Business Integrity and Anticorruption Initiatives of the World Bank Department of Institutional Integrity Maarten de

1. Business Integrity and Anticorruption Initiatives of the World Bank Department of Institutional IntegrityMaarten de Jong, DirectorJune 2005

2. “All of us – lenders, borrowers, contractors and civil society – have to make a strong commitment against corruption, the number one challenge in reducing poverty now.” James D. Wolfensohn (April 21, 2004)

3. “Corruption is a terrible disease that eats away at development successes. INT’s work is part of the core business of the World Bank.” Paul D. Wolfowitz (June 9, 2005)

4. Issues to Discuss Together • The anti-corruption imperative • World Bank’s anti-corruption strategy • Dept of Institutional Integrity update • Recent World Bank policy changes • Voluntary Disclosure Program • Issues of mutual interest

5. Context: The Anti-Corruption Imperative • Growing pressure from donors to enhance aid effectiveness • Similar pressure from civil society to improve accountability • Anti-corruption conventions at national, regional, and global levels making bribe payments illegal

6. Changing Business Environment • More firms (but not all) want a level playing field and an end to the need for illegal payments • Increasing competitive international business environment – bribes raise costs, cut profits • Tension between international and local firms • More chances of getting caught • Reputational risk greater than ever

7. World Bank’s Anti-corruption Strategy • Prevent fraud and corruption in World Bank-financed projects • Help countries that request the Bank’s support in their efforts to reduce corruption • Mainstream anti-corruption in all aspects of the Bank’s relations with its borrowing member countries • Support international efforts to reduce corruption

8. Department of Institutional Integrity In compliance with World Bank rules, ensuring all due process safeguards, INT’s mission is to: • Prevent and deter fraud and corruption • Outreach/educate Bank staff and clients • Investigate allegations of fraud, corruption, and misconduct • Feed lessons learned “upstream” into lending • Leverage results through collaboration • Confront bribe-payers through sanctions process.

9. What Does INT Do? Receipt of Allegation Hotline, Website, etc. The World Bank’s Department of Institutional Integrity (INT) was created in March 2001. Its core functions are to: • Investigate allegations of fraud and corruption in World Bank Group projects, • Investigate allegations of misconduct by Bank staff, and • Train and educate staff and clients in detecting and reporting fraud and corruption in World Bank Group projects. Preliminary Inquiry Investigate Prioritization Full Investigation Sanctions Cttee/Debarment List Deterrence Misprocurement Declared Internal Disciplinary Proceeding Referral for Prosecution or Relevant Action Prevention Support to Country Teams Lessons Learned Publicize Results Capacity of Clients

10. Investigative Capacity • $10 million budget • Staff has grown from 20 to over 50 in 3 years • International, multi-lingual staff • Investigators, forensic accountants, lawyers • Able to travel and do on-site interviews • Interactive database

11. More Information About Business • More knowledge about companies, individuals, and money flows than ever • INT database • World Bank databases • Worldwide web • Working relationships with other MDBs and investigative bodies

12. Reactive Approach • Traditional response to allegations and fraud and corruption • Staff Reports • Contractor complaints • Results of Sanctions • Hotline/e-mail—sometimes anonymous

13. Proactive/Preventive Approach • INT data review • Case data/results • Detailed Implementation Review (DIR) • Documentation examination • Forensic Accounting

14. Finding of Fraud or Corruption Criminal Referral Notice of Debarment Misprocurement Hearing Before the Sanctions Committee Imposition of Sanction Permanent Debarment Temporary Debarment Reprimand Other Public Announcement End Results CONTRACTOR

15. Finding of Fraud or Corruption Referral to a Member Government Misprocurement Suspension of Loan &/or Portfolio Request removal End Results BORROWER STAFF

16. Results So Far In six years: • Over 200 substantiated cases • Over 300 firms and individuals sanctioned • 25 criminal convictions obtained in multiple jurisdictions (U.S., Sweden, Guinea, Bolivia, etc) • Many more cases in the pipeline • Result: Better understanding of how corruption works in development projects • But more to be done

17. World Bank Policy Changes • World Bank Board of Directors approved significant sanctions reforms in July 2004 • Bank now implementing these changes • Thornburgh Reports available on web

18. Sanctions Policy Changes • Recognition of cooperation as a mitigating factor • Incentives to disclose information • Temporary suspensions of firms during sanctions proceedings • Development of a wider range of sanctions • New Sanctions Board -- outside majority • Expanded disclosure of investigations and sanctions

19. Proposed Voluntary Disclosure Program • Encourage firms that have engaged in fraudulent or corrupt practices in Bank-financed operations to disclose the details of those activities • In return for reduction in sanctions and confidentiality of identity • Not an amnesty, immunity, or pardon program • Not a plea bargain program • Pilot program underway over past year • Formal launch anticipated soon

20. ProposedVoluntary Disclosure Program • Results from firms’ self-monitoring • Not triggered by an investigation • For firms committed to stopping corrupt practices • Supplements existing sanctions process • Aggregate information supplied to governments for own action • Faster, less expensive resolutions

21. Enhanced Communications for Deterrence and Compliance • World Bank Board also approved disclosure policy for sanctions and investigations • Stepping up our efforts to publicize final results of investigations worldwide • Sanctions, press releases, reports and other information available on worldwide web • First INT annual report for FY04

22. Upstream Rule Changes • Tightening procurement rules for tendering as well as implementation and execution • Also pursuing standardization via closer cooperation with other MDB’s via harmonization process

23. New Integrity clause • Standard bid documents for large civil works, Sec II, para 9: “We hereby certify that we have taken steps to ensure that no person acting for us or on our behalf will engage in bribery.” In cooperation with Transparency International

24. Revised Procurement Guidelines • Based on INT’s input from casework in Bosnia, Albania, Columbia, etc. • New definitions of “fraudulent practice,” “corrupt practice,” and of “public officials” to include MDB staff; • Prohibitions on “collusive and coercive practices”

25. Broader Definitions • Dialogue between MDBs about developing common definitions of fraud and corruption • NGOs and contractors both criticize lack of common definitions • Ensure that each organization treats the same conduct as acceptable -- and the same misconduct as sanctionable • Cover all funding, not just procurement

26. Issues of Mutual Interest • Increasing compliance • Assessing impact of investigations and sanctions for upstream policy changes • Raising awareness for prevention • Raising standards • Incentives for business integrity programs • Working together for level playing field

27. Websites • www.worldbank.org/integrity • www.worldbank.org/anticorruption • www.worldbank.org/procurement