MDBs & IFIs: The Unspoken Giants in the Global Fight Against Corruption

• Multilateral Development Banks (MDBs) and International Financial Institutions (IFIs) have provided unprecedented levels of financing during the COVID-19 pandemic in order to support critical development projects. 
• Given the nature of MDB and IFI financing – a blend of development assistance and international finance – these organisations are alive to the risk of corruption in projects which they finance and take resolute steps to guard against this. Currently, there are an estimated 500 investigations globally into alleged fraud and corruption by companies and individuals backed by MDB financing.
• The role of investigations and anti-corruption units of MDBs and IFIs investigating fraud and corruption has never been more important, as these organisations have collectively committed more than USD $300 billion in lending since the start of the pandemic.

MDBs and IFIs are some of the world's largest financial institutions. They provide financial assistance to developing countries and projects to promote economic and social development and combat the ravages of war, political upheaval, disease and climate emergency. These intergovernmental organisations offer critical countercyclical finance and extend lines of credit to a range of essential infrastructure, life sciences, agriculture and transportation projects. The economic crisis of the COVID-19 pandemic has resulted in dire poverty in at-risk regions, and associated danger to lives and livelihoods. 

MDBs and IFIs combined committed in excess of $300 billion in financing to key projects over the last 18 months. Their role in the global COVID-19 pandemic is a powerful reminder of how important these institutions are when it comes to dealing with global challenges. 

But with unprecedented levels of essential funding and loans to support critical recovery projects in record speed, the potential harm for bad actors to take advantage of the systems and controls in place in these institutions has never been greater. 

Given the nature of MDB and IFI financing – a blend of development assistance and international finance – these organisations are alive to the risk of corruption in projects which they finance and take resolute steps to guard against this. 

Most MDBs and IFIs play a prominent role in global anti-corruption efforts, whether through governance reform programs with borrowing member countries or anti-corruption investigations linked to their financing as corruption risks become ever more transactional and digital in nature.

These Unspoken Giants are mounting a fightback by considerably bolstering and developing their own specialised investigative teams in furtherance of their fiduciary duty to protect their resources and thus safeguard their investments from corruption. Safeguarding critical development funding in this way has become of "utmost importance" to these global and regional institutions. 

MDBs' and IFIs' investigative teams have extensive powers to conduct investigations into any individual or entity in receipt of funds (including subcontractors) and can impose a range of sanctions for prohibited practices such as fraud, corruption, collusion, coercion and obstruction. Currently, there are an estimated 500 investigations globally into alleged fraud and corruption by companies and individuals backed by MDB financing. 

International law firm RPC's award-winning regulatory team conducted a series of must-listen Podcasts with senior executives at nine* MDBs/IFIs to explore how their internal investigations are conducted, how companies and their compliance officers should react when facing investigation and how to navigate the complex and individualised sanctions and debarment regimes and systems at each institution. 

The project was led by RPC Regulatory Partner Robert Waterson and Senior Associate Alice Kemp. Robert and Alice were supported by leading barristers Alex Haines and John McKendrick QC of Outer Temple Chambers. Together, they bring their extensive experience and insight into how these international organisations operate. To listen to each of the nine the Podcasts, please click here.

Commenting on risks MDB-backed projects face, RPC Partner Robert Waterson says companies can often find themselves ill-equipped to understand the complex processes for investigations at MDBs and IFIs, and understanding the mandate, purpose and the intricacies of each MDB or IFI is essential to ensuring a positive outcome. 

Waterson adds that the stakes for companies are 'extremely high' and often underestimated, noting that if the internal investigations of an MDB conclude that funds where misappropriated: "companies can face serious sanctions that threaten their survival, including restitution, cross-debarment from future lines of credit from other MDBs to national criminal investigations and massive reputational harm to the organisations as a whole as well as office holders and other individuals within." 

Adding to this, John McKendrick QC from Outer Temple Chambers said: "Cross-debarment not only means that companies found to have engaged in sanctionable and prohibited practices are debarred consistently, but they can also be debarred from bidding on most MDB-funded projects. Cross-debarment often results is blacklisting outside of the MDB framework, for example by development aid agencies such as USAID and the UK’s Foreign, Commonwealth and Development Office."

* The nine MDBs and IFIs featuring in RPC's Podcast series are the Inter-American Development Bank, World Bank, Caribbean Development Bank, Nordic Investment Bank, Global Fund, European Bank for Reconstruction & Development, European Investment Bank, New Development Bank and Asian Infrastructure Investment Bank.