Asian Development Bank: integrity compliance and enforcement

The Asian Development Bank's (ADB) Office of Anticorruption and Integrity (OAI) is responsible for carrying out independent investigations into integrity violations by both ADB staff and third parties involved in ADB-related activities, and for developing and implementing preventive measures to mitigate the risk of such violations.

OAI's 2020 Annual Report (Annual Report) provides valuable insight into the OAI's role for companies working on ADB-financed projects, highlighting the OAI's enforcement activity and serving as a useful reminder of the potential compliance risks that such projects present. In particular:

• The OAI's investigation and enforcement activity continued more or less unabated, despite the OAI being required to pivot to remote working because of the pandemic. In 2020, the ADB reviewed a record a number of allegations of integrity violations. It also concluded 76 external investigations into third parties, resulting in the debarment of 89 firms and 31 individuals (with an additional 225 entities and 27 individuals being cross-debarred). As at 31 July 2021, the ADB has debarred a total of 1,286 companies and 842 individuals.

   

• Similar to the experience of the World Bank and African Development Bank, as we have previously reported, the most common form of integrity violation was fraud, which frequently involved the submission of false or inaccurate information in bids for ADB-financed projects, highlighting how important it is for companies to carefully review their bids prior to submission.

   

• The most common form of enforcement was debarment, and most of the debarments imposed were in the range of 3 to 5 years. Companies and individuals debarred by one multilateral bank (MDB) can be cross-debarred by other MDBs. MDB debarment can have a significant impact on companies, which can extend beyond just ineligibility to participate in MDB-financed projects. Therefore companies engaging in ADB- and other MDB-financed projects should assess their integrity risks and ensure that they implement integrity compliance programmes that effectively mitigate these risks.

The role of the OAI

The OAI, which is headed by John Versantvoort and comprises some 38 staff members, leads the integrity initiatives of the ADB through the following main activities:

• Investigations: the OAI serves as the initial point of contact for all allegations of integrity violations by both ADB staff and third parties involved in ADB-related activities. An "integrity violation" is any act that violates the ADB's Anticorruption Policy, including (among others) corruption, fraud, coercion or collusion, abuse (i.e. theft, waste or improper use of assets), conflict of interest and obstruction. If the OAI determines that an alleged violation is credible, verifiable, material and within OAI's mandate, it converts the complaint into an investigation (see further below regarding external investigations into third parties).
• Proactive Integrity Reviews (PIR): the OAI carries out PIRS of ongoing sovereign operations to assess whether ADB financing is being used for its intended purposes. PIRs assess project integrity risks by assessing the capacity of the executing agency to carry out a project, reviewing procurement practices, and inspecting project implementation and associated disbursements.
• Integrity due diligence: the OAI assists the ADB's operational departments to identify potential risks that could impact the ADB or the implementation of its projects. It also encourages internal and external partners to integrate due diligence into their procedures.
• Knowledge-sharing: the OAI promotes knowledge-sharing around integrity compliance by organising and participating in training sessions and other events.

Enforcement by the OAI

External investigation process

As noted above, the OAI conducts investigations into alleged integrity violations by third parties involved in ADB-related activities. If the investigation finds that an integrity violation has occurred, OAI presents its findings to the subject of the investigation for their response or agreement with proposed sanctions. If the subject agrees with the finding and proposed sanctions, the case is closed. If the subject disputes the findings or does not respond, the OAI submits the case to the Integrity Oversight Committee (IOC) for review and to determine appropriate sanctions or remedial actions. Any sanctions imposed by the IOC are then subject to appeal before the Sanctions Appeal Committee (SAC).

Potential sanctions include: debarment from ABD-related activities; debarment with conditional reinstatement, where a party can be released earlier from debarment if it meets certain conditions, typically including the implementation of an appropriate integrity compliance programme; and conditional non-debarment, where a party must certain conditions within a specific time period in order to avoid debarment. The base period of debarment is 3 years, which is subject to adjustment up or down depending on the facts of each case. In certain cases, parties debarred by the ADB are cross-debarred by other multilateral development banks (MDBs) and vice-versa. In addition to debarment-related sanctions, the OAI may also impose reprimands, restitution or other financial remedies or cautions.

Where a company is debarred, the ADB may require the company to appoint an Independent Integrity Compliance Consultant (IICC). The IICC will evaluate and report on the company's implementation of an integrity compliance programme. This is similar to the approach of other MDBs.

Enforcement trends in 2020

In 2020, the OAI received 302 complaints (relating to both ADB staff and third parties), more than in any other year to date, and it also assessed a record number of 375 complaints (including some opened in 2019).

Concerning external investigations in particular, 147 external investigations remained open from previous years and the OAI opened an additional 89 new cases. The OAI concluded 76 external investigations, with 12 cases being submitted to the IOC. Of these external investigations, 59 resulted in sanctions and remediation actions: 89 firms and 31 individuals were debarred; 37 entities and 10 individuals were reprimanded; and 16 entities and 11 individuals were cautioned. Thus debarment was the most common form of ABD enforcement action. In addition, 225 entities and 27 individuals were cross-debarred.

This represents a continuation of the increased level of enforcement activity from 2019, including a relatively high proportion of non-debarment sanctions. John Versantvoort, Head of the OAI, has previously commented that this increased use of non-debarment sanctions points to a more nuanced approach of the ADB towards enforcement: "The increase is partially attributable to the higher number of complaints assessed and investigations completed, but also to a more nuanced assessment of the severity and impact of suspected integrity violations."

There were a relatively small number of appeals to the SAC. Only one appeal, from 2019, was upheld by the SAC, which resulted in the relevant sanctions being lifted. Another appeal from 2019, and two from 2020, were not referred to the SAC as they failed to meet the requirements for SAC consideration. One additional appeal from 2020 was still under consideration at the end of the year.

236 debarred firms and 27 debarred individuals were reinstated by the ADB, and the OAI also removed 33 firms and 13 individuals from the ADB sanctions list following their reinstatement by other MDBs.

Similar to the experience of the World Bank and African Development Bank, as we have previously reported, fraud was by far the most common form of sanctionable conduct in 2020, being involved in 64 of 89 new investigations opened in 2020, followed by corruption (10 cases). The Annual Report does not explain this trend, but a review of the OAI's enforcement case summaries for 2020 indicate that many of them involved the provision of false or inaccurate information in bids for ADB-financed projects, which is again similar to the experience of other MDBs.

The Annual Report does not include data on the period of debarments imposed in 2020, but a review of the OAI's enforcement case summaries indicate that most of them were in the range of 3 to 5 years. The longest debarments imposed on companies were 6 years – in two separate cases which, notably, both involved fraudulent conduct in the context of bids.

Integrity risk management

The OAI conducted three PIRs in 2020, with a combined project value of USD $249 million, and one follow-up review of a previous PIR (with a project value of USD $578 million). It additionally reviewed 30 project contracts with a combined value of USD $177 million and 135 bids, proposals, and expressions of interest.

The OAI also reviewed 1,087 entities for integrity due diligence, and handled 1,130 integrity advisories, both substantial increases over 2019.

Impact of COVID-19

The Annual Report highlights how the OAI has adapted its activities to the pandemic. It notes that the OAI managed to successfully pivot to a remote working environment, and even under pandemic conditions it was able to review a record number of complaints, and also carry out a number of external investigations that is comparable to previous years (although there was a spike of 110 closed investigations in 2019).

The OAI also supported the fast-tracking of pandemic-related projects by working with project teams to conduct integrity due diligence and strengthen procurement, financial management and anticorruption controls in such projects. As part of this, the OAI reviewed 183 preapproval documents for 121 ADB-related projects (21 of which were COVID-19 sovereign projects), which was an increase of 103% from 2019.

Looking ahead, in 2021 the OAI expects to provide further support for identifying and managing integrity risks in ADB-financed vaccination projects.

Mayer Brown is experienced in advising on all aspects of MDB integrity compliance and enforcement. For further details of our capabilities in this area, please visit the Multilateral Development Banks - Integrity Compliance and Enforcement page of our website.