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Neil Macaulay

Apr 24
0

World Bank publishes ‘first study of exclusion systems around the globe’​

By | Bribery, Corruption, Multilateral Development Banks, Sanctions, World Bank | No Comments

The World Bank has just published the results of a pilot survey into the structure and operation of exclusion systems in eleven different jurisdictions around the world including Australia, Brazil, Tunisia, the US, the EC and the World Bank. The pilot examined six key areas relating to the variously described ‘exclusion’, ‘debarment’, ‘disqualification’, ‘suspension’ or ‘blacklisting’ powers used against wayward suppliers within these procurement systems. The examined areas included such issues at the grounds for exclusion, whether they are publicly listed, the length of debarment and the effect on current and future contracts.

Possibly the most interesting finding suggests that “most jurisdictions indicated that exclusions are generally between one and five years in length”. However, it is not uncommon to see debarments of between five to fourteen years in length being handed out by the World Bank. The World Bank also stands out as the only system in which the baseline sanction (a starting point of three years debarment) is the same for all its exclusion grounds e.g. Fraud, Corruption, Collusion and Obstruction. Responses also indicated that the World Bank and Tunisia were the only jurisdictions for which poor performance is not a ground for exclusion.

The pilot report is undoubtedly a valuable tool in understanding the methodology of a variety exclusion mechanisms. Six of the jurisdictions surveyed also revealed the ability to exercise cross-debarment which is a discretionary power that permits the exclusion of a supplier debarred in another jurisdiction. Time will tell if this initiative does lead to development of best practices as its authors hope. Beyond that however it would not appear that any global effort towards harmonisation of these increasingly prominent debarment powers is on the agenda.

Mar 06
0

US Supreme Court Restricts the World Bank Group’s Immunities

By | International Organisations, Multilateral Development Banks | No Comments

The Supreme Court of the United States has rejected the stance taken by the International Finance Corporation that it holds an absolute immunity from legal suit. The IFC had relied on a complete immunity to prevent a legal action being brought against it by a group of local fishermen, farmers and villagers from Gugarat, India. Mr Budha Ismail Jam and others claim that a power plant financed by the IFC had caused widespread and harmful pollution of the air, land and water in the surrounding area.

The IFC, part of the World Bank Group, argued that it’s immunity provision, under which it is granted the same immunity from suit as that of foreign states, should be interpreted as an “absolute immunity”. It also argued that a flood of foreign plaintiff litigation and exposure to money damages would be the undesirable result of anything less than absolute immunity. The Supreme Court took the view these concerns were “inflated”. It also noted that other international organisations such as the UN and IMF had specified absolute immunity from judicial process in their charters, which was not the case for the IFC.

Neil Macaulay, Co-Head of Chambers at BWL, believes this was a particularly bad decision for the World Bank Group, which has always strenuously sought to maximise its immunities from legal suit. Mr Jam and his neighbours have now exposed a clear chink in the World Bank Groups armour. However the ruling does caution that “restrictive immunity hardly means unlimited exposure to suit for international organisations”. There are still many hurdles that Mr Ram and his fellow petitioners must yet clear before the restricted immunity can be pierced in the lower courts. Overall however the clarification of the limits of the World Bank’s immunities for its commercial activities is to be welcomed.  The decision is also likely to increase accountability of the World Bank’s activities through the availability of judicial scrutiny by the national courts and draw greater attention from the international media on the social and environmental impact of its projects.

For the full decision see here.

Nov 29
0

Fraud dominates investigations at the Asian Development Bank 

By | Banques de développement, International Organisations, Multilateral Development Banks, News | No Comments

The Office of Anticorruption and Integrity at the Asian Development Bank has just released a pie-chart that provides valuable insight into the focus of its ongoing investigations into sanctionable practices. The key takeaway from the chart is that fraud, running at three quarters of all investigations over the last ten months, overwhelmingly makes up the largest slice of the investigative pie and corruption is the smallest slice at only two percent.

These ADB figures for 2018 are generally consistent with long term trends across the MDBs where corruption cases may grab the headlines but in the vast majority of instances it is fraud that lies at the core of most of the enforcement action brought by their integrity offices.

One question thrown up by the figures for corporates bidding on MDB funded projects to consider is whether they are matching this fraud risk with an equal proportion of their compliance efforts. Neil Macaulay, Co-Head of Chambers at Bretton Woods Law, believes there is a danger that the scale and nature of the risk of committing fraud can easily be underestimated by corporates when setting up their anti-bribery and corruption programs. Given that the base sanction for fraud and corruption violations are the same, with a three-year debarment start point, this could be a costly misjudgement.

MDB investigators routinely focus on procurement frauds as they are generally more widespread and easier to identify and prove than other sanctionable practices such as corrupt bribe payments, which by their nature are more likely to be concealed. Typically, an MDB procurement fraud, known as a misrepresentation, might involve misconduct through a wide range of means including; failure to declare an agent or commission payments, embellished c.v. qualifications or performance track record, forged bid securities, false invoicing and mis-description of joint venture responsibilities. This list is by no means exhaustive and misrepresentations can occur at all stages of the bidding and contract execution processes and the misstatement usually appears on the face of the available project records, which help to explain why fraud carries the greatest risk of debarment and sanction in MDB funded projects.

Oct 16
0

The Inaugural World Bank Group Sanctions System Annual Report FY18 Reveals a Sharp Rise in Settlements

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

The World Bank Group (WBG) has published for the first time a joint report showing the key figures for debarments, cross-debarments and referrals made in the FY2018 under the WBG Sanctions System. The report collates the figures for sanctions, in particular the number and length of debarments, imposed through the means of settlements with the Integrity Vice Presidency (INT), determinations by the Suspension and Debarment Officer (SDO) and the decisions of the Sanctions Board. In addition, the report also contains figures for the last five years that reveal the increasing use of settlements to deal with fraud, corruption, collusion and obstruction infractions under the Bank’s Sanctions System.

Sanction settlements have multiplied from just seven to thirty-nine cases per year between 2014 and 2018, whilst the number of sanctions issued through the SDO’s determinations have fallen over the same period from forty-five to twenty-four cases. Disposals by the Sanctions Board have remained fairly constant over the five-year period with an increase of just one to twenty cases.

Neil Macaulay, Co-Head of Chambers at Bretton Woods Law, believes the continuing sharp increase in settlements over the last year may be readily explained since the vast majority of the shortest periods of debarment have been imposed through negotiated settlements. In other words settlements have become more attractive to those entities facing the sanctions process as the periods of debarment being negotiated with INT are increasingly considered acceptable.

The report helps to puts some statistical flesh on the bones. Of the twenty-nine cases with the shortest periods of debarment, those from one year and six months and below, only one was a result of a determination of the SDO, four emanate from the Sanctions Board and twenty-four were achieved by negotiation settlement with INT.
Significantly these lower penalty settlements also include five cases of ‘conditional non-debarment’ which permit the entities concerned to remain eligible for World Bank funded work provided they engage in remedial integrity compliance work. The growing attractiveness of settlements and the arrival of a new Vice President at INT, Pascale Dubois, is likely to be more than co-incidental, as she is keen to express in the report the benefits of settling sanctions matters in terms of the saving of resources and certainty of outcome for both the investigated party and the WBG.

Those companies that self-report misconduct receive particular praise from Dubois in the following terms:
“For example, two INT cases this year led to settlements with a sanction of ‘conditional non-debarment’ which means the sanctioned company remains eligible to participate in WBG-financed projects as long as it complies with certain obligations. This incentivises good corporate behavior as the companies in these cases came forward voluntarily and disclosed their misconduct. This approach also enables the type of responsible corporate citizens the Bank wants on its projects to continue to be eligible to contribute to the Bank’s mission.”

Ms. Dubois’ plainly incentive words regarding self-reporting appear to be backed up by the reported figures. All five of the cases listed as resolved by conditional non-debarment were arrived at through settlement with INT.

By stark contrast nearly all the cases resulting in the longest periods of debarment emanate from either the Sanctions Board or the SDO. Of the thirty-one most severe sanctions awarded, upwards from three years to ten and a half years debarment, only three arise from settlements and the bulk are divided between the Sanctions Board with nine disposals and the SDO with nineteen.

Overall the WBG report is to be commended as it provides a welcome degree of transparency into the current trends in disposals of sanctions cases by the three distinct limbs that comprise of the WBG Sanctions System and points towards the likelihood of a more favourable debarment outcome through settlement than the alternatives, even taking into account the additional co-operation requirements INT may require under a settlement. It therefore enables those who may be subject to an investigation by INT to make a more informed approach as to the relative merits of settling the case early or running through the SDO/Sanctions Board process.

Any companies, directors, consultants or individuals requiring assistance in dealing with the WBG Sanctions System are welcome to contact the experts in the BWL MDB Team through enquiries@brettonwoodslaw.com

Access The full WBG report >

Apr 19
0

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 via enquiries@brettonwoodslaw.com

Mar 17
0

Asian Infrastructure Investment Bank closes its Doors to Corrupt Bidders

By | Multilateral Development Banks, News | No Comments

The Asian Infrastructure Investment Bank (‘AIIB’) is the latest Multilateral Development Bank (‘MDB’) to join the ranks of the other long-established MDBs such as the African Development Bank (‘AfDB’), Asian Development Bank (‘ADB’), the European Bank for Reconstruction and Development (‘EBRD’), the Inter-Amerian Development Bank (‘IADB’) and the World Bank (‘WB’). In furtherance of this objective, the AIIB has announced that it will voluntarily and unilaterally enforce debarment decisions of the other MDBs within its own sanctions regime. Although not yet formally a signatory to the Agreement on Mutual Enforcement of Debarment Decisions (the ‘Agreement’) dated 9th April 2010, the effect of the AIIB’s decision is to render any debarment decisions of the other MDBs which qualify for cross debarment, also applicable at the AIIB, such that nearly one thousand companies which find themselves debarred by the other MDBs will also be ineligible to bid on contracts at the AIIB.

This unilateral action is, of course, likely to be a precursor to the AIIB becoming a formal signatory to the Agreement whereupon decisions within the sanctions regime of the AIIB which qualify for cross debarment will also have effect at the other MDBs. However, whilst the AIIB recognises the harmonised sanctionable practices contained in the Agreement (i.e. ‘fraudulent’, ‘corrupt’, ‘collusive’ and ‘coercive’ practices), it also casts its net wider than the other MDBs by listing three further prohibited practices, namely, ‘obstruction’, ‘theft’ and ‘misuse of resources’.

This announcement comes not long after President Jin Liqun of the AIIB stated publically at the European Financial Forum that he viewed the role of the AIIB as being that of steward of taxpayers’ money from many different countries – a position which requires the highest bar for integrity and compliance.

The AIIB has appointed Hamid Sharif to the post of Director General of its Compliance, Effectiveness and Integrity Unit (‘CEIU’) which has been set up to lead the charge against corruption on bank-financed projects. Sharif notes that:

“AIIB’s institutional arrangements creates increased accountability and transparency because I report directly to our Board of Directors as the head of the integrity unit. This creates an open channel that will improve the bank’s ability to react and deal with any suspicions of corruption or unethical behaviour in our projects”.

On 8th December 2016, the AIIB published its Policy on Prohibited Practices (the ‘Policy’) in which it made it clear that all parties are “to adhere to the highest ethical standards” whilst also creating the authority for the conduct of investigations by an Investigations Officer into allegations of prohibited conduct by parties who engage with the Bank. In the context of the AIIB Policy, ‘party’ means any party (and its respective officers, employees and agents), who:

  1. in the case of a Project financed by a Sovereign-backed Financing, is involved in such Project, including, inter alia, recipients of Financing, beneficiaries of technical cooperation, bidders, suppliers, contractors, subcontractors, consultants, sub- consultants, service providers, applicants, concessionaires and financial intermediaries; or
  2. in the case of a Project financed by a Non-sovereign-backed Financing, is involved in such Project, including, inter alia, borrowers, sponsors, recipients of Financing, beneficiaries of technical cooperation, bidders, suppliers, contractors, subcontractors, consultants, sub-consultants, service providers, applicants, concessionaires, financial intermediaries, guaranteed parties, and investee companies; or
  3. contracts with the Bank for advisory services to be performed by the Bank. 
  4. contracts with the Bank in relation to the Bank’s corporate procurement or any other matter not covered by the preceding three clauses, except for Bank Personnel.

Given the very significant impact that cross debarment can have on the ability of a company to do business, parties which find themselves under investigation, or which receive a Statement of Charges from an Investigation Officer or a Notice of Administrative Action from the Sanctions Officer should recognise that the way in which such matters are handled at the early stages can have a lasting impact on the case and a company’s future.

The lawyers at Bretton Woods Law are uniquely placed to deal with investigations, negotiated resolution agreements (‘NRAs’) and sanctions proceedings within the regimes of the multilateral development banks.

Contact Bretton Woods Law: enquiries@brettonwoodslaw.com

Feb 12
0

The EBRDAT reaffirms the application of general principles of international administrative law to the internal law of the EBRD and criticises it for being “exceedingly pedantic”

By | Administrative Law, IAL, International Administrative Law, Multilateral Development Banks, News | One Comment

Following the successful appeals to the European Bank for Reconstruction and Development Administrative Tribunal (“EBRDAT”) in the cases of Kominek & Others v EBRD (see: EBRD 2013/AT/01 and EBRD 2013/AT/02), Neil Macaulay of Bretton Woods Law (“BWL”) has secured another victory in the case of Grassi v EBRD (see: EBRD 2016/AT/01).  On the 18th January 2016, the EBRDAT allowed Mr Grassi’s (“Appellant”) appeal against the 9th September 2015 decision by the EBRD President adopting the recommendation of the Bank’s Grievance Committee (“GC”).  The GC, which sits as the body of first instance in the Bank’s internal justice system and below the EBRDAT, had recommended not to exercise its jurisdiction over all the elements contained in the Appellant’s ‘Request for an Administrative Review Decision’ (“RARD”) on the basis that it had been submitted outside the relevant procedural deadline, and was thus time-barred.  The time limit for the submission of the Appellant’s RARD landed on a non-working day (i.e., Saturday) but was submitted the next working day (i.e., Monday).  The EBRDAT found that, contrary to the GC’s recommendation and contrary to the Bank’s arguments, the Appellant’s RARD had, in fact, been timely submitted on the Monday, even if, strictly speaking, it came after the Saturday deadline.  The EBRDAT had “no hesitation to ‘remedy’ the anomaly in the Grievance Procedures by way of a liberal interpretation” (see: paragraph 33 of the judgment).

The EBRDAT’s judgment adopted the arguments raised by the Appellant, and relied, inter alia, on best practices of other Multilateral Development Banks (“MDBs”) (e.g., the International Monetary Fund (“IMF”) and the African Development Bank (“AfDB”)).  The rules of procedure at the Administrative Tribunals of a number of international organisations allow, as do many national systems, for the filing of a grievance on a ‘next working day’, thus preventing the unfair situation that had arisen in the Appellant’s case.  The Bank had argued that the procedural rules should be interpreted strictly, despite the apparent prejudice in this case.  The EBRDAT, however, relied on a judgment from the Administrative Tribunal of the International Labour Organisation (“ILOAT“) (see: Judgement No. 2882, at consideration 6) and further found that “the Bank’s interpretation is exceedingly pedantic and formalistic, and would unduly hinder the Staff Member from defending his right effectively” (see: EBRD 2016/AT/01, at paragraph 33).

In its judgement, the EBRDAT also took into account of the contra proferentem rule, natural justice, and fairness as a principle of international administrative law.  Although the EBRDAT did not take the case of Kominek into account because its facts were different, that case also resulted in the EBRAT criticising the Bank for complicating matters unnecessarily: “Voluminous arguments and numerous documents have been submitted to the Judges, who have read them and concluded that this matter has been treated by the Bank as exceedingly complex when it is in effect quite simple. Indeed, it seems important that ordinary Staff Members perceive that the options for vindicating their rights are straightforward, lest they be intimidated by the ostensible prolixity (and attended costs) of the grievance system” (see: EBRD 2013/AT/01, at paragraph 21).

The latest EBRDAT decision is a victory for common sense: it remedies an exceedingly pedantic and formalistic approach depriving staff members from effectively defending their rights naturally, justly and fairly; it provides useful guidance for the GC on how to interpret the Bank’s internal laws; and it reaffirms the application of general principles of international administrative law to the internal law of the Bank with a view to filling its lacunas.

Read more >

The BWL IAL team can be contacted at enquires@brettonwoodslaw.com

 

Jun 30
0

Uncontested Sanctions Proceedings – the SDO Option

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

The World Bank’s Suspension and Debarment Officer takes into account “a past systemic deficiency of corporate controls” and “mitigating factors” in deciding the sanction against Berger Group Holdings, Inc.

1. In uncontested sanctions proceedings Berger Group Holdings, Inc. (“BGH”), the controlling affiliate of Louis Berger Group, Inc. (“LBG”), has accepted the sanction of a one-year conditional non-debarment recommended by Pascal Dubois, the World Bank’s Suspension and Debarment Officer (“SDO”) with effect from 29th January 2015.  LBG was sanctioned to a single year of debarment with conditional release after accepting making corrupt payments to government officials in Vietnam under two World Bank financed projects.  The amounts of the payments are not specified in the SDO’s publication of her decision.

2. Initially Dubois had recommended a sanction of two years conditional non-debarment against BGH, but took into account “additional mitigating factors” provided by the Company in their written Explanation, as allowed for under the Bank’s Sanctions Procedures, which effectively halved the period of sanction.  The published notice issued by Dubois office, the Office of Suspension and Debarment (“OSD”) includes the following:
“In determining this recommended sanction, the SDO took into account that, while the evidence did not support a finding that Berger Holdings was directly involved in the corrupt practices at issue, the evidence did support a finding that Berger Holdings bore a degree of responsibility for its failure to adequately supervise its subsidiary, particularly given the direction to Berger Holdings “members” to assist in Berger Holdings subsidiaries’ compliance efforts, as well as the apparent involvement of Berger Holdings executives in directing LBG efforts in Vietnam. In addition the SDO noted that while Berger Holdings’ failure of oversight might otherwise be seen as an isolated incident, the evidence relating to the history of fraudulent activity by Berger Holdings subsidiaries identified in 1990 and 2000 World Bank sanctions cases, a 2006 Asian Development Bank sanctions case and a 2010 Deferred Prosecution Agreement with the United States Department of Justice indicates a past systemic deficiency of corporate controls, warranting the recommendation of a conditional non-debarment.”

3. LBG had initially been subject to a recommendation of three years debarment by Dubois prior to submission of the written Explanation.  The notice explains the reduction of the recommended debarment period by two thirds in its case as follows: “In determining this recommended sanction, the SDO took into account, as aggravating factors, the involvement of LBG management in the misconduct and the fact that LBG engaged in a repeated pattern of misconduct. The SDO took into account, as mitigating factors, the fact that LBG terminated the employment of individuals responsible for the misconduct and that LBG has implemented an effective compliance program, without prejudice … The SDO also took into account INT’s representations as to extent of LBG’s cooperation during the course of the investigation, noting in particular that LBG (a) undertook a robust internal investigation of misconduct at the company, (b) voluntarily refrained from bidding on Bank-financed projects and (c) provided INT with extensive documentary evidence.

4. It is noteworthy that the earlier recommendation for LBG acknowledged the implementation of a compliance program, but did not include evidence as to the extent of its implementation. In this instance, it appears that the SDO was provided in the Explanation with sufficient evidence to determine that an ‘effective’ compliance program was now in place at the company.  These proceedings show the benefits to companies facing and admitting sanctions proceedings of making full use of opportunity provided by the written Explanation to the SDO together with supporting evidence to prove that the mitigating factors are present and thus convince the SDO to reduce the level of sanction.

5. The mitigating factors identified by the SDO mirror some of those provided for in the World Bank Sanction Guidelines. The guidelines indicate that significant reductions of up to 50% of the sanction period can be allowed when a company has taken voluntary corrective action, and up to 33% may be reduced for cooperation with the investigation. In exceptional cases an even greater reduction may be warranted. By contrast the Guidelines also set out the most common aggravating factors, such as Interference with the Investigation, which could increase the sanction by 1-3 years and a Past History of Adjudicated Misconduct, which brings a guideline 10 year increase.

6. The differing sanctions imposed against Berger Group Holdings Inc. and Louis Berger Group Inc. serve as a useful reminder that the individual culpability of each accused entity should be considered rather than a single sanction imposed against a whole group of companies. In this case the parent company received a significantly lesser sanction than its subsidiary on the basis that it bore a degree of responsibility for failing to adequately supervise Louis Berger Group Inc. and was not directly involved in the corrupt practices at issue.

7. Louis Berger included in its press release of 4 February 2015 the following reflection on the issue of allocating the sanction:
“While we believe it would have been more appropriate if the World Bank had sanctioned Louis Berger International or one of its subsidiaries that now owns the Asia operations where these activities occurred, today’s development is an important milestone in our five year reform program”.

8. These proceedings also highlight the option of utilizing the uncontested sanctions process in cases where a company prefers not to challenge the accusations or sanctions recommended by the SDO.  Other options that are usually considered include entering into a Negotiated Resolution Agreement with the Bank’s Integrity Vice Presidency (“INT”) – and on this issue see the recent article posted by the BWL MDB Team on this website – or having the case determined by the Sanctions Board, particularly if the misconduct allegation is disputed or the recommended SDO sanction is considered to be too severe.

Companies facing or fearing sanctions proceedings by one of the Multilateral Development Banks have a range of options available in dealing with those proceedings each of which has advantages and disadvantages and may wish to contact the BWL MDB Team of Neil Macaulay, Lee Marler, and Jazz Omari  through enquiries@brettonwoodslaw.com or on +44 (0) 20 7764 0745 for confidential advice and guidance in respect of the particular circumstances of their case.

Aug 14
0

The World Bank’s willingness to use ‘show-cause’ letters

By | Multilateral Development Banks, News | No Comments

One of the options open to the World Bank’s Integrity Vice Presidency (INT) when investigating sanctionable practices of fraud and corruption is the issuance of a ‘show-cause’ letter to the suspected company. The ‘show-cause’ letter may be the first the company knows of the interest of INT, the World Bank’s policeman, in the company’s dealings within a World Bank funded project and may come as something of a bolt from the blue.

The consequences of the ‘show cause’ letter can be profound and need handling with real care to avoid any inadvertent prejudice being caused. High on the list of responses to be avoided is to ignore the letter altogether since silence or non response is treated by INT as acceptance of the allegation and the described facts contained in the letter which may be misleading or wrong.

A ‘show cause’ letter is most likely to arise in cases where INT believes that it already has sufficient evidence in hand without the need to conduct further investigation of the company’s books and records. This may very well arise where evidence has been given up by a third party such as a joint venture partner, competitor or a national prosecution authority. The letter will ordinarily describe the evidence in INTs possession and make out the alleged sanctionable practice(s) committed but not serve the copies of the actual evidence relied upon. The letter will have a time limit for response and generally indicates a willingness of INT to enter into the option of a negotiated settlement. Any response to the letter should set out fully where it is disputed and articulate why it is in error. However, whenever it is appropriate a prompt admission to the ‘show-cause’ letter would undoubtedly be treated as mitigation and reduce the length of debarment or otherwise limit the penalty facing the company.

A recent review of the World Bank’s Sanctions Board Decisions and Notices of Uncontested Sanctions Proceedings issued by the Bank’s Evaluations Officer has revealed a consistent reliance on ‘show-cause’ letters by INT over the past three years. Neil Macaulay of Bretton Woods Law believes the use of show cause letters is likely to be even more widespread than just those referred to in these reports since the recently released Report of the World Bank Office of Suspension and Debarment reveals that 39 out of 224 debarments were the result of negotiated settlement agreements with INT which by their very nature are more likely to be cases which the evidence of wrongdoing is strongest and most amenable to the ‘show cause’ route.

In those cases where INT believes it is ‘highly likely to be successful’ it may also request Early Temporary Suspension and continue its investigation for up to one year before referring the investigation to the Office of Suspension and Debarment otherwise the suspension will subside. If you have received a show cause letter or notice of Early Temporary Suspension and would like advice on the steps you need to take please contact Neil Macaulay for urgent assistance.

View Report from The World Bank Office of Suspension and Debarment >

Jun 18
0

Strikes, immunity from suit and the recognition of unions at the European Patent Organisation.

By | IAL, International Administrative Law, News | No Comments

Following a string of strikes last year and May and April this year, a further planned strike at the European Patent Organisation (EPO) has been ruled out by its President and is likely to lead to further unrest amongst the staff at the Organisation. Under the internal law of the EPO which recognises the ‘right to strike’, any strike is subject to the ‘terms and conditions’ stipulated by the EPO’s President that cover such matters as the strike duration and the voting process. The President has acted to prohibit a three-day strike protest planned for later this month on the grounds that it would create confusion at a time when new staff representatives were being elected.

In a ruling on 14 January 2014 the District Court of The Hague ruled that the Trade Union of the European Patent Office (VEOB) and the Staff Union of the European Patent Office (SUEPO) are entitled to bring actions before the national court in their own right against the EPO and rejected the plea of immunity by the EPO. Whilst it was common ground between the parties that EPO itself was subject to “primary sources of law such as the customary international law, the fundamental rights acknowledged in international conventions and other universally recognised legal principles” the EPO put forward a primary line of defence that it has immunity of jurisdiction.

The Hague Court found that it did have jurisdiction to hear the claim in large part because the VEOB and SUEPO are not able to challenge decisions under the EPO dispute settlement scheme in the Service Regulations and furthermore rejected claims by the EPO that the VEOB and SUEPO could not bring actions in their own right. Once the two unions were established as legal entities the Court said “the right to take legal action independently arises automatically from this”. The Hague Court distinguished the ECtHR decision of 11 June 2013, case number 65542/12 (Mothers of Srebrenica) restricting the scope of that decision on immunity to apply to the UN specifically in the performance of its peacekeeping duties.

The two unions lost the claim on the merits that the EPO Service Regulations are excessively restrictive when judged against the relevant international treaties and customary law on the right to strike. It was decided that the remedy sought would only apply to that part of EPO in the Netherlands and create ‘a fragmentation of the Patent Office’ but Neil Macaulay of Bretton Woods Law believes the importance of the decision is that it demonstrates once again the unwillingness of the national courts to allow the immunity from suit to be relied upon by an international organisation in circumstances where the organisation has not provided an effective internal system of justice to resolve disputes; in this case those brought or taken by Staff Associations or Unions.

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