The global economic slowdown precipitated by covid-19 does not appear to have curtailed the enforcement activities of multilateral development banks (MDBs). In particular, the African Development Bank Group (AfDB) is having its most active year to date. So far, the AfDB has debarred 84 firms. By contrast, the AfDB debarred 27 firms and individuals in 2019 and only eight firms and individuals in 2018.
As described in more detail below, most of the 2020 debarments have been the result of settlements. However, cases resolved by negotiated settlement agreements (NSAs) thus far do not appear to result in significantly shorter periods of debarment. In fact, the longest debarment imposed by the AfDB to date (76 months) arose from a settlement agreement. Most NSAs impose debarment between two to three years, which matches the length of debarment imposed by the Sanctions Commissioner (the first tier of review in the AfDB's sanctions system) in most published decisions. But the Sanctions Appeals Board, the second and final tier of review, has reduced debarment periods quite considerably in recent jurisprudence, with most cases ending in debarment for one and a half years or less.
This pattern puts the AfDB at odds with the World Bank Group (WBG), which reports that investigations resolved by settlement typically result in shorter debarments than those resolved by decisions of the Office of Suspension and Debarment or the Sanctions Board. It also sends mixed signals to companies facing AfDB investigations. A company may wish to quickly resolve an investigation through settlement, but if confronted with the possibility of lengthy debarment, it may be more worthwhile to pursue an appeal, rather than settlement negotiations.
Recent settlements
At any time before the Sanctions Appeals Board issues a decision, the AfDB's investigation arm, the Office of Integrity and Anti-Corruption (PIAC), and the respondent may request a stay of proceedings from the Sanctions Commissioner or Sanctions Appeals Board in order to pursue settlement negotiations. Between 2014 and 2019, the Sanctions Commissioner approved 12 NSAs. All but two of these settlements imposed some period of debarment, with half (five) resulting in two to three years' debarment. This is similar to the outcome in most of the 13 decisions published online by the Sanctions Commissioner, nearly half (six) of which impose two to three years' debarment.
However, one key difference between cases resolved by a settlement agreement and those by a decision of the Sanctions Commissioner is that settlements may offer the option of early release from debarment if the conditions of release are met. Such an arrangement was made in the 2018 NSA with CHINT Electric, which was debarred for 36 months for fraudulent practices, but may be released after 24 months if all conditions of release are met early. In another settlement, two companies debarred in 2019 for 76 months may be able to reduce their debarment period to 48 months if they satisfy the conditions of release early.
Of the 84 AfDB debarments so far in 2020, 61 stem from two major settlements: one with China-based contractor Sieyuan Electric and the other with Danish contractor Burmeister & Wain Scandinavian Contractor (BWSC). Although early release is not an option for either company, both settlements highlight the importance the AfDB places on cooperation, including voluntary disclosure. PIAC's director described self-reporting as a "key factor" in deciding whether to impose debarment and noted that self-reporting warrants an "immediate reduction" of the baseline sanction of three years' debarment.
Sieyuan committed a fraudulent practice by falsifying its credentials to meet the tender qualifications for an energy project in Rwanda. Furthermore, it committed an obstructive practice by providing fraudulent documents to PIAC during the investigation. As part of the settlement agreement, Sieyuan and its affiliates are debarred for a period of 12 months (which does not qualify for cross-debarment under the Agreement for Mutual Enforcement of Debarment Decisions), while a Sieyuan subsidiary, Jiangsu Rugao HV Electric Apparatus, is debarred for 20 months for submitting forged certifications as part of Sieyuan’s bid (and therefore cross-debarred by other major MDBs). In announcing the settlement, PIAC noted Sieyuan’s “extensive cooperation” including the fact that it made a voluntary disclosure.
BWSC engaged in various fraudulent and corrupt practices in connection with a power project in Mauritius, including bribing Mauritian officials through third parties to gain access to confidential tender information. As part of the settlement agreement, BWSC is debarred for a period of 21 months. As with Sieyuan, PIAC acknowledged BWSC’s “extensive cooperation” with the investigation as well as its “transparency in dealing with the sanctionable conduct.” BWSC made a voluntary disclosure to the AfDB after conducting its own internal investigation with the aid of outside counsel. It also dismissed the employees involved with the misconduct and reported two people to the Danish police.
Recent contested cases
Since its inception in 2012, the Sanctions Appeals Board has issued only seven final decisions and only recently began publishing its decisions like the WBG's Sanctions Board. Of these seven final decisions, one upheld the sanction imposed by the Sanctions Commissioner, two determined that the appeals were untimely filed, and four resulted in a lesser period of debarment for the respondents. Three of the four decisions resulting in the reduction of the sanction were issued in 2020 alone and are considered in further detail.
In this matter, the Sanctions Commissioner decided to debar Zhonghao for two years in connection with the submission of false information and forged documents during a tender. Specifically, Zhonghao failed to prevent its joint venture partner, Oceanic Construction & Engineering Nig, from making false declarations, including falsifying CVs, in two separate bids related to a water supply and sanitation project in Nigeria.
Zhonghao appealed the decision, arguing that the Sanctions Commissioner’s decision should align with PIAC’s recommendation of 18 months' debarment. PIAC did not object to Zhonghao’s appeal and the Sanctions Appeals Board reduced the period of debarment from two years to 18 months. Interestingly, Zhonghao’s joint venture partner, Oceanic, did not appeal the Sanctions Decision against it, and is therefore debarred with conditional release for four years.
The Sanctions Commissioner decided to impose on ETEP the baseline sanction of three years’ debarment with conditional release in connection with the submission of falsified financial statements and a falsified CV during the tender for two separate road projects in Mali and Guinea. The Sanctions Appeals Board reduced ETEP’s period of debarment from three years to 13 months. In doing so, it found aggravation warranted for repetition because the forged documents were submitted with two bids. However, it also found mitigation warranted on account of ETEP’s cooperation with PIAC’s investigation.
The Sanctions Commissioner determined that Sinotec committed five fraudulent practices in connection with three tenders and debarred the firm for a period of five years. The fraudulent practices included misrepresenting the value and completion dates of prior contracts, providing false information about its ownership stake in a subsidiary, and falsely claiming to have been awarded a contract.
The Sanctions Appeals Board used its authority under the sanctions procedures to consider WBG Sanctions Board precedent on cumulative misconduct. Because Sinotec engaged in five distinct fraudulent practices in connection with three tenders, multiplication of the base sanction was warranted.
Despite finding for multiplication of the baseline sanction, aggravation, and relatively limited mitigation, the Sanctions Appeals Board still reduced Sinotec’s sanction from five to three years’ debarment. The main reason for the reduction appears to be that the Sanctions Appeals Board believed that the Sanctions Commissioner was biased against Sinotec. The Sanctions Commissioner had deemed “several attempts by one of the Respondent’s agent[s] to influence the sanctions decision process” to warrant aggravation. According to the Sanctions Appeals Board, because the Sanctions Commissioner did not refer this charge to PIAC for investigation, Sinotec did not have an opportunity to defend itself or be heard, which casted doubt on the fairness of the sanction.
Conclusion
We anticipate more enforcement activity from the AfDB in the coming years. PIAC's Director has emphasised the "tenacity" of his staff and warned companies not to underestimate the AfDB's powers. However, the WBG's Integrity Vice Presidency recently announced that it had hired PIAC's director as its new investigations director. It is unclear when PIAC's director will leave his current role at the AfDB, but we do not expect his departure to derail PIAC's investigation activities.
In light of the uptick in AfDB investigations, seeking a negotiated settlement may result in faster resolution of a case, which may be particularly important if a temporary suspension is in place. A temporary suspension makes a company ineligible to be awarded new contracts financed by the AfDB pending resolution of the investigation. Although settlements do not appear to result in significantly shorter periods of debarment, the option of early release may make settlement an appealing option. However, if the Sanctions Commissioner has already decided that a lengthy period of debarment is warranted, it may be worthwhile to pursue an appeal to the Sanctions Appeals Board.
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This article was originally published on GIR | Global Investigation Review on 18 December 2020, and is available under the following link:
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