Catalog

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p. 8 of 10 BACK | NEXT I. Introduction II. ADB'S Response III. Definitions of Corruption IV. The Costs of Corruption V. ADB's Position on Anticorruption Issues Objective no. 1: Supporting Competitive Markets, and Efficient, Effective, Accountable, and Transparent Public Administration Objective no. 2: Supporting Promising Anticorruption Efforts on a Case-by-Case Basis and Improving the Quality of Dialogue on Governance Issues Objective no. 3: Ensuring Bank Projects and Staff Adhere to the Highest Ethical Standards VI. Conclusions and Recommendations VII. Appendixes

Anticorruption : V. ADB's Position on Anticorruption Issues

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Objective no. 3: Ensuring Bank Projects and Staff Adhere to the Highest Ethical Standards

53. If ADB efforts to reduce illicit behavior between its DMCs and suppliers and contractors are to be credible, it is essential that ADB staff be beyond reproach, and the ADB’s internal regulations and procedures support the highest ethical standards. Toward this end, the third pillar of the ADB's anticorruption policy calls for more robust internal measures to enhance the integrity of ADB operations. These measures will take place along five dimensions: (i) maintaining the integrity of ADB lending and TA operations; (ii) strengthening the ADB’s procurement policy; (iii) updating the ADB’s Code of Conduct and creating independent internal reporting mechanisms to address allegations of corruption among ADB staff or within ADB operations; (iv) improving the quality of oversight and management of ADB loans and TA grants; and (v) ensuring that all ADB staff are familiar with the anticorruption policy and act in a manner consistent with both the letter and the spirit of this policy.

1. Maintaining the integrity of ADB lending and TA operations

54. If there is credible evidence of corruption in an ADB-financed loan or TA grant, ADB will address the issue in consultation with the relevant country during project review or country portfolio review missions. Breaches of specific loan regulations or covenants could result in a decision by Management to blacklist the firm involved, suspend disbursements, or cancel the loan.

55. In keeping with the evolving practice of IMF and the World Bank, Management and staff will consider issues of corruption more explicitly in the formulation of the country strategy and program. Cases may occur in which corruption has reached such proportions that it poses a significant impediment to the probity of ADB operations or the attainment of a country’s fundamental development objectives. Under such circumstances, Management could elect to lower or suspend ADB lending and TA operations to that country after consultation with the country and the Board.

56. Conversely, situations may also exist where a given country has made significant progress in improving the efficiency, effectiveness, and integrity of its public and private sectors. Under such circumstances, Management may elect to accelerate the lending program or provide additional TA resources to ensure sustainability of the reforms.

57. In light of the complex and highly differentiated nature of corruption, it is important that ADB Management and staff be granted some degree of flexibility in dealing with individual cases within the parameters laid out in this policy. While acknowledging the need for fairness and consistency in its operations, and strongly affirming the importance of a “zero tolerance” policy when credible evidence of corruption exists among ADB staff or projects, ADB notes that different types of corruption will require different responses. There is a need for careful judgment based on accurate information and the specifics of the situation. ADB’s anticorruption effort will place particular emphasis upon the implementation of practical and cost-effective prevention control measures, in a fashion consistent with the Charter principle of “economy and efficiency.”

2. Procurement reform

58. An Anticorruption Task Force chaired by the Central Operations Services Office (COSO) was recently convened to examine ADB procurement policy. The Task Force considered various anticorruption measures adopted by the World Bank in July 1996, in which it is required that borrowers, bidders, suppliers, and contractors “observe the highest standard of ethics” during the procurement and execution of contracts.²⁵ In implementing this approach, the World Bank will

1. reject a proposal for an award if it determines that the bidder recommended for the award has engaged in corrupt or fraudulent practices in competing for the contract in question;
2. cancel the portion of the loan allocated to a contract for goods or works if it at any time determines that corrupt or fraudulent practices were engaged in by representatives of the borrower or a beneficiary of the loan during the procurement or the execution of that contract, without the borrower having taken timely and appropriate action satisfactory to the World Bank to remedy the situation;
3. declare a firm ineligible, either indefinitely or for a stated period, to be awarded a World Bank-financed contract if it at any time determines that the firm has engaged in corrupt or fraudulent practices in competing for, or in executing, a World Bank-financed contract; and
4. have the right to require that in contracts financed by a World Bank loan a provision be included requiring suppliers and contractors to permit the World Bank to inspect their accounts and records relating to the performance of the contract and to have them audited by auditors appointed by the World Bank.

59. Similar provisions were introduced in the World Bank’s Guidelines for Selection and Employment of Consultants. On 2 September 1997, the World Bank’s Board agreed to an amendment to procurement guidelines to accommodate a “no bribery pledge” in the bid form, which can be inserted into World Bank-financed projects at the request of the borrower and will obligate firms to observe local laws with respect to the bribing of government officials.

60. The Task Force considered these and other measures, which were discussed with Management. In line with the recommendation of the Group of Seven industrial nations, and having taken into account the advantages of harmonizing practice among the MDBs with regard to procurement and the engagement of consultants, ADB will introduce anticorruption provisions effectively identical to those adopted by the World Bank for the rejection of proposals, loan cancellation, declaration of ineligibility, and inspection rights, as set forth in the previous page. ADB will also introduce an optional “no bribery pledge” in the bid form that will be similar to that of the World Bank. Following the adoption of the anticorruption policy paper by the Board, changes to this effect will be incorporated in the ADB’s Guidelines for Procurement and the Guidelines on the Use of Consultants by the Asian Development Bank and its Borrowers and submitted to the Board for approval. The text for these changes is provided in Appendix 2. The guidelines will further be supplemented by provisions in the ADB’s Loan Regulations allowing ADB to cancel loans where there is evidence of corruption or fraud in connection with the award of a contract being financed by ADB.²⁶ The text of these changes is provided in Appendix 3.

61. In addition to introducing these new measures, existing ADB guidelines will be applied more rigorously and systematically to ensure greater fairness and transparency in the procurement process. Particular attention will be devoted to eliminating delays and requests for extensions in the prequalification, bid evaluation, contract award, advance payment, project start-up, and progress payment phases. Greater effort will also be devoted to scrutinizing the number and scope of change orders, including the introduction of random audits, with the aim of ensuring the appropriateness of such requests. When the contract is to be financed wholly or partly by ADB, the contract documents shall include an undertaking by the contractor that no fees, gratuities, rebates, gifts, commissions or other payments, other than those shown in the bid, will be given or received in connection with the procurement process or in the contract execution.

62. With regard to the ADB’s private sector operations, procurement issues are most relevant in the financing of infrastructure projects. In a fashion consistent with the Working Paper, Review of Private Sector Operations, sponsors for infrastructure projects must have been selected by the host government in a transparent manner, preferably through competitive bidding. If it is a negotiated project, the engineering, procurement, and construction contract for the project must be competitively bid.

3. Updating code of conduct and creating independent internal reporting mechanisms

63. OGC, in consultation with the Budget, Personnel and Management Systems Department (BPMSD), drafted amendments of Section 4 of Administrative Order No. 2.02 to extend its scope to cover matters concerning business affiliations and private activities, financial interests, investments and trading activities, and the disclosure of financial and business interests. The purpose of these amendments was to prevent the occurrence of a conflict, or the appearance of such a conflict, among staff members between their personal interests and their duties and responsibilities as staff members. On 28 May 1998, Management endorsed these changes, and Section 4 has now become a comprehensive Code of Conduct applicable to all staff members of ADB.

64. Additional measures are necessary to ensure that the ADB's internal policies and procedures for addressing issues of corrupt or illicit behavior are consistent with those of the other MDBs and evolving best practice. Currently, there are no publicized independent channels whereby incidents of corruption can be reported for investigation. Under this policy, OGA will serve as the initial point of contact for allegations of fraud and corruption in ADB projects or among staff. In consultation with the Strategy and Policy Department (SPD), OGC, BPMSD, COSO, and other relevant departments, OGA will consider appropriate measures to be adopted under this policy to ensure that all ADB staff and projects adhere to the highest standards of ethical conduct.

65. In the event that ADB staff or external parties are not satisfied by OGA’s preliminary finding on a particular case, they can bring it to the attention of Management, who can determine if the case should be resubmitted to OGA for further review, sent to an independent investigator or audit firm for examination, or dismissed if no further action is warranted. A subset of potential cases could also qualify for consideration by the Inspection Committee, provided that they met the criteria for inspection outlined in Establishment of an Inspection Function and the Inspection Procedures approved by the Inspection Committee on 9 October 1996.²⁷

4. Improving the quality of oversight

66. ADB will undertake a number of measures to enhance the quality of project monitoring and audit. These measures will improve the overall quality and effectiveness of ADB-financed projects, thereby ensuring the integrity of ADB operations and making corrupt or illicit behavior more difficult to perpetrate and more readily detected should it occur.

67. The capacity of OGA will be strengthened to enable it to address anticorruption issues effectively. Specialized training in forensic accounting and other investigative techniques will be provided, and be extended to select financial analysts and project implementation officers. Additional staff with specific skills in these areas will be recruited. Ongoing OGA efforts to streamline internal work procedures to free up greater resources for audits of high-risk and high-impact areas will continue. OGA will devote more time to conducting audits of project procurement-related activities, which will help prevent and detect corruption or other forms of fraud. In collaboration with supreme audit institutions in the ADB’s DMCs, OGA will also begin a series of random audits of ADB projects to monitor financial compliance and physical progress. OGA will strengthen its exchange of information with supreme audit institutions in ADB DMCs, and—working in collaboration with other ADB departments—it will play an active role in assessing the need to upgrade the audit capability of such institutions. OGA will also consider ways in which project audit reports can be made more accessible and user-friendly to operations staff. The effectiveness of these measures will be evaluated after the first year and additional steps will be considered as needed.

68. In the context of the recommendations of the Task Force on Improving Project Quality, more resources are already being made available to improve the frequency, duration, and quality of project administration missions.²⁸ Care will be taken to broaden the technical expertise of these missions and to ensure that staff with relevant qualifications participate, particularly in the financial, managerial, and policy areas. Although it may not be possible to upgrade the quality of supervision for all projects across the board, additional resources will be directed toward upgrading the supervision of projects that are particularly at risk and to initiating a program of random audits to monitor project implementation.²⁹

69. The relevant sections in the Project Administration Instructions and the Loan Disbursement Handbook will be revised to require that qualified accountants(s) be recruited by the executing or implementing agency and that robust internal control systems and accounting systems be in place for a project before loan disbursement can be made. Consideration will be given to designing and utilizing appropriate efficiency indicators to monitor financial and physical progress on a quarterly basis, and any variances between targeted efficiency performance and actual performance must be justified. The quality of the ADB’s management information systems will be enhanced to provide managers with more timely information for monitoring project processing, loan administration, and the status of mission budget utilization.

70. When there is compelling evidence that corrupt or illicit activities have hampered the effectiveness of ADB projects or lowered their rate of return, this problem should be explicitly noted in ADB documentation, including project supervisory reports, project completion reports, project evaluation reports, performance audit reports, and other relevant documents so that appropriate remedial action can be considered. Managers and staff should avoid using opaque or euphemistic language that may obscure the nature of the problem.³⁰

5. Advancing staff awareness

71. These measures will be ineffective if ADB staff are unfamiliar with the provisions of ADB’s anticorruption policy and Code of Conduct or fail to exercise due diligence in the performance of their duties. While it is not the intention of this policy to turn ADB staff into “police officers,” or to make the objective of reducing corruption paramount over other development goals, all departments and staff have a compelling obligation to ensure the integrity of ADB operations within their respective areas of responsibility. ADB staff will be required to familiarize themselves with the content of this policy and staff guidelines, and be prepared to respond appropriately as required.

72. The integrity of ADB staff is one of the institution’s greatest assets, and staff violations of the ADB’s Code of Conduct or other relevant guidelines will be dealt with severely. Any allegation of corrupt or illicit behavior by ADB staff should be turned over to OGA, who—in conjunction with the relevant ADB departments—will determine the credibility of the accusations and the need for further investigation. Credible claims will be investigated promptly, thoroughly, and confidentially by OGA and BPMSD, who can draw upon additional expertise within or outside of ADB as needed. In accordance with the disciplinary procedures outlined in Administrative Order No. 2.04, staff found guilty of such behavior will be subject to a number of sanctions, including reassignment, demotion, suspension without pay, restitution and/or forfeiture of pay, termination, and summary dismissal.³¹ These sanctions will apply equally to situations in which staff improperly and unlawfully enrich themselves and/or those close to them, and circumstances in which they induce others to do so.

73. To advance staff awareness, SPD, OGC, OGA, and BPMSD will collaborate in producing a series of internal training workshops and seminars to inform staff about ADB’s policy and to address the issues and options involved in assisting the efforts of DMC governments, suppliers, and contractors to combat corruption.

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