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Examples of MDB and IFI activities combatting corruption
A recent report by RPC entitled MDBs & IFIs, The Unspoken Giants in the Global Fight Against Corruption,xxv found that there are currently an estimated 500 investigations globally into alleged fraud and corruption by companies and individuals backed by MDB financing. Given that these organisations have collectively committed more than $300bn in lending since the start of the pandemic, fighting corruption has never been more important and is backed by the evidence earlier in this report that the cost of not reducing corruption is slowly increasing.
It should, however, also not be forgotten that the cost of corruption does not only occur in one way. We also need to consider the following:
• The loss in economic efficiency and value due to the corruption itself.
• The cost of identifying and monitoring corruption.
• The cost of investigating corruption.
• The cost of taking action or repairing the damage done by corruption.
The above demonstrates why the role the MDBs are taking in fighting corruption is also becoming more sophisticated. For example, the World Bank, as well as having its five key initiatives below, has partnered with companies such as Microsoft to combat corruption with artificial intelligence.
“Working with Microsoft’s Research group, we had the opportunity to see the power and potential of artificial intelligence to digest huge and diverse data sets to detect patterns that hint at the possibility of corrupt behaviour. This would allow us to see links in bidding patterns of the winning and losing bidders to numeric patterns under “Benford’s Law,” along with beneficial ownership information from around the globe. It can also allow us to better map networks of relations, locations, use of shell companies, offshore jurisdictions, and banking information of bidders to address potential risks before a contract is issued.”xxvi
The World Bank even provide examples such as in Brazil, where the bank helped develop an artificial intelligence system that identifies 225 red flags of potential fraud in public procurement processes and can help improve expenditures.xxvii It should, however, also be considered that public procurement processes are only part of the entire procurement process story and that the number of red-flags would likely be much higher if more data was available, integrable or comparable from both public and private sources.
The World Bank’s wider approach to controlling corruption needs to keep up with the times and their current approach is organised around five initiatives.xxviii
• Global norms and standards are essential in shaping policy and ensuring governments act.
• Corruption is often transactional but it can also be embedded in networks, tilting the playing field to the advantage of political elites and connected firms.
• Transparency has value. Access to information is a basic human right.
• Corruption comes in all forms, and these can vary systematically.
• The common definition of corruption considers “abuse of public office for private gain,” projects an image of a lone person doing wrong. In many cases they get help from bankers and lawyers and accountants, sometimes in offshore jurisdictions and financial centres in advanced economies.
And what about the behaviour of the firms and individuals?
Similarly, as one would expect, other MDBs have similar policies in place. For example, the European Investment Bank (EIB) launched its most recent policy on 5 August 2021 entitled EIB Group Anti-Fraud Policy which makes it makes clear that:
“The EIB Group will not tolerate Prohibited Conduct (i.e., corruption, fraud, collusion, coercion, obstruction, theft at EIB Group premises, misuse of EIB Group resources or assets, money laundering and terrorist financing) in its activities or operations.”xxix
Within this, the EIB have set up a Fraud Investigations Division of the Inspectorate General (IG/IN) is an independent office within the EIB Group. IG/IN was created to combat fraud, corruption and other ‘Pphibited Conduct’ affecting the EIB Group’s operations.
IG/IN aims to protect the EIB Group’s finances and reputation through six core activities:xxx
1. Assessment and, where necessary, investigations of allegations.
2. Policy work, such as advising on the wording of bank documentation and giving advice to colleagues throughout the bank on addressing fraud and corruption-related issues.
3. Proactive Integrity Reviews to identify actual fraud or potential vulnerabilities.
4. Fraud awareness training for all EIB Group staff.
5. Raising awareness of fraud and corruption-related issues in the public and private sectors.
6. Analysis and information gathering to support the above five activities.
As one would expect, if fraud or corruption is proven, the EIB has a number of sanctions, including various tools from suspension to remedies and referral to national authorities. These are listed below.
• Suspend disbursements.
• Seek repayment of the loan and loan reallocation.
• Refer all evidence to national authorities and other appropriate parties (e.g., for criminal investigation).
• Pursue other remedies as provided for in the finance contract.
• Require remedial measures be taken by the borrower.
• Settle with the entities that engaged in Prohibited Conduct.
As mentioned previously, the African Development Bank has a similar stance stating that:
• “The African Development Bank Group views corruption, fraud and other sanctionable practices as highly inimical to the achievement of its mandate. In order to spur sustainable economic development and social progress on the continent, AfDB endorses a multipronged approach to combating these harmful practices. Consequently, the Office of Integrity and Anti-Corruption (PIAC) uses proactive measures including risk assessments and sensitization programmes to deter sanctionable practices and prevent their occurrence in internal corporate procurement issues and operations financed by the Bank Group.”xxxi
Like the EIB, the African Development Bank also has in place an independent Integrity and anti-corruption department to deal with issues that arise. The method in which it carries out its strategy is also similar:
• Proactive prevention through risk assessments, sensitisation programmes, due diligence and other activities.
• Mainstreaming integrity issues into Bank Group operations and activities.
• Providing technical support to regional member countries in integrity issues and enhancing accountability.
• Participation in international and regional integrity initiatives.
• Investigations, sanctions and other deterrence processes.
What the above does demonstrate is that over time the MDBs have focused on and have increasingly put in place practices which learn lessons from each other. This is not surprising as increasingly the MDBs and IFIs are co-financing and involved in blended financing and funding of projects. As such it makes sense if anti-corruption policies align and carry similar importance and lack of tolerance for corruption.
Integrity is one of FIDIC’s core three principles
FIDIC sees itself as the international voice of consulting engineers. One of its main goals in addition to the global representation is improving the reputation of consulting engineers. FIDIC’s main philosophy includes quality, integrity, and sustainability as basic principles.
FIDIC has been energetically promoting integrity within the industry for years. There is evidence to support the idea that a formal and systematic approach towards the management of integrity works better than sporadic efforts developed by individual companies, yet the idea has been slow to achieve success in the consulting industry. Combating corruption requires a concerted effort by all parties involved in projects - clients, contractors, government procurement groups and funding agencies alike - in helping to prevent and not just to punish. The industry cannot solve the problem without its partners.
FIDIC uses the term “integrity management” deliberately. FIDIC advocates ethical integrity to fight corruption and an integrated management system as an approach to control and verify its performance in this regard. It begins with a firm’s commitment to a code of conduct on behalf of all of its staff and leadership which demonstrates this commitment in a clear and visible way. The CEO must lead in the formulation of the code of conduct and in the allocation of resources to the integrity management initiative. There should be no misunderstanding that top management demands compliance to integrity values and is prepared to take the necessary actions for achieving integrity.
FIDIC also has a dedicated integrity management committee (IMC) tasked with the development of policies, guidelines and processes aimed at better understanding and ‘managing’ risks of corruption. The IMC works with other international organisations to achieve this objective to ensure that there is only one standard used by the industry. The organisations that FIDIC works with include the World Federation of Engineering Organisations, Transparency International, Organisation for Economic Co-operation and Development, World Economic Forum, International Organisation for Standardisation, Confederation of International Contractors’ Associations and the United Nations. The IMC liaises with the international financing institutions for complementing and supporting their anti-corruption initiatives.
FIMS, FIDIC Code of Ethics and Model Code of Conduct for Consulting Firms
FIMS is structured to be used as a platform for a compliance system and the code of ethics contains principles of social responsibility, competence, integrity, impartiality, fairness to reduce, mitigate and strive to prevent corruption.
A corresponding model code of conduct extends these principles to include quality of service, objectivity and competition which, amongst other important things, requires that firms will not sponsor compensation designed to influence or secure consulting work, nor seek commissions from suppliers of equipment or services recommended to clients.
The above is linked to the FIDIC approach to the UN SDGs through systemic and documented processing described in the FIMS, the FIDIC Suite of Contracts and other FIDIC publications and promotions.
Maintaining integrity and reducing corruption
Engineering firms have many tools to help the global community reduce corruption. Many global engineering firms have integrity management systems in place and those that do not are well advised to do so – their survival depends on it.
FIDIC provides excellent guidance in this area via their “FIMS” publications. Eliminating corruption continues to be on FIDIC’s agenda as a priority. Integrity is one of FIDIC’s three core commitments, the others being sustainability and quality. In fact, reducing and aiming to ultimately eliminate corruption will help improve performance in these other two areas by establishing confidence in a systemic approach to recording and reporting corruption.
FIDIC believes that education is one of the key elements in preventing corruption. A person who is an aware of the causes and consequences of his corrupt conduct and the implications of living in a society could make the right decision and act in an action of integrity.
In addition to providing FIMS guidelines, we encourage decision-makers to use FIDIC Conditions of Contract for their projects. These documents represent the sound outputs of the efforts of a large diverse group of exceptionally qualified professionals. They are designed to be fair to all parties and to realistically allocate and apportion risk by considering which party has, or ought to have, the most control over a specific risk parameter. Of course, a good contract does not guarantee project success, but a poorly drafted and incorrectly used contract, especially one with unbalanced risks, dramatically increases the possibility of complicated disputes, protracted litigation and even corruption.
FIDIC actively engages entities involved in reducing or eliminating corruption including its member associations, owners/employers, government agencies, international funding institutions, the International Standards Organisation and non-governmental organisations like Transparency International. We often meet with them and offer them opportunities to participate as presenters at our conferences.
Through this activity, FIDIC has become acutely aware of how damaging corruption is and we are committed to work with everyone to eliminate it. Some specific recommendations we have to take to eliminate corruption are listed below.
1. Encouraging firms to avoid projects and contracts with severely unbalanced risk and compensation models.
2. Encouraging firms to implement a FIMS or FIMS compatible programme which includes compliance (following rules) and ethics (consistent with a culture encouraging correct behaviour).
3. Encouraging owners/employers to require firms working for them to have a FIMS or FIMS compatible programme in place.
4. Encouraging owners/employers and funding agencies to reward good behaviour (whitelisting) and react accordingly to mitigate, restrict or avoid bad behaviour (blacklisting).
5. Encouraging owners/employers and funding agencies to treat firms who self-report problems fairly in an effort to encourage firms who find themselves in such a situation to do so.
6. Encouraging firms to establish a zero-tolerance policy for corruption and monitor/enforce it from the top of the organisation.
7. Encouraging firms to establish robust mandatory training programmes.
8. Encouraging firms to establish reporting systems for all employees.
9. Encouraging firms to implement comprehensive risk management systems; and
This brings us neatly back to the UN theme of anti-corruption day for 2022 which is “Your right, your role: Say no to corruption.”xxxii FIDIC believes this report should help form an important part in reducing and highlighting the effects of corruption going forward.
