Banks set new norms to regulate use of aid funds

For companies that do wrong, the world is going to become a smaller place Leonard McCarthy, Vice-President, Department of Institutional Integrity, WB. (AFP)

The World Bank (WB) and other development banks stepped up efforts to root out the corrupt use of aid funds, saying companies and individuals blacklisted at one institution would be unwelcome at all.

Measures agreed in Luxembourg on Friday would prevent a company found to be using corrupt means by one development bank from obtaining contracts from another, which is possible under current practices.

"It means an injury to one is an injury to all," said Leonard McCarthy, who heads the World Bank's anti-corruption unit. "For those companies that do wrong, the world is going to become a smaller place and it will cause a significant rise in the cost of fraudulent and corrupt business practices."

McCarthy, who is Vice -President of the Department of Institutional Integrity at the World Bank, said the new measures amounted to "an internationalisation of punishment" for companies and individuals involved in wrongdoing.

"What we see happening is that companies debarred by the World Bank create a new identity with very much the same DNA, the same role-players, call it something else, and then go and do business with another development bank," he said. The banks include the European Bank for Reconstruction and Development, the World Bank, the Asian Development Bank and the African Development Bank, which invest billions of dollars a year in projects to reduce poverty and promote economic growth in developing countries.

It is difficult to estimate how much money is lost to fraud and corruption in bank-funded projects. Since the Enron scandal which erupted in 2001 and the global financial crisis that reached a climax in 2008, governments and institutions have been tightening the rules under which big financial firms operate to try to ensure that their actions are open and more easily monitored.

Sanctions by the institutions typically include reprimand, conditions on future contracting, or debarment either for a period of time or permanently. The World Bank has barred 44 companies so far this year, reflecting its stepped up effort to root out fraud and corruption in projects it finances.

 

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