The World Bank Group (the Bank) issued its fourth joint Sanctions System Annual Report on October 18, covering the Bank’s fiscal year from July 1, 2020 through June 30, 2021. The report includes updates by the Integrity Vice Presidency (INT), the Office of Suspension and Debarment (OSD), and the Sanctions Board.

Notably, the number of complaints INT received in FY2021 increased significantly compared to FY2020, even though enforcement efforts slightly declined from prior years. INT submitted fewer cases to OSD, and OSD reviewed fewer cases and settlements; meanwhile, the number of cases before the Sanctions Board remained steady.

In addition to its investigative activities, INT focused on formalizing its procedures and enhancing its preventive strategies. In an effort to increase transparency, the Bank also revised its sanctions and debarment list to include a description of the sanctionable practice(s) engaged in by the sanctioned firms and individuals. Additionally, the Sanctions Board’s cases may lead to a new definition of successor liability, and further addressed the Bank’s jurisdictional reach over public officials.

Highlights

Over the last year, INT underwent some significant personnel and internal structural changes under the leadership of the new vice president, Mouhamadou Diagne. While some of its most senior staff departed or retired, INT also brought new senior staff onboard, such as the new director of investigations, strategy and operations, Alan Bacarese. Also, in May 2021, INT launched a Prevention, Risk & Knowledge function to build a more robust knowledge base and analytic support for integrity risk mitigation in Bank development operations. As a result, INT has increased its advisory support and integrity risk mitigation. The new vice president’s report also emphasized INT’s intention to engage in real time monitoring to identify potential risks of misconduct.

The annual report notes that in FY2021, INT finalized its guidance paper on integrity audits. For the first time, INT articulated the scope of cooperation that is expected during the integrity audit process from entities and individuals subject to the Bank’s inspection and audit rights. This has been, in our experience, an area that has generated significant disagreement between INT personnel and contractors and consultants over the years given the varying scope of contractual audit clauses. The guidance indicates that the rights should include “accessing, examining, evaluating and verifying—in hard copy or electronic format, and through inquiry and interview testimony—financial information, books and records, supporting documents, correspondence, bids, bid preparation documents and calculations, and any other information deemed relevant by INT.” INT notes that any failure to cooperate can result in obstruction allegations—though it did not provide any additional indications on what specific conduct they would view as constituting obstruction beyond what is currently specified in the Sanctions Procedures and Anti-Corruption Guidelines. It seems clear that INT intends to use this guidance to bolster its position in its auditing activities.

Turning back to the annual report, Jamieson Smith, chief suspension and debarment officer of the Bank, noted that in the past year, the World Bank Group has revised its posting practices related to the Sanctions and Debarment list. Since January 1, 2021, the list includes a description of the sanctionable practice for which the firm or individual has been sanctioned. This applies both to debarred and cross-debarred firms and individuals. Consistent with this practice, the OSD updated its Notices of Uncontested Sanctions Proceedings, providing additional information about the underlying sanctionable practice.

In relation to the Sanctions Board, the report notes that FY2021 saw some changes in the composition of the Sanctions Board: the terms of Alejandro Escobar and Olufunke Adekoya came to an end; and Adedoyin Rhodes-Vivour and Eduardo Zuleta were appointed as new members.

Sanctions Board Executive Secretary Guiliana Dunham Irving’s section of the report trumpeted recent legal clarifications emanating from the Sanctions Board’s decisions. One highlighted was an anticipated enhancement to the Bank’s rules on successor liability. The report noted that the Sanctions Board’s observation in Decision No. 101 of the Bank’s lack of definition of the term “successor” resulted in a response by management to fill this gap through an upcoming approval of a definition of the term and clarification of responsibilities within the Bank for successorship determination. Decision No. 101 found that INT had abused its discretion in finding that an entity that had acquired assets from a sanctioned firm was a successor. It will be interesting to see if the new rule, when adopted, moves the responsibility for such determinations either to a specific part of INT, such as the Integrity Compliance Officer (ICO) or to a different part of the Bank entirely.

The report also notes that the Sanctions Board further addressed the reach of the system to public officials in its recent decisions. Consistent with its prior decisions, the Sanctions Board emphasizes that it does sanction “public officials”—individuals taking or reviewing selection or procurement process decisions, but not “government officials,” who remain beyond its remit. In one of its decisions published in FY2021 (Sanctions Board Decision No. 133), the Sanctions Board found that an individual carrying out project management functions under a Bank funded project was a public official, and that the “to influence the action of a public official in the selection process or in contract execution” element of a corrupt practice would be satisfied if the individual solicited and received payments to influence his own behavior.

Statistics

In FY2021, INT received 4,311 complaints. Despite the significantly higher number of complaints received compared to FY2020 (2,598), INT opened fewer preliminary investigations (347 compared to 429 in FY2020), resulting in 40 new investigations.

Once INT completes an investigation and finds sanctionable practices, it refers any case that has not been settled by a negotiated resolution to OSD for a determination on whether formal sanctions proceedings should be opened. It also submits settlements to OSD for approval. In FY2021, INT submitted 17 cases and 18 settlements to OSD—a much lower number than in FY2020 (26 cases and 22 settlements in FY2020).

OSD reviewed 20 cases (including cases submitted in the previous fiscal year) and 18 settlements, resulting in the temporary suspension of 19 entities and four individuals, dropping from 36 cases and 16 settlements in FY2019 to 20 cases and 22 settlements in FY2020. Of those temporarily suspended respondents, eight respondents appealed and submitted an explanation to OSD. As a result, OSD reduced the recommended sanction for five respondents. The remaining 29 respondents did not appeal and were sanctioned by OSD via uncontested determinations.

Overall, OSD rejected two cases that INT submitted based on insufficient evidence on all claims. In seven of the 20 cases, OSD found insufficient evidence for at least one claim. For the remaining 11 cases submitted by INT, OSD found sufficient evidence for all claims. This rate seems to be roughly on par with previous years.

As we have seen in previous years, cases and settlements reviewed by OSD are mainly based on fraud allegations (87%); 24% included collusion allegations, 21% included corruption allegations, and only 8% included obstruction allegations. Consistent with the last four years, OSD did not review any cases of coercion.

The report highlights the fact that two-thirds of all cases referred for sanctions are resolved at the OSD level. Many of these are uncontested cases.

The Sanctions Board issued five decisions as well as one decision on a request for reconsideration of a previous Sanctions Board decision, and convened five times during FY2021. The number of firms and individuals sanctioned increased slightly from seven in FY2020 to eight in 2021. More than half—57%—of cases in FY2021 involved respondents represented by counsel.

As part of INT’s collaboration with national authorities, it made 13 referrals to 13 different recipients, which included information about the allegations, findings of an investigation, and actions taken by the Bank. This referral number is four fewer than in FY2020, and 29 fewer than in FY2019.

Compliance: In FY2021, the ICO provided 58 notices to newly sanctioned parties and engaged with 118 sanctioned parties overall. In addition, the ICO released 30 sanctioned parties from their debarment, compared to 18 in FY2020. Since 2010, the ICO has worked with sanctioned companies in implementing integrity compliance programs consistent with the principles of the Bank.

Timeline of the sanctions process: INT completed 50% of its investigations over a period of more than 18 months; 29% of the investigations lasted between 12-18 months, and the remaining 21% were completed within 12 months.

Conclusion

Overall, the enforcement statistics in FY2021 have decreased somewhat. However, the annual report shows that INT, OSD, and the Sanctions Board continue to maintain their anti-fraud and anti-corruption efforts. Various policy developments and clarification of legal definitions evidence the Bank’s intention to remain diligent about its investigations and sanctions system. With INT’s newly released Integrity Audit guidance and its adoption of more flexible and creative investigative techniques and tools demanded by the pandemic, we can expect INT to be even more rigid and expansive in its audits.

Companies involved in World Bank-funded projects are, more than ever, urged to implement and maintain a robust compliance system to prevent any misconduct throughout the bidding process or contract implementation. Inquiries from INT should not be viewed as ordinary-course audits, but as akin to a law enforcement investigation. As the system becomes more judicialized and prior decisions play an increasingly large role in outcomes, companies need to take steps to ensure they are properly advised and protected should any allegations of misconduct in connection with a World Bank-financed project surface.