A united front against aid fraud

In the latest review of its sanctions procedures, the Asian Development Bank noted an increase in the number of corruption and fraud allegations it received and processed last year.

Part of the reason, ADB says, are ongoing efforts to raise awareness of accountability and integrity measures within the bank and the public so they can better report perceived irregularities. The bank anticipates the number and complexity of complaints to increase.

Many donors have lately been beefing up anti-fraud measures, and one way multilateral banks are clamping down is through cross-debarment agreements. ADB signed one in April 2010 with the World Bank, the African Development Bank, the European Development Bank and the Inter-American Development Bank.

The 2010 agreement reaffirms one provision of the cooperation framework these multilaterals signed in 2006: Mutual recognition of disbarment decisions can help prevent and mitigate corruption. Under the cross-debarment deal, individuals and firms disqualified by any of the banks may also be blacklisted by the other regional development banks.

The agreement requires each of the banks to notify the other participating institutions of any debarment decisions that meet certain criteria – the decision was made public, the initial debarment period is more than one year, and the decision was made after April 2010, among others. The other participating banks will then enforce the same punishment imposed by the original sanctioning institution.

Any of the banks, however, may choose not to cross-debar a firm or individual if enforcing such decision will violate that bank’s legal or other institutional considerations.

ADB has blacklisted 53 firms and 29 individuals since the agreement was signed. It made its first cross-debarment decision in October 2010, disqualifying an individual debarred by the World Bank for violating procurement guidelines. In August 2011, ADB announced the first batch of firms it has debarred: two Italian and two Chinese companies previously sanctioned by EBRD.

EBRD, for its part, has cross-debarred 80 firms and individuals since signing the agreement. Most of these decisions were originally enforced by either the World Bank or ADB. IDB, meanwhile, has so far debarred 56 firms and companies originally disqualified by ADB, the World Bank and EBRD. AfDB doesn’t seem to have published its cross-debarment decisions, and the World Bank list of debarred entities does not distinguish cross-debarment decisions.

The agreement to mutually enforce debarment decisions is only one of several ways multilateral development banks are trying to mitigate fraud and promote accountability in the development community. Bank chiefs will discuss ways to improve these issues at an upcoming gathering hosted by ADB.

To be sure, fighting corruption and fraud is a hard but necessary undertaking for the international development community. As a keynote speaker at a recent ADB conference on corruption put it: “Corruption is a fight against undying enemies. Indeed and thus, we need to be on guard always not only in fighting the enemy but also in seeing to it that every opportunity for corruption is mitigated if not totally eradicated.”

Read our last DevTrivia.