THE BLOG
08/12/2014 05:20 pm ET | Updated Oct 12, 2014

World Bank Reports on Actions Against Corrupt Corporations

More than 650 firms and individuals penalized, according to new report.

World Bank president Jim Yong Kim says,"Each dollar lost to corruption is a dollar stolen from a pregnant woman who needs health care; or from a girl or boy who deserves an education; or from communities that need roads and clean water."

So what is the World Bank, the world's largest development institution, doing about corruption? More than most people appreciate.

This is important, both because it alerts corporations across the world that seek aid agency financed contracts that if they engage in corruption and fraud they may well be caught and penalized. And, because the image of foreign aid has widely suffered from perceptions that much of the cash is stolen and the aid agencies are poorly equipped to do anything about this.

A radical transformation has taken place at the World Bank when it comes to going after crooked firms. Two decades ago, the Bank refused to acknowledge the corruption issue, while a decade ago it mouthed all the grand anti-corruption slogans, but it failed to walk the talk. Now, this has changed.

Much of the credit goes to two low-key Bank officials and the small teams they lead: Leonard McCarthy, the Bank's vice president of its Integrity Department (INT) and a former top South African government crime investigator; and, Belgian lawyer, Pascale Hélène Dubois, who heads the Bank's sanctions office, formally known as the Office of Suspension and Debarment.

Their success is detailed in a new report by Dubois's office that covers the six years to mid-2013 and shows that in this period more than 650 corporations and individuals have been publicly debarred from Bank contracting or otherwise sanctioned for acts of fraud or corruption.

Dubois stresses that her office's role is not only to evaluate the evidence developed against a corporation by INT, but also to ensure due process so that alleged villains have the opportunity to mount a defense. The Bank cannot bring criminal prosecutions, but it can and it does disbar firms from participating in its procurement contracts and it publishes the names of the companies that are banned, so that other aid agencies can place those names on their own watch lists.

McCarthy and Dubois have not been popular with all of the Bank's staff. The thousands of Bank officials involved in planning and managing upwards of $30 billion a year in loan and grant commitments to developing countries are unlikely to relish investigations of their work, let alone face the prospect of being accused of sloppy oversight of sometimes vast contracts. Nevertheless, those most responsible for investigating and sanctioning are increasingly effective.

A sharp signal to business

The Bank's actions against crooks sends a signal to thousands of businesses who profit from international aid contracts that those who engage in corruption will be found and penalized. For decades, officials in governments managing World Bank loans and grants that were meant to build roads and schools and hospitals, would collude with crooked firms to obtain kick-backs for themselves as they allocated engineering, construction and other contracts. The parties to the corrupt deals had no fear of being discovered, let alone penalized.

President Kim is not only concerned to ensure corporations understand the risks of corruption, but also, as he notes in a foreword to the new report, "We can build greater public trust in development institutions if we show that we do not tolerate fraud and corruption."

To achieve this demands providing solid data and the new report, coming from the world's largest aid agency, makes a significant contribution here. The details on the different kinds of cases brought against firms and individuals by the Bank and the penalties imposed shows that a meaningful system of due process is in place, that contracting fraud is at least as serious as bribe-paying in Bank operations, that cases can often take a considerable time to investigate and bring to a close, and that a high level of professionalism is the hallmark of the sanctions office.

It is to be hoped that the World Bank's staff as a whole will read the new report and recognize that while investigations and sanctions don't make life any easier for officers keen to disburse funds to assist the world's poor, they are essential. To ram this message home demands continuing support by president Jim Kim and his board of directors for INT and the sanctions office, which means they need to be well funded. It also demands that still greater efforts are made by the Bank's lending departments to prevent corruption in all of their programs and, when necessary, to halt those programs that they believe can be subject to fraud and corruption.