EMERGING MARKETS AND
INTEGRITY RISK MANAGEMENT
The Reach of Transnational Anti-Corruption
Enforcement in Emerging Markets What Firms Can Do
The World Bank Group, Integrity Vice Presidency
13th Annual Compliance & Ethics Institute
September 14-17, 2014
Chicago
Emerging Markets and
Integrity Risk Management
Agenda
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6)
Transnational Integrity Frameworks and the reach of
enforcement
Why International Organizations care
Enforcement instruments
Consequences
Options if something goes wrong
Cooperation
Transnational Integrity Frameworks
The Reach of Enforcement
Government
Regional
Subsidiary
Contract*
Gov. Official(s)
Bribes $$
Subcontractor
Control
Gov. Official’s
Off-Shore Account
Example: 1 bribe by a
subcontractor triggers
up to 10 national and
international jurisdictions.
Contractor
* Contract: Co-Financed
by two IOs and a
National Donor.
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Transnational Integrity Framework:
The Reach of Enforcement
WB
Financing
Agreement
WB Investigations
and Sanctions
Client
Country /
Borrower
Ministry
Project
Agreement
Project
Implementation
Unit
Contracts
Contractor
Contractor
Contractor
Consultant
Consultant
National Civil and Administrative Law
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Triangular Transnational Corruption
Transnational Corruption:
Corruption involving parties from more than one country
“Linear” Transnational Corruption
Bribery by multinational companies outside of their home country or
in their home country using offshore vehicles
“Triangular” Transnational Corruption
Fraud and corruption involving donor funds supplied and supervised
by independent, national or supranational third parties, e.g.
development aid from Multilateral Development Banks
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World Bank Sanctions Cases
per Fiscal Year
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The Impact of Sanctions
- Raising the Price of Corruption Cross-Debarment
•
Agreement with 5 MDBs including: AfDB, ADB, EBRD, IDB, WBG
•
The first global enforcement mechanism mutually recognizing sanctions
decisions
Each MDB maintains its independent sanctions system
•
National “Cross-Debarment”
•
Formal or informal implementation of public sanctions by national authorities
and development organizations
Due Diligence
•
Sanctions are followed and taken into account in private sector due diligence
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Transnational Corruption:
How Cases are Developed
Investigations and Evidence
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The Reach of Enforcement
Transnational Cooperation
Government
Regional
Subsidiary
Contract*
Gov. Official(s)
Bribes $$
Subcontractor
Control
Gov. Official’s
Off-Shore Account
1) Single Agency Approach
2) Multiple Agency Approach
Contractor
* Contract: Co-Financed
by two IOs and a
National Donor.
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3
The Democratization of the AntiCorruption Movement
Some History: Institutional
Examples: FCPA (1977), Transparency International (1993), OECD
(1999), UNCAC (2005)
Most Recent Developments
Democratic and Grass-roots - Examples:
o Citizen engagement
o Open source
o Crowd sourcing
Consequences for Companies in High Risk Environments
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Post-Investigative Work
Referrals and Sanctions
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Products, Decisions and
Recipients
I
N
T
Action
Products
O Recipients
T
H
E
R
S Decisions
Investigation
Investigative
Report
Referral
Report
President/
Region/
IFC/ MIGA
Government/
MDBs
• Misprocurement
• Cancellation
• Review of
contracts
• Law
Enforcement
Investigation
• Disciplinary
Action
• Project reviews
Redacted
Report
Statement of
Accusations and
Evidence
Evaluation and
Suspension Officer
Public
Sanctions Board
• Debarment
• Restitution etc.
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Sanctions Proceedings
INT submits
Statement of
Accusations
and Evidence
To ODS
INT
INT submits
“Reply in
Support of
the NoSP”
Within 30 days
after Response
ODS assess for
sufficiency of
ODS can lift
evidence
Temporary
Evaluation
ODS issues and Suspension Officer / Sanctions Board
Notice (with recommended
Sanctions) =>
Temporary
Suspension (If recommended
Sanctions exceeds 6 months)
Respondents
Suspension
Within 60 days
after EO issues
NoSP
Respondents’
Explanation
in Opposition
to Temporary
Suspension
Respondent
contests
(“Response”)
Within 30 days after
EO issues NoSP
Within 90 days after
EO issues NoSP
Sanctions Board
Decision
Sanctions Board
Hearing
(if requested)
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The Alternatives
1. Voluntary Disclosure
2. Negotiated Resolution
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The World Bank’s
Voluntary Disclosure Program (VDP)
Introducing VDP
A program created by the World Bank’s Integrity Vice Presidency to better engage the private sector in the Bank’s anticorruption efforts.
Participants disclose information about bribes, kickbacks, and other misconduct they have committed in Bank‐
financed contracts and change their ways through a Compliance Program—while remaining eligible to bid on future contracts and while maintaining confidentiality.
VDP promotes fair competition
Higher risk for
non‐disclosing firms
More sanctions/
prosecutions
39%
Firms disclose
Better informed investigations
Executives
who say their company has lost bids due to corrupt officials handling the bidding*
*Economist Intelligence Unit survey, November 2007.
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VDP: A Means to Handle Risk
The VDP Offers Participating Companies a Means to:
• Meet DoJ / DPA obligations
“X shall also cooperate fully with such other domestic or foreign law enforcement authorities and agencies, as well as the Multilateral Development Banks ("MDBs")”
VDP: A Means to Handle Risk
The VDP Offers Participating Companies a Means to:
• Manage issues unearthed during audits • Handle legacy issues that could otherwise continue to haunt a firm
• Manage risks associated with former misconduct by acquisitions
• Be in line with anti‐corruption legislation
Key Program Elements
Participating Companies Must:
• Determine ‘tainted’ contracts
• Conduct internal investigation
• Set up Compliance Procedures
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Disclosing information
• Voluntarily and fully disclose information about Bank‐
related misconduct for past 5 years
• Firm conducts internal investigation, Bank may seek to verify information
• Inform INT of ongoing misconduct within Bank projects
• Opportunity to raise concerns about corruption / bribe demands / tainted bidding processes in real time
Compliance Monitoring
• Participant sets up Compliance Program
• Participant chooses Compliance Monitor, with Bank approval
• Monitor performs 3 annual reviews
VDP ensures confidentiality
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•
•
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Confidentiality agreements
Info shared on strictly need‐to‐know basis
Rigorous report redaction protocol
Physical and electronic documentation segregation
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What does INT do with information?
Conduct investigations and sanction miscreant firms
Lessons learned help build understanding of schemes, Bank can incorporate better risk mitigation measures in lending practices, operations
Negotiated Resolution
WASHINGTON, July 24, 2013 ‐ A combination of self‐
reporting, corrective action against corruption, and engaging with the World Bank’s Integrity Vice Presidency with full transparency placed SKM in a strong and credible position with regard to the resolution of this matter. As a result of the exceptional cooperation received from the company, which has enabled INT to take steps to safeguard World Bank funds and identify other potential targets for investigation, a conditional non‐debarment for two and a half years is being imposed on SKM.
Cooperation under an NRA
1. Compliance Program
2. Internal Investigation and Disclosure
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Cooperation under an NRA
Internal Investigation and Disclosure
What does the World Bank expect?
What steps should you take?
What will be deemed satisfactory?
Internal Investigation and Disclosure
Generally a 2 Step Process:
1. Red Flag Review
2. Investigation
Red Flag Review
What is a Red Flag?
What constitutes a Review?
Who performs the Review?
Key Factors
Know the Sector!
Know the Company!
Know the Procurement Rules!
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Investigation
What needs to be investigated?
Who does what?
Key Factors
This is not a Defense Brief!
The more you disclose the better!
We’ll know when you’re hedging other concerns! Address them!
More information
Paul Haynes
Integrity Vice Presidency
World Bank Group
[email protected]
+1.202.458.8236
www. worldbank.org/vdp
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