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Helping Prevent Corruption World-Wide
The World Bank is taking a lead role among multilateral institutions in putting the anti-corruption agenda on the map, in taking steps to strengthen procurement and disbursement in our own projects, and in developing new approaches to tackling corruption in borrower countries.
In his 1996 speech at the Annual Meetings of the World Bank and IMF, Bank President James D. Wolfensohn said that the international community had to deal with "the cancer of corruption." He pointed out that corruption diverts resources from the poor to the rich, increases the cost of running businesses, distorts public expenditures, and deters foreign investors. Strengthening governance and eliminating corruption from Bank-financed projects is not a new concern. But until recently the Bank has not had a systematic framework for addressing corruption as a fundamental problem of development.
The Bank's 1997 report, Helping Countries Combat Corruption: The Role of the World Bank, as well as the accompanying guidelines to Bank staff and the joint paper issued with the International Monetary Fund, point to an approach that addresses corruption as a fundamental impediment to long term economic growth and social development.
Mr. Wolfensohn has offered the Bank's assistance to member governments implementing national programs to discourage corrupt practices and pledged support for similar efforts at the international level. This pledge and similar commitments undertaken by other organizations have opened a window of opportunity to attack corruption in a more direct and comprehensive way. The Bank's report, and the changes underway within the Bank, are designed to advance this strategy.
The World Bank's Anticorruption Action Plan for FY99
While we have made progress, much remains to be done. The Bank's Anticorruption Action Plan for FY99 focuses on seven categories:
The Action Plan pushes simultaneously on several fronts to strengthen our fiduciary activities, to broaden and deepen our in-country work, to extend our productive relationships with partners, and to deal with questions of staff incentives and personal security.
A number of the actions have already been completed; others are being implemented. Highlights include:
Country-Specific Assistance
The Bank has made strong progress in implementing its anticorruption agenda in FY99. With regard to external assistance ("level 2" of our Action Plan), to date about two-dozen countries have asked the Bank for assistance in addressing corruption. The Bank has responded in most cases and has been particularly active in about a dozen of these countries, with activities growing rapidly in other countries. Among the countries with high or growing focus over the last year are Albania, Benin, Bolivia, Ecuador, Ethiopia, Georgia, Indonesia, Latvia, Mali, Tanzania, and Uganda. Activities are now being planned for numerous other countries also.
In helping countries, the Bank deals with corruption in systemic terms — that is, as a symptom of underlying public sector dysfunction. It is not the Bank's role to identify and prosecute individual offenders, but rather to address the various aspects of policy and institutional reform that are likely to be critical in reducing corruption — including economic policy and its implementation, institutional reforms and the framework for civil service employment, the legal-judicial system, financial control mechanisms, and the extent and nature of public oversight.
The first step must be to insure high-level political support, without which an anticorruption effort is unlikely to succeed. The next step in some countries has been to establish a steering committee, generally headed by a Minister, and working groups in several key areas. In-depth empirical survey work can often help to diagnose the extent and nature of the problem and to raise awareness. For example, in-depth surveys of citizens, private firms, and government officials have helped to quantify the level of corruption, pinpoint where it is most problematic, and thereby help set priorities for action. The results of the empirical work are then disseminated through a workshop that seeks to bring public officials, the private sector, and civil society together to develop an anticorruption strategy and a multi-pronged action program.
Awareness raising must be followed by action to reform policies and institutions. Priorities for action will vary by country and may include initiatives (i) to deregulate the economy, (ii) to reform public sector management in areas such as customs, tax administration, or the civil service, (iii) to strengthen "accountability" institutions such as audit bodies, anticorruption commissions, or the judiciary and/or (iv) to decentralize government structure to bring services closer to the people.
Knowledge sharing is another important part of the Bank's "level 2" work. In addition to surveys and workshops, the Bank has conducted over 40 training courses in investigative journalism, parliamentary procedures, and the roles of the auditor general and the public accounts committee, and it recently launched its internal and external anticorruption web sites.
Mainstreaming a Concern for Corruption
There has been a rapid increase over the past year in the explicit attention paid to governance, corruption, and public sector reform in Country Assistance Strategies. Several recent CASs have made these issues a central focus, while a number of others have given them significant attention. The Bank now requires every CAS to contain a diagnosis of governance conditions and any risks they impose on Bank projects. It calls for special attention in countries with particularly high levels of corruption, as measured by objective criteria. The Bank is working activity to assemble a broad set of internal and external cross-country indicators on governance and corruption, in order to provide as objective a basis as possible for these diagnoses. No one indicator is likely to be highly reliable, but a diagnosis is more robust if several independent indicators point in the same direction.
But mainstreaming a concern for corruption must not stop at the CAS. We must also bring corruption issues into the policy dialogue, into decision making on adjustment lending, into the design of projects, analytic work, and training programs for Bank staff and external policy makers.
International Efforts
The fourth area of the Bank's anticorruption strategy is providing support to international efforts to address corruption. This is important for 2 reasons: First, because anticorruption work is most effective when it involves a wide variety of partners and builds on deep domestic political commitment. And second because many corruption problems are cross-national.
We strongly support the OECD's Antibribery Convention, which recently came into force. This Convention requires all signatory countries to adopt domestic legislation that makes foreign bribery by locally-based multinational firms a criminal offense, and to enforce the legislation through domestic law enforcement institutions. It is an extremely important step forward in the effort to end cross-border bribery by multinational firms, and we hope all OECD countries will ratify the convention in 1999.
In addition, we are working actively with a wide variety of partners — including OECD, UNDP, bilateral donors, the other multilateral development banks, regional organizations, and non-governmental organizations (both within countries and internationally) to address common concerns, share experiences, and jointly design and implement interventions in the field where possible.
Keeping our own house in order
When Mr. Wolfensohn spoke out against corruption in his 1996 speech, he also made it clear that our drive against corruption would not stop at our own doors. We cannot hold our clients to a higher standard than we hold ourselves.
In its effort to eliminate fraud and corruption internally and in cases involving contractors or companies awarded Bank-financed contracts, the Bank in May 1998 formed an Oversight Committee on Fraud or Corruption. This Committee oversees investigations conducted by the Bank's Internal Audit Department, Office of Professional Ethics, or any outside investigator appointed by the Bank Group, and for any matter involving fraud or corruption referred to it by the World Bank President. The Committee consists of members of the Internal Audit Department, the Office of Professional Ethics, and Human Resources, and is chaired by the Deputy General Counsel, Administration, Finance, and Institutional Affairs.
To help ensure that allegations of fraud and corruption are reported, we have also set up a telephone hotline with multilingual capabilities, which operates 24 hours a day, seven days a week. It is available for use by Bank group staff and the public. The hotline is operated by an outside firm of trained specialists working under the strictest standards of confidentiality. Callers can choose to remain anonymous. All hotline reports are turned over to the Oversight Committee. Cases that require further investigation are then sent to the appropriate unit for investigation.
Additionally, in early 1998, the Bank's Internal Audit Department established a team within its unit with fraud and corruption investigation skills. Currently, the team is managed by an Internal Audit staff members and consists of three white collar fraud investigators as consultants, a group of forensic accountants and specialist investigators from Price Waterhouse Coopers, and several Bank staff.
During the course of the first phase of the Bank's anti-corruption initiative, about 15 allegations of fraud and corruption related to our Bank-funded projects were reviewed and then passed on for investigation to the Investigations Unit. In some cases, outside investigators were hired to provide forensic services.
The Bank's investigations into fraud and corruption involving Bank staff also yielded important results. In September 1998, two staff members were terminated for the misuse of approximately $110,000 of trust funds. Their termination benefits were also withheld and the Bank has recovered some of the misappropriated funds from the contractors involved and is working to recover more.
In October 1997, the Bank filed a civil lawsuit against a former bank staff member and an outside contractor for fraud, conspiracy and breach of contract. In February 1999, the Bank successfully obtained judgments against all of the defendants.
As part of our move to tighten up procurement processes and oversight, the Bank is periodically commissioning procurement audits undertaken by independent firms of international repute. In the course of the past two fiscal years, 54 projects have been audited by independent firms hired by the Bank.1 The completed audits revealed deficiencies such as departure from agreed procedure, lack of proper documentation, and institutional weakness.
As a result of the audits, the Bank has declared misprocurement on about 40 contracts with a total value of $40 million – out of a total of 45,000 contracts the Bank finances annually totaling roughly US$45-50 billion. In the next fiscal year we plan to audit about 24 projects.
Debarment, or declaring a firm or individual ineligible to be awarded any Bank-financed contracts, is one category of action the Bank is increasingly taking against parties that engage in corrupt or fraudulent practices during the procurement or the execution of Bank-financed contracts. (Two and a half years ago, the Bank introduced paragraph 1.15 into its Procurement Guidelines, as a way of formalizing the definitions of corrupt or fraudulent practices and specifying actions that will be taken if such misconduct is discovered.
So far, seven cases have been submitted to the Sanctions Committee, some of which involve a number of accused firms/people. Three of these cases have resulted in the Sanctions Committee recommending debarment to the World Bank President. These three cases are highlighted below, by order of the dates in when they were publicly announced in news releases:
Results
What progress have we made so far? Obviously we cannot comment on open cases. This is frustrating to many journalists who would like to get breaking stories on corruption probes. We understand that frustration and will do our best to be as open as possible without imperiling investigations and, of course, while protecting the rights of Bank staff, firms or governments from unsubstantiated and reckless allegations. Within those parameters, however, we will post a regular progress report on our anti-corruption activities on our website:
