FCPAméricas Blog
World Bank Sanctions: Theories of Liability for Corruption, Fraud, and Collusion
8.09.2012
In a previous post, FCPAméricas provided “big picture” guidance for lawyers who work on World Bank sanctions matters. In this post, we provide an overview of the theories of liability for corruption, fraud, and collusion that the Sanctions Board has applied in the first cases it has considered. These are the theories on which the Board has imposed debarment or other sanctions. The Board summarizes these cases in its first Law Digest.
As discussed in the previous post, the Law Digest overviews only a small number of cases. The sanctions process is still new, and the theories on which liability is based will continue to develop. Because of this, lawyers should continue to monitor Sanctions Board decisions going forward. In the meantime, the information below can help companies structure their compliance controls to better manage risks when participating in projects financed by the multilateral lending world.
Direct liability for corruption: The Sanctions Board has relied on the “totality of the evidence” to find that respondents directly participated in corrupt activities (Decision No. 41 (2010)). Based on my own experiences working at the Bank, I understand this to mean that for each element of the sanctionable practice the Board will look at the totality of the evidence. Some evidence might suggest that an element is satisfied. Other evidence might point the other way. In the end, the Board must determine whether the evidence reaches a 51%-or-more likelihood that the element is established – “more likely than not.” A “totality of the evidence” analysis also means that the Sanctions Board will consider circumstantial evidence. This approach appears to be similar to the U.S. Department of Justice standard for assessing intent under the FCPA.
For the same decision (No. 41), the Law Digest provides that, because there was evidence of direct participation, the Sanctions Board “found it unnecessary to consider the potential applicability of alternative theories of secondary liability for the respondents.” Though not explicitly stated, other theories could have included a joint criminal enterprise theory, somewhat similar to RICO. Though such theories were not considered in that case, the Board suggests they might be relevant in the future.
Liability for the misconduct of third parties: The Sanctions Board has established that it will impose sanctions on respondents for the misconduct of their agents or other third parties. In Decision No. 45 (2011), the Sanctions Board held that, “As a general principle, a respondent cannot avoid liability by carrying out through an agent or affiliate any conduct that would be sanctionable if carried out directly by the respondent.” In that case, third party liability was established when a company gave a specific power of attorney to an agent to participate and act on its behalf in a tender. The record in that case also showed that the respondent was aware of past problems and potential conflicts of interest involving its authorized representative and failed to attempt to implement controls over the representative’s activities with regard to the bid at issue. The Board stated that the respondent’s actions could be considered “willful blindness.”
Liability for the misconduct of subsidiaries: In Decision No. 45 (2011), the Sanctions Board stated, “A respondent cannot disclaim responsibility for a subsidiary within its scope of control merely because the respondent has declined to exercise that control.” In that case, the following factors indicated that a company exercised control over its subsidiary sufficient to trigger responsibility:
(1) the company was the largest of four shareholders in the subsidiary with 50% of the subsidiary’s shares and a representative on the subsidiary’s board of directors;
(2) the respondent could have utilized the quorum requirement for shareholder’s meetings to ensure its participation and voice in the subsidiary’s operations; and,
(3) a director of the respondent who served on the subsidiary’s board as the respondent’s representative stated on the record that, in legal terms, the subsidiary could not act independently and without consulting the respondent.
Respondeat Superior. The Sanctions Board has established that it will hold a company liable for the acts of its personnel conducted on the company’s behalf. Factors that have supported a finding of liability include:
(1) failure to show that the company “implemented any controls reasonably sufficient to prevent or detect the alleged fraudulent activity” (Decision No. 37 (2010));
(2) express authorization by the company to the responsible employee to sign the tender documents and make all necessary correspondence in regard to the bid (Decision No. 37 (2010));
(3) when the actor was the company’s president, owner, and sole shareholder (Decision No. 41 (2010)); and,
(4) when the acts of the employees were conducted within the scope of their authority and in the absence of supervision (Decision No. 41 (2010)).
Individual liability for the fraudulent misconduct of the person’s company: In Decision No. 2 (2008) and No. 39 (2010), the Sanctions Board found individuals liable for the fraudulent acts of their companies, even when there was no allegation or evidence that the individual had personally committed the fraud. Factors that the Sanctions Board considered relevant to establishing such liability include:
(1) whether the person maintained close operational control over a small company;
(2) whether the person was in a position to put in place “appropriate control mechanisms” that would have prevented the fraudulent practices and failed to do so;
(3) whether, despite arguing a “rogue employee” defense, nothing in the record supported the conclusion that the director was unaware of the lack of controls or resulting risks of submitting a bid including misrepresentations; and,
(4) whether the director signed the firm’s bid submission with a declaration on behalf of the firm to the effect of, “we have examined and have no reservations to the Bidding documents.”
What is the Law Digest’s relevance for compliance officers? Based on these first decisions, it is clear that adequate controls can serve as a defense to sanctionable misconduct. What guidance should companies follow to develop such controls? For World Bank matters, a good starting point is the World Bank’s Integrity Compliance Guidelines. The standards in these guidelines now serve as the basis for the Bank’s debarment with conditional release procedures.
The FCPAméricas blog is not intended to provide legal advice to its readers. The blog entries and posts include only the thoughts, ideas, and impressions of its authors and contributors, and should be considered general information only about the Americas, anti-corruption laws including the U.S. Foreign Corrupt Practices Act, issues related to anti-corruption compliance, and any other matters addressed. Nothing in this publication should be interpreted to constitute legal advice or services of any kind. Furthermore, information found on this blog should not be used as the basis for decisions or actions that may affect your business; instead, companies and businesspeople should seek legal counsel from qualified lawyers regarding anti-corruption laws or any other legal issue. The Editor and the contributors to this blog shall not be responsible for any losses incurred by a reader or a company as a result of information provided in this publication. For more information, please contact Info@MattesonEllisLaw.com.
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© 2012 Matteson Ellis Law, PLLC
Post authored by Matteson Ellis, FCPAméricas Founder & Editor
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August 10th, 2012 at 9:05 pm
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