Multilateral Development Banks FAQ

What are Multilateral Development Banks?

MDBs or as they are sometimes known IFIs are international organisations created by multilateral treaties and whose membership is comprised of sovereign states and occasionally other international organisations.  Although the mandates of the MDBs vary they all tend to lend money to states in need (and occasionally non-state entities) in order to advance their respective mandates, such as the elevation of poverty around the world.  The MDB community is comprised of the African Development Bank (AfDB- Tunis), the Asian Development Bank (ADB- Manila), the European Bank for Reconstructions and Development (EBRD London), Inter-American Development Bank (IADB- Washington DC) and the World Bank Group, including the IADB and the IFC.

How do the MDBs differ from traditional banks?

The MDBs are comprised of and are owned by states. They are international organisations created by means of treaty. The money which they lend emanates from funds contributed by the states that form the organisation’s membership. In essence, the banks lend tax-payers money to advance their mandates. They are not clearing banks but international financial institutions that are pledged in their own particular way to improve the plight of humanity.

Do they all operate in the same way?

Broadly speaking the MBS are created in a similar fashion, but their focus may be different. The Wold Bank, for example, is mandated to the cause of elevating poverty around the world, whereas the mission of the EBRD is to foster open and market orientated economies. What the MDBs have in common is a treaty provision by which they must take steps to ensure that the funds that they lend reach their intended destination and that those funds are not syphoned off by the use of corrupt or fraudulent practices. To this end, each MDB has an anti-corruption office that is mandated to investigate allegations that bank funds have been subjected to corruption and fraud.

Do all MDBs have the same procedures and rules?

Each MDB is a separate entity with its own identity and therefore its own peculiar rules and procedures.  However, in the fight against corruption and fraud, the MDBs have come together to harmonise their efforts.  In September 2006, the MDBs adopted the IFI Uniform Framework for Preventing and Combating Fraud and Corruption and in April 2010 they signed the Agreement for Mutual Enforcement of Debarment Decisions.  Taken together, these documents mean that the MDBs share common definitions of corruption and fraud; they investigate allegations of corruption and fraud in the same way and, if one bank sanctions a company for more than one year, all the others will now follow suit.

What can a company do to ensure that it does not fall foul of these procedures?

The investigative offices of the MDBs (such as INT at the World Bank) only have jurisdiction to inquire into allegations of fraud and corruption on projects that their respective organisations have financed.  Their jurisdiction emanates from contract (e.g., the sovereign loan agreements and subsequent bidding documents will provide for the MDBs to investigate allegations that their monies have been stolen) and they do not have jurisdiction over foreign public officials.  In order to avoid being investigated and sanctioned by the MDBs, companies should adopt rules and procedures that minimise the risks associated with bidding for work on MDB financed projects and take advice from specialist lawyers throughout the process.  Legal advice should always be obtained if the company knows or suspects that it is under investigation or if it receives a Notice of Sanctions Proceedings from the World Bank’s Office of Evaluations and Suspension.

If a company is suspected of breaking any rules, what will the banks do?

If an MDB becomes aware of an allegation that a company has engaged in corruption or fraud on a project that it has financed, the MDB will investigate the allegation and if it is more probable than not that the company is guilty of the allegation is will move to debar the company.  A company that is debarred cannot bid for work on projects financed by the MDB for the period of the debarment.  Moreover, the investigating bank may well refer its final investigative report to national prosecutorial authorities (e.g., the UK’s SFO or the US’ DOJ) for action by them.  The banks do share information and this can lead to one than one investigation by more than one bank.

What should a company do once it has been notified?

If a company receives notification from an MDB that it is accused of corruption and fraud, then it should immediately engage a lawyer or lawyers with experience in MDB debarment cases.  A failure to do so could lead to the company being debarred for a considerable period of time (three years is the normal period for a first offence) and cross-debarred by the other MDBs for the same period.  If a company is not careful, it could find itself prevented from bidding internationally for any contract emanating from an MDB financed project.

What are the consequences of debarment and or cross-debarment?

A company that is found guilty of a sanctionable practice will be debarred and cross-debarred if the original debarment is for a period beyond one year.  What this means is that the debarred company is prevented from bidding for contracts under projects financed by the MDBs.  What is more, as many of the MDBs publish their respective debarment lists on the internet (i.e., they adopt a policy of “name and shame”) the company’s reputation will be tarnished and this may well have knock-on effect (e.g., it will prove difficult for a company debarred for corruption by the World Bank tom obtain contracts from national development agencies, such as DFID, USAID etc.).

Can anything be done to limit the consequences of an accusation?

A company that is found guilty of a sanctionable practice will be debarred and cross-debarred if the original debarment is for a period beyond one year.  What this means is that the debarred company is prevented from bidding for contracts under projects financed by the MDBs.  What is more, as many of the MDBs publish their respective debarment lists on the internet (i.e., they adopt a policy of “name and shame”) the company’s reputation will be tarnished and this may well have knock-on effect (e.g., it will prove difficult for a company debarred for corruption by the World Bank tom obtain contracts from national development agencies, such as DFID, USAID etc.).