Going from Bad to Good: Combating Corporate Corruption on World Bank-Funded Infrastructure Projects

Article excerpt

Large-scale infrastructure projects are a vital part of the World Bank's development agenda, but the World Bank and host countries alike have placed little emphasis on combating corruption attached to these projects. Investigation of ongoing corruption and punishment of offenders is an important end goal in itself,, and can be an important deterrent to future corruption. The World Bank and host countries face challenges in properly pursuing investigation and punishment, but the results certainly are worth the effort. This Note explores the importance of investigating and punishing corporate corruption on World Bank-funded large-scale infrastructure projects, and presents practical suggestions as to how investigation and punishment processes might be made more effective. Specifically, host countries and the World Bank should utilize a "trigger" mechanism, by which investigations by one party automatically trigger investigations by the other, in order to increase accountability. Other factors--including the willingness of third party states to assist in these efforts--also influence the outcome, but the triggering mechanism may be an important step forward. The outcome of the Lesotho Highlands Water Project corruption investigations provides a useful illustration of how such a cooperative triggering mechanism might work.

INTRODUCTION

The World Bank has identified corruption as one of the "greatest obstacles to economic and social development." (1) In response, it has developed extensive, aggressive anti-corruption campaigns and offered financial support to good governance programs aimed at reducing corruption in loan-recipient countries. Yet corruption remains an obstacle even to the disbursement of Bank aid; Jeffrey Winters estimates that "[s]ince its founding, the World Bank has participated mostly passively in the corruption of roughly $100 billion of its loan funds intended for development." (2) These funds usually are transferred to developing countries via loans, which place the burden of repayment on future generations who will have to pay the entire principal and accrued interest despite having initially received only seventy cents on the dollar for these loans. (3)

These figures take into account all types of corruption, most notably the direct looting of loan monies by government officials. Winters cautions that corporate corruption--usually in the form of bribes to government officials in order to circumvent neutral bidding processes--makes up only a minor percentage of the estimate. (4) Yet these statistics mask the gravity of entrenched corporate corruption on large-scale infrastructure projects in developing countries. These projects have the potential to assist countries in meeting their development goals by increasing revenue and fulfilling the economic and social needs of their most impoverished communities, (5) but they also act as lightning rods for corruption, environmental degradation, and human rights violations against the communities that the projects are intended to benefit. (6) Corruption exacerbates the problems of environmental degradation and human rights violations. (7)

Dealing with these challenges is vital, as infrastructure projects have been important to the World Bank's development strategies, and likely will remain so in the future. In 2009, Robert Zoellick, President of the Bank, pledged to increase Bank lending to infrastructure to $45 billion over the next three years, citing such projects' ability to "create jobs as well as build a foundation for long-term economic growth." (5) This pledge will increase World Bank spending on infrastructure development by $15 billion when compared to the $30 billion it spent from 2006-2009. (9) The Joint International Financial Institutions/Development Finance Institutions Action Plan for Africa named "increasing lending to infrastructure projects" a primary objective for financial assistance to the region. (10) The World Bank seeks to increase aid flow to infrastructure projects despite the economic downturn, and considers infrastructure projects to be a crucial source of jobs in the short-term of the financial crisis and a means by which countries might recover. …