2023.05.29 ZHOU, Xianfeng (Elvis)、LIU, Zhen、XU, Haiying
Major multilateral development banks (MDBs) establish various compliance guidelines or policies and corresponding investigation proceedings for different types of misconduct. This article will briefly introduce and compare the investigation and sanction systems of the two major representative MDBs, namely, the World Bank Group (WBG) and the Asian Development Bank (ADB), in terms of sanctionable practices, investigation proceedings, sanction proceedings, and sanction measures, in order to help readers understand the overall regulatory requirements of MDBs for compliance investigations and sanction proceedings.
Comparison Between Investigations and Sanction Proceedings
The WBG and ADB differ slightly in their classification and description of sanctionable practices. Both the WBG and ADB prohibit five categories of misconduct, including corrupt practice, fraudulent practice, coercive practice, collusive practice and obstructive practice. To be noted, the ADB lists five additional categories of misconduct: abuse, conflict of interest, violations of ADB sanctions, retaliation against whistle-blowers or witnesses, and other violations of ADB’s anticorruption policy.
Agencies and investigation proceedings
After identifying possible misconduct, specific responsible agencies of the WBG and ADB will conduct investigations. The WBG’s agency responsible for conducting investigations is the Integrity Vice Presidency (“INT”) and the ADB’s corresponding responsible agency is the Office of Anti-corruption and Integrity (OAI).
"Under the settlement agreement, the sanctioned entity is usually required to establish and implement an integrity compliance programme."
Both the WBG and ADB have set up a two-tier review system for investigation outcomes. The respondents may, however, reach a settlement agreement with the banks during the investigations. Under the settlement agreement, the sanctioned entity is usually required to establish and implement an integrity compliance programme consistent with the standards of the MDBs to satisfy the conditions for reinstatement from sanction. The WBG’s Integrity Compliance Officer (ICO) and ADB’s OAI are responsible for assessing the overall implementation of the sanctioned entity’s integrity compliance programme, probably through an independent compliance monitor engaged by the sanctioned entity, and making a final determination on whether the sanctioned entity satisfies the compliance requirements and can be successfully released from the sanction.
Types of sanctions
The sanction measures available to the WBG and ADB include three types of prohibitive measures: debarment, debarment with conditional reinstatement, and conditional non-debarment.
"The ADB seems to focus more on warning measures, especially for entities under investigation for the first time."
In addition to prohibitive measures, the WBG and ADB also stipulate measures of restitution and/or remedy, and warning measures such as a letter of reprimand. Based on observation, the sanctions available to the WBG and ADB are similar, but the ADB seems to focus more on warning measures, especially for entities under investigation for the first time.
Aggravating or mitigating circumstances
The WBG and ADB generally share similar aggravating and mitigating circumstances. They mainly consider the severity of the misconduct, the role of the investigated entity in the misconduct, co-operation or interference with the investigations, the basic situation of the existing compliance programme and whether corrective measures have been taken. Aggravating circumstances could result in increased sanctions for up to ten years, and mitigating circumstances could, in general, help reduce sanctions by up to 50%.
Whether the sanctions are disclosed
The WBG has imposed special requirements on the transparency of sanctions, which generally require the relevant agencies to publicly disclose the names of the sanctioned entities, the sanctions imposed and the grounds for sanctioning. All WBG sanctions and the names of sanctioned entities are thus generally published on the WBG’s official website.
"An entity sanctioned by the ADB for the first time will not be disclosed on the ADB’s public website."
In comparison, except under special circumstances, an entity sanctioned by the ADB for the first time will not be disclosed on the ADB’s public website. This is an important difference between the sanction regimes of the ADB and WBG.
Whether cross-debarment will be triggered
Both WBG and ADB sanctions could trigger cross-debarment from other MDBs under the Agreement for Mutual Enforcement of Debarment Decisions. However, whether the sanction is disclosed publicly is an important factor in determining whether cross-debarment will be triggered. As noted earlier, the WBG publishes the names of all its sanctioned entities, and cross-debarment will be triggered if the duration of the sanction exceeds one year. However, since the ADB does not publish the names of entities that are being sanctioned for the first time, regardless of whether the duration of the sanction period exceeds one year, cross-debarment by the other MDBs is not automatically triggered.
As illustrated above, there are many similarities in the investigation and sanction proceedings of the WBG and ADB. However, there are also some differences in the description of misconduct, the relevant investigative agencies, the scale of initial sanctions, whether the sanctions are disclosed, and whether cross-debarment will be triggered. Based on the aforesaid analyses, we have several recommendations for domestic and foreign companies that regularly participate in MDB projects, as follows.
Enhance understanding of the misconduct, and improve the company’s integrity compliance programme
We recommend that companies have a better understanding of what MDBs regard as prohibited conduct, as well as the investigatory and sanction proceedings, and that they set up a comprehensive and fully fledged compliance system, strictly prohibit non-compliant practices in daily operations and project development, conduct risk assessment on a regular basis and strengthen compliance training for employees.
When faced with an investigation, take proactive measures and consult a professional team in a timely manner
If a company receives any relevant documents, it is suggested that the company pays great attention to the investigation or audit requests from the MDBs and takes timely and proactive responding measures. Lack of co-operation with investigations or audit requests may be deemed as an obstructive practice, causing the period of sanction to be extended significantly.
Proactively identify potential mitigating circumstances and reach a settlement under appropriate circumstances
In responding to investigations by the MDBs, in addition to understanding and investigating the case, companies would be well advised to proactively identify various factors or circumstances that could mitigate the sanctions. At the same time, companies are advised to avoid aggravating the situation, and to raise defences or settle with the MDBs in a timely manner in order to seek exemption or mitigation of sanctions to the maximum extent.