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Development Banks

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Alex Haines of Bretton Woods Law at the ‘School of Tomorrow’ Conference in Islamabad, Pakistan

By | Development Banks, Multilateral, Multilateral Development Banks, News | No Comments

The School of Tomorrow Conference series was initiated by Beaconhouse in 2000, and the recent event focused on seeking inspiration and equilibrium in a new age. The conference took place at the Pak-China Friendship Centre in Pakistan’s capital and involved more than 40 panel discussions. Alex sat on two panels: “The China Pakistan Economic Corridor and the Future of the Region: Socio-cultural and Economic Perspectives” and “Global Media in a Post-Truth Era”. As a barrister who specialises in international corruption and Multilateral Development Banks (‘MDBs’) sanctions cases, Alex gave his perspective of the impact which the recently established Beijing-based Asian Infrastructure Investment Bank (‘AIIB’) has had on the balance of power in the International Financial Institution (‘IFI’) arena. Specifically, he analysed the result of the AIIB-part-funded projects in the region on the MDB landscape and the traditional balance of power comprising the US-dominated World Bank, the European-dominated International Monetary Fund (IMF), and the Japanese-dominated Asian Development Bank (ADB). To a certain extent, the AIIB together with the Shanghai-based New Development Bank (NDB) suggests a new age in the world of MDBs in which China has a pivotal role, resulting in a number of opportunities for Pakistan and the surrounding region to make the most of the opportunities which an increasingly globalised world has to offer. Alex identified corruption and transparency as the two biggest challenges in this context. Alex also discussed the vital role of the judiciary and the Law in general in light of recent political events such as the US election and the High Court judgment at the end of 2016, concerning the UK Government’s capacity to trigger Article 50 – or ‘Brexit’ – after which the British press attacked its judges.

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BREAKING NEWS

By | Development Banks, Multilateral Development Banks, News | No Comments

The African Development Bank with BWL Assistance Settles Sanction Case with Hitachi Ltd of Japan

The African Development Bank (“AfDB”) has today announced in Abidjan that it has entered into a Settlement Agreement with Hitachi Ltd of Japan, which brings to an end the three-year investigation undertaken by the AfDB’s Integrity and Anti-Corruption Department (“IACD”).  IACD had alleged that two Hitachi companies – the German based Hitachi Power Europe GmbH (“HPE”) and its South African subsidiary Hitachi Power Africa (Pty) Ltd (“HPA”) – had engaged in sanctionable practices in order to be awarded in South Africa in 2007 the AfDB financed Medupi Power Station Boiler Works Contract.

BWL’s Lee Marler, Neil Macaulay and Alex Haines have represented IACD in this matter for the past two years and an international BWL team instructed by IACD (and comprised of Marler, Macaulay, Alan Sarhan and Ayman Daher (the latter two from BWL Canada)) will now proceed to assist Hitachi Ltd in fulfilling its settlement obligations to the AfDB.

The full text of today’s AfDB press release reads as follows:

“Abidjan, Côte d’lvoire Wednesday, 2nd December 2015 – The African Development Bank Group (“AfDB”) announces that on 2nd November 2015 it concluded a Settlement Agreement with Hitachi, Ltd.  (“Hitachi”) of Tokyo, Japan.

The Settlement Agreement follows a three year investigation by the AfDB’s Integrity and Anti-Corruption Department (the “IACD”) into allegations of sanctionable practices by certain Hitachi subsidiaries on the AfDB financed Medupi Power Station Boiler Works Contract in the Republic of South Africa. The IACD alleged that at the material time Hitachi Power Europe GmbH (“HPE”) based in Germany and its South African subsidiary, Hitachi Power Africa (Pty) Ltd (“HPA”), engaged in sanctionable practices in order to be awarded the boiler works contract.

The AfDB acknowledges that Hitachi and its affiliates co-operated fully and openly with the IACD investigation, and that Hitachi was determined throughout to maintain its good relations with the AfDB and to protect the integrity of the Medupi project.  Despite their differences, both parties shared a desire to resolve the current difficulties by way of settlement.

Due in part to the high level of assistance provided to the IACD by Hitachi, the AfDB has agreed to impose the sanction of debarment for twelve months with conditional release upon HPE and HPA, the two companies at the centre of the IACD investigation.  Debarment will be terminated as soon as Hitachi enhances its integrity compliance programme to the standard set by the AfDB’s Integrity Compliance Guidelines.  Moreover, Hitachi has voluntarily agreed (1) to make a substantial financial contribution to the AfDB, which will be used to fund worthy anti-corruption causes on the African continent; and (2) to co-operate with the IACD on a variety of matters, including enhancing where necessary its existing integrity compliance programme referenced above.

The sanctions imposed under the settlement agreement reflect the level of cooperation provided by Hitachi, Ltd. in the investigation of the Medupi matter, for which the IACD is grateful”, said Anna Bossman, Director of the IACD.  “Hitachi has shown by its actions that it is committed to doing business in an ethical manner and the IACD believes in giving credit for such dedication.  As I have said before, the IACD is ever willing to resolve amicably allegations of sanctionable practices with companies that show a sincere commitment to integrity, who collaborate in the resolution of allegations and who elect to enhance their compliance polices and procedures.

On 30th October 2007, Eskom awarded the AfDB financed Medupi Power Station Boiler Works Contract for the design, manufacture, supply, erection and commissioning of six coal fired steam generator units at its Medupi plant at Lephalale in the Limpopo Province of South Africa to the consortium of HPE and HPA.  Mr Johann Benöhr led the IACD investigation with support from Ms Funmilayo Akinosi and Mr Simeon Obidairo.  Lee Marler, Neil Macaulay and Alex Haines of Bretton Woods Law, London represented the IACD.”

Separately, Hitachi Ltd also settled on 28th September 2015 with the United States’ Securities and Exchange Commission (“SEC”) and its press release of the same day, in which it acknowledged the assistance provided by IACD and by implication BWL, reads as follows:

“Washington D.C., Sept. 28, 2015 — The Securities and Exchange Commission today charged Tokyo-based conglomerate Hitachi, Ltd. with violating the Foreign Corrupt Practices Act (FCPA) when it inaccurately recorded improper payments to South Africa’s ruling political party in connection with contracts to build two multi-billion dollar power plants.

Hitachi has agreed to pay $19 million to settle the SEC charges.

The SEC alleges that Hitachi sold a 25-percent stake in a South African subsidiary to a company serving as a front for the African National Congress (ANC).  This arrangement gave the front company and the ANC the ability to share in the profits from any power station contracts that Hitachi secured.  Hitachi was ultimately awarded two contracts to build power stations in South Africa and paid the ANC’s front company approximately $5 million in “dividends” based on profits derived from the contracts.  Through a separate, undisclosed arrangement, Hitachi paid the front company an additional $1 million in “success fees” that were inaccurately booked as consulting fees without appropriate documentation.

“Hitachi’s lax internal control environment enabled its subsidiary to pay millions of dollars to a politically-connected front company for the ANC to win contracts with the South African government,” said Andrew J. Ceresney, Director of the SEC’s Enforcement Division.  “Hitachi then unlawfully mischaracterized those payments in its books and records as consulting fees and other legitimate payments.”

According to the SEC’s complaint filed in U.S. District Court for the District of Columbia:

  • Hitachi was aware that Chancellor House Holdings (Pty) Ltd. was a funding vehicle for the ANC during the bidding process.
  • Hitachi nevertheless continued to partner with Chancellor and encourage the company to use its political influence to help obtain government contracts from Eskom Holdings SOC Ltd., a public utility owned and operated by the South African government.
  • Hitachi paid “success fees” to Chancellor for its exertion of influence during the Eskom tender process pursuant to a separate, unsigned side-arrangement.

Hitachi’s misconduct violated the books and records and internal accounting controls provisions of the federal securities laws, specifically Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934.

Without admitting or denying the SEC’s allegations, Hitachi agreed to a settlement that would require the company to pay a $19 million penalty, and it would be permanently enjoined from future violations.  The settlement is subject to court approval.

The SEC’s investigation was conducted by Jon Jordan and Thierry Olivier Desmet of the FCPA Unit in Miami with assistance from Kathleen Strandell, David S. Johnson, and Matthew P. Cohen.  The SEC appreciates the assistance of the Justice Department’s Fraud Section, the Federal Bureau of Investigation, the Integrity and Anti-Corruption Department of the African Development Bank, and the South African Financial Services Board.

“We particularly appreciate the assistance we received from the African Development Bank’s Integrity and Anti-Corruption Department and hope this is the first in a series of collaborations,” said Kara Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit.””

BWL barristers are renowned experts in the sanctions procedures operated by the world’s multilateral development banks (“MDB’s”), such as the African Development Bank (“AfDB”), the Asian Development Bank (“AsDB”), the Inter American Development Bank (“IADB”) and the World Bank Group.

Lee Marler, BWL’s co-head of Chambers, is quoted as saying that “we are very proud to be IACD’s standing counsel and we are delighted to have assisted the Department these past years in bringing the Medupi case to a successful conclusion, but we are equally proud to be able to represent our other clients before the anti-corruption units, sanctions boards and committees of the other MDBs.  Our strength is our depth of knowledge and unparalleled experience, for at BWL we prosecute for the AfDB but defend everywhere else and it is this rich mix that serves to ensure that we give balanced and objective advice to all of our MDB clients”.

The BWL MDB team can be contacted at enquiries@brettonwoodslaw.com

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Self-reporting corrupt misconduct – honesty is the best policy

By | Development Banks, Multilateral Development Banks, News, World Bank | No Comments

In its published announcement dated 24 July 2013 on the sanctioning of Sinclair Knight Merz Pty (SKM) the World Bank’s Integrity Vice Presidency has set what can be viewed as a benchmark new level of reduced punishment for those companies which uncover corruption within the business and then voluntarily report the matter to the Bank.

In this case the company avoided an immediate debarment from future Bank-financed projects after reporting ‘corrupt misconduct’ and ‘illegitimate payments’ by key individuals and senior managers at SKM. Instead the company and its parent companies Sinclair Knight Merz Management Pty Ltd and Sinclair Knight Merz Holdings Ltd have negotiated an agreement with INT which includes a conditional non-debarment for a period of two and a half years. This means the company can continue to bid for Bank financed projects and the debarment only comes into operation if the company fails to fulfil its obligations to improve its compliance program and cooperate with INT.

The World Bank announcement makes it clear that the Bank has reflected the high levels of voluntary cooperation by SKM with the imposition of a conditional non-debarment and is sending out a clear signal for other companies to self-report by this example. There is also an implied warning to those companies that have engaged in business with SKM that they may fall under the microscope because the cooperation received from SKM has enabled the Bank to ‘identify other potential targets for investigation’.

The Vice President of Integrity stated: “The World Bank took into account SKM’s cooperation and willingness to provide evidence in support of further INT investigations. The outcome of this case introduces a new standard of compliance by a company that opted for self-policing in response to the discovery of misconduct in its own ranks. By promptly self-reporting, committing to corporate transparency and their enforcement of disciplinary action against those responsible, SKM has practically demonstrated how to confront wrongdoing and commit to doing business with integrity.”

This case clearly illustrates the benefits of conducting a ‘thorough internal investigation’ when companies discover corrupt or fraudulent misconduct internally so that an informed decision can then be made on whether or not self-reporting is necessary and in the best interests of the company.

If you are a senior executive concerned that there may be matters that have occurred in your company that should be reported to the World Bank or any of the other Multi-Lateral Development Banks then contact Bretton Woods Law’s Neil Macaulay or Lee Marler for a confidential and legally privileged consultation to examine how best to protect the long term interests of your company.

To read the full press release click here.

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Multilateral Development Banks (MDB) – Dos and Do Nots

By | Bribery, Corruption, Cross debarment, Debarment, Development Banks, Fraud, Multilateral Development Banks, News, Sanctions, Sanctions Board | No Comments

The MDB community is comprised in the main of the African Development Bank (AfDB), the Asian Development Bank (ADB), the European Bank for Reconstruction and Development (EBRD), Inter-American Development Bank (IDB) and the World Bank Group.  Each MDB is an international organisation created by treaty and each is mandated by its Member States to ensure that the funds that the organisations lend reach their intended destination.  As such, each MDB has created an investigative office whose function it is to ‘police’ MDB funded projects in order to prevent or stop incidences of fraud, corruption, collusion and coercion (“the Sanctionable Practices”).  The MDBs have all developed an internal ‘administrative’ apparatus for prosecuting companies and individuals accused of having engaged in Sanctionable Practices on MDB financed projects.  Entities found guilty by the MDBs risk debarment (i.e., they will be prohibited from bidding on MDB funded projects for a period of time) and face referral to national prosecutorial authorities.

The following list of ‘Dos and Do Nots’ is intended to assist companies and individuals in their dealings with the MDBs:

The Dos

Do remember that companies and individuals can be debarred either indefinitely or for a set period of time by the MDBs for engaging in Sanctionable Practices on projects that they finance.

Do recall that the default sanction for a company with no prior convictions by the MDBs is a three-year debarment with conditional release, which means that the company will not be released to bid again until it can demonstrate that it has improved its corporate compliance and governance position.

Do appreciate that most MDBs publish the names of those that they have debarred for fraud and corruption, which can have dire and long-lasting consequences for the reputations of those companies and will seriously harm its chances of winning work funded by non-MDB sources as well.

Do realise that the presumption of innocence does not apply and that the World Bank can impose a six-month ‘temporary suspension’ before even formally accusing a company of having engaged in a Sanctionable Practice.

Do be cognisant of the fact that the MDBs do not have any jurisdiction over public officials; just companies and individuals who have bid upon and who have been awarded MDB funded projects.

Do be aware that the jurisdiction of the investigative offices of the MDBs stems from the ‘triangular’ contractual arrangements between lender (MDB), borrower (usually a government) and the contractor (the successful bidder).

Do ensure that bids submitted on MDB financed projects are entirely accurate and defensible.

Do ensure that you are aware of the risks of doing business in certain countries and, to this end, do consult at a minimum Transparency International’s Corruption Perception Index.

Do avoid using agents in countries in which you operate and do undertake credible due diligence checks on the consultants and contractors that you engage.

Do train your staff routinely and regularly on how to identify and avoid being drawn in to a Sanctionable Practice, as well as the potential repercussions for doing so.

Do appreciate that some MDBs, most notably the World Bank, will enter into plea arrangements known as Negotiated Resolution Agreements, whereby any likely sanction will be reduced for a guilty plea and an undertaking to assist the MDB.

Do be aware of the 9th April 2010 Agreement for Mutual Enforcement of Debarment Decisions under which a company debarred for longer than one year by one MDB will be debarred by them all, which can and most likely will deter organisations, national aid agencies and government departments from dealing with you.

Do act swiftly and instruct a lawyer who has established expertise in MDB debarment work the very moment you appreciate that you are at risk of sanction.  The earlier that a lawyer is engaged the better.

Do realise that a company’s corporate compliance structure should meet with the minimum requirements set by the World Bank’s Integrity Compliance Guidelines.

Do provide a copy of this document to your Compliance Officer.

 

The Do Nots

Do not be tempted to engage in any form of Sanctionable Practices on MDB financed projects, for it is likely that your act or omission will be discovered.

Do not pay success fees, other similar commissions or facilitation payments, for the MDBs will treat such payments as bribes.

Do not inflate or otherwise alter CVs in bids submitted on MDB financed contracts, for this can and most likely will amount to a fraudulent practice.

Do not engage with investigative offices of the MDBs, such as the World Bank’s Integrity Vice Presidency (INT) unless you have first spoken with a lawyer qualified to advise on MDB debarment matters.  The first approach from the MDB might be the issuance of an Audit Letter under which it requests sight of the company’s books and records pursuant to contractual obligations owed by the company to the borrower.

Do not allow yourself to be interviewed by MDB officers as a ‘suspect’ or ‘subject of an investigation’ in the absence of a suitably qualified lawyer instructed by you and do not disclose any documents.

Do not admit liability for a Sanctionable Practice until your lawyer has advised you on the merits and consequences of doing so.

Do not forget that the investigative offices of the MDBs regularly share information between themselves.

Do not ignore any notices received from the MDBs, such as a Notice of Temporary Suspension or a Notice of Sanctions Proceedings issued by the Evaluation and Suspensions Officer of the World Bank.

Do not forget that only the World Bank operates a quasi-judicial system for handling accusations of Sanctionable Practices, the other MDBs, such as the ADB, operate a ‘star-chamber.’

Do not consider entering into an MDB voluntary disclosure programme in the absence of first consulting a suitably qualified lawyer.

Do not forget that some MDBs, such as the World Bank, can sanction a company for a failure to co-operate with its investigators (known as an Obstructive Practice) such as where a company refuses to honour an audit clause in its contract with the borrower that permits MDB investigators to review its books and records.

All of the lawyers practising at Bretton Woods Law are experts in international organisations law, including the sanctions regimes operated by the various MDBs.  They regularly accept instructions to defend companies and individuals accused by the MDBs of having engaged in Sanctionable Practices.

If you think you could benefit from some truly international legal expertise, please click here to contact your nearest office

 

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What it takes to be truly international set of chambers

By | Administrative Law, Civil Servants, Cross debarment, Development Banks, International, Multilateral Development Banks, News | No Comments

Describing yourself as international is easy, demonstrating it takes a bit more hard work.

Bretton Woods Law deals with international clients on a daily basis, they could be talking to a multinational company accused of sanctionable practices by a multilateral development one moment and then an international civil servant with employment issues the next. So how do they ensure they offer the best possible legal advice to people from different cultures and countries?

 Language

It is easy to get your website and brochures translated, but what happens when you get someone contacting you and you can’t actually speak their language, even though the website infers you can? Bretton Woods Law has taken the trouble to employ legal professionals who are fluent in French and Spanish, as with so many international organisations being located in countries that speak these languages, it seemed only sensible and more importantly… polite.

 Cultural sensitivity

They say there is no substitute for real experience, and Bretton Woods Law would attest to this. Lee Marler, a lead counsel at Bretton Woods Law previously worked internationally as a lawyer across the globe, including America, Australia, Bosnia, East Timor, Kosovo and Palestine. He also worked as a lawyer for the United Nations, the European Bank for Reconstruction and Development and the World Bank Group. Lee’s international exposure is matched, by fellow lead counsel Neil Macaulay, who has worked as a lawyer in such diverse places as Germany, Cyprus, Bosnia, US, Philippines and the Turks and Caicos Islands.

This vast cross cross-cultural experience reinforced Lee and Neil’s belief that for any set of chambers to be truly international, they must understand that each culture has their own particular value and beliefs, and as such need to be respected and understood if you are going to succeed.

It is this cultural empathy that runs throughout Bretton Woods Law that could account for their success rate. Whether they are representing an international civil servant with employment issues or an international company facing debarment by a multilateral development bank – each individual at Bretton Woods Law has the ability to put themselves in their clients’ shoes, professionally, emotionally and of course culturally.

If you think you could benefit from some truly international legal expertise, please click here to contact your nearest office

 

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World Bank Sanctions Board takes steps to improve transparency

By | Development Banks, International, Multilateral Development Banks, News, Sanctions, Sanctions Board, World Bank | No Comments

In an effort to improve transparency, the World Bank recently took the step of publishing the judgments of its Sanctions Board online

The decision to publish judgments is a positive one in several regards. Firstly, it enables companies to learn of the type of behaviour that can be construed as falling within the provisions prohibiting fraudulent, corrupt or collusive practices arising during the bidding process or the execution of a Bank-financed contract. Secondly, the sanctions process and reasoning behind rulings is made public, permitting parties to gain some insight into what to expect if they are asked to respond to an accusation, as well as the range of penalties such offences attract.

The publication of decisions further ensures that the Bank is compliant with its obligations under international public law. The requirement to publish judgments in a suit at law is specifically referred to in Article 14 of the International Covenant on Civil and Political Rights 1966, to name but one treaty ratified for the protection of human rights, but also falls within the wider fundamental principle of access to justice. Although any World Bank sanction is purely administrative, the Sanctions Board is an organ of an international organisation (itself the product of an international treaty), with a quasi-judicial function. It fulfils the role of upholding the internal laws of the Bank and the contractual obligations incumbent upon participants in the bidding process not to indulge in sanctionable practices. The Sanctions Board is therefore regulated not only by its internal laws but also the fundamental general principles of international law.

This is a development which is certainly to be welcomed and it is hoped that the Sanctions Board will, in time, publish all of its previous decisions as well as those handed down after the change in policy.

If you are concerned that you or your company may have committed a sanctionable practice Bretton Woods Law can investigate the matter on your behalf, advise you in confidence whether you have a defence, such as bona fide mistake or “rogue employee,” and suggest how best to proceed. To contact your nearest office please click here.

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Why did you set up Bretton Woods Law?

By | Administrative Law, Development Banks, Employment Disputes, International Administrative Law, Multilateral Development Banks, News | No Comments

Hard to find specialist knowledge, borne out of experience

It’s not often that a company can claim to be unique and then actually live up to that claim – but Bretton Woods Law can.

When Lee Marler and Neil Macaulay decided to set up Bretton Woods Law, they knew that from first hand experience that their specialist arena – International Organisations Law, was woefully under-represented not just nationally but internationally. So as well as making good commercial sense to set up this country’s first legal practice focusing solely on International Organisations Law, it would also offer those International Civil Servants with employment disputes or companies being accused of sanctionable practices relating to projects funded by Multilateral Development Banks, a vital lifeline.

Whilst working together before setting up Bretton Woods Law, Neil and Lee were working in a practice where International Organisations Law made up a part of what they offered. They were surprised by the increasing number of potential clients who came knocking on their door over this three year period, looking for robust legal advice in this specialist sector. International Civil Servants locked in employment disputes with their employers or heads of international companies involved with projects funded by Multilateral Development Banks faced with serious accusations of corruption or fraud, came in equal numbers. Hence it seemed a natural route forward, when they decided to set up on their own.

International Organisations and its associated law were not new fields for this pair, Lee with a Masters in International Law, worked inside International Organisations for over 10 years, whereas Neil worked as a lawyer in the Civil Service for seven years, so it seemed a natural fit. This experience gave them an understanding in how these organisations operate and more importantly an insight into the complex personalities of these often intimidating organisations. This valuable viewpoint is rare, if not unique, and it is this inside knowledge of the organisations and their characters that gives Bretton Woods Law and their clients an enviable advantage.

Bretton Woods Law’s mantra is: “To represent clients without fear or favour” and of course to provide every client with first class legal advice. It is this ‘human’ aspect that both Neil and Lee feel is as important as the professional role they offer their clients. They have a passion for defending their clients, whatever there professional status – a secretary from an International Organisation will receive the same level of professional and emotional guidance as a CEO of an international company facing sanctions from a Multilateral Development Bank. Lee and Neil put this passion down to having lived and worked abroad for so many years and dealing with people who feel lost and don’t know which way to turn, they were both officers in the army and spent many years helping soldiers with the idiosyncrasies of the country, practices and culture they were stationed in, as well as its associated law practices.

Equalling their client focus is their all embracing knowledge of every aspect of the multifaceted arena of International Organisations Law. Members of Bretton Woods Law have two primary strands to their practices, firstly representing companies facing possible sanctions, including debarment or more serious repercussions by Multilateral Development Banks, as a result of an investigation into or an allegation of engaging in sanctionable practices (e.g. fraud and corruption). Secondly, an in-depth knowledge of International Administrative Law, which is the employment law that operates between International Civil Servants and their employer, means they are well placed to tackle and resolve any HR issues facing International Civil Servants. At first glace these two quite distinct areas seem unconnected, not so say Lee and Neil – in fact quite the opposite. They believe they complement each other, as they are always defending people who are suffering, professionally and personally, as a result of the decisions made by and within an International Organisation – and the uniting factor – Members of Bretton Woods Law are always there to defend them.

Defending their clients in front of these boards, committees and tribunals is of course why people come to Bretton Woods Law, as often clients have approached local legal providers and have been turned away. As it is not a commonly known area of law, they may have no one working in the practice that, for example, truly understands International Administrative Law and all the privileges and immunities the law affords the International Organistaions. So whom do they turn to?

Well members of Bretton Woods Law of course.

So back to the original question, “Why did you set up Bretton Woods Law”?

Answer: “Because we truly believe that there is no other grouping of lawyers who can truly defend people who find themselves in the situations that our clients do, and that could be described a basic breach of their human rights and that in everyone’s minds at Bretton Woods Law is unacceptable.”

If you are an International Civil Servant or facing accusations of corruption or fraud, related to a project funded by an Multilateral Development Bank and don’t know where to find the legal help you need, please click here to find you nearest office.

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Fraud can be ‘reckless’ and doesn’t have to be successful

By | Development Banks, Fraud, Multilateral, Multilateral Development Banks, News, Sanctions | No Comments

The current definition of fraud being applied by the World Bank Group’s Sanctions Board is capable of a very wide interpretation and could lead to yet more companies and individuals facing debarment.

The present day version of ‘fraudulent practice’ being applied under the 2011 Procurement or Consultant Guidelines and Anticorruption Guidelines has clarified, simplified and possibly extended earlier definitions of this type of sanctionable practice and now includes “any act or omission, including a misrepresentation, that knowingly or recklessly misleads, or attempts to mislead, a party to obtain a financial or other benefit or to avoid an obligation”.

For the first time recklessness is expressed as an alternative way in which a company may commit a fraudulent practice, in other words the fraud need not be deliberate but includes the taking of a risk of misleading another party. Neither does a fraud (most commonly a misrepresentation of particular facts) need to succeed; the most recent definition now specifically includes ‘attempts to mislead’. It is also worth noting that the offence has been extended explicitly to include conduct or a misrepresentation that could lead to an obligation, such as having to perform works to a particular standard, being avoided.

Previous cases suggest that the submission of false performance and experience certificates or bolstered CVs as part of a contract bid is the most common way companies put themselves at risk of sanction for fraud; although of course the definition is sufficiently wide to cover a wide range of conduct throughout the execution of a contract. In the 2011 fiscal year the World Bank Group debarred thirty five companies and individuals from doing business on any of its projects that it finances around the world.

Companies and individuals need to be aware of the wide definition of ‘fraudulent practice’ to adhere to their compliance obligations. Bretton Woods Law view is that more companies face the prospect of debarment for a ‘fraudulent practice’ than for a corrupt one.

If you are concerned that you may have committed a fraudulent practice Bretton Woods Law can investigate the matter on your behalf, advise you in confidence whether you have a defence, such as bona fide mistake or “rogue employee,” and suggest how best to proceed. To contact your nearest office please click here

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Asian Development Bank gets tough with companies who engage in sanctionable activities

By | Corruption, Development Banks, Fraud, International, Multilateral, Multilateral Development Banks, News | No Comments

The Office of Anticorruption and Integrity (OAI) of the Asian Development Bank (ADB) recently published its 2011 Annual Report (‘the Report’).  Two core messages flow from it.  The first is that efforts to tackle fraud and corruption have never been greater.  The second is the importance of ‘communication’ both between the MDBs and through OAI’s aim to ‘empower’ those involved in ADB activities “with a deeper understanding of ADB’s approach to the anticorruption fight”.  An appreciation of both messages is of paramount importance both for board members and employees of companies operating within the sphere of international development and procurement.  Indeed, many may think they have a clear view of the meaning of fraud and corruption; they are often equally clear that ‘fraud’ and ‘corruption’ are words which do not apply to them or their companies.  Yet the Report to the President may make for chilling reading: it spells out with crystal clarity conduct which may be viewed by the ADB as fraudulent or corrupt; conduct which, if found, will almost inevitably lead to the imposition of sanctions.  What might surprise many, is just how easy it is for a company to cross the threshold into sanctionable conduct.

The Bribery Act 2010 has, understandably, focused the attention of many bodies corporate on the need to be cognisant of the risks associated with such corrupt conduct.  However, it is important not to lose sight of the fact that sanctionable practices are not always as flagrant as the soliciting or payment of bribes.  Indeed, in 2011, in the case of allegations dealt with by OAI, “fraudulent practice formed the majority of investigations at 60%”.  Of that majority, misrepresentation “constitutes 52% of allegations pertaining to fraudulent practice, with submission of false documents (including bank guarantees, bid securities, or curricula vitae) at 27%.  False or inflating financial claims represent 18% of the investigations”.  It is of note that CV fraud is cited, since this is all too often a significant, but unappreciated risk area for many companies.

Companies necessarily operate in a competitive commercial environment and it seems that a practise has emerged in the field of procurement of submitting what effectively amount to ‘representative proposals’, where the personnel included are viewed not so much as integral and inseparable to a proposal, but as merely representative of the staff who might eventually be provided, should the bid be successful.  Such behaviour manifests itself as a risk in a number of ways.  One of the most common is the inclusion by a company of contractors’ CVs in proposals when that company knows or suspects that the consultant in question is not available to complete the project it is bidding for.  Furthermore, it is not uncommon for contractors to be unaware that their CVs have been included in a proposal.  It is no defence for a company to cite normal commercial practice as an explanation for such conduct; indeed, a single instance of such a misrepresentation is sufficient for a Multilateral Development Bank (MDB) to impose sanctions – including debarment.  The threat for companies of sanctions and in particular, debarment, is now greatly enhance by the cooperative approach to tackling fraud and corruption, which is now at the heart of the efforts of all of the MDBs.

The Report states that it “is important to note that the communication and exchange of information among the integrity offices of other MDBs greatly assisted in OAI’s investigations in 2012”.  It goes on publically to confirm that “ADB routinely shares information with the World Bank’s Integrity Vice Presidency and has received assistance from said office that has facilitated OAI’s investigations”.  Furthermore, the Report openly states that “more than 45 officials from government agencies and 13 development institutions have access to ADBs sanctions list”.  It is, perhaps, worthy of note that the period of debarment most frequently imposed by the ADB, both for firms and individuals, fell into the 4-7 years category.  This is made all the more significant as the relevant qualifying period for considering automatic ‘cross debarment’ is met where the “initial period of debarment exceeds one year”.

It is quite clear, then, that the regime in which international development companies operate has never been stricter and companies should factor this into their risk management strategies.  Not only is the liability often strictly interpreted, but it is now undeniable that knowledge of infringements arising out of that liability is not only being shared, but is being acted on throughout the MDB community.  The report recognises that such cross debarment has the effect of “significantly extending the reach and impact of sanctions” and as a result, it is not surprising that discussions “to further harmonize debarment practices among participating MDBs continue”.  It is with these points in mind that the value of early internal investigation and advice cannot be underestimated when companies are facing allegations, or even accusations, of fraud or corruption.  A misjudgement in respect of a CV could have potentially catastrophic consequences for the entire business.

If you are worried that your company’s internal procedures and programmes might leave you exposed to possible  accusations of fraud and corruption, Bretton Woods Law’s International Organisations Consultancy Service is the perfect solution to ensure compliance with Multilateral Development Banks’ stringent policies. To discuss your company’s needs in person, please click here to contact your nearest office.