FCPAméricas Blog
Cross-Debarment and Conflict of Laws: The next big challenge for World Bank and MDB sanctions
10.09.2012
Today the World Bank hosts a colloquium on suspension and debarment joined by several multilateral development banks (MDBs). It is a fitting time to highlight the next big challenge facing their coordinated efforts to sanction the companies and individuals found to have committed corruption, fraud, and collusion in development projects – potential conflict of laws in cross-debarment.
In April 2010, the World Bank, the African Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, and the Inter-American Development Bank agreed to cross-debar firms and individuals found to have engaged in wrongdoing in MDB-financed development projects. According to the agreement, “Each Participating Institution will enforce debarment decisions made by another Participating Institution.” In essence, if you steal from one, you will be debarred by all. The mechanism gives teeth to the sanctions program. Learn more here.
But what happens if the legal theories on which one MDB reaches a finding of sanctions are not recognized by another MDB? Or if the procedures that one follows are different from those of another? Does the mechanism begin to break down? Though the cross-debarment agreement establishes common core principles like harmonized definitions for fraud, corruption, coercion, and collusion, the commonalities only run so deep.
Some speculate that eventually, as sanctions activity grows more robust, these incongruities will create a recipe for conflict. This chances seemed heightened now that practitioners can learn details about the World Bank Sanctions Board’s decisions from its first Law Digest and the publication of decisions concluded since the digest.
For example, to meet the elements for fraud, MDB authorities must establish a mens rea – that the misrepresentation was conducted “knowingly or recklessly.” But different MDB sanctions boards might come out differently on what level of evidence is enough to show knowledge or recklessness (the World Bank’s evidentiary approaches are discussed here). Similarly, as FCPAméricas has previously discussed, the World Bank Sanctions Board has established that it will hold a company liable for the acts of its personnel conducted on the company’s behalf. Will MDB sanctions boards in regions like Europe and Latin America do the same, given certain countries’ historical reluctance to find corporate entities culpable for the acts of individuals?
Consider also that, when setting penalties, mitigating and aggravating factors are important considerations for evaluation and suspension officers and sanctions boards. Is there a chance that such factors might be applied inconsistently? One MDB might consider cooperation to reduce a debarment period to one year, while another grants a reduction to only three years.
Procedural differences could also play a role. Though the cross-debarment agreement provides some general principles to which each program must adhere, the detailed ways in which MDBs approach investigations and building and processing cases can be drastically different, as discussed in this article.
There are two reasons to believe that the MDBs participating in cross-debarment will be able to weather these stresses. First, pursuant to the agreement, a debarring bank is not obligated to provide much detailed information to the other MDBs about its decisions. It only has to provide (1) the names of the entities or individuals sanctioned, (2) the sanctionable practice(s) found to have been committed, and (3) the terms of the debarment. There is no need to include the theories on which findings were made or procedural details about the administrative process. Thus, MDBs might not have much detail on which to question decisions.
Second, among the key actors involved, such as the investigative units, the evaluation and suspension officers, and the Sanctions Boards themselves, most everyone wants cross-debarment to succeed. No one really thinks that offering individuals and companies loopholes to continue to receive development funds from other MDBs after they are debarred by one is a positive thing. The entities that might complain, that is, the companies and individuals being sanctioned, are also put on notice early on in the process that they could be subject to cross-debarment if a finding of misconduct is reached. In short, there is generally hope that cross-debarment will prevail.
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© 2013 Matteson Ellis Law, PLLC
Post authored by Matteson Ellis, FCPAméricas Founder & Editor
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