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Multilateral Development Bank (MDB) Investigations

MDBs are international financial institutions funded by two or more countries to boost economic development in nations requiring assistance. They provide loans and grants for projects that support development in those nations.

Private development firms, construction companies, consultants and other corporations and individuals will receive funds if they successfully bid for MDB-financed contracts. But if an MDB has any suspicions of wrongdoing in any of its contracts, it will investigate. MDB investigators are not bound by national borders, have a wide range of far-reaching powers to scrutinise any recipient of MDB funds and can impose a variety of severe sanctions.

An MDB probe can lead to further problems for companies that come under the jurisdiction of the UK’s Bribery Act or the US Foreign Corrupt Practices Act. As a firm that regularly deals with such cases, Rahman Ravelli has the experience and expertise to advise on all aspects of involvement with MDBs. From ensuring MDB procedures are followed and their compliance requirements are met through to conducting risk assessments and co-ordinating a response to an MDB investigation, our specially-created teams ensure you take the right steps.

The Investigatory Powers of MDBs

While MDBs do not seek to maximise their profits, their worldwide operations and control of trillions of dollars in assets make them major global financial institutions. The 2008-09 financial crisis led to criticism of MDBs for acting too slowly, which prompted a streamlining and a speeding up of their lending procedures. Recent years have seen MDBs taking an increasingly tough line regarding corruption and fraud.

Each MDB has an internal watchdog department - usually referred to as an integrity office -to identify and punish wrongdoing related to bank-financed contracts.  In recent years, these have become increasingly sophisticated and better resourced – as well as aggressive enforcers of ethical business practices.  Their investigatory powers are wide and they have total access to all financial records relating to funding arrangements between MDBs and borrowers, whether the borrower is a government, a private business or a state-owned enterprise. This access even extends to the records of parties, such as sub-contractors, that may not know a project is MDB-funded.

Once an investigation has begun, an MDB’s integrity office will rely on many of the same aggressive techniques used by law enforcement – demanding extensive documentation, seeking access to company emails, interviewing employees and carrying out unannounced site visits.  Unlike law enforcement agencies, they are not restricted by any domestic legal system and can operate under their own rules. MDB investigators have diplomatic immunity which means they can travel anywhere freely and interview anyone they think might have relevant information; including government officials. 

The Penalties

If an MDB investigation finds there has been misconduct the repercussions can be severe. An MDB can issue a reprimand, instruct restitution to be paid, order the payment of the costs of the investigation and impose a compliance monitor.  But the primary sanction is usually debarment - preventing the subject of the investigation from bidding on the investigating MDB’s projects for a period of time (usually between three and seven years if it is the subject’s first wrongdoing) or indefinitely. 

Since 2010, the main MDBs have been party to a Mutual Enforcement Agreement that calls for a debarment decision from one MDB to be automatically applied by all the others.  Debarments can also be extended to affiliates within the corporate group of the subject of the investigation, meaning that parent companies and subsidiaries are also penalised.     

The financial consequences of being frozen out of involvement in MDB projects can be hugely damaging for a firm. As MDBs publicise their debarment of firms and individuals, those who are subject to such action can also suffer severe reputational damage and come under greater scrutiny from banks and current and potential trading partners. Most importantly, MDBs can and do refer their findings of wrongdoing to law enforcement agencies in the country where the conduct occurred and where the company concerned has its headquarters.  Where misconduct involves UK or US citizens or businesses – or otherwise touches these jurisdictions - an MDB investigation could lead to action being brought under the US Foreign Corrupt Practices Act or the UK’s Bribery Act. 

Taking Precautions

For these reasons, the funding that MDBs provide must be seen as an economic opportunity that has to be approached and acted on in a carefully considered, cautious manner.

In order to avoid the prospect of an MDB investigation, firms should:

  • Gain an understanding of all relevant MDB guidelines and investigatory processes.
  • Ensure all compliance programmes meet MDB requirements – and update them if necessary.
  • Conduct a risk assessment of existing MDB-related contracts and how due diligence is carried out on sub-contractors and on other commercial relationships.
  • Implement internal whistle-blower procedures.
  • Ensure all relevant documents are preserved and easily retrievable.
  • Consider both the advantages and disadvantages of voluntary disclosure should misconduct be identified.   

Once an MDB investigation has begun, the subject of it should be aware that it could prompt a civil or criminal case being brought by one or more law enforcement agencies. 

This is why MDB investigations should be treated as seriously from the outset as a law enforcement action. The subject of an MDB investigation should retain outside counsel to guide them through the investigation process and ensure that no employees are interviewed without a legal representative present. 

If you are facing the prospect of an MDB investigation anywhere in the world, you require legal advice that is tailored to your precise situation and executed by a specialist team of MDB lawyers, with the necessary skill and experience.

To learn more detail about MDBs, please read: A Briefing Guide To Multilateral Development Bank (MDB) Investigations

Webinar: Multilateral Development Banks – Their Investigations, Powers and Penalties

Date: 09 September 2020
Time: 10am EST | 3pm UK | 6pm UAE
Panel:
Joshua L. Ray, Legal Director & Counsel, Rahman Ravelli
Syedur Rahman, Legal Director, Rahman Ravelli
Barry Vitou, Partner, Greenberg Traurig
Ian Hargreaves, Partner, Covington & Burling
Chris Kim, Senior Managing Director, Guidepost Solutions (USA)
Alex Haines, Barrister, Outer Temple Chambers

Book your place now by visiting the event page.
Joshua Ray Casual

Joshua L. Ray

Counsel/Legal Director

joshua.ray@rahmanravelli.co.uk
+ 44 (0)203 947 1539 vCard

Specialist Areas of Practice: International Regulation and Corporate Crime, Fraud and Business Crime, Corporate Investigations.

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Our Specialist Team

Multilateral Development Bank (MDB) Investigations

Team: Joshua L. Ray, Azizur Rahman, Syedur Rahman,

London Office: +44 (0)203 947 1539
Midlands Office: +44 (0)121 231 7025
Northern Office: +44 (0)1422 346 666
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