The fight against corruption is central to the World Bank’s commitment to end extreme poverty and to increase shared prosperity, as underlined in a recent report on Suspension and Debarment activity (Report) written by the World Bank’s Office of Suspension and Debarment (OSD).

In the foreword to the Report, the President of the World Bank Group notes that each dollar lost to corruption is a dollar stolen from healthcare programs, education initiatives and infrastructure projects that are fundamental to helping more than a billion people escape extreme poverty. To this end, the World Bank has committed $31.5bn in loans, grants, equity investments and guarantees to help promote economic growth, overcome poverty and promote economic enterprise in developing countries.

The 2014 Report summarises the data from the OSD’s first six fiscal years of operations up to 30 June 2013 (the end of the World Bank’s 2013 fiscal year). The data is limited to cases arising from projects financed by the two institutions that constitute the World Bank.1

The Report reflects on the World Bank’s attempts to build a more efficient, effective and fair suspension and debarment system to combat corruption around the world. It also presents recent trends and key lessons learned from the work of the OSD, which investigates and, where appropriate, sanctions contractors that have engaged in fraudulent or corrupt practices in connection with World Bank financed development projects.

Emerging trends from the Report

The OSD is one of the smallest units in the World Bank, with a current core staff of three, supplemented by consultants and interns. It was designed to be a check and balance in the sanctions process and to review impartially the sufficiency of the evidence in the cases selected, investigated and submitted by the Integrity Vice President (‘INT’). Five sanctionable practices are identified: corrupt practice, fraudulent practice, collusive practice, coercive practice and obstructive practice.2 Of the cases and settlements concluded by the end of financial year 2013, 86 per cent have involved fraudulent practice. The most frequently imposed sanction is debarment, where a party is declared ineligible to receive World Bank financed contracts from shareholder governments. Other World Bank sanctions are described in more detail below.

Up to 30 June 2013, the OSD has debarred or otherwise sanctioned 224 parties.3 Of these, 47 were sanctioned in financial year 2013, the second highest annual level since the OSD’s inception. While this reflects a 43 per cent drop from the peak of the 83 sanctions imposed in financial year 2012, it nonetheless demonstrates the World Bank’s continued commitment to investigating and, where appropriate, imposing sanctions against parties found to be engaging in corrupt practices. Of the cases presented to the OSD, 60 per cent have been resolved on the basis of its determinations. The remaining cases have been decided on appeal by the World Bank’s Sanctions Board.

In 95 per cent of the cases reviewed during the period 2007-2013, the OSD found sufficient evidence to support at least one of the claims made by INT leading to sanctions being imposed.4 In 62 per cent of cases, the OSD found sufficient evidence to support all the claims made by INT (i.e. including where multiple claims were submitted).

This suggests that the cases submitted to the OSD are carefully selected and that any party that finds itself before the OSD should accordingly be wary of the challenge in arguing that insufficient evidence has been found to prevent the imposition of sanctions.

The World Bank’s sanctions system – a reminder5

The World Bank’s sanctions system is a quasi-judicial administrative process for the adjudication of cases involving any party (referred to in the sanctions system as a ‘Respondent’) accused of engaging in sanctionable misconduct in competing for, or in executing, World Bank financed contracts. It is designed to exclude proven wrongdoers from operations financed by the World Bank, while allowing the Respondent due process, fairness and the opportunity to defend itself. The system is also designed to help manage the Bank’s caseload of corruption allegations by adjudicating cases in a timely manner without always needing to elevate cases to the World Bank’s Sanctions Board.6

INT has sole responsibility for selecting which matters are investigated and for initiating sanctions proceedings with the OSD when it has uncovered sufficient evidence that a contractor has engaged in sanctionable misconduct. The OSD’s Chief Suspension and Debarment Officer (‘SDO’) evaluates the accusations and evidence submitted by INT and determines whether INT has presented sufficient evidence that the Respondent engaged in the alleged sanctionable practice(s). The average case is with the OSD for around 60 days before an evidentiary determination is made. The OSD publishes a new determination on average once every ten days.

If sufficient evidence is found, the SDO issues a Notice of Sanctions Proceedings (‘Notice’) and formally notifies the Respondent of the commencement of sanctions proceedings. Where the recommended sanction includes a minimum debarment exceeding six months, the Respondent automatically receives a temporary suspension (see below).

The Respondent has 30 days from the delivery of the Notice to submit a written ‘Explanation’ to the OSD. The Explanation allows the Respondent to state why it believes the Notice should be withdrawn or the recommended sanction revised. The Report does not comment on how often submitting an Explanation leads to a reduction in the final sanction imposed. However, it does note that interference with an investigation is treated as an aggravating factor that could add up to three years to any sanction imposed. Accordingly, a frivolous Explanation or improper interference with an investigation may lead to harsher sanctions being imposed than would otherwise be the case.

The Respondent has 90 days from the delivery of the Notice to submit a ‘Response’ contesting INT’s allegations and / or the recommended sanction, if applicable. Where no response is submitted by this deadline, the SDO imposes the sanction recommended in the Notice and posts a Notice of Uncontested Proceedings on the Bank’s website. If the Respondent submits a Response, INT has 30 days to submit a ‘Reply’ to the Sanctions Board to address the arguments and evidence contained in the Response.

INT or the Respondent may request a hearing before the Sanctions Board; alternatively, the Sanctions Board Chair may call a hearing. Where the Sanctions Board considers a case, it reviews the case afresh and is not bound by any prior determination made by the SDO. The Sanctions Board releases a fully reasoned decision which is final and non-appealable. Since 2012, all Sanctions Board decisions have been published on the Bank’s website.

The OSD’s role in negotiated settlement

INT and a Respondent may resolve a sanctions case prior to, or during, sanctions proceedings by negotiated settlement. In such a situation, clearance is required by the World Bank’s General Counsel before the SDO reviews the terms of settlement to confirm that (i) the settlement was entered into voluntarily and (ii) the agreed sanction is broadly consistent with the Sanctioning Guidelines.7 Up to 30 June 2013, 39 cases (17 per cent) have been concluded pursuant to settlement agreements.

Sanctions available – a summary

The OSD has a range of possible final sanctions at its disposal.

  • Public letter of reprimand: this is the least severe sanction. The sanctioned party can continue to participate in World Bank projects, but a public letter of reprimand will appear on the World Bank’s website.
     
  • Conditional non-debarment: the sanctioned party must fulfil certain conditions to avoid exclusion (for example, strengthening a compliance program).
     
  • Debarment with conditional release: the sanctioned party is subject to a temporary exclusion but can participate in World Bank projects if it fulfils certain conditions such as those relating to conditional non-debarment.
     
  • Debarment for a fixed period (without conditional release): the sanctioned party is excluded from World Bank financed projects for a fixed period of time.
     
  • Restitution: the sanctioned party may be required to pay restitution of the sums received and possibly further damages to compensate for the loss incurred.

Temporary suspensions: early action from the OSD

The OSD is also able to issue a temporary suspension of a Respondent once sanctions proceedings have commenced. This is distinct from debarment, which is a final sanction only imposed at the conclusion of OSD proceedings. While a temporary suspension is not announced publicly, information about temporary suspensions is available to the World Bank internally and to borrowing countries. Most significantly, a temporary suspension renders a Respondent ineligible to receive new World Bank financed contracts.

The OSD may also impose an early temporary suspension while an investigation by INT is ongoing (i.e. before a case is presented to the OSD).

This mechanism is available where INT already has sufficient evidence to support a finding of at least one sanctionable practice against a Respondent. These two early response mechanisms serve to protect World Bank funds from being released to Respondents without publicly announcing details of sanctions prematurely. As of 30 June 2013, the OSD had imposed 239 temporary suspensions.

Multilateral Development Bank (‘MDB’) crossdebarment

A debarment imposed by the World Bank is typically recognised by a number of other MDBs. For example, a party that is debarred by the World Bank for more than a year will be ‘cross-debarred’ by, among others, the African Development Bank and the Asian Development Bank.8

Monitoring sanctions

An Integrity Compliance Officer (‘ICO’) monitors a debarred party’s performance of the required conditions throughout the debarment period. The debarred party is required to report incidents of fraud, corruption or any other type of misconduct detected in its actions and detail the remedial action taken. The debarred party may be required to provide periodic reports and copies of internal and external audits during the debarment period. Furthermore, the ICO may require that an independent compliance monitor is engaged where red flags are reported or discovered in relation to a party’s activities.

Where debarment is subject to conditional release, the ICO among other things evaluates and assesses the debarred party’s current integrity and compliance program (if any), monitors compliance with the specified conditions during the period of debarment and determines whether the conditions have been satisfied at the end of the debarment period.

Release from debarment

The ICO may decide to release a party from debarment only if the specified conditions for release have been satisfied. In all cases, the debarred party must have established and implemented an integrity and compliance program reasonably capable of mitigating the World Bank’s risk of allowing the party to bid on World Bank financed projects once more. This risk assessment and verification process typically involves the direct engagement of the debarred party and, where appropriate, compliance monitors, investigative firms and both internal and external auditors. If the ICO determines that the necessary conditions have not been satisfied, the debarred party may be restricted from reapplying for release from debarment for a period of up to a year from the date of the ICO’s determination.

The wider context

This Report is portrayed as a model report that can guide and contribute to similar efforts by other institutions. It also furthers the World Bank’s guiding principle of transparency. In the foreword to the Report, the President of the World Bank Group notes that information in the Report will inform and empower citizens to advocate for greater integrity and accountability in the use of public funds, no matter their source.

The World Bank’s suspension and debarment system provides significant procedural protections for parties accused of sanctionable practices, including notice and an opportunity to be heard, as well as adjudication by decision-makers who are independent of the investigative function. In conducting a thorough and informed review of every case, OSD serves as an impartial check and balance on the work of the World Bank’s investigators and endeavours to ensure a fair and objective process for all parties involved.

Despite being one of the smallest units in the World Bank, the OSD is an important part of a movement to create efficient and effective systems for resolving allegations of fraud and corruption in public and donor-financed procurement while ensuring due process and fairness. The work of the OSD embodies the World Bank’s Integrity Compliance Guidelines by punishing a party’s misconduct through sanctions, encouraging a corporate culture of ethical leadership and encouraging the implementation of adequate procedures to minimise the risk of, or otherwise remediate, misconduct.

Given that the misconduct addressed by the World Bank’s suspension and debarment system is often of a nature that would be considered criminal in many countries, the World Bank refers such cases, where appropriate, to national governments for their consideration. Accordingly, the President of the World Bank notes that the World Bank’s success in combatting corruption depends partly on the success of national governments in pursuing wrongdoing.

Collaboration with other governments and MDBs complements and strengthens the World Bank’s suspension and debarment system. The careful ongoing monitoring of sanctions prior to a Respondent’s release from debarment reinforces the integrity and effectiveness of the system which, in turn, furthers the fundamental aims of the World Bank’s anti-corruption regime – to ensure that the funds are used for their intended purpose: to end extreme poverty and increase shared prosperity.