The Integrity Strategy of the African Development Bank
Combating Corruption in Development Aid in Africa
Pervasive corruption on the African continent has discredited development cooperation almost to the point of putting the entire concept into question. Just recently the German government, among others, suspended its payments to the Global Health Fund due to reported widespread leakages of up to 67 % of funds in individual African countries. The seemingly more effectual concept, at least in terms of economic growth, of direct investments as rolled out by some countries on the continent is adding to the pressure. Future funding of aid by taxpayers in donor countries will to a certain extent depend on the ability of bilateral and multilateral development organizations such as the African Development Bank (AfDB) to work out integrity strategies that effectively curb corruption and fraud in their projects.
The AfDB follows a two-pronged approach in its fight against corruption. The bank finances projects aimed at strengthening general institutional capacities in regional member countries, in particular audit and inspectorate functions. While there is no doubt that such long-term measures are necessary to improve overall transparency and accountability in the management of public resources on the continent, the AfDB has realized that it also requires an investigative unit to reduce the immediate risk of fraud and corruption in its own activities and created the Integrity and Anti-Corruption Department (IACD). The IACD, which became operational in early 2007, has the overriding mandate of undertaking independent investigations into allegations of fraud, corruption and misconduct within the AfDB and bank-financed activities.
The Integrity Strategy
The IACD adopts a holistic approach to fighting corruption in bank activities. It is generally agreed that there is no single silver bullet capable of killing the beast that is corruption. Instead, the IACD’s Integrity Strategy is a balanced mix of preventive, detective and investigative measures. The central idea behind the strategy and that underpins all its activities is to decrease the opportunities for corruption and increase the perceived risk or the potential costs of being caught in corrupt activities to such an extent as to make it economically unattractive. The strategy is regularly reexamined to reflect lessons drawn from the unit’s investigations and experiences but also from those of sister institutions such as the World Bank. The most recent review revealed four broad, frequently interrelated areas of focus: communication, integration, sanctions and information sharing, which will be the subject of this essay.
In most development organizations, and the AfDB is no exception, existing investigative units lead secretive lives below the radar of most operations staff, national government entities managing projects on the ground, companies tendering for bank-financed contracts and the ultimate development beneficiaries. The sensitive nature of the work, it is often felt, requires that such departments remain mostly invisible, communicating little with the outside world. This approach has serious drawbacks though. First, perception forms reality. Only if the IACD communicates successful investigative outcomes will the risks and the costs of being caught in the act be perceived as a credible threat to any party thinking of engaging in corrupt activities. High visibility is particularly important in a context in which both risks and costs are generally perceived as low, as is the case in Africa. Secondly, in regions in which the policing authorities are frequently as much part of the problem as they are part of the solution, the IACD needs to win the trust of internal and external stakeholders and actively market its services. Taking these findings into account, the IACD has worked out a communication strategy that will be rolled out in 2011 and 2012.
Closely linked to the subject of communication is the challenge of integrating the fight against fraud and corruption into everyday bank operations. To enhance preventive and detective capacities in the AfDB, thus decreasing opportunities for fraud and corruption and increasing the risk of being caught engaging in such activities, program integrity must become so fundamental that it permeates disbursement, procurement and project management, becoming a mainstream issue. Today the IACD has several ongoing pilot projects involving cooperation with bank operations, such as exploring the possibilities for using commercial satellite imaging both as an investigative tool and a means for supervising projects remotely.
However, looking forward, it is imperative that the IACD instigate an all-encompassing virtuous circle: education and training of operational staff on issues of fraud and corruption to create awareness that leads to more reports of alleged illicit activities in bank-financed projects, which in turn triggers investigations. In close cooperation with the other bank units involved so as to benefit from collective expertise, general lessons must be drawn from investigative reports. These lessons must then find their way back into the education and training of staff, thus enhancing preventive and detective capacities. Instituting such a feedback loop, breaking the silo mentality and building bridges between operations and anti-corruption units is nothing short of existential in the bank’s battle against illicit activities.
In April 2010, the multilateral development banks (MDBs) including the AfDB, the Inter-American Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development and the World Bank Group, took a huge step in the global fight against fraud and corruption in development projects by signing an agreement to cross-debar firms and individuals found to have engaged in illicit activities. Following the implementation of this agreement, entities debarred by one MDB can be sanctioned for the same misconduct by the other participating development banks. Since then, several bilateral institutions have shown an interest in recognizing the debarments pronounced by their multilateral cousin institutions. In addition, the agreement allows for the public naming and shaming of sanctioned entities and individuals. Thus, the cross-debarment agreement substantially increases the costs, both in financial and reputational terms, of getting caught “with their pants down”. Although it is too soon to report on the impact of this agreement, it is expected to have a strong deterrent effect on at least two groups of companies: multinationals and companies that are mostly active in regions and/or sectors where financing by MDBs and bilateral organizations represents a large part of public spending.
More still needs to be accomplished, though, according to the revised IACD strategy. Referrals to national law enforcement agencies are not yet standard procedure at the AfDB and too few cases ever result in criminal charges against perpetrators. Stronger relationships between MDB investigative units and national law enforcement agencies must be built. MDBs, including the AfDB, must be more willing to apply adequate pressure on borrowing countries to pursue reported criminal acts. In addition, the bank has not yet finally explored the possibilities for liquidated compensatory damages for economic losses, including the substantial costs of investigations, and punitive damages from entities and individuals found guilty of fraud and corruption.
In early December 2010, more than 200 members from 134 countries involved in the International Corruption Hunters Alliance, a network of anti-corruption enforcement personnel, met at the World Bank in Washington DC to discuss ways to combat corruption in development projects more effectively. In the first meeting of its kind, one theme that emerged was the need for information sharing between international organizations such as the AfDB and national law enforcement agencies. Financial investigations are by their very nature time consuming and lengthy processes. In complex cases at the AfDB, more than 18 months can pass between initiating and closing an investigation. In such cases, the failure to share information in a timely manner can result in funds continuing to leak to other organizations or a piece of evidence fundamental for establishing corruption never finding its way to the investigating organization. Currently, limited information sharing takes place in a purely informal manner based on trusted personal relationships between individual members of investigative bodies. In future, cooperation agreements with national anti-corruption authorities on the continent as well as international police organizations to facilitate the sharing of information will be an integral part of the bank’s Integrity Strategy.
The reaction of the German government and others to the findings of the Global Health Fund’s Investigative Department, although understandable, sends the wrong signal by penalizing a frank assessment of the situation. Additionally, increasing the detection of losses induced by fraud and corruption is frequently an indicator of improved investigative capabilities within an organization rather than of a de facto surge in the number of incidents. Since James D. Wolfensohn, former World Bank President, first publicly addressed the subject of corruption in development projects at the annual meeting of the World Bank in 1996, thus broaching a subject that has long been taboo, MDBs, including the AfDB and other multilateral organizations, have made great progress in dealing with the issue and are constantly refining their strategies to curb corruption in their projects more effectively.