Anticorruption and the ADB [1]
Wednesday, February 25, 2009 - 11:03. Updated on Friday, September 12, 2014 - 17:05.
The Wall Street Journal
The Asian Development Bank is asking its shareholders - namely, taxpayers in the U.S., Europe, Japan, China and elsewhere - to pony up between $1.9 billion and $3.4 billion in additional capital. That's a big increase for a bank that lent out $10 billion in 2007. Will that money be spent cleanly? Funny you should ask.
The Bank's integrity division released its annual report for 2008 last week. Despite some successes investigating corruption allegations, a serious problem lingers: its unwillingness to publicly name companies with which it has severed ties due to corruption complaints. The U.S., a major ADB shareholder, is concerned.
The ADB says it received 186 complaints about possible improprieties last year, from which it opened 89 investigations. Based on those findings, and from some pending investigations from 2007, the Bank barred 41 companies and 38 individuals from doing business with it. Just don't ask for the names of those sanctioned companies or individuals, or even in which countries the problem projects are located. The ADB won't say.
Consider the list of cases posted, without any identifying details, on the Bank's Web site alongside the annual integrity report. Several involve possible wrongdoing by government officials in countries receiving ADB loans. In one case, an individual and two firms allegedly bribed a government official to obtain confidential information about the bidding for an ADB project. In another case, two companies and two individuals admitted to bribing government officials to obtain contracts.
In each of these cases, the ADB barred the companies involved for seven years, the maximum allowed, and banned some individuals indefinitely. The Bank also referred the cases to prosecutors. These particular cases resulted in the arrest and prosecution of the government officials involved, the Bank says. In other cases, though, the Bank says it may choose not to refer a case to prosecutors if it doesn't think the evidence is strong enough, or to protect a whistleblower.
Likewise, the annual integrity report offers a page-long list of recommendations for various stakeholders arising from its comprehensive audits. For instance, "Country C" is supposed to "implement four measures to reduce future fraud risk in the country office's procurement processes." And "Country E" should "strengthen . . . internal procedures and controls to prevent corruption" in an agency administering an ADB loan. Any citizen activist who wants to check on his government's progress on such benchmarks will have a tough time since he won't know if his government is on the list in the first place.
The ADB shares its banned list with other institutions, including the World Bank. And it does publicize some names, mainly repeat offenders who try to bid on Bank projects after they have been banned. ADB Auditor General Philip Daltrop notes via an emailed statement that its corruption reviews do not always apply the same definitions of corruption or the same standards of proof that would obtain in court. The Bank suggests that it wouldn't be appropriate to publicly tar companies or people it sanctions.
But if nothing else, the ADB's own reputational self-interest argues for fuller disclosure. Witness the big black eye the World Bank has suffered over its handling of Satyam, the Indian IT outsourcing company caught in a billion-dollar accounting scandal. The World Bank barred Satyam due to its own corruption concerns in September but made that decision public only weeks before the broader fraud came to light in January. In the aftermath, critics, including this newspaper, have wondered if the scandal might have come to light sooner if the Bank had been more forthcoming about what it knew. The World Bank has now increased its disclosure of barred companies.
At the same time the ADB is asking donors for more money, it is asking donor-country taxpayers and the developing-country recipients of Bank aid to "trust us" to follow up on anticorruption efforts. But stakeholders have a duty to their citizens to verify that the aid is being used wisely, and citizens have a right to see for themselves. The surest way for the ADB to kill corruption is to shine more light on it, not conceal it. Wall Street Journal, 25/02/09.