How the World Bank credits compliance efforts

A record number of companies had their debarments lifted by the World Bank Group in fiscal year 2016 after implementing an effective corporate compliance program or improving an existing one, reflecting a growing emphasis on compliance among World Bank business partners.

In the context of the World Bank, debarment means that corrupt actors are excluded from Bank-funded contracts—sometimes for a decade or longer.

According to an annual update by the World Bank Integrity Vice Presidency (INT), the investigation and prosecution arm of the World Bank, a record 20 companies—12 multinationals and eight small- and mid-size enterprises—had their debarments lifted after satisfying their respective compliance obligations and other conditions for release. This is a notable increase, considering that 18 total entities were released from debarment between all of fiscal years 2012 through 2015, the World Bank stated in the report.

Since 2010, the World Bank has made release from debarment conditional on a company’s demonstrated ability to implement the principles set out in the World Bank’s Integrity Compliance Guidelines. A debarred company must meet certain conditions, such as developing a robust compliance program, before it can once again be eligible to bid on World Bank Group-funded projects.

“Let me first clarify: One size does not fit all,” says Leonard McCarthy, Integrity Vice President of the World Bank Group. “Compliance programs in small and large companies vary, and adjustments will need to be tailored to resources, scope of business, and geographical reach.”

The World Bank's experience has revealed that “success can be achieved regardless of company size where there is a strong commitment to reversing behavior and declaring some practices as simply no longer acceptable,” McCarthy adds. “The World Bank Compliance standards offer a reasonable framework for companies to identify these practices and develop their own compliance code that would enhance their competitiveness and integrity.”

Companies released from sanctions in fiscal year 2016 spanned the world, including two U.S. companies, Louis Berger Group and ARINC; Oxford University Press in the United Kingdom; as well as companies in Africa, Asia, Australia, and the Middle East.

Louis Berger Group is just one example of a company that has made significant investments to its compliance program, following its one-year debarment in February 2015 resulting from corrupt acts by two former employees under two Bank-financed projects in Vietnam in 2007 and 2008. The World Bank had also imposed a one-year conditional non-debarment on Berger Group Holdings, Louis Berger’s corporate parent.

“We often encounter companies who fail to disclose in their bids that they will use an agent or who underreport the fees to be paid to their agent.”
World Bank

Since uncovering the wrongdoing, Louis Berger undertook a massive $25 million reform effort “aimed at implementing new internal controls, developing new policies and procedures, and making comprehensive systems investments, including a new global accounting system,” the company said.

Among its compliance efforts, Louis Berger:

Separated the former managers associated with the underlying misconduct;

Added new managers to key positions, including chief financial officer and controller and regional management teams throughout Asia and the Middle East;

Implemented a new corporate operational model to ensure greater centralized oversight and control of overseas business activities;

Established an independent compliance and ethics department under the oversight of an independent audit committee;

Introduced a global helpline through which employees can report potentially non-compliant activities;

Implemented a global code of business conduct; and

Implemented annual global compliance, ethics, and anti-corruption training for all employees.

“Even beyond the organizational, policy, procedural and systems reforms, the most powerful reform at Louis Berger has been a cultural shift that empowers employees to take personal responsibility, speak up and report issues,” says Larry Walker, corporate executive vice president at Louis Berger.

“Acknowledging misconduct, self-auditing, cooperation during an investigation while taking concrete steps to align their corporate culture with international compliance standards are critical pillars for any company that wants to engage in development business,” McCarthy says.

A Negotiated Resolution Agreement (NRA), which is a means by which companies can settle investigations without relying on full sanctions proceedings, are another way the World Bank assists in the development or enhancement of compliance programs. By the end of 2016, the World Bank’s Integrity Compliance Officer (ICO) was actively engaged with 41 debarred companies.

According to the World Bank report, the ICO also monitors the corporate compliance programs of sanctioned entities, “including through the review of matters such as periodic status reports, program revisions, implementation activities, and remedial action taken in response to the sanctioned misconduct, and any other misconduct subsequently detected.”

ENTITIES RELEASED FROM SANCTIONS IN 2016

Below is a list of the 20 companies released from World Bank Group sanctions in fiscal year 2016.
U.K.-based Oxford University Press
Serbia-based Energoprojekt Niskogradnja A.D.
Indonesia-based PT. Tricon Jaya
Indonesia-based PT. Sehat Pratama Sejati
Ghana-based Zoomlion Ghana Limited
Botswana-based Unik Construction Engineering (PTY) Limited
U.S.-based ARINC Incorporated
Nigeria-based Scientific Energy and Enviromental Management Systems Limited
China-based China Gezhouba Three Gorges Engineering Company Limited (formallly known as China Gezhouba Three Gorges Industry and Business Company Limited)
Germany-based GKW Consult GmbH
Austria-based iC Consultenten Ziviltechniker GmbH
China-based China Jiangxi Corporation for International Economic and Technical Cooperation
Indonesia-based PT Bina Karya (Persero)
Australia-based Sinclair Knight Merz Management Pty Ltd.
U.S.-based Berger Group Holdings/Louis Berger Group
Indonesia-based PT Cipta Sanita Mandiri
Kenya-based Victory Construction Company Limited
Vietnam-based Ha Long Consulting and Investment Joint Stock Company (formerly known as Thang Long Infrastructure Development Joint Stock Company)
Indonesia-based PT. Lenggogeni
France-based Artelia Ville & Transport SAS
Source: Integrity Vice Presidency

Zoomlion, a Ghana-based waste management and environmental sanitation company with operations across the Africa region, is one example of a company that revamped its compliance controls after entering into an NRA with the World Bank. In 2013, Zoomlion was debarred for a period of two years for paying bribes to facilitate contract execution and processing of invoices relating to a waste management project in Liberia.

“The NRA between Zoomlion and the World Bank was a true wake-up call for us,” Mokhles Bustami, former chief operating officer of Zoomlion, told the World Bank. “Change hit the structure of our board, our policies, our messages to staff, and our systems.”

Following the NRA, Zoomlion “set up a new oversight mechanism in our main office to monitor and respond to any allegations,” Bustami said. Over a period of three years, the company has provided compliance training to more than 5,000 Zoomlion employees and continues to conduct ongoing training for its staff of 120,000, he said.

In addition, Zoomlion shifted its compliance oversight from Excel to “an effectively managed central monitoring portal based in our main office overseeing every entry made by any of our affiliates in other countries spread across Western Africa,” Bustami said. “We have developed an in-house auditing capacity and systems that are able to respond to complaints and feedback received on our new hotline.”

High-risk areas

For many other companies, the push to overhaul compliance programs reactively—as opposed to proactively—still leaves many vulnerable to the five “sanctionable practices” that lead to a World Bank suspension or debarment in the first place. Those sanctionable practices are fraud, corruption, collusion, coercion, and obstruction.

According to the World Bank, corruption is by far the most common sanctionable practice. Of the 65 cases under investigation at the end of fiscal year 2016, 48 involved allegations of corruption—and half of those included elements of fraud and/or collusion. Many of these cases uncovered recurrent issues, such as the non-disclosure of third-party agents used to facilitate corrupt payments, fraud during the procurement process, and attempts to obstruct investigations, the World Bank said.

“We often encounter companies that fail to disclose in their bids that they will use an agent or that underreport the fees to be paid to their agent,” the World Bank said. “This is particularly problematic as these undisclosed relationships are regularly used to conceal corrupt payments made on behalf of the company and manipulation of contract awards.

The most frequently encountered type of fraudulent misrepresentation is companies falsifying their experience in order to qualify for a bid, which occurred in eleven substantiated investigations in 2016. Often, such misrepresentations point to other types of misconduct.

In one example in which the government conducted a sample review of just 10 percent of the 717 consultants it had hired under a World Bank Group-financed land project, six of them had misrepresented their credentials. INT found an additional 18 consultancy contracts with evidence of fraud.

Record sanction

Fiscal year 2016 also brought with it one of the most significant actions to date, when the World Bank debarred the Ukrainian company Information Computer Systems CJSC (Incom) for 22.5 years for its involvement in a corrupt and collusive scheme to rig contracts worth approximately U.S.$43 million under the Social Assistance System Modernization Project in Ukraine. In 2014, Incom was already debarred for three years in relation to fraud on the same project.

The Sanctions Board ordered that the two debarment periods be served consecutively for a total debarment of 25.5 years. “This is the largest debarment handed down by the Sanctions Board outside indefinite debarment and reflects not only the company’s wrongdoing but also its conduct during the investigation and litigation processes,” McCarthy said in a statement announcing the debarment.

“One factor contributing to the severity of the sanction was the company’s attempts to obstruct INT’s investigation,” the World Bank said. “This sanction ought to provide a disincentive to other companies who would rely on obstruction as a strategy to deal with an ongoing investigation.”

Like the Department of Justice, “INT wants to see complete, honest disclosure and cooperation without resistance,” says Michael Diamant, a partner with the law firm Gibson Dunn & Crutcher. “It also will credit new information that helps it bring enforcement actions against other parties. It will also credit entities that voluntarily restrain from bank-related contacts following the discovery of possible malfeasance.”

Diamant recommends that companies that are dealing with a World Bank investigation should retain counsel that have a deep understanding of this area. “The Bank has its own rules, procedures, and practices,” which makes dealing with the World Bank “quite different from typical white-collar or government contracting matters,” he says. 

Looking ahead, McCarthy says the World Bank’s focus will remain on holding accountable those responsible for misconduct. “Sanctions are an important outcome of our investigations, but they are not the only outcome,” he says. “Enforcing a compliance standard and the knowledge we share with our clients to ensure that corruption schemes and patterns are revealed and aborted is key to our success in addressing this major development challenge.”