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World Bank sanctions in Africa: a formidable compliance concern

Africa Connected: Issue 4

World Bank Group sanctions statistics in Africa

Every year since their inception, World Bank Group (the Bank) sanctions teams have pursued investigations into alleged sanctionable conduct regarding the Bank’s projects in Africa. There have been both uncontested sanctions imposed by the Bank Suspension and Debarment Officer (SDO) and cases unsuccessfully appealed to the Sanctions Board throughout Africa every year since 2011.1 The proportion of all global allegations and investigations taking place in Africa is typically higher than most other regions.2

Debarments in Africa increased to five-year high proportions of the global total in 2019, reaching a 37.5% share.3 The cases span the continent: the Bank has investigated complaints and imposed sanctions in countries across Africa, in sub-Saharan and north Africa.4 Sanctions investigations effectively reach anywhere on the continent where the Bank has projects. No African country or region is exempt.

Sanctions process overview

The Bank’s sanctions regime has expanded since it was first introduced in 1998.5 The current two-tiered review process, adopted in August 2006,6 in reality employs several stages of review and provides numerous opportunities for target entities to offer evidence in their defense. In 2007, the Bank extended its sanctions program to cover projects funded by the International Finance Corporation, Multilateral Investment Guarantee Agency, and World Bank Guarantees and Carbon Finance operations.7 A preliminary investigation commences when the Bank’s Integrity Vice President (INT) receives a complaint regarding potential corruption in Bank-funded projects. The INT receives complaints from all over the world; some come directly from Bank staff (18.5% in 2019) but most come from sources outside the Bank (81.5% in 2019).8 For the INT to even begin a preliminary investigation, the complaint must pertain to an ongoing Bank-funded project (relevance) and must allege a sanctionable practice within at least one of four main buckets (jurisdiction) of sanctionable conduct: corruption, fraud, coercion or collusion.9

In assessing whether or not to elevate any complaint, the INT takes into account: (1) the seriousness of the allegations; (2) the impact on development that the alleged conduct might have; (3) the complainant’s credibility; (4) whether corroborating evidence exists and will be obtainable; and (5) the size of the project and contract funds involved.10 If the INT finds, based on all evidence collected, it is more likely than not (or by a preponderance of the evidence) that the target committed the alleged or other sanctionable conduct, the case is considered sufficiently substantiated and the INT will elevate the case to the SDO, who then conducts official sanctions proceedings.11 During sanctions proceedings, the SDO thoroughly examines the INT case and decides whether or not to recommend sanctions against the target entity. If the SDO determines that the INT has presented sufficient evidence that the target engaged in the alleged or any sanctionable conduct, the SDO will issue a Notice of Sanctions, including its recommended sanction.12 The SDO chooses from a menu of the following possible sanctions: reprimand; conditional non-debarment; debarment; debarment with conditional release; or restitution.13 The sanctioned target may accept the Notice by issuing no response or it may submit written replies contesting the findings to either the SDO or the Sanctions Board, the final arbiter of the Bank’s sanctions cases.14

If a sanctioned entity submits a written response to the Sanctions Board, the Board will consider the case de novo.15 Each party may also submit new evidence in order to facilitate the Board’s assessment as to whether the evidence establishes that sanctionable conduct more likely than not occurred.16 In assessing sanctions on the target, the Sanctions Board considers the totality of the evidence presented and surrounding circumstances, taking into account any potential mitigating factors such as cooperation with the investigation or imposition of remedial compliance policies adopted since the alleged misconduct, in order to arrive at the appropriate sanction.17 A decision by the Sanctions Board is final, may not be appealed, and is binding on all parties to the proceedings.18

Multilateral development bank cross-debarment

In 2010, the World Bank Group reached agreement with other multilateral development banks (MDBs) – African Development Bank, Asian Development Bank, European Bank for Reconstruction and Development and Inter-American Development Bank – for mutual enforcement of the Bank’s sanctions through a process called cross-debarment. As part of this agreement, each of the five participating MDBs commits to debarring any entity debarred by any other of the MDBs party to the agreement.19 The five banks use standardized terms for the four main types of practices for which entities may be sanctioned.20 Cross-debarment is a tool that can severely threaten the existence of companies focusing on projects that rely heavily on funds provided by international development banks. In the fiscal year 2019 the Bank imposed 39 debarments eligible for cross-debarment with the other MDBs and recognized 33 cross-debarments from other MDBs.21

Case studies of sanctions imposed in Africa in 2018-2019

As described above, there are four main categories of sanctionable practices: corruption, fraud, collusion, and coercion.22 The majority of the Bank’s sanctions cases in Africa center around allegations of fraudulent misrepresentation in the bidding process for its projects.23 Second most common, though considerably less frequent, are cases involving allegations of bribery.24 At a distant third and fourth are cases involving collusion and coercion. However, a fifth category of sanctionable offense – obstruction – has emerged as a charge commonly added to existing cases where sanctions targets attempt to obstruct the ongoing investigation into their alleged sanctionable conduct.25 Recent case studies offer insight into the practices that have resulted in the imposition of sanctions and how sanctioned company conduct ultimately affects the severity and duration of sanctions imposed. In both of the cases below, and in a majority of the Bank’s sanctions cases, the Sanctions Board applied respondeat superior to attribute one employee’s conduct to the entire firm.26

Sanctions Board Decision No. 117 (April 1, 2019): Eastern Africa Regional Transport, Trade and Development Project

The Sanctions Board reviewed an INT case against the sanctions target alleging fraudulent misrepresentation exaggerating their prior qualifying experience during the bidding process on this Bank-funded project to improve roads and connectivity between Kenya and Sudan.27 As is the case when the alleged offense is repeated, the INT sought aggravation.28 The Sanctions Board found, based on all evidence presented, that it was more likely than not that the target had engaged in the alleged conduct.29 The sanctions target admitted that the information in its bids included misrepresentations exaggerating prior experience (misrepresentation); they admitted that the two employees who included the misrepresentations in two separate bids did so recklessly and that supervisors failed to review their work (recklessly misleading); and that these misrepresentations, being included in the bids, were intended to win contracts and monetary gain (to obtain financial or other benefit).30

Taking into account the totality of the circumstances, including all potential aggravating and mitigating factors and the seriousness of the sanctionable conduct, the Sanctions Board conditionally debarred the sanctioned entity for one year with possible release from ineligibility if the entity established an internal integrity compliance program.31 Notably, even though the sanctioned entity had used the same falsified document in both bids, the Board applied its own precedent, finding that such circumstances constitute a single course of action rather than a repeated pattern of misconduct and holding that such single course of conduct are not grounds for aggravating the charges.32

Sanctions Board Decision No. 110 (April 23, 2018): Economic Reform and Governance Project in Nigeria

The Sanctions Board reviewed an INT case against the sanctions target alleging bribery and obstruction surrounding the target’s bid to work on this Bank-funded project to improve the Nigerian government’s economic and financial management system.33 The INT alleged that in its bid to conduct a tracer study on staff social service and severance programs, the targeted entity bribed a public official in an effort to win the bid.34 The INT further alleged that the target deliberately attempted to conceal the bribery payments during the INT’s investigation.35

The Sanctions Board found, based on all evidence presented, that it was not more likely than not that the target had engaged in the alleged conduct.36 Evidence showed that the target entity paid the official NGN200,000 (offering something of value) but that those payments plausibly could have been made – as the accused asserted – to distribute to field enumerators implementing the tracer study (not for influencing the conduct of the official).37 Nevertheless, because during the investigation the managing director of the sanctions target was found to have instructed their bank to omit certain portions of payment records that would have shown payment to the official, the Board found that the managing director had acted to materially impede the investigation.38

Taking into account the totality of the circumstances, including all potential aggravating and mitigating factors and the seriousness of the sanctionable conduct, the Sanctions Board conditionally debarred the sanctioned entity for three years and seven months, with possible release from ineligibility if the entity established an internal integrity compliance program, including specific anti-corruption training for the managing director implicated in the obstruction.39

Mining and other natural resources sanctions statistics

Mining-sector specific cases have been far less frequent and, even when taken up by the Bank’s sanctions system, do not necessarily suggest anything inherent in or unique to the sector that lends itself to sanctionable conduct under the Bank’s policies and procedures.40 The few cases examined for this article demonstrate the same sanctionable conduct common in other sectors. The following case offers insight into how sanctionable conduct in the mining sector has resulted in the imposition of sanctions in mining projects and how sanctioned company conduct ultimately affects the severity and duration of sanctions imposed.

Sanctions Board Decision No. 75 (November 6, 2014): Extractive Industries Technical Assistance Project

The World Bank Group’s Extractive Industries Technical Assistance Project was a USD4 million project designed to build government capacity to improve management and regulation of the mining sector in Sierra Leone. As part of the project, the government agency managing the project on behalf of Sierra Leone solicited bids for a contract to supply off-road-capable motorcycles. The Sanctions Board, after examining the case presented by INT and the target’s rebuttal, determined that it was more likely than not that the target had engaged in fraudulent misrepresentation in asserting it had obtained a manufacturer’s authorization (MA) from a motorcycle manufacturer to contract with the Sierra Leonean government.41

The Sanctions Board found, based on all evidence presented, that it was more likely than not that the target had engaged in the alleged conduct.42 Evidence presented in fulfilment of the elements of fraudulent misrepresentation included: (1) a letter from the motorcycle manufacturer stating that it had never granted an MA to the target (misrepresentation); (2) inconsistency and lack of credibility inherent in the target’s explanations as to how it obtained the MA (knowingly or recklessly misleading); and (3) the fact that the fraudulent MA was submitted in response to the government’s solicitation for bids (to obtain financial benefit).43

Taking into account the totality of the circumstances, including all potential aggravating and mitigating factors and the seriousness of the sanctionable conduct, the Sanctions Board conditionally debarred the sanctioned entity for three years, with possible release from ineligibility if the entity improved its bid preparation policies and procedures.44

Conclusion

Maintaining robust World Bank compliance policies, cooperating with the Bank’s investigations into sanctionable conduct, and other voluntary corrective actions may all serve as mitigating factors should investors find themselves involved in a sanctions investigation.45 In its 2019 Annual Report, the Bank recommitted to its expanded institutional capacity for rooting out sanctionable conduct in Bank-financed projects worldwide, and also committed to continuing on the path to refine and improve its framework in order to maintain “the institution’s commitment to an agile and evidence-based fight against corruption.”46 With Bank debarments in Africa growing to the highest share of all such debarments in 2019 and with the sanctions teams’ reach across the continent wherever the Bank is financing development projects, investors in the region should stay abreast of the latest Bank sanctions policies and procedures and should consider implementing internal sanction compliance programs.

By Danish Hamid (Partner, DLA Piper LLP (US)), Prof Dr Juergen Taschke (Senior Counsel, DLA Piper UK LLP), Dr Daniel Zapf (Counsel, DLA Piper UK LLP), Kristen Pappas (Law Cleark, DLA Piper LLP (US)) and Anebi Adoga (Jr. Associate, DLA Piper LLP (US)).

This article forms part of Africa Connected: ESG and climate implications for the mining sector in Africa:

Footnotes
1See, e.g., World Bank Sanctions Board Decisions, available at: https://www.worldbank.org/en/about/unit/sanctions-system/sanctions-board#4; Suspension and Debarment Officer Determinations in Uncontested Proceedings, available at: https://www.worldbank.org/en/about/unit/sanctions-system/osd#6.
2For example, in 2019 the proportion of investigations begun in Africa was 43% or 21 of 49 total investigations begun worldwide in 2019. World Bank Group Sanctions System Annual Report FY19, WORLD BANK GROUP, 1, 17 (2020). In fiscal years 2013-2017, Africa consistently ranked in the top three regions for highest share of investigations started worldwide. Annual Update Integrity Vice Presidency FY17, WORLD BANK GROUP, 1, 24 (2018).
3Id. at 64-66. These figures are not meant to suggest regional targeting, but rather are meant to shed some light on World Bank capacity for investigating sanctionable conduct in the region.
4See, e.g., Sanctions Board Decision No. 117 (2019)(Board decision in Kenya); Sanctions Board Decision No. 110 (2018)(Board decision in Nigeria); Sanctions Board Decision No. 88 (2016)(Board decision in Senegal, Mali, and Mauritania); Notice of Uncontested Sanctions Proceedings Case No. 579 (2019)(uncontested SDO decision in Tunisia); and Notice of Uncontested Sanctions Proceedings Case No. (2014)(uncontested SDO decision in Madagascar).
5FY19 Report, supra note 2, at 5.
6Bank Procedure: Sanctions Proceedings and Settlements in Bank financed Projects at 4, Section 1.01(b).
7FY19 Report, supra note 2, at 5.
8FY19 Report, supra note 2, at 16. Outside sources, according to the WBG, include contractors, other bidders on WBG projects, concerned citizens, government officials, employees of NGOs, and individuals affiliated with other multilateral development banks.
9http://siteresources.worldbank.org/INTDOII/Resources/Cross_Debarment_Brief.pdf. See also FY19 Report supra note 2, at 9 (corruption is defined as “offering, giving, receiving, or soliciting, directly or indirectly, of anything of value to influence improperly the actions of another party”; fraud is defined as “any act or omission, including a misrepresentation, that knowingly or recklessly misleads, or attempts to mislead, a party to obtain a financial or other benefit or to avoid an obligation”; coercion is defined as “impairing or harming, or threatening to impair or harm, directly or indirectly, any party or the property of the party to influence improperly the actions of a party”; and collusion is defined as an “arrangement between two or more parties designed to achieve an improper purpose, including influencing improperly the actions of another party.” The WBG also includes obstruction as a sanctionable offense, once an investigation has begun into a target.
10FY19 Report, supra note 2, at 16. See also Bank Procedure at 12, Section 9.02 (SDO and Sanctions Board should also consider these criteria in determining the appropriate sanction.)
11Bank Procedure, supra note 9, at 11-12, Section 8.02(b). See also Id. at 5, Section 2. During the period of preliminary investigation, and before it recommends full sanctions proceedings, the INT may seek Temporary Suspension of the target if INT believes that there will be sufficient evidence to support a finding that the target engaged in the alleged or other sanctionable conduct and if it believes that the investigation will be completely and successfully completed within the year.
12Id. at 7, Section 4.01. Once the Notice goes into effect, the sanctioned party will be put into automatic Temporary Suspension with the full force of debarment until and unless it pursues an explanation or response.
13Reprimand is typically in the form of a formal letter reprimanding the sanctioned party; Conditional Non-Debarment describes certain remedial requirements (largely geared toward improving sanctioned party’s internal compliance and corporate governance procedures) imposed on the sanctioned party as a condition for avoiding debarment from World Bank projects; under Debarment the sanctioned party is declared ineligible, either indefinitely or for a stated period of time, from being awarded or otherwise participating in Bank-funded projects; under Debarment with Conditional Release the sanctioned party faces the same terms as debarment, but with the possibility of early reprieve for instituting improvements in compliance and corporate governance; and Restitution under which the sanctioned party is required to pay restitution to the borrower and other affected parties
14In response, the target may submit an explanation to the SDO within 30 days presenting counterarguments and evidence and seeking withdrawal or modification of the recommended sanctions (Bank Procedure at 8, Section 4.02(b)); submit a written response to the Sanctions Board within 90 days either admitting to or contesting the charges and presenting counterarguments and evidence (Bank Procedure at 8-9, Section 4.04); or Submit no response, in which case the recommended course of action in the Notice goes into effect in 90 days (Bank Procedure at 11, Section 8.02).
15Id. At 11, Section 8.02.
16Id. at 11-12, Section 8.02(b).
17See, e.g., Sanctions Board Decision No. 40 (2010) at para 28; Board Decision No. 117, supra note 4, at para 30.
18Bank Procedure, supra note 9, at para 8.03.
19http://siteresources.worldbank.org/INTDOII/Resources/Cross_Debarment_Brief.pdf
20Id. See also FY19 Report, supra note 2, at 9.
21Id. at 75.
22http://pubdocs.worldbank.org/en/492221459454433323/Procurement-GuidelinesEnglishJuly12014.pdf, pages 6-7, Section 1.16.
23In 2019, 68.4% of all debarments that occurred in Africa were for charges of fraudulent misrepresentation. FY19 Report, supra note 2, at 64-66.
24In 2019, 31.6% of the remaining debarments in Africa were for charges of corruption. FY19 Report, supra note 2, at 64-66.
25FY19 Report, supra note 2, at 9 (obstruction is defined as “(a) deliberately destroying, falsifying, altering, or concealing evidence material to an investigation or making false statements to investigators in order to materially impede a WBG investigation into allegations of a corrupt, fraudulent, or coercive or collusive practice; and/or threatening, harassing or intimidating any party to prevent it from disclosing its knowledge of matters relevant to an investigation or from pursuing the investigation, or (b) acts intended to materially impede the exercise of the WBG’s contractual rights of audit or access to information.”)
26Board Decision No. 117, supra note 4, at paras 27-28; Board Decision No. 110, supra note 4, at paras 32-33.
27Board Decision No. 117, supra note 4, at 2-3.
28Id. at para 12.
29Id. at paras 16-26.
30Id.
31Id. at para 46.
32Id. at para 33.
33Board Decision No. 110, supra note 4, at para 4.
34Id. at para 6.
35Id.
36Id. at paras 21 – 27.
37Id.
38Id. at paras 28 – 31.
39Id. at para 44.
40FY17 INT Report, supra note 2, a 25. In fiscal years 2013-2014, for example, INT began investigations into alleged sanctionable conduct in the mining and energy sectors in only roughly 8 % and 10% of the cases, respectively. As the case study makes clear, the sanctionable conduct investigated does not depart in any particular ways unique to the mining sector.
41Sanctions Board Decision No. 75 (2014) at paras 19-25.
42Id.
43Id.
44Id. at para 37.
45Bank Procedure, supra note 9, at para 9.02.
46FY19 Report, supra note 2, at 6.