World Bank sanctions: Is India Inc prepared?

The World Bank has long been known as the premier multilateral development bank, extending large credit facilities to countries to foster development in infrastructure, health, education, etc. However, recent evidence suggests that the World Bank now may also be one of the most aggressive international regulators of corruption and fraud.

Under the anti-corruption programme of the World Bank Group, companies or individuals found by the bank’s Sanction Board to be engaged in fraud and corruption in World Bank Group-financed projects may be sanctioned by the bank. The legal basis for such sanction arises out of the “fiduciary duty” to protect the use of World Bank financing, set out in its articles of agreement. Once an entity is sanctioned by the bank, the sanctioned entity will be prohibited from bidding for any contract financed by the bank.

By way of example, 26 companies in India have been sanctioned by bank since 1999, including nine in 2016.

Sanctionable practices under the bank’s guidelines include corrupt practice, fraudulent practice, collusive practice or/and coercive practice undertaken by an individual or a company. This may also include engaging in an “obstructive practice” in connection with an investigation by the World Bank Group’s integrity vice presidency or the exercise of the bank’s inspection and audit rights.

Sanction proceedings undertaken by the bank are two-tiered. First, an evaluation and suspension officer (EO) reviews the statement of accusations and evidence against the respondent and gives a final determination on the statement. If the respondent contests the EO’s final determination, a second tier de novo review of the statement is undertaken by the Sanction Board consisting of three World Bank and four non-World Bank staff, and a decision is given on the statement.

Cyril Amarchand Mangaldas is India’s largest full-service law firm. Kunal Gupta is a partner at the firm.