Risk Management and Crisis Response Blog

World Bank debars three companies in effort to promote higher integrity standards

Jul 20, 2021 6 MIN READ
Stéphane Eljarrat

Partner, Disputes
Head: White-Collar Defence, Toronto

Sarah Firestone

Associate, Disputes, Toronto

Malcolm Aboud

Counsel, Disputes, Toronto

Currency exchange

On June 30, 2021, The World Bank Group (the World Bank) announced the debarment of three companies for alleged sanctionable misconduct: Crosswords Ltd. (“Crosswords”), Al-Zubairi Group for General Trading, Contracting, Transportation, and Oil Services (“Al-Zubairi”) and Companhia Brasileira de Projetos e Empreendimentos (“COBRAPE”). These are the final three settlements of 18 concluded by the World Bank in fiscal 2021.

Businesses should be alert to the variety of risks associated with corrupt conduct. In addition to legal and reputational risks, companies may face business consequences including debarment from both public contracting and World Bank financing. These debarments serve as a reminder of the consequences of inadequate controls that fail to prevent corrupt conduct.

The debarment of Crosswords

Crosswords, a Liberian trading company, was debarred for six years for “fraudulent and obstructive” practices under the Integrated Public Financial Management Reforms for Institutional Strengthening Project II and the Social Safety Nets Project. The alleged fraudulent practices consisted of submitting forged documents during bidding processes for the projects. The alleged obstructive practices consisted of providing false statements and falsified documents to the World Bank investigators regarding the bidding processes.

The debarment is part of a settlement agreement under which Crosswords admitted to the alleged sanctionable conduct, committed to developing an integrity compliance program in accordance with World Bank Group Integrity Compliance Guidelines and agreed to continue to fully cooperate with the World Bank Group Integrity Vice President. The World Bank stated that the admission of culpability resulted in a reduced period of debarment and that the settlement “illustrates how firms can benefit when they acknowledge wrongdoing and commit to reform.”

Crosswords is ineligible to participate in projects and operations financed by the World Bank during the debarment. The debarment also qualifies for cross-debarment by other multilateral development banks (MDBs), including the Asian Development Bank, the European Bank for Reconstruction and Development, the Inter-American Development Bank and the African Development Bank. For now, Crosswords Ltd. has not been subjected to any enforcement proceedings from authorities in Liberia.

The debarment of Al-Zubairi

Al-Zubairi was debarred for six months due to a fraudulent practice in relation to the Yemen Emergency Electricity Access Project. The alleged fraudulent practice consisted of misrepresenting the company’s past experience by using a competitor’s experience credentials to meet the requirements for a World Bank-financed tender.

The debarment is part of a settlement agreement under which Al-Zubairi acknowledged responsibility for the alleged sanctionable practice, committed to undertake a corporate ethics training program consistent with the World Bank Group Integrity Compliance Guidelines and committed to cooperate fully with the World Bank Group Integrity Vice President. The agreement provides for a reduced period of debarment as a result of the company’s cooperation and voluntary remedial actions. The debarment makes Al-Zubairi ineligible to participate in projects and operations financed by the World Bank; however, it does not qualify for cross-debarment with other MDBs.

Furthermore, following the six-month debarment, Al-Zubairi will remain on a 12-month conditional non-debarment during which it will be eligible to participate in World Bank projects and operations, subject to compliance with its obligations under the settlement agreement. If the company fails to meet these obligations, this will revert to the full debarment. For now, Al-Zubairi has not been subjected to any enforcement proceedings from authorities in Yemen.

The debarment of COBRAPE

COBRAPE, a Brazil-based consultancy in the water supply, sanitation and transportation sectors, was debarred for 11 months in connection with the implementation of a consulting contract under the World Bank-financed Integrated Municipal Project – Betim Municipality. Allegedly, COBRAPE had falsely certified to the Municipality of Betim that three of its professionals had been working full time on the project when they had not. This alleged misrepresentation influenced the execution of the contract and conveyed a financial benefit to COBRAPE of approximately US$4,400.

The World Bank reduced the period of debarment in recognition of:

  • remedial actions taken by COBRAPE at the time of contract execution to address and mitigate the issue
  • the passage of time since the relevant conduct occurred
  • COBRAPE’s implementation over a period of years of a revised contract control system
  • COBRAPE’s efforts to establish an integrity compliance program and improve its internal controls
  • COBRAPE’s voluntary restraint from bidding for World Bank-financed contracts during settlement negotiation
  • COBRAPE’s cooperation with the World Bank during settlement negotiation

Following this debarment, COBRAPE will be subject to a seven-month conditional non-debarment, wherein it will be eligible to participate in World Bank projects and operations, subject to compliance with its obligations under the settlement agreement. For now, COBRAPE has not been subjected to any enforcement proceedings from Brazilian authorities.

According to the World Bank, the improvements in COBRAPE’s integrity compliance standards under the settlement agreement, including the development or revision of its anti-fraud policies, improvements in its internal controls, training of its employees on anti-fraud and general corporate ethics and the continued cooperation with the World Bank’s anti-corruption efforts, “are expected to benefit the broader portfolio of World Bank projects.”

Debarment in Canada

As we have previously written, there are both legal and business risks associated with a failure to conduct business ethically. Businesses may be criminally liable for fault or negligence under the Criminal Code or other federal legislation such as the Corruption of Foreign Public Officials Act. Furthermore, companies in Canada that are convicted of specific offences are generally debarred from certain forms of public contracting, as well as World Bank financing. The Canadian federal government’s debarment regime, the Integrity Regime, has two categories of specified offences: automatic offences and discretionary offences. Automatic offences impose an automatic 10-year ineligibility for public contracting. If convicted of a listed discretionary offence, there is discretion to apply the 10-year ineligibility for public contracting. This discretion can also be applied when a company is convicted of an offence outside of Canada that is similar to one of the specified offences.

Notably, debarment under Canada’s Integrity Regime is not imposed in cases where, rather than being convicted of an offence, a company resolves charges by way of a remediation agreement or deferred prosecution agreement (DPA). As we have previously written, remediation agreements or DPAs were introduced in Canada in 2018 as part of an effort to enhance the toolkit for combatting corruption and other white collar crime. These tools also allow for companies who have addressed the issues to continue to do business without impacting other stakeholders — namely, shareholders and employees. Though used in other jurisdictions as a mechanism to enter settlements and facilitate enforcement, to date no remediation agreements have been announced in Canada.

In addition to debarment, business risks associated with a failure to conduct business ethically include significant reputational damage, debarment from public procurement or certain forms of financing and impact on ongoing transactions, including M&A activity.

Implications for Canadian businesses

Canadian businesses are encouraged to implement robust compliance programs that facilitate ethical business practices, prevent corruption and ensure businesses are compliant with applicable regulatory regimes. Effective due diligence, auditing, risk identification protocols, incentives designed so as not to encourage corrupt behaviour and effective training are all hallmarks of an effective compliance program. Companies should investigate allegations of improper conduct and seek legal advice to determine how to respond to a crisis situation.

It is also important for companies that conduct business internationally to stay informed of developments under other applicable anti-corruption regimes. In addition to the potential application of foreign legislation such as the U.K. Bribery Act or the U.S. Foreign Corrupt Practices Act for companies doing business in those jurisdictions, as stated in the press release, companies can expect the World Bank will continue its efforts to promote higher integrity standards in World Bank-financed projects. Non-compliance with other regimes could result in discretionary debarment under the Integrity Regime. Companies should be aware that it is expected that there will be an increase in enforcement efforts in Canada, given the domestic and international scrutiny on such efforts.