Sanctions Investigations By The World Bank And Other Multilateral Development Banks

Multilateral development banks spend $70bn each year on loans and grants to the developing world. In April 2010, for example, the World Bank approved a $3.75bn loan to South Africa-based Eskom Holdings, to build one of the world's largest and most complex power plants. This was just one of the nearly 30,000 contracts the Bank awards annually. Despite the worldwide recession, the World Bank's member countries recently approved a $5.1bn capital infusion to spur more lending. Together, development banks' largesse is spread over thousands of contractors, which range from small local construction firms to major multinational corporations.

The development banks now look harder at allegations of corruption, fraud and other misconduct in bidding and contracting. Collectively, they have debarred more than 1,100 firms and individuals from contract eligibility in the past decade. In recent years, the banks have cooperated to revise and implement new procedures that will improve their effectiveness in detecting, investigating, sanctioning and deterring misconduct. The banks have also raised the penalties for violations of their rules, which now include worldwide debarment and referral for criminal prosecution.

Today, contractors thus find themselves more likely to face long and costly investigations by the banks, which hold the purse strings and can ban them from bidding on new jobs. Companies doing business with the World Bank or other multilateral development banks should prepare to be investigated by the banks' integrity groups in response to whistleblower complaints or other allegations. They should also make sure their compliance programs are up to date, both to avoid violations and to provide a defense if they happen in spite of reasonable precautions. If a contractor discovers evidence of misconduct, it should consider whether to tell the bank about it under a voluntary disclosure program. That may well be a difficult decision.

"Internationalization of punishment"

In April 2010, the World Bank vice-president for institutional integrity, Leonard McCarthy, announced an agreement by the five largest development banks to "cross-debar" companies that engage in fraud or corruption in connection with projects financed by the banks. Mr. McCarthy, a former prosecutor, predicted that the agreement would lead to an "internationalization of punishment" for contractors. Under the agreement, a contractor debarred for more than one year by one of the five...

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