According to the report, Improving Development Outcomes: Fiscal Year 2007 Annual Integrity Report, INT closed a total of 301 cases in Fiscal Year 2007 (July 1, 2006 – June 30, 2007), including both cases of fraud and corruption in Bank-financed projects and cases of alleged staff misconduct, an increase of 60 cases from FY06. In addition, the total carryover of open cases into FY08 was 232 cases, a decrease of 62 cases (21 percent) from the FY06 backlog and the lowest year-end total since Fiscal Year 2002.
INT’s External Unit, which investigates allegations of corruption in Bank projects, closed 149 cases in FY07, one more than in FY06. The largest single source of allegations of fraud and corruption in Bank-financed projects in FY07 was World Bank staff and consultants, at 35 percent of all allegations, up from 32 percent in the previous two fiscal years, according to the report. The nature of the allegations included procurement fraud, collusion, kickbacks and bribes, and the misuse of project assets, the report notes. On the basis of such investigations, INT made nine referrals of findings to borrower countries and other donors for their information or action in FY07.
INT’s Internal Unit, which is responsible for investigating possible staff misconduct, completed 152 cases – the highest number in four fiscal years and an increase of 63 percent over FY06. Of these, INT substantiated allegations in 51 of the cases. Equally important, after investigating the allegations, INT cleared the staff members of any wrongdoing in 25 internal cases. The remaining allegations were either unsubstantiated (38 cases), meaning the evidence was inconclusive, or the case was referred to others in the institution for resolution (38 cases). As a result of the substantiated investigations, the Bank’s Human Resources Vice President terminated and/or barred from rehire 22 staff members and imposed other disciplinary measures on 22 additional staff, with sanctions ranging from salary reductions, demotions, and letters of reprimand to training. The remaining cases are either pending (2), no action was necessary (1), or the staff members brought themselves into compliance as a result of INT’s involvement (4).
In FY07, INT also secured formal Board approval of a proactive anti-corruption tool called the Voluntary Disclosure Program, or VDP, which is designed to uncover corrupt and fraudulent schemes and patterns in Bank-financed projects through the voluntary cooperation of participating firms and individuals. The VDP allows companies that have engaged in past fraud and corruption to avoid debarment if they disclose all prior wrongdoing and the VDP’s terms and conditions. Lessons learned through the program can then be applied to mitigate risks more effectively in future lending operations.
FY07 was also a year that saw an unprecedented agreement among the International Financial Institutions (IFIs) to harmonize their approaches to investigating fraud and corruption in their lending operations. On September 17, 2006, the leaders of the African Development Bank, Asian Development Bank, European Bank for Reconstruction and Development, European Investment Bank, Inter-American Development Bank, International Monetary Fund, and the World Bank Group announced a Joint Framework on Anti-Corruption that provides new, harmonized definitions of fraudulent and corrupt practices, principles and guidelines for investigations, and the promotion of information exchange across the institutions, among other measures. INT represented the World Bank on the task force that facilitated this agreement.
In FY07, the Bank Group’s Board unanimously endorsed a new Governance and Anticorruption (GAC) strategy that aims to heighten the institution’s focus on these areas as an integral part of its work to reduce poverty and promote economic growth. Among the strategy’s recommendations, the paper calls for the Bank Group to step up the inclusion of appropriate fraud and corruption mitigation measures in project design, drawing on lessons from INT investigations. The GAC also recommends better dissemination of INT findings and emerging good practice and more explicit training and sensitization of task teams in how to spot “red flag” indicators of fraud and corruption.
“As the institution works to implement the new Governance and Anti-Corruption strategy, INT looks forward to making an even greater contribution to the Bank’s overall mission of poverty reduction, by continuing our work in ensuring that development resources go to their intended beneficiaries, and by helping to deter future wrongdoing,” said Suzanne Rich Folsom, Director of INT.
The Bank Group’s Board also approved a broad new set of reforms to the Bank’s sanctions regime in FY07. These reforms, which INT was significantly involved in designing, will help ensure uniform compliance with the highest ethical standards in all aspects of Bank-financed projects around the world. In addition to these new sanctions reforms, the Bank also implemented a number of important changes to the institution’s sanctions procedures that were approved by the Bank Group’s Board in Fiscal Year 2004.
The report points out that, because of these changes to the Bank’s sanctions regime, only one sanctions hearing was held during the fiscal year. This resulted in the debarment in early FY08 of two firms: Nestor Pharmaceuticals Ltd. (Nestor) and Pure Pharma Ltd. (Pure Pharma). Nestor was debarred for a period of three years and Pure Pharma for one year because of collusive practices in connection with the Bank-financed Reproductive and Child Health Project in India. During FY07, the Bank Group also declared Lahmeyer International GmbH (Lahmeyer) ineligible to be awarded Bank-financed contracts for seven years because of corrupt activities in connection with the Lesotho Highlands Water Project (LHWP). This debarment may be reduced by four years if the Bank determines that the company has met specific compliance conditions and fully cooperated in disclosing past sanctionable misconduct.
The VDP and Sanctions Reforms were approved by the Bank Group’s Board at a meeting on August 1, 2006. At this session, the Board requested an external review of INT in order to ensure that the Department was operating as effectively as possible. This review, which was completed in September 2007, was conducted by a panel of experts headed by Paul Volcker, former Chairman of the United States Federal Reserve. Throughout much of FY07, INT had to devote a significant amount of time and energy preparing for and responding to requests concerning this review, says the report.
Finally, over the fiscal year, INT greatly increased its use of a proactive diagnostic tool called the Detailed Implementation Review, or DIR, which uses forensic accounting and investigative techniques to examine Bank projects in a given country for indicators of fraud and corruption. INT completed two DIRs in FY07, in Kenya and Vietnam. In addition to these completed DIRs – twice as many as any other fiscal year – INT undertook a DIR of five projects across the Bank Group’s health portfolio in India, which is to be completed and provided to the region in FY08.
