by Nicholas Querée, Peters & Peters Solicitors LLP
Multilateral development banks and the fight against bribery, corruption and fraud
In order to safeguard billions of US dollars invested in projects in developing and transitional economies each year, international multilateral development banks (“MDBs”) are increasingly using internal procedures to debar or blacklist firms and individuals suspected of having participated in “sanctionable practices”, such as bribery, corruption, and fraud, from obtaining development bank-financed contracts. In doing so, MDBs have increasingly adopted roles akin to more familiar transnational bribery and corruption regulators such as the US Department of Justice and the UK Serious Fraud Office.
The World Bank (the “Bank”) in particular has expressed its stated aim to facilitate a “global conversation against corruption”, in which it debarred over 250 entities and individuals in 2013 and over 100 in 2014. Most recently, in February 2015, the Bank sanctioned four companies on the basis of suspected fraud and corruption in relation to projects in Bolivia, Bangladesh and Cambodia. Debarment can result in serious financial consequences for entities and individuals, particularly given that from 2010 the five largest MDBs have agreed to mutual recognition of debarment decisions.
The World Bank Sanctions Board
The rise of MDBs as global anti-corruption regulators has seen an increasing focus on how the procedural rights of those subject to administrative proceedings brought by the MDBs may be protected. For the Bank, these rights are preserved principally through a right of review to a largely independent arbitral tribunal, the World Bank Sanctions Board (the “Board”), a system which has largely been adopted by the other MDBs. Whilst not a court, the Board’s membership is comparable to tribunals familiar to those practising in international arbitration, comprising a number of respected arbitrators and jurists across common law and civil jurisdictions. Senior Bank officials are also represented, although as a minority, and from 2009 the Chairperson of the Board has been independent of the Bank. A recent consultation on the efficacy of the Bank’s sanctioning powers has recommended that the Board’s entire membership be comprised of independent arbiters.
Where suspicion arises that misconduct has occurred in a matter where the Bank has jurisdiction (essentially where the Bank has advanced project funding), an investigation will be conducted by the Integrity Vice Presidency (the “INT”). The INT will, in turn, make recommendations to an internal review body within the Bank, the Evaluation and Suspension Officer (“ESO”), including recommendations as to possible sanctions. Sanctions include debarment with conditional release, debarment for a definite or indefinite period, conditional non-debarment, letter of reprimand, and restitution. Where the ESO upholds findings of misconduct and imposes sanctions, the majority of respondents will not contest the allegation(s), or agree to settlement terms with the Bank (typically agreeing to a period of debarment, along with a commitment to implementing enhanced internal compliance measures).
Parties aggrieved by the Bank’s findings may however ask the Board to conduct a de novo review of the matter. The Bank’s Sanctions Board Statute provides that the Board must determine whether, on the evidence, it is more likely than not one or more “sanctionable practices” has been committed. The definition of “sanctionable practices” has been harmonised as between the MDBs, and includes a range of conduct including acts of corruption, fraud, collusive (anti-competitive) conduct, and coercion. The review may include a hearing before the Board, at which the Bank and the respondents may set out their respective cases orally.
The Board in the context of global administrative law
The evolution of the Bank’s attitude to sanctions generally and the development of the Board specifically, is an example of what some legal academics have described as the growth of a “global administrative law”, where decisions taken by international governmental and non-governmental organisations outside the jurisdiction of national courts are nonetheless subject to basic normative principles of transparency, reasoned decision making, participation, and review. Comparable supranational regulators applying global administrative law include the UN Office of the Ombudsperson, established in 2009 to provide a review mechanism for those subject to UN Al-Qaida sanctions and, arguably, the Commission for the Control of INTERPOL’s Files (the “UN Ombudsperson” and “INTERPOL’s Commission”, respectively).
Key to the Board’s position in protecting basic procedural norms is its independence from the Bank. Pursuant to the Bank’s Sanctions Board Statute, and the Code of Conduct for Members of the Sanctions Board, the Board’s members are required to “consider each case fairly, impartially and with due diligence”, and to act “independently” of the Bank. As described above, whilst the Bank’s interests are represented on the Board, the Board’s membership also comprises independent arbitrators and jurists, and it is now mandatory that the Board is chaired by an independent member.
Similarly, from 2011, the Board has released a regular digest of its own relevant decisions, and from 2012 has published all of its decisions on the Bank’s website, albeit in anonymised form. This growing body of jurisprudence, where precedents can be employed to understand and identify the limits of a party’s lawful conduct with greater certainty, is a hallmark of a developed judicial / arbitral system (and, notably, contrasts pointedly with the opaque decision making processes exercised by both the UN Ombudsperson and INTERPOL’s Commission).
Some lessons from the arbitral experience
The Board’s function as an independent arbiter of legal and factual disputes between parties in the context of international investment programs similarly reveals a character analogous to independent tribunals familiar to practitioners of international arbitration (even if the ultimate outcomes delivered by the Board represent administrative sanctions as opposed to the resolution of competing commercial positions).
In that context, and given that the Bank, along with other MDBs, is making increasing use of its sanctions powers to safeguard investments and promote development goals, it is useful to consider the extent to which other features of the international arbitration system may present opportunities to enhance the fairness and legitimacy of decisions taken by the Board and comparable tribunals where allegations of misconduct raised by the MDBs are disputed.
- (1) The continuing value in transparency of decision making, including access to a publically available body of jurisprudence. Whilst the Bank has taken an important step in publishing anonymised decisions promulgated by the Board, a similar approach from equivalent bodies established by other MDBs, for example the African Development Bank’s Sanctions Appeal Board – would be welcome. This is particularly so given that the MDBs have agreed to harmonise their interpretation of sanctionable conduct, and give mutual recognition to debarment decisions. An accessible body of precedents will be familiar to those dealing with another specie of investment disputes, i.e. challenges before the International Centre for the Settlement of Investment Disputes.
- (2) Empowering the Board and comparable tribunals to regulate their own procedural rules. This would provide greater procedural fairness to respondents. As the Bank noted in a review of its sanctions program, as matters stand, respondents do not presently enjoy a right of rejoinder to the Bank’s reply, either in written submissions or at any oral hearing before the Board, with the result that the INT will enjoy both the first and final word. Greater procedural flexibility would also assist in ensuring that respondents are not prejudiced by lack of access to legal counsel, which may be prohibitively expensive for some SMEs or individuals subject to sanctions proceedings brought by MDBs.
- (3) The opportunity for the parties to appoint their own panel members to the Board or comparable tribunals, giving greater legitimacy to appeals against sanctions decisions made by MDBs, particularly for individuals and SMEs from developing nations, by incorporating global legal and cultural traditions. The appointment of arbitrators directly has proved successful in ensuring that parties to arbitration proceedings have confidence that the tribunal is possessed of technical and legal knowledge, and cultural awareness.
Concluding remarks
As commentators have noted, the Bank and the Board have taken the lead in enhancing procedural norms in the context of global administrative law, in part as a consequence of adopting features akin to those found in the practice of international arbitration. It remains to be seen whether this trend will be limited to the Bank, and in time, the comparable organs of other MDBs, or whether the adoption of basic procedural norms will become a more common feature in regulatory decisions applied by supranational governmental and non-governmental organisations.
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