On April 9, 2010, the heads of the multilateral development banks — the World Bank and the Regional Development Banks (the African Development Bank, the Asian Development Bank, the European Bank for Reconstruction and the Inter-American Development Bank) — signed an agreement to cross-debar firms and individuals found to have engaged in fraud or corruption on projects these banks have financed. The agreement provides that, with certain exceptions, entities debarred for at least one year by one bank must be debarred for the same period by the other participating development banks.

BACKGROUND

Procurement under World Bank-financed projects is enormous. According to the World Bank’s Web site, the Bank awards about 20-30,000 contracts with a total value of about $20 billion each year. The Inter-American Development Bank reports that it disbursed $11.9 billion in 2009, while approving $15.5 billion in loans.

In 1996, the World Bank, under the leadership of James Wolfensohn, began an extensive anti-corruption program covering contractors and others who do business with the Bank. That program applies to these billions of dollars of contracts and makes contractors who engage in fraudulent, corrupt, collusive or coercive practices subject to sanctions, ranging from debarment from World Bank contracts to reprimands.

The core of the structure that administers the anti-corruption program at the World Bank is the Office of Institutional Integrity (INT), which investigates and brings fraud and corruption cases, and the Sanctions Committee, which hears and decides contested sanctions cases[1]. The Regional Development Banks have or are developing comparable offices and committees.

The Bank’s anti-corruption efforts have wide support. Bank President Zoellick has repeatedly expressed his commitment to the effort, and a March 2010 Report to the Committee of Foreign Relations by Senator Lugar urges the redoubling of efforts and resources “to battle the invidious corruption that has thwarted so many development projects.”

Initially, the Bank’s procedures for addressing sanctions cases were primitive and lacking in due process in many respects. In recent years, the Bank has refined its internal administrative process for bringing and reviewing charges, implementing recommendations from a report in 2001 by former Attorney General Thornburg, and from a study in 2007 conducted by former Federal Reserve Chairman Volcker.

One major change as a result of the Volcker study was rebalancing the membership of the Sanctions Committee so that a majority of its members are not Bank employees[2]. The Bank also has expanded the scope of its sanctions and their impact.

Unlike national laws, such as the U.S. Foreign Corrupt Practices Act, the Development Banks’ sanctions authority has no geographical boundaries. They can invoke their authority against any non-governmental participant, including unsuccessful bidders, in a World Bank or Regional Development Bank contract. And, because the Banks are international institutions, their sanctions processes and determinations are generally considered to be immune from litigation, in contrast to readily available judicial review of civil or criminal penalty assessments by an executive branch agency in the United States.

The 2010 Agreement for Mutual Enforcement of Debarment Decisions

Under the Agreement, the Banks agree to enforce debarment decisions made by a participating Bank. They have adopted harmonized definitions of fraudulent practice, corrupt practice, coercive practice, and collusive practice; pledged adherence to the conduct of “fair, impartial and thorough investigations”; endorsed an investigation and enforcement action process; and agreed to notify each other of each debarment decision.

The Agreement sets criteria for the decisions to be communicated among the Banks, including that the debarment exceeds one year, and was made within 10 years of the date of the commission of the sanctionable practice.

The Agreement is prospective, applying to any decision made after the Agreement has entered into force. (April 9, 2010).

The Agreement does not preclude a Bank from pursuing independent debarment proceedings for separate sanctionable practices. It also allows a Bank to decide not to enforce a debarment by another Bank, if that would be “inconsistent with its legal or other institutional considerations.” If a Bank decides not to enforce another’s debarment decision, it must “promptly notify” all other Banks of that decision.

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