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IFI governance

News

Landmark decision: Canadian company debarred

26 July 2004

Anti-corruption campaigners are applauding the World Bank’s decision to debar Acres International, a Canadian company found guilty by Lesotho courts of engaging in corrupt activities in a Bank-funded water project. Acres was declared ineligible to receive any new Bank financed contracts for a period of three years. The short period of debarment was due to “mitigating factors”: the fact that Acres had already been ordered to pay a criminal fine by the Lesotho courts and that the persons involved “are no longer in positions of responsibility in the company”.

The Government of Lesotho first announced criminal indictments against Acres in 1999. At that time, the Bank launched an investigation concluding that there was “insufficient evidence” to sanction the firm. Following Acres unsuccessful appeal in 2003 against its conviction in the previous year, the Bank’s sanctions committee reopened its investigation. In the meantime, Acres continued its work for the Bank, winning over $2.3 million in new contracts, none of which will be affected by the debarment decision. Since its indictment in 2001, German firm Lahmeyer International has received nearly $8 million in contracts, including a contract in 2003 after its conviction. Initial reticence and the slow pace of the Bank’s response to the Acres case (the original offences took place in the early 90s) has led observers to question the commitment of the institution to stamping out corporate corruption.

Acres was bought out in June by rival firm Hatch Limited. It is not clear what impact the decision will have on the ability of Hatch to bid for World Bank projects. Under Bank rules, when the sanction committee recommends that a firm be penalized it can also recommend a penalty for “any individual or organisation that, directly or indirectly, controls or is controlled by the firm.”

Hatch may have taken on more than it bargained for. Officials of the company said that they were unaware that part of the fine Acres was ordered to pay by the Lesotho courts remained unpaid. “Lesotho considers Acres delinquent on its fine and will seek to recover the outstanding $2 million through the Canadian courts. We have no alternative,” said prosecuting lawyer Guido Penzhorn.

Fiona Darroch, a UK-based barrister, who has been observing some of the Lesotho trials said: “This debarment raises three interesting questions: First – the Bank only re-opened its debarment proceedings against Acres after it had been presented with ‘new evidence’. Can the investigative department of the World Bank do its job properly without being sustained by such evidence? Second – under what duties are other IFIs, similarly involved in the Lesotho Project, to reflect a similar approach to corruption? Third – why did the sanctions committee allow Acres to use its fine as a “mitigating factor”, when the fine has not yet been paid?”

The Bank’s sanctions committee may soon face similar decisions on the debarment of companies from across Europe, including Schneider Ltd. (taken over by British firm AMEC) and UK firms Stirling International and Balfour Beatty.