Fighting corruption alone

Lisa Peryman
Odious Debts Online
October 22, 2004

This week World Bank president James Wolfensohn exhorted developing countries to do their share to achieve Millennium Development Goals by working harder to improve governance and fight corruption.

Western governments and institutions are often in the habit of paying lip service to the need for fundamental reform. By its own example, however, the World Bank’s long, drawn-out and half-hearted response to the conviction of a Canadian company for bribery on a Bank-funded project in southern Africa suggests that developing countries, when they do get serious about corruption, are on their own.

This was the message sent the mountain Kingdom of Lesotho after it prosecuted Acres International, the first Western company to be convicted in the ongoing landmark corruption trials involving the massive Lesotho Highlands Water Project. Lead prosecutor in the case, Guido Penzhorn, said few of the governments whose companies were charged with bribery – all outspoken opponents of corruption – assisted the prosecution.

“Apart from Switzerland, and to some extent France, which helped with an application for mutual legal assistance, no assistance was received from any other overseas country,” Penzhorn told a US Senate committee hearing investigating corruption in multilateral banks earlier this year.

For its part, when the Government of Lesotho first announced its criminal indictments against Acres in July 1999, the World Bank’s Department of Institutional Integrity initiated an investigation into the allegations. A report commissioned by the Bank from the US law firm Arnold and Porter in 2001 found “reasonably sufficient” evidence to indicate that Acres had engaged in a corrupt practice. However, by the conclusion of the Bank’s investigation, the report’s findings were dismissed by the announcement that the Bank had determined the evidence against Acres was not reasonably sufficient and, as a result, the company wouldn’t be sanctioned.

According to Damian Milverton, a Bank spokesman, the Bank awarded four contracts to Acres while the Lesotho case was moving through the courts. To exclude the firm from the work would have been unfair, he argued.

Lesotho persevered. In 2002, Lesotho’s High Court convicted Acres of two counts of bribery. In August 2003, the Court of Appeal of Lesotho dismissed one of the counts but upheld the conviction for bribery saying that Acres’ “cynical exploitation” of Africa’s largest international development project “motivated as it was by greed, is the more reprehensible,” calling the company’s conduct, “this premeditated and carefully planned criminal act.”

Finally, the Bank moved. In March 2004, the World Bank formally reopened the Acres’ debarment case, looking for “new evidence” that would provoke it to blacklist the firm. At the same time, multilateral aid projects had attracted high-powered interest in Washington. In April 2004, the US Senate Foreign Relations Committee launched an investigation into allegations of corruption in projects funded by the World Bank and its affiliates.

In a letter dated April 16, Committee chairman Senator Richard Lugar notified James Wolfensohn of his interest in the Lesotho project and the fact that Acres and two other contractors had been found guilty of bribery. The senator asked why none of the companies were on the World Bank’s list of reprimanded firms or the list of disbarred firms that violated bank fraud and corruption provisions. He asked Wolfensohn if the bank was investigating these companies and if it had acted to minimize corruption.

In July 2004, two days after Sen. Lugar’s second set of hearings, the Bank declared it was blacklisting Acres and issued the company with a three-year disbarment notice from bidding on Bank contracts.

In the five years that it took the World Bank to first consider taking action against Acres until its decision to sanction the firm, Acres had, nevertheless, been doing business with the Bank “pretty much as usual,” observed Nordic industry publication, Development Today (DT) in its September 2004 issue. Acres, DT alleges, currently has six contracts on its books financed by the World Bank and one contract, for the rehabilitation of the Tororo-Opuyo-Lira transmission line in Uganda, was signed a week before the debarment.

A month prior to its blacklisting, Acres quietly accepted a takeover by Hatch Ltd., a larger Canadian firm. When the Canadian-based foreign-aid watchdog Probe International asked the World Bank how the change in ownership would affect Acres’ debarment, the Bank at first stated that both Acres and Hatch would be ineligible to bid on Bank contracts and then, citing confusion based on conflicting interpretations by its own lawyers, said “Hatch, not being a party to the Lesotho case, can bid.”

Meanwhile, Acres’ existing contracts with the World Bank remain unaffected by the current debarment and, due to the absence of a common system for dealing with corrupt firms, the company is still able to shop around among different donors. According to Development Today, a company “can be debarred by one financial institution for corrupt behaviour one day and be awarded a contract with another the next.”

Peter Egens Pedersen, the Auditor General for the Asian Development Bank, told Development Today: “We fully realize that this is a ridiculous situation. We can’t continue like this. . . . There is no doubt that we need to talk about cross-debarment.”

But, said Pederson, a standard system for combating corruption in multilateral aid projects could take 15 years to develop due to an absence of common rules and a lack of trust among the institutions.

Back in Canada, the home of Acres, federal agencies such as the Canadian International Development Agency and Export Development Canada trust Acres’ promises that it will never bribe again and have decided to continue supporting Acres with taxpayers’ dollars. While these federal agencies say publicly they are concerned about corruption, they are not so concerned that they will deliver the ultimate message, wrote Eric Reguly in Canada’s Globe and Mail newspaper last month.

“You could argue,” he said, “Canadian agencies shouldn’t automatically follow the World Bank. But, in essence, Acres won a get-out-of-jail-free card from the feds. Not going after the company in spite of the ample evidence that it sinned tells the world that if the corruption does not happen on home soil, it will be tolerated.”

At the end of the day, for countries like Lesotho that take up the challenge to stamp out corruption, the lingering impression is one of self-interest on the part of developed nations, says Lesotho prosecutor Guido Penzhorn.

“The interest of First World countries in the [Lesotho] prosecutions lies not so much in the successful outcome of these prosecutions but rather in protecting the interests of its companies that are involved. Hopefully, this impression will in time prove to be not correct.”

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