U.S. Senator Richard C. Lugar (R-In) Holds Hearing On Combatting Multilateral Development Bank Corruption
Thu September 30, 2004 16:43 EDT .
- - I go into detail about a couple of projects which I think -- recent projects, which are particularly outrageous. One, a waste water treatment plant in Thailand. The other, a major highway construction transport project in Sri Lanka - .
We would like the committee, really, to go to the Treasury Department and ask for independent forensic corruption audits of these projects.
I would like to mention just a couple of the points in the Sri Lanka - project because it has some analogies with the Lesotho that was discussed in detail in the last hearing.
This was a $90 million loan for road construction in southern Sri Lanka - . Here, just as in Lesotho, you had a case of an allegedly corrupt contractor that hires and agent to do the corrupting. The agent, I guess appropriately enough, was called, quote, Access International, end quote; reputedly had high contacts in the Sri Lankan prime minister's office. And it purportedly bribed the project authority to try to win the bid for this project.
The company in question is a Japanese company, Kumagi Gi (ph). In the pre-bidding, the pre-qualification, the company didn't qualify. Among the other things, they had a net negative financial risk and could have been threatened with bankruptcy.
Following, three other companies did qualify. The Asian Development Bank then sent a letter, allegedly, to the Sri Lankan treasury, asking them by way of exception to consider -- nevertheless concerning this company. The company then was allowed to submit a second bid, after all the other companies had made their bids, since they knew what the bids were, and it's bid was slightly under what was required. It won the contract.
The road was built in a totally different -- in a somewhat different place with cost overruns of nearly 100 percent and displacement of hundreds of households, thousands of people, environmental impacts, wetland being affected, five temples being partly damaged, so on and so forth.
In the Sri Lankan newspapers, the attorney general, on the front pages of Sri Lanka - , was quoted, he was asked, Well, why did you allow this company, after it hadn't pre-qualified, to bid? And it violated Sri Lankan procurement rules, ADB procurement rules and so on. He's quoted as saying, Well, we wouldn't have even thought of it, except the ADB sent us this request saying we should, and it's an ADB project.
Well, what is particularly indicative of the state of the anti- corruption investigations in Sri Lanka - , for the ADB, is that last year, 2003, the anti-corruption unit sent its first proactive mission to investigate corruption in procurement in ADB projects in Sri Lanka - . And they looked at a few, and they chose another project in which they found no corruption. Though, I was told they did notice weak financial controls where, if someone had been corrupt, they could have stolen money. But they found nothing.
But they didn't look at the most notorious project in the country, ADB project, which is all over the front pages of the newspapers. And I have two articles from those Sri Lankan newspapers that I'd like to submit for the record.
In our statement, we look at two studies that were conducted recently -- one just a few months ago, by the Bank Information Center -- looking expressly at how the ADB is implementing its anti- corruption policy. It came out with an anti-corruption policy in 1998. In 2000, it issued operational procedures for anti-corruption.
And basically these procedures require that you assess, which is a logical first step, assess the risk of corruption in its country lending strategies and specific project appraisal reports and in post- project evaluations.
While this study that the Bank Information Center called, quote, Zero Tolerance? -- because the zero tolerance is a quotation from the ABD's anti-corruption policy -- looked at a whole variety of studies, dozens and dozens and dozens and dozens, and there's a remarkably consistent record of nonimplementation.
The issue of corruption hardly appears in a whole number of country-strategies, project appraisal reports and post-project evaluations conducted in the past four years, when the ADB anti- corruption policy was in effect.
Similarly, environmental defense looked at 49 different project evaluation reports of the ADB in recent years, and a number of them really did identify irregularities that would be a proxy for corruption -- huge cost overruns, substandard road contracting irregularities, et cetera, et cetera. But the word corruption never appears. There's no investigation of corruption.
Well, to conclude, what's the ADB doing to fight corruption, and what should be done more? Well, we mentioned that the donor's agreement and this new human resources strategy, which is supposed to be a lynchpin of changing the institutional culture, doesn't hardly mention the word corruption. There is nothing very specific in the human resources strategy, which apparently was discussed in the ADB board yesterday, about how they are going to address corruption.
So we think that before the committee authorizes $460 million for the Asian Development Fund, a lot more questions need to be answered. And perhaps directives need to be attached to the legislation that would accompany that authorization.
Certainly the human resources strategy -- there needs to be much more specificity of how they are going to create incentives and deal with, mechanically, with the issues of auditing corruption. Naturally, they need, simply, to apply their existing policies. And for that you need more resources, more staff, et cetera.
There's a new public information policy that's being elaborated right now. A lot more can be done there to make all kinds of information public, which is to affected people in the recipient countries and, frankly, to the parliaments and the U.S. Congress. They have to authorize all this money.
To start with, the ADB should publish much more detail on its own internal budget and how its allocating our resources to focus more on monitoring in administration of loans, rather than promoting loan approval.
You had mentioned and the Undersecretary Taylor mentioned the issue of debarment proceedings in the anti-corruption units of the MDBs. The ADB does not make public its debarment of companies or individuals for corruption. They should do this.
And this whole issue of cross-debarment, of harmonization on anti-corruption actions, needs to be -- is a great recommendation, and the U.S. should really promote that very vigorously.
The ADB has an anti-corruption unit, which they are trying -- I just spent an hour and a half talking to the auditor-general on the phone in Manila. And he's a candid man, fighting an uphill battle.
But they need more resources and staff. There's only five people in the ADB anti-corruption unit. There's 55 in the World Bank's Department of Institutional Integrity, and I think Richard Thornberg has even, in his report, said that they should have as much resources as they need in the World Bank. So the ADB level of staffing and their own anti-corruption unit, to be proportional to the World Bank, would be at the level of around 14.
Published: Thu Sep 30 19:45:20 EDT 2004