Transparency Watch (TW): The blacklisting of German firm Lahmeyer by the European Bank for Reconstruction and Development (EBRD) has been widely celebrated as the first case of cross-debarment. (See TI’s press release on this subject.) Have you debarred other firms through your own investigation?

European Bank of Reconstruction and Development (EBRD): We have not debarred any company through our own investigation. Lahmeyer was the first instance of cross-debarment.

TW: Have there been discussions regarding cross-debarring other companies?

EBRD: Yes, as you know there were quite a few companies involved in the Lesotho scandal, including Acres. Acres International Ltd.is a Canadian engineering company found guilty in Lesotho [of bribery in the World Bank-funded Lesotho Highlands Water Project] and debarred by the World Bank. However, we did not invoke cross-debarment at the time because we didn’t really have anything to debar them from – they had never worked with us on projects – so it would have been rather meaningless. On the other hand, Lahmeyer is a firm that has done a lot of business with us over the years and was actually being considered for an award of a contract that was to be financed by the EBRD. So in this case, cross-debarment was quite significant.

TW: The Guardian has written that Laymeher was told by EBRD it would be debarred until “it improved its anti-corruption policies.” What would constitute improvement and how would you measure this?

EBRD: We thought a number of elements could still be strengthened. Obviously Transparency International’s Business Principles for Countering Bribery, or the World Economic Forum’s Partnering against Corruption Initiative principles would provide good guidelines. We would certainly want to see a number of elements in place and strengthened: a compliance monitor to advise on and assist in developing an overall effective anti-corruption/ corporate governance structure; and a viable reporting mechanism and a policy that protects employees that report corruption in good faith, to name a few.

TW: Can you explain more about your sanctions process, and how you would go about investigating allegations of corruption?

EBRD: Well, if we got information there were allegations of corruption in an EBRD-financed project, it would depend obviously on what the nature of the allegation was and whether it involved our client, our contractors, or our staff.

Our investigative procedures are based on an administrative process, not a criminal process, and so we have different rules and different standards of proof. We are not a criminal investigative body, we are not set up for that kind of function. For us, it doesn’t have to stand up in a court of law. If a preponderance of evidence shows that the company had more likely than not engaged in fraud or corruption, that would be enough for us to decide that we don’t want to do business with them. It is a business decision.

As to the investigation itself, this generally comes about as a result of allegations. The World Bank has almost a quasi-judicial process, where companies are allowed to be represented by lawyers. In the EBRD, my office would do an investigation, depending upon the results of that investigation, I would present my findings and recommendation to the Bank’s Procurement and Contracting Committee.

The committee would then have to come to a conclusion as to whether they agree or disagree with my recommendations. At this point, it would go to the Bank’s Executive Committee for the final decision as to whether or not a sanction is warranted in the particular case; and if so, what that sanction should be.

As a matter of practice, the investigator would speak to the company at quite an early stage to allow the company to bring any information to the table that would change my recommendations to the committee. With Lahmeyer, we offered the company a chance to explain why they should not be cross-debarred. They came in and explained what they had done since being convicted in Lesotho –put in a compliance programme and added a code of conduct. But we still found some important elements to be lacking, and so in the end, the Executive Committee made the decision to cross-debar.

TW: You mentioned before that most investigations are triggered by allegations of corruption –where do these allegations come from?

EBRD: Certainly in the case of procurement, many allegations come from competitors – companies who have entered tenders, lost the contract, and then allege that the firms who have won the contract have done so through fraud or corruption. Other allegations may come into the office’s compliance inbox or through the Bank’s hotline for reporting corruption.
TW: In your opinion, are these allegations accurate and helpful, or are they sour grapes?

EBRD: Well, you always need to start by assessing the veracity of the allegation. Of course, for some disappointed competitors this might be a situation of “sour grapes” and so you have to be careful. A lot of companies in countries from the former Soviet Union are still not very familiar or comfortable with relatively new procurement procedures, including open tendering, and so they may not readily appreciate how the system works. They may think that because they have not won the contract, there must have been corruption. Other times, companies may use corruption as a way to challenge a contract award or to delay the process of contract award.

TW: Debarment is hailed as a powerful incentive for firms to improve their compliance policies, from your experience how powerful is it really? Have you seen many firms improve their policies in the light of debarment measures and actually implement them afterwards?

EBRD: Debarment alone may not result in improved compliance policies. However, debarment coupled with a requirement to implement effective compliance and anti-corruption programs as a condition for reinstatement of eligibility, or as a condition for a reduced penalty, is very effective to ensure real change.

TW: What other incentives do you see that encourage firms to clean up their operations?

EBRD: The EBRD carries out extensive integrity due diligence before making any decisions about investment. One of our pre-conditions to engaging in a business relationship with clients is that they put in place corporate governance and anti-money laundering measures in the case of an investment with a financial institution.

TW: Discussions are underway between the World Bank and regional development banks about the harmonisation of their sanctions policies –how far away is an agreement on such a policy?

EBRD: We have made excellent progress in agreeing to harmonise definitions of fraud and corruption. Also, we have a uniform set of investigative guidelines. Cross-debarment among all the multilateral development banks would be a powerful anti-corruption measure, but whether we will get there, and in what time frame, is still quite unclear.

TW: What are some of the obstacles?

EBRD: You have to be very sure that when you take a decision based on a decision made by someone else, that you are comfortable with that decision-making process. One can obviously vouch for the processes and procedures of one’s own institution. In other cases, you may not think that others’ decision making processes are very transparent or fair. Cross-debarment is saying “yes, we trust that the decision was made in a way we can rely on.” We need to work amongst ourselves to reach that level of comfort and trust between the other institutions. This is ongoing. We are going to meet again in May this year. I am confident that we will get there eventually.