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One of the largest engineering players in aid to Asia was hit with World Bank sanctions. What happens now?
Published Date: 05/10/2017 (Thursday)

By Lisa Cornish lisa_cornish

Australian-based SMEC, one of the world’s largest engineering services for aid and development projects, and four of its subsidiaries have been debarred by the World Bank for 108 months collectively for bribery and misrepresentation in its South Asia projects.

The announcement was made last Thursday, with the World Bank revealing that the five SMEC subsidiaries made inappropriate payments in relation to World Bank-financed projects in Sri Lanka and Bangladesh, as well as misrepresentations to meet bidding requirements under World Bank-financed projects in Sri Lanka and India.

In August last year, ongoing investigations against SMEC were revealed in a report from the Australian Broadcasting Corporation and Fairfax media. According to the report, the Australian Federal Police were investigating allegations of bribery of government officials in Sri Lanka and Bangladesh.

While many donors have been caught by surprise by the debarment, others — including the Department of Foreign Affairs and Trade — have been anticipating the outcome of the investigation prior to placing their own sanctions on the company, expected soon. The bank debars scores of companies each year, with 981 debarred firms currently listed, but sanctions on a group as prominent in aid programs as SMEC are rare.  

What is the extent of World Bank sanctions?

The debarment has impacted the operations of SMEC subsidiaries in Australia, Bangladesh, India, and Sri Lanka. All will received a 30-month minimum period of sanction. Australian operations will receive a 12-month period of ineligibility followed by an 18-month period of conditional non-debarment. India will receive a six-month period of ineligibility, followed by a 24-month period of conditional non-debarment. And the two SMEC subsidiaries in Bangladesh and one in Sri Lanka face a 30-month period of ineligibility.

Conditional non-debarment means SMEC is still eligible to participate in World Bank-financed projects as long as it meets the conditions of their Negotiated Resolution Agreement.

But debarment will only conclude if SMEC can demonstrate a number of requirements to the World Bank Group's Integrity Compliance Officer. They must prove that they have put in place and satisfactorily implemented an effective integrity compliance program acceptable to the bank, have fully cooperated with the bank, and have fully complied with the terms and conditions under their NRA.

“The World Bank’s disclosure policy does not allow the disclosure of investigative details so as not to compromise the integrity of the process and/or the security of witnesses,” a spokesperson for the World Bank told Devex. But the spokesperson said their processes are aimed at early detection and intervention of processes deemed corrupt. “It is important to invest in early detection of red flags and prevention efforts, particularly in high-risk projects and/or sectors where governance capacity is a challenge. This is one of the prominent features of our engagement with clients and partnerships with donors.”

Under the Agreement for Mutual Enforcement of Debarment Decisions, the debarment applies to all signatory multilateral development banks, including the African Development Bank, Asian Development Bank, and International Monetary Fund.

For donors outside the Agreement for Mutual Enforcement of Debarment Decisions, the World Bank is providing information to aid donors and other concerned governments on the nature of the findings. “The World Bank refers its investigative findings to concerned national authorities so that they can determine whether or not there is any violation of national legislations and/or the need to conduct their own independent assessment or investigation,” a spokesperson at the World Bank said.

How will existing contracts be impacted?

An analysis of aid contracts reveals an extensive range of contracts SMEC are currently contracted to deliver, including multimillion dollar contracts for the AfDB, ADB, DFAT, and World Bank.

“When a company is debarred, it basically cannot engage in any new World Bank-financed project,” a spokesperson for the World Bank said. “This would apply to all debarred companies.”

Despite debarment, however, a company under contract is committed to complete the terms of its contract with development banks under the Agreement for Mutual Enforcement of Debarment Decisions. But for the World Bank, carrying out contract obligation is met with additional oversight from the Integrity Compliance Office, part of the Integrity Vice Presidency, who will work with SMEC to ensure that it fulfils the integrity compliance obligations under the settlement agreement.

Similarly, a spokesperson for the Office of Anticorruption and Integrity at the ADB explained that contracts awarded before the debarment would not be affected. “However, we will continue to carefully monitor and assess implementation of ongoing contracts involving debarred parties. Also, contract variation for contracts awarded to debarred parties prior to their debarment must be endorsed by OAI to ensure that a contract variation involving a sanctioned party is not an attempt to circumvent the sanction.”

Outside of the multilateral development banks, existing contracts are not so secure.

SMEC is an important player in engineering programs throughout the world, delivering services across the world. Among the organizations to recently award contracts to SMEC was the Millennium Challenge Corporation, who in March awarded a $671,000 contract to SMEC for consultancy services for the assessment and business planning activities of the Electricity Generation and Transmission Company in Sierra Leone

The response from MCC was swift, including a halt of all payments to SMEC.

“MCC takes allegations of and proven examples of fraud or corruption extremely seriously,” a spokesperson for MCC explained to Devex. “MCC is reviewing the situation with its partners at the Millennium Challenge Coordinating Unit in Sierra Leone, in accordance with internal MCC processes. MCC has informed MCCU that payments to the firm under the current contract are to be temporarily suspended while MCC reviews the situation. MCC is also informing all Millennium Challenge Accounts and their respective procurement agents of the debarment, and that no new contracts are to be signed with the firm.”

SMEC will be debarred from MCC-funded procurements for the duration of its debarment by the World Bank, but MCC is contacting SMEC directly to obtain their explanation of the situation. In collating the information gathered, MCC explained they will decide whether the current contracts should continue. “If MCC or its partner organizations believe there may have been fraud or corruption under the current contracts, MCC will inform USAID's Office of the Inspector General's Office of Investigation for possible investigation.”

In Australia, SMEC has been a prominent company in delivering large-scale engineering services for domestic and international projects — including a controversial feasibility study to pumped hydro-storage capability to deal with ongoing Australian domestic energy issues.

For Australia’s aid program, SMEC has been an important partner on 43 projects and panels since 2008, according to AusTender data, including three ongoing projects.

“The department is currently assessing the impact of debarment on its existing agreements and current and future tenders,” a spokesperson for DFAT explained to Devex. But they are less concerned about corruption within their own programs, which involve three ongoing contracts having a value in excess of 300 million Australian dollars (approximately $248 million). “The department understands that the issues that led to SMEC's debarment do not involve DFAT funds.”

But internal contacts suggested to Devex that sanctions were likely.

The response from SMEC

In response to the sanctions, SMEC have explained to Devex that they are working in cooperation with the World Bank under the terms of the NRA.

“This NRA brings to conclusion the World Bank’s inquiry into alleged misconduct in those countries dating approximately from the period 2007 to 2009, to which the company has extended its fullest cooperation,” Angus Macpherson, director of operations for SMEC, said. “The company will fulfill all existing World Bank contracts in these markets.”

But Macpherson explained that there are SMEC entities not restricted by the NRA, which does not restrict the activities of a number of SMEC entities who will continue to be entitled to bid and win development contracts.

And they are working to ensure donors that steps are being taken to improve oversight and prevent any chance of corruption or fraud in their business.

“SMEC International wishes to assure its clients and partners that it maintains a zero-tolerance policy against fraud and corruption and will continue to strengthen its Corporate Integrity Compliance programme,” Macpherson said.

Source: Devex

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