World Bank report: A mix of facts, rumor, innuendo

IN investigating the alleged collusion and overpricing of World Bank-funded road projects in the Philippines, the international financial institution’s powerful and dreaded anti-corruption unit, the Department of Institutional Integrity (INT), conducted interviews for almost three years in at least three countries. By the time it wound up its work, it had interviewed some 60 people.

The 230-page Part II of the Notice of Sanctions Proceedings is perhaps the first solid and extensive documentation of the myriad, if also conflicting, cases of collusion and corruption in the public works sector, according to industry players themselves.

While many interviewees offered second- or third-hand stories, many others also offered first-hand revelations that altogether paint a big, nasty picture of widespread corruption in the Philippines.

Local investigators should now access the documents to sift through the layers of rumors, innuendos, and facts — and distill the good from the bad raw information. The storyline repeats in most of the accounts: contractors, bureaucrats and politicians conspire to rig bids to draw fat commissions from contracts.

Yet by all indications, the Bank’s massive, expensive, and multi-country effort to investigate corruption in Philippine road projects may stand a lot of improvement. In fact, the way the INT conducted its investigation does not seem to measure up to the image it commands within the international political circle.

For one, most of the interviewees were contractors with rival vested interests. For another, the interviewees also offered a wild mix of information they claimed to know directly, a lot of impressions and opinions they hold, and mere rumors they said they heard regarding how public works contracts in the Philippines are supposedly riddled with corruption.

And yet the INT personnel and consultants apparently accepted all these accounts uncritically, and exerted minimal effort to corroborate the stories told by the interviewees. In part, that may be explained by the very nature of INT investigations that are mere “administrative” and not criminal nor judicial proceedings.

The “record of interviews” conducted by the INT takes up 231 pages in the World Bank’s voluminous report on the NRIMP-1 investigation.

Curiously, the “record of interview” memoranda carried a standard caveat: “this memorandum is not intended to be a verbatim transcript of the interview…rather, the interview is related in sum and substance only.”

Email trigger

The investigation into the Philippine road contracts funded by the World Bank also had an unusual trigger — a series of email from a source/s known only by a series of pseudonyms — “Kim Lhi Ko,” “jimmy,” and “jerrypanch.”

The first email from “Kim Lhi Ko” (kimlikho@yahoo.com) was received on May 5, 2004, addressed to William D.O. Paterson, lead highway engineer of the East Asia Pacific Regional Office of the World Bank.

This set off an email chain between the anonymous email senders, and Paterson and Terry Matthews of the World Bank INT.

To be sure, the anonymous email were a critical and useful twist in the INT’s investigation. In one email, the sender actually predicted the outcome of the bidding, a solid proof of actual collusion.

29 sessions, 43 months

Apart from the email exchanges, the INT conducted 29 scheduled interview sessions, starting with Paterson and EAP Regional Procurement Advisor Denis Robitaille on April 28, 2003.

The interviews brought the INT team to Manila, Japan, and South Korea, and ran through a 43-month period ending on Nov. 28, 2006.

By May 2008, the World Bank’s Evaluation and Suspension Officer, who evaluates the evidence gathered by the INT, issued the notice of sanctions to bidders suspected of collusion. That led to a process for the bidders to refute the allegations within 90 days, but not to confront the INT’s anonymous and named witnesses.

(Only 54 out of the 60 the INT said it interviewed are named in the report. According to the INT, the others had reportedly requested anonymity.)

Initially, the INT recommended sanctions against 17 companies. The evaluation and suspension officer recommended sanctions only against seven companies, four of them Chinese and the rest Filipino. These seven were barred from participating in any World Bank-funded project for at least four years for their alleged role in the collusive scheme to artificially inflate bid prices.

The Bank’s sanctions board also upheld the INT’s findings of collusion, but it also concluded that the evidence “did not establish that it was more likely than not that the Respondents had engaged in fraudulent practices separate from the collusion.”

The sanctions board concluded as well that the INT “had not presented evidence sufficient to establish that it was more likely than not that these Respondents had engaged in corrupt practices.”

View list of persons interviewed by the World Bank’s Department of Institutional Integrity.

Exposed to scrutiny

But the INT may not have missed the mark not only in coming up with concrete evidence to back up its findings. It may have also fallen short in dealing fairly with the interviewees who have now been exposed, unwittingly, to public scrutiny.

Two of those interviewed by the INT told PCIJ that they had not been fully apprised that their conversation was part of a formal investigation. They also said that they were not told as well that they could opt to secure anonymity and did not have to disclose their identities, and that whatever they say — no matter how self-incriminating it was — would be enrolled in printed form in a World Bank report.

Too, even as each of the hundreds of pages of the INT report has been stamped “STRICTLY CONFIDENTIAL,” loose, random pages have circulated out of the World Bank network and into the hands of Filipino politicians and journalists, exposing not just the debarred companies, but also all the other interviewees to public scrutiny, and even possible criminal liability.

For instance, one of the interviewees, the president of a Filipino firm, had nonchalantly declared that his company does not disclose or pay its lawful taxable income so that it could accommodate the commissions demanded by some politicians from public-works projects.

But filing suit in a court of law seems farthest from the INT’s mind. On the World Bank website, the INT has clarified that the nature of its investigation is “administrative…not intended to prove a criminal or civil offense.”

The interviewers

Those who conducted the interviews for the INT included:

1. W. Michael Kramer, a U.S. licensed attorney and consultant who “has conducted investigation and civil prosecution of serious fraud and corruption cases throughout his professional career.” He had served as a special attorney in the Criminal Division, Organized Crime and Racketeering Section, of the U.S. Department of Justice.
2. David Hawkes, senior institutional integrity officer of the World Bank INT “with expertise in anti-money laundering, investigative and forensic auditing of fraud and corruption in Bank-financed projects.”
3. Edil Dushenaliyev, a financial specialist at the World Bank
4. Tom McCarthy
5. Tim Carrodus
6. Duncan Smith

Bid-rigging report

It must be noted that before the INT investigations, a study conducted by the consulting firm of former Prime Minister Cesar Virata for the Japan Bank for International Cooperation (JBIC) had found that bid-rigging and overpricing were quite rife in many foreign-funded national road projects.

The study released in early 2007 concluded that there was lack of competition in biddings for road building contracts owing to procurement policies of the government and the lenders.

It said: “With limited competition, a potential environment for collusion among few bidders is created which would cause the processing entity, the DPWH, to pay for a higher cost of works than would otherwise be required.”

Virata and Associates also found that qualified construction firms were kept from bidding to eliminate genuine competition.

“Contractors capable of performing contract works are precluded or pre-disqualified from participating in bidding, thus depriving the procuring entity of a wider range of bids and possibly from receiving a more advantageous bid proposal,” the consulting firm said.