‘NGOs’ emerge as force in global anti-corruption with new enforcement tactics

As the reinvigorated global crackdown on corruption spreads, governments are intensifying their efforts to combat it in all its guises.

In the past two years, Russia, China and other nations have enacted laws or launched enforcement initiatives targeting corruption of government officials within their borders. At the same time, diverse nations such as Brazil, Poland and the United Kingdom have focused their corruption efforts against persons in their jurisdiction who make corrupt payments to officials of other countries. The model for this type of cross-border corruption law is the 37-year-old US Foreign Corrupt Practices Act, or FCPA.

This pioneering law, which lay moribund for many years, was dusted off in 2005 and put into play in the administration of US President George W. Bush. It has maintained its new vigor in the administration of President Barack Obama. It now appears to be an institutionalized weapon in the US financial crime arsenal.

Not all the innovative methods of fighting corruption have come from national governments. Organizations called “non-governmental organizations” (NGO), which focus primarily on development projects in lesser-developed nations, and aid and advocacy groups, are taking an increasingly visible role in the global anti-corruption field.

NGOs are moving beyond research and awareness-raising to take on investigative and gadfly roles in support of government enforcement and regulatory efforts. NGOs with the ability to impose sanctions, such as the World Bank, are increasingly using “debarment” or monetary penalties on businesses that corrupt public officials.

For anti-corruption advocates and enforcement and regulatory agencies, the more aggressive approach by NGOs is likely to be welcomed. For businesses, however, it means increased risk of enforcement and more costs if corruption violations are detected.

NGOs augment anti-corruption strategies

NGOs come in various forms, from those backed and funded by governments, such as the International Monetary Fund, to private nonprofit groups, like Transparency International and Global Witness.

NGOs that finance infrastructure and development projects, primarily in emerging countries, have been some of the most active in anti-corruption efforts. Of these development-focused NGOs, the World Bank is one of the largest and most well-known, operating in more than 100 countries and lending over $30 billion annually.

Thousands of business entities bid for contracts on projects funded by the World Bank, from local companies to multinational corporations. To police its contractors, the World Bank launched a sanctions program in 1996, and in recent years it has deployed sanctions against companies caught up in corrupt activity with growing frequency.

Within its “Integrity Vice Presidency” unit, the Bank has an internal investigative team that probes allegations of “sanctionable” offenses by contractors, which includes corruption of public officials.

If investigators uncover evidence that a company working on a World Bank-financed project is involved in corruption, the sanctions board can impose a range of penalties on the business. This includes requiring companies to remediate compliance, and temporarily debarring them from participating in World Bank-funded projects.

In the past decade, the number of debarments issued by the World Bank has risen rapidly. In 2004, 16 companies and individuals were debarred. Last year, 378 persons received debarments, and 29 have already been issued in 2014.

NGOs go beyond debarment to impose monetary penalties

The World Bank also exchanges information with other NGOs that finance development projects, including the African Development Bank, Asian Development Bank, Inter-American Development Bank and European Bank for Reconstruction and Development. If a business is debarred from one of these NGOs, it may be debarred from the other five, according to the Inter-American Development Bank Anti-Corruption Strategy Report.

Beyond debarment, some NGOs also impose monetary penalties on their contractors. In late March, the African Development Bank announced that three large multinational energy companies, Kellogg Brown & Root, Technic SA, and JCG Corp, had agreed to pay $17 million in penalties for paying bribes to Nigerian officials in connection with a natural gas project financed by the bank. The bank said it will use the funds from the penalties to finance anti-corruption initiatives in other African nations.

Kellogg Brown & Root agreed in March 2009 to pay $402 million to the US Department of Justice charges of FCPA violations based on the same activities. The case indicates the “copycat” penalties that companies now face when a country or an NGO mimics a corruption case brought by another jurisdiction.

Referrals by NGOs lead to prosecutions, asset seizures

NGOs cannot bring criminal cases independently, but increasingly are partnering with government agencies to refer companies to national authorities for investigation and prosecution.

Since it began its referral program in the early 2000s, the World Bank has referred more than 100 cases to national governments. By this referral practice, law enforcement agencies gain access to the intelligence gathered by NGOs, potentially triggering an investigation or helping prosecutors to build a case.

In 2012, the World Bank began publicizing the actions that governments had taken in response to referrals. Possibly as a result of this, in 2013, ten referrals led to investigations by governments. In a recent instance, a World Bank referral to the Canadian government led to criminal charges against officials at SNC-Lavalin for bribing government ministers in connection with a bridge construction project in Bangladesh.  A former company executive was charged with violations of the Corruption of Foreign Public Officials Act, a Canadian counterpart to the US FCPA law.

In another case in France in 2012, French police seized an estimated $300 million in property in Paris belonging to the son of the corrupt dictator of Equatorial Guinea, Teodoro Obiang Mangue. In an unusual twist, the case began with a civil suit in a French court by two non-profit organizations involved in anti-corruption advocacy, Sherpa and Survie.

NGOs seek balance in enforcement programs

With public corruption receiving widespread media attention, and the number of national governments actively enforcing corruption laws on the rise, the role of NGOs in corruption enforcement is likely to expand. In a speech in Washington, DC in December 2013, World Bank President declared corruption to be “public enemy number one in the developing world,” and said anti-corruption work would be a priority of the institution’s development efforts.

Kenneth Barden, a senior advisor at the United States Agency for International Development who has worked closely with organizations like the World Bank, said NGOs are becoming more proactive in corruption risk management.

Barden said development banks use information exchange among themselves to reduce risks by identifying contractors with a pattern of violations. Still, agencies are looking to find the right balance for sanctions and enforcement programs, Barden explained.

“Sometimes the programs are not strict enough, sometimes they’re too strict. If there is one bad worker on a project, should the entire company be debarred? That’s been the underlying theme for the last few years – what really is the appropriate measure?” Barden said.