An overview of activities in FY20

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 there is sufficient evidence to pursue sanctions, it may seek to negotiate a settlement with the accused or it may submit a Statement of Accusations and Evidence to OSD, the first tier of review in adjudicating whether to impose sanctions. OSD's sanctions decisions may be contested by appeal to the Sanctions Board, which is 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; OSD moved to virtual operations; and the Sanctions Board conducted hearings and deliberations virtually.

In FY20, the WBG sanctioned 49 firms and individuals, of which 46 were debarred for some period of time, whether for a fixed term or with conditional release. Most of the debarments were imposed as part of a settlement (20), while the remainder were ordered pursuant to an uncontested decision of the Chief Suspension and Debarment Officer (19) or to a Sanctions Board decision (7). The length of debarment imposed in FY20 was consistent with the five-year trend that most settlements result in a 1-2 year period of debarment, while most debarments imposed by the SDO last 2-3 years and those by the Sanctions Board 3-4 years. In addition, the WBG recognized 76 cross-debarments in FY20, underscoring the continued importance of the Cross-Debarment Agreement under which five multilateral development banks (MDBs) have agreed to give reciprocal effect to each other's debarment decisions.

INT

In FY20, INT started 46 new external investigations. As in the prior year, most of these new investigations were based in the Africa Region (30 percent in FY20 vs. 43 percent in FY19).

INT was able to complete 43 investigations, of which 77 percent were substantiated, which is consistent with the rate in FY19. However, only 37 percent of these investigations were completed within 12 months. Of the investigations that took more than 18 months to complete – all of which were substantiated – more than half involved allegations of corruption and/or collusion (58 percent) and implicated project officials (50 percent). INT noted that several investigations it completed in FY20 uncovered a trend of qualified firms winning bids and then immediately subcontracting them to unqualified firms, usually in exchange for a fee.

OSD

In FY20, OSD reviewed 29 cases and 22 settlements. Over the five-year FY15 - 20 period, it took OSD an average of about 78 days to review a case and issue a determination. Of the 29 reviewed cases – 86 percent of which involved at least one fraudulent practice – the Chief Suspension and Debarment Officer found sufficient evidence in all cases 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 percent managed to obtain a reduction to the recommended sanction.

Ultimately, OSD sanctioned 19 respondents via uncontested determinations. This is consistent with the trend since OSD's establishment in 2007 that approximately 66 percent 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 last 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/cooperation with the investigation and admission/acceptance of guilt are the most frequently applied mitigating factors.

Sanctions Board

Since it was established in 2007, the Sanctions Board has issued more the 125 decisions. In FY20, it issued six final decisions. Oral hearings were held in approximately one-third of these cases and outside counsel was also involved in about one-third.

Between FY16-20, the Sanctions Board reviewed and decided 44 contested cases against 69 respondents. In 88 percent 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 percent of cases. However, for 55 percent of respondents, the Sanctions Board applied a lesser period of debarment. And it increased the minimum debarment period for 26 percent of respondents.

Integrity Compliance Office

Settlements 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. Satisfaction of this requirement is assessed by INT.

However, the most common release condition for firms is to develop and implement an Integrity Compliance Program 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, ICO engaged with 107 sanctioned parties towards meeting their conditions for release and determined that 18 sanctioned parties had satisfied their conditions. On the other hand, one sanctioned firm's conditional non-debarment (meaning it was eligible to participate in WBG-funded projects) was converted to debarment with conditional release (meaning that it was ineligible) upon 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.

ICO continued to expand its Mentorship Program, wherein entities engaged with ICO voluntarily mentor small- and medium-sized firms currently sanctioned by the WBG to help them put in place adequate Integrity Compliance Programs. ICO also continued to work with WBG member governments to promote integrity compliance principles and noted it developed a close working relationship with the Korean Ministry of Justice this year.

Looking ahead to 2021 and beyond

In September 2020, Mouhamadou Diagne assumed the role of Integrity Vice President. Mr. Diagne is a dual citizen of Senegal and the United States and has over 20 years of 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, and the Inspector General of the Global Fund to Fight Aids, Tuberculosis, and Malaria. Mr. Diagne recently hired Alan Bacarese as INT's new Investigations Director, after the position was vacant for more than three years.

It is not yet known when Mr. 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, Mr. Diagne and Mr. 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, 41 percent have been open for over one year, with the vast majority of those investigations involving allegations of corruption and/or collusion (78 percent) and implicating project officials (63 percent).

Mr. Diagne and Mr. Bacarese's first year is likely to provide continuity in INT's priorities, four of which we believe will be top of its agenda in FY21:

Preventive Services: Because of the accelerated pace of project development resulting from the COVID-19 pandemic, INT proactively engaged with key operational staff to flag risks in the sectors most relevant to the COVID-19 response. INT developed new guidance that summarizes 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 INT’s 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 percent of projects under WBG supervision were 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, Mr. Bacarese recently emphasized the importance of proactive integrity work and predicted that MDBs would increasingly shift their attention to prevention work over the next two decades.

COVID-19: The 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 US$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 more quickly identify concerns and deal with complaints. We anticipate that a number of sanctions cases will arise from projects financed through the WBG's emergency pandemic response.

Data Analytics: INT's development of the internal dashboard for COVID-19 operations is just one of the many analytical tools 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 faster processing of complaints and completion of preliminary investigations.

Fragile and Conflict-Affected Situations: In FY20, INT focused on investigating allegations of fraud and corruption in countries characterized by the WBG as fragile and conflict-affected situations (FCS). 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 submitted fraudulent documents. UNOPS shared its findings with INT, which then 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 is able to pursue allegations of misconduct even in countries where the WBG does not have a physical presence. As the FSC list continues to grow, we expect to see more investigations in these countries – whether conducted by INT or a third-party agency.

Authored by Peter S. Spivack and Malak Hamwi

Hogan Lovells has an active International Financial Institutions investigations practice and has represented clients in all phases of the WBG sanctions process. We have also served as an independent investigator for several companies required to undertake investigations as part of their conditions for release and assisted clients in the development and implementation of robust Integrity Compliance Programs that have been approved by ICO.