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Monday
Jun132016

Leonard McCarthy of the World Bank: Settling for Development with Integrity

Historians may look back on 2016 as the year when the global anti-corruption movement took political center stage. Every day, we taste corruption’s bitter fruit in the form of instability, violence and a corrosion of trust that spans from government to sport.

At the same time, exposés like the Panama Papers show how the few who benefit from corruption hide, launder, and spend their ill-gotten gains often with near impunity. This must change.

I have been a corruption hunter and integrity advocate for most of my legal career. I used to investigate and prosecute corruption cases in South Africa. Since 2008, I have led the World Bank’s Integrity Vice Presidency, which works to safeguard the integrity of World Bank-financed development projects, and ensure that development funds reach the poor they are meant to serve. By promoting integrity, we aim to inspire solutions, trust and hope in a better future.

Development is risky business. At the World Bank, we take pride in a portfolio of development results that are implemented with quality and integrity. Thanks to a global pool of governance and operational experts, we successfully partner with our IDA clients to deliver schools, roads, health services, clean water and emergency support in 75 countries, many of which struggle with long-term conflict and fragility.

As the 2016 Global Declaration against Corruption rightly stated, we must defeat corruption, if our common efforts to end poverty and promote prosperity are to succeed. Penalizing corruption is one critical tool in this fight.  Equally important is prevention. In 2015, the World Bank Group prevented approximately $138 million in contracts from being awarded to companies that had engaged in past misconduct.

Yet a third tool -- partnership -- may ultimately prove most important of all.

This week, 200 leading corruption fighters are meeting in Paris at an International Anticorruption Practitioner Conference hosted by the French Ministry of Justice. One of the topics we will explore is fighting corruption through alternative dispute resolutions, such as settlements. The World Bank’s experience, drawn from the negotiation and enforcement of more than 45 settlements, is that cooperative tools s enable a wide range of companies -- large and small, international and local -- to commit to integrity, change their behavior, and level the competitive playing field.

The World Bank’s decision to settle some corruption cases has strengthened our ability to prevent the recurrence of fraud and corruption while holding those responsible accountable. Settlements enable us to fight corruption by partnering with companies to change business norms. When one sees systemic corruption, one is also seeing a broken corporate culture and the benefits of reforming this culture resonates deeply with a wide range of companies and governments. Settlement’s compliance reform requirements buttress the prescriptive efforts of many other international institutions, such as the G20, the B20 Coalition, the United Nations Global Compact, and the World Economic Forum’s Partnering against Corruption Initiative.

Some have argued that settlements only let large companies off the hook, in exchange for a restitution payment they can easily afford. While sympathetic to the concern, my experience teaches otherwise.

The World Bank has settled with many local and regional companies, not just large multinationals. Indeed, by undertaking ambitious compliance and reform efforts, it is the smaller firms that seize the greatest opportunity to gain credibility in highly-competitive developing markets.

Settlements can carry stiff penalties. Nearly all World Bank settlements include a debarment period during which they are excluded from receiving World Bank contracts.This sanction is enhanced by a cross debarment agreement signed with other Multilateral Development Banks. A company debarred by one is debarred by all, regardless of size, wealth or nationality. 

Settlements also provide flexibility to remedy corruption’s harms. World Bank settlements can include restitution components, and we have used this remedy creatively. Some restitution is best imposed through the repayment of the profits that a company received through misconduct.

One World Bank settlement involved the payment of $9.5 million to the government of Zambia; another, the payment of €400,000 to the government of Romania. But cash repayment is one option among many. Another World Bank settlement involved the in-kind contribution of medical test kits to the affected country’s health authorities. And in a 2015 settlement, a company that engaged in corruption in an urban sanitation project in Liberia repaid $325,000 that the World Bank used to support Liberia’s urgent Ebola response efforts.

Most importantly, settlements can include unique and substantial corporate reform requirements. World Bank settlements almost always require firms to correct their misconduct and launch a new code of integrity and compliance. The World Bank’s experience in monitoring compliance is relatively young, but we are already seeing many companies, small and large, recreate their brand on integrity. By changing culture, settlement can redefine bribery from an acceptable expense to a strictly unacceptable action. Settlement’s compliance reform requirements buttress the prescriptive efforts of many other international institutions, such as the G20, the B20 Coalition, the United Nations Global Compact, and the World Economic Forum’s Partnering against Corruption Initiative.

The scale and scope of corruption’s ill effects is well documented. For many countries, corruption manifests in weak, sclerotic institutions that abuse their powers, and fail to respond to critical challenges. This weakness contributes to ills ranging from crumbling infrastructure, to high infant mortality, to lack of access to clean water or education, to uncompetitive business environments -- all of which run counter to eliminating poverty.

But we have every reason to hope, because the tide is slowly turning against the corrupt. The world is a very different place than it was 15 years ago, when no one spoke of corruption, and bribes were often tax-deductible business expenses. 

The amount of money at stake is now higher, but so is the pressure to change. The ways and means of fraud and corruption are more sophisticated, but so, too, are anti-corruption authorities. The air of impunity is receding, replaced with the growing threat of transnational enforcement. Development goals can be compromised if we fail to impact corporate behavior. Partnership, through tools like settlements, is helping to light a promising road ahead.

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Leonard McCarthy is the Integrity Vice President of the World Bank Group, a position he has held since June 2008. The mandate of the Integrity Vice Presidency (INT) is to anticipate, detect, deter and prevent fraud and corruption in Bank Group-supported activities. Prior to joining the World Bank Group, Mr. McCarthy headed the Directorate of Special Operations (DSO) in South Africa.