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Multilateral Development Banks

Bretton Woods Law Canada Opens for Business in Montreal

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All members of Bretton Woods Law, London (“BWL”) are delighted to announce that Bretton Woods Law Canada (“BWLC”) opened its doors to clients in Montreal’s fashionable and avant-garde ‘old quarter’ on Monday, 12th October 2015. Ayman Daher and Alan Sarhan are the two partners leading the efforts of this new and dynamic law firm, which has a specialisation within Canada and elsewhere on governance, compliance and business risk, as well as the traditional Public International Law practice areas normally associated with BWL.

Ayman and Alan, who are supported internationally by the team at BWL, are highly talented and accomplished lawyers at the Quebec bar, who have unparalleled experience within Canada in dealing with anti-corruption issues within large multinational North American companies, including defending companies accused by the Multilateral Development Banks (e.g., African Development Bank (“AfDB”), the Asian Development Bank (“AsDB”) and the World Bank Group) of having in engaged in sanctionable practices on MDB financed projects.

With comprehensive assistance provided as necessary from BWL barristers, BWLC will advise and help Canadian and other companies in all aspects of anti-corruption work, including the design and implementation of ‘gold standard’ integrity compliance programmes.

To learn more about BWLC and to view the profiles of Ayman and Alan, visit our sister website at www.brettonwoodslaw.ca

Posted by: Lee Marler and Neil Macaulay – BWL’s Co-Heads of Chambers

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.

Settle or fight the MDBs – that is the question

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  1. Companies and individuals that are accused by the Multilateral Development Banks (“MDBs”), such as the African Development Bank (“AfDB”), the Asian Development Bank (“AsDB”) and the World Bank Group, of having paid bribes in order to be awarded MDB financed contracts around the world or who have engaged in other sanctionable practices (e.g., fraud, collusion, coercion or obstruction) on MDB financed projects often face a difficult, yet significant decision at a relatively early stage of proceedings: do they (1) deny the allegations and fight the case within the respective sanctions regime of the accusing MDB; (2) accept the allegations but seek to be judged by the relevant sanctions board, committee or commissioner; or (3) do they seek to enter into some form of settlement with the relevant bank or banks.  In the experience of the BWL MDB Team (henceforth “BWL”), especially of late, the answer very much depends upon the MDB involved and of course the underlying facts of the actual case.
  2. With one or two exceptions, the anti-corruption offices of the MDBs are extremely keen (some might argue too keen) to convince companies accused by them of misconduct to enter into settlement agreements, for such agreements (1) resolve the case in the absence of it being tested before a properly constituted sanctions board, committee or commissioner, and with few if any rights of redress or appeal; (2) provide a fertile ground for the gathering of additional evidence and intelligence to be used by the relevant MDB against other companies; (3) raise in some cases revenue for the MDB; and (4) save the anti-corruption offices from doing their jobs, as they place the burden and cost of detection and investigation upon the company.
  3. There are of course pros and cons for entering into a settlement agreement that on its face resolves the difficulties confronted by a company embroiled in a dispute with an MDB anti-corruption office.  The advantages in theory are that (1) the company accused of engaging in a sanctionable practice will receive a reduced period of debarment if it accepts its guilt or possibly ‘does not admit nor deny’ its culpability; and (2) it will not be sanctioned further by the MDB for any past inculpatory matters that emerge as a consequence of doing the work required by the MDB under the terms of the agreement (e.g., additional investigation of MDB financed contracts).  The disadvantages are that (1) the obligations imposed upon the company are onerous (e.g., (a) the imposition of an MDB approved integrity compliance program; (b) the conduct of a Red Flag Review of MDB financed contracts awarded to the company under which the company or its representative seeks to identify indicators of sanctionable practices; (c) undertaking investigations of those contracts that emit, for example, indicators of sanctionable practices; and (d) on-going collaboration obligations, including informing on other companies); (2) implementing the obligations is expensive and time consuming; (3) the sanction in the case of the World Bank’s Integrity Vice Presidency (“INT”) risks being longer than that initially recommended by Pascale Dubois, the World Bank’s Chief Suspension and Debarment Officer in any Notices of Sanctions Proceedings (“NoSPs”) issued by her office or imposed after a plea or contest by the World Bank’s Sanctions Board; (4) INT in particular may veto a company’s choice of law firm or lawyers to undertake the settlement obligations that it is required to undertake and pay for (at least in Europe, legal assistance of one’s own choosing has been regarded for some time as a basic human right see e.g., article 6(3)(c) of the European Convention on Human Rights (1950) (“ECHR”)); (5) the work of any third party Compliance Monitors appointed under direction from the MDB to verify Integrity Compliance Program (“ICP”) implementation is not necessarily confidential and may be shared with national prosecutors and regulators; (6) no immunity is offered by INT (the situation is entirely different at other MDBs) from referral to national law enforcement and prosecutorial agencies (“Criminal Referrals”); and (7) Criminal Referrals of third parties often exposes the company to the risk of identification and prosecution.  INT is unusual, if not unique, as it insists that it is obliged to leave open the possibility of making Criminal Referrals in a settlement agreement and will not therefore countenance negotiating such a provision out of the agreement, despite the merits of doing so (Is it prudent, sensible or even commercially expedient to enter into an NRA with INT under which one may be obliged to disclose incriminating evidence that could be referred on for prosecution before the criminal courts?).
  4. The anti-corruption office of the AfDB is the Integrity and Anti-corruption Department (“IACD”), which is led by Anna Bossman, a Ghanaian law graduate and former Deputy Commissioner of the Ghanaian Commission on Human Rights and Administrative Justice.  Clair Wee, a Singaporean commercial lawyer and long standing counsel to the AsDB runs the AsDB’s Office of Anti-corruption and Integrity (“OAI”) and the ‘sanctioning arm’ of the World Bank’s Integrity Vice Presidency (“INT”) is run by Steven Zimmerman (a former US Federal Prosecutor) and managed by Leonard McCarthy (a former South African prosecutor and Head of the now disbanded Scorpions).  Other smaller and viable anti-corruption offices do exist within other MDBs (see e.g., the Office of the Chief Compliance Officer (“OCCO”) at the EBRD, the Office of Institutional Integrity (“OII”) at the IADB and the Group Integrity Office (“GIO”) of the Islamic Development Bank), but this note will in the main deal only with the ‘Big Three’ and will not concern itself with the offices of organizations that operate less mature sanctions regimes, such as the Fraud and Investigation Division (“IG/IN”) of the European Investment Bank (“EIB”).
  5. INT is by far the largest anti-corruption office within the MDB community in terms of budget and numbers, and not surprisingly it has traditionally been seen as the ‘big kid on the MDB block’, but of late it is being surpassed and outpaced in BWL’s view by the smaller, less bureaucratic and more commercially focused offices operated by the AfDB and the AsDB.  It would appear to BWL that IACD and in particular OAI want to see companies reformed and thereafter succeeding commercially, and be able to work on AfDB and AsDB projects and thereby assist in fulfilling the mandates of those organizations.  IACD and OAI seem to appreciate that the root cause of corruption in their respective countries of operation is corrupt public officials who seek to extort bribes from foreign companies and it would seem by their actions that they do not want to drive those companies into bankruptcy.  It occurs to BWL that IACD and OAI grasp the very simple point that there is little to be gained from debarring reforming or reformed companies and their subsidiaries for often long periods, when those same companies are best placed to deliver AfDB and AsDB projects in often challenging environments.  The risk of adopting an overzealous or aggressive debarment strategy is that all the large and capable companies are prevented from bidding on MDB financed projects, leaving those projects to the mercy of the less well qualified.
  6. INT’s version of a settlement agreement is known as a Negotiated Resolution Agreement (“NRA”), which in itself amounts to an oxymoron, as the title creates the false impression that a meaningful dialogue occurs between the parties, when it does not.  In BWL’s experience, INT has a set template for a NRA and it will not waiver much, if at all from its standard terms and conditions.  Unlike with IACD and OAI, there is precious little in the way of negotiation and all that seems to be open for debate with INT is the terms of the actual sanction.  This lack of lack of negotiation has much to do with the fact that the ‘deck is stacked’ from the outset against companies accused by INT of misconduct; there exists an inequality in the bargaining positions of the parties, for accused companies seeking a non-contentious resolution may already be subjected to and suffering from Early Temporary Suspension (“ETS”), which is the process at the World Bank by which companies are prohibited from bidding on World Bank financed projects before INT has even concluded its investigation (the legitimacy of ETS and temporary suspension more generally at the World Bank is arguable and potentially open to contest on the basis that it offends the presumption of innocence – a fundamental human right in civilised rule of law systems (see e.g., article 6(2) of the ECHRs) – and causes financial loss and reputational damage to companies that have not been found culpable of or admitted any wronging).  In contrast, IACD calls such agreements what they actually are: Settlement Agreements and, as one would expect, the terms and conditions are open for reasonable discussion and debate.  OAI does not have a formalised settlement procedure, preferring instead to deal with each case on its individual merits and there is much to be said for this flexible approach.
  7. BWL barristers are regularly called upon to (1) defend companies and individuals who have been accused by INT, IACD and OAI of having engaged in sanctionable practices on World Bank, AfDB and AsDB financed contracts respectively; and (2) approach those offices with a view to agreeing disclosure protocols that will facilitate voluntary disclosures.  It is fair to say that in our experience, IACD and OAI approach settlement negotiations in an entirely different manner to INT.  The former and in particular OAI adopt a strategic and commercial attitude, which properly reflects their position within an international financial institution that lends to States in need of assistance.  Whereas INT in contrast aligns itself far more with US law enforcement and behaves in a quasi prosecutorial role, which is undoubtedly due to the fact that INT is run and led by former prosecutors and staffed by inter alia former police officers.  It appears to BWL that IACD and OAI are focused on the respective mandates of their institutions, whereas INT seems to concentrate more on the need for punishment of those that it perceives have transgressed the World Bank’s rules.  INT operates undeniably within an administrative and contractual structure with a mandate to ensure that World Bank funds reach their intended destination and it is arguable that its quasi-law enforcement stance is ultra vires and open to contest.
  8. One thing is for sure, a company must in BWL’s view tread with caution before going down the path of an NRA with INT, for it would certainly appear of late that the disadvantages outweigh the advantages of such an arrangement.  Companies and individuals are better advised in general to consider either accepting the sanction recommended by Pascale Dubois in any NoSP issued by her office or taking their chances and fighting the merits of the case before the World Bank’s Sanctions Board, as it is more than likely that the company will receive a lesser penalty and avoid the burdens associated with an NRA, including the risk of Criminal Referrals.  In contrast, it is BWL’s experience that a company or individual can walk with far more confidence towards a settlement with IACD or OAI, for those offices and their respective staff – due mainly to their professional backgrounds – do not see themselves and nor do they behave as an arm of law enforcement.  Unlike their colleagues in INT, IACD and OAI officers do not, at least to BWL’s knowledge, participate in, for example, searches of premises undertaken under warrant by national law enforcement bodies.
  9. Another certainty is that a company that is deciding whether to go or has decided to go down the route of a settlement agreement must be represented and advised by lawyers who actually know what they are doing.  This seems self-evident, but BWL often encounter the aftermath of companies who have been poorly advised and who have taken decisions that prove to be regrettable.  Companies should do their due diligence before instructing advisers and taking advice from them to ensure that they (1) are qualified and are acting as lawyers, and can assert legal professional privilege; (2) have real and verifiable experience of defending entities accused by the MDBs of sanctionable practices and not merely experience of designing and implementing integrity frameworks; and (3) are not MDB appeasers, in the sense that they are not advocating whole scale capitulation and disclosure of incriminating material.  Companies and individuals should only engage competent and MDB experienced lawyers who will if necessary fight for their clients and give sound advice, which may be to reject a settlement and proceed to contest the accusations, both on jurisdiction and on the merits.
  10. So to answer the question, the BWL MDB Team would advise companies and if needs be individuals – at least at present – to actively consider pursuing settlements with IACD and OAI, content in the knowledge that those offices will act reasonably towards them, but that care should be adopted when contemplating settling with INT.  Do not misunderstand us, as we do not want to create the impression that settlements with INT cannot be achieved, for they can, provided of course that the conditions are right (and BWL can assist in shaping those conditions), but caution with INT is and should presently remain the operative word.

The dedicated BWL MDB Team is presently comprised of the following BWL barristers: Lee Marler, Neil Macaulay and Jazz Omari and the team can be contacted at enquiries@brettonwoodslaw.com or by telephone at +44 1245 351073.

 

The value of due diligence and publicising compliance efforts

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

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

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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 >

ONE-ON-ONE: Fraud Investigations by Multilateral Development Banks

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Lee Marler as featured in Risk and Compliance Magazine (JUL-SEP 2014):

Lee Marler is a barrister and Joint Head of Chambers at Bretton Woods Law and is a former Director of Operations at the World Bank Integrity Vice-Presidency. He has appeared before the Sanctions Board and has brokered Negotiated Resolution Agreements with the World Bank, immunity arrangements with the Asian Development Bank and is counsel to the African Development Bank’s Integrity and Anti-Corruption Department.

RC: Could you provide a brief overview of multilateral development bank (MDB)-financing? What trends and developments have you seen in recent years?

Marler: The MDBs, namely, the World Bank, the African Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development and the Inter-American Development Bank, provide billions of dollars each year in loans and donor funding to less-developed countries. International development companies worldwide, which provide numerous and diverse services, are able to compete for and bid on MDB-funded projects. Once the contract is awarded, the winning bidder is responsible for fulfilling the obligations under the MDB financed contract, which can range from IT systems in hospitals to agriculture projects and online tax systems for a developing country’s revenue department. But with this funding comes responsibility, and the MDB community is increasingly seeking to use its influence in the global anti-corruption fight. As such, companies that benefit from MDB funding effectively submit to their investigative jurisdiction and their ability to sanction for misconduct, such as corruption, fraud, collusion and coercion.

 

RC: To what extent have MDBs developed as major players in the international anti-corruption landscape? How has their role changed over the past 20 years?

Marler: Over the past 20 years, the MDBs have become major players on the international anti-corruption landscape. The power of debarment that these banks wield over contracting parties is such that they must be thought of as distinct jurisdictions in and of themselves. Indeed, the MDBs now run substantial and sophisticated anti-corruption departments that are charged with the responsibility for investigating and punishing allegations of corruption, fraud, coercion and collusion – the sanctionable practices – on bank-financed contracts. Yet these investigative departments – such as the Integrity Vice-Presidency of the World Bank – should not be viewed in isolation, for not only do they interact with each other, they also engage with the law enforcement agencies of their member states and regularly make criminal referrals in respect of matters that they have investigated. Indeed, this is a trend that can be seen with the African Development Bank, which, like the World Bank, now has an established and effective Integrity and Anti-Corruption Department (IACD) that works closely with such agencies as the United States’ SEC.

 

RC: What key features distinguish MDBs as a source of enforcement from more traditional enforcement mechanisms, such as the FCPA and UK Bribery Act? What mechanisms and strategies do MDBs tend to employ?

Marler: Perhaps the most significant difference between the anti-corruption departments of the multilateral development banks and the more traditional enforcement mechanisms is the sheer breadth of conduct that might constitute a sanctionable practice; linked to that is the considerably lower threshold for a finding of wrongdoing. Unlike many national bodies which look to criminal statutes and codes for definitions of offences, the MDBs themselves specify what constitutes a sanctionable practice. Almost without exception, companies that work on MDB-financed contracts completely underestimate the scope of the sanctionable practices and how strictly they are enforced. For example, most people think they understand what fraud is; yet few realise that a misrepresentation as to the qualifications on a consultant’s curriculum vitae, submitted as part of a bid, could be sufficient to render the entire company debarred from bidding on bank-financed contracts. What is more, not only is mens rea or ‘intention’ not required – since the banks take the view that this fraud can be committed recklessly – their standard of proof is substantially lower: there is no search for evidence to satisfy the decision-maker ‘beyond reasonable doubt’, but rather, the balance of probabilities will suffice. For the banks, the question is: is it more likely than not that a sanctionable practice has been committed?

 

RC: What are the potential risks and penalties for firms found guilty of fraudulent and corrupt practices while engaged in MDB-financed projects? What sanctions can MDBs impose?

Marler: To be blunt, the consequences for firms found guilty of sanctionable practices can be catastrophic and for a firm which relies on MDB-financed contracts, debarment by one MDB and cross-debarment by the others can spell the end of the company.The sanctions which may be imposed singly or in combination include, but are not limited to: debarment for a specified minimum period; debarment with conditional release or reinstatement; indefinite debarment; conditional non-debarment; letter of reprimand; and restitution or financial remedy. However, the stigma and reputational risk of debarment should not be underestimated, nor should the mischief that competitors can make out of such a sanction, to companies’ detriment. The periods of debarments handed down by the banks can run into years and it is likely that a company will then find its work in other areas under close scrutiny. Companies debarred and cross-debarred by the MDBs often see national aid agencies, such as DFID or USAID, walking away from them and refusing to allow them to benefit from projects they are financing.

 

RC: To what extent are MDB practices harmonised internationally? How does this heighten the risk of misconduct?

Marler: There has been a significant harmonisation in recent years of the practices of the anti-corruption departments of the MDBs, first by virtue of the adoption of unified guidelines for the investigation of fraud and corruption and, secondly, through the signing of the Agreement on Mutual Enforcement of Debarment Decisions, which set out the principle of cross-debarment, whereby the MDB community agrees to mutually enforce debarment actions of the other banks. Moreover, the MDBs have harmonised how they hold corporate structures culpable for sanctionable practices committed by, for example, subsidiaries. Recent years have seen the MDBs become much more litigious in protecting the funds they disburse and there has been a significant increase in the levels of cooperation between them. Intelligence sharing is prolific. The consequence is that the prospect of sanctions proceedings by the MDBs should not be underestimated by companies that undertake work on contracts funded by these lending organisations, for the consequences can be catastrophic.

 

RC: How has cross-debarment affected the behaviour of companies alleged to have engaged in corrupt practices?

Marler: Cross-debarment is automatically triggered when a company is debarred by one of the MDBs for a period in excess of a year: the effect is that all of the other MDBs also debar the company concerned in accordance with the decisions of the sanctioning bank. The advent of cross-debarment has upped the stakes considerably for companies that are alleged to have engaged in corrupt practices, since it can, quite literally, spell the end of the company or at very least radically change the way it operates. Companies must therefore be mindful that their conduct in respect of one MDB may impact on their ability to undertake work for another.

 

RC: What is the significance of the settlement mechanisms recently added to the MDB sanction process? What implications does this have for the way investigations will be resolved going forward?

Marler: The settlement mechanisms or ‘Negotiated Resolution Agreements’ (NRAs) within the MDB anti-corruption regime provide companies with the ability to minimise the commercial impact of findings of guilt in respect of santionable practices, whilst also offering them a constructive way to reform so as to prevent repetition of the misconduct in the future. NRAs equate, in effect, to prosecution agreements under which a company cooperates for a reduced sanction. Settlement can quite literally be fundamental to the survival of a company, but the terms can be onerous and it is vital in negotiating such a settlement to use specialist counsel and those with experience in the performance of companies’ obligations under such agreements, for non-compliance can render any agreement null and void. NRAs are likely to involve a review of the company’s books and records by an independent team of investigators, who will inspect the company for further evidence of wrongdoing. The company may benefit from immunity in respect of these, whilst the bank may benefit from essential intelligence.

 

RC: What advice can you offer to firms facing accusations of fraud and corrupt practices related to MDB financing, or of using fraudulent means to obtain MDB financing?

Marler: Just because the accusations are coming from an MDB does not mean that it is not significant or that it will just go away: the burden of proof within the MDB community is low and their reach considerable. Early action is the key to influencing the course of events and is much more likely to lead to settlement. The MDBs’ sanctions regimes are particularly esoteric and complex, so do not expect the lawyer who does your day-to-day business to be able to competently navigate the process: it is an area that requires the guidance of specialist counsel. Defending a company accused by the MDBs of engaging in sanctionable practices on MDB-financed contracts is not the same as representing a company charged by the SFO of DOJ. Different rules and considerations apply. Experience suggests that a failure to instruct experts all too often has the effect of doing more harm than good, so that when specialists are instructed further down the line, their effectiveness is hindered.

 

…ENDS

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Bretton Woods Law’s unique Global Approach to an International Practice

By | Administrative Law, Centre of Excellence, IAL, IAL Seminars, International Administrative Law, Multilateral Development Banks, News | No Comments

Law firms and barristers chambers often claim that they practise throughout the world and describe their work as international; but what does it mean to have a truly international practice? For the lawyers at Bretton Woods Law, an international practice means exactly that: practising in different countries, in different languages, with people of different nationalities and cultures, and within different international organisations. Since its birth in spring 2012, BWL has set itself apart from other law firms and barristers chambers by living up to its ever growing reputation as an established team of preeminent international law specialists with a truly global reach. BWL’s international practice manifests itself in the following ways:

 

1. International anti-corruption practice: investigations into alleged sanctionable practices in development projects worldwide

In the last 18 months, the lawyers at BWL have undertaken investigations into World Bank and Asian Development Bank (ADB) funded projects carried out in Tanzania, Zimbabwe, Sierra Leone, Southern Sudan, Afghanistan, Kyrgyz Republic, Mongolia, Cambodia, Vietnam, Ukraine, Kosovo and Sri Lanka. They have worked directly with the World Bank’s Integrity Vice-Presidency (INT) and the ADB’s Office of Anticorruption and Integrity (OAI), and have established themselves as experts in this specialist field. Members of Bretton Woods Law are also currently instructed by the African Development Bank’s (AfDB) Integrity and Anti-corruption Department (IACD) and have workings with the Global Fund’s Office of the Inspector General.

 

2. International organisations and their internal justice systems

The lawyers at BWL currently operate in seventeen international organisations, based in nine countries and spread over four continents. Their work is varied and they currently act for:

  • the staff associations, councils and unions of the European Bank for Reconstruction and Development (EBRD), the Inter-American Development Bank (IDB), the Pan American Health Organisation (PAHO), the European Patent Office (EPO);
  • individual international civil servants and board members at the International Criminal Court (ICC), the International Maritime Organisation (IMO), the International Oil Pollution Compensation Funds (IOPC) the Commonwealth Foundation, the United Nations Development Programme (UNDP), the International Coffee Organization (ICO), the EBRD, the IDB, the PAHO, the EPO and the ADB; and
  • the Commonwealth Secretariat (in relation to cases arising out of grievances within its own internal justice system).

Beyond assistance and representation in the disciplinary boards and the first-tier tribunals such as the Conciliations Committees, the Grievance Committees and the Joint Appeal Boards, the lawyers at BWL also represent clients in the IDB Administrative Tribunal in Washington DC, the EBRD Administrative Tribunal in London, the ADB Administrative Tribunal in Manila and the International Labour Organisation Administrative Tribunal (ILOAT) in Geneva.

 

3. International Alternative Dispute Resolution

Beyond traditional litigation and advocacy within international organisations’ internal justice systems, the lawyers at BWL are experts in international Alternative Dispute Resolution (ADR) and currently represent the Uruguayan, Guyanese, Brazilian, Guatemalan, Bolivian, Nicaraguan, Mexican, Paraguayan, Panamean, Costa Rican and Argentinian Country Offices of a large international organisation in formal mediation proceedings. BWL also has experience of mediations arising out of employment disputes within the EBRD and the Commonwealth Secretariat in London. Through its International Alternative Dispute Resolution Services (iADRs), BWL’s dedicated team ensures it offers known experts in International Organisations Law who are CEDR trained and accredited mediators who have the ability to broker settlement agreements in the most difficult and challenging of circumstances.

 

4. Multilingual lawyers and offices worldwide

Boasting seven specialist lawyers of four different nationalities and diverse backgrounds, who between them practise (written and spoken) in English, French, Spanish and German, BWL has representative offices in all the important seats of international organisations worldwide: London, Geneva, New York City, Washington DC, Tunis and Manila. Members of Chambers have lived and practised in the United Kingdom, Germany, the United States of America, Tunisia, France, Switzerland, East Timor, Papua New Guinea, Belize, Cyprus, the Turks and Caicos Islands, the Netherlands, Australia and the Gaza strip.

By travelling around the globe representing International Civil Servants who face intricate employment issues, the BWL team faces varying approaches, languages and cultures on a daily basis, all of which they takes in their stride. This innate empathy with different nationalities enables them to represent their clients against large international organisations with a very human approach. The same can be said for their work alongside companies who have been accused of fraud, corruption and bribery on projects funded by multilateral development banks (MDBs). Their ability to carry out investigations and research involves dealing with clients, including international organisations and International Financial Institutions (IFIs), from around the world, and their cultural sensitivity and international experience is highly advantageous and benefits clients and colleagues alike.

Self-reporting corrupt misconduct – honesty is the best policy

By | Development Banks, Multilateral Development Banks, News, World Bank | No Comments

In its published announcement dated 24 July 2013 on the sanctioning of Sinclair Knight Merz Pty (SKM) the World Bank’s Integrity Vice Presidency has set what can be viewed as a benchmark new level of reduced punishment for those companies which uncover corruption within the business and then voluntarily report the matter to the Bank.

In this case the company avoided an immediate debarment from future Bank-financed projects after reporting ‘corrupt misconduct’ and ‘illegitimate payments’ by key individuals and senior managers at SKM. Instead the company and its parent companies Sinclair Knight Merz Management Pty Ltd and Sinclair Knight Merz Holdings Ltd have negotiated an agreement with INT which includes a conditional non-debarment for a period of two and a half years. This means the company can continue to bid for Bank financed projects and the debarment only comes into operation if the company fails to fulfil its obligations to improve its compliance program and cooperate with INT.

The World Bank announcement makes it clear that the Bank has reflected the high levels of voluntary cooperation by SKM with the imposition of a conditional non-debarment and is sending out a clear signal for other companies to self-report by this example. There is also an implied warning to those companies that have engaged in business with SKM that they may fall under the microscope because the cooperation received from SKM has enabled the Bank to ‘identify other potential targets for investigation’.

The Vice President of Integrity stated: “The World Bank took into account SKM’s cooperation and willingness to provide evidence in support of further INT investigations. The outcome of this case introduces a new standard of compliance by a company that opted for self-policing in response to the discovery of misconduct in its own ranks. By promptly self-reporting, committing to corporate transparency and their enforcement of disciplinary action against those responsible, SKM has practically demonstrated how to confront wrongdoing and commit to doing business with integrity.”

This case clearly illustrates the benefits of conducting a ‘thorough internal investigation’ when companies discover corrupt or fraudulent misconduct internally so that an informed decision can then be made on whether or not self-reporting is necessary and in the best interests of the company.

If you are a senior executive concerned that there may be matters that have occurred in your company that should be reported to the World Bank or any of the other Multi-Lateral Development Banks then contact Bretton Woods Law’s Neil Macaulay or Lee Marler for a confidential and legally privileged consultation to examine how best to protect the long term interests of your company.

To read the full press release click here.

Voluntary Disclosure Programmes

By | Bribery, Corruption, Cross debarment, Multilateral Development Banks, News, Voluntary Disclosure Programme | No Comments

If you are a company that is seeking to escape the downward spiral of paying bribes or engaging in fraud on projects financed by the multilateral development banks (“MDBs” or “IFIs”), such as the World Bank or the Asian Development Bank, then entry into a voluntary disclosure programme (“VDP”) might well be the answer.

VDPs are often used by enforcement agencies around the world in order to gather intelligence to aid in the global fight against corruption and fraud.  Companies, individuals and other entities who are or who have been paying bribes with the intention of inter alia influencing the award of contracts are encourage by the terms and conditions of the programme to come forward and self-report their respective wrongdoings.  The incentive for self-reporting under an established VDP is that the organisation that operates the programme will not normally sanction the participant for disclosed misconduct and will keep the identity of the participant confidential.  The benefit to the organisation is self-evident, for it will discover information about corruption and fraud on projects that it is connected with from the participant that it might otherwise have been unaware of.  Although the participant will not face sanction for its disclosures, the information that it provides will assist the organisation in pursuing cases against other bribe payers, bribe recipients and fraudsters.

Of the five major MDBs (i.e., the Asian Development Bank (“ADB”), the African Development Bank (“AfDB”), the European Bank for Reconstruction and Development (“EBRD”), the Inter American Development Bank (“IADB”) and the World Bank Group), only the World Bank Group operates a fully functioning, transparent and well established VDP; although the other MDBs, and most notably the ADB, have systems in place that encourage and reward self-reporting.  The World Bank Group launched its VDP in 2006 and its  accompanying Guidelines for Participants.

In order to enter the World Bank’s VDP, a participant must not be under active investigation by the Bank’s Integrity Vice Presidency (“INT”) and it must agree to:

  •  co-operate fully with the World Bank;
  • desist from any further engagement in sanctionable practices on World Bank financed projects, such as corruption, fraud, collusion or coercion;
  • investigate at its expense all World Bank funded contracts in which it has participated in the past five years and to disclose the results of those investigations to INT; and
  • implement at its expense a robust internal compliance programme that meets the requirements of the Bank’s Integrity Compliance Guidelines and to subject that programme to monitoring for a period of three years by a Bank-approved Compliance Monitor.

In exchange for its full co-operation, the VDP participant enjoys:

  • immunity from sanction on disclosed misconduct;
  • anonymity
  • the ability to continue to bid on World Bank financed projects.

A participant that continues to engage in misconduct after entering the VDP or otherwise materially violates the programme’s terms and conditions will be debarred by the World Bank for a ten year period, which means that during the currency of the debarment the participant will be (a) prevented from bidding on World Bank financed projects; and (b) cross-debarred by those Multilateral Development Banks that have signed and implemented the April 2010 Agreement for Mutual Enforcement of Debarment Decisions (“the Cross-Debarment Accord”.

How Bretton Woods Law Can Assist You

Bretton Woods Law lawyers have established expertise in the VDP operated by the World Bank Group and understand fully the modalities of self-reporting to other Multilateral Development Banks, such as the ADB, which welcome self-reporting, but which do not as yet have a functioning and transparent programme. Bretton Woods Law handles for its clients all aspects of entry into and participation in the VDP or other forms of self-reporting.  From first contact with the banks through to the fulfilment of all VDP obligations, Bretton Woods Law lawyers have established and verifiable experience.  In particular, Bretton Woods Law lawyers:

  • will conduct all the necessary internal investigations to a standard that meets and exceeds the bar set by the World Bank; and
  • will design and, if necessary, implement an integrity compliance program that has previously been described as “gold-standard” by the World Bank’s Integrity Compliance Officer (“ICO”).

For further information about how Bretton Woods Law can assist you in moving away from corruption in a protected manner, please contact your nearest office or email us at enquiries@brettonwoodslaw.com.