Recently,Beijing Gaopeng Law Firm was entrusted by a domestic company to represent the company in a compliance investigation by the World Bank Group's Integrity Bureau into suspected fraudulent practices in bidding activities for a project involving World Bank loans,and ultimately obtained the result of a case without penalty.As the attorney for this case,we hope to share our experience in handling this case with you,in order to help Chinese companies facing similar cases better respond to the investigation.

1、World Bank Project Overview

The World Bank Group(hereinafter referred to as the"World Bank"),commonly known as the"World Bank",as a subsidiary of the United Nations,is currently the most important multilateral development bank organization in the world.The World Bank consists of five institutions:the International Bank for Reconstruction and Development,the International Development Association,the International Finance Corporation,the Multilateral Investment Guarantee Agency,and the International Investment Dispute Resolution Center.A total of 189 countries worldwide have joined all or part of the World Bank.

The World Bank was founded to help rebuild countries devastated during the Second World War.Today,the World Bank helps countries reduce poverty and promote common prosperity by providing financial services such as loans,guarantees,and consulting to middle-income and creditworthy low-income countries.According to the World Bank website,since the first loan was provided in 1947,the World Bank has provided loans to 13143 projects in 173 countries.Loan commitments in 2017 exceeded$42 billion.After restoring its status as a member of the World Bank in 1980,China has also undertaken a large number of World Bank funded projects by accepting World Bank loans.Up to now,there are over 560 World Bank funded projects in our country,with a total loan commitment of over 67 billion US dollars.The projects are mainly concentrated in the government sector and various infrastructure projects.

2、The World Bank's definition and punishment of"fraud and corruption"

Due to the large amount of capital invested in projects financed by World Bank loans,which mostly involve infrastructure construction fields such as municipal engineering,medical care,and educational facilities,it is particularly important to ensure the safe,reasonable,and effective use of loan funds.The World Bank has strict compliance requirements for companies participating in its funded projects,especially for fraud and corruption in projects.The Integrity Vice President(also known as the Integrity Department)is established within the World Bank to investigate and hold accountable fraud and corruption in World Bank funded projects.

Definition of"fraudulent and corrupt practices"in World Bank rules

According to the World Bank's Procurement Rules for Borrowers of Investment Project Loans,"fraudulent and corrupt practices"mainly refer to the following categories:

-"Corruption"refers to the offering,giving,receiving,or soliciting,directly or indirectly,of valuable goods to improperly influence the actions of another party;

-"Fraudulent practice"means any act or omission,including misrepresentation,that knowingly or recklessly misleads,or attempts to mislead,a party to obtain financial or other benefits or avoid obligations;

-"Collusive behavior"refers to an arrangement between two or more parties to achieve an improper purpose,including improperly influencing the actions of another party;

-"Exercising pressure"means impairing or harming,or threatening to impair or harm,directly or indirectly,any party or its property,or improperly influencing the actions of a party;

-"Obstructive behavior"means:

Deliberately destroying,falsifying,altering,or concealing evidentiary materials required for the investigation or providing false materials to investigators that seriously impede the Bank's investigation of alleged corruption,fraud,pressure,or collusion,and/or threatening,harassing,or intimidating any party to prevent it from disclosing its knowledge related to the investigation or participating in the investigation;Or attempts to materially impede the Bank's investigation and exercise of the Bank's audit rights under the terms of the contract.

2.Penalty and reconciliation provisions of the World Bank on"fraudulent and corrupt practices"

1)Provisions on penalties

For institutions that constitute"fraudulent and corrupt practices,"the World Bank can choose to impose sanctions in a single or multiple manner.The results of the punishment will be made public.According to the General Sanctions Principles and Guidelines promulgated by the World Bank,the punishment methods that the World Bank can adopt include the following:

-Debarment:For penalized persons,their eligibility to participate in World Bank funded projects within a certain period of time is cancelled;

-"Disqualification with conditional release or reinstatement:Temporarily disqualify the penalized person from participating in the project.If the penalized person can comply with specific requirements imposed by the World Bank at the time of punishment,his/her eligibility can be restored.".;

-Permanent or indefinite disqualification:Penalties for permanent or indefinite disqualification may be imposed on penalized individuals and their controlled enterprises who the World Bank deems unable to meet the recovery conditions;

-Conditional Non debarment:The penalized person can avoid the application of disqualification by taking certain remedial measures,preventive measures,or complying with other conditions within a specific period of time;

-Letter of Reprimand:For isolated and minor violations,the World Bank can reprimand them by sending a reprimand letter;

-Recovery/Economic Compensation:Penalty measures taken when the violation amount can be calculated.

In addition,in accordance with the General Sanctions Principles and Guidelines,the baseline penalty range is"three years of disqualification(including or excluding the conditions for removal)",and the following aggravating or mitigating circumstances will be considered:

A.Aggravating circumstances

The circumstances of increasing the baseline punishment range by 1-5 years mainly refer to:malignant behavior,including multiple punished behaviors,complex means,being at the core of the behavior,playing a leading role,involving officials of the World Bank or government agencies,etc;Or have harmful consequences for the public interest or project.

B.Increasing the baseline punishment range by 1-3 years mainly refers to acts that interfere with or hinder the investigation,including intimidation,bribery of witnesses,refusal to accept notice,or failure to respond.

C.Circumstances where the benchmark punishment range can be increased by up to 10 years,mainly referring to:having been punished by major multilateral development bank institutions in history;Or violates the World Bank's punishment regulations.

B.Mitigating circumstances

The circumstances of reducing the baseline punishment range by 1-2 years or 25%mainly refer to being in a secondary position in the punished behavior;

B.The circumstances of reducing the baseline punishment range by 1-3 years or 33%mainly refer to voluntary corrective measures,including voluntarily stopping the violation before investigation,imposing internal penalties on the responsible subject,and conducting rectification to avoid recurrence of the violation and compensation or economic compensation.

C.The circumstances of reducing the baseline penalty range by 1-3 years or 50%mainly refer to actively cooperating with the investigation,including assisting and continuously cooperating with the investigation,conducting internal investigations,actively admitting errors and assuming responsibility,and accepting resource constraints.

(2)Provisions on settlement

At the same time,the World Bank also allows the investigated institutions to actively communicate and negotiate with the World Bank before making a punishment decision in order to reach a settlement agreement.The settlement agreement reached by both parties has the same binding force as the punishment decision.The investigated party usually agrees to meet certain conditions and requirements in a settlement agreement in exchange for exemption or mitigation of punishment.In the investigation letter sent by the World Bank's Integrity Bureau to the investigated party,a preliminary punishment margin is usually proposed as the basis for reconciliation negotiations with the investigated party.

3、Hazards from World Bank sanctions

Chinese companies may believe that as an international organization headquartered overseas,its sanctions will not have a material impact on Chinese companies,but they are not.As Chinese enterprises,especially those in the fields of engineering and infrastructure construction,continue to expand their overseas markets and participate in various multilateral development bank funded projects overseas,they will face sanctions from the World Bank,which will have a series of chain reactions.

First,companies will not be able to participate in projects funded by World Bank loans.As indicated by the Bank's own sanctions rules,once the Bank determines that there is fraud in the project,it is likely to face a disqualification period of about three years.As of April 2018,according to the data published on the World Bank website,more than 1180 enterprises have been subject to World Bank sanctions or cross sanctions,including more than 110 Chinese enterprises.The reasons why Chinese enterprises are subject to sanctions are also mostly related to fraud.Moreover,as a group organization composed of multiple institutions,once an enterprise is sanctioned by the World Bank,it will be applied by various member institutions within the World Bank group,including the International Finance Corporation and multilateral investment guarantee institutions.

Secondly,it is likely that enterprises will not be able to participate in projects funded by loans from other international multilateral development banks.As early as 2010,the World Bank cooperated with The African Development Bank,The Asian Development Bank Four major international multilateral development banks,including the European Bank for Reconstruction and Development and The Inter American Development Bank,have jointly signed the Agreement for Mutual Enforcement of Sanctions Decisions.According to the agreement,enterprises or individuals who are penalized by any contracting bank for fraud,corruption,or other acts for a disqualification period of more than one year will likely be subject to the same penalties across other contracting organizations.Considering the enormous influence of these multilateral development banks globally or regionally,enterprises will not only bear short-term economic losses,but also have a significant impact on their reputation,making their competitiveness in the global market impaired.For large domestic infrastructure enterprises increasingly seeking to expand overseas business,the losses caused by this global impact are often incalculable.

In addition,multilateral development banks that currently have signed the Cross Application Sanctions Agreement have also harmonized their sanctions standards by formulating General Sanctions Principles and Guidelines.As mentioned in the introduction to the aggravating punishment scenario above,if an enterprise has a history of being sanctioned by other multilateral development banks(only referring to the contracting banks that have signed the Cross Application Sanctions Agreement),it will face a disqualification penalty of up to 10 years when subjected to new sanctions.

It can be seen that the focus of the World Bank's sanctions approach is not on imposing direct economic penalties on enterprises,but rather on publicizing them on a"blacklist",which has a significant negative impact on their reputation and business development.To avoid such losses,enterprises need to actively respond to investigations and continuously improve their compliance construction in market operation and management.

4、Gao Peng's Experience in Investigating Cases on behalf of the World Bank

The Bank's investigation of enterprises was initiated by sending letters.At the beginning of the investigation,the investigated enterprise we represented received an investigation letter from the World Bank's Integrity Bureau.The investigation letter describes the functions and contact information of the investigation authority,the items involved,the suspected violations,the preliminary facts of the case that the investigation authority has grasped,the defense rights and time limit requirements of the investigated enterprise,and the solutions recommended by the investigation authority.It covers all aspects.Based on the information and requirements in the investigation letter,the lawyer and the company jointly studied and developed defense strategies.

First of all,we directly contacted the officials responsible for the investigation of the case by the Independent Commission Against Corruption(ICAC)to further understand the evidence that the ICAC has obtained and the information it hopes to obtain.We have successfully applied for a written defense for the enterprise to be postponed,and have secured valuable time for organizing defense materials and internal investigations.

Subsequently,under the guidance of a lawyer,the enterprise began to organize defense opinions and collect defense evidence based on the facts of the bidding process at that time.Both enterprises and lawyers believe that this investigation was caused by the unauthorized provision of false documents by component suppliers.During the bidding activities at that time,the enterprise did have the fault of not strictly reviewing the supplier's documents,but this fault was by no means equivalent to"fraudulent behavior",which was the basis of the defense.However,this defense requires sufficient evidence to support it.In fact,due to the fact that the violations investigated in this case were committed by the supplier,the enterprise also has little knowledge of this,and the bidding activity has been over for several years,and the retained defense evidence is not rich.In this case,lawyers guide the responsible personnel of the enterprise to strive to recall the situation at that time,and strive to collect relevant factual evidence to support it.At the same time,they guide the enterprise to provide evidence that can prove its consistent good credit standing in business activities,in order to leave an impression of corporate integrity for officials of the ICAC Bureau.

After nearly a month of preparation,we submitted a bilingual defense material of nearly 100 pages to the officials of the ICAC.Officials of the ICAC expressed great satisfaction that the enterprise could provide this relatively detailed material within the prescribed time limit.At the same time,the efforts of enterprises and lawyers have also made officials truly feel the sincerity and seriousness of enterprise cooperation.

In addition,with the coordination and assistance of the enterprise,we conducted on-site interviews with these two groups of parties directly involved in the project,and made interview transcripts,obtaining first-hand evidence.In particular,the person in charge of the supplier admitted in the interview that in order to obtain cooperation opportunities with the investigated enterprise,they privately forged the official certification documents for the supply of spare parts,leading to the investigation of the enterprise.

On the basis of the above evidence,we finally received a notice from the ICAC Bureau.The current evidence indicates that the investigated enterprise did not commit fraud in the project bidding activities,and the World Bank will not impose any penalties on the enterprise.

5、Some Thoughts after Closing the Case

Although the case was ultimately concluded without penalty by the enterprise,the generation of the case and the process of handling it have left many reflections and lessons that deserve more attention by domestic enterprises when participating in multilateral development bank projects:

"The devil is hidden in details",and corporate compliance management should be meticulous and practical

With the continuous improvement of national legal construction in recent years,strengthening compliance work has become a trend for enterprises to improve their internal management.As lawyers,we have also been invited many times to provide advice on the compliance construction of enterprises.However,we should also note that enterprises should not only attach great importance to compliance work,but also strive to implement it in detail.For infrastructure engineering projects often financed by loans from national multilateral development banks,the preparation of bidding documents is very complex,and enterprise project managers often do not have sufficient time and energy to verify and verify various types of information and materials provided by suppliers,which leads to errors in this case.In the course of this investigation,the enterprises under investigation also conducted internal rectification and established a special project supervision team to review the qualifications and integrity of suppliers.It can be said that"it is not too late to mend the gap".

Respond promptly to the investigation,actively cooperate,and calmly respond

It can be imagined that when a company suddenly receives an investigation letter from the World Bank,it often feels like something is going wrong and at a loss.This may lead to two kinds of psychology.One is to ignore it and realize that the sky is high and the emperor is far away.What can I do;The second is to compromise,shoulder all the crimes and seek reconciliation.We believe that the attitude towards the World Bank investigation should be timely,positive,and calm.

The first step is to respond promptly.The investigation letter from the World Bank will give the respondent a certain defense period.Within this period,the respondent will have to complete preliminary analysis,hire legal counsel,determine defense strategies,collect defense evidence,write defense materials,and other tasks.The time is very tight.Therefore,preparations for the defense should be made as soon as possible.If it cannot be completed within the expected time limit,an extension should be applied for in a timely manner to buy time for the defense preparation.

Secondly,it is also important for the respondent to demonstrate a positive and cooperative attitude.If the investigated party fails to provide any written response within the time limit specified in the World Bank investigation letter,the ICAC will consider that the investigated party has no refutation opinions and evidence against the current allegations,and thus directly enter the stage of sanctions discretion.This means that the enterprise has given up the opportunity to defend itself and cooperate with the investigation.Enterprises should bear in mind that actively cooperating with the investigation in accordance with the provisions of the General Sanctions Principles and Guidelines will achieve a reduction of 1-3 years or 50%for the enterprise.Therefore,we believe that it is beneficial and harmless for the investigated party to demonstrate to the investigating officials the attitude of active cooperation of the investigated party throughout the investigation.

Finally,once entering the defense phase,the respondent should always remain calm and calm.The Bank's investigation letter will draw preliminary conclusions based on existing evidence and provide preliminary punishment opinions for the respondent to respond.At this time,the investigated party should not be intimidated by the preliminary conclusions of the World Bank and blindly accept the punishment opinions to seek reconciliation.The investigated party should carefully analyze the case based on the actual situation,calmly seek breakthrough points in the defense,and patiently collect relevant evidence.The facts of this investigation prove that the ICAC attaches great importance to the defense opinions and evidence provided by the investigated party,and it is fully possible to accept them.

3.The defense opinion focuses on truthfulness and credibility

The Bank's first requirement for companies participating in its projects is integrity.Therefore,the defense opinion must also be truthful and credible.If the ICAC has doubts about the authenticity of the defense materials,no matter how meticulous and rich the defense is,it will be difficult to accept.

"You should not speculate or fabricate situations that you do not know,so that the defense materials of the enterprise can withstand scrutiny and screening.".The ICAC also collects evidence from multiple sources and corroborates each other.Therefore,we suggest that other domestic enterprises should not take chances and falsify evidence when encountering World Bank investigations.Failure to do so will not only lead to a failure in the defense,but will also result in stricter sanctions for obstructing the investigation,according to World Bank rules.

(This article is translated by software translator for reference only.)