On October 30, 2019, the World Bank (Bank) announced that it had entered into a settlement agreement with Canadian company MTZ Equipment Ltd. (MTZ). The settlement agreement debarred MTZ from applying for or receiving any further Bank financing for a period of 30 months. The MTZ settlement is one recent example of the World Bank's sanctions in action, which has seen more than 700 firms and individuals publicly sanctioned. The settlement highlights that all those seeking financing from the Bank need to be aware of the Bank's integrity requirements, and develop and implement internal policies that take them into account.
MTZ and World Bank integrity requirements and sanctions
In the case of MTZ, it was alleged that their funding bid relating to an On-Farm Water Management Project (Project) based in Afghanistan included a false guarantee. The Project was designed to support Afghanistan's government with the improvement of agricultural productivity in project areas by enhancing the efficiency of water usage. MTZ and the Bank privately settled the allegation before the Bank made any decisions. The sanction imposed on MTZ extends to any legal entity that it directly or indirectly controls for the same 30-month period.1
In accordance with its role as a fiduciary of global funds, the Bank requires, through its integrity regime, that all parties involved in procurement observe high ethical standards. To enforce its integrity regime, the Bank may impose administrative sanctions against individuals and entities engaged in fraud, corruption, coercion, collusion or obstruction in connection with Bank-financed projects. Sanctions are intended to both prevent future misconduct and encourage rehabilitation of the sanctioned parties.2 Allegations that a firm is engaged in a sanctionable practice are first investigated by the Bank's Integrity Vice Presidency, and sanctions are imposed, if they are sustained on a preponderance of evidence, by the Office of Suspension and Debarment. The Bank sanctions can include:
- Debarment (definite or indefinite)
- Debarment with Conditional Release
- Conditional Non-Debarment
- Letter of Reprimand
Sanctions may also be imposed on affiliates, where necessary, for the purpose of preventing circumvention. Under the Bank's Sanctioning Guidelines, the base sanction for all misconduct is three years.3 Appeals from the initial determination are available to the Bank's Sanctions Board.
Sanction investigations may be resolved by negotiations at any stage of the sanctions process up to the issuance of a decision by the Sanctions Board, and will be reviewed against the Sanctions Guidelines. Furthermore, companies may voluntarily disclose past instances of sanctionable acts and omissions for lesser penalties.
International consequences stemming from World Bank debarment
Pursuant to the Agreement for Mutual Enforcement of Debarment Decisions (Agreement), MTZ will also be debarred from other multilateral banks, including the Asian Development Bank, the European Bank for Reconstruction and Development, the Inter-American Development Bank, and the African Development Bank. The Agreement provides for cross-debarment between institutions as an additional deterrent to firms and individuals engaged in fraud and corruption for debarments exceeding one year. From a practical perspective, companies facing debarment from multilateral banks also need to consider reputational risks, as the names of sanctioned parties and the corresponding sanctions are made public on the Bank's website under the Bank's Listing of Ineligible Firms and Individuals.
Potential consequences for Canadian procurement
It is important to note that the World Bank's sanctions regime and consequences under Canadian law are not interrelated. If the Bank decides to debar a company or an individual, this does not mean that Canada must take similar action. With this said, there may be situations, for example, relating to corruption and/or fraud, where a decision from the Bank may trigger Canadian investigations. Bribery and corruption of foreign officials is an offence under the Corruption of Foreign Public Officials Act. Thus, if a company is debarred by the Bank because of a bribery allegation, law enforcement in Canada may launch an investigation. If such an investigation results in charges being laid or a conviction, the federal government's Ineligibility and Suspension Policy will apply. Under this policy, the investigated company can be suspended or deemed ineligible to participate in federal procurement contracts. Depending on the offence, the period of ineligibility could be as be as long as 10 years. Companies should be cognizant that the Bank has previously referred matters to the RCMP.
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