Debarment in Public Procurement Rohan Schaap Office of

Debarment in Public Procurement Rohan Schaap Office of the Chief Compliance Officer 4 July 2017

Chernobyl New Safe Confinement 2

Why Fighting Fraud and Corruption Matters. . . to MDBs • Road 30% narrower than specifications • No road surfacing, contrary to specifications • Contract paid in full 3

What Does EBRD Expect From Its Clients? EBRD expects all its clients to have: ü Comprehensive internal controls that are designed to detect and limit the opportunities for fraud and corruption. ü Reporting mechanism that allows internal and external parties to report suspicions of fraud and corruption, and to do so without fear of retaliation (whistle-blower protection). ü A process for effectively reviewing and resolving complaints of fraud and corruption. 4

Clients’ Responsibilities (during a national investigation) When an EBRD client is the subject of a national investigation, EBRD expects: v The client to fully cooperate with the national investigation; v To suspend (and if appropriate, dismiss) all individuals suspected of being involved; v To review internal controls and make improvements where required.

Clients’ Responsibilities (during an EBRD Investigation) EBRD expects its client to: v Inform it of all suspicions of fraud and corruption occurring within project at the earliest possible time. v Fully cooperate with EBRD’s investigations, including making its records and personnel available to investigators; v Suspend (and if appropriate, dismiss) all individuals suspected of being involved; v Review internal controls and make improvements where required.

The “Prohibited Practices” § Fraud § Corruption § Collusion § Coercion § Theft § Misuse of EBRD Resources § Obstruction of MDB Investigation 7

What will an EBRD investigation involve? On receipt of an allegation, EBRD will: v Assess the reliability and seriousness of the allegation; v Assess the implications of the allegation on the EBRD programme / EBRD procurement activity; v On the basis of the above, determine whether to commence an EBRD investigation into the allegations. 8

EBRD Investigations An EBRD investigation: • Will seek to determine whether tenderers or contractors / subcontractors have engaged in fraud and corruption. • Will not investigate the actions of a public sector client or its personnel (including personnel from the Project Implementation Unit). This is the role for national authorities and / or the client; • May result in EBRD imposing sanctions on an entity that is involved in fraud or corruption and / or deciding not to fund the affected project. 9

Authority to Investigate EBRD Procurement Policies and Rules Eligibility 2. 6 The Bank permits firms and individuals from all countries to offer goods, works and services for Bank-financed projects regardless of whether the country is a member of the Bank. […] Clients of the Bank will not exclude a firm or individual from competition for a contract for reasons unrelated to its capability to perform the contract in question unless the firm or individual has been declared, and remains, as at the relevant date, ineligible pursuant to the Bank’s Enforcement Policy and Procedures or, unless as a matter of law or official regulation, the client’s country prohibits commercial relations with the firm or individual’s country, provided that the Bank is satisfied that such exclusion does not preclude effective competition for the supply of goods or works required. 10

Authority to Investigate cont. Prohibited Practices 2. 9 […] Suppliers and contractors selected pursuant to Section 3, concessionaires selected pursuant to Paragraph 4. 4 and consultants selected pursuant to Section 5 as well as the Bank's clients shall fully cooperate with the Bank in any investigation into an alleged Prohibited Practice to be carried out pursuant to the Enforcement Policy and Procedures and shall permit the Bank or its representative to inspect such of their accounts and records as may be relevant for such investigation and to have such records and accounts audited by the auditors appointed by the Bank. Provisions to this effect will be included in the Bank’s loan agreements with its clients (including concessionaires selected pursuant to Paragraph 4. 4), and in any contracts selected pursuant to Section 3 or Section 5. 11

Financing Agreements Typical EBRD financing documents The Borrower and Sponsor represent that: Prohibited Practices. Neither the Borrower nor the Sponsors, nor any Affiliates, nor any Person acting on its or their behalf, has committed or engaged in, with respect to the Project or any transaction contemplated by this Agreement, any Prohibited Practice; Similar covenants from Borrower and Sponsor 12

The EBRD Sanctions Systems § § “Sanctions” means debarment (several forms), restitution, fines, or reprimand. Administrative measures, not criminal sanctions. Suspended and debarred persons are ineligible to receive new contracts for projects financed by EBRD. Possible cross-debarment by the other MDBs. 13

MDB Sanctions Are Public www. ebrd. com/ineligible-entities. html Exception: Asian Development Bank (mostly) 14

Who Can Be Sanctioned? • Companies / individuals competing for, or executing, MDB-financed contracts • In EBRD, IFC and WBG private sector operations: sponsors, guarantors, investee companies; technical assistance consultants 15

What is Mutual Enforcement? An agreement among Multilateral Development Banks to mutually enforce each other’s debarment actions, with respect to the harmonised sanctionable practices: corruption, fraud, coercion, and collusion. 16

MDB Cross-Debarment ØAf. DB, ADB, EBRD, IADBG and the WBG agree to mutual enforcement of debarment decisions Ø Applies to debarments that are public, and more than one year Ø Harmonized definitions of four primary Sanctionable Practices – some MDBs have additional prohibited practices 17

Why mutual enforcement? Ø Recent MDB enforcement tool in fight against fraud & corruption Ø Increases penalties for firms engaging in fraud & corruption Ø Widens net to catch fraud & corruption worldwide Ø Poses strong deterrent 18

Who Can Be ‘Cross-Debarred’? § Entities or individuals § Publicly debarred by any of the participating MDBs § For a period of over a year § Prohibited practices 19

Cross-debarment does not cover … Ø Actions of Government officials Ø Sanctions imposed through recognition of national court decisions Ø Sanctions of 1 year or less Ø Undisclosed sanctions 20

EBRD & Mutual Enforcement Ø EBRD Sanction List available at: http: //www. ebrd. com/pages/about/integrity/list. shtml Ø Currently EBRD applies mutual enforcement decisions made by other MDB’s against 822 entities and 361 individuals 21

Impact of MDB Sanctions Ø Public list Ø Ineligible for that MDB’s financing Ø Cross-debarred by other MDBs Ø Release might be subject to conditions Ø May affect affiliates Ø National enforcement action Ø And. . . ? ? ? 22

The Unseen Prohibited Practices 23

Managing Integrity Risks “Not Debarred” ≠ “OK to finance” Debarment is binary: Engagement is either permitted, or prohibited Integrity Due Diligence is subjective: Even if an engagement is permitted. . . is it prudent? Is the risk of fraud / corruption being managed Debarred / Not Debarred : Is not the end of the MDB role in the operation. 24

Managing Integrity Risks Prevention is better than cure Ø Screening project participants up front Ø Deterring by raising the economic costs of misconduct: ü contractual REPRESENTATIONS ü contractual COVENANTS ü SANCTIONS AND DEBARMENT ü national enforcement action 25

What does the EBRD do to help reduce the demand side of corruption? v Highlight the extent of corruption within a country – measure its prevalence and assess its affects: § Business Enterprise Services; Life in Transition Service; OECD Anti-Corruption Network; Transparency International etc. v Advocate for improvements to the investment climate § Improving legislation / regulation; Supporting the creation & work new institutions; Strengthening national agencies; remove national procurement processes etc. v Improve the integrity of our government clients § Improvement in governance; Anti-corruption action plans; training; creation of compliance departments etc. 26

Looking Beyond Debarment § Engagement with govt authorities § Technical capacity building § Raising awareness of business integrity § Investment Climate and Governance Initiative (ICGI) § launched in 2014 to support reform-minded governments and help corporate clients increase transparency, good governance and anti-corruption. § Currently programmes: in Albania, Moldova, Serbia, Ukraine and Kosovo, leading to the establishment of the successful Business Ombudsman in Ukraine and Investment Councils in Albania, Georgia and Moldova. § “Appropriate” enforcement /sanction § Identifying demand side situations § Business integrity and controls improvements 27

Essential Elements of an Anti. Corruption Compliance Programme What exists on paper? How comprehensive? • Anti-bribery/corruption policy • Prohibition on bribery • Rules on gifts and hospitality, political donations, charitable donations, bribery solicitation • Code of Conduct/Ethics • AML/CFT and sanctions compliance policy • Whistleblowing/Reporting mechanism Meaningful implementation? • Ownership/tone from the top and middle management • Training and awareness/raising • Repeat risk assessments • Response to compliance failures/internal investigations • Financial and non-financial control measures • Monitoring and review 28

Focus Country – Ukraine § Four corruption-related enforcement actions 2015 -2016 # Subject Payments Benefit Result 1 ACTI Ukraine (Subsidiary of multinational agribusiness corporation) US$22 million US$100 million in VAT refunds 3 -year debarment 2 Medium-sized, familyowned plastic manufacturer € 7. 2 million VAT refunds, customs clearance, court case facilitation 3 -year conditional nondebarment 3 Medium-sized, familyowned steel manufacturer € 4. 3 million € 18. 3 million in VAT refunds 3 -year conditional nondebarment 4 Medium-sized, regional grain trading company Land registration 3 -year conditional nondebarment US$380, 000 29

Ukrainian Ombudsman Defending Ukrainian businesses from corruption https: //www. youtube. com/watch? v=Y 5 rth. VPi. U 0 Q 30

Useful Resources • Transparency International Business Principles for Countering Bribery • ISO 37001 on Anti-Bribery Management Systems • UNODC/World Bank/OECD Anti. Corruption Ethics and Compliance Handbook for Business • UN Global Compact: A Guide for Anti-Corruption Risk Assessment • U. S. DOJ Evaluation of Corporate Compliance Programs • Business Anti-Corruption Portal • World Economic Forum Partnering Against Corruption Initiative 31

History’s first debarment 32

Questions? EBRD Website: www. ebrd. com List of Ineligible Entities: www. ebrd. com/ineligible-entities. html Report Fraud and Corruption: http: //www. ebrd. com/eform/contact/1390580844264 Ombudsman Business Council: https: //boi. org. ua/en/ 33