By Jason C. Lynch
While most contractors are familiar with the suspension and debarment procedure under the Federal Acquisition Regulation FAR, few international contractors may have encountered the World Bank’s compliance system. The Bank’s first-ever joint Sanctions System Annual Report gives us a good opportunity to review that system. The report also gives a glimpse into the Bank’s current enforcement efforts and priorities.
Like most U.S. agencies, the Bank’s sanctions system roughly divides into investigative and adjudicative functions.
The Bank’s Integrity Vice Presidency (“INT”) conducts investigations and forensic audits. Think of INT as the analogue to an inspector general for a U.S. agency. INT investigates both internally (Bank staff or vendors) and externally (private companies and individuals who have bid on or are participating in Bank-financed contracts). Whether internal or external, INT’s investigation will focus on five types of misconduct: fraud, corruption, collusion, coercion, and obstruction. Complaints about these practices come from Bank staff (e.g., 18.5% of FY2018 complaints) and from non-Bank sources (81.5%). Assuming that the complaint pertains to one of the five sanctionable practices above, INT opens a preliminary investigation.
In determining whether to move from a preliminary investigation to a full investigation, INT considers the seriousness of the allegations; the potential development impact of the alleged misconduct; the credibility of the complainant; the presence of corroborating evidence; and the amount of project and contract funds involved. If the allegations are found to be more likely true than not, the complaint is deemed “substantiated.”
In FY2018, INT received 1,426 complaints. Of these, 927 received no further action; 130 were forwarded to other Bank units; and 379 were investigated preliminarily by INT. In the same year, INT opened 68 new investigations and closed 71 investigations, 48 of which were substantiated.
The investigations opened and closed in FY2018 overwhelmingly fell into three classes of misconduct: fraud, corruption, and collusion—in that order. That is consistent with previous years, as is the relative distribution of cases among the categories.
When a complaint is substantiated by an investigation, a final investigation report (FIR) is submitted to the Bank President. In addition to the FIR, INT may prepare a “referral report” (to a member country’s national authorities, if there is evidence that the country’s laws were broken) or a “redacted report” (to the Bank’s Board of Executive Directors and made public after the sanctions process is complete). INT also prepares a Statement of Accusations and Evidence (“SAE”) to initiate the Bank’s two-tier adjudication process.
The first tier is the Bank’s Chief Suspension and Debarment Officer (“SDO”), who is akin to an agency’s SDO. The SDO reviews the SAE to determine whether it contains sufficient evidence to support the allegations. If not, the SDO remands the matter back to INT for further development. If so, the SDO will issue a Notice of Sanctions Proceedings (“NOSP”) to the accused, referred to as the respondent. The SDO will also recommend a sanction, such as debarment from bidding or participating in a Bank-financed activity.
In FY2018, INT referred 28 cases. The SDO reviewed 27 of these and remanded 12 to INT for revisions. Two others were rejected out of hand. OSD initiated 29 proceedings in FY2018 and temporarily suspended 20 respondents (29 firms and 11 individuals).
The NOSP starts the clock ticking for the respondent to contest the allegations. And critically, if the SDO has recommended debarment, the respondent is suspended in the meantime. (Think of this as the “notice of suspension and proposed debarment” that we commonly see from SDOs at U.S. agencies.) If the respondent doesn’t contest the NOSP within 90 days to contest the allegations, then the SDO imposes the recommended sanction. In FY2018, more than half of respondents did not challenge their proposed sanctions. As with previous years, the vast majority of cases and settlements pertained to fraud, corruption, and collusion.
The Sanctions Board
If the respondent does contest the sanctions, the case proceeds to the second tier: the Sanctions Board. The Board comprises seven members: three appointed by the Bank; two by the International Finance Corporation; and two by the Multilateral Investment Guarantee Agency. All seven members are external to the Bank and serve a single term of up to six years.
The Board conducts a de novo review of the respondent’s case and often considers a more expansive record, thanks to the additional round of briefing that the parties are afforded. Either party may request a hearing before the Board, which is confidential and informal. Although INT presents first, the respondent is given the last word. The Board has published its decisions dating back to 2012.
In FY2018, the outcomes of Board review were interesting. In fully 60% of its decisions, the Board imposed a lesser period of debarment than as imposed by the SDO. In another 16% of cases, the Board eliminated the sanction entirely. In 19% of cases, the Board imposed a greater period of debarment. Thus, in only 5% of cases did the Board impose the same period as the SDO.
These data strongly suggest that an appeal is worth the time and effort. In more than three quarters (76%) of cases, the respondent obtained a lesser sanction or no sanction at all. That is a far better appellate success rate than one finds, for example, in the federal courts.
We should also note that individuals and companies may resolve allegations through settlement, in lieu of the sanctions process above. One of the SDO’s tasks is to review these settlements, which are usually negotiated and drafted by INT and reviewed preliminarily by the Bank’s Office of General Counsel.
There has been an inverse trend among sanctions cases and settlements in the past five years: settlements have steadily increased as sanctions cases have declined:
These data suggest, at least, that the Bank’s settlement process is effective.
We hope this is a useful introduction to, or refresher on, the World Bank’s unique sanctions system and a valuable insight into the focus of the Bank’s enforcement efforts of late.
 30 of the 68 new investigations were internal to the Bank, as were another 30 carried over from FY2017. Half of these 30 cases were closed this past year: 11 substantiated; 15 substantiated; 3 unfounded; and 1 “other.” This ratio is consistent with previous years.
 The only exception is where the SDO has recommended a debarment of six months or less.