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Lissack and Horlick on Bribery and Corruption: Sanctions Regimes of Multilateral Development Banks

Alex Haines authored chapter 20 of Lissack & Horlick on Bribery and Corruption. Alex’s new chapter focuses on the Sanctions Regimes of Multilateral Development Banks. As part of a serialisation of chapters that members of Outer Temple contributed to in this latest edition, the authors have been summarising their chapters every week.

 

Introduction

In Summer 2020, it was announced that USD $250 billion would be deployed over the next 18 months in spare lending capacity by Multilateral Development Banks (MDBs) following the continued effects of the COVID-19 pandemic.  The nature of MDB financing makes MDBs vulnerable to a range of corruption risks from an array of different agents. Increased activity from the MDBs’ increasingly sophisticated and well-resourced investigatory offices is, not surprisingly, expected, but what exactly are MDBs?

History

MDBs and International Financial Institutions emerged from the Bretton Woods Agreement concluded at the July 1944 United Nations Monetary and Financial Conference at Bretton Woods, New Hampshire. The first Bretton Woods Institutions were the World Bank and the International Monetary Fund, both headquartered in Washington DC.

Traditionally, the most prominent MDBs have been the World Bank and the four regional development banks: (i) the African Development Bank; (ii) the Asian Development Bank; (iii) the Inter-American Development Bank; and (iv) the European Bank for Reconstruction and Development. The five main MDBs have been criticised notably in relation to inadequate representation of the global south – especially BRICS countries – as well as their failure to react to the financial crises since 2007.

The MDB landscape and powerplay has changed in recent years, especially with the birth of two new Chinese-backed MDBs: the Asian Infrastructure Investment Bank in Beijing  and the New Development Bank (or BRICS Bank) in Shanghai. MDBs continue to play a prominent role in global anti-corruption efforts and that role is growing, not least due to their expanding financial and political influence.

The role of MDBs in anti-corruption

MDBs provide dozens of billions of dollars in loans and donor funding each year and the volume of resources committed to developing countries is increasing. The nature of MDB financing – a blend of development assistance and international finance – makes MDBs vulnerable to a range of corruption risks from an array of different agents. MDBs play a prominent role in global anti-corruption efforts and that role is growing, not least due to their expanding financial and political influence. MDBs have two primary roles in efforts to curb corruption: the first through governance reform in client countries; and the second – of relevance to this chapter – in enforcing anti-corruption measures through their own operations. They have fiduciary obligations to protect the use of their financing so that funds they provide are used only for their intended purposes.

In light of those obligations, there has been a deliberate drive by MDBs to strengthen and harmonise their integrity mechanisms over the last 20 years in order to ensure that their funds are put to proper use. In particular, MDBs have created independent investigative offices and sanctions bodies to prevent, investigate and apply administrative penalties to entities engaging in sanctionable practices.

The World Bank example

The World Bank operates an administrative process for sanctioning firms and individuals accused of having engaged in one or more sanctionable practices in connection with World Bank financing. Traditionally, this process has been referred to by the World Bank as the Sanctions Regime – intended to provide the accused party, designated as the respondent, with a minimum level of due process before sanctions are imposed – although it is increasingly common to hear reference to the Sanctions System.

The World Bank’s Sanctions Regime or System – organised by the Sanctions Procedures – consists of three separate entities: (i) the Integrity Vice Presidency; (ii) the Office of Suspension and Debarment; and (iii) the Sanctions Board and its Secretariat, all three of which are examined in the Chapter.

Possible sanctions

Sanctions are intended to both prevent future misconduct and encourage rehabilitation of the sanctioned parties. There are – generally-speaking – five  possible sanctions:

(i) Fixed-term debarment;

(ii) Debarment with conditional release;

(iii) Conditional non-debarment;

(iv) Letter of reprimand; and

(v) Restitution.

Debarment exceeding one year extends automatically across the four other main MDBs pursuant to the cross-debarment agreement.  The base sanction for all misconduct is a three-year debarment with conditional release.

Conclusion

The growing MDB operations result in an increased risk for corporates, heightened by the harmonised guidelines, cross-debarment and possibility of referral of matters to national law enforcement agencies (also examined in the Chapter). Even in the absence of criminal referral, MDBs claim wide jurisdiction meaning that they can initiate proceedings against companies who are not party to the contract.

The risks for companies and individuals can be reduced, most notably through the use of the Voluntary Disclosure Programme, self-reporting and negotiated resolution agreements. If MDBs continue to ensure that their Sanctions Regimes have due regard to general principles of law, they can contribute effectively to the global fight against corruption as well as ensure that respondents pursued by their investigative offices have the ability to pursue judicial review of adverse decisions that cannot be grieved in domestic systems.

Read the Chapter

The full chapter is available for Lexis Nexis subscribers here.

About the Author

Alex Haines is a specialist in international law, with particular expertise in the extensive field of international organisations law. Alex was appointed to the Attorney General’s London B Panel of Junior Counsel to the Crown in 2019. Alex’s business crime practice includes international fraud and corruption. He has a broad and intricate understanding of Multilateral Development Banks (MDBs) and International Financial Institutions (IFIs) and their sanctions and debarment regimes. His practice consists of advocacy (both written and oral), litigation, investigations and advisory work. He has represented companies and individuals before both the World Bank’s Sanctions Board in Washington DC and the Asian Development Bank’s Integrity Oversight Committee in Manila and, between 2014 and 2017, he was instructed by the Integrity and Anti-Corruption Department of the African Development Bank in a complex international corruption case which was jointly investigated by the US Securities and Exchange Commission.

In 2019, Alex was instructed by a UN specialised agency to lead an investigation into allegations of fraud in one of its regional offices in South East Asia. He also has experience assisting with negotiated resolution agreements and voluntary disclosure issues, and he has been instructed to redesign integrity compliance programmes so that they are compliant with the IFIs’ Anti-Corruption Task Force guidelines. Alex assists with representing consultants in audits and investigations conducted by the World Bank, criminal referrals to national authorities, mitigating risks of cross-debarment under the Cross-Debarment Agreement, post-sanction representation and assistance including representation before the World Bank’s Integrity Compliance Office, and advising on the privileges and immunities of MDBs/IFIs.

Find Out More

If you would like to discuss any of the issues covered in this article please contact Alex directly or via his practice management team; contact David Smith on (+44 (0)20 7427 4905) or Colin Bunyan on +44 (0)20 7427 4886.

Business Crime, Legal Blog & Publications, News 25 Nov, 2020

Authors

Alex Haines

Call: 2007 (England & Wales); 2019 (New York); and 2020 (Ireland)

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