World Bank Blacklists Chinese, Filipino Firms for Graft

In its investigation, the World Bank found that the companies, one of them a firm owned by the Chinese government and is in the Fortune 500 list, engaged in corruption while involved in the construction of a road network in the Philippines.

WASHINGTON, January 14, 2008—The World Bank today announced the debarment of seven firms and one individual for engaging in collusive practices under a major Bank-financed roads project in the Philippines. Two of the debarments are permanent, the strongest possible sanction.

The debarments, which prevent the parties from bidding on future World Bank-financed contracts, either indefinitely or for the period of the sanctions listed below, result from an in-depth inquiry conducted by the World Bank’s Integrity Vice Presidency (INT). INT is responsible for investigating allegations of fraud and corruption in Bank-financed operations.

The INT investigation uncovered evidence of a major cartel involving local and international firms bidding on contracts under phase one of the Philippines National Roads Improvement and Management Program, known as NRIMP 1. INT closely analyzed the procurement process the firms participated in and conducted numerous interviews before closing the investigations and initiating sanctions proceedings against the entities.

As a result of swift action when suspicions of collusion in the bidding process were raised by the project team, the World Bank stopped an estimated $33 million from being awarded. No World Bank funds from the NRIMP 1 project were disbursed to the now-sanctioned firms.

Leonard McCarthy, World Bank Integrity Vice President, said, “This is one of our most important and far-reaching cases, and it highlights the effectiveness of the World Bank’s investigative and sanctions process. As the World Bank Group continues to ramp up its anti-corruption work, INT will remain vigilant in investigating allegations and holding wrongdoers accountable.”

Mr. McCarthy added that INT was in the process of conducting a worldwide review of the Bank’s activity in the roads sector.

Based on INT’s investigation of the NRIMP 1 case, the World Bank’s Sanctions Board, made up of senior Bank officials and external legal experts, decided that the entities had participated in a collusive scheme designed to establish bid prices at artificial, non-competitive levels and to deprive the Borrower of the benefits of free and open competition. This constitutes fraudulent practices under the applicable procurement rules applying to NRIMP 1.

The firms and lengths of debarments follow:

Ø E. C. de Luna Construction Corp. and Eduardo C. de Luna, owner and sole proprietor of the firm, were both debarred indefinitely – the first permanent debarments since 2004.
Ø China Road and Bridge Corp. was debarred for eight years. The debarment can be reduced or terminated after five years if the firm puts in place a compliance program satisfactory to the World Bank.
Ø China State Construction Corp. and China Wu Yi Co. Ltd. were each debarred for six years. In the case of each firm, the debarment can be reduced or terminated after four years if that firm puts in place a compliance program satisfactory to the World Bank.
Ø China Geo-Engineering Corp. was debarred for five years. The debarment can be reduced or terminated after three years if the firm puts in place a compliance program satisfactory to the World Bank.
Ø Cavite Ideal International Construction and Development Corp. and CM Pancho Construction, Inc. were each debarred for four years. In the case of each firm, the debarment can be reduced or terminated after two years if that firm puts in place a compliance program satisfactory to the World Bank.

Another firm, Dongsung Construction Co. Ltd. (Dongsung) was separately debarred in August 2008 for four years for fraudulent and corrupt practices in relation to the NRIMP 1 case, with the debarment subject to reduction or termination after two years if the firm puts in place a compliance program satisfactory to the World Bank. Dongsung did not contest the accusations brought against it in the Notice initiating the Bank’s administrative sanctions proceedings, and the Sanctions Board, as required by the applicable Sanctions Procedures in any uncontested proceeding, imposed the sanction recommended by the Bank’s Evaluation and Suspension Officer (EO) in the Notice without review of the case.

The sanctioned entities will have their names listed on the World Bank’s website for the full extent of the sanctioned period and will be ineligible to bid on World Bank Group contracts during this period.

James Adams, World Bank Vice President for East Asia, said, “Misuse of public money is a problem for everyone. It deprives the poorest people of the development funds that are so vitally needed and it undermines public confidence in public and private institutions. This case shows our processes working as they should: we detected the possibility of collusion early, we took action to investigate, we worked with the Government of the Philippines to strengthen anti-corruption controls in the next phase of the project and after an extensive and fair process, we have sanctioned the parties involved.”

NRIMP was designed to assist the Philippines Government to upgrade its roads network and was partially financed by a $150 million loan from the World Bank. It aimed not just to build roads, but also to address weaknesses in project management, so that future roads projects would deliver more benefit at lower cost. As a result of NRIMP 1, which closed in March 2007, 1,400 kilometers of roads were built or resurfaced and management of money for roads within the Department of Public Works and Highways was improved. The second phase of the program, which is now underway, has been designed with even tighter anti-corruption mechanisms, including independent procurement evaluation, stronger internal controls and oversight of road construction by a civil society group known as “Road Watch”.

The World Bank revised its sanctions procedures in 2006 to allow the Bank to deal with fraud and corruption cases more efficiently. In the first tier of the process, the Bank’s EO reviews the case brought by INT against a respondent, determines whether or not there is sufficient evidence to support the accusations and recommends an appropriate sanction. The EO may also temporarily suspend the firm from bidding during the sanctions process. If a firm chooses not to contest the accusations against it within 90 days, the Sanctions Board will then impose the recommended sanction. If a firm disputes the findings, the Sanctions Board will review the firm’s response and INT’s rejoinder and then makes a decision. If a hearing is requested, the Sanctions Board will allow INT and the firm to argue the case orally before taking a decision.

As a result of the temporary suspensions issued by the Bank’s EO against all the entities in July 2008, the companies were prevented from participating in World Bank Group-financed activities pending the outcome of the Sanctions Board proceeding.

Based on INT investigations, the World Bank has since 1999 debarred 351 firms and individuals for their involvement in fraud and corruption in Bank-financed projects.