Forget Me Not: The World Bank’s Sanctions System

• The World Bank aggressively pursues sanctions against entities and individuals for misconduct in connection with Bank-funded projects
• Sanctions can lead to cross-debarment by other multilateral development banks and investigations by national regulators
• A good offense is the best defense: it is essential to ensure employees, representatives, and supply chain partners understand their compliance obligations

Most readers will be familiar with governmental sanctions processes, including suspension and debarment. And most individuals involved in international business are familiar with anti-corruption regulations and accompanying enforcement efforts by an increasing number of government enforcement agencies.

International enterprises also should be (or remain) mindful of the increasingly active World Bank Group (“World Bank,” or the “Bank”) sanctions process. Substantial discretion is vested in the Bank’s investigation and sanctions process, along with substantial authority to impose penalties. Such penalties can also come with collateral consequences, including cross-debarment and information exchange with national government regulators. Any party to a Bank-funded project must ensure it clearly understands its compliance obligations.

Overview of the World Bank Sanctions Process

The World Bank sanctions process was borne out of then-Bank President James Wolfensohn’s 1996 call to eradicate the “cancer of corruption.” Today, the process has matured into a formal investigation and adjudication system.

The sanctions system consists first of an investigation by the Bank’s Integrity Vice Presidency (INT) to determine if a party to a Bank-funded project engaged in one of five sanctionable practices:  fraud, corruption, collusion, coercion, or obstruction. INT can be made aware of allegations through almost any means, including from a disappointed competitor, a whistleblower, media stories, or other reports.

If INT’s investigation concludes that it is “more likely than not” that an entity engaged in a sanctionable practice, a formal two-tiered process is commenced to decide upon and impose sanctions. There are five potential sanctions:

1. debarment, indefinitely or for a fixed period
2. debarment with conditional release, which ends only when the debarred party fulfills stated conditions, which typically include specific compliance enhancements and monitoring
3. conditional non-debarment
4. a public letter of reprimand
5. restitution

The default sanction is debarment with conditional release for a minimum period of three years. Debarment is prospective and thus does not result in the cancellation of contracts currently being performed.

In the first tier of the sanctions process, the Bank’s Office of Suspension and Debarment (OSD) independently reviews INT’s investigatory findings, which are contained within a Statement of Accusations and Evidence (SAE). If the OSD determines that one or more of the accusations is substantiated, a “Notice of Sanctions Proceedings” (Notice) is issued to the Respondent entity. The SAE is also provided to the Respondent with the Notice so that the Respondent can prepare an appropriate response.

The Respondent has 30 days to respond to the Notice.

The Notice also includes a recommended sanction, which is imposed if the Notice goes uncontested. Historically, approximately two thirds of cases have gone uncontested.

Concurrently, after receipt of the Notice, the Respondent has 90 days to appeal to the second-tier of the sanctions system, the Sanctions Board. The Sanctions Board reviews the allegations de novo. The Sanctions Board evaluates a case through written materials and, oftentimes, a formal hearing. Sanctions Board decisions are not appealable within or outside of the Bank.

While the Bank’s formal sanctions process is the primary means for adjudicating matters, a growing number of matters are being resolved through a Negotiated Resolution Agreement (NRA). This is essentially a settlement, and most often requires the Respondent to admit liability.

NRAs are not publicly available. They typically include:

1. an introductory section in which the Respondent agrees not to waive the Bank’s privileges and immunities
2. a recital of facts in which the Respondent admits liability to an agreed upon set of facts
3. sanctions

When imposing a sanction, INT considers a range of factors, including whether the Respondent can provide relevant information regarding misconduct of which the Bank was not already aware, and integrity compliance enhancements undertaken by the Respondent. INT also considers the amount of time a Respondent has already been suspended through the “Early Temporary Suspension” process.

Not surprisingly, many Respondents seek to resolve Bank sanctions matters through a conditional non-debarment whereby the Respondent is not debarred so long as they meet specific compliance obligations for a fixed period of time, e.g., 180 days or one year. Statistically speaking, most conditional non-debarments result from the settlement process. For example, during FY 2018, all five conditional non-debarments were agreed to in the context of settlements. That being said, the vast majority of settlements continue to result in some period of debarment.

Recent Sanctions Activity by the World Bank

In recent years, the Bank has aggressively pursued penalties against parties involved in sanctionable conduct in Bank-funded projects. Between 1996 and 2002, only 18 cases were concluded, which resulted in the debarment of 74 entities. By contrast, in FY 2018 alone, INT initiated 68 new investigations and completed 71 ongoing investigations, of which 48 were substantiated by INT, thus triggering the formal sanctions or settlement process.

In FY 2018, 78 parties were debarred and five received conditional non-debarment. Additionally, the World Bank recognized 73 cross debarments from other multilateral development banks. These are situations in which a party is debarred by another multilateral development bank, such as the Inter-American Development Bank or the African Development Bank, and the World Bank also debars the party on the basis of the other bank’s action. The same thing occurs, too, when other multilateral development banks debar parties that have been debarred by the World Bank.

Finally, in FY 2018, INT conducted investigations that implicated nearly 400 Bank projects, representing $2.2 billion in project commitments. By comparison, in 2018, just 16 companies resolved U.S. Foreign Corrupt Practices Act allegations with the U.S Department of Justice and / or the U.S. Securities and Exchange Commission.

There is no sign that World Bank investigations and enforcement will slow. For example, on January 29, 2019, the bank debarred Brazil-based construction firm Construtora Norberto Odebrecht S.A. for three years for engaging in “fraudulent and collusive practices” during its participation in a Bank-financed project in Colombia. According to the Bank, Odebrecht engaged in “fraudulent practices by failing to disclose fees paid to commercial agents during the tender prequalification and bidding processes.” The Bank also asserted that an Odebrecht agent engaged in collusive practices prohibited by the Bank’s procurement guidelines.¹

Additionally, on February 6, 2019, the Bank debarred two Nigerian waste management companies, Rojoke CNE Services Ltd. and CNE Environmental & Waste Services Ltd., and their owner, Robinson Ekenedilichukwu Ojoko, for five years for engaging in fraud in connection with a Bank-funded project in Nigeria. In the settlement agreement, the companies admitted to misrepresenting Ojoko’s ownership interest in the bids and to submitting false documents in connection with the bidding process. The Bank-funded project was designed to bring jobs and better public budgeting in certain Nigerian states.

Implement Proactive Compliance Initiatives in World Bank Projects

The World Bank is committed to eliminating fraud and corruption from Bank-funded projects. To that aim, the Bank’s recent enforcement efforts have resulted in sanctions against hundreds of companies, including global corporations such as Alstom, KBR, Odebrecht, and Siemens.

The significance of such sanctions can be far-reaching and can include cross-debarment by other multilateral development banks and exchange of information with national government regulators. Accordingly, companies that bid on projects with Bank funding should take proactive measures to ensure they have adequate compliance protocols to mitigate the risk of sanctionable conduct – and avoid a Bank investigation.

While general anti-corruption compliance policies will help ensure compliance in the context of a Bank-funded project, it may also be necessary to adopt targeted project or contract management tools for Bank work. This includes implementing heightened due diligence and accounting controls in local facilities to protect against sanctionable misconduct, including fraud and corruption. Third party representatives and supply chain partners pose particular risks and must be carefully monitored. Audits, even of small local actors, may be warranted.  Anything less than a robust, pro-active compliance approach can lead to significant penalties in the context of a Bank-funded project.

¹ In late 2016, Odebrecht agreed to pay $3.5 billion for a global settlement with authorities in the United States, Brazil, and Switzerland related to the payment of approximately $788 million in bribes to government officials and political parties in various countries to improperly influence and win business in violation of multiple anti-corruption regulations.