On August 1, 2006, the World Bank announced the implementation of a voluntary disclosure program ("VDP") in connection with its pre-existing anticorruption investigation and sanctions process. Since the initial implementation of the sanctions process in 1998, the Bank has publicly debarred over 300 persons and entities from participation in Bank-financed projects. However, despite large increases in staff, those of us who have represented companies caught in investigations are aware that the Bank has struggled to manage its case load, and to devise a strategy that would permit it to allocate its resources most efficiently. Through the implementation of the VDP, the Bank signals an intent to become more strategic and collaborative in investigating and remedying corrupt practices in its projects.
The newly-created VDP will enable Bank contractors and consultants to disclose information, on a confidential basis, concerning corrupt practices by themselves or their affiliates in Bank-financed projects, in return for a commitment from the Bank not to pursue a debarment or other public sanction for disclosed conduct. The underlying objective of the VDP is to encourage parties to "come clean" as to past misconduct, and to implement best practices in their anti-corruption compliance programs going forward.
The VDP is similar to a pilot disclosure program that the Bank had implemented in 2004, though the formalized VDP has more defined procedures and broader requirements for disclosing parties. The VDP enables parties to resolve certain issues of past misconduct with the Bank with no debarment sanction and on a confidential basis, thus enabling continued participation in Bank-financed projects and reducing the risks of reputational damage to the company, or parallel enforcement actions by national governments or other lending agencies. However, the VDP Terms and Conditions, which are presented to be non-negotiable, impose substantial requirements on participating companies, and the World Bank retains the right to impose a public sanction under the VDP if the disclosing party at any time violates the VDP Terms and Conditions. Companies that are interested in the VDP must, therefore, balance the countervailing benefits and risks carefully when determining whether to participate in the program.
Detailed information about the VDP is available from the Bank website (www.worldbank.org/vdp). Key features of the VDP include the following:
Eligibility: Companies under "active investigation" by the World Bank are not eligible to participate in the VDP. This could, notably, include companies that are under investigation, but do not yet know that they are under investigation.
Requirement to Cease Misconduct: Disclosing parties must cease any "misconduct" in Bank-financed projects going forward. This requirement applies not only to the disclosing party, but also to its corporate affiliates and third-party agents and representatives. The term "misconduct" is defined broadly to include bribery, fraud, "collusive practices," and the newest form of misconduct, "coercive practices."
Disclosure Commitments: The VDP disclosure commitments are extremely broad. Parties do not have the option to selectively disclose particular contracts in which they have identified misconduct, but instead must engage in a thorough review of all contracts related to projects financed or supported by the World Bank (over a five-year period), and must disclose "misconduct" occurring in any of those contracts. This includes contracts entered into by the disclosing party (or its affiliates), and those for which the party (or its affiliates) unsuccessfully bid. For some companies, literally dozens of contracts could be implicated.
Internal Investigation Requirements: Under the VDP Terms and Conditions, the contracts within the scope of the review would be subject to a detailed internal review process, approved in advance by the Bank and financed by the disclosing party. The disclosing party must investigate all qualifying contracts for evidence of "misconduct," and conduct a more thorough review of those contracts where misconduct has been identified (including forensic accounting of documents and interviews of potential witnesses). Upon completion of that review, the World Bank would conduct its own "verification" of a portion of those contracts, which also would be financed by the disclosing party. The VDP procedures set forth wide-ranging and detailed document production and internal witness interview requirements, including requirements that could mandate disclosure of legally-privileged documents to the World Bank.
Compliance Program and Third-Party Monitoring: The disclosing party must present an anti-corruption compliance program to the Bank for approval. The compliance program must be implemented not only by the disclosing party, but also all corporate affiliates and agents and representatives thereof. The disclosing party must also hire a third-party compliance monitor, to be approved by the Bank, to monitor the company’s anti-corruption program for a three-year period. Costs for the compliance monitor must be borne by disclosing party. The disclosing party would, however, have no legal privileges in communications with the monitor. The monitor would be free to review a wide range of confidential information in the possession of the disclosing party (or its affiliates), including attorney-client privileged information, and to transmit that information to the Bank.
Consequences of Non-Compliance: A central feature of VDP is that if the disclosing party is deemed by the World Bank to have violated any of the material Terms and Conditions of the VDP, the party would face a mandatory ten-year debarment period, which would be made public. Acts triggering the ten-year mandatory could include continued corrupt practices (by the disclosing party or its affiliates), failures to adequately report past misconduct under the VDP, failure to fully-implement a compliance program, or failure to cooperate fully with the VDP-mandated compliance monitor. If a disclosing party is subject to this mandatory ten-year debarment period, the Bank would be lifted from its confidentiality obligation under the VDP and may be able to share information obtained under the VDP with third parties, including national enforcement agencies. Such a measure could, ultimately, leave a party worse off than they would have been had they not entered into the VDP and received a sanction for misconduct in a particular project. The current Bank Sanctions Committee Procedures do not mandate any specific debarment period in the event of misconduct, and do not require that accused parties share information with the Bank on unrelated projects.
The VDP therefore presents parties with an opportunity to disclose past misconduct on a comprehensive basis without a public debarment, but it is by no means a free pass. Companies that enter into the VDP must be prepared to commit the necessary resources to comply with the program, including financial resources and the ongoing attention of senior management.
The benefits of the VDP could be of particular value to companies that depend on Bank-financed contracts for a substantial percentage of their revenue, or who are concerned about the increased risk of cross-debarment by other national or multinational lending or procurement agencies in the event of Bank debarment. Many if not most of the international financial institutions now have common definitions of misconduct and cross-debarment rules, and others are considering implementing such rules. Policies of cross-debarment, if implemented consistently by the large global financing and procurement entities, could multiply the effect of a public Bank debarment, even for companies that do relatively little work in Bank-financed projects.
Notably, other multilateral development banks are also considering voluntary disclosure programs, and will likely monitor the Bank’s experience under the VDP as they formulate their own plans. The United Nations Convention Against Corruption, which recently went into force, encourages states parties to consider implementing voluntary disclosure programs. Similarly, legislation pending in the U.S. Congress would require U.S. delegates to the multilateral development banks to use their voice and vote to cause those institutions to implement a variety of anti-corruption initiatives, including voluntary disclosure programs.
In summary, although the VDP provides options to affected companies, as noted earlier the rigidity and potential costs of the program must be assessed carefully by companies considering participating. It also should be noted that the pre-existing World Bank sanctions process continues to function, including the Sanctions Committee and the investigative function provided by the Bank’s Department of Institutional Integrity. We expect that the Bank’s sanctions process will become even more active under the tenure of current Bank President Paul Wolfowitz, who has publicly emphasized a desire to strengthen and expand the Bank’s anti-corruption iniatives. In 2007, we also may see the establishment of a new sanctions body with external as well as internal membership.
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