Cor­rup­tion in aid projects

Sports Page 20 One of the largest engi­neer­ing play­ers in aid to Asian coun­tries, in­clud­ing Sri Lanka, was hit with World Bank sanc­tions. What hap­pens now?

Sunday Times (Sri Lanka) - - NEWS - By Lisa Cor­nish lisa

CAN­BERRA — Aus­tralian- based SMEC, one of the world’s largest engi­neer­ing ser­vices for aid and de­vel­op­ment projects, and four of its sub­sidiaries have been de­barred by the World Bank for 108 months col­lec­tively for bribery and mis­rep­re­sen­ta­tion in its South Asia projects.

The an­nounce­ment was made last Thurs­day, with the World Bank re­veal­ing that the five SMEC sub­sidiaries made in­ap­pro­pri­ate pay­ments in re­la­tion to World Bank- fi­nanced projects in Sri Lanka and Bangladesh, as well as mis­rep­re­sen­ta­tions to meet bid­ding re­quire­ments un­der World Bank-fi­nanced projects in Sri Lanka and In­dia.

In Au­gust last year, on­go­ing in­ves­ti­ga­tions against SMEC were re­vealed in a re­port from the Aus­tralian Broad­cast­ing Cor­po­ra­tion and Fair­fax me­dia. Ac­cord­ing to the re­port, the Aus­tralian Fed­eral Po­lice were in­ves­ti­gat­ing al­le­ga­tions of bribery of gov­ern­ment of­fi­cials in Sri Lanka and Bangladesh.

While many donors have been caught by sur­prise by the de­bar­ment, oth­ers — in­clud­ing the De­part­ment of For­eign Af­fairs and Trade — have been an­tic­i­pat­ing the out­come of the in­ves­ti­ga­tion prior to plac­ing their own sanc­tions on the com­pany, ex­pected soon. The bank de­bars scores of com­pa­nies each year, with 981 de­barred firms cur­rently listed, but sanc­tions on a group as prom­i­nent in aid pro­grams as SMEC are rare.

What is the ex­tent of World Bank sanc­tions?

The de­bar­ment has im­pacted the op­er­a­tions of SMEC sub­sidiaries in Aus­tralia, Bangladesh, In­dia, and Sri Lanka. All will re­ceived a 30-month min­i­mum pe­riod of sanc­tion. Aus­tralian op­er­a­tions will re­ceive a 12-month pe­riod of in­el­i­gi­bil­ity fol­lowed by an 18-month pe­riod of con­di­tional non-de­bar­ment. In­dia will re­ceive a six-month pe­riod of in­el­i­gi­bil­ity, fol­lowed by a 24-month pe­riod of con­di­tional non-de­bar­ment. And the two SMEC sub­sidiaries in Bangladesh and one in Sri Lanka face a 30-month pe­riod of in­el­i­gi­bil­ity.

Con­di­tional non- de­bar­ment means SMEC is still el­i­gi­ble to par­tic­i­pate in World Bank-fi­nanced projects as long as it meets the con­di­tions of their Ne­go­ti­ated Res­o­lu­tion Agree­ment.

But de­bar­ment will only con­clude if SMEC can demon­strate a num­ber of re­quire­ments to the World Bank Group’s In­tegrity Com­pli­ance Of­fi­cer. They must prove that they have put in place and sat­is­fac­to­rily im­ple­mented an ef­fec­tive in­tegrity com­pli­ance pro­gram ac­cept­able to the bank, have fully co­op­er­ated with the bank, and have fully com­plied with the terms and con­di­tions un­der their NRA.

“The World Bank’s dis­clo­sure pol­icy www. sun­day­times. lk does not al­low the dis­clo­sure of in­ves­tiga­tive de­tails so as not to com­pro­mise the in­tegrity of the process and/or the se­cu­rity of wit­nesses,” a spokesper­son for the World Bank told Devex. But the spokesper­son said their pro­cesses are aimed at early de­tec­tion and in­ter­ven­tion of pro­cesses deemed cor­rupt. “It is im­por­tant to in­vest in early de­tec­tion of red flags and pre­ven­tion ef­forts, par­tic­u­larly in high-risk projects and/or sec­tors where gov­er­nance ca­pac­ity is a chal­lenge. This is one of the prom­i­nent fea­tures of our en­gage­ment with clients and part­ner­ships with donors.”

Un­der the Agree­ment for Mu­tual En­force­ment of De­bar­ment De­ci­sions, the de­bar­ment ap­plies to all sig­na­tory mul­ti­lat­eral de­vel­op­ment banks, in­clud­ing the African De­vel­op­ment Bank, Asian De­vel­op­ment Bank, and In­ter­na­tional Mon­e­tary Fund.

For donors out­side the Agree­ment for Mu­tual En­force­ment of De­bar­ment De­ci­sions, the World Bank is pro­vid­ing in­for­ma­tion to aid donors and other con­cerned gov­ern­ments on the na­ture of the find­ings. “The World Bank refers its in­ves­tiga­tive find­ings to con­cerned na­tional au­thor­i­ties so that they can de­ter­mine whether or not there is any vi­o­la­tion of na­tional leg­is­la­tions and/or the need to con­duct their own in­de­pen­dent as­sess­ment or in­ves­ti­ga­tion,” a spokesper­son at the World Bank said.

How will ex­ist­ing con­tracts be im­pacted?

An anal­y­sis of aid con­tracts re­veals an ex­ten­sive range of con­tracts SMEC are cur­rently con­tracted to de­liver, in­clud­ing mul­ti­mil­lion dol­lar con­tracts for the AfDB, ADB, DFAT, and World Bank.

“When a com­pany is de­barred, it ba­si­cally can­not en­gage in any new World Bank-fi­nanced project,” a spokesper­son for the World Bank said. “This would ap­ply to all de­barred com­pa­nies.”

De­spite de­bar­ment, how­ever, a com­pany un­der con­tract is com­mit­ted to com­plete the terms of its con­tract with de­vel­op­ment banks un­der the Agree­ment for Mu­tual En­force­ment of De­bar­ment De­ci­sions. But for the World Bank, car­ry­ing out con­tract obli­ga­tion is met with ad­di­tional over­sight from the In­tegrity Com­pli­ance Of­fice, part of the In­tegrity Vice Pres­i­dency, who will work with SMEC to en­sure that it ful­fils the in­tegrity com­pli­ance obli­ga­tions un­der the set­tle­ment agree­ment.

Sim­i­larly, a spokesper­son for the Of­fice of An­ti­cor­rup­tion and In­tegrity at the ADB ex­plained that con­tracts awarded be­fore the de­bar­ment would not be af­fected. “How­ever, we will con­tinue to care­fully mon­i­tor and as­sess im­ple­men­ta­tion of on­go­ing con­tracts in­volv­ing de­barred par­ties. Also, con­tract vari­a­tion for con­tracts awarded to de­barred par­ties prior to their de­bar- ment must be en­dorsed by OAI to en­sure that a con­tract vari­a­tion in­volv­ing a sanc­tioned party is not an at­tempt to cir­cum­vent the sanc­tion.”

Out­side of the mul­ti­lat­eral de­vel­op­ment banks, ex­ist­ing con­tracts are not so se­cure. SMEC is an im­por­tant player in engi­neer­ing pro­grams through­out the world, de­liv­er­ing ser­vices across the world. Among the or­ga­ni­za­tions to re­cently award con­tracts to SMEC was the Mil­len­nium Chal­lenge Cor­po­ra­tion, which in March awarded a $671,000 con­tract to SMEC for con­sul­tancy ser­vices for the as­sess­ment and busi­ness plan­ning ac­tiv­i­ties of the Elec­tric­ity Gen­er­a­tion and Trans­mis­sion Com­pany in Sierra Leone. The re­sponse from MCC was swift, in­clud­ing a halt of all pay­ments to SMEC.

“MCC takes al­le­ga­tions of and proven ex­am­ples of fraud or cor­rup­tion ex­tremely se­ri­ously,” a spokesper­son for MCC ex­plained to Devex. “MCC is re­view­ing the sit­u­a­tion with its part­ners at the Mil­len­nium Chal­lenge Co­or­di­nat­ing Unit in Sierra Leone, in ac­cor­dance with in­ter­nal MCC pro­cesses. MCC has in­formed MCCU that pay­ments to the firm un­der the cur­rent con­tract are to be tem­po­rar­ily sus­pended while MCC re­views the sit­u­a­tion. MCC is also in­for ming all Mil­len­nium Chal­lenge Ac­counts and their re­spec­tive pro­cure­ment agents of the de­bar­ment, and that no new con­tracts are to be signed with the firm.”

SMEC will be de­barred from MCC­funded pro­cure­ments for the du­ra­tion of its de­bar­ment by the World Bank, but MCC is con­tact­ing SMEC di­rectly to ob­tain their ex­pla­na­tion of the sit­u­a­tion. In col­lat­ing the in­for­ma­tion gath­ered, MCC ex­plained they will de­cide whether the cur­rent con­tracts should con­tinue. “If MCC or its part­ner or­ga­ni­za­tions be­lieve there may have been fraud or cor­rup­tion un­der the cur­rent con­tracts, MCC will in­form USAID’s Of­fice of the In­spec­tor Gen­eral’s Of­fice of In­ves­ti­ga­tion for pos­si­ble in­ves­ti­ga­tion.”

In Aus­tralia, SMEC has been a prom­i­nent com­pany in de­liv­er­ing large-scale engi­neer­ing ser­vices for do­mes­tic and in­ter­na­tional projects — in­clud­ing a con­tro­ver­sial fea­si­bil­ity study to pumped hy­dro- stor­age ca­pa­bil­ity to deal with on­go­ing Aus­tralian do­mes­tic en­ergy is­sues.

For Aus­tralia’s aid pro­gram, SMEC has been an im­por­tant part­ner on 43 projects and pan­els since 2008, ac­cord­ing to AusTen­der data, in­clud­ing three on­go­ing projects.

“The de­part­ment is cur­rently as­sess­ing the im­pact of de­bar­ment on its ex­ist­ing agree­ments and cur­rent and fu­ture ten­ders,” a spokes- per­son for DFAT ex­plained to Devex. But they are less con­cerned about cor­rup­tion within their own pro­grams, which in­volve three on­go­ing con­tracts hav­ing a value in ex­cess of 300 mil­lion Aus­tralian dol­lars (ap­prox­i­mately $248 mil­lion). “The de­part­ment un­der­stands that the is­sues that led to SMEC’s de­bar­ment do not in­volve DFAT funds.”

But in­ter­nal con­tacts sug­gested to Devex that sanc­tions were likely.

The re­sponse from SMEC

In re­sponse to the sanc­tions, SMEC have ex­plained to Devex that they are work­ing in co­op­er­a­tion with the World Bank un­der the terms of the NRA. “This NRA brings to con­clu­sion the World Bank’s in­quiry into al­leged mis­con­duct in those coun­tries dat­ing ap­prox­i­mately from the pe­riod 2007 to 2009, to which the com­pany has ex­tended its fullest co­op­er­a­tion,” An­gus Macpher­son, di­rec­tor of op­er­a­tions for SMEC, said. “The com­pany will ful­fill all ex­ist­ing World Bank con­tracts in th­ese mar­kets.” But Macpher­son ex­plained that there are SMEC en­ti­ties not re­stricted by the NRA, which does not re­strict the ac­tiv­i­ties of a num­ber of SMEC en­ti­ties who will con­tinue to be en­ti­tled to bid and win de­vel­op­ment con­tracts. And they are work­ing to en­sure donors that steps are be­ing taken to im­prove over­sight and pre­vent any chance of cor­rup­tion or fraud in their busi­ness. “SMEC In­ter­na­tional wishes to as­sure its clients and part­ners that it main­tains a zero- tol­er­ance pol­icy against fraud and cor­rup­tion and will con­tinue to strengthen its Cor­po­rate In­tegrity Com­pli­ance pro­gramme,” Macpher­son said. (Lisa Cor­nish is a Devex re­porter based in Can­berra, Aus­tralia. Lisa for­merly worked with News Corp Aus­tralia as a data jour­nal­ist for the na­tional net­work and was pub­lished through­out Aus­tralia in ma­jor met­ro­pol­i­tan and re­gional news­pa­pers, in­clud­ing the Daily Tele­graph in Mel­bourne, Her­ald Sun in Mel­bourne, Courier- Mail in Bris­bane and on­line through news.com.au. Lisa was awarded the 2014 Jour­nal­ist of the Year by the New South Wales In­sti­tute of Sur­vey­ors.) Cour­tesy Devex.com

The World Bank head­quar­ters in Wash­ing­ton, D.C. Photo by: makzhou / CC BY-NC

The Sun­day Times re­ported the story last week

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