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Law360 (June 1, 2020, 5:27 PM EDT )
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| Lauren Muldoon |
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| Spencer Bruck |
Some international companies may be surprised to learn that, by participating in a tender for an MDB-funded project, they may be exposed to liability under the MDB's anti-corruption enforcement regime, in addition to liability under national anti-corruption laws like the Foreign Corrupt Practices Act or the U.K. Bribery Act.
Without sufficient compliance mechanisms, companies participating in tenders for MDB projects may find themselves embroiled in lengthy investigations with the possibility of multiyear debarments.
International Development Organizations' COVID-19 Lending Programs
As COVID-19 spreads internationally, MDBs and international development organizations have announced nearly $1.2 trillion in loans, debt forgiveness, and project financing to countries some of which have high perceptions of corruption.
The International Monetary Fund has committed to lending up to $1 trillion to mitigate the economic impact of COVID-19 and has already received requests from more than 100 countries. The IMF will also provide grants worth approximately $500 million to cover six months of debt payments to 25 countries.
Similarly, the World Bank plans to deploy $160 billion over the next 15 months for projects related to the COVID-19 pandemic and has already approved projects worth $1.9 billion in 25 countries. The World Bank will also redeploy $1.7 billion in existing projects.
Regional MDBs have developed COVID-19 response programs as well with the European Bank for Reconstruction and Development dedicating €21 billion, the Asian Development Bank dedicating $20 billion, the Inter-American Development Bank dedicating approximately $18 billion, and the African Development Bank dedicating $10 billion.
As these development organizations prepare to distribute funds, they will be laser-focused on concerns that the funds could be siphoned away by corrupt officials from helping those most in need. The social and economic disruption and instability caused by the COVID-19 pandemic increases the risk of bribery and corruption globally.
As the Organization for Economic Cooperation and Development Working Group on Bribery noted recently, "the pandemic could create an environment that is ripe for corruption because of the uncertainty and economic disruption across the globe."[2] The OECD specifically identified the health care sector as especially vulnerable to corruption as countries struggle to acquire medical equipment as part of an often rushed and haphazard procurement process.
MDB Sanctions Procedures
To address concerns that fraud and corruption will divert funds from their missions, the World Bank and other MDBs have all developed separate enforcement frameworks to deter and punish specific acts of sanctionable conduct: fraud, corruption, collusion, coercion, and obstruction of an investigation.
These acts are defined by the MDB's procurement guidelines, which are typically incorporated by reference in the bidding documents and the relevant contract. The bidding and contractual language usually gives the MDB the right to review the books and records of companies that bid on their projects. An MDB investigation typically starts with a request to exercise such audit rights, which often involves the inspection of documents — including emails and records relating to bank-funded projects — and interviews of relevant employees and agents.
If, after an investigation, an MDB finds that a company engaged in sanctionable conduct, the MDB may issue a formal reprimand, assess a financial penalty, impose conditional nondebarment and/or debar the company from participating in any MDB projects for a period of time. If an MDB issues a debarment of longer than a year, the other MDBs will automatically cross-debar that company from participating in their projects.
Over 1,300 companies and individuals are currently debarred from participating in World Bank projects. Over 700 of those debarments qualify for cross-debarments, and over 300 of those debarments are sanctions imposed by other MDBs that qualify for cross-debarment by the World Bank.[3]
Mitigating the Risks of MDB Enforcement on COVID-19 Projects
Companies that bid on and/or win projects financed wholly or in part by MDBs must have appropriate anti-corruption mechanisms in place to limit the risks of sanctions investigations several years down the road.
Companies can take several steps regarding compliance with MDB guidelines including the following:
1. Companies should determine whether a project will be funded, even in part, by an MDB. MDB involvement may not be readily apparent from bidding or tender announcements.
2. Companies should conduct risk-based due diligence on any local entities engaged to assist with the project and/or the procurement process.
3. Companies should scrutinize procurement processes, including the following steps:
- Retain documents concerning the bid and/or tender process, including any limitations on the timing and scope of noncompetitive bidding;
- Retain any communications with government officials; and
- If specifications or qualification change during the bidding and/or tender process, a company should document the reasons for such changes and, if possible, obtain written confirmation from government officials regarding the reasons for such changes.
4. Although the health care sector has been a longtime focus for anti-corruption regulators, pharmaceutical, medical device and medical supply companies should have heightened awareness around tenders and/or auctions for products that have become scarce or are in high demand due to COVID-19 (e.g., personal protective equipment, ventilators, testing kits, hospital beds, etc.). This is especially true for companies that have not previously engaged in significant international sales.
5. Should a company win an MDB-financed project, they should pay particular attention to risks associated with customs and movement of goods, especially in an environment where global trade has ground to a halt.
Lauren Muldoon is a partner and Spencer Bruck is a senior associate at Orrick Herrington & Sutcliffe LLP.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] Collectively, the World Bank, the European Bank for Reconstruction and Development, the Asian Development Bank, the African Development Bank, and the Inter-American Development Bank.
[2] OECD Working Group, The global response to the coronavirus pandemic must not be undermined by bribery, (April 22, 2020), available at https://www.oecd.org/corruption/the-global-response-to-the-coronavirus-pandemic-must-not-be-undermined-by-bribery.htm.
[3] https://www.worldbank.org/en/projects-operations/procurement/debarred-firms
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