It should come as no surprise that corruption sometimes threads its tentacles through development projects funded by Multilateral Development Banks (MDBs). MDBs are international financial institutions, funded by member countries that extend loans, grants, and investments for economic and social development. Corruption in those projects may be associated with national officials of the countries benefitting from a particular project, or even within the organizations carrying out the project. At least one study from 2005 estimates that the global cost of bribery alone could be over $1 trillion. Indirect costs are hard to estimate, much less non-monetary costs like the loss of public trust in government, diminution in citizens’ quality of life, etc. Corruption not only increases the cost of doing business globally but also impedes the MDB’s goal of fighting poverty. Today, MDBs are fighting back in an effort to ensure that their project funds are being spent as originally intended.
The World Bank Group (comprised of the International Bank for Reconstruction and Development, the International Development Association, the International Finance Corporation, the Multilateral Investment Guarantee Agency and the International Centre for the Settlement of Investment Disputes) has an active and independent Integrity Vice President (INT) that investigates and litigates cases of fraud or corruption in Group-supported activities, as well as in activities involving Group staff. The INT regularly collaborates with national authorities through information sharing so that law enforcement can take the appropriate legal action against bad actors. For example, in 2016, the World Bank sanctioned 73 entities and entered into 18 settlements with companies involved in sanctionable practices. The Bank also recognized 140 cross-debarments, or when persons sanctioned by one MDB are also sanctioned by other MDBs who are signatories to the Agreement for Mutual Enforcement of Debarment Decisions, in 2016.
What happens, however, when national authorities receiving information from MDBs fail to act against corrupt officials and/or nationals?
In the case of the World Bank, its Anti-Corruption Guidelines do not give the World Bank authority to directly sanction Member Countries (including government officials operating in their governmental capacity). Other than remedies associated with the borrowing country’s failure to take timely and appropriate action against the national official, or the Bank’s ability to exercise other contractual remedies if the borrowing country fails to address the issue, often the only direct recourse available to the World Bank in this situation is to remove that official from the project. In the context of World Bank-funded project, the Borrower is a poor country and the projects funded by the Bank’s loans are those that can directly benefit the poorest people in a developing country. Other limitations with respect to national officials can also be found in today’s legal regimes.
In the case of the United States, for instance, the Foreign Corruption Practices Act (FCPA), the primary law concerning accounting transparency and the bribery of foreign officials, does not provide for the prosecution of the foreign government officials associated with the offer, authorization, or promise of a corrupt payment. Rather, the focus is on the person or company making or authorizing the bribe in order to influence a foreign official.
What else could MDBs do with respect to national officials engaged in bribery, fraud, or other corruption associated with MDB-funded projects?
First, collaboration with law enforcement should continue in earnest and MDBs should make it clear to all parties involved in a funded project that such collaboration will continue. Second, MDBS should consider ways to maintain centralized data on national officials who are found through an MDB investigation to have engaged in corruption or fraud on a funded project. One way would be to create internal lists so that the MDB can ensure all future projects factor in the presence of that national official in a project risk calculation. Investigations and resulting disciplinary actions can provide useful data to an MDB, in addition to providing a procedure for resulting action or discipline by an MDB. Lastly, MDBs should consider other ways to incentivize Borrowers to make progress in removing officials engaged in corruption; simply by terminating a loan to a borrower country, the people of that country experience the chief loss.
MDBs recognize that their mission, first and foremost, is to ensure that project funds are used to further the mission of the MDB. By continuing to foster a culture of awareness with respect to fraud and corruption, while simultaneously pursuing investigations in an efficient and targeted fashion, MDBs can help to reduce the large-scale, negative impacts of corruption and fraud on both individual projects as well as on a global scale.