The World Bank and other multilateral development banks (MDBs) fund more than $117 billion in projects each year. While not regulators, they have unique powers to investigate and punish companies for misconduct, like fraud and corruption, in the projects they finance.
They also maintain close relationships with prosecutors worldwide, including the U.S. Department of Justice and UK Serious Fraud Office.
At a recent event in Washington, DC, senior officials from the World Bank and the Inter-American Development Bank (IDB) offered key insights into their priorities and approach. Companies with emerging and frontier market exposure should take note.
Three main themes emerged:
First, cooperation. MDBs are eager to work with companies when misconduct is uncovered. The World Bank prefers to settle disputes and add new partners to its anti-corruption fight. A three-year debarment from contracting is its default sanction for wrongdoing, but companies that self-report and cooperate start with a conditional non-debarment. This also avoids an automatic cross-debarment by the five largest MDBs, which can have financial and reputational consequences.
One company that recently chose a different path was shut out from bidding for more than 25 years. The IDB just recently adopted a settlement mechanism, but requires that companies provide information about other misconduct in order to obtain this type of resolution.
Leonard McCarthy, who has led the World Bank’s unit charged with investigating fraud and corruption since 2008, called on companies caught up in misconduct “to cooperate, and ‘get ahead’ of a problem, and take credit for the solutions.” He also warned firms that those “who stonewall will find that eventually, one way or another, things come to light.”
Second, the World Bank’s relationship with prosecutors around the world presents unique risks and potential benefits for companies. Bank staff enjoy powers and protections that national authorities do not possess and can investigate anywhere in the world. These protections were resoundingly affirmed in an April 2016 Supreme Court of Canada decision. The Bank also has information-sharing agreements with numerous regulators and often shares leads or findings. This has led to the criminal prosecution of more than 64 individuals.
In response to an observation on the overlapping and sometimes conflicting demands that companies face in multi-jurisdictional investigations, current Director of Operations for the World Bank’s investigative unit Stephen Zimmerman noted that because of the Bank’s international role and relationships, it can play a helpful coordinating role among authorities from different nations.
Third, development banks are still banks; while they have a larger, public purpose, they are not governments. It is important to keep in mind that they have broad powers to run their commercial affairs, as well as their investigations and debarment programs, in keeping with their own rules and policies. All of this is guided by their development mandates. As a result, companies facing a possible debarment action must contend with an enforcement process that differs substantially from what might be customary in national justice systems. It is thus critical for companies to engage knowledgeable counsel early on in the process.
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Co-Chairman of Freshfields’ Global Investigations practice Geoff Nicholas, and Dan Braun who recently joined Freshfields from the U.S. Department of Justice, led the discussion with panelists Stephen Zimmerman, Director of Operations for the World Bank’s Integrity Vice Presidency; Maristella Aldana, Chief of the Office of Institutional Integrity, Inter-American Development Bank; and Adam Siegel, Co-Head of Freshfields’ Global Investigations Practice. Leonard McCarthy, Integrity Vice President of the World Bank, provided opening remarks.
Dan Braun is a partner in the Washington, DC office of Freshfields Bruckhaus Deringer, which has handled several World Bank investigations. He spent 15 years working for the U.S. Department of Justice as a prosecutor and most recently as Deputy Chief for Litigation in the Fraud Section of the Criminal Division, where he managed some of DOJ’s most significant cases. He represents companies in complex cross-border investigations and litigation. He can be contacted here.
The author would like to thank Freshfields associates Jonathan Ware, Emily Holland, and John Warren for their contributions.