6 Mar, 2013

FREE Download: ADB Anti-corruption Report Lists Private Sector’s Heinous Creativity

Imtiaz Muqbil

MANILA, 4 March 2013 – Private companies, which regularly rail against public sector corruption and fraud, are themselves resorting to the same dirty tricks in attempts to access the millions of dollars worth of loans and grants disseminated annually by the Asian Development Bank (ADB), an official bank report shows.

The Annual Report released on 4 March by the Manila-based ADB’s Office of Anticorruption and Integrity (OAI) details how contractors and bidders for ADB-funded projects are setting up dummy companies, falsifying testimonials and financial audits, attempting to bribe procurement officers, fabricating end-user certificates, amongst a slew of nefarious efforts to win bank business.

The good news is that the ADB, asserting its policy of having “zero tolerance for corruption,” is both tightening measures to ensure total financial integrity and making the results of its efforts public. By walking the talk of its policy, the ADB is also trying to encourage a systemic trickle-down effect that encourages whistleblowing, impartial investigations without fear or favour, transparency and accountability amongst both the public and private sectors throughout Asia.

Very few multinational corporations, international organisations, consultancies and government departments have such internal offices of Integrity and Anti-corruption. Those that do never make their reports public. The ADB report is an indirect challenge for them to change course.

Clare Wee, Head of OAI, was quoted as saying in the ADB Press release, “At a time when many donors are implementing austerity measures, those entrusted with development mandates have an obligation to use a steadily declining pool of development funds. When development funds are diverted or misused, people with real needs are deprived of basic services, rights, and opportunities.”

In 2012, OAI received 240 complaints, the highest it has ever received in a year. More than 50% of these were either converted into investigations or were closed. OAI processed cases that led to sanctions being imposed on 38 individuals and 42 firms. Majority of complaints came from ADB staff, each of whom plays a key role in combating threats to the integrity and effectiveness of ADB’s development work.

The bulk of the complaints involved fraudulent misrepresentations about qualifications, experience, and technical capabilities of consulting firms, contractors and individuals seeking work from ADB. By sector, most of the complaints involved the transport and communications sector followed by agriculture and natural resources, and water supply and municipal infrastructure.

The report said a total of 57 firms and 51 individuals were barred from seeking ADB-financed contracts as part of a cross debarment agreement forged between ADB and four other multilateral development banks.

Said the report, “ADB has zero tolerance for corruption. In 2012, the Office of Anticorruption and Integrity (OAI) responded to allegations of fraud and corruption; proactively reviewed ADB projects; provided integrity due diligence support; and informed and empowered staff, civil society, and the private sector with tools to fight fraud and corruption.”

The report notes numerous positive developments, including several major international firms working on ADB-assisted projects who voluntarily reported suspected integrity violations to OAI after internal company audits.

In 2012, OAI piloted project procurement-related spot reviews aimed at strengthening project monitoring and compliance. The reviews provide hands-on support and skills transfers to ADB’s operations departments to improve project supervision and ensure projects fully deliver their intended development outcomes. Lessons from similar reviews over the last 10 years have been developed into toolkits that are shared and used by other international financial institutions, the report says.

ADB updated its Integrity Principles and Guidelines (IPG) to incorporate developments in remedial measures including harmonized principles among multilateral development banks on the application of sanctions against corporate groups, and recognizing voluntary disclosure of misconduct as a mitigating factor when imposing sanctions.

Said the media release, “For 2013, OAI will continue to channel its work to ADB’s front line, to maximize opportunities for ensuring ADB’s development funds are used with regard to value for money, for their intended purposes, and not usurped through fraudulent or corrupt practices. It will adopt and continue measures such as increased support for Resident Mission staff, customized project procurement related reviews, and enhanced capacity for due diligence advice.”

Download the full report FREE by clicking here.

Examples of the allegations — quotes from the report:

COLLUSION

** Three competing bid proposals listed identical addresses and telephone numbers and contained sequentially numbered but otherwise identical bank guarantees. OAI found that the three firms had strong business and family associations, including related shareholders. Neither the firms nor its officers rebutted OAI’s findings that they had engaged in collusive practices, despite multiple opportunities to do so, including follow-up visits by OAI’s retainers. The IOC considered these aggravating circumstances when imposing sanctions.

** ADB resident mission staff identified that quotes submitted by three firms were virtually identical in form and content. The resident mission also established through a site visit that two of the three firms were located in adjacent offices. OAI’s investigation determined that the firms jointly prepared quotes, and that the third firm was most likely created by the other two firms to meet the three-bid requirement for a shopping contract. The IOC found that these bid similarities and other evidence supported findings of collusive and fraudulent practices and imposed sanctions accordingly.

CORRUPTION

** An interested bidder alleged that a project procurement officer had requested kickbacks in exchange for contracts. The procurement officer initially admitted to requesting kickbacks, but subsequently retracted the admission. The IOC concluded that the procurement officer had engaged in corruption.

FRAUD

** At ADB’s request, the executing agency investigated and confirmed that a firm misrepresented its construction experience to meet bid requirements. The firm was accordingly disqualified from being considered for the contract. OAI sought independent verification from Mr. X, a representative of the firm’s previous client and purported issuer of the construction certificate. Mr. X confirmed that the certificate presented by the firm in its bid was inconsistent with what was actually issued by Mr. X. The firm failed to respond to OAI’s queries and findings despite numerous follow-ups.

** OAI confirmed distinct similarities in the style, structure, and typeface between three end-user certificates provided by a firm as evidence of previous international work experience. Other red flags were the unexpected names of bid signatories, given the nationality of the firm, and open source information that did not confirm the firm’s claimed experience. When confronted with OAI’s findings, the firm admitted that the end-user certificates were fabricated and accepted OAI’s proposed sanctions. The firm’s prompt acknowledgment of its wrongdoing was considered a mitigating factor. On the other hand, the firm’s authorized representative provided false information to OAI during the investigation and failed to respond to OAI’s findings. The IOC considered these aggravating factors, and that the representative’s misrepresentations constituted fraud.

** Two firms billed for and were paid by the implementing agency for work that had not been carried out. OAI presented to both firms that they had misrepresented that work had been completed when it had not; they had thus engaged in fraudulent activities. Neither firm nor their representatives took the numerous opportunities provided to them by OAI to present their version of events. The IOC found that evidence supported OAI’s findings that the firms and their directors had engaged in fraudulent practices, and considered their non-responsiveness as aggravating.

** OAI completed an investigation into the conduct of a consultancy firm and three associated firms that received 14 ADB-funded contracts since 2003. OAI’s investigation found that the firms misrepresented the scope, nature, and value of past work conducted and overstated their experience, expertise, and performance in expressions of interests and proposals submitted for ADB-funded contracts. The IOC concluded that these misrepresentations constituted fraudulent practices, in violation of ADB’s Anticorruption Policy.

** When reviewing project documents in 2011, OAI identified irregularities in the audited financial statements presented by a sole proprietor firm. Further investigation revealed seven falsified financial audit statements submitted through three proposals under two ADB-funded projects. There were 35 identified irregularities contained in work orders and work completion certificates presented in the proposals. These were all issued on the same day and were signed by the same individuals. One certificate was modified to present a contract as being completed more recently than it actually was. The government office that issued these work orders and certificates had retained copies of these on its files. Incongruously, however, it appeared to retain no other work documentation such as contract correspondence, invoices, or payment vouchers. As such, OAI found it likely that the firm and the government office had colluded. In responding to OAI, the firm and its owner provided false information, which was considered obstructive and aggravating. The IOC sanctioned the firm and its owner for fraudulent, collusive, and obstructive practices.