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Bidder Beware: Involvement in World Bank Projects Comes with High Risk

03.03.2021

Companies involved with World Bank-financed contracts should be mindful that even slight oversight failures could result in hefty sanctions, including suspension or debarment, and could trigger ancillary adverse effects, such as reputational damage, missed business opportunities, on-going reporting requirements and extensive costs for response and remediation. Since World Bank projects are frequently carried out in countries high on the corruption index, participation comes with inherent risk. It is therefore imperative for companies to be armed at the outset with World Bank sanctions regime operational knowledge and potential lines of defense.

THE WORLD BANK’S SANCTIONING POWER

The World Bank is an international development organization owned by 187 countries whose role is to reduce poverty by lending money to the governments of its poorer members. It is comprised of five institutions (the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA) and the International Centre for Settlement of Investment Disputes (ICSID)), together called the World Bank Group. When the World Bank Group provides loans for a project, the loan agreement incorporates the Bank’s procurement policy, including regulations that are required to flow down to any contract resulting from the overall funds. All affiliated contracts must require compliance with the World Bank’s Anti-Corruption Guidelines and include an audit clause giving Bank investigators authority to access any documents related to project procurement. Jurisdiction for the World Bank Group’s sanctions regime is therefore based in contract.

THE SANCTIONS PROCESS

In the case of a potential violation, the Integrity Vice Presidency (INT) unit of the World Bank Group, upon receiving a complaint, performs an assessment as to whether there could be a sanctionable practice and whether the case falls under its jurisdiction. INT considers a number of factors before determining whether a full investigation is mandated, including: the seriousness of the allegations, the potential development impact of the alleged misconduct, the credibility of the complaint, the presence of corroborating evidence and the amount of project funds involved. INT may contact the Respondent seeking information via its contractual audit rights. An audit, in turn, may result in a show cause letter to the Respondent, which provides the audit findings and an opportunity for preliminary response. It is of utmost importance for companies to cooperate with any INT audit requests and/or a show cause letter, since cooperation is a heavily-weighted mitigating factor affecting the final sanctioning decision, and failure to cooperate could result in heftier sanctions.

Upon substantiating an investigation, INT produces a Final Investigation Report (FIR), which is sent to regional management, other operational staff and the World Bank Group President. When companies or individuals have been found through the investigation to have engaged in conduct violating the World Bank Group’s contractual stipulations, then the World Bank Group may impose a sanction, and the Respondent can reply with an explanation seeking dismissal or a reduction. If the Respondent does not contest the final determination, then the recommended sanction is imposed. When the Respondent wishes to contest a final determination, the Respondent may file a response with the World Bank Group’s Sanctions Board. This portion of the proceedings may include hearings if requested by either party.

Companies should be aware that the World Bank Group may suspend firms and individuals from World Bank project eligibility during the investigation phase. This typically occurs where there is sufficient evidence that the person or entity has engaged in at least one sanctionable practice. Entities may petition for the lifting of the suspension and provide rebutting evidence.

Further, companies should also be aware that the name(s) of those sanctioned, as well as any imposed sanction(s) are made public. The World Bank Listing of Debarred Firms & Individuals is publicly available on the World Bank Group’s website as are Sanctions Board decisions and Evaluation Suspension Officer uncontested cases. The World Bank also issues a press release upon resolution of the case, even when a settlement is reached, which includes the name of the entities involved.

A. Sanctioning Guidelines


I. Sanctions 

The decision of the Sanctions Board is discretionary and may be guided by the non-binding Sanctioning Guidelines. According to the Guidelines, there are six possible sanctions:

  1. Debarment with Conditional Release, which imposes a minimum of three (3) years ineligibility to be awarded a Bank Group-financed contract or participate in Bank Group-financed activities, after which the sanctioned party may be released if it has complied with specific conditions, such as revamping the compliance program;

  2. Debarment for a Fixed Term, wherein .the sanctioned party does not have to meet any conditions to be released from the ineligibility period;

  3. Conditional Debarment, wherein a sanctioned party is not debarred so long as they comply with specific conditions;

  4. Letter of Reprimand, which is typically utilized when there was an isolated lapse in supervision by an affiliate that had no direct involvement;

  5. Permanent Debarment, which is generally only utilized when it is believed that a respondent cannot be rehabilitated through compliance or other conditions; and

  6. Restitution, which involves payments to the borrower of Bank Group funds, the Bank Group, or another party to disgorge illicit profits or undertake remedial measures.

II. Aggravating and Mitigating Factors

The World Bank Group starts with the base sanction for all misconduct – a 3 year debarment with conditional release. From there, (1) one to five years debarment may be added depending on the severity of the misconduct; (2) another one to five years may be added for the harm caused by the misconduct; (3) one to three more years may be added for interference with the investigation; and (4) ten years may be added if the party has a history of debarment on other grounds.

Mitigating factors include: (1) A decrease of up to 25% may be appropriate if the party played a minor role in the misconduct; (2) the World Bank may decrease the sanction by up to 50% when the party takes voluntary corrective action; and lastly, (3) the World bank looks at the Respondent’s level of cooperation with the investigation, which may result in up to a 33% reduction in the overall sanction.

B. Settlement Agreements

The World Bank Group frequently enters into settlement agreements, which can save all parties time and money and are subject to specific safeguards. For instance, the Bank Group General Counsel clears all settlement agreements, and they are subject to review to confirm that the agreed-upon sanction is consistent with the World Bank Sanctioning Guidelines. Settlements may be entered into even after sanctions proceedings have begun. The INT and Respondent can request a stay of the proceedings for up to 60 days (renewable once for another 30 days with agreement of both parties) while they undertake settlement negotiations.

C. Affiliates, Successors and Assigns

Companies should be aware that the World Bank Group may extend a sanction to party affiliates, including successors and assigns. There are a number of rebuttable presumptions the World Bank uses when deciding whether to apply sanctions to corporate groups. What is more, each participating Multilateral Development Bank (MDB) informs other participating MDBs of its debarments over one year and other participating MDBs enforce each debarment. These are known as “cross-debarments.”

D. Early Self-Disclosure

If a party not under investigation discloses past misconduct and institutes a robust and monitored compliance program, the Bank Group will agree in a voluntary disclosure program not to seek sanctions. In this instance, the World Bank Group will keep the party’s identity confidential. However, if the party breaches its obligations, it faces the hefty penalty of a 10-year mandatory debarment.

E. Further Non-Bank Proceedings

Companies should also be aware that a World Bank investigation may not be the only investigation they face. INT has been known to forward its investigative findings to national authorities resulting in further potential liability under the respective national laws.

IN CONCLUSION

While the thought of facing potential World Bank Group sanctions may seem overwhelming, it doesn’t have to be. There are many prophylactic measures companies can utilize to ensure the best outcome. A robust compliance program, as always, is the best first line of defense and can save companies a lot of money down the road. For those with a lackluster compliance regime, the World Bank Group may mandate that the company hire a compliance monitor at its own expense. What is more, a strong compliance program is a mitigating factor the World Bank Group takes into consideration in its sanctioning decision. Companies should also build a strong rapport with World Bank investigators through early cooperation. Timely providing investigators with evidence that may assist them and/or entering into settlement discussions quickly can help avoid a lengthy and expensive sanctions process. Lastly, being proactive in remediation goes a long way with the World Bank Group. This includes employment action, e.g. termination or administrative leave pending final outcome, of any employees involved in wrongdoing and cessation of relationships with other entities implicated in any wrongdoing.

Arbitration
Compliance & Investigations

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