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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.

2_note_fraud

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