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PERMANENT COUNCIL OF THE OEA/Ser.G
ORGANIZATION OF AMERICAN STATES CP/CAJP/INF. 15/04
24 November 2004
COMMITTEE ON JURIDICAL AND POLITICAL AFFAIRS Original: English
PRESENTATION BY MR. DAVID R. RIVERO, CHIEF COUNSEL,
CORPORATE ADMINISTRATION, LEGAL DEPARTMENT, WORLD BANK,
ON THE TOPIC “FIGHTING GLOBAL FRAUD AND CORRUPTION IN WORLD BANK FINANCED PROJECTS” (GLOBAL WORK OF THE WORLD BANK IN ANTI-FRAUD AND ANTI-CORRUPTION ISSUES), AT THE MEETING OF THE COMMITTEE OF
JURIDICAL AND POLITICAL AFFAIRS HELD ON NOVEMBER 18TH, 2004
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Presentation by Mr. David R. Rivero, Chief Counsel, Corporate Administration,
Legal Department, World Bank, on the topic “Fighting global fraud and corruption
in World Bank Financed Projects” (Global work of the World Bank in anti-fraud and
anti-corruption issues), at the meeting of the Committee of Juridical and Political Affairs
held on November 18th, 2004
INTRODUCTION
The World Bank identifies fraud and corruption a great obstacle to economic and social development. Corruption undermines development by distorting the rule of law and weakening the institutional foundation on which economic growth depends. The harmful effects of corruption are especially severe on the world’s poorest people, who are most reliant on the provision of public services, and are least capable of paying the extra costs associated with fraud and corruption.
The World Bank did not, however, fully grasp the significance of fraud and corruption as an obstacle to economic and social development until the mid-1990s.
In 1996, the President of the World Bank, Mr. James D. Wolfensohn, went on record during his opening address to the Board of Governors at the 1996 Annual Meetings to emphasize the urgency of the fight against fraud and corruption. He stated:
“[W]e . . . need to address transparency, accountability, and institutional capacity. And let’s not mince words: we need to deal with the cancer of corruption.
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Let me emphasize that the Bank Group will not tolerate corruption in the programs that we support; and we are taking steps to ensure that our own activities continue to meet the highest standards of probity”.
Mr. Wolfensohn’s address served as the catalyst in the Bank’s adoption of a multidimensional anti-corruption strategy. Since 1997 this strategy has consisted of:
· Preventing fraud and corruption in Bank-financed projects and programs;
· helping countries that request assistance in combating corruption;
· mainstreaming a concern for corruption directly into country analysis and lending decisions; and
· contributing to international efforts to fight corruption.
The changes that began to take place in the mid-1990s were a reflection of an increased awareness within the Bank of the significance of the problem of fraud and corruption, and the impact fraud and corruption have on poverty and development.
The justification for adopting fraud and corruption initiatives would ultimately come to be based, at least in part, on the Articles of Agreement. In particular, Article III, Section 5(b), which provides: “The Bank shall make arrangements to ensure that the proceeds of any loan are used for the purposes for which the loan was granted, with due attention to considerations of economy and efficiency.” It is this language that is today oft cited in the Bank’s multi-dimensional fight against fraud and corruption.
What I hope to accomplish today during the course of my presentation is to provide you with some background as to one element of the Bank’s multi-dimensional anti-corruption strategy: Preventing fraud and corruption in Bank-financed projects and programs.
The responsibility for investigating, sanctioning and ultimately deterring fraud and corruption lies with the Bank’s Department of Institutional Integrity (INT) and the Bank’s Sanctions Committee.
DEPARTMENT OF INSTITUTIONAL INTEGRITY (INT)
Let me first discuss INT, as investigations by INT serve as the springboard for a number of possible actions within the Bank, including possible debarment proceedings with the Sanctions Committee.
Among the major changes instituted by the President to strengthen the Bank’s efforts to combat fraud and corruption was the merger, in 2001, of the Bank’s Corruption and Fraud Investigations Unit and the investigative functions of the Office of Business Ethics and Integrity. The result was the creation of the Department of Institutional Integrity, or INT. INT’s core functions are to investigate allegations of fraud and corruption in World Bank Group projects (the external investigative function) and to investigate allegations of staff misconduct (the internal investigative function). In line with suggestions of outside experts, INT reports directly to the President of the World Bank.
Further, the World Bank amended its Staff Rules. World Bank staff have a duty under the Bank’s Staff Rules to report suspected fraud or corruption in Bank financed projects or in the administration of Bank Group business to his or her direct manager, or to INT. A manager who suspects or receives a report of suspected fraud or corruption has an obligation to report it to INT.
Allegations may be reported to INT anonymously on the Bank’s international, multilingual fraud and corruption hotline at 1-800-831-0463. Witnesses may also request that their name remain confidential. These features of the Bank’s anti-corruption strategy were recommended by common law and civil law experts as best practice.
INT investigates many types of allegations – including fraud and theft, bid rigging, bribes, kickbacks, collusion or coercion by bidders, fraudulent bids, fraud in contract performance, product substitution and misuse of Bank Group funds.
One cannot overstate the difficulties faced by INT in carrying out its investigations. INT, unlike national authorities, has no subpoena power and, therefore, has no ability to compel cooperation. INT must rely on voluntary cooperation and limited audit rights included in contracts.
In determining whether fraud, corruption, collusion or coercion has occurred in connection with Bank-financed projects, INT applies the definitions of those terms included in the Bank’s Procurement Guidelines. In other words, wrongdoing is determined by the Bank according to the Bank’s standards – not the standards of the national authorities. Although, as discussed later, the Bank may make a referral of INT’s findings to national authorities for possible prosecution of the wrongdoers.
The Bank defines corruption as “the offering, giving, receiving, or soliciting, directly or indirectly, of anything of value to influence the action of a public official in the procurement process or in contract execution.”
Fraud is defined as a “misrepresentation or omission of facts in order to influence a procurement process or the execution of a contract.”
Further, collusion is defined as “a scheme or arrangement between two or more consultants, with or without the knowledge of the Borrower, designed to establish prices at artificial, noncompetitive levels.”
Lastly, coercive practices is defined as “harming or threatening to harm, directly or indirectly, persons or their property to influence their participation in a procurement process, or affect the execution of a contract.”
A finding of fraud, corruption, collusion or coercion by INT could lead to a number of possible outcomes:
· Management could use its investigation report as a basis for canceling the portion of the loan tainted by the malfeasance.
· INT may decide to submit to the Sanctions Committee a notice of proposed debarment proceedings against the individual or firm that was the subject of the investigation. Such a submission initiates a possible adversarial proceeding against the firm or individual, whereby the firm or individual would be provided an opportunity to respond to the charges and argue the merits of the case before the Sanctions Committee. It could result in permanent debarment, or debarment for a term of years. More on this in a moment.
· In the event INT concludes that the laws of a member country may have been violated, the Bank could refer INT’s factual findings to the concerned member country for possible prosecution of the persons thought to have violated the laws. When such referrals are made, the Bank is very careful to state that the referral is being made voluntarily and is not tantamount to a waiver of the Bank’s privileges and immunities. Thus far, the Bank has made numerous criminal referrals to member countries. These referrals have resulted in prosecutions by national authorities and convictions under national laws – including convictions of former World Bank staff members.
· Lastly, where a staff member is the subject of an investigation INT prepares a report for the Vice President, Human Resources. The VPHR decides on the basis of the report whether misconduct occurred and, if so, what disciplinary measures to impose. Under the Bank’s Staff Rules, termination is mandatory where the VPHR concludes that a staff member abused his position for financial gain or misused Bank Group funds.
It is worth noting that since its establishment, INT has received strong support from the President and Bank management:
- INT’s staff and budget have increased significantly;
- an Investigations Policy Committee, consisting of select Senior Bank Managers, was established to decide on important matters of investigative policy;
- the Bank has been receptive to innovative approaches proposed by INT to attack fraud and corruption; and
- the views of common and civil law experts are frequently solicited to assess INT’s capacity to investigate and its strategic direction.
That was a brief overview of INT. I would now like to turn to the role of the Sanctions Committee in the Bank.
THE SANCTIONS COMMITTEE
In 1996, the Bank proposed the adoption of a process whereby firms and individuals found to have engaged in fraud and corruption in connection with a Bank-financed project could be declared ineligible to participate in future Bank-financed procurement, either indefinitely or for a limited period of time. This sanctions process was implemented in 1998.
In August 2001, the first written procedures were issued for Sanctions Committee cases. These procedures were finalized with the assistance of Mr. Richard Thornburgh, former Under-Secretary General of the United Nations and a former Attorney-General of the United States. The August 2001 procedures had three principle objectives:
(i) to reflect institutional changes, including the creation of INT;
(ii) to formalize practices previously followed by the Sanctions Committee; and
(iii) to provide an improved process for respondents, including a more uniform conduct of the Committee’s hearings, a stricter definition of the contents of the record submitted to the Committee for review, and a more rigorous division of responsibility between INT, the Committee and the Sanctions Committee Secretariat.
The Bank recently completed a re-assessment of the sanctions process based on its experiences and lessons learned since 2001. The purpose of the re-assessment was to ensure that the Sanctions process was functioning in an effective and efficient manner, and that it was affording a fair process to those involved in the proceedings. The Bank sought the views of both civil and common law experts. Among the reforms will be:
· a streamlining of the process;
· a revision of the standard of proof from “reasonably sufficient evidence” to “more likely than not”; and
· the introduction of measures to allow for lighter and more flexible sanctions, recognizing cooperation as a mitigating factor providing incentives to contractors to disclose voluntarily information about fraud and corruption in Bank-financed projects.
The Bank is the only multilateral development bank to make its sanctions public and to publish the identity of the debarred companies openly on theweb. To date, over 300 firms or individuals have been debarred, with their sanctions posted on the Bank’s external website. With the recent reforms in place, the Bank will be better able to wield the stick of enforcement and use the carrot of positive incentives where appropriate.
CONCLUSION
The World Bank has made great strides since Mr. Wolfensohn’s opening address to the Board of Governors at the 1996 Annual Meetings. Multi-lateral efforts to confront the cancer of corruption are increasing in other international organizations as well. Further, as you know anti-corruption conventions have been adopted by your organization as well as by the United Nations and the Organization for Economic Co-operation and Development (OECD).
However, the anti-corruption efforts of the World Bank and other organizations are a work in progress. There is still much to be done. We must all continually re-assess our efforts, and work together with the common goal of eliminating fraud and corruption to achieve our ultimate goal of alleviating poverty.
Thank you for your time.