On October 10, 2019, the World Bank Group (the Bank) published for the second year in a row a joint Sanctions System Annual Report for fiscal year 2019. This report, which reflects on the Sanctions System's growth since its implementation twenty years ago, provides an overview of activities undertaken by the Bank's Integrity Vice Presidency (INT), Office of Suspension and Debarment (OSD), and the Sanctions Board. In this International Law Advisory, we summarize key takeaways and trends from the report.
For a summary of the Bank’s activities in fiscal year 2018, see our publication FCPA/Anti-Corruption Developments: 2018 Year in Review.
INT highlighted its focus on more complex cases, including its investigation of several companies involved in the Río Bogotá Environmental Recuperation and Flood Control Project. So far, the investigation has resulted in settlement with an Odebrecht subsidiary, Construtora Norberto Odebrecht S.A., as well as settlements with two subsidiaries of Veolia Water Technologies: a French water engineering company (OTV) and a Brazilian water treatment technology company (Veolia Water Technologies Brasil Ltda.). All three companies faced allegations of fraudulent and collusive practices (specifically, failure to disclose fees paid to commercial agents who assisted the companies in obtaining confidential information and influencing the tender), and debarment terms ranged from two to three years. INT hailed the scope of the investigation (a part of INT's broader efforts to pursue larger and more complex investigations) as well as its targets, noting that INT "hold[s] firms accountable, regardless of their size." The investigation remains ongoing.
Meanwhile, the OSD focused on cooperative efforts with counterparts from other multilateral development banks (MDBs), as well as engagement with external stakeholders regarding the Bank's anti-corruption work and Sanctions System.
Finally, the Sanctions Board highlighted the arrival of new members (including a new Chair, John R. Murphy) and announced its work on a second edition of its Law Digest (forthcoming in fiscal year 2020). The first edition of the Law Digest was released in 2011.
Enforcement Statistics in Fiscal Year 2019
Investigations and Sanctions
INT opened 49 and completed 47 external investigations in fiscal year 2019, down from fiscal year 2018 (in which it opened 68 and completed 70 investigations).
While the number of new investigations may have decreased, the number of cases INT submitted to the SDO increased from 28 in fiscal year 2018 to 37 in fiscal year 2019. The SDO issued notices of sanctions proceedings and recommended sanctions to 30 respondents, and imposed sanctions on 19 respondents.
Roughly 17% of respondents contested their cases to the Sanctions Board in fiscal year 2019. The Sanctions Board issued decisions in nine cases, through which it sanctioned 14 firms and individuals.
The Sanctions Board found insufficient evidence to support liability in only one case, but found insufficient evidence to support liability for at least one allegation (while sanctioning respondents based on remaining allegations) in three other cases.
Although we have witnessed an uptick in settlements with the Bank in recent years, fiscal year 2019 appears to walk back from this trend. In total, 16 settlement agreements were submitted for review by the SDO in fiscal year 2019 (as compared to 26 and 23 agreements in fiscal years 2017 and 2018, respectively). Meanwhile, sanctions were imposed on 20 respondents through settlement (down from 39 in fiscal year 2018).
Type of Misconduct
Based on statistics provided in the report, it continues to be the case that relatively few cases pursued by the Bank involve corruption. Indeed, cases and settlements involving allegations of corruption – which decreased from 30% in fiscal year 2017 to 19% in fiscal year 2018 –decreased further to just 12% in fiscal year 2019. Instead, as in past years, allegations of fraud made up the majority of cases and settlements that reached the OSD level (making up 77% of cases and settlements reviewed by the OSD in fiscal year 2019).
This divide was reflected at the Sanctions Board level as well – only one case reviewed by the Sanctions Board in fiscal year 2019 included an allegation of corruption (comprising 7% of all allegations reviewed by the Sanctions Board in fiscal year 2019, as compared to 44% of all allegations in fiscal year 2018). Meanwhile, allegations of fraud made up 46% of all allegations reviewed. Notably, 31% of allegations related to collusion (a significant increase from the past several years, two of which did not include any such allegations).
Referrals to National Authorities
The Bank continues its practice of making referrals to national authorities relating to allegations of misconduct. In fiscal year 2019, the Bank made 42 such referrals. The majority of referrals were based on possible fraudulent conduct. It is unclear what steps national authorities have taken in response to such referrals, but according to the report, law enforcement activity remains ongoing in at least two such cases.
The Bank continues its active enforcement efforts against respondents involved in Bank-financed projects, particularly in pursuing allegations of fraud. These cases often involve failure to disclose an agent, misrepresentations of commissions paid to an agent, misrepresentations regarding the scope of work allocated in a joint venture or subcontractor arrangement, or the replacement of personnel. The consequences of an allegation of misconduct – even assuming such allegations are ultimately unsubstantiated – can be significant and can include: the costs of investigating the misconduct, negotiating settlement, litigating to the OSD or the Sanctions Board, and, possibly, a referral to national authorities. Furthermore, respondents may elect not to pursue additional Bank-financed projects under a voluntary restraint, or may be subject to a temporary suspension preventing their participation in such projects pending the outcome of a case.
Should a respondent ultimately be sanctioned, the collateral consequences of debarment and of release from sanction will also be significant.
In light of continued enforcement activity, companies involved in Bank-financed projects should develop a firm understanding and awareness of activities which may constitute sanctionable conduct (as well as potential consequences for non-compliance), and take adequate steps to mitigate significant risks in this area. Any company that receives an audit request from INT should not treat it as an ordinary client audit, as such requests are fraught with enforcement risk.
 Investigations opened in one year may carry on to the next.