According to reliable (whistleblowing) sources, the Inter-American Development Bank (IDB) has a long history of shielding major Argentine firms from public exposure for corrupt or fraudulent practices in Bank operations.
Take the case of a Pricewaterhouse Coopers chapters in the US (PwC US) and Argentina (PwC AE SRL). Last summer, the IDB's internal Administrative Tribunal summoned management to a public hearing to account for the way in which OII and senior Bank officials concealed the nasty aftermath of a contract awarded to the firm for a project called "IT Roadmap." The ruling issued found that the Bank dealt with the staff member involved in an irregular and draconian fashion. Additional information shows the way in which the Bank handled PwC was procedurally improper and extraordinarily forgiving.
Under the ethics procedures at the IDB, when an allegation of fraud or corruption involves both a staff member and an external party, OII is to investigate the external party first. Only upon conclusion of that part of the investigation are the remaining allegations to be referred to the Ethics Office (Code of Ethics and Procedures, 302.5). In this case, OII, under Steven Zimmerman, undertook the investigative process in reverse. Fernando Fernandez, the staff member, was investigated first and summarily terminated without due process. Subsequently, PwC chapters in both the US and Argentina negotiated an agreement to pay the Bank $2 million in exchange for the Bank's silence about the firm's role in the affair.
Because of multiple due process violations in the case and a lack of factual and substantial evidence, the Tribunal quashed Fernandez's dismissal, but what followed demonstrates that even with a favorable Tribunal ruling, Fernandez lacks access to fairness in the Bank's internal system. In the face of the adverse ruling, the IDB elected to compensate Fernandez rather than reinstate him, which, under the statute, management is entitled to do. The financial compensation fixed, however, by Bank management is inordinately low and does not equal the actual monetary damages caused Fernandez by his improper dismissal and management's refusal to follow the actions required by the judgment. Under the legal regime in place at the Bank, Fernandez lacks any possibility of appeal.
In the meanwhile, evidence regarding the agreement between IDB management and PwC continues to arrive at GAP, and the way in which Bank management addressed this issue continues to raise questions. It is now clear that officials at PwC had a primary role in the events before the Tribunal in the Fernandez case. When dealing with PwC, however, the IDB elected to take a discreet (and as it turns out, profitable) approach. In exchange for $2 million, the IDB quietly prohibited PwC from competing for IDB contracts for short periods of time: PwC US was debarred until August 2012, and PwC AE SRL was debarred for a period that expired 30 days after the agreement was signed. Neither sanction was public.
Nevertheless, the IDB publishes on its website a statement of high ethical purpose in procurement.
The Bank Group requires all parties executing, bidding for, or in any way participating in a Project to adhere to the highest ethical standards as defined in the policies of the Bank, the Corporation and the Fund and the terms and conditions of the corresponding agreements (if applicable) (Section 2.1)
Moreover, the sanctions guidelines include a clear definition of corruption:
A "corrupt practice" is the offering, giving, receiving, or soliciting, directly or indirectly, anything of value to influence improperly the actions of another party (Section 2.2 (a));
Details of the Agreement
In this case, PwC offered to interview and employ the staff member's relative while urging that its bid be favorably considered in a contract competition. The Tribunal ruling established that Fernandez could not have delivered favorable consideration for PwC, even if he had been so inclined, but that PwC tried to extract this favor. In other words, the Tribunal clearly saw culpability on the part of PwC.
According to the Bank's guidelines, the sanctions process is a unilateral one, in which allegations of violations are received and investigated by the Ethics Office or OII, and the Respondent (in this case, PwC) is notified that the process has begun. While the Respondent may reply to the allegations and the investigation, the Bank's Sanctions Committee or the Case Officer determines the penalties to be imposed on the parties deemed culpable. This is neither a civil legal proceeding nor a criminal one. It is a matter internal to the Bank, despite the fact that public resources are at risk.
In contrast to the advertised procedures of the Bank, the arrangements with PwC were clearly the result of a negotiation between the parties, and not of an impartial investigative and sanctioning process. Under the agreement, PwC contributed $2 million to an "integrity and governance" fund at the IDB and would not bid for IDB contracts during the limited periods cited above.
In return the IDB – at the very least – kept PwC off the publicly disclosed list of sanctioned firms as well as off the mutual debarment list compiled by intergovernmental organizations. Nor does PwC's name appear in the Tribunal ruling. If one scoured the record for notification that PwC even approached violating procurement standards at the IDB, one would find nothing.
Curiously, despite the high-toned anti-corruption rhetoric, this selective silence is perfectly within the "rules" at the IDB, which allow the Bank to disclose – or not – the names of sanctioned contractors. The Guidelines leave the Sanctions Committee or the Case Officer complete discretion in the matter.
If a Sanction (other than a private reprimand) is imposed on a Respondent, information concerning the identity of each sanctioned party, the Prohibited Practice, the findings of the Sanctions Committee and the Sanction imposed may be disclosed by the Bank and the Corporation to borrowers, other international and multinational organizations, governmental authorities and such other parties, including the public, as deemed appropriate by the Bank or the Corporation (Section 11, 11.1)
The IDB is not even obliged to notify borrowing governments that a firm has been sanctioned. Contrast this with the World Bank's practice:
If a sanction is imposed on a Respondent, or on an Affiliate as provided in Section 9.04, information concerning the identity of each sanctioned party and the sanctions imposed shall be publicly disclosed (Article X, Section 10.01)
Yet the IDB asserts this about its Institutional Integrity:
Integrity is essential to the IDB Group's mission of promoting development throughout Latin America and the Caribbean. Corruption weakens democratic institutions, discourages investment and job creation. Ultimately, it hits hardest the poor and those without access to proper legal recourse.
Parts of this statement are, in fact, true. Corruption does hit the poor hardest, while PwC seems to escape its impact at the IDB altogether. A $2 million "contribution" is absolutely painless for a global corporation with over $29 billion in revenues last year.
Phrases like the one above are simply cynical when issued by an institution that allows itself the privilege of applying sanctions selectively. In return for its silence, the Bank's "integrity" officials extracted $2 million from PwC (US and Argentina). In most places subject to the rule of law, that's illegal. At GAP we can't help but wonder who among those involved in this dubious deal is going to run the new good governance fund. And what sort of ethics credentials they have.
Bea Edwards is Executive Director and International Director for the Government Accountability Project, the nation's leading whistleblower protection and advocacy organization.
