During a roundtable at the Fifth International Debarment Colloquium last month, Joseph Mauro, a spokesperson for the Compliance Unit of the World Bank Group’s (“World Bank”) Integrity Vice Presidency (“INT”), announced recent changes to the manner in which the World Bank will evaluate borrowers’ compliance programs in future corruption investigations.1 This comment sheds light on the often overlooked enforcement process by Multi-Lateral Development Banks (“MDBs”) like the World Bank, which routinely extract millions of dollars in fines or settlements from companies that run afoul of their sanctions policies, even where there may have been only a marginal interest in the underlying project or de minimis loss.2
Background on the World Bank’s Compliance Enforcement Structure
Companies and individuals involved in projects with MDB financing typically must comply with contractual anti-fraud and anti-corruption obligations. While the conduct prohibited by those MDB-mandated provisions might seem familiar when compared to national compliance laws, there are differences that must be kept in mind when such companies design and evaluate their compliance programs, such as the World Bank’s prohibition on facilitation payments.3
INT is an independent unit within the World Bank that investigates and sanctions fraudulent and corrupt conduct in World Bank-financed projects.4 Frequently, these investigations parallel or follow enforcement actions that are taken by U.S., U.K., and other governmental authorities. In recent years, INT has become an increasingly active enforcer, submitting 162 cases to the Chief Suspension and Debarment Officer/Evaluation and Suspension Officer.5 When an INT investigation concludes that a company or individual engaged in “fraudulent, corrupt, collusive, coercive, or obstructive practices,” the World Bank may impose a monetary fine6 or debarment, effectively rendering the sanctioned entity or individual ineligible for World Bank-financed contracts and severely hampering the ability of sanctioned individuals to work on future World Bank financed projects.7 The World Bank and other MDBs also have entered into an agreement requiring each to automatically cross-debar any firm or individual debarred by any of the MDBs, thus essentially shutting off any company or individual from working on any MDB-financed projects.8
World Bank’s New “Major Initiative”
During the roundtable, Mauro explained that the World Bank’s sanctioning guidelines already provide for significant mitigation credit for companies that take voluntary corrective action, including building a compliance program. Now, however, INT is formalizing the manner in which such programs will be evaluated by its investigators and lawyers in future cases.9 Specifically, over the last six to twelve months, INT’s Compliance Unit has started developing a more formal method of interacting with INT investigators and litigators to ensure that when a company claims to have a compliance program, INT gives that program a through look, including by reviewing pertinent documents or speaking with company representatives.10
While we expect INT to look closely at many of the same aspects of a compliance program as would the U.S. Department of Justice (“DOJ”) under DOJ’s own policy for Evaluation of Corporate Compliance Programs,11 it is important to note that the World Bank’s expectations are likely more aggressive and somewhat different than those of governmental enforcers. For example, the World Bank’s Summary of Integrity Compliance Guidelines, specifically recommends that companies take the following steps, all of which build upon DOJ’s and the U.S. Securities and Exchange Commission’s (“SEC”) general expectations:
- Senior management should not only be aware of and foster a culture of compliance, they should also themselves implement a systemic approach to monitor the company’s compliance program and to assess its suitability, adequacy, and effectiveness.
- Companies should vet current and future employees (and not just third parties) that have any decision-making authority or that may be in a position to influence business results, including management and Board members, to determine if they have engaged in conduct inconsistent with an effective compliance program.
- Companies should impose formal restrictions on the employment of or other remunerative arrangements with public officials, and with entities and persons associated or related to them, after their resignation or retirement from public service whenever such activities or employment relate directly to the functions held or supervised by those public officials during their tenure.
- Companies should take steps to “publicly disclose” all political and charitable contributions and sponsorships (unless secrecy or confidentiality is legally required).
- Companies should use their “best efforts” to encourage business partners to adopt their own compliance programs, including the company’s agents, advisers, consultants, representatives, distributors, contractors, subcontractors, suppliers, joint venture partners, and other third parties.
- Companies should implement formal procedures for investigating misconduct or other violations of the compliance program that are encountered, reported, or discovered.
The ultimate goal, Mauro explained, is to “crowd out” the bad actors by rewarding strong compliance programs via sanctions mitigation.12 Underpinning INT’s efforts to enhance its evaluation of compliance programs is a desire to incentivize compliance in the private sector by encouraging companies to view tailored compliance programs as a value-add.13 It remains to be seen whether the other MDBs will adopt similar initiatives, though historically they have tended to adopt similar approaches to compliance and enforcement.
Why This Matters for You
Companies that are involved in projects financed by the World Bank or another MDB, or that are subcontractors on such projects, must evaluate their compliance policies, processes, and programs to ensure they comply with MDB-enforcer expectations in addition to the expectations of governmental enforcers like the DOJ or SEC. Failure to do so could result in a default under the project agreements with the MDB, and, in the event of an investigation or enforcement action, could result in more significant penalties levied against the company and individual(s) involved in the project.
1 See Roundtable 2: The Importance of Transparency Efforts to Enforce Debarment Decisions, The World Bank Grp. (Sept. 30, 2020), https://www.worldbank.org/en/events/2019/11/04/fifth-suspension-and-debarment-colloquium (hereinafter “Roundtable 2”).
2 See AfDB Levies US $17 Million in Financial Penalties in Corruption Case, Afr. Dev. Bank Grp. (Mar. 21, 2014), https://www.afdb.org/en/news-and-events/afdb-levies-us-17-million-in-financial-penalties-in-corruption-case-12923.
3 See William E. Lawler III and Brian L. Howard II, Strings Attached: Compliance Expectations in Projects Involving Multilateral Development Banks, Financier Worldwide (Mar. 2017), https://www.financierworldwide.com/strings-attached-compliance-expectations-in-projects-involving-multilateral-development-banks#.X5yTWYhKiUl.
4 See Integrity Vice Presidency: About, The World Bank Grp. (last visited Nov. 2, 2020), https://www.worldbank.org/en/about/unit/integrity-vice-presidency#1.
5 See World Bank Group Sanctions System Annual Report FY 2020, The World Bank Grp. at 84, http://documents1.worldbank.org/curated/en/861191602141633639/pdf/World-Bank-Group-Sanctions-System-Annual-Report-FY20.pdf.
6 See, e.g., Siemens to Pay $100 Million to Fight Fraud and Corruption as Part of World Bank Group Settlement, The World Bank Grp. (July 2, 2020), https://www.worldbank.org/en/news/press-release/2009/07/02/siemens-pay-million-fight-fraud-corruption-part-world-bank-group-settlement.
7 See Integrity Vice Presidency: Sanctions & Compliance, The World Bank Grp. (last visited Nov. 2, 2020), https://www.worldbank.org/en/about/unit/integrity-vice-presidency#3.
8 See Agreement for Mutual Enforcement of Debarment Decisions, Apr. 9, 2010.
9 Cf. Roundtable 2.
10 See id.
11 For insight on the June 2020 amendments to DOJ’s compliance program guidance see Ephraim (Fry) Wernick, Michael Ward, and Lincoln Wesley, DOJ Updates Its Guidance on Corporate Compliance Programs, The V&E Report (June 2, 2020), https://www.velaw.com/insights/doj-updates-its-guidance-on-corporate-compliance-programs/.
12 See Roundtable 2.
13 See id.
