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World Bank Sanctions Lahmeyer International for Corrupt Activities in Bank-Financed Projects

Press Release No:129/2007/INT
Contact:
Media Contacts: In South Africa - Mallory Saleson: 27-12-431-3100; In Washington - David Theis (202) 458-8626;Amy Stilwell (202) 458-4906

PRETORIA, South Africa, November 6, 2006 — The World Bank has declared Lahmeyer International GmbH (Lahmeyer), a German company, ineligible to be awarded Bank-financed contracts for a period of seven years, because of corrupt activities in connection with the Lesotho Highlands Water Project (LHWP). The period of ineligibility may be reduced by four years if the Bank determines that Lahmeyer has met specific compliance conditions and fully cooperated with the Bank in disclosing past sanctionable misconduct.

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 LHWP, in violation of the Bank's procurement guidelines. In July 2004, the World Bank 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 Government of Lesotho has shown courage and leadership in successfully prosecuting its own officials and several large foreign companies for corruption," said World Bank President Paul Wolfowitz. "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."

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 Lesothoaffirmed 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 benefited greatly from the investigative work done by the Lesotho Government in bringing the debarment case against Lahmeyer and Acres. "We are very grateful to the Government of Lesotho for its leadership in the fight against corruption," Wolfowitz said.

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 Committee took into account several factors, including Lahmeyer's lack of cooperation with respect to the World Bank's investigation, as well as Lahmeyer's payment of a criminal fine in Lesotho and its cooperation with the Lesothoauthorities.

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.

"This sanction reflects a serious response to corrupt practices," said Graeme Wheeler, Managing Director of the World Bank Group and Chairman of the Bank's Sanctions Committee. "At the same time, the sanction is structured to encourage Lahmeyer to demonstrate that its contracts and practices now meet the high standards that are essential to the Bank's work."

Background Information

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 http://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.

For more information on the World Bank's anti-corruption policies and activities, see: http://www.worldbank.org/anticorruption.




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