When meeting a potential new business partner, quite often commercial urgency or excitement at having established a relationship with a high profile company can overtake more sober and practical thoughts of undertaking due diligence, which can often seem like a time-consuming and inconvenient necessity. You and your company will almost certainly not want to be surprised by news that your new joint venture partner’s subsidiary was previously debarred, or that there are clouds hanging over ‘that’ project, which you later learn was an open secret among all its employees…
Should a skeleton prove to have been lurking in the closet, of course it is not enough for the other party to say ‘but you never asked’. However, with an increasingly low threshold to establish administrative and even criminal responsibility following sanctionable practices such as fraud and corruption, the responsibility is essentially on you to show that you conducted all reasonable inquiries before forging a new business relationship. It is important to ask the right questions when conducting due diligence on contract partners, be they individuals or corporate entities, or you could risk reputational damage by association at the very least.
There are many methods of conducting due diligence inquiries into new business partners, but a good place to start is through open source intelligence. It need not be very costly and can often provide insight into a company beyond the official face that it projects to the public. Depending on how a relationship has come about, you may even ask mutual business acquaintances for a second opinion or if there is ‘anything you should know’.
It is becoming increasingly difficult to hide on the internet. Even if web pages are deleted or altered, traces can remain and be picked up by search engines, although this is becoming more complex with the advent of the ‘right to be forgotten’ now emerging in Europe. The proliferation of data via the internet can be a mixed blessing in business: while it can be more difficult for a company to make a clean start after a scandal when items are cached for years after the event, potential business partners are often glad of being provided with the full story behind the glossy corporate image so that the right questions may be asked as to how a company has improved its internal procedures to avoid repetition of such an event in the future. This can go towards establishing how a company reacts following negative experiences and applies lessons learned to adopt a more positive approach moving forward.
An increasingly globalised market means that there is a greater likelihood of trading with partners based overseas. For this reason, the website has effectively become the shop window of international commerce. It is therefore of paramount importance that there is as much information as possible about your company’s anti-corruption policy, integrity compliance program and whistle-blowing mechanisms, as a lack of such information can constitute a red flag in the mind of a prospective business partner, shareholder or other investor. A surprising number of large multinational companies do not feature the name of their compliance officer, or even make reference to having one, which raises the question in the mind of both consumers and potential trading partners as to whether or not one exists. Even where a compliance officer is featured, very often a website will not show a direct means of communicating with them, making it harder for third parties to raise matters of concern that they may have witnessed, such as a rogue employee offering or soliciting a payment. Websites that do not feature sufficient information about a company’s compliance strategy risk selling the company short and undermining confidence in its integrity efforts, thus losing valuable trade potential.
Jazz Omari is a direct-access qualified barrister at Bretton Woods Law. If your company could benefit from an integrity compliance health check, bespoke debarment avoidance training for employees or wishes to conduct an internal anti-corruption investigation, get in touch
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.
Contact Bretton Woods Law: firstname.lastname@example.org
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.