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Examples of Investigations

   

NGOs make false claims about their qualifications to implement education project

One INT investigation looked into an education project in which non-governmental organizations (NGOs) were hired to provide non-formal education (NFE) through village-based continuing education centers, particularly in the rural parts of the project country.

The World Bank Group received complaints alleging corrupt and fraudulent practices in the NGO selection process and hired an independent auditor to conduct an audit. Among other things, the auditor surveyed a sample of the NGOs that had been selected to participate in the final phases of the project to verify the existence of these NGOs and their qualifications. The auditor found that 64% of the sampled NGOs did not meet the project’s required selection criteria.

Using the audit report as a starting point, INT then pursued the Bank Group’s investigation into allegations that: (i) Project officials demanded and received bribes to favor certain NGOs in the selection process; and (ii) NGOs submitted falsified certificates to satisfy the tender requirement that they have NFE experience.

INT’s investigation found evidence indicating that:

• five of the NGOs made corrupt payments to government officials through intermediaries, in order to receive favorable treatment in the NGO selection process and other benefits; and
• two dozen of the NGOs that received contracts under the project had submitted fraudulent NFE experience certificates with their proposals.

To date, thirty-eight NGOs and individuals have been debarred for fraudulent practices for periods ranging from two to three years.

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SW-2BD48004 World Bank by World Bank Photo Collection

 
These case studies and information from other ongoing cases illustrate a trend that INT has encountered over time: the procurement process is particularly vulnerable to fraud and corruption, because it is the point in the project cycle where money can change hands


   

 The Bank Group has, in a number of instances, conducted deeper audits, introduced tighter high-risk controls, terminated agreements where warranted, cancelled projects, and heightened supervision.

 

  

Satellite technology facilitates investigation in post-conflict country

In one investigation in a post-conflict country, INT was able to substantiate allegations that contractors and government officials had submitted fraudulent documents, in order to mislead the Bank Group about whether schools financed by Bank Group-administered funds had been built at the contractually designated locations.

To overcome the security challenges of conducting an investigation in the country, INT procured sophisticated commercial satellite images of the contractually designated school sites. The pictures showed that the lots where the schools were supposed to have been built were, in fact, vacant.

Faced with this evidence, contractors and government officials involved in the project told INT investigators that the schools were built elsewhere. The invoices and completion certificates, however, stated that the schools were built at the designated sites. With the assistance of another development agency, the Bank Group was able to confirm that schools were constructed on different sites as identified by the contractors and government officials. However, given the misrepresentations in the invoices and completion certificates, INT was unable to conclude with certainty that these schools were built using Bank Group funds.

As a result of INT’s findings, the Bank Group sought and was reimbursed by the member government for the total contract amount of US$1.5 million. INT will seek sanctions against the contractors involved in the case.

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Regional cooperation and due diligence prevent US$19.2 million from going to a “mailbox” company

INT investigators undertook a forensic audit and subsequent fraud investigation of a consulting firm that received over US$4 million in Bank Group-financed contracts, in multiple countries and regions.

The investigation revealed that the company had no permanent office space and that its address was a mailbox at a retail postal store. INT also found that the company misrepresented and/or falsified its prior work experience by, for example, inflating the value of five previous Bank Group-financed contracts by an average of almost 200%, claiming to have worked on three other Bank Group-financed contracts when it had not done so, and claiming experience for a contract that was cancelled without being executed. Other misrepresentations included claims that it had added staff to its project team when, in fact, it had replaced the staff named in its proposal and contracted with other personnel of unclear skills and qualifications, and without obtaining required approvals by the Borrower and the Bank Group.

Through knowledge sharing and cooperation with regional counterparts, the Bank Group's procurement network was alerted to the firm's fraudulent schemes early in the investigation and applied enhanced due diligence regarding the firm's proposals. As a result of this scrutiny, in one region alone, at least 21 proposals for contracts, totaling US$19.2 million, were closely examined and rejected by the Bank Group and its clients for identified misrepresentations by the firm. As Jim Adams, Regional Vice President, East Asia & Pacific, said: "By better and more broadly integrating the knowledge and experience of INT into our operations program, I am convinced we are increasing the impact of the Bank’s operational work, as well as ensuring that Bank financing reaches intended recipients.”

INT will seek sanctions against the company and refer its findings to affected governments and other multilateral organizations around the world.

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Through the sharing of INT's observations with other units in the Bank Group, staff are enabled to better identify red flags and take appropriate preventive and remedial action. 

 


 

   

hwb-00358 World Bank by World Bank Photo Collection

Collusive arrangements among bidders are designed to circumvent competition and inflate bid prices, unfortunately at times with the knowledge or participation of government officials. 

 

  

Early detection prevented US$33 million in Bank Group funds from going to colluding firms

The Philippines National Road Infrastructure Maintenance Project (NRIMP) sought to improve sections of the national road network and increase the Government’s capacity to monitor, maintain, and further develop the Philippines’ highways. The project’s first phase, NRIMP-1, sought to establish a well-functioning preventive maintenance program for the national roads system, redesign the system’s road management program, and design policy and institutional reforms.

In April 2003, INT was informed by the Bank Group team supervising the project that the procurement process relating to the award of two NRIMP-1 contracts (with a total value of US$33 million) might have been tainted by fraud and corruption. Bank Group staff had determined that the results of the 2001-2002 bid process showed indications of collusion, most notably the questionable disqualification of some of the potential bidders and abnormally high bid prices. The Bank Group’s task team accordingly declined to issue a letter of no-objection in this first round, asked the implementing agency to re-bid, and referred the matter to INT. Finding the bid prices still unjustifiably high after the 2004 re-bid, the Bank Group asked the implementing agency to carry out a third round of bidding. The Bank Group ultimately decided not to provide a no-objection letter a third time, for the same reason, in 2006. The contracts were not awarded under the NRIMP project.

During its investigation, INT found patterns in the bid prices and bids that indicated collusion among the NRIMP bidders. These patterns included:
Total bid prices that consistently exceeded the cost estimate by 20% or more;

  • Abnormally high and unexplained unit prices, particularly in the bids’ earthworks component, that suggested manipulation of total bid prices;
  • Direct mathematical relationships between some bids’ prices and the cost estimate;
  • Two bidders that submitted bids with component prices that differed by, in some cases, hundreds of thousands, and in other cases by millions of US$, but total prices that differed by less than a hundred US$;
  • A majority of bids that repeatedly contained substantial computation errors, many in excess of one million Philippine Pesos, an indicator of last-minute bid manipulation;
    Multiple losing bidders that submitted forged bid securities with their bids; and
  • Patterns of inconsistent bidder prequalification results suggesting that some bidders were disqualified for invalid reasons, such as failure to fit the contract profile.

Consistent with INT’s bid analysis, a number of witnesses separately told investigators that a well-organized cartel was improperly influencing the implementing agency’s contract award decisions and setting inflated bid prices. One witness complained of bidders meeting to rig parts of the bidding process and was able to accurately state, in advance, the results of a particular round of bidding.

In January 2009, the Bank Group debarred seven companies and one individual for colluding while bidding for these contracts (an eighth company had already been debarred in August 2008).

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Lahmeyer GmbH

One of the most significant sanctions cases since INT’s inception was decided in FY07, leading to the debarment of Lahmeyer International GmbH (Lahmeyer), a German company, for a period of seven years because of corrupt activities in connection with the Lesotho Highlands Water Project (LHWP). The period of debarment may be reduced by four years if the Bank Group determines that Lahmeyer has met specific compliance conditions and fully cooperated with the Bank Group in disclosing past sanctionable misconduct.

The LHWP is a massive, multi-billion dollar water transfer and hydropower project implemented by the 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. The World Bank Group’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 LHWP, in violation of the Bank Group’s procurement guidelines. In July 2004, the World Bank Group debarred Acres International, another 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 case was a re-opening of 2001 sanctions 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, INT initiated an investigation into whether Lahmeyer had engaged in corrupt practices in relation to its contracts with the Bank Group. 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 for 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 Group re-opened sanctions proceedings against Lahmeyer in August 2005.

Once the indictments were announced in mid-1999, the World Bank Group provided extensive evidentiary support to the Lesotho prosecutors and made Bank Group 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 antifraud officials. The Bank Group benefited greatly from the investigative work done by the Lesotho Government in bringing the debarment case against Lahmeyer and Acres.

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Up to forty percent of corruption allegations received by INT related to bribes and kickbacks.

  



Last updated: 2010-06-21




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