The Sanctioning Guidelines list several aggravating and mitigating factors for the SDO or the Sanctions Board to consider when determining an appropriate sanction. [17] Aggravating factors such as the severity of the misconduct, harm caused, interference with INT’s investigation or a history of adjudicated misconduct may justify a more severe sanction. Applying aggravation for severity of the misconduct will depend on whether the misconduct was part of a repeated pattern, the respondent used sophisticated means, the respondent’s level of involvement, management’s involvement in the scheme or the involvement of a public official or World Bank staff member in the misconduct. ‘Harm caused’ might be considered when the misconduct resulted in harm to public safety or resulted in a degree of harm to the project. ‘Interference with investigation’ may mean interference with the investigative process or intimidation of a witness (interference may also constitute a stand-alone sanctionable practice of obstruction, depending on the circumstances).

Mitigating factors may include the respondent’s minor role in the misconduct, evidence that the respondent has taken voluntary corrective actions and the level of cooperation with INT in its investigation. Voluntary corrective actions may include cessation of misconduct, internal action against responsible individuals, establishment or improvement of an effective compliance programme and restitution or financial remedy. Cooperation with the investigation may include assistance and ongoing cooperation with INT’s investigation, internal investigations, admission or acceptance of guilt or responsibility, and voluntary restraint from bidding on World Bank-financed tenders pending the outcome of the investigation.

Settlement agreements and voluntary disclosures

A World Bank investigation or sanctions case may also be resolved through a mutually agreed settlement between the respondent and INT through a settlement agreement. The parties may enter into a settlement agreement at any point prior to, or during, sanctions proceedings, up until the SDO issues a notice of uncontested sanctions proceedings or the Sanctions Board issues a decision, as applicable. All settlement agreements must be cleared by the World Bank’s Legal Vice Presidency and are submitted to the SDO for confirmation that:

  • the respondent entered into the settlement freely and fully informed of the settlement agreement’s terms and without any form of duress; and
  • the terms of the settlement agreement do not manifestly violate the Sanctions Procedures or the Sanctioning Guidelines.

Settlement agreements can permit the resolution of matters with a smaller investment of time and resources and provide a greater measure of certainty for both parties.

The World Bank also has a voluntary disclosure programme (VDP) operating within INT. The VDP provides an opportunity for firms to reveal and address past misconduct on their own initiative, if INT has not yet launched a formal investigation. [18] The VDP allows entities to avoid sanctions altogether by agreeing to the following actions:

  • internally investigate and disclose past misconduct;
  • commit to abstain from future misconduct; and
  • comply with certain conditions, including the implementation of robust compliance measures.

In exchange for these commitments, participating firms retain eligibility to receive World Bank-financed contracts. Participating firms also remain anonymous, as the World Bank agrees not to publicise or share information regarding the firm’s participation and disclosures. If a firm violates the provisions of the VDP, it is subject to a 10-year debarment. In circumstances in which a company proactively discloses misconduct of which INT was otherwise not aware, INT also has the option of settling the matter with a conditional non-debarment as the imposed sanction. Such a settlement also means that the company concerned remains eligible to bid on World Bank-financed contracts.

Cross-debarment with other multilateral development banks

In 2010, the World Bank entered into an agreement for the mutual enforcement of debarment decisions with four other large multilateral development banks (MDBs): the African Development Bank Group, the European Bank for Reconstruction and Development, the Asian Development Bank and the Inter-American Development Bank Group. [19] Under this agreement, if a firm or individual is publicly debarred by one of these MDBs for more than one year, it will be debarred by the others, subject to certain limited exceptions. [20] This agreement greatly increases the impact of debarment decisions by these MDBs.

Conclusion

The World Bank continues to work diligently to prevent, detect and deter misconduct in Bank-financed operations, and has learned and shared valuable lessons about investigating and adjudicating fraud and corruption. This is critical work, to which the World Bank remains strongly committed. After all, when development funds are diverted for fraud and corruption, it is often the poor – the intended beneficiaries of World Bank-financed projects – who suffer the most.

The authors would like to thank their colleagues Collin Swan, Anna Lorem Ramos and Julia Oliver at the World Bank Group for their assistance in preparing and editing this article.


Notes

[1] The World Bank Group, World Bank Annual Report 2017, (available at http://hdl.handle.net/10986/27986). The ‘World Bank’ is comprised of the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA) and is one part of a larger group of institutions known as the World Bank Group. In addition to IBRD and IDA, the World Bank Group also includes the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA) and the International Centre for the Settlement of Investment Disputes. This chapter describes the sanctions system applicable to activities financed by the World Bank; each of IFC and MIGA have a sanctions system that closely parallels that described here for the World Bank.

[2] Articles of Agreement of the International Bank for Reconstruction and Development, article III, section 5(b), 27 December 1945, 60 Stat. 1440, 2 UNTS 134.

[3] Note that this does not include cross-debarments initiated by other multilateral development banks and recognised by the World Bank Group.

[4] WBG Policy: Sanctions for Fraud and Corruption, section IIIA1 (2016).

[5] Id., section IIIA2.

[6] Id., section IIIA3. For a brief discussion of the evolution of the Bank’s sanctions system since its inception in 1996, see Pascale Hélène Dubois, Paul Ezzeddin and Collin David Swan, ‘Suspension and Debarment on the International Stage: Experiences in the World Bank’s Sanctions System’, 25 Public Procurement L Rev. 61 (2016).

[7] The World Bank Procurement Regulations for IPF Borrowers: Procurement in Investment Project Financing Goods, Works, Non-Consulting and Consulting Services (August 2018).

[8] Id., Annex IV, Fraud and Corruption.

[9] The current definitions of corruption, fraud, collusion, and coercion have been harmonised across the World Bank and its partner multilateral development banks.

[10] World Bank Guidelines: On Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants (July 2016) (the World Bank Anti-Corruption Guidelines).

[11] The sanctions system also includes parallel procedures for cases related to the International Finance Corporation, the Multilateral Investment Guarantee Agency, and World Bank guarantees and carbon finance operations. In these cases, INT submits the case to the Evaluation and Suspension Officer (EO) for such institution, who performs a function parallel to that of the World Bank’s SDO. To date, only three sanctions cases and one settlement have been submitted pursuant to these parallel procedures; all remaining sanctions cases have been handled by the World Bank’s SDO.

[12] The World Bank Listing of Ineligible Firms & Individuals is available online at http://worldbank.org/debarr.

[13] Bank Procedure: Sanctions Proceedings and Settlements in Bank Financed Projects (2016).

[15] The time period is generally three years, although this period may increase or decrease depending on the application of aggravating and mitigating factors.

[16] The World Bank Group, Summary of World Bank Compliance Guidelines.

[17] World Bank Group Sanctioning Guidelines.

[18] For more information on the World Bank VDP, see www.worldbank.org/vdp.

[19] The agreement is available online (visited 19 June 2017).

[20] Id.

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