IFC Participation in IFI Harmonization on Fraud & Corruption

Alpita Shah

IFC Legal Department

October 2009

IFI Harmonized Definitions IFI Harmonized Definitions

Included in Contractual Language• Corrupt Practices• Fraudulent Practices• Coercive Practices• Collusive Practices• Obstructive Practices

IFC Interpretative Guidelines

• "Prohibited Payments“ - any offer, gift, payment, promise to pay or authorization of the payment of any money or anything of value, directly or indirectly, to or for the use or benefit of any Official (including to or for the use or benefit of any other Person if the Borrower [or Sponsor] knows, or has reasonable grounds for believing, that the other Person would use such offer, gift, payment, promise or authorization of payment for the benefit of any such Official), for the purpose of influencing any act or decision or omission of any Official in order to obtain, retain or direct business to, or to secure any improper benefit or advantage for, the Borrower, its Affiliates or any other Person; provided that any such offer, gift, payment, promise or authorization of payment shall not be considered a Prohibited Payment if, in IFC's reasonable opinion, it (i) is lawful under applicable written laws and regulations or (ii) is made for the purpose of expediting or securing the performance of a routine governmental action (as such term is construed under applicable law);

Old Definition: Prohibited Practices

Definitions of Sanctionable Practices – IFC Operations

• A “Corrupt Practice” is the offering, giving, receiving or soliciting, directly or indirectly, of anything of value to influence improperly the actions of another party.

Corrupt Practices

Harmonized Definitions of Sanctionable Practices

• Kickbacks and bribery• Interpretation relating to facilitation payments

will take into account relevant law and international conventions pertaining to corruption

• Does not include Antitrust, securities violations Charitable/social development

contributions Customary corporate hospitality Reasonable travel and entertainment

expenses paid for public officials consistent with existing practice under relevant law/int’l conventions

Corrupt Practices: Interpretation

Harmonized Definitions of Sanctionable Practices

• A “Fraudulent Practice” is any action or omission, including misrepresentation, that knowingly or recklessly misleads, or attempts to mislead, a party to obtain a financial or other benefit or to avoid an obligation.

Fraudulent Practices

Harmonized Definitions of Sanctionable Practices

Mere inaccuracy is not fraud

Covers practice directed to or against a World Bank Group entity

Does not cover frauds on other third parties or other illegal behavior

Fraudulent Practices: Interpretation

Harmonized Definitions of Sanctionable Practices

• A “Coercive Practice” is impairing or harming, or threatening to impair or harm, directly or indirectly, any party or the property of the party to influence improperly the actions of a party.

Coercive Practices

Harmonized Definitions of Sanctionable Practices

• Coercive Practices: Interpretation

• Threatened or actual illegal actions undertaken for purpose of bid rigging

• Could be interpreted more broadly but clarified in IFC Interpretive Guidelines

Harmonized Definitions of Sanctionable Practices

• A “Collusive Practice” is an arrangement between two or more parties designed to achieve an improper purpose, including to influence improperly the actions of another party.

Collusive Practices

Harmonized Definitions of Sanctionable Practices

• Collusive Practices: Interpretation

Actions undertaken for the purpose of bid rigging

Harmonized Definitions of Sanctionable Practices

• An "Obstructive Practice" is • (i) deliberately destroying, falsifying, altering or

concealing of evidence material to the investigation or making of false statements to investigators, in order to materially impede a World Bank Group investigation into allegations of a corrupt, fraudulent, coercive or collusive practice, and/or threatening, harassing or intimidating any party to prevent it from disclosing its knowledge of matters relevant to the investigation or from pursuing the investigation, or (ii) acts intended to materially impede the exercise of IFC’s access to contractually required information in connection with a World Bank Group investigation into allegations of a corrupt, fraudulent, coercive or collusive practice.

Obstructive Practices

Definition of Obstructive Practices

Any action legally or otherwise properly taken by a party to maintain or preserve its regulatory, legal or constitutional rights such as the attorney-client privilege, regardless of whether such action had the effect of impeding an investigation, does not constitute an Obstructive Practice

The only definition not agreed upon by the other IFIs at this time

Obstructive Practices: Interpretation

IFC Product/ Investment

Legal Rights Contractual Exits

Standard IFC lending products: e.g. A/B/C Loans

Action for damages against borrower/ sponsor/ contractual party for breach of reps/covenants

acceleration/ cancellation of disbursement/ termination of facility

Other IFC financial products and investments e.g. PCG's, Risk Participations, Equity

appropriate remedy given the nature of the product or investment

Contractual RemediesContractual Remedies