CIOB International (Chartered Institute of Building)
November 8, 2006
The World Bank has debarred German consulting engineer Lahmeyer International from Bank-financed contracts for seven years because it bribed the chief executive of the Lesotho Highlands Water Project.
Some say the sanction is too late in coming. Lahmeyer was indicted by Lesotho authorities in 1999, and convicted after an appeal in 2004. That, plus the fact that the World Bank helped Lesotho investigate and prosecute, has led some observers to blame the World Bank for being too slow.
“It sends the wrong signal to other corporate bribers,” said Patricia Adams of the Canadian foreign aid watchdog, Probe International. “In those seven years since the original indictment, Lahmeyer was able to carry on business as usual. The Bank should have taken swift action and suspended the company’s right to do business with the Bank when they were originally indicted, which is allowed for under the U.S. Foreign Corrupt Practices Act, pending a decision by the Lesotho courts.”
World Bank President Paul Wolfowitz acknowledges that Lesotho has shown “courage and leadership” in punishing corruption in this massive water project.
“Institutions like the World Bank, and the governments of rich countries, should support the bold stance of poor countries like Lesotho which are working to make sure that precious public resources go to help the poor, for whom they are intended,” he said.
Lahmeyer’s debarment may be reduced by four years if it proves to the Bank that it has met specific compliance conditions and fully cooperated with the Bank in disclosing past sanctionable misconduct.
In July 2004, the World Bank debarred Acres International, a Canadian firm convicted of paying bribes under the LHWP, for a period of three years. Two other European firms were also convicted in Lesotho in relation to the LHWP, although they were not involved in the Bank-financed portions of the project.
The World Bank’s Sanctions Committee found that Lahmeyer engaged in corrupt activities by bribing the Lesotho Highlands Development Authority’s Chief Executive, Mr. Masupha Sole, the government official responsible for contract award and implementation under the project, in violation of the Bank’s procurement guidelines.
The case is a re-opening of 2001 debarment proceedings against Lahmeyer in relation to the LHWP. The Government of Lesotho announced criminal indictments of Lahmeyer and Mr. Sole in 1999. Following the announcement of the indictments, the World Bank’s Department of Institutional Integrity initiated an investigation into whether Lahmeyer had engaged in corrupt practices in relation to its contracts with the Bank. In October 2001, the Sanctions Committee found that the evidence was not sufficient to make a determination, and said that it would re-examine its findings in light of any additional relevant information.
In 2002 and 2003, the High Court of Lesotho convicted Mr. Sole and Lahmeyer of bribery. The Court of Appeal of Lesotho affirmed Mr. Sole’s conviction in April 2003, and Lahmeyer’s conviction on six of seven counts in April 2004. In light of the information obtained from these decisions, the World Bank re-opened debarment proceedings against Lahmeyer in August 2005.
Once the indictments were announced in mid-1999, the World Bank provided extensive evidentiary support to the Lesotho prosecutors and made Bank staff available for interviews. The World Bank later assisted the Government by bringing together the Lesotho prosecutors with the various project funding agencies and EU anti-fraud officials. The Bank says it “benefited greatly” from the investigative work done by the Lesotho Government in bringing the debarment case against Lahmeyer and Acres.
The LHWP is a massive, multi-billion dollar water transfer and hydropower project implemented by governments of Lesotho and South Africa. The project is designed principally to transfer water from the Maluti Mountains in eastern and central Lesotho to the Gauteng Province of South Africa. In connection with the LHWP, Lahmeyer was found to have arranged bribery payments to Mr. Sole. Lahmeyer received two World Bank contracts pertaining to the water transfer component that related to detailed design work, construction supervision, project studies and technical assistance in connection with the Water Delivery Tunnel South and the Mohale Tunnel.
In making its recommendation to World Bank President Paul Wolfowitz, the sanctions committee considered several factors, some positive and some negative. There was Lahmeyer’s lack of cooperation in the World Bank’s investigation, but also the fact it had already paid a criminal fine in Lesotho and its cooperation with the Lesotho authorities.
Accordingly, the Bank has decided to allow for a possible four-year reduction in the debarment period if Lahmeyer puts in place a satisfactory corporate compliance and ethics program and cooperates fully with the Bank in disclosing any past misconduct, including through a review of its Bank-financed contracts.
The World Bank Department of Institutional Integrity (INT) is charged with investigating allegations of fraud and corruption in Bank-financed projects. The department reports directly to the President of the World Bank and is staffed by a multinational team including investigators, legal specialists, forensic accountants, and others. Additional information can be found at www.worldbank.org/integrity. The sanctions process is an internal administrative process within the World Bank. It provides for due process of all parties involved in a dispute. Since the Sanctions Committee was established in November 1998, the World Bank sanctioned more than 330 firms and individuals. For more information on procurement and sanctions, see: http://www.worldbank.org/procure.