The World Bank Group (“World Bank”) continues to take action against companies that commit fraud in connection with World Bank-financed projects. On January 29, the World Bank announced a settlement with Construtora Norberto Odebrecht S.A. (“the Company”), a construction and engineering firm based in Brazil, in connection with allegations of “fraudulent and collusive practices” relating to the Company’s work on the Río Bogotá Environmental Recuperation and Flood Control Project in Colombia, a World Bank-financed project.1
Improper Influence and Collusive Practices
The Company, a subsidiary of Odebrecht S.A., received funding from the World Bank for the project to assist the government of Colombia in mitigating certain environmental risks, including—among others—water quality and flooding near the Bogotá River.2 The World Bank alleged that the Company “fail[ed] to disclose fees paid to commercial agents during the tender prequalification and bidding processes,” and that certain agents helped the Company to obtain confidential information related to the tender prequalification and bidding processes.3 In addition, the World Bank alleged that the Company, with the assistance of an agent to whom it had paid undisclosed fees, “further sought to improperly influence the tendering package that was part of the project, engaging in collusive practices prohibited by the World Bank’s procurement guidelines.”.4
Debarment but Reduced Sanction Period due to Co-operation
As a result of the Company’s actions, the World Bank barred the Company from participating in World Bank-financed projects for three years.5 The result could have been worse but for the Company’s cooperation. The World Bank noted that the Company had cooperated with World Bank authorities and had taken voluntary remedial action, thus resulting in a reduced sanction period.6 Such voluntary action by the Company included “encouraging honest disclosures by employees,” producing certain privileged documents, and coordinating internal investigations with INT. In addition, the Company, as a condition of release under the settlement agreement, agreed to implement a compliance program “consistent with the principles set out in the World Bank Group Integrity Compliance Guidelines,” and further agreed to cooperate fully with INT.7
78 Firms Individuals and Firms Debarred in FY2018
The announcement of this settlement comes just months after the World Bank issued its Sanctions System Annual Report for fiscal year 2018, in which the World Bank announced that it had debarred 78 individuals and firms during FY 2018 and recognized 73 “cross-debarments from other multi-lateral development banks (“MDBs”).”8 The report also noted that INT had commenced “68 new investigations into allegations of misconduct in World Bank-funded projects,” and had “submitted 28 sanctions cases” to the Office of Suspension and Debarment (“OSD”), which itself “temporarily suspended 40 firms and individuals and issued sanctions against 24 that did not appeal their cases” in FY 2018.9 Most involved fraudulent, corrupt, or collusive practices.10
Main Takeaways for Other Companies
When combined with the numbers presented in the Sanctions System Annual Report, the Construtora Norberto Odebrecht S.A. settlement suggests that the World Bank will continue to aggressively pursue allegations of misconduct and fraud in relation to World Bank-financed projects in 2019. These include projects in which companies are alleged to have paid bribes to third parties in the form of undisclosed fees to obtain confidential information regarding public tenders. The settlement underscores the importance of ensuring that companies receiving World Bank financing have both developed and implemented carefully designed anti-corruption policies, procedures, and training, and also confirmed that any fees paid to third parties are audited and recorded to comply with all applicable laws.
Although the immediate and downstream effects of the World Bank’s investigation of Construtora Norberto Odebrecht S.A. on the Company’s operations have yet to fully materialize, companies that currently receive, or anticipate receiving, World Bank funding would be well advised to stay informed of other related risks that could result from World Bank investigations. Such risks include: (1) reputational damage in the relevant industry; (2) severe and immediate operational and financial impacts associated with potential revocation of project financing; (3) future scrutiny from other MDBs in connection with fraudulent conduct; and, (4) depending on the evidentiary rules in the particular jurisdiction, use of company statements from one action in a related or subsequent investigation.
Finally, the Odebrecht case serves as a reminder that an enforcement action by one authority can often lead to additional “piling on” in parallel or successive investigations.11 Indeed, recent cases in Brazil and elsewhere suggest that authorities are increasingly focused on coordination and information sharing.12 Although the DOJ has recently pronounced that it will avoid “piling on” unnecessarily through duplicative prosecutorial efforts, it is unclear at this stage how the DOJ will apply this policy with respect to actions by MDBs while reconciling each authority’s respective need to seek appropriate actions for its unique harms.
5 Information about allegations is generally submitted for evaluation by the World Bank Group Integrity Vice Presidency (“INT”), a unit within the World Bank charged with investigating and pursuing sanctions relating to allegations of fraud in World Bank-financed projects. INT has the burden of showing it is more likely than not that an accused company engaged in the alleged practices. See World Bank Sanctions Procedures, World Bank Group (adopted April 15, 2012)
11 Ryan Rohlfsen et al, DOJ Deputy Attorney General Outlines Key Policy Revisions Focusing on Individual Accountability, Softening Yates Memo, Ropes & Gray LLP (Nov. 30, 2018)
12 María González Calvet et al, Recent Developments in Latin American Anti-Corruption Enforcement, The Anti-Corruption Report (Jan. 9, 2019)
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