Multinational companies often spend most of their attention on enforcement actions for fraud and corruption by the U.S. Department of Justice, but the World Bank is a major player in the anti-corruption global arena that should not be ignored.
During a recent session at Compliance Week 2017, enforcement officials with the World Bank offered some much-needed insight on how the World Bank’s investigation process works and how companies doing business overseas can reduce the risk of being sanctioned or debarred.
For compliance practitioners wondering how to mitigate the risk of a World Bank investigation, companies should first identify whether the contract is funded by the World Bank. Such information can be found within the contract itself, referencing the company’s obligation to abide by World Bank procurement guidelines. “It’s all over the bidding documents,” said Paul Haynes, lead investigator at the World Bank. “It’s all over the contracts.”
“Sometimes companies are not aware,” said David Hawkes, head of special litigation at the World Bank’s Integrity Vice Presidency (INT), the investigation and prosecution arm of the World Bank. Very few compliance systems pick up who the contract is being funded by when companies engage overseas, “but they should.”
Companies should be especially careful when submitting tender documents to avoid making any sort of misrepresentations. When signing a contract, for example, bidders have an obligation to disclose any commissions or fees.
Haynes explained that the World Bank will go through the list of attendees at pre-bid meetings, and if on that list it names a representative of Company X, and Company X then wins the contract but makes no disclosure of any commission or agent, that’s a red flag, because it’s likely the company is concealing that information deliberately, he said.
World Bank vs. Justice Department. One thing to keep in mind is that the World Bank has broad discretion to prevent, deter, and investigate a variety of “sanctionable practices” that can lead to a suspension or debarment. These five “sanctionable practices” are fraud, corruption, collusion, coercion, or obstructive practices.
The World Bank has the authority to sanction anyone who submits a bid on a World Bank contract anywhere in the world. “We can sanction their suppliers, agents, and sub-contractors,” Hawkes said.
“We have referred cases to jurisdictions all around the world.”
David Hawkes, Head, Special Litigation Unit, INT, World Bank
The only individuals the World Bank does not have authority to sanction are governments, government officials, and World Bank staff. “That is for national law enforcement,” Hawkes said.
“We have referred cases to jurisdictions all around the world,” Hawkes added. Even jurisdictions in developing countries, where you may not expect much enforcement activity, have taken World Bank-referred cases and brought prosecutions, he said.
Although instances of coercion are unusual, “we have had rather bizarre cases,” Haynes said. In one real-life example, a bidder went to drop off a bid and got held up at gunpoint and “basically gets kidnapped” for two days—the amount of time bidders had to submit their bids. Once that time was up, the individual was released, “but, of course, they missed their opportunity,” he said.
Unlike the Department of Justice, the World Bank’s sanctions process is administrative, meaning it doesn’t have the power to impose criminal or civil penalties. What it can do, however, is suspend or debar a company from receiving World Bank-funded contracts, sometimes up to a decade.
The sanction imposed most frequently is debarment, meaning that the company or individual is ineligible to receive World Bank-financed contracts. A company or individual debarred by one multilateral development bank (MDB) for more than a year will be “cross-debarred” by the others. Other MDBs include the African Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, and the Inter-American Development Bank.
One bribe by a sub-contractor can trigger investigations in up to ten national and international jurisdictions, Hawkes warned. “That doesn’t mean they will all investigate, but they can,” he said.
Below is an explanation of “sanctionable practices,” as defined in the World Bank’s suspension and debarment report.
A “corrupt practice” is the offering, giving, receiving or soliciting, directly or indirectly, of anything of value to influence improperly the actions of another party.
A “fraudulent practice” is 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.
A “collusive practice” is an arrangement between two or more parties designed to achieve an improper purpose, including to influence improperly the actions of another party.
A “coercive practice” is impairing or harming, or threatening to impair or harm, directly or indirectly, any party or the property of the party to influence improperly the actions of a party.
An “obstructive practice” is (i) deliberately destroying, falsifying, altering or concealing of evidence material to the investigation or making false statements to investigators in order to materially impede a Bank investigation into allegations of a corrupt, fraudulent, coercive or collusive practice; and/or threatening, harassing or intimidating any party to prevent it from disclosing its knowledge of matters relevant to the investigation or from pursuing the investigation, or (ii) acts intended to materially impede the exercise of the Bank’s contractual rights of audit or access to information.
Source: World Bank
Furthermore, because debarments and other sanctions are posted on the World Bank’s public Website, they are observable by national and local governments and other public and private sector organizations conducting due diligence prior to procurement or other business decisions.
Sometimes the process can be even more intimidating than facing an investigation by the Justice Department. Because the World Bank has no power to impose criminal or civil penalties, the World Bank’s burden of proof is lower than that of a criminal proceeding. It must only meet a “more likely than not” standard of proof, “so it’s easier to get into trouble with us,” Haynes said.
Because the World Bank is not an enforcement agency, it doesn’t have any have subpoena power. It does, however, have the right to exercise an “audit” on any World Bank-funded contract, which is just another word for an “investigation.” During an “audit,” the INT may seek to conduct interviews, request books and records, e-mails, and other pertinent documents.
“We go through documents on-site and take copies, usually,” Haynes said. If the company fails to cooperate, it may be sanctioned “for obstructing our ability to investigate and carry out our audit rights,” he said.
During the investigative process, the World Bank works its way up the chain-of-command to determine whether there was any knowledge or deliberate ignorance by the head office. “We hold the main contractor accountable, so the main contractor has to know what’s [happening] on the ground,” Haynes continued.
Furthermore, the World Bank has very few restrictions as to where in the world it can conduct investigations. With a United Nations passport, World Bank staff can simply hop on a plane to anywhere in the world and begin their investigations, Haynes explained.
Sanctions process. The World Bank’s sanctions process begins with investigators in the INT. Allegations of wrongdoing can come from various sources—World Bank staff, contractors, citizens, government officials, and other MDBs. “Most of the complaints we investigate come through our local offices on the ground,” Haynes said.
Once the INT concludes its investigation, it presents the evidence to the Office of Suspension and Debarment (OSD), which then assesses the evidence and issues a Notice of Sanctions Proceedings. The respondent company then has 30 days from the date the OSD delivers the Notice to challenge the temporary suspension.
In the final stages, the company can appeal its case to the World Bank’s Sanctions Board, which is a board of independent judges, who will decide at a hearing whether a company should be sanctioned. The sanctions board is “very meticulous and very fair” and will provide an objective hearing, Hawkes said.
A company may have any number of reasons for appealing to the Sanctions Board. One reason may be if the company feels like it simply didn’t understand something, and the World Bank’s evidence on the company committing corruption is circumstantial. As another example, the company may feel from a practical standpoint that the settlement offer isn’t an attractive option and, thus, it can’t do any worse by going to the Sanctions Board.
For a company to receive a settlement with conditional non-debarment, it must:
Approach the World Bank in a timely manner;
Be fully transparent;
Offer full cooperation; and
Take remedial action to prevent future misconduct.
The key lesson in all of this is that companies that do business overseas and do not take the World Bank and its enforcement powers seriously can potentially put themselves out of business, so it is imperative to conduct the proper due diligence on such contracts and, if necessary, reassess and adjust your anti-corruption compliance program.