by Michael Connor

Multilateral development banks and institutional investors have launched separate initiatives designed to increase pressure on companies to combat transnational bribery and corruption.

Bribe_Euro_IS_FeatureIn what they called “an unprecedented step in the global fight against corruption” the World Bank and four other regional multilateral development banks (MDBs) agreed to cross-debar firms and individuals found to have engaged in wrongdoing in MDB-financed development projects.

Under the agreement, the banks said, entities debarred by one development bank may be sanctioned for the same misconduct by the other participating banks, in effect closing a loophole that had previously allowed a firm that had been debarred by one MDB to continue obtaining contracts financed by other MDBs.

The new agreement includes the African Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, the Inter-American Development Bank Group and the World Bank Group.

The banks said that a result of investigations by the World Bank, 399 firms, individuals and non-governmental organizations (NGOs) had been deemed ineligible to participate in World Bank-financed projects.

Among those cited by the the World Bank was Macmillan Limited, the U.K. publishing company, which was debarred and declared ineligible to be awarded Bank-financed contracts for a period of six years in the wake of the company’s admission of bribery payments relating to a Trust Fund-supported education project in Southern Sudan.  The debarment can be reduced to three years subject to continued cooperation. 

Deterrent Effect?

Transparency International-USA, a non-governmental organization heavily involved in anti-corruption efforts, said it “welcomed” the agreement among the development banks.  “Debarment, and particularly cross-debarment, should serve as a powerful deterrent to bribery and other corrupt practices in international development,” Transparency International said. “The agreement’s coverage of individuals as well as firms debarred for more than one year is very important, given that agents or individual consultants facilitate many corruption schemes.”

Some experts cautioned that it’s unclear how effective the debarment provisions might be.  Mike Koehler, a law professor at Butler University and an expert on anti-corruption programs, notes that United States and European Union law currently allows government contract agencies to debar companies convicted of bribery and corruption offenses from receiving government contracts.

However, these debarment provisions are often “toothless tigers” because the charges prosecuted are often “chosen to avoid application of the debarment provisions,” Mr. Koehler said.  He cited a number of recent high-profile corruption cases – involving Siemens, BAE and Daimler – where each company settled charges related to the U.S. Foreign Corrupt Practices Act but none were ultimately debarred from government contracts.

That could also prove true in cases requiring debarment by the development banks.  “What good are the debarment provisions, how effective can they be, if the parties negotiate around their application?” Mr. Koehler asked.

Investor Letter

Separately, an investor coalition representing 20 asset management companies and large pension funds with a combined total of $1.7 trillion in assets under management recently sent a letter to 21 major companies in 14 countries asking them to improve their disclosure of bribery and corruption risks and avoidance measures.

“As investors, we believe that a robust programme of managing anti-corruption risk at your firm can positively impact long-term performance, and that the absence of such a programme, or even its disclosure, has the potential to create financial, operational and reputational risks,” the investors wrote.

The investors asked companies from eight sectors, including defense, construction and capital goods, to explain whether their anti‐corruption management systems adhere to international reporting frameworks developed by the International Corporate Governance Network (ICGN) and UN Global Compact.

George Dallas, director of corporate governance at F&C Management, one of the firms in the investor coalition, said the group aimed to focus attention on the involvement of corporate boards on anti-corruption policies and practices. “To the extent we see companies dragging their feet, this may be something we can use to follow-up on a one-off basis with individual companies,” Mr. Dallas said.  “And if we find this to be a successful program, there’s scope to broaden this to other companies.”

The investors asked the 21 companies receiving the letter to respond by July; the identities of the targeted firms were not disclosed. “We have no reason to believe that these companies are engaging in corrupt activity,” Mr. Dallas said.  Publicizing the names of those on the list “could potentially be misunderstood and misread…and perhaps not be constructively received by the companies,” he added.

The investor coalition includes APG Asset Management, BC Investment Management Corporation, Boston Common Asset Management, California State Teachers’ Retirement System (CalSTRS), Ethos Foundation, F&C Asset Management, Henderson Global Investors, Hermes EOS, Mn Services N.V., New Zealand Superannuation Fund, Rathbone Brothers Plc, Robeco, Skandinaviska Enskilda Banken (SEB) AB, Syntrus Achmea Asset Management, Victorian Funds Management Corporation, and large funds in Australia (represented by The Australian Council of Superannuation Investors) and Sweden (AP 1-4).