Peter S. Spivack Malak Hamwi December 21 2020 World Bank investigations arm sets anti-corruption priorities for 2021 Hogan Lovells | White Collar Crime - International Peter S. Spivack, Malak Hamwi White Collar Crime IntroductionOverview of FY20 activitiesINTOSDSanctions BoardICOLooking aheadIntroductionIn October 2020 the World Bank Group (WBG) published its third Sanctions System Annual Report FY20, which covers 1 July 2019 to 30 June 2020. The report provides a detailed look at the recent activities of the three units of the WBG's sanctions system:the Integrity Vice Presidency (INT);the Office of Suspension and Debarment (OSD); andthe Sanctions Board.The report also provides important insight into INT's priorities for fiscal year 2021.Overview of FY20 activities The WBG's sanctions system addresses allegations that firms and individuals involved in WBG-financed projects committed sanctionable practices. INT investigates these allegations in the first instance. If INT determines that there is sufficient evidence to pursue sanctions, it may seek to negotiate a settlement with the accused or submit a statement of accusations and evidence to the OSD – the first tier of review in adjudicating whether to impose sanctions. The OSD's sanctions decisions may be appealed to the Sanctions Board – the second and final tier of review.The COVID-19 pandemic appears to have caused little disruption to the WBG's sanctions system. INT continued its investigatory work using technology, remote audits and desk reviews of contracts. In addition, the OSD moved to virtual operations and the Sanctions Board conducted hearings and deliberations virtually.In fiscal year 2020 (FY20), the WBG sanctioned 49 firms and individuals, of which 46 were debarred either for a fixed term or with conditional release. Most of the debarments (20) were imposed as part of a settlement, while 19 were ordered pursuant to an uncontested decision of the chief suspension and debarment officer and seven were ordered pursuant to a Sanctions Board decision. The length of debarment imposed in FY20 was consistent with the five-year trend that most settlements result in a one-to-two year period of debarment, while most debarments imposed by the OSD last two to three years and those imposed by the Sanctions Board last three to four years. In addition, the WBG recognised 76 cross-debarments in FY20, underscoring the continued importance of the Cross-Debarment Agreement under which five multilateral development banks have agreed to give reciprocal effect to each other's debarment decisions.INTIn FY20 INT started 46 external investigations. As in fiscal year 2019 (FY19), most of these new investigations were based in the Africa Region (30% in FY20 versus 43% in FY19).INT completed 43 investigations, of which 77% were substantiated, which is consistent with the rate in FY19. However, only 37% of these investigations were completed within 12 months. Of the investigations that took more than 18 months to complete – all of which were substantiated – 58% involved allegations of corruption or collusion and 50% implicated project officials. INT noted that several investigations which it completed in FY20 uncovered a trend of qualified firms winning bids and immediately subcontracting them to unqualified firms, usually in exchange for a fee.OSDIn FY20 the OSD reviewed 29 cases and 22 settlements. Between fiscal years 2015 and 2020, it took the OSD an average of 78 days to review a case and issue a determination. Of the 29 reviewed cases – 86% of which involved at least one fraudulent practice – the chief suspension and debarment officer found sufficient evidence to support at least one claim brought by INT.The chief suspension and debarment officer issued a notice of sanctions proceedings in 30 cases, which resulted in the temporary suspension of 30 firms and eight individuals. Only 11 respondents submitted a written explanation following receipt of the notice. Of those respondents, only 27% managed to obtain a reduction to the recommended sanction.Ultimately, the OSD sanctioned 19 respondents via uncontested determinations. This is consistent with the trend since the OSD's establishment in 2007 that approximately 66% of cases are resolved at the OSD level (because no appeal to the Sanctions Board is filed).In the 10 years since the release of the WBG Sanctioning Guidelines, the chief suspension and debarment officer has considered various aggravating and mitigating factors to determine the appropriate type and length of sanction. Although no aggravating or mitigating factors must be applied, an analysis of the application of such factors over the past decade reveals the most frequently applied aggravating factors to be management's role in the misconduct, followed by repeated pattern of conduct. On the other hand, assistance or cooperation with the investigation and admission or acceptance of guilt are the most frequently applied mitigating factors.Sanctions Board Since it was established in 2007, the Sanctions Board has issued more than 125 decisions. In FY20 it issued six final decisions. Oral hearings were held in approximately one-third of these cases and outside counsel were also involved in approximately one-third of these cases.Between fiscal years 2016 and 2020, the Sanctions Board reviewed and decided 44 contested cases against 69 respondents. In 88% of these cases, the Sanctions Board found liability. The sanctions imposed by the Sanctions Board matched those recommended by the chief suspension and debarment officer in 7% of cases. However, for 55% of respondents, the Sanctions Board applied a lesser period of debarment. The Sanctions Board increased the minimum debarment period for 26% of respondents.ICOSettlements with compliance conditions may require a sanctioned firm to complete, on average, three investigations of other WBG-financed projects in which it was or is active. These firms must hire an independent investigator to carry out these investigations. In FY20 five firms undertook to comply with this requirement. INT assesses satisfaction of this requirement.However, the most common release condition for firms is to develop and implement an integrity compliance programme consistent with the principles set out in the WBG Integrity Compliance Guidelines. The Integrity Compliance Office (ICO), located within INT, is responsible for assessing compliance with this condition.In FY20 the ICO engaged with 107 sanctioned parties towards meeting their conditions for release and determined that 18 of these had satisfied their conditions. On the other hand, one sanctioned firm's conditional non-debarment (meaning that it was eligible to participate in WBG-funded projects) was converted to debarment with conditional release (meaning that it was ineligible) upon the ICO's determination that it had not yet met its conditions for release. By the end of FY20, 372 entities remained sanctioned with conditional release.The ICO continued to expand its mentorship programme, wherein entities engaged with the ICO voluntarily to mentor small to medium-sized firms sanctioned by the WBG to help them to implement adequate integrity compliance programmes. The ICO also continued to work with WBG member governments to promote integrity compliance principles and noted that it had developed a close working relationship with the Korean Ministry of Justice throughout FY20.Looking ahead In September 2020 Mouhamadou Diagne assumed the role of integrity vice president. Diagne is a dual citizen of Senegal and the United States and has over 20 years' relevant experience, including serving as:the director of internal audit at Fannie Mae;the director of strategy and operations for internal audit at the WBG; andthe inspector general of the Global Fund to Fight Aids, Tuberculosis and Malaria.Diagne recently hired Alan Bacarese as INT's new investigations director, after the position had been vacant for more than three years.It is not yet known when Bacarese, a British lawyer who currently serves as the head of the African Development Bank Group's Office of Integrity and Anti-corruption, will assume his role as INT's second in command. However, Diagne and Bacarese will lead INT's staff of more than 80 professionals as they take on a full docket. INT had 66 active investigations at the end of FY20. Of those investigations, 41% have been open for over one year, with 78% of those investigations involving allegations of corruption or collusion and 63% implicating project officials.Diagne's and Bacarese's first year is likely to provide continuity in INT's priorities, four of which are believed to be top of its agenda for FY21.Preventive servicesDue to the accelerated pace of project development resulting from the COVID-19 pandemic, INT has proactively engaged with key operational staff to flag risks in the sectors most relevant to the COVID-19 response. INT developed new guidance that summarises the most salient integrity risks in those sectors and provides concise recommendations for improving project development. The guidance was drawn from observations from more than a decade of INT investigations across its investigative teams. In FY20 INT also updated and relaunched its Warning Signs of Fraud and Corruption in Procurement brochure as a reference for WBG staff, borrowers and project implementation teams. By the end of FY20, 7% of projects under WBG supervision had been flagged by INT with an integrity concern due to high vulnerability for fraud or corruption. As a result, INT's proactive outreach to operational staff to provide timely guidance will likely remain a focus going forward. In fact, Bacarese recently emphasised the importance of proactive integrity work and predicted that multilateral development banks will increasingly shift their attention to prevention work over the next two decades.COVID-19 pandemicThe WBG is currently financing over 150 COVID-19 response projects in more than 100 developing countries, either using the COVID-19 fast-track facility or by redeploying resources from existing WBG-financed projects. So far, more than $6.3 billion has been committed to the COVID-19 response. In April 2020 INT launched an internal dashboard that displays key information on projects, procurements and allegations of fraud and corruption for all WBG-financed COVID-19 operations. This is allowing INT to identify concerns and deal with complaints more quickly. It is anticipated that numerous sanctions cases will arise from projects financed through the WBG's emergency pandemic response.Data analyticsINT's development of the internal dashboard for COVID-19 operations is just one of the many analytical tools that INT has developed or is in the process of developing to streamline its detection of risks and issues and its assessment of cases and complaints. In June 2019 INT launched a supplier profiling tool that allows its staff to quickly retrieve a company's bidding and contracting history with the WBG to detect patterns and identify trends. Moreover, INT is developing a tool to mine text from supervision documents, such as annual project financial audits. INT is also developing an application that applies pattern-detection algorithms and machine learning to identify potential anomalies in project bids. These advances are likely to result in the faster processing of complaints and completion of preliminary investigations.Fragile and conflict-affected situationsIn FY20 INT focused on investigating allegations of fraud and corruption in countries characterised by the WBG as fragile and conflict-affected situations. In doing so, INT completed its first investigation, in which the preliminary investigation was conducted by a third-party implementing agency. Specifically, the United Nations Office for Project Services (UNOPS) investigated allegations that one of the bidders in a WBG-funded project in Yemen had submitted fraudulent documents. The UNOPS shared its findings with INT, which conducted its own investigation. The bidding firm and one of its executives were recently debarred for 10 months, pursuant to the terms of a settlement agreement. This case demonstrates that INT can pursue allegations of misconduct even in countries where the WBG does not have a physical presence. As the fragile and conflict-affected situations list continues to grow, it is expected that there will be more investigations in these countries, conducted by either INT or a third-party agency.For further information on this topic please contact Peter S Spivack at Hogan Lovells US LLP's Washington DC office by telephone (+1 202 637 5600) or email ([email protected]). Alternatively, contact Malak Hamwi at Hogan Lovells US LLP's New York office by telephone (+1 212 918 3000) or email ([email protected]). The Hogan Lovells US LLP website can be accessed at www.hoganlovells.com.