Category

Sanctions Board

2_note_fraud

Fighting Corruption is MY Responsibility: the Annual Report of the Asian Development Bank Office of Anticorruption and Integrity

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

The Asian Development Bank (ADB)’s Office of Anticorruption and Integrity (‘OAI’) has released its 2016 Annual Report entitled Fighting Corruption is MY Responsibility (the ‘Report’).

OAI’s external mandate is carried out by its Investigations Division which reviews complaints and conducts investigations into allegations of integrity violations; the Due Diligence Unit undertakes its integrity due diligence functions, whilst the Review and Outreach Unit handles project procurement-related reviews and capacity development activities.

The ADB defines ‘integrity violations’ as any act which violates ADB’s Anticorruption Policy, including corrupt, fraudulent, coercive and collusive practices, the four sanctionable practices which are harmonised across other Multilateral Development Banks (‘MDBs’).

Somewhat surprisingly, the Report starts with the topic of Enhancing Tax Transparency in Asia and the Pacific. By approving an update to its Anticorruption Policy, the ADB has added its weight to the fight against tax secrecy, tax evasion and aggressive tax planning which erode domestic tax bases of the ADB’s developing member countries. That update will – according to OAI – support developing member countries to protect themselves against tax evasion, base erosion and profit shifting (‘BEPS’) and is significant because it is wider in scope than the traditional role of MDB anticorruption and integrity departments.

OAI reports that it had 211 open complaints from previous years and received 258 new complaints in the year 2016. Some 73% of the complaints received related to projects, 17 % to ADB staff and 10 % to ‘others’. The majority of complaints came to OAI via email, which is an indication both of the impact of technology on the operations of the Department and the ease with which complaints about companies and individuals may be made. From those, the focus of investigations was 53% on projects, 37% on ADB Staff with the remaining 10% falling within others. The sources of the complaints also makes for interesting reading, with 61% coming from parties external to the Bank and 35% from ADB staff, whilst only 2% came from audit reviews with the remaining 2% from anonymous sources. Despite these figures, the Report emphasises OAI’s proactive use of Project Procurement-Related Reviews (‘PPRRs’) of on-going ADB-financed projects. Once again, their scope is wide, for they seek to identify ‘noncompliance issues, irregularities, and integrity concerns, with respect to project procurement, disbursements, and delivery of project outputs’ and so firms which are working on Bank-financed contracts must remain diligent to ensure that staff and contractors continue to comply with the strict requirements that come with working with an MDB.

‘Fraud’ accounted for 73% of new investigations in 2016 and OAI explained that investigations into corruption, coercion and collusion remained low due to the difficulty in establishing these sanctionable practices. Indeed, it should be remembered that the threshold for an allegation of fraud within the MDB sanctions regime is extremely low: the mere inclusion of a CV for someone whom the company knows is unavailable or where it is reckless as to that availability may give rise to liability, sanction and extremely serious consequences for a company, including debarment.

OAI stated that it continued to fight corruption through both enforcement and prevention. In 2016, 138 entities, including 98 firms and 40 individuals were debarred as a result of integrity violations, bringing the cumulative total number of firms debarred to 1,261 by the end of the year. Indeed, under the agreement with other MDBs to mutually enforce each other’s debarment actions, the ADB cross-debarred 86 firms and 47 individuals and submitted 10 firms and eight individuals for cross-debarment to participating MDBs. Further, nine firms and one individual were conditionally non-debarred, whilst temporary suspension, a measure which was first introduced in 2013 in the ADB, was issued to one firm and one individual in the year 2016. OAI also completed 33 investigations where ADB staff were found to have engaged in integrity violations, 11 of whom received disciplinary sanction.

Surprisingly, OAI received a mere six appeals in 2016, involving just three firms and six indivduals; five of these and two pending from 2015 were denied because they did not meet the requirements for an appeal to be considered by the Sanctions Appeals Committee, a point which demonstrates the importance of engaging specialist counsel to advise on and prepare such matters.

OAI used its investigative findings to make recommendations in respect of preventive measures and by requiring subjects of investigations to improve their governance and integrity processes through conditional non-debarments, debarments with conditions and reinstatement processes.

The ADB views integrity violations as potential reputational risks and with that in mind, ADB project teams submitted 300 Integrity Due Diligence (IDD) advisory and review requests to OAI’s Due Diligence Unit, covering 644 entities. This was an 86% increase in the number of entities reviewed from 2015. OAI’s Due Diligence Unit was created in response to an increased need for ADB to evaluate and minimise integrity and reputational risks in its private sector projects, as well as taking into account its increased lending and development initiatives involving private companies; indeed, 52% percent of the total entities reviewed were actually identified by the Private Sector Operations Department.

In addition, there is a separate independent grievance process – ADB’s Accountability Mechanism – which receives complaints from entities which claim to have been adversely affected by an ADB-financed project which has resulted from the ADB’s noncompliance with its operational policies and procedures. The major areas of complaint are resettlement, compensation and land acquisition, and adverse environmental impacts.

The lawyers at Bretton Woods Law have unique and unparalleled experience of assisting companies and individuals with their interactions with the OAI. If you have any questions arising out of the issues raised in this article, do not hesitate to contact a member of the team.

Antje Kunst, Counsel and Senior Rule of Law Expert, Anti-Corruption and Integrity Trainer

fraudulent practice

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

 

multilateral development banks

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.