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 firstname.lastname@example.org or on +44 (0) 20 7764 0745 for confidential advice and guidance in respect of the particular circumstances of their case.
Earlier this year, lawyers from BWL were approached by a Manager at a large International Organisation based in London who had been, in his view, a victim of retaliation. As as a result, he was not promoted and his employer organisation failed to award him the pay rise he deserved.
He notified his household insurers who confirmed that his policy included legal expenses insurance for grievances arising out of employment disputes with his employer. Initially, his insurance company wanted to appoint an English employment lawyer to represent him throughout the international organisation’s internal justice system. Lawyers from BWL explained that the applicable law (i.e., international administrative law or ‘IAL’) was specific to international organisations and the insurance company eventually agreed to instruct experts in IAL to represent the employee in question. Once the formalities had been completed, the employee’s lawyers were able to represent him before the organisation and invoice the insurance company directly. A settlement was eventually reached, and at no stage did the employee have to pay for his legal representation.
This success story is a small step in balancing out the inequality of arms that exists all to often between international organisations and their employees. International Civil Servants are advised to examine the terms and conditions of their household insurance to check if it covers legal expenses for their employment disputes. They should also be aware that being insured does not mean that they have to accept any lawyer provided by the insurers, who will often not have the expertise required to represent them effectively.
The BWL Rule of Law Team notes with ever increasing concern that at its Assembly in late June 2014 in Malabo, Equatorial Guinea, the African Union (“AU”) adopted the Protocol on Amendments to the Protocol on the Statute of the African Court of Justice and Human Rights (“the Second Protocol”) and called upon its member states to sign and ratify the treaty “as expeditiously as possible so as to enable [it] to enter into force.” [Click to see a copy of the relevant AU Decision] Readers will recall that the First Protocol for the establishment of the African Court of Justice and Human Rights (“the ACJHR”) was adopted by the AU in Sharm El-Sheikh, Egypt on 1st July 2008.
The ACJHR; the main purpose of which is to function as the principal judicial organ of the AU, is intended to have jurisdiction over both civil and criminal cases, including matters presently within the jurisdiction of the International Criminal Court (“ICC”) in The Hague, such as genocide, war crimes and crimes against humanity. But unlike the ICC, it is intended that the ACJHR will also have jurisdiction over transnational crimes, such as money-laundering, human and drug trafficking, terrorism and piracy. The difficulty is that the ACJHR’s constituent treaty, as adopted and advanced by the AU, contains a clause granting immunity from prosecution to sitting heads of state.
Like many others, members of the BWL Rule of Law Team are troubled by the existence of the immunity, for it undermines fundamentally the Rule of Law principle that ‘no one is above the law’ and that ‘all are accountable to the law,’ including those individuals who represent the State’s guiding mind and will. Lee Marler, the barrister who leads the BWL Rule of Law Team, is quoted as saying that “one cannot help but wonder whether the suggested immunity from ACJHR prosecution for African Heads of State – which is indefensible – is as a result of the ICC’s indictments of Sudan’s Omar al-Bashir and Kenya’s Uhuru Kenyatta.” Neil Macaulay, another senior member of the BWL Team, sees the merits of establishing the ACJHR, despite the overlapping jurisdiction of the ICC, but “is concerned that the existence of the immunity from prosecution will undermine from the very outset the Court’s credibility and may put international funding of the Court at risk.”
Steps to establish the ACJHR will not take place until 15 AU states have ratified the Court’s treaty. Until such time as the Court has the ability to prosecute all those responsible for atrocities and crimes within Africa, it is to be hoped that AU States will respect the Rule of Law and resist the AU’s call to ratify the treaty in its presently flawed state.
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.
Aside from being a talented young international barrister, BWL’s Joseph Oppenheimer is also a budding film writer and director with a number of short documentaries and films under his belt. Joseph directed to some acclaim the documentary Checkpoint, which explored the sensitive issue of Palestinian freedom of movement in the West Bank in the Middle East and most recently he wrote and directed the short film Lion in the Tent. It was this last production that brought Joseph to the attention of the American Film Institute, which has offered him a scholarship to its prestigious two-year directing course in Los Angeles, California. Joseph of course accepted the AFI’s offer and all within BWL are delighted for him. Joseph will be on sabbatical from August 2014.
Joseph is a member of BWL’s Rule of Law and International Humanitarian Law Teams.