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Technology and cross-debarment help World Bank fight against financial crime

April 26th, 2016 - Posted by Sam Hemmant in Anti-Bribery And Corruption, Anti-Money Laundering

The World Bank's commitment to debarment against companies involved in World Bank-funded projects who commit financial crime remains strong, according to latest figures.

LINK TO REPORT: http://siteresources.worldbank.org/EXTOFFEVASUS/Resources/OSD_Report_Second_Edition.pdf

When firms or individuals are found to have engaged in fraudulent, corrupt, collusive, coercive or obstructive practices, the World Bank Group may impose a sanction such as debarment.  Debarred entities are then ineligible to be awarded a World Bank Group-financed contract, either permanently of for designated period of time.

The World Bank's OSD (Office of Suspension and Debarment) latest report shows that in the two fiscal years ending in June 2015, the bank debarred or sanctioned 144 firms or individuals.  

Although neither year matched the record 83 sanctions or debarments implemented in 2012, cumulatively 2014 and 2015 represent more than a third of the total number of debarments and sanctions over the last eight years (368).

The World Bank continued to be prepared to temporarily suspend firms and individuals in 2014 and 2015. These two years account for 120 of the 359 temporary suspensions issued between 2008 and 2015.

Whilst the figures demonstrate the scale of effort in recent years, the OSD's report also reveals some of the most effective parts of its strategy in the fight against financial crime.

Using technology to analyse data for financial crime

The report suggests that using technology to study company's data is fast becoming a central part of a strong compliance strategy. The World Bank says good data collection can help identify patterns which reveal where there are inefficiencies or even corruption.

The recent 14th Global Fraud Survey by EY supports the bank's position. It notes that where employees of a company are reluctant to raise concerns about financial crime, the data held by the company can be "the key to identifying instances of potential impropriety."

LINK TO REPORT: http://www.ey.com/Publication/vwLUAssets/EY-corporate-misconduct-individual-consequences/$FILE/EY-corporate-misconduct-individual-consequences.pdf

The UK's Financial Conduct Authority's 2016/17 business plan also commits the FCA to encouraging "the use of technology to reduce compliance costs".

Thanks to growing use of technology, companies who have committed financial crime are less likely to escape the notice of potential business partners or enforcement regulators.

Cross-debarment strengthens power of sanctions

The report shows that the World Bank's enforcement powers carry a greater threat because of the policy of "cross debarment", which was agreed in 2010. In most cases, debarment or sanctions by the World Bank will automatically be implemented by a number of other multilateral development banks. These comprise the Inter-American Development Bank, the European Bank for Reconstruction and Development, the African Development Bank, and the European Investment Bank.

Pascale Helene Dubois, Chief Suspension and Debarment Officer at the World Bank, says the bank's sanctions regime is part of "a larger international movement".

This policy mirrors the strategy of 'mutual assistance' by regulators in different countries, who are increasingly willing to share evidence about companies accused of financial crime and work together on investigations.

The trend is clear: if a company or individual commits financial crime in another jurisdiction cooperation across regulators and agencies makes enforcement action more likely.

Compliance can lead to rewards

During the fiscal year ending June 2015, the World Bank Group committed US$60 billion in loans, grants, equity investments and guarantees to projects that promote growth and fight poverty. Companies that have been sanctioned and debarred are no longer eligible to apply for these contracts.

Earlier this month, the World Bank announced the debarment of six companies that overstated their HFC emissions in order to show their potential to curb pollution and thereby qualify for World Bank funding. These companies have now lost their right to bid for World Bank-financed contracts over the next year, which represents a significant loss of potential income.

So a company should not think of compliance simply as a way to avoid being fined or criticised in the media. Compliance can also help a business to grow. A report by MLex last month showed how Siemens built a culture of compliance which is now recognised as a positive growth enabler within the business.

LINK: http://mlexmarketinsight.com/reports/corporate-cleanup-siemens-a-compliance-case-study/

Any company or contractor engaged in World Bank projects or considering bidding should strengthen their anti-bribery and corruption guidelines to make sure they do not lose out. Those that ignore their compliance responsibilities risk facing the bank's increasingly tough sanctions regime.

What do you think?