Author: Joshua L. Ray
14 April 2021
2 min read
Joshua Ray of financial crime specialists Rahman Ravelli explains why we should not be surprised by multilateral development banks taking more punitive action.
As the coronavirus started to take hold around the globe last year, its likely effect was discussed and debated and courses of action were agreed, adopted and acted upon.
Arguably, one of the most significant areas of activity was the huge amount of multilateral development bank (MDB) funds invested in programmes to fight the pandemic. The scale of the response was large and impressive. At the time, Rahman Ravelli and other defence firms predicted that the huge influx of MDB funds would lead to a steep increase in enforcement activity. There is now evidence proving this to be the case.
Recently-released statistics show that the increased availability of funds brought with it many more examples of wrongdoing in relation to MDB projects. Last year, the World Bank debarred 267 firms and individuals – a 45% increase on the previous year and 72% up on the total for 2018. Yet while the increase is fairly stark, it is unsurprising.
MDBs positioned themselves at the forefront of the battle to tackle the economic havoc that COVID-19 wrought on the world. Considering their remit to bolster lending when more traditional sources have dried up, MDBs are among the primary organisations the world looks to when attempting to devise and execute recovery efforts. By this time last year, the pandemic had gathered pace and the World Bank and other major MDBs had announced plans to supply more than a quarter of a trillion dollars in coronavirus-related funding by summer of 2021. Such funding was to be used for the all-important construction of sanitation systems, medical supply production facilities, hospitals and testing centres. A proportion of it was also to be targeted towards local banks to act as a vital stimulus to trade and ensure that credit was available to small and medium-sized businesses whose activities were threatened by the virus.
There was never any doubt that such a sizeable injection of much-needed funding would help generate economic activity in countries that were struggling to cope with the damage being inflicted on businesses; many of which may already have been at risk before they had to wrestle with the devastating effects of a pandemic. But while this flood of MDB cash was a major, vital boost for struggling countries, it inevitably created many opportunities for corruption and fraud. This is reflected in the rise in World Bank debarments.
While MDBs are quite rightly seen as the funders of desperately-needed projects, they are also adept at monitoring just what is done with that money when it “hits the ground’’. It was to be expected that the investigatory arms of the MDBs would strengthen their attempts to identify and punish those committing – or attempting to commit - wrongdoing relating to the projects that were receiving coronavirus-related funding.
But it is important to emphasise that the World Bank figures cannot be seen as a one-off. The increase in MDB debarments is a trend that is only likely to continue. The pandemic is far from over, its effects are likely to be felt for many years and MDB-financed projects given the go-ahead as a response to it are likely to be ongoing well into the future. As a result, the increased opportunities for wrongdoing will remain – as will the likelihood of individuals and companies looking to take advantage of them.
With the recent news that the World Bank is now debarring firms based on an extraordinarily broad interpretation of what it defines as an agent, companies involved in MDB-financed projects will now need to disclose details of anyone who may be receiving payments; regardless of whether or not they are actually agents. See, e.g., World Bank Sanctions Board Decision No. 131 (8 March 2021). This is likely to have a knock-on effect in terms of the numbers of investigations conducted which, in turn, is likely to lead to further increases in the debarment figures.
Joshua Ray represents individuals and corporates in complex investigations, prosecutions and regulatory actions regarding market manipulation and multijurisdictional matters involving fraud, bribery and money laundering.