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Fraud and Corruption



Featuring

Former Director, Department of Institutional Integrity and Counselor to the President

The World Bank recently issued a report detailing the results of its investigations into allegations of fraud and corruption in Bank-financed projects. These investigations, conducted by the Bank's Department of Institutional Integrity, revealed that the schemes devised by corrupt actors -- such as procurement fraud, collusion, kickbacks and bribes -- are broadly similar whether in Africa, Asia, Europe, Latin America, or the Middle East. This is a critical lesson learned, as it is allowing the Bank to devise common interventions on a global basis.

Suzanne Folsom, Counselor to the President and Director of the Bank's Integrity Department, answered your questions about how the Bank responds to allegations of corruption in its projects, as well as how the institution deals with complaints regarding possible staff misconduct.

isaac muli:
suzane what motivated you to join world bank?is world bank really supporting developing countries?some of your conditionalitiea are very stringent,what are you doing about them?
Suzanne Folsom:
Before I jump into addressing the questions, I'd like to begin by thanking everyone who took the time to send in a query. I'm happy to be here this morning, and look forward to this Speak Out. I think this is a great way to demystify INT and the Bank's anti-corruption work.

I joined the Bank at the request of former President Jim Wolfensohn, who asked me to be a Counselor to the President. I accepted the President’s request because I know first-hand, from my work with the UN and the time I spent in the developing world – including a great deal of time in the beginning of my career in Africa as well as a fair amount of time in the Middle East – that an organization like the Bank can make a big difference.

Having been on dozens of delegations for my own government, I also learned that the key to making that difference is partnership. In the past, that’s something the Bank wasn’t as good at as we could have been, but I think we’re better than ever – and we keep working on it.

Rather than saying the Bank is supporting developing countries, I like to think we’re helping those countries help themselves. The countries are in the drivers’ seat.

As for conditionalities, that’s something that the Bank and its partners are always trying to improve. It’s not my area, but I do think – from where I sit – that conditions designed to make sure the money goes where it belongs are a good thing.
Madhusudan Mehta:
What is the estimate of the bank about the misuse of its funds by way of corruption in developing democratic countries? Is it 10,20, 30,or 50%.
Taking an example of Funding for Forestry Projects what is your estimate of loss to the project by way of corruption / fraud ?
Suzanne Folsom:
We just issued our annual Integrity report. What it says is that while we have a pretty good understanding of how Bank-financed projects can be vulnerable to corruption, we have a lot less knowledge of the frequency and scope of the problem. So we can’t give a percentage.

But one big finding from our investigations is that those schemes that the corrupt actors come up with are really quite similar across the world – in any country, anywhere. Corruption is corruption. This finding is helping us to design common risk mitigations Bank-wide.
Sushil K. Jain:
What specific measures are being taken by WB to overcome this widespread corruption?

Is this happening because of shortcomings in our education systems?
Can we impart the much needed wisdom systematically as a subject to develop an impersonal vision in people?
Suzanne Folsom:
The Bank has three approaches to dealing with corruption – at the country level, working on projects and programs with borrowers; at the project level, addressing risks in our loans and doing investigations such as those my department does; and at the global partnership level, including with the private sector, civil society and others. But let’s be clear: corruption is not a developing country problem alone. President Wolfowitz says again and again that any bribe involves two parties – a taker and a giver – and the giver is often from a rich country.

But education about the problem on a global level is important. That’s why I’m here today.
isaac muli:
what strategy do you have in place to create equal opportunity for all?
Suzanne Folsom:
The Bank is working to improve global equity, but I think we’re all a long way from equal opportunity for all. It’s a good goal, though.
Mr R J ritchie:

I note the reply to its investigations could uou please confierm th following
a How aws the audit and ambit of the inveastigations carried out
b On wahr basis did teh areas of corrupion cover did it check total funds apllication against total disbusrement , if not how did it arriev at its overview that has been given
Dis it audit the projects i.e check standard of work total goods procured and applied and total costs.
Did it check those suspected of corrupion and receiving fees and their bank accounts , did tehy check large muti or reduced withdrawal of money where it was given and why.
Having recently completed considerable work and given a formulae for Ghana o use indigenous assets linked with Financial acumen and audited with an independent body conducting reporst I really cannot accept that the inveastigations coudl have been carried out in all areas of recipt of total funds and their overall appliaction in monies expended on Projects although until I receive a reply to the areas targeted and requested I am unable to formulate an overview of the investigations carried.
All i see is the projects are sometimse never completed due to the funding running out or disappearing .
Perhaps if a separate body controlled the funsd in Trust and set up an auditing programme and costings and Bankign surviellance of the money then we may see the poverty reduced and the cildren of Africa have a better life style
Suzanne Folsom:
My department conducts investigations based primarily on allegations we receive. We get many of our project-related allegations from Bank staff – more than any other source. Our methodology of investigation is benchmarked against a number of international and bilateral units conducting similar work – like the other MDBs, and so on.

How we specifically conduct a single investigation is based on the nature of the allegation – but let’s remember: these aren’t criminal investigations, they’re administrative. We don’t have law enforcement powers here in INT. We just conduct fact-finding, through a combination of document review, witness interviews, forensic accounting, as well as other standard investigative tools. We then turn the facts we find over to others for their decisions.

Your suggestions seem to look toward changing the way the Bank does business, and I can’t begin to address that – it’s above my pay grade.
Madhusudan Mehta:
Knowing that the corruption is sidespread as an ongoing evil factor, what strategic action is envisaged by the world Bank for its projects.It is a well known fact that like water, the corruption flows from top to bottom. How do you check the corrruption of politically elected Ministers in a poverty stricken democratic country?. Instead of depending on the auditors and monitoring by the Bank will it not be wiser to give this work of evaluation and auditing to some reliable NGO? At the time of formulation ofprojects itself there is need to look into this aspect by an independent agency rather than by Bank employees.
Suzanne Folsom:
The Bank is currently developing a strategy for addressing corruption and governance on a global level – I’ll ask the person who is typing this to put in a link to the draft strategy. I think that will help answer the broader question of what the Bank does.

As for "checking" the corruption of specific ministers – that’s outside our mandate. If we do receive allegations regarding a minister involved in one of our Bank projects, we will refer that information to the Government for criminal investigation – again, our investigations aren’t law enforcement, they’re administrative.
ellsie pringle:
Suzanne Folsom,

How can you be both a counselor to the World Bank President and Director of the Bank's Integrity Department - are those two positions inherently in conflict, as on the one hand you're scrutinizing the Bank and yet you're counselor to the Bank's President??
Suzanne Folsom:
I’ve heard that question before – glad you asked. I entered the Bank as Counselor to the President and was moved laterally over to INT. It wasn’t a promotion.

As per INT’s board-approved Terms of Reference, the head of the department reports directly to the President – just like a Counselor does. Since the President isn’t staff, INT has no 'jurisdiction,' for lack of a better term, over him. I'm an ethics lawyer, and have done quite a bit of work on Conflicts of Interest – my titles pose no such conflict.

I should add, incidentally, that being Counselor to the President – the title, I mean – is actually important externally, in this line of work. When you’re meeting with Ministers and cabinet-level officials, you carry a bit more weight if your title shows you have the ear of the President. This is a hierarchical world (and Bank) – access matters, especially for women.
arne bettleman:
Who monitors the Department of Institutional Integrity to ensure that corruption does not exist within that department?
Suzanne Folsom:
We have several checks in place. Last year, soon after I arrived here, I asked if the entire department – from Administrative staff to senior management – would consider voluntarily filing Financial Disclosures, which are reviewed by an outside accounting firm for Conflicts of Interest and other 'red flags.' More than 92% of the department voluntarily complied, which I found very reassuring. This year, President Wolfowitz is making such disclosures mandatory for all of INT, but I'm proud of the fact that we did so voluntarily last year.

Second, we have a quarterly briefing to the Audit Committee of the Board – we have a dotted-line reporting to the shareholders themselves.

Another measure we've taken in the past year or so is to require everyone in INT to sign a strict confidentiality agreement, which calls for termination from the Bank if anyone discloses unauthorized information outside the institution. We're trying to hold ourselves to a higher standard.

Finally, I have to say that we only hire the most dedicated professionals – people who have spent their entire careers in the front-lines in the fight against corruption. We have seasoned fraud investigators, white-collar crime prosecutors, criminologists, labor and ethics lawyers, and forensic accountants, all of whom have made it their life's work to take on corruption. It's a great department – I'm proud to be a part of it.
Veqar Ashraf Khan:
What sanctions are imposed on those misusing WB’s funds? Wouldn’t it be much more effective, if these sanctions were communicated to all suppliers *before* they start any work, to act as deterrents? I believe that severe sanctions together with the high expectation of getting caught would discourage potential corrupt practice, i.e. applying the concept that prevention is better than cure.
Suzanne Folsom:
When we find that a supplier has engaged in corruption in a project, we take actions to debar them – which means to make sure they can’t get any more contracts for a while. We also publicly debar – we list their names on our website. ‘Naming and shaming’ is a huge deterrent.

The Bank has sanctioned 338 firms and individuals – and let me tell you, the firms put up a fight, because they know that losing that business, combined with having your name on a list saying, “this company was corrupt,” is a very hard thing to swallow. But it’s the right thing for the Bank to do. You’re absolutely right: prevention is much better than finding out afterwards that money went into someone’s pocket.

We’re often asked why we don’t publicly name Bank staff who are terminated for fraud and corruption as well. The Bank’s rules don’t allow such disclosures….
sani mallum shallangwa:
I wish to congratulate the World Bank for the fight against Fraud and corruption. please i want to know how the bank plans to deal with corrupt staff found in its projects, because the Bank has good intentions for the poor.
Suzanne Folsom:
My department also deals with allegations involving Bank staff. If we find staff have engaged in wrongdoing through an investigation, we turn our findings over to our Vice President of Human Resources for a decision. Over the past two years, based on our investigations, the VP of HR has terminated or, in cases where the employee has left, barred from rehire 22 staff and disciplined 11 others for fraud and corruption.
My department is also responsible for investigating other types of misconduct, such as harassment or discrimination. I should note, though, that the number of serious allegations involving Bank staff amount to less than 1% of our total workforce at any given time.
Bella Irwan:
Your unit is mandated to give its reports to the Bank's senior management....but what guarantee is that in operation that won;t ensure management simply sits on the reports or buries them? What are the safeguards?
Suzanne Folsom:
Well, there were rumors that, in the past, INT's reports weren't taken as seriously as they should have been. I can tell you that President Wolfowitz has made it a priority.

It's still a struggle, though, to be honest. There are still a small number who don't value the work of this department. But I think we’re making progress.
arne bettleman:
The World Bank President has been talking a lot about corruption....and its impact on the developing world. What's the bank estimate of how much money is being diverted from the poor each year because of corruption? And what about within your own institution??
Suzanne Folsom:
The World Bank estimates that around $1 trillion a year is paid in bribes. At one point, Transparency International estimated that at least $400 billion a year was lost to bribery and corruption, in public procurement alone. But, as far as Bank projects and how susceptible they have been, we don't have a figure – largely because INT only responds to allegations we receive, which is only a sub-set of the overall picture of corruption. We don’t go hunting around the world for corruption – we get enough work through allegations from staff alone.
arne bettleman:
In what region of the world are corrupt practices more common...and what form does that corrupt activity take?
Suzanne Folsom:
Corruption is largely the same all over the world, I’m sorry to say. As INT's annual report noted this year, we see collusion, kickbacks and bribes, procurement fraud, project asset misuse, and misrepresentation of qualifications in bid submissions.

There's a great quote from Adam Smith in "The Wealth of Nations" that my department is fond of citing: "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."
arne bettleman:
In your latest media release, you state "When appropriate, the Department also refers its investigative findings to the authorities of relevant member countries for further action" - how many cases have been referred to countries for action and what has been the response?
Suzanne Folsom:
Any time we believe criminal wrongdoing has taken place, we make a referral to the relevant government. I don't have an exact figure as to the number of referrals we’ve made, but I can tell you that the response varies. Some governments take strong action, some no action at all. But I want to be clear: the lack of political will is not a developing country problem alone. There are plenty of rich countries we've made referrals to where there's been zero action.

As far as results, we've seen 26 criminal convictions around the world as a result of INT referrals. That may not sound like a lot, but it's a young department, and we're seeing some encouraging trends emerging.
Bella Irwan:
The World Bank has declared Lahmeyer International GmbH (Lahmeyer), a German company, ineligible to be awarded Bank-financed contracts for a period of seven years, because of corrupt activities....but in its statement said that period could be reduced to 4 years....where is the incentive then for firms to not act in a corrupt fashion , if the penalty is so seemingly light.....four years after all for an international firm is not much.
Suzanne Folsom:
The Bank's Sanctions Committee recommended that Lahmeyer's sanction can only be reduced if they take some very serious steps to come into compliance and disclose past wrongdoings. But I think you underestimate the value of contracts that a firm can be awarded in four years – for a major firm, it's in the tens of millions of dollars. And the reputational risk of being blacklisted is rather high, too – particularly in the post-Enron, post-OECD anti-bribery convention. Companies up for Sanctions Hearings at the Bank pay top dollar for K Street or New York white-collar law firms – it means a lot to them.
srinu:
hi my question is
" many countrys taking loan from world bank. But this loans was not spending properley?, that projects was taking very long time, with in the time the governments of that consern states was changing very fastley, but projects was not compleating in time why?
Suzanne Folsom:
Well, project implementation is not my area, but I know that the average time period for project implementation and completion is between 5 and 7 years. That’s just an average, but that’s how long it generally takes.
Augustin Chabossou:
Quels doivent être les responsabilités de la société civile dans la lutte contre la corruption?
Suzanne Folsom:
Civil society plays a vital role in the fight against corruption. Be it global NGOs such as Transparency International or local CSOs working to hold their governments accountable, their contribution is critical. There are limits to what the Bank can do in terms of direct assistance to Civil Society, but the Governance strategy I mentioned earlier addresses the issue, and I recommend you checking it out if you’re interested in further reading.
S L Narasimhan:
In India corruption has been accepted as an integrated component of the process in awarding contracts. World Bank has not at all been effective in arresting this trend.People who report against corruption suffer humiliation later. What measures you think would be effective in combating corruption in a place like India where it is rampant and ever growing?
Suzanne Folsom:
I can’t speak about specific countries, but I know the Bank has taken steps to ensure that it mitigates risks to projects in areas where we are aware of vulnerabilities from corruption. I could make other comments about the role that people can make in encouraging change in democracies, but we're forbidden from political discussions here – it's outside our mandate.
Hassan Abbas:
How can you assess the impact corruption has/had to the economy in political trust in Tanzania, taking into account such scandals in power sector like the IPTL and Richmond Projects and the recent radar purchase saga?

And do you ascribe to the contention that, politicians in Tanzania, from the second face government to present, have failed to tuckle corruption?
Suzanne Folsom:
Again, I’m sorry I can’t speak to individual countries. But I can say that political will to deal with corruption varies from country to country, and some rich countries don’t have the best track record on this front either.
Teresinha N Napoli:
What I really do not understand why World Bank keep giving money to people & politicians involved in corruption in Brazil?
Several NGOs were create by politians just to get the money that goes to Brasil, Civil Society don't have any participation at all! Everything is stage!!
Suzanne Folsom:
The way the Bank is structured is that we lend to governments. Brazil is a fast-growing economy, but it still has a big problem with poverty, especially in rural areas. So we think it's important to stay engaged there. And I believe there are some CSOs that have been effective in Brazil. But as to specifics, as I said……
Mulumebet Spence:
What has been done to the corruption that is occuring within the Ethiopian government where people's homes have been destroyed to build freeways and people have been displaced and grossly undercompenstated for thier property?
This is still occuring in Addis as we speak and I know that the World Bank is aware of the of this fact. What do propose to do about this? I also need the Ehtiopian Adminstrator from the World Bank so I can present my evidence in detail. Thank you
Suzanne Folsom:
If you have specific allegations involving Bank projects, please go to www.worldbank.org/integrity. You’ll see that you can report your allegations anonymously, if you like, or call our 24/7 hotline.
kaka:
what are the positive and negative effects of mining in the philippines?
Suzanne Folsom:
I’m sorry, but I’m not a mining expert. I would check the Philippines section on the Bank’s website and see if we have any research on the topic – the Bank has written a report about virtually every topic in the developing world
Satish:
Sir,
We are suppliers of Medical Products from India and have been supplying these products for World Bank Projects through Tenders awarded to different Organisations. One of such Organisations, has committed some Fraud with us and we would like to have your views on how to bring it to your notice and what help we can get from World Bank on this.
Thanks
Satish
Suzanne Folsom:
As I mentioned above, allegations involving Bank projects can be made by going to www.worldbank.org/integrity.
Dr. Ashish Manohar Urkude:
I have come to the conclusion that if corruption prevails for a century, it will corrupt air, water, human minds and hence slowly human beings will die natural death. The reason to think so are many. One of the live reason is, industrial houses pass their corrupt practises with fraud and corrupt practises. Thus, polluted water from industries will pollute sea. Unwanted polluted gases will pollute air as well. Minds will not believe some one is non corrupt. Another important point is, why moral practises, ethics die down as we grow old? Do you agree with me, if corruption prevails, humanity will be in danger?
Suzanne Folsom:
The Bank has identified corruption as perhaps the single biggest impediment to growth and poverty reduction -- it's a major issue. Poor governance and corruption are among the most challenging problems today for many of the Bank’s borrowers. And corruption hurts the poor people the hardest, since they rely most on public services and are least able to pay extra costs of bribery and fraud. So, yes, we think that attacking the problem head-on is critical in our overarching mission of fighting poverty in developing countries. Absolutely.
Ismail Radwan:
Is the World Bank responsible for corruption that occurs in developing countries regardless of whether or not the Bank is involved in funding. For instance if a corrupt transaction such as a privatization occurs in a developing country would it be fair to blame the Bank? Do staff have a moral or professional obligation to get involved in such cases to curb corruption?
Suzanne Folsom:
No, the Bank is not a global anti-corruption police. But we do work with countries that have identified fighting corruption as a priority, and we try to help them address the problem. I don't think the Bank can be blamed for corruption, though – it's been around a lot longer than we have.
ellsie pringle:
Hasn't it taken the Bank a long time to learn that schemes devised by corrupt actors are broadly similiar? Why has the Bank not had "common interventions" in place already? It would seem too slow to come to realize this?
Suzanne Folsom:
Well I think it's important to remember that, for the first 50 years the institution was in operation, we didn't deal with corruption – it's only in the past decade that we've been able to speak about it at all, and my department has only been investigating and issuing debarment notices since 1999. So I think we've come a long way. That said, we still have a long way to go.
Keith Burwell:
You (the bank) regularly publishes a blacklist of companies and individual contractors / consultants that have been proved to be involved in shady practices but do nothing about naming and shaming the other party (normally a government official) to the deal. Corruption takes two parties - the one who asks for the payment and the other who gives it. How can the bank justify only admonishing one and not the other? Until the bank actually starts publishing names of government officials who ask for and take the illegal payments then I cannot believe the bank is serious about tackling the problem and all the rhetoric to date is mere window dressing.
Suzanne Folsom:
We are not in the business of naming public officials – I think it's important to remember that the Bank is not a monolithic institution; we're owned by these governments. At the same time, I can tell you that, if we have an investigation where ministry officials are named as being parties to corruption, we put that information into our referral to the government so that they can do a criminal investigation and perhaps prosecute. We only have administrative powers, remember.
melvin:
your article mentions a number of different types of corruption....which type of corrupt activity is more prevalent - kickbacks; fraud;lbribes?
Suzanne Folsom:
As I think I mentioned earlier, these schemes are all quite common across the world. This is especially true in public procurement, where the money hits the ground.
Bill Hurlbut:
The World Bank has neither the resources nor the mandate to police the entire globe. How does INT go about making the choices necessary to keep the task manageable?
Suzanne Folsom:
Well, as I mentioned, we don't go around looking for corruption, and we're not the police. Most of our work entails responding to allegations we receive. That gives us more than enough work. We’re a small department – we have less than 60 people, and our budget is only around $14 million. So we have to prioritize quite a bit.
Bill Hurlbut:
As you noted in an earlier response, you hire professionals with long experience in investigating fraud and corruption. How do you find people with the relevant skills as well as the cultural knowledge necessary to work in developing countries? What are the challenges involved in building such a staff?
Suzanne Folsom:
It is quite challenging. We do a lot of international recruitment – we have some underway right now. We're lucky enough to attract 'the best and the brightest.' We have here investigators who used to be at other MDBs, at the United Nations, in prosecutorial units across Europe, as well as from Asia and Latin America. There are also a few Americans like me, too.

It's particularly hard to recruit people from developing countries, because the people fighting corruption in their own countries are usually very dedicated to that fight and don’t want to leave. I respect that position, but it makes it more difficult for us to attract their talent. We're trying, though.

I believe we're over time. Thanks for all the questions – sorry I couldn't answer them all.

Thank you all for taking part in the discussion. For more information on the Department of Institutional Integrity and its work, please visit: www.worldbank.org/integrity