Responding to a World Bank audit letter

Rahman Ravelli and Guidepost Solutions’ Christopher Kim detail the correct approach that companies should take if they receive a World Bank audit letter.

In its recently issued Sanctions Systems Annual Report FY 2020, the World Bank Group (WBG) confirmed its commitment to investigate and sanction corruption and fraud occurring in bank-financed projects, despite the unprecedented challenges of the COVID-19 pandemic.  

The report, co-authored by the Integrity Vice Presidency (INT), the Office of Suspension and Debarment (OSD) and the Sanctions Board revealed little coronavirus-related slowdown in the WBG’s enforcement activities.  On the contrary, the bank’s in-house investigatory teams initiated roughly the same number of sanctions cases they did in 2019 - and recorded an increase in the number of firms and individuals sanctioned this year.

The WBG’s 2020 lending and investment have also continued apace.  Last spring, the WBG announced plans to quickly finance up to $160 billion to help fight the pandemic.  

Projects such as the recently-approved funding of judicial services and employment support in Azerbaijan, assistance with strengthening Turkmenistan’s welfare monitoring system and even its help to Bulgaria in enhancing disaster risk management all show the extent to which the WBG does more than simply fund big transport and infrastructure projects.

But the increased financing that has been announced, combined with WBG’s commitment to integrity, will likely lead to the launch of many new WBG investigations throughout 2021.

For companies receiving WBG financing, this may increase chances of receiving an “audit letter” from the INT.  Audit letters (per the terms of WBG bidding, contract and/or loan documents) provide INT with broad scope of review and/or oversight of documents related to the World Bank bidding and/or contract process; including making requests for documents and employees involved in the World Bank procurement process available to be interviewed.  In the same way as a US Securities and Exchange Commission Wells Notice signals focused regulatory interest, an audit letter may be the first indicator for a company of an INT investigation.

While every company’s situation is unique there are some standard guidelines that we generally recommend should be followed:

• Ensure that an appropriate document retention policy is in place and take particular care to retain any documents and communications that relate to bids or dealings with third-party agents, government officials, sub-contractors or sub-consultants.
• Be prepared to explain your compliance procedures and demonstrate that they are adequate under the WBG’s Integrity Compliance Guidelines. These procedures should, at a minimum, include appropriate training sessions for staff, a written compliance policy and a designated person appointed to be either a compliance officer or to maintain the role as a significant part of their position.
• Review the documents related to the bidding process (eg: tender, RFP, and/or the signed contract) to identify which version of procurement and/or consultant guidelines applies. The applicable version of procurement and/or consultant guidelines will explain what sanctionable practices (eg: corrupt practice) apply and how these sanctionable practices are defined.
• Under the WBG sanctions systems and/or procedures for companies being investigated by INT, companies may face potential sanctions. Companies may consider two options for resolving any investigations leading to potential sanctions:
  1. litigating the cases under the WBG sanction system (two tier system, i.e. Office of Suspension of Debarment and Sanctions Board) and/or
  2. negotiated resolution agreement (settlement).

Be wary of engaging in any substantive discussions with WBG investigators/auditors and/or providing documents per an audit letter. INT’s mandate is to investigate allegations of sanctionable practices (eg: corrupt, fraud and/or collusive practices) and, therefore, an investigation may lead to sanctions, including debarment.

In summary, we would recommend consulting outside counsel and an independent consulting expert specialising in World Bank matters if a company receives an audit letter, since the potential consequences may be an unwanted investigation and/or unwanted sanction.