Sanctions Board rejects link of World Bank probe to prosecutions

9 June 2017 1:58pm

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7 June 2017. By Mark Bocchetti.

A recent World Bank Sanctions Board decision that ended with a lengthy debarment of a Dutch medical products firm highlighted the potential conflict between the bank's administrative proceedings and a related criminal prosecution.

Dutchmed BV argued that the sanctions case should be stayed because it was unable to mount an effective defense while facing a "national criminal proceeding." The Sanctions Board rejected the plea, deciding that the bank's rules for administrative proceedings neither allowed for such a stay, nor did they constrain the company from invoking its rights against self-incrimination in the criminal matter.

The board found that the company had more likely than not paid commissions to a procurement adviser for the Romanian health ministry in relation to several tenders. It hammered Dutchmed with a 14 year debarment, a sanction that also will apply to the company's many subsidiaries.

The decision, handed down June 2, included rulings on a number of significant issues that touch on World Bank procurement cases. For instance, the Sanctions Board found that the Dutch company had acted to obstruct a World Bank audit, rejecting Dutchmed's assertion that it could not cooperate because of the pending criminal proceeding.

And the board rejected the company's argument for a stay under Article 6 of the European Convention on Human Rights, which protects a defendant's right to a fair trial.

Attempts to reach Dutchmed and Dutch prosecutors for comment were unsuccessful.

The World Bank said it had referred the matter both to Dutch and Romanian authorities, and press accounts indicate that Romanian prosecutors had investigated the company's Dutch sales director.

Dutchmed sought to evade the charge of engaging in a corrupt practice by arguing that the procurement official to which it paid commissions was not a public official.

The World Bank's integrity vice presidency, which investigates corruption or fraud related to bank-financed tenders, alleged that Dutchmed had paid commissions ranging from 3 to 5 percent on various bids to a procurement adviser working with the project implementation unit within the Ministry of Health. Such PMUs are used by the bank frequently to handle procurement under bank loans.

Dutchmed tried to sidestep the corruption allegations by arguing that it regarded the procurement consultant, who evaluated the tenders and made recommendations to the ministry, as an independent expert and not as a public employee. The board flatly rejected Dutchmed's defense.

"On the basis of this record, the Sanctions Board finds that the Procurement Advisor was a Bank staff member, and therefore a public official, acting in the procurement process for the contracts at issue," the board's decision declared.

The decision disclosed that World Bank investigators had obtained e-mails between Dutchmed's sales director and an intermediary, some of which copied the procurement adviser, agreeing to pay specific commissions in regard to specific tenders.

"In July 2009, the Sales Director emailed the Procurement Advisor and the Intermediary stating that he included a 5% commission for Tender 8 as 'discussed and agreed.' Consistent with this agreement, contemporaneous documentary evidence — including invoices, bank statements, and emails — reflects that employees of the Respondent made payments to the Procurement Advisor for his services," the decision recounted.

The record makes clear that the Dutch company's home office was part of the scheme.

"In addition, in January 2011, the CEO directly emailed the Procurement Advisor, with copy to the Sales Director, confirming that 'payments were done' for Tender 4 through the Intermediary," the decision explained.

Two of the five corruption allegations involved not direct payments, but rather travel provided to members of the project management unit – who were employees of the Ministry of Health – during the period when the tender was under consideration. The Sanctions Board did not hesitate in concluding that the trips were intended to influence the tenders.

"The Sanctions Board has held that a 'thing of value' for purposes of corrupt practice need not be in the form of money, as it can instead be some other type of benefit or advantage," the board wrote.

The World Bank sent Dutchmed an audit letter in November 2013 asserting its contractual right to audit. The bid documents granted the bank the right "to inspect all accounts and records relating to performance of the contracts at issue and the submission of the related bids."

Dutchmed ultimately refused to share the requested records or allow INT to interview company staff, asserting, through outside counsel, "that the Respondent cannot be compelled to cooperate with the audit based on the Respondent's asserted right against self-incrimination."

The Sanctions Board noted that bank investigators even had agreed to an undertaking that certain key pieces of evidence, to be designated by Dutchmed, would not be shared with law enforcement.

"Instead, the Respondent asserted a wholesale refusal to cooperate based on its right against self-incrimination," the Sanctions Board recounted. "However, the Respondent may not raise a privilege against self-incrimination in these proceedings to avoid its contractual obligations to the Bank."

The decision justified the board's finding that Dutchmed had engaged in obstruction by citing the key role of audit rights.

"The Sanctions Board notes that INT does not have the power to compel the production of evidence or witness testimony, and that its investigative toolkit is limited," the board wrote. "Accordingly, INT's audit rights are an integral part of its investigative and fact-finding mandate, without which INT's ability to detect, deter, and prevent fraud and corruption may be compromised."

The Sanctions Board justified the severity of its sentence in part by the repeated, cumulative misconduct of Dutchmed: six different counts of misconduct, each distinct from the others, a circumstance that warranted multiplication of the sanctions, rather than mere aggravation.

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