OFFICE OF
INSTITUTIONAL
INTEGRITY AND
SANCTIONS
SYSTEM
2013 ANNUAL REPORT
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TABLE OF CONTENTS
ACRONYMS
I.
INTRODUCTION
1
II. A. B.
THE OFFICE OF INSTITUTIONAL INTEGRITY PREVENTION ACTIVITIES INVESTIGATION ACTIVITIES
III. A.
ADJUDICATIVE ACTIVITIES THE CASE OFFICER
IV.
OUTREACH ACTIVITIES OF OII, THE CO AND THE SNC
V.
LOOKING TO THE YEAR AHEAD
4
ACPC Anti-Corruption Policy Committee ADB Asian Development Bank AfDB African Development Bank AML Anti-Money Laundering ATI Access to Information Section CMS Case Management System CO Case Officer CSS Compliance Screening System EBRD European Bank for Reconstruction and Development EIB European Investment Bank IDB Inter-American Development Bank IDD Integrity Due Diligence IFI International Financial Institution IIC Inter-American Investment Corporation IRR Integrity Risk Review MDB Multilateral Development Bank MIF Multilateral Investment Fund NAA Notice of Administrative Action NSG Non-Sovereign Guaranteed OFC Offshore Financial Center OII Office of Institutional Integrity OMJ Opportunities for the Majority PNAA Preliminary Notice of Administrative Action SG Sovereign Guaranteed SCF Structured and Corporate Finance SNC Sanctions Committee WB World Bank
OFFICE OF INSTITUTIONAL INTEGRITY AND SANCTION SYSTEM ANNUAL
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Combating fraud and corruption is a crucial element of the Inter-American Development Bank’s (IDB or the Bank) broader mission to eliminate poverty, reduce inequality and promote sustainable economic growth in Latin-America and the Caribbean. It is also an institutional imperative – the IDB has a fi(i) ensuring that activities fiduciary duty to ensure that the nanced by the IDB are free of funds it uses to finance operafraud and corruption; tions are applied for their intended purposes. (ii) supporting programs that strengthen good governance, The negative impact of corrupenforce the rule of law, and tion on development in Lacombat corruption; and tin-America and the Caribbean is clear. President Moreno highligh(iii) fostering staff integrity. ted this relationship on the 2013 International Anti-Corruption This Annual Report summariDay when he said: zes the 2013 efforts of several “Corruption is an obstacle to sus- IDB offices established to comtainable and equitable develop- bat fraud and corruption in IDB ment in Latin-America and the Group1 operations. It combines Caribbean.” descriptions of the activities undertaken by the Office of InstiRecognizing both, the develop- tutional Integrity (OII), the Case ment and institutional reasons Officer (CO), and the Sanctions to fight fraud and corruption, the Committee (SNC), which together Bank adopted in 2001 a Systemic constitute the Sanction System Framework against Corruption and bear primary responsibility (GN-2117-2 Rev.). This framework for implementing the first piguides the Bank’s anti-corrup- llar of the Systemic Framework tion efforts around the following against Corruption. three pillars:
These three are not the only IDB offices engaged in fighting fraud and corruption. Other IDB offices, including the Institutional Capacity of the State Division and the Ethics Office, undertake other specific efforts in support of that goal and in pursuit of the other two pillars of the Systemic Framework against Corruption. In a larger sense, ensuring that IDB Group activities are free of fraud and corruption requires the active participation of every person at the IDB Group, as well as support from executing and enforcement agencies in our borrowing member countries, private sector entities, civil society organizations, and the public at large.
2- OII does not investigate Bank staff. Allegations of Prohibited Practices related to Bank staff are handled by the Ethics Office.
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Accordingly, this Annual Report not only reflects the work of OII, the CO, and the SNC. It also reflects the collective effort of all who have cooperated with us and to them we give our thanks.
1- The IDB Group comprises the IDB, the Multilateral Investment Fund (MIF), and the Inter-American Investment Corporation (IIC).
OFFICE OF INSTITUTIONAL INTEGRITY AND SANCTION SYSTEM ANNUAL
Prohibited Practices A key concept for the first pillar of the anti-corruption framework is that of Prohibited Practices, which are defined as follows:
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• A corrupt practice is the offering, giving, receiving, or soliciting, directly or indirectly, anything of value to influence improperly the actions of another party. • A fraudulent practice is any act or omission, including a misrepresentation, that knowingly or recklessly misleads, or attempts to mislead, a party to obtain a financial or other benefit or to avoid an obligation. • A coercive practice is impairing or harming, or threatening to impair or harm, directly or indirectly, any party or the property of the party to influence improperly the actions of a party.
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• A collusive practice is an arrangement between two or more parties designed to achieve an improper purpose, including influencing improperly the actions of another party.
•An obstructive practice is (i) deliberately destroying, falsifying, altering or concealing evidence material to the investigation or making false statements to investigators in order to materially impede a IDB Group investigation into allegations of a corrupt, fraudulent, coercive or collusive practice; and/or threatening, harassing or intimidating any party to prevent it from disclosing its knowledge of matters relevant to the investigation or from pursuing the investigation; or (ii) acts intended to materially impede the exercise of the Bank’s inspection and audit rights.
Description of Covered Offices As noted above, this Annual Report covers the activities of OII, the CO, and the SNC. Following is a brief description of the organization and functions of those offices, which interactions are illustrated in Figure I.1 below.
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The CO performs two primary functions: determining the sufficiency of evidence in cases and
OII
sanctions.
PREVENTION
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recommending
INVESTIGATION
FIGURE I.1: INTERACTIONS BETWEEN COVERED OFFICES MANAGEMENT AND OPERATIONAL DEPARTMENTS
CO
If Respondent appeals
SNC
1- The IDB Group comprises the IDB, the Multilateral Investment Fund (MIF), and the Inter-American Investment Corporation (IIC).
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2- OII does not investigate Bank staff. Allegations of Prohibited Practices related to Bank staff are handled by the Ethics Office.
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Office of Institutional Integrity OII is an independent office of the IDB that reports directly to the President. It also reports its activities and results to the Audit Committee of the Board of Executive Directors. OII has two mandates: to prevent and to investigate Prohibited Practices. It is organized into teams that correspond to these mandates. OII’s prevention team seeks to identify and mitigate integrity risk – the risk that a Prohibited Practice will occur in an IDB Operation – and any reputational impact to the IDB related to such risk. The prevention team accomplishes this by offering advice regarding specific operations, providing training, drafting policies to improve the IDB Group’s ability to detect and reduce integrity risk and designing and advising on the use of specific tools to gather and assess information that may indicate the presence of integrity risks.
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OII’s investigation team is responsible for investigating allegations of Prohibited Practices. Whenever an investigation substantiates such an allegation, OII submits the case to the first instance of the adjudicative bodies of the sanctions system –the CO. If the CO recommends a sanction, Respondents may then appeal to the second instance – the SNC.
Case Officer The CO is a Bank staff member appointed by the President of the IDB, who serves as the first instance of the adjudication phase of the Sanctions System. The CO performs two primary functions: determining the sufficiency of evidence in cases and recommending sanctions. The CO reviews all cases submitted by OII to ensure: (i) that they comply with the Bank’s Sanctions Procedures and the International Investigative Guidelines; and (ii) that they present sufficient evidence to support OII’s finding that the alleged Prohibited Practice has occurred. If those conditions are met, the CO recommends a sanction against the Respondent. If the Respondent contests the recommended sanction, it triggers a second instance review by the SNC. If the Respondent does not contest the recommended sanction, it becomes effective.
The Sanctions Committee The SNC is an independent seven-member committee whose Chairman, members and Secretary are appointed by the President of the IDB. It serves as the second instance of the adjudication phase of the Sanctions System. The SNC makes final decisions regarding the imposition of sanctions against parties for committing Prohibited Practices in IDB Group activities.
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IDB Group Sanctions System The IDB Group Sanctions System involves the work of three different offices – OII, the CO and the SNC – and has two distinct phases:
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1. The Investigation Phase: OII addresses all complaints and investigates those that involve credible allegations of Prohibited Practices in IDB-financed activities. When such allegations are substantiated, cases move on to the Adjudication Phase. 2. The Adjudication Phase: The CO reviews the evidence submitted by OII and on that basis issues a Determination that may include a recommended sanction. In such cases, the Respondent may appeal the CO recommendation, triggering the second instance review by the SNC.
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II. THE
OFFICE OF
INSTITUTIONAL INTEGRITY
assess, and mitigate As noted above, OII has two distinct mandates: 1. Preventing Prohibited Practices in activities financed by the IDB Group.
OII’s prevention and investigation activities are carried out by two separate teams within the Office. In addition, members of both teams engage in outreach activities. All of these activities are described in further detail below.
A. PREVENTION ACTIVITIES
(i) beneficial ownership; (ii) politically exposed persons; and (iii) criminal, civil or regulatory history.
any related reputational impact to the IDB Group.
Applicable IDB Guidelines require project teams to conduct IDD for each NSG operation, and to update the due diligence throughout the life of the project. The prevention team monitors compliance with the IDD Guidelines and also advises project teams regarding the identification, assessment and mitigation of integrity risks in individual operations. These efforts also serve to reduce the impact that integrity risk could have on the reputation of the IDB Group. In addition, the prevention team also monitors compliance with the Guidelines regarding the use of Foreign Entities in NSG Operations, which seek to address risks that the use of offshore financial centers in NSG operations could pose, including harmful tax prac-
1- The IDB Group comprises the IDB, the Multilateral Investment Fund (MIF), and the Inter-American Investment Corporation (IIC). 2- OII does not investigate Bank staff. Allegations of Prohibited Practices related to Bank staff are handled by the Ethics Office.
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OII’s prevention team seeks to identify, assess, and mitigate integrity risk – the risk that a Prohibited Practice will occur in an IDB Group operation – and any related reputational impact to the IDB Group. The prevention team takes different approaches to identifying and mitigating such risks in non-sovereign guaranteed (NSG) and sovereign-guaranteed (SG) operations. In NSG operations, which generally provide financing directly to private sector entities, the IDB Group manages integrity
This process focuses on several types of information including:
integrity risk, and
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2. Investigating allegations that Prohibited Practices may have occurred in activities financed by the IDB Group.
risks primarily by conducting integrity due diligence (IDD). IDD is a well-established process of gathering information regarding counterparties and other relevant entities to identify integrity risk.
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OII’s prevention team seeks to identify,
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tices, corruption, money laundering, and harm to the global financial system. In SG operations, integrity risk management is not focused on the Bank’s counterparty, but rather on identifying, during the design and execution phases, vulnerabilities that could allow for bidders, suppliers, contractors, consultants or other participants in IDB financed operations to engage in Prohibited Practices. An important component of integrity risk management is the assessment and strengthening of the executing agency responsible for implementing an SG operation in a given country and sector. In this regard, integrity risk management is a collective responsibility of the country, sector, fiduciary, and OII teams. An important role for OII is raising this awareness and building capacity of Bank staff and executing agencies to identify and address integrity risk. OII’s prevention team develops training and tools to this end.
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The prevention team also performs a variety of other functions, including responding to consultations from non-operational departments, contributing to the development of policies in aspects relevant to integrity risks, and conducting outreach to external stakeholders. Prevention Activities – Non Sovereign Guaranteed Operations Much of OII’s prevention work in relation to NSG Operations is in response to consultations from operational staff. OII generally
TABLE II.A.1: NSG Consultations 300 280 260 240 220 200 180 160 140 120 100 80 60 40 20 0 2011
2012
2013
FIGURE II.A.1: NSG CONSULTATIONS BY SOURCE ICC, 38
MIF, 9
45
142 (ERM & QRR)
Pre-ERM
• Before discussing potential IDB financing with a multinational construction company, a project team consulted with OII regarding the integrity risk presented by a series of price fixing penalties against the company. OII advised that the risk would depend on additional information and the project context, but that such enforcement history would likely present heightened – and could present significant – integrity risk.
QRR
• OII helped a project team gather additional information regarding a civil enforcement action pending against a board member of a borrower. Based on the additional information, OII advised that the litigation presented minimal integrity risk, because the action was still pending and because the allegations, even if true, would not constitute serious ethical or financial misconduct.
Board Approval
• OII worked with a project team to prepare language disclosing to the IDB Board integrity risks related to a supplier of key equipment for the project that is a subsidiary of a company debarred by the World Bank. OII then attended the board meeting to help the
Pre-Closing
• OII worked with the IDB Legal Department, project team and a financial institution borrower to negotiate contractual language regarding: (i) the borrower’s compliance with anti-money laundering (AML) regulations; and (ii) its obligation to provide notice to the IDB of any AML violations.
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ERM
• In reviewing project documentation OII determined that the Engineering and Procurement and Construction contractor for a transportation project would be closely associated with the project and recommended that the Project Team conduct integrity due diligence on it.
project team respond to any questions regarding those risks and explain the basis for management’s decision that the risks presented were within the IDB’s tolerance.
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OII Participation during the NSG Project Cycle
Portfolio
• OII advised portfolio management team regarding a proposed transfer of 60% of the shares of a Borrower to a family-owned company that was reticent to share information about its beneficial ownership. OII helped the team: (i) explain IDB’s requirement for obtaining beneficial ownership information; and (ii) establish confidentiality safeguards responsive to the incoming shareholder’s concerns.
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responds to consultations prior to project approval, but questions occasionally arise after approval (e.g., contractual language relevant to integrity issues) and during execution (e.g., integrity risks that arise in portfolio projects). OII also proactively approaches operational staff when it becomes aware of information that may impact the integrity of a project or have a reputational impact on the Bank. As shown in Table II.A.1, in 2013, OII responded to 234 consultations related to NSG Operations, which is down from 252 in 2012. Several factors may have contributed to this decrease, including an increase in early consultations from the Structured and Corporate Finance (SCF) and Opportunities for the Majority (OMJ) Departments, which allows for earlier detection of integrity risks and fewer instances of multiple consultations on a single project. NSG consultations refer to a variety of issues, ranging from questions about particular integrity risk indicators that arose in specific projects, to inquiries about compliance with integrity-related policies or guidelines. Table II.A.2 shows the most frequent issues raised in 2013 – many consultations addressed more than one issue. An important aspect of OII’s prevention work is advising project teams on the degree of risk presented by the facts of a particular project. Based on that assessment, OII may recommend the adoption of measures to mitigate integrity risks, and may recommend disclosure of such risks to Management and the appropriate Board or Committee. In making these recommendations, OII takes the approach described in Figure II.A.3, below:
TABLE II.A.2: Consultation Issues
Adverse Press
3
Conflict of Interest
3
Anti-Money Laundering
9
Relevant Entities
13
Other
13 42
Criminal, Civil & Regulatory History Beneficial Ownership
50
Political Exposed Persons
50
Use of Foreign Entities
59 175
Integrity Due Diligence Process
0 20 40 60 80 100 120 140 160 180 200
FIGURE II.A.3: ASSESSMENT, MITIGATION AND DISCLOSURE OF INTEGRITY RISKS
RISKASSESSMENT
MITIGATION
Minimal
Not Recommended
Heightened (i.e., within
Recommended, if
risk tolerance)
possible
Significant (i.e., outside of risk tolerance without mitigation)
Recommended
DISCLOSURE Not Recommended Recommended Recommended, in detail
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• OII generally seeks to mitigate identified risks so that projects can proceed. Some projects, however, present risks that cannot be mitigated to within the Bank’s risk tolerance. As discussed above, such projects are considered to present “significant” risk.
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Project Cancellations due to Significant Integrity Risks
• In 2013, OII advised that three separate projects presented significant integrity risk or reputational risk. Each of these projects proposed granting financing to a financial institution with an important percentage of ownership by high-level politically exposed persons or their immediate family. In each case, after management-level discussions, the project was cancelled. • Business units may also make such decisions without consulting OII. OII is aware of at least one additional project that was cancelled during 2013 by management due to integrity concerns.
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Another important element of OII’s prevention work relates to the use of offshore financial centers (OFC) in NSG operations. OII monitors compliance with applicable IDB Group Guidelines, which require operational teams to assess risk and disclose to Management and the appropriate Board or Committee whenever:
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(i) an entity formed outside of the project host country is used in connection with a project financed by the IDB Group, and (ii) that entity is organized in a jurisdiction classified by certain OFC Lead Organizations as having certain strategic deficiencies. OII is currently considering alternatives that would help better assess the tax transparency of NSG operations when such conditions are present. Finally, the prevention team regularly trains NSG project teams with regard to integrity risks, IDD, and the guidelines related to the use of foreign entities. In 2013, OII provided such training during a retreat for the operational and legal staff of the IIC. It provided similar training to the portfolio management unit of SCF.
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Prevention Activities – Sovereign Guaranteed Operations As noted above, for SG operations, the prevention team focuses on providing training and developing tools to help operational units identify, assess and mitigate integrity risks that may arise in the operations they prepare and
supervise. This is an approach that has been emphasized during 2013 and that will continue to be pursued going forward, with an emphasis on improving OII’s tools and approaches to be more effective in its role of advising project teams and in serving as a resource to manage integrity risk in SG operations.
Review of the IRR Tool
The Integrity Risk Reviews (IRRs) were introduced in 2009 as OII’s principal prevention tool to identify, assess and mitigate integrity-related risks in the activities financed by the Bank at the country or sector level. In 2012, OII initiated a review of the IRR tool aimed at assessing the effectiveness of the IRRs as a risk management tool for SG operations. In 2013, OII concluded the review, which had the following main findings: (i) the preparation of IRRs served to prompt conversations among OII, staff in country offices, and national stakeholders on integrity-related matters as well as to promote the Bank’s image as an institution for which integrity is essential. (ii) operational staff did not use IRR reports as a source of information to assess integrity risk in individual SG operations. (iii) there is demand within the operational departments for a more targeted approach – one that helps SG project teams to identify and manage integrity risk during the design and execution of specific SG operations.
With these conclusions in mind OII decided to discontinue the IRR as initially conceived and introduce or reinforce the following prevention tools: (i) Reports of Investigation to share lessons with management and operational departments; (ii) OII’s direct participation in specific projects on a pilot basis; and (iii) design of specific training modules to raise awareness and build the capacity of IDB staff and partners to manage integrity risk. In addition, OII worked with other International Financial Institutions (IFIs) to share its experience with IRRs and gain knowledge of their preventive tools. IFIs have an interest in having a generally consistent approach for conducting IRRs on strategically selected projects which may present high integrity risk. Some institutions already have substantial and positive experiences with similar tools. In conducting these IRRs, integrity offices at those institutions work in close coordination with operational departments. Projects are selected on the basis of several available sources of information that indicate integrity risk. The review consists in gathering information related to internal controls, procurement and financial management procedures and contract implementation, with a view to identify the specific integrity risks of the project and recommend corrective measures. These IRRs are different from investigations in that they are proactive (there is no allegation of a Prohibited Practice) and in that they do not seek to determine whether sanctions should be imposed,
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Reports of Investigation
- Training for executing agencies in relation to the application of IDB procurement policies.
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Reports of Investigations have included recommendations related to
- Introducing updated definitions of Prohibited Practices in price comparison bidding documents. - Considering unbundling price proposals for complex services offered in connection with the procurement of goods.
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In 2013, OII introduce Reports of Investigation,
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an important new tool for managing integrity risks in
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SG operations .
Support to specific SG operations
but on managing integrity risk to improve project execution. They are different from the traditional IRR performed by OII in the past in that they use knowledge on integrity risks to select and focus the analysis on specific projects.
Reports of Investigation
In 2013, OII introduced Reports of Investigation, an important new tool for managing integrity risks in SG operations (they will also be prepared for NSG operations as applicable). These reports use information learned in the course of OII investigations to identify and mitigate integrity risks in specific operations. The investigation and prevention team collaboratively prepare the Reports of Investigation, which are done for full investigations that are substantiated and those unsubstantiated where deficiencies or weaknesses are identified. The Reports of Investigation are prepared for the Country and Sector Managers and operational staff, and suggest concrete actions to mitigate risks in the operation or similarly situated operations. In 2013, OII prepared six Reports of Investigation and shared them with the corresponding Country Managers and other relevant staff.
Although OII’s participation in every SG project is not viable, OII sought to participate in two specific projects to facilitate the development of appropriate tools to provide deeper and more precise support to project teams in the design and execution of specific SG operations. Participation in both projects was triggered by different factors. In the first project, multiple investigations indicated high integrity risk. In the second project, the Bank had no previous experience with the executing agency and this offered an opportunity to conduct an integrity risk analysis and draw lessons for the design of a tool applicable to other operations. In addition to participating as a team member in these two new projects, OII responded to specific consultations from project teams and proactively made recommendations in regards to operations in the design phase, when investigations in course indicated that certain design aspects merited attention. Going forward, findings of investigations that indicate high integrity risk for an operation will continue to trigger OII’s participation in consultation with the project team. In addition, OII expects to continue to participate in a few SG operations on an ad-hoc basis to gather further experience before it generates an integrity risk assessment tool.
OII advised the relevant sector and country department of high integrity risks on a project. OII became aware of these risks when OII investigations resulted in multiple substantiated allegations of Prohibited Practices in connection with the project. OII’s advice was shared with the project team and responsible managers, who invited OII to participate in the project to manage the integrity risks.
At the request of a project team, OII conducted an integrity risk assessment of an executing agency with which the Bank had not previously worked. OII identified weaknesses in the executing agency’s institutional framework that could allow third parties to circumvent IDB rules and engage in Prohibited Practices on the proposed project. OII advised that risk presented was within the IDB’s tolerance, but also recommended measures to mitigate those risks, including:
OII’s prevention team analyzed the existing risk factors, the context in which the project was being implemented and the execution arrangements. OII made specific recommendations and is working with the project team to prepare an integrity risk mitigation strategy to include: •modifying the program’s execution arrangements to strengthen the executing agency over time; •addressing immediate vulnerabilities during the project procurement cycle; and •promoting citizen oversight mechanisms.
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OII recommendations incorporated into project design
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OII works to manage integrity risks on an SG Project after investigations show Prohibited Practices
•strengthening the implementation arrangements for carrying out procurement and financial activities; •introducing safeguards into the operations manual prepared by the Bank; and •promoting citizen oversight mechanisms. The Government and project team agreed to incorporate these recommendations.
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Awareness and Building capacity to manage integrity risk In 2013, OII committed to a more proactive approach for raising awareness and building capacity to manage integrity risks in SG operations. OII pursued training activities on two different but interconnected fronts: (i) increasing the general awareness of integrity risk; and (ii) building internal and external capacity to manage integrity risk in SG operations. Activities on the first front sought to improve awareness of why and how the IDB fights corruption in its operations. To this end, OII provided such training to: (i) staff in ten country offices: Argentina, Barbados, Bahamas, Belize, Bolivia, Costa Rica, Haiti, Mexico, Peru, and Nicaragua; (ii) personnel of 13 executing agencies of IDB-financed activities in Haiti and to personnel of 25 executing agencies of operations financed by the MIF in Bolivia; and (iii) new IDB employees and IDB Managers. On the second front, OII provided customized training on integrity risk management to operational staff and executing agencies. OII provided such training in various sessions:
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(i) Four separate sessions were provided to fiduciary specialists corresponding to the following regional clusters: the Andean Group; the Caribbean Group and Haiti; Central America, Mexico,
Panama and Dominican Republic; and the Southern Cone Group. (ii) An additional training session on integrity risk management was provided to fiduciary specialists and operations analysts in the Haiti Country Office. (iii) A session with three presentations organized in coordination with Transparency International was delivered to the Water and Sanitation specialists at their annual retreat. Furthermore, also on the second front, OII partnered with the Access to Information Section (ATI) to design a training course, to be delivered in 2014, that addresses both access to information and integrity risk issues. This training will provide project team leaders and other specialists with a set of tools and techniques for the implementation of the Access to Information Policy and the management of integrity risk at the project level. This cross-collaboration recognizes that transparency, access to information, and accountability are building blocks of an effective strategy to mitigate integrity risks. Through this approach, OII and ATI seek to contribute to the IDB’s agenda of development.
Other Prevention Activities Development of Policies, Guidelines and Infrastructure To carry out its mandate to advise the Bank on issues relating to integrity in IDB-financed activities, OII provides comments to policy and strategy documents. These comments are generally aimed at
mainstreaming the management of integrity risks in the policies and strategies that guide the Bank’s work. In 2013, OII provided comments to the following policy and strategy documents: (i) the Public Utilities Policy Profile; (ii) the Infrastructure Strategy for Competitiveness Profile; (iii) the Policy Proposal for Fee-Based Advisory and Knowledge Services at the IDB; and (iv) the draft Policy and Guidelines for the Selection and Contracting of Consulting Firms for Bank-executed Operational Work. Compliance Screening System OII continued to work closely with the Information Technology Department to execute a capital project to implement a Compliance System for Screening (CSS) that will allow different departments to screen parties doing business with the IDB Group against internal and external watch lists relevant to their activities. The procurement of the system was completed in the first half of 2013 and implementation of different aspects of the CSS will roll out during 2014. When implemented, the CSS will be a powerful tool to mitigate integrity and other risks, including the risk of money laundering and financing of terrorism. Internal users are expected to include, initially, the Finance Department for the screening of payments, and subsequently, operational units, human resources, the Sanctions System and others.
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Commemoration of 2013 International Anti-Corruption Day To commemorate the 2013 International Anti-Corruption day, OII in collaboration with the Institutional Capacity of the State Division, the Office of External Relations, the Office of the Case Officer and the Sanctions Committee conducted an awareness-raising campaign that consisted in the distribution of a defective pen to symbolically recreate the frustration that victims of fraud and corruption often experience. The President joined the campaign highlighting everyone’s responsibility in the fight against corruption and reminding staff of the negative effects corruption has in the Bank’s efforts to reduce poverty and inequality in the region.
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Prevention Investigations OII prevention work is generally (but not exclusively) forward looking, as it focuses on the possibility that a Prohibited Practice could occur in the future. Allegations that a Prohibited Practice has already occurred in an IDB Group activity are the starting point for the work of the investigative team. Investigative findings inform prevention work.
OII’s investigation activities seek to determine whether any external party2 has engaged in Prohibited Practices in an IDB Group-financed activity. OII investigations are administrative and reactive in nature, and are generally triggered by complaints. However, OII may undertake investigations based on information that it uncovers proactively or that is publicly available. Investigations can relate to operational or non-operational activities, including:
In early 2013, OII created a small intake unit and introduced three distinct stages to its investigation process. As a result, what was previously referred to as an investigation now encompasses the following three new categories:
(i) all SG operations, including loans and technical assistance; (ii) all NSG operations, including operations financed by the Bank, the MIF and the IIC; and (iii) corporate procurement. OII investigations are the first stage in the IDB Sanctions System. Based on the evidence gathered during an investigation, if OII concludes that it is more likely than not that an external party has engaged in a Prohibited Practice, OII refers that case to the Adjudication Phase of the Sanctions System to determine whether the IDB will impose sanctions on the external party. Sanctions imposed generally seek to prevent the Respondent from further participating in IDB Group-financed activities for a specified period and are also expected to have a deterrent effect on others.
1. Complaint processing; 2. Preliminary inquiries; and 3. Full investigations. The first and second stages are managed by the intake unit and the third stage is managed by a team of investigators, all under the supervision of OII’s management.
Complaints Processing Complaints and other information can originate from IDB Group employees,3 third parties, and anonymous sources, and can be received through different reporting channels, including: • e-mail; • secured web-form located on the OII website; • hotline, telephone, and fax; • postal mail; and • in person.4 Complaint Processing involves two separate tasks: (i) creating records of complaints in the Case Management System (CMS); and (ii) assessing the relevance of the complaint to OII, through an initial threshold analysis to determine whether it:
(i) concerns a Prohibited Practice; (ii) relates to activities financed or to be financed by the IDB Group; and (iii) provides sufficient information to be credible. Complaints occasionally provide sufficient information to complete the initial assessment, but in most cases the intake unit must gather additional information during this stage. For this reason, during 2013, OII modified an internal requirement that the initial assessment be completed within 72 hours of receiving the complaint. Under the revised requirement, the intake unit must contact complainants within 72 hours to acknowledge its receipt. There is no time requirement for completing the initial assessment, though the intake unit strives to do so expeditiously. The revised approach recognizes that the intake unit may have to rely on others to provide information necessary to complete the initial assessment.
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Investigation Process
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B. INVESTIGATION ACTIVITIES
2- OII does not investigate Bank staff. Allegations of Prohibited Practices related to Bank staff are handled by the Ethics Office. 3- This includes information obtained through research conducted by staff of OII.
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4- Information on how to report fraud and corruption can be found at: http://www.iadb. org/en/topics/ transparency/ integrity-atthe-idb-group/ how-to-reportfraud-and-corruption,2872.html
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Complaints that meet the initial assessment criteria are classified as allegations and become the subject of a preliminary inquiry. Complaints that do not meet such criteria are closed, though they may be referred to relevant departments or other organizations for possible action.
FIGURE II.B1: COMPLAINTS PROCESSING Intake registers and assesses Complaints Not relevant to OII
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Preliminary Inquiries Preliminary inquiries have two purposes: (i) confirm the conclusion of the threshold analysis conducted during the initial assessment; and (ii) triage the allegations. To this end, during a preliminary inquiry, the intake unit consults with relevant IDB Group staff and conducts preliminary interviews of the complainant and witnesses to gather information beyond the minimal level needed to pass the initial assessment, including project-related documents. This information is used to further assess the credibility of the allegation and to conduct the triage, which is done through a rational process that considers factors such as: • the egregiousness of the alleged wrongdoing;
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• the possibility of systemic problems;
Heightened (
risk tolerance
Prohibited Practice
Significant (i.e risk tolerance mitigation)
Sufficient credible information
Case Closed
INTAKE REGISTERS AND ASSESSES COMPLAINTS
FIGURE II.B2: PRELIMINARY INQUIRIES PROCESSING
RELEVANT TO OII
Case Closed
• the viability of the investigation; • the amount of loss or harm resulting from the alleged wrongdoing;
Minimal
IDB Group financed activity
PRELIMINARY INQUIRY AND TRIAGE
FULL INVESTIGATION
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Case Outcomes
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• A case is substantiated when a preponderance of the evidence supports the allegation of a Prohibited Practice. A preponderance of the evidence means that it is more likely than not that a Respondent has engaged in a Prohibited Practice. • A case is unsubstantiated when the evidence is insufficient either to confirm or deny that a Prohibited Practice occurred. • A case is unfounded when the evidence is sufficient to conclude that a Prohibited Practice did not occur.
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tion to the Chief of OII regarding the outcome of the case. There are three possible outcomes for full investigations:
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(i) substantiated; (ii) unsubstantiated; or (iii) unfounded • the likelihood that the subject engaged in similar conduct in other IDB Group financed activities; and • the time-sensitivity of the underlying activity. In essence, the preliminary inquiry stage helps OII better understand the allegation’s potential impact on the IDB Group-financed activity, its development objectives, and its beneficiaries and determine whether it merits the resources that would be invested in a full investigation.
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Full Investigations If OII management determines that a full investigation is warranted, the preliminary inquiry is converted into a full investigation and assigned to a team of investigators. The assigned investigators – usually two – conduct a fact-finding exercise and make a recommenda-
Investigative teams base their recommendations on evidentiary findings gathered during the course of investigative activities. These activities vary from one case to the next, but may include inquiries, consultations, interviews, document reviews, site inspections, and audits. Wherever possible, the team seeks to corroborate the facts by obtaining evidence from multiple sources. The Chief of OII decides the outcome of a case, based on the evidence presented. If the Chief of OII concludes that the evidence supports a finding that the subject of an investigation is more likely than not to have engaged in a Prohibited Practice, the case is referred to the post-investigation and adjudication phases. Conversely, if the Chief of OII determines that the allegation is unsubstantiated or unfounded, OII closes the case. Following a full investigation, the investigators assigned to the case will work with the prevention team
to prepare, as required, a Report of Investigation for the relevant Managers and operational staff. As discussed in the prevention section, OII introduced Reports of Investigation in 2013. These reports summarize findings of the investigation and make concrete suggestions to mitigate integrity risks in specific operations.
Post-Investigation Process If the Chief of OII concludes that a case is substantiated, the investigation team prepares one or more Preliminary Notice(s) of Administrative Action (PNAA), depending on the parties and charges involved. A PNAA incorporates a statement of charges against any party that OII concludes has more likely than not engaged in a Prohibited Practice, and attaches the evidence that supports such findings, together with any exculpatory evidence.
The investigative team works with the OII team member responsible for Quality Assurance to ensure the accuracy, completeness, and consistency of all documents to be submitted to the CO and the SNC.
In the course of 2013, the intake unit registered 127 new complaints. Of these: • 67 did not meet the criteria of the initial assessment and were closed in the CMS; • 17 were undergoing their initial assessments at the end of the year; and • 43 were moved on to the preliminary inquiry phase. Of the 43 preliminary inquiries, • 8 were closed; • 22 were ongoing at the end of the year; and • 13 were converted into full investigations.
• 29 investigations were ongoing at the end of the year. In sum, at the end of 2013, OII had 17 complaints under review, 22 ongoing preliminary inquiries, and 29 investigations (of which nine were full investigations opened in 2013 and the remaining 20 had rolled-over from 2012) and had completed 127 cases in total. Compared with 104 in 2012, this constitutes a 22% increase in the number of cases resolved in 2013. The intake unit accounted for 60% of the cases resolved in 2013, which allowed investigators to focus on the remaining 40%. These numbers suggest that the investigation processes introduced at the beginning of 2013 significantly improved the efficiency of OII’s investigation process.
(of which nine were full investigations opened in 2013 and the remaining 20 had rolled-over from 2012) and had completed 127 cases in total.”
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OII began 2013 with 68 active cases already assigned to investigators, a number that combines what are now categorized as complaints, preliminary inquiries, and
• 52 were closed; and
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2013 Caseload
full investigations. Adding the 68 rollover investigations to 13 full investigations opened in 2013, OII’s investigators handled 81 investigations throughout the year. Of those:
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When cases are appealed before the SNC, the investigative team will also prepare OII’s reply to the Respondent, as well as any other information or materials required by the SNC.
“... at the end of 2013, OII had 17 complaints under review, 22 ongoing preliminary inquiries, and 29 investigations
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PENDING INVESTIGATIONS (PRIOR PERIOD)
2011 65 2012 45 2013 68
NEW COMPLAINTS
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2011 130 2012 127 2013 127
TABLE II.B1: CASE LOAD SUMMARY
TOTAL ACTIVE CASES 2011
100
2011 195 2012 172 2013 195
80
2012
2013
84 68
60 40
30
20
13
Pending cases (prior period)*
Preliminary inquiries
Full investigations
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Complaints
0
2011
2012
2013
100 67
60
48
40 20 8
PENDING CASES AT PERIOD'S END
2011
4
Pending cases (prior period)
Preliminary inquiries
Complaints
0
Full investigations
2011 150 2012 104 2013 127
80
2012
2013 _REPORT 2013_
100 80 60 40 20
22 17
20 9
POST-INVESTIGATION ACTIVITIES (CASES)
2011
Full investigations
Preliminary inquiries
Complaints
0
Pending cases (prior period)
2011 45 2012 68 2013 68
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COMPLETED CASES
2012
2013
100 60 40 20 0
13
6
OII Replies
* As a result of changes in internal investigation processes, cases are now tracked at different phases of investigation, which does not allow for a straight comparison with data from prior years. However, to allow for some comparison and to account for rollover cases, aggregate information on cases pending and completed in previous years is presented.
80
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Preliminary Notices of Administrative Action submitted to CO
2011 2012 9 2013 18
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Sources of Complaints and Contact Methods As discussed above, complaints can originate from IDB Group employees, anonymous sources, and third parties. Third party sources include, among others, executing agencies, public officials, bidders, contractors, consultants, employees of NGOs, and the media. In 2013, 57% of all complaints were received from IDB Group employees, 34% were received from third parties, and 9% were received from anonymous sources. Of the complaints received from IDB Group employees in 2013, 70% were initially transmitted to them by third parties and subsequently communicated to OII, while 30% were complaints or concerns raised directly by Bank employees. As discussed above, complaints arrive to OII through various reporting mechanisms. Figure II.B5 provides a breakdown of the reporting mechanisms utilized in 2013. As in past years, the website and e-mail are the principal methods by which complaints are communicated to OII.
FIGURE II.B4: SOURCES OF INFORMATION 100% 90%
8%
9%
37%
37%
34%
80% 70% 60%
Minimal
50%
Heightened (
40%
risk tolerance
30%
Significant (i.e risk tolerance mitigation)
20% 10%
54%
55%
57%
0 2011
2012
Anonymous
Third Parties
2013 IDB Group employees
FIGURE II.B.5: HOW INFORMATION WAS RECEIVED IN 2013 3% In Person 4% Regular Mail 5% Hotline, Phone, Fax
55% Website
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9%
33% E-mail
45
142 (ERM & QRR)
Investigation Outputs Complaints Processing
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A total of 28 complaints that failed to meet (...) were referred
Of the 67 complaints that did not meet the initial assessment standard: • 42 (63%) did not concern the commission of a Prohibited Practice; • 10 (15%) did not concern an activity financed by the IDB Group; and • 15 (22%) did not provide sufficient information to be considered credible (e.g. they did not provide names, project details, or the complainant did not respond to attempts to seek additional information).
to other Bank offices because financed activities or
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they involved IDB could otherwise have an impact on
Figure II.B6 summarizes the results of the initial assessment.
the reputation of
FIGURE II.B.6: MATTERS CLOSED AFTER INITIAL ASSESSMENT
the Bank.
15% 22%
45 63%
Did not concern an activity financed by the IDB Group
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Did not concern The IDB Group´s Prohibited Practices
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Examples of Complaints Irrelevant to OII • Did not concern an activity financed by the IDB Group OII received a complaint alleging unfinished construction works in a Bank-financed project. After gathering relevant information, OII determined that the IDB had provided grant resources that were used in connection with the logistics of the project, but that the construction had been financed by local government and third parties. OII shared the complaint and its conclusion with the responsible IDB staff. • Did not concern the IDB Group’s Prohibited Practices OII received a complaint alleging coercion by a contractor in a Bank-financed project. After gathering relevant information, it was concluded that the complaint involved a contractual dispute between members of the joint venture and one of them with the executing agency. OII informed the Country Office and the Legal Department of its findings.
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• Did not involve sufficient credible information OII received an anonymous complaint alleging fraud and corruption by local companies. According to the information, contracts were allegedly awarded to local firms with inadequate experience and financial capacity. The firms pre-qualified through joint ventures with overseas firms that had no active participation in the execution of the works. OII could not contact the complainant and the information did not identify a particular IDB Group-financed activity or subject, therefore the allegation lacked the sufficient credible information necessary for follow-up action by OII.
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A total of 28 complaints that failed to meet the initial assessment standard were referred to other Bank offices because they involved IDB financed activities or could otherwise have an impact on the reputation of the Bank. In addition, one complaint was referred to another IFI. The offices and organizations to which OII referred complaints are listed in Table II.B2.
Ethics Office
6
Office of the Presidency
2
Operations Procurement Office
1
Project Team/Team Leader
16
Sanctions Committee
15
MICI
2
Other International Financial Institutions 1 Total:
29
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TABLE II.B.2: OFFICES CONTACTED REGARDING MATTERS THAT DID NOT MEET THE INITIAL ASSESSMENT STANDARD
Preliminary Inquiries Out of the 43 preliminary inquiries initiated in 2013, 21 were completed. Of these: • 13 were converted to full investigations; and • eight were closed. OII closed the eight preliminary inquiries after concluding that the allegations were unfounded because they did not involve a Prohibited Practice, or unsubstantiated because the evidence was insufficient to corroborate the occurrence of a Prohibited Practice and no further investigative activities were viable or justified. 5- The complaint was related to a decision previously adopted
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Examples of Preliminary Inquiries • Closed / False Complaint Against Bidder OII received a complaint alleging that a contractor presented false work experience in its proposal. Based on the information gathered during the course of the preliminary investigation, OII was able to corroborate that the prior work experience presented by a winning bidder was accurate and shared its findings with the Project Team. • Converted to Full Investigation / Executing Agency Consultant Diverts Project Funds OII received a complaint alleging that a consultant hired for project supervision services never performed the contracted services after a consultant working for the executing agency instructed the consultant to execute private works. Based on the information gathered during the preliminary investigation, OII identified evidence of fraud and collusion during the procurement process related to the supervision contract in question as well as several goods and works contracts not referenced in the original complaint.
“(...) the 43 preliminary inquiries initiated in 2013, fraud continued commonly alleged
3% Coercion 55% Fraud
21% Corruption
Prohibited Practice,
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to be the most
FIGURE II.B.7: TYPES OF NEW ALLEGATION
21% Collusion
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As shown in figure II.B7 below, which refers to the 43 preliminary inquiries initiated in 2013, fraud continued to be the most commonly alleged Prohibited Practice, with no allegations of obstructive practices. OII classifies allegations based on the information obtained during the intake process. Note that an allegation can involve more than one Prohibited Practice, and as evidence is gathered over the course of an investigation, additional Prohibited Practices may be uncovered and others may be discarded.
with no allegations of obstructive practices.”
Full Investigations During 2013, OII completed 52 investigations. Of these: • 25% were substantiated; • 29% were unsubstantiated; and • 46% were unfounded. [ 37 ]
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