Overview
On December 8, 2016, the Asia Infrastructure Investment Bank (AIIB) released its Policy on Prohibited Practices (the Policy). Like sanctions systems put into place by the leading Multinational Development Banks (MDBs), including the World Bank, the Policy implements a process through which the AIIB may investigate and sanction misconduct by entities and individuals working on AIIB-financed projects as contractors or consultants. Below, we discuss key aspects of the new sanctions system, as well as notable differences from the current World Bank sanctions system.[1]
Policy Background and Structure
AIIB’s Policy establishes an investigatory arm to pursue allegations of misconduct and sets out seven prohibited practices: coercive practices,[2] collusive practices,[3] corrupt practices,[4] fraudulent practices,[5] misuse of resources,[6] obstructive practices,[7] and theft.[8] AIIB’s Integrity Unit and Investigations Officers have the authority to launch an investigation of such practices either independently, or based upon internal or external reports.[9] The Integrity Unit also has the authority to refer matters to governmental authorities and to disclose information to other international organizations.[10]
After the Integrity Unit has completed an investigation and if it concludes that a party has engaged in a prohibited practice, the Investigations Officer will submit a Statement of Charges to the Sanctions Officer, setting out allegations and relevant evidence.[11] Should the Sanctions Officer determine that the Statement of Charges sets out allegations which, by a preponderance of evidence, support a finding of misconduct, a Notice of Administrative Action is sent to the respondent.[12] A Temporary Suspension may also be applied against the respondent at this time.[13]
Following receipt of the Notice of Administrative Action, respondents shall have 60 calendar days to deliver a Response to the Sanctions Officer, consisting of a written response and additional evidence (to the extent available).[14] After reviewing the Response, the Sanctions Officer will issue a Determination, either dismissing the case, or sanctioning the respondent. The Policy does not include a timeframe within which respondents should expect such a Determination to be made.
Following receipt of a Determination that includes sanctions, the respondent can appeal to the Sanctions Panel (consisting of one Bank and two non-Bank members) within 45 days.[15] The Panel, with the assistance of external advisors if necessary,[16] will review the record and determine the outcome based on a majority of votes.[17] Should the Panel determine that the respondent engaged in a prohibited practice, the respondent will be sanctioned via reprimand, debarment, conditional non-debarment, debarment with conditional release, or “other” sanctions (including, for example, restitution or other financial remedies).[18] Sanctions may apply not only to the respondent, but also to any of its affiliates.[19] The Panel may take a variety of factors into consideration in determining a sanction, including: severity of misconduct; past misconduct; magnitude of harm (including harm to public welfare, to the project, to the Bank’s operations, or to the credibility of the procurement process); the extent of the respondent’s involvement; mitigating circumstances (including implementation of compliance programs); admissions of culpability; obstruction; and “any other factor that the Sanctions Officer or the Sanctions Panel deems relevant.”[20]
Notable Departures from World Bank Sanctions Procedures
The general structure of AIIB’s sanctions program will seem familiar to some, as it tracks closely the World Bank Sanctions Procedures, providing for a two-tiered sanctions process following an investigation and referral from the relevant Bank’s integrity unit. The specific steps and time frames are also very similar, with one notable exception being that the Policy does not prescribe a specific time period within which the Sanctions Officer must issue a Determination.[21] There are other notable differences as well as some uncertainties. Both the World Bank and AIIB systems provide for negotiated resolutions at any time.[22] In practice, the World Bank Integrity Vice Presidency (INT) is reluctant to engage in negotiations towards a settlement after a sanctions referral; consequently, the opportunity for engagement typically comes during the latter part of the investigations stage.[23]
The most notable difference appears in the types of conduct prohibited by each system. Similar to the World Bank system, the Policy prohibits corrupt, fraudulent, collusive, coercive, and obstructive practices (as noted above). Definitions of these practices generally mirror those laid out in the World Bank Guidelines for Procurement Under IBRD Loans and IDA Credits ("World Bank Procurement Guidelines").[24] The Inter-American Development Bank, the African Development Bank, the European Bank for Reconstruction and Development, and the Asian Development Bank also recognize the same prohibited practices as the World Bank.[25] Notably, however, the Policy sets out two new types of prohibited conduct – misuse of resources and theft. These definitions appear to target broader forms of conduct than those focused upon by other MDBs. It remains to be seen how these types of misconduct will be enforced, including how misconduct may be defined in the aggregate. It is conceivable, for example, that improper payments to officials could be sanctioned on the basis of both corruption, and misuse of resources. The Policy breaks new ground for MDBs, providing explicit protections to whistleblowers reporting on those prohibited practices in good faith.[26]
Furthermore, although it remains to be seen how appeals will work in practice in AIIB matters, the Policy states that hearings will be held at the Sanctions Panel’s discretion, but that “[n]either the Investigations Officer nor a Respondent shall have a right to a hearing.”[27] This departs from World Bank policy and practice, in which either party’s request for a hearing will result in a hearing being held.[28]
The range of possible AIIB sanctions is largely similar to other MDB sanctions regimes as laid out in the Uniform Framework for Preventing and Combating Fraud and Corruption General Principles and Guidelines for Sanctions (including reprimand, debarment, conditional non-debarment, debarment with conditional release, and restitution). Although factors that “may” be taken into consideration in determining an appropriate sanction closely track applicable mitigating and aggravating factors under the World Bank Sanctions Procedures, the AIIB factors do not appear to take into consideration the period of temporary suspension already served, as is done in World Bank proceedings.[29] Furthermore, it remains unclear the extent to which mitigating or aggravating factors will be applied in AIIB cases in practice. Under the World Bank Sanctions Procedures, for example, the SDO and the Sanctions Board are required to take these factors into account in determining an appropriate sanction,[30] and there appears to be a more discretionary aspect to these factors under the AIIB Policy.[31] There also does not yet appear to be a sanctioning guideline for the purpose of calculating sanctions (similar to the World Bank Sanctioning Guidelines, for example).
Finally, the AIIB, although not yet a party to the Agreement for Mutual Enforcement of Debarment Decisions (Cross Debarment Agreement), has unilaterally announced that it will enforce debarment decisions made under this agreement by other MDBs.[32] Currently, the African Development Bank Group, the Asian Development Bank, the European Bank for Reconstruction and Development, the Inter-American Development Bank Group, and the World Bank Group are members to the Cross Debarment Agreement, which requires parties to mutually enforce debarment decisions exceeding one year in duration, subject to certain conditions. The AIIB has indicated that it intends to seek to become a party to the Cross Debarment Agreement “[a]s soon as reasonably possible.”[33] To do so, it will need to fulfill the criteria set out in the Cross Debarment Agreement, such as adopting harmonized definitions of sanctionable practices, adhering to certain investigatory principles and guidelines, and applying an appropriate sanctions regime. In the meantime, however, this may mean that decisions by the signatories to the Cross Debarment Agreement may be recognized by the AIIB, but not vice-versa. To the extent the AIIB becomes a party to the Cross Debarment Agreement, other MDBs would not recognize AIIB debarment decisions based solely on obstruction, theft, or misuse of resources, as these practices are not covered under the Uniform Framework for Preventing and Combating Fraud and Corruption.[34]
Conclusion
It is clear that the AIIB Policy relies heavily on the World Bank sanctions regime. However, it will be some time until we see how the AIIB sanctions procedures will play out in practice. We will continue to monitor AIIB’s enforcement efforts to determine how the Policy will be enforced, the circumstances in which new prohibited practices will arise, and what degree of transparency parties will have into the process (including, for example, whether Sanctions Panel decisions will be published).
[1] While a number of MDBs have implemented such a system, the systems are generally modeled after the World Bank system. As such, we have used the World Bank system as a framework for comparison here.
[2] “[I]mpairing or harming, or threatening to impair or harm, directly or indirectly, any party or the property of a party to influence improperly the actions of a party.” Policy on Prohibited Practices, §3.2.1.
[3] “[A]n arrangement between two or more parties designed to achieve an improper purpose, including to influence improperly the actions of another party.” Id.at §3.2.2.
[4] [T]he offering, giving, receiving or soliciting, directly or indirectly, of anything of value to influence improperly the actions of another party." Id. at §3.2.3.
[5] “[A]ny act or omission, including a misrepresentation, that knowingly or recklessly misleads, or attempts to mislead, a party to obtain a financial or other benefit or to avoid an obligation.” Id. at §3.2.4.
[6] “[I]mproper use of the Bank’s resources, carried out either intentionally or through reckless disregard.” Id. at §3.2.5.
[7] Including a range of practices, such as destroying, falsifying, or concealing evidence; making false statements to investigators; failing to comply with requests for information relevant to a Bank investigation; threatening, intimidating or harassing a party to prevent disclosure of information; or materially impeding exercise of the Bank’s audit rights. Id. at §3.2.6.
[8] “[T]he misappropriation of property belonging to another party.” Id.at §3.2.7.
[9] Id. at §3.4.
[10] Id. at §§9.2, 9.3.
[11] Id. at §3.5.
[12] Id. at §4.5.
[13] Id. at §4.6. A respondent may request reconsideration of the temporary suspension within 30 days of receiving a Notice of Temporary Suspension. Id. at §10.5.
[14] Id. at §4.7.
[15] Id. at §6.1.
[16] Id. at §8.8.
[17] Id. at §5.4.
[18] Id. at §7.2.
[19] Id. at §§7.4, 7.5.
[20] Id. at §7.6.
[21] World Bank Sanctions Procedures, §4.03(a) (allowing the Suspension and Debarment Officer (SDO) 30 days to withdraw or revise the recommended sanction).
[22] Such settlements are permitted under the Policy “[a]t any time prior to or during an investigation or proceedings,” implying that, similar to the World Bank system, there may be independent interaction between the Investigations Officer and the respondent prior to the initiation of sanctions proceedings. Policy on Prohibited Practices, §11.4.
[23] INT may also issue a “Show Cause” letter prior to a sanctions referral that can help focus or narrow issues and sometimes promotes settlement discussions. It is unclear what the AIIB’s practice in this regard will be.
[24] See World Bank Procurement Guidelines at §1.14. Interestingly, however, the AIIB Policy includes an additional grounds for misconduct as an obstructive practice – “failing to comply with requests to provide information, documents or records in connection with a Bank investigation.” Policy on Prohibited Practices, §3.2.6(c).
[25] See Inter-American Development Bank Sanctions Procedures, §2.2; Sanctions Procedures of the African Development Bank Group, §4.2; European Bank for Reconstruction and Development Enforcement Policy and Procedures, §2.1.29. Note that, in addition to prohibited these practices, the Asian Development Bank also sanctions further integrity violations, including abuse (theft, waste, or improper use of assets) and conflict of interest. See Asian Development Bank Integrity Principles and Guidelines, pp. 5-8.
[26] Policy on Prohibited Practices, §§3.3.4-3.3.6.
[27] Id. at §8.2.
[28] The World Bank Sanctions Procedures indicate that, “[u]pon request by the Respondent in its Response or by INT in its Reply, or upon decision by the Sanctions Board Chair, the Sanctions Board will hold a hearing on the accusations against the Respondent.” World Bank Sanctions Procedures, §6.01 (emphasis added).
[29] See id., §9.02(h). The AIIB Policy also does not take breach of confidentiality into consideration in determining sanctions. Information sharing on AIIB’s part is limited by a confidentiality clause imposed on the Sanctions Panel and limitations included within the Bank’s internal policies. Policy on Prohibited Practices at §§5.9, 11.3.
[30] See World Bank Sanctions Procedures at §9.02 (“the Evaluation Officer or Sanctions Board, as the case may be, shall consider the following factors in determining an appropriate sanction…”) (emphasis added).
[31] See Policy on Prohibited Practices at §7.6 (“The Sanctions Officer and the Sanctions Panel may consider the following factors. . .”) (emphasis added).
[32] Id. at §12.1.
[33] Id. at §12.4.
[34] The Cross Debarment Agreement requires that Participating Institutions mutually enforce debarment decisions based “in whole or in part, on a finding of a commission of one or more of the sanctionable practices defined in the Uniform Framework.” Cross Debarment Agreement, §4(a).
