| What is the sanctions process? |
IFC has always expected its clients to maintain the highest standards of ethical behavior and compliance with law. Starting a few years ago, specific covenants were included in our legal documentation, giving us contractual rights if corruption (a "Prohibited Payment") was discovered in our projects. The World Bank Group has decided that in addition to the contractual rights, it would also have an administrative process through which it would “debar” any party found indulging in certain wrongful behavior in connection with World Bank Group projects. Debarment makes the debarred party ineligible to do business with the World Bank Group for a specific period of time, with the debarment announcement posted on a public website. Debarment or any other sanction would be decided by a fair and open process involving an investigation by the World Bank Group Department of Institutional Integrity (INT), consideration of the results by an Evaluation Officer, a notice to the party with an opportunity for the party to respond, consideration by a Sanctions Board, and an appropriate decision. |
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| What behavior can be sanctioned? |
Five kinds of acts are defined – Fraudulent Practices, Corrupt Practices, Collusive Practices, Coercive Practices and Obstructive Practices. The definitions together with interpretive guidance are found in the document Sanctions Definitions and Interpretations [doc]. |
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| Who can be sanctioned? |
Any IFC Counterparty, which would in general include IFC borrowers; companies in which IFC makes an investment (both direct and indirect); companies who borrow or issue debt securities with the support of IFC guarantees; sponsors; TA recipients; and TAAS service providers and sponsors. |
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| To which projects does the sanction process apply? |
The new rules apply only to new business. However, IFC may have contractual rights under its existing legal agreements in portfolio projects. |
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| What is the effective date? |
The new sanctions process is applicable to all investment projects for which a mandate letter is signed or the project is considered by IFC's Corporate Investment Committee (early review committee) after January 1, 2007 and for all TA projects that have a contract date after January 1, 2007. |
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| What happens when INT investigates an IFC matter, and believes there has been fraud or corruption? |
At present, INT works with IFC management when any investigation indicates a serious possibility that there has been fraud or corruption, so that IFC management can take the appropriate action under our financing documents, such as cutting off disbursements. This, fortunately, has been rare, but IFC has worked closely with INT whenever such situations have arisen. In the future, IFC project companies will also be subject to a formal sanctions and debarment system, as it has been applied to the World Bank Group's procurement process for some years. Companies that are found to have committed fraud, corruption, collusion or coercion in IFC projects may be debarred from financing by IFC and the other members of the World Bank Group. |
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| Who will determine if a company has engaged in fraud or corruption? |
INT would conduct an in-depth investigation of any allegations. The results of this investigation would be considered by IFC's Evaluation Officer, who would have to concur in the results of the INT investigation before review by an independent Sanctions Board to be established by the World Bank Group. The Sanctions Board will determine whether the allegations are founded. |
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| Will accused companies have the right to defend themselves against fraud and corruption allegations? |
Yes. Accused parties would have the right to defend themselves, by appearing in person and presenting evidence and written responses before the Sanctions Board. The majority of the Sanctions Board members will be senior figures not affiliated with the World Bank Group. A final decision would be made by the Sanctions Board. Such decision may not be overruled by IFC. The process is designed to be a fair, transparent and rational way to evaluate allegations of fraud and corruption in any IFC project. The procedures are found in the document Sanctions Procedures [pdf]. |
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| What sanctions will be imposed on companies that have been found to have committed fraud or corruption in an IFC project? |
A company could expect sanctions ranging from a formal letter of reprimand to probation to conditional, temporary or even indefinite debarment. The names of all sanctioned persons or entities will be posted on a public website. IFC will not finance a company that is debarred by the World Bank. And companies that are sanctioned in connection with IFC projects will be debarred from financing by the other members of the World Bank Group. |
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| Will companies get credit for cooperating with an INT investigation? |
Yes. Cooperation offered by a company that is being investigated by INT will be considered as a positive factor in evaluating the appropriate sanction. Similarly, efforts to frustrate an INT investigation will lead to more serious sanctions. |
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| What about rights and remedies under the financing documents? Will they be determined by the Sanctions Board? |
No. The financing documents will continue to be governed by the applicable law and the dispute resolution provisions set out in the agreements. The sanctions process relates to future projects: whether the World Bank Group will do business with the company in the future. |
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| How can someone report suspected fraud or corruption in an IFC project? |
Suspected fraud or corruption in an IFC project can be reported directly to the Department of Institutional Integrity (INT) of the World Bank Group. Further information is available at www.worldbank.org/integrity. Companies that have discovered possible fraud or corruption in their own activities may also consider the voluntary disclosure program. Further information is available at www.worldbank.org/vdp. |
