Questionable Assumptions: The Case for Updating the Suspension and Debarment Regimes at the Multilateral Development Banks

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The World Bank and other multilateral development banks (MDBs)1 have introduced sanctions and debarment systems, under which a company or individual can be sanctioned if it engages in one or more of the sanctionable practices which have been agreed upon by the MDBs.2 The MDBs, as well as their staff, have pub- lished several documents explaining and justifying their sanctions regime.3 This Essay aims to address certain underlying considera- tions on which the MDBs rely in shaping those legal regimes, and will question these considerations in light of international legal standards and principles.

Rather than modeling the MDBs' sanctions and debarment sys- tems on U.S. law, the MDBs should have considered international standards such as the principles of the World Trade Organization (WTO) and the rules of the Government Procurement Agreement (GPA).4 An example of MDB reliance on U.S. law can be seen in the World Bank's establishment of its sanctions and debarment sys- tem.5 Indeed, a sanctions and debarment decision should strictly follow the rule of law and, in particular, apply the principles of equal treatment and proportionality, bedrock principles of the WTO's procurement regime. Notwithstanding the valid goals and purposes of the sanctions and debarment systems of the MDBs, which are described in Part III, there are numerous questionable aspects of the current system. Part IV describes these aspects and argues that the sanctions and debarment decision should not allow any room for business considerations. It also argues that early release from debarments must be possible where sufficient self- cleaning measures have been undertaken.

The concept of proportionality must have a more pivotal role. Additional efforts must be made to ensure procedural justice in the MDBs' sanctions and debarment regimes. Moreover, the subsidiar- ies of sanctioned or debarred respondents seem to be treated unfairly. Finally, it is noted that the cross-debarment regime lacks harmonization and creates several legal difficulties that preclude an effective cross-debarment.

I. World Bank Sanctions Regime Modeled after U.S. Law

The World Bank sanctions regime was significantly influenced by the U.S. Foreign Corrupt Practices Act of 1998, as well as the nature of the procurement approach found in the U.S. Federal Acquisition Regulation, especially subpart 9.4.® Although the two systems have their differences, particularly with regard to the World Bank's limited sanctionable practices, they are similar in many respects.7

There are, of course, obvious differences between the U.S. and World Bank systems. The U.S. federal debarment system, for example, is avowedly not designed for punishment,8 while the World Bank system is designated, already by its name, as a sanctions sys- tem. That said, many fundamental aspects of the World Bank sys- tem, such as sanctions that are not bound by principles of proportionality, reflect the system's grounding in the U.S. system, rather than in the norms of the European Union or the WTO.9

The similarity is a result of the recommendations made by the Thornburgh Report, which stated as follows:

The debarment practices of national agencies that would be the most pertinent from the Bank's standpoint would probably be those of the U.S. government, for the reason that those are the practices that are most familiar to the majority of lawyers appearing before the Bank as counsel for respondents in debar- ment proceedings.10

However, the Thornburgh Report's reasoning is not a convinc- ing justification for modeling the World Bank sanctions regime on U.S. law. A law should be modeled and created having primary regard to the aims and purposes to be achieved. Therefore, given the international nature of the MDBs, international agreements and principles should be considered first. Further, the national legal systems of the stakeholders should be observed and, as an overarching point, regard must be given to efficiency, trans- parency, and comprehensibility. …