Sanctions Systems of Multilateral Banks: Overview and Responses

Although prosecutions under transnational anti-bribery laws like the US Foreign Corrupt Practices Act may get more attention, the major multilateral development banks (MDBs) have adopted administrative sanctions systems that significantly contribute to the strengthening of integrity structures in the countries in which they operate. Indeed, the seven large MDBs share an anticorruption strategy that includes harmonized definitions of fraudulent, corrupt and other prohibited practices. The strategy also incorporates shared principles for conducting integrity due diligence in private sector transactions, and a framework for sharing information to address integrity concerns. These sanctioning systems help to deter and prevent corruption in funded projects, thereby helping to ensure that MDBs achieve their development mandates and fulfill their fiduciary duty to guarantee that their loans are used “only for the purposes for which the loan was granted”. In some cases, as in the World Bank’s Macmillan Publishers and SNC-Lavalin debarments, MDB sanctions have preceded criminal charges by national authorities. In this post, I will provide a brief overview of these systems.

While the processes vary, major MDBs provide for independent investigative units that submit findings to a separate administrative authority, which makes sanctioning decisions based on publicly available written procedures. At the Inter-American Development Bank (IDB), for example, the investigative unit submits its report to a Case Officer, the first tier of the IDB’s sanctions system. The Case Officer makes the decision to issue a notice to the respondent (the investigated person or firm) and, where appropriate, issues a sanction. Appeals against sanctions are made to an independent committee. Similarly, the World Bank’s two-tiered process allows for the Suspension and Debarment Office’s review of the investigative report and subsequent appeal to a sanctions board, made up of Bank staff and external members. The African Development Bank’s more elaborate structure allows for an external Sanctions Commissioner in addition to its sanctions board, which reviews appeals on a de novo basis. The European Bank for Reconstruction and Development’s enforcement structure, by contrast, allows for immediate transmittal to a committee, composed of the bank’s staff, which makes the sanction decision. Furthermore, the major MDBs all allow for temporary suspensions pending the determination of the final sanctions decision. All sanctions processes are administrative actions and allegations are proven by a “more probable than not” or equivalent standard.

The base sanction for violations is a three-year debarment (that is, a prohibition on conducting business). However, this may be reduced for mitigating factors including admission of guilt, voluntary corrective steps and other cooperation with investigations. Alternatively, aggravating factors such as harm to public safety, involvement of a public official, or interference with the investigations may increase the base sanction. In 2013 for example, the World Bank debarred SNC Lavalin Inc. and over 100 of its affiliates for ten years. Debarments may be permanent in egregious cases. Debarment decisions are typically published on websites of each multilateral bank. MDBs may also impose financial remedies in addition to debarment, including disgorgement and restitution. For example, the World Bank’s negotiated resolution agreement with Siemens included a $100m sanction, and the AfDB’s CFHEC sanction included an $18.86m payment. Debarment by one MDB may extend to recognition by others. In 2010, the World Bank, Asian Development Bank, AfDB, ERBD, and IDB adopted an agreement to “cross debar” parties shown to have engaged in corruption and other sanctionable practices. Cross-debarment multiplies the deterrent effect by increasing the cost of engaging in corrupt practices

In addition, the AfDB and the World Bank both provide for voluntary disclosure programs (VDPs). VDPs allow individuals or entities to disclose past misconduct and commit to remedial steps for waiver of sanctions. VDP participants are neither debarred nor publicly identified. However, eligibility for VDP is premised on voluntariness – participants must not be actively investigated by the multilateral bank or other prosecuting authority.

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