With the Panama Papers and recent corruption scandals in the news, staff may ask: What is the Bank Group doing about corruption in its own projects?
As President Kim declared in his remarks at this month's Anti-Corruption Summit in London, the World Bank Group cannot allow corruption to stand in the way of our goal to end extreme poverty. Instead, we must rededicate ourselves to fighting the cancer of corruption through greater transparency and accountability.
One important part of the Bank Group's toolkit in fighting fraud and corruption is sanctions. The Bank Group was the first of the multilateral development banks (MDBs) to establish a formal sanctions process.
Under this system, the Integrity Vice Presidency (INT) investigates allegations of fraud and corruption by contractors and consultants in Bank Group-financed projects. Depending on whether the case arises from Bank, IFC, MIGA, or Bank guarantee operations, one of four evaluation officers will review INT's investigations and may recommend a sanction.
If the accused party wishes to contest INT's accusations or the evaluation officer's recommended sanction, the case proceeds to the World Bank Group's Sanctions Board—an independent tribunal established by the Executive Directors in 2007. The Sanctions Board oversees an adversarial process in which it hears from all parties and may call witnesses as needed. The Sanctions Board's decisions are final and non-appealable.
Where the evidence shows fraud, corruption, or other sanctionable practices, the outcome is most often debarment, meaning black-listing from future projects for a specified period of time. Since 2010, the World Bank Group and other multilateral development banks have agreed to mutually enforce all debarments over one year. Cross-debarment has greatly increased the economic and reputational costs of sanctions, and enhanced deterrence. Besides debarment, other available sanctions include letters of reprimand, restitution, or other remedy.
A leader in transparency
The World Bank Group's Sanctions Board has led the way among MDB sanctions bodies in terms of transparency. Since 2012, the complete texts of fully reasoned Sanctions Board decisions have been published, with detailed factual and legal analysis and findings. Summaries of prior decisions and key holdings for Sanctions Board cases before 2012 are available through a published Law Digest.
Until now, no other MDB sanctions offices have been so open in revealing their case law, reasoning, and conclusions. The Sanctions Board's body of accessible precedent has thus served as a unique tool to expose and deter wrongdoing, and educate the parties and the public as to the line between permissible and prohibited conduct. The published decisions demonstrate the impartiality of the sanctions process and encourage harmonization across MDBs.
Real accountability for real risks
Sanctions Board decisions also reveal the concrete development risks created by fraudulent and corrupt actors from all backgrounds, across all regions and sectors.
Of all allegations appealed to the Sanctions Board to date, approximately 54% have been fraud, 27% corruption, 16% collusion, and 3% obstruction. The accused firms and individuals have represented diverse nationalities, with a vast majority from high- and middle-income countries.
For example, in the last set of cases that INT presented to the Sanctions Board this spring (decisions forthcoming soon), the accused parties ranged from an individual consultant to a major multinational company—all from high- or middle-income countries. The cases presented fraud allegations ranging from false invoices in the hundreds of thousands of dollars, to hidden commissions of millions of dollars. Corruption allegations ranged from thousand-dollar monthly gratuities to multimillion-dollar kickbacks allegedly paid to public officials. Collusion allegations involved bid-rigging on multiple contracts valued at tens of millions of dollars.
The Sanctions Board's published decisions show the types of cases in which the Sanctions Board has applied aggravated sanctions for actual harm to the development projects concerned. In a recent case involving a Honduras-Nicaragua transboundary biosphere project, for example, the Sanctions Board found that an auditor's repeated misrepresentations concealed problems in disbursements and fulfillment of subproject objectives meant to benefit vulnerable communities in rural areas. In another case involving a wastewater project in Lebanon, a contractor lied about its past construction experience to secure a water and sewerage contract and thereby exposed the borrower to serious operational and reputational risks. In an earlier case in India, a medical supplier's forgeries derailed and delayed a procurement process under a project intended to establish emergency care centers and reduce maternal and neonatal mortality for poor, disadvantaged and tribal groups.
Collaboration is key
These types of cases illustrate how fraud and corruption amount to stealing from the poor. While no one remedy can solve these problems, sanctions and other tools can help. Sharing lessons learned across operations, investigations, and sanctions is also critical. Together with other actors across the World Bank Group and beyond, the Sanctions Board will continue to do its part.