Coordinating the Fight against Corruption among Mdbs: The Past, Present, and Future of Sanctions

Article excerpt

I. Introduction

These are interesting times in the fight against fraud and corruption. The principal multilateral development banks (MDBs) ,1 mirroring and building upon trends in other areas of international cooperation, are converging on strategies of how to best address and encourage the development of coordinated governance and anticorruption (GAC) strategies. A growing, principles-based consensus of what the GAC agenda should be and how it should be advanced is emerging, particularly in the areas of "debarments"2- that is, decisions to exclude an entity or individual from receiving contracts and/or other benefits through MDB financing-as well as sanctions at large.3 In addition to establishing uniform, princi* pie-based standards for investigations among international financial institutions (IFIs), common definitions of sanctionable practices, and a common system of mutual enforcement of debarment or "cross-debarment," the MDBs also are working to further integrate and coordinate their respective systems.

While room for further harmonization and improvement remains, the clear trend is towards an increasing convergence among the MDBs and, in certain respects, towards a broader convergence among a larger group of international actors. This trend should help to provide an even playing field across the market for international development work, thereby providing greater certainty to potential contractors and bidders. Harmonizing the systems regulating the international development market will help to ensure that a greater percentage of resources actually go to the sponsored development projects, which will increase the benefit to the intended beneficiaries of the projects-the poor. At the same time, such cooperation should help to further the spread of the rule of law through example and solidarity-that is, through the comportment of both the MDBs and contractors.

This Essay will be divided into three parts: First, bearing in mind that other published materials have more closely examined the evolution of the World Bank's sanctions system,4 Part II will very briefly outline the legal basis, nature, and evolution of the sanctions system of the World Bank Group (WBG) .5 Then, Part III will consider the points of coordination, commonality, and harmonization among the MDBs, with particular attention being paid to cross-debarment. Finally, Part IV will consider possible lines for future developments among sanctions systems.

II. The Evolution of the World Bank's Sanctions System

A. Legal Basis for Sanctions

While the WBG has been at the forefront of international organizations in the fight against fraud and corruption in development projects, for many years the World Bank (Bank) hesitated to address fraud and corruption directly.6 The Bank has always made efforts to prevent what is euphemistically referred to as "leakage" through fiduciary systems by putting in place procedures such as procurement rules, financial reporting and audits, and controls on disbursement.7 At the same time, a widespread perception existed that matters of governance and anti-corruption were political issues with little or no relevance to the Bank's mandate of economic development.8 More particularly, Bank involvement in these matters was construed as inevitably running afoul of the "political prohibition" in the Bank's Articles of Agreement.9 Notably, a similar prohibition exists for most of the other MDBs.10 Over time, however, the Bank has recognized the deleterious effects of corruption-on society at large and on economic development in particular.11 As a result, the Bank's thinking has evolved: today the Bank understands that, if properly implemented,12 efforts to fight corruption are not only acceptable but are actually necessary to fulfilling the Bank's mandate.13

The Bank's sanctions system finds specific legal support in the Bank's "fiduciary duty"-its obligation under the Articles to ensure that loan proceeds are used for their intended purposes, with due attention to economy and efficiency. …