Other author Ellie Graham, Trainee Solicitor
In its Sanctions System Annual Report for FY 20201 (Report), the World Bank Group (WBG) set out its ongoing efforts to investigate, penalise, and prevent misconduct across its global operations. The Report provides insight into some key trends of its enforcement activity as the Integrity Compliance Office marks its 10 year anniversary and the Integrity Vice Presidency adjusts to its new leadership under its President Mouhamadou Diagne and Director of Investigations Alan Bacarese, who were both appointed in the course of last year. In recent years the WBG's enforcement activity has increased significantly—and other multilateral development banks (MDBs) are similarly active. The Report will be of interest to companies bidding for and working on WBG-financed projects. In particular:
- Fraud is the most common allegation in WBG enforcement cases by some margin, and frequently occurs in the context of procurement. This should serve as a reminder to companies bidding for WBG-financed projects to be alert to the risk of submitting inaccurate information in their bids, and to put in place internal processes to mitigate this risk.
- The most common form of sanction is debarment with conditional release. The relevant conditions will typically include a requirement to implement an Integrity Compliance Programme (ICP) consistent with the WBG's Integrity Compliance Guidelines which can prove challenging to companies who have not previously proactively taken steps to assess their risks and ensured that their compliance programmes align with these Guidelines.
- The periods of debarment imposed by the WBG under negotiated settlement agreements with sanctioned parties are generally lower than those imposed without settlement agreements although, whilst the WBG Sanctions Board—the final level of review—tends to uphold findings of liability, it also tends to impose a lesser period of minimum debarment.
WBG Sanctions System
The Sanctions System is the WBG's process for investigating and addressing allegations of "sanctionable practices" in WBG-financed activities. Sanctionable practices include corruption, fraud, coercion, collusion and obstruction of WBG investigations and audits. The Sanctions System has three broad stages:
The Integrity Vice Presidency (INT) reviews all complaints of misconduct related to WBG-financed operations and launches full investigations of allegations that deserve further scrutiny. In FY 2020, INT received 2,958 complaints of misconduct, leading to 429 preliminary external investigations (as opposed to internal investigations of WBG staff and corporate vendors) and ultimately 46 new full external investigations.
If INT determines in an investigation that it has found sufficient evidence of sanctionable conduct, it will prepare a Final Investigative Review (FIR) for the WBG President, which summarizes the INT's findings and explains its recommendations. 29 FIRs were issued in FY 2020, which involved 40 projects totalling $8.3 billion and 70 contracts totalling $974 million.
After a FIR, INT can then seek sanctions by either submitting a Statement of Accusations and Evidence (SAE) to the Office of Suspension and Disbarment (OSD), or negotiating a settlement agreement, which is also submitted to the OSD for review. In FY 2020, INT submitted 26 sanctions cases and 22 settlements to OSD for review, which represents a slight reduction on the 37 sanctions cases and 16 settlements in FY 2019, perhaps reflecting the challenges of COVID-19 related restrictions.
INT completed 43 external investigations in FY 2020, and allegations were substantiated in 33 (77%) of these cases. There were 66 active investigations at the end of FY 2020.
The OSD reviews the SAEs to determine if there is sufficient evidence of misconduct, and if so it will recommend sanctions and issue a Notice of Sanctions Proceedings to the accused respondent. In FY 2020, OSD ultimately issued Notices of Sanctions Proceedings in 30 cases (some from the previous year). The default sanction is debarment with conditional release, and the conditions typically include the implementation of an ICP consistent with the WBG's Integrity Compliance Guidelines and can extend to a requirement to conduct and report on independent investigations.
If the recommended sanctions include a period of debarment of at least six months, the respondent will be temporarily suspended from WBG-financed projects pending adjudication. In FY 2020, 30 firms and 8 individuals were temporarily suspended.
The OSD also reviews all settlements entered into by INT to ensure that the agreements are voluntary and consistent with World Bank Group Sanctioning Guidelines; in FY 2020 it reviewed 22 settlement agreements.
In FY 2020, of the OSD reviewed 29 cases in total (including some from the previous year). It found sufficient evidence for all allegations of misconduct in 18 cases and insufficient evidence for at least one allegation in 11 cases. Those 11 cases were then referred back to INT for revisions. No cases were rejected in their entirety. OSD ultimately sanctioned 19 out of 32 respondents via an uncontested determination of the Chief Suspension and Debarment Officer, who is the head of the OSD.
If the respondent contests the first-tier review, a case may be elevated to the second and final tier of review in the Sanctions System, which is the Sanctions Board. Sanctions Board members are external to the WBG and consider cases in 3-person panels or a larger plenary group. The Sanction Board's review of cases is de novo, in that it does not take into account the findings of the first-tier review. In FY 2020, approximately 30% of respondents contested their cases to Sanctions Board. The Board ultimately sanctioned 7 firms and individuals.
In FY 2020, the WBG debarred 46 firms and individuals, and a total of 122 firms and individuals including cross-debarments. This was a nearly 51% increase from FY 2019 when 81 firms and individuals were debarred.
(3) Integrity Compliance
The Integrity Compliance Office (ICO) will assess the compliance programs of companies under investigation and their assessment will inform the sanction to be imposed. The World Bank's Sanctioning Guidelines provide for mitigation credit of up to 50% (and more in "exceptional circumstances") for companies that have taken voluntary corrective action and can demonstrate that they have established, or improved, and implemented a corporate compliance program. The ICO is responsible for determining whether a sanctioned party must retain an independent integrity compliance monitor or expert – and one of the factors to be taken into consideration is the maturity of any existing ICP and corporate integrity function.
Post-sanction, parties must engage with the ICO to demonstrate that they have satisfied any conditions imposed for release from sanctions, including the implementation of an ICP. The ICO works with the parties to explain compliance conditions, recommended enhancements to the parties' controls in line with the WBG's Integrity Compliance Guidelines and monitor their progress. The ICO also ultimately decides whether parties can be released from sanctions. In FY 2020, ICO engaged with 107 sanctioned parties and ultimately released 18 parties from sanctions (compared to 23 for FY 2019), although in one case conditional non-debarment was converted to debarment with conditional release.
Sanctioned parties can be required to undertake investigations under the terms of their settlement agreements. In FY 2020, 11 parties were required to hire an independent investigator to carry out some 32 investigations, and in at least one case the investigation highlighted wide-spread improper subcontracting and banking arrangements.
Notably, of all sanctions cases and settlements considered by OSD in FY 2020, 86% dealt with fraud, 20% dealt with corruption, 20% dealt with collusion and 6% dealt with obstruction.2> The predominance of fraud has been a common theme in WBG enforcement cases, and the experience of other MDBs is similar, as shown by the most recent report of the African Development Bank's (AfDB) Office of Integrity and Anti-Corruption3. This highlights that the MDB's concept of "fraud" is broad and often includes, among other things, the submission of inaccurate information in bids. The WBG notes that fraud is relatively prevalent in procurement and is often used to enable other corrupt and collusive practices.
From a geographical perspective, between FY 2016 and FY 2020, 28% of respondents sanctioned by OSD and the WBG Sanctions Board came from Europe and Central Asia, and 26% from East Asia and the Pacific (with smaller proportions from other regions); and 41% of respondents subject to sanctions under settlement agreements came from East Asia and the Pacific, and 20% from Europe and Central Asia (with smaller proportions from other regions).
Debarment with condition release is the most common form of sanction by some margin. In the period FY 2016 to FY 2020, it was used in approximately 97% of cases by the Chief Suspension and Debarment Office (SDO) of the OSD, 61% of Sanctions Board cases and 52% of settlements. By comparison, the next most common form of debarment, fixed-term debarment, was used in approximately 3% of SDO cases, 28% of Sanctions Board cases and 25% of settlements.
Over the same period, the periods of debarment imposed by the SDO and Sanctions Board mainly fell within the range of 2-5 years, whereas under settlement agreements the periods were mainly in the range of 0-3 years. Notably, whilst the Sanctions Board held 88% of respondents liable in the period FY 2016–2020, in 55% of cases it actually applied a sanction that included a lessor period of minimum debarment.
When INT substantiates allegations for misconduct related to WBG-financed projects, the resulting FIRs are sent to the WBG's counterparts in member countries if evidence indicates that the laws of a member country may have been violated. These referrals increase the potential for parallel government investigations. In FY 2020, 17 such referrals were made.
2020 also saw a significant increase in WBG investment activity due to the COVID-19 pandemic. In October 2020, the WBG announced $12bn of funding for developing countries to finance the purchase and distribution of COVD-19 vaccines, tests and treatments. This funding is part of an overall package of up to $160bn through June 2021 to help developing countries fight the pandemic, and comes on top of the WBG's existing emergency response programmes.4 These investments will likely lead to increased enforcement activity over time.
1. World Bank Group Issues FY20 Sanctions System Annual Report, 15 October 2020, World Bank Group, available at: https://www.worldbank.org/en/about/unit/sanctions-system/sanctions-board/brief/world-bank-group-issues-fy20-sanctions-system-annual-report
2. An individual case may include several types of sanctionable practices, each of which is counted separately by OSD in the number of cases involving a certain type of sanctionable practice.
3. 'The African Development Bank Group: integrity compliance insight', Mayer Brown, 16 December 2020, available at: https://www.mayerbrown.com/en/perspectives-events/publications/2020/12/the-african-development-bank-group-integrity-compliance-insight
4. 'World Bank Approves $12 Billion for COVID-19 Vaccines', 13 October 2020, World Bank Group, available at: https://www.worldbank.org/en/news/press-release/2020/10/13/world-bank-approves-12-billion-for-covid-19-vaccines
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