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CORRUPTION: World Bank Debars Indian Firms in Fraud Probe

Emad Mekay

WASHINGTON, Jul 16 2007 (IPS) - The World Bank ended a several-year investigation Monday by debarring two Indian pharmaceutical companies, citing corrupt procurement practices in a controversial Bank-funded reproductive health programme.

The decision means the two firms, Nestor pharmaceuticals Ltd. (Nestor) and Pure Pharma Ltd. (Pure Pharma), among India&#39s largest, will no longer be eligible for Bank-financed contracts.

This is the second time the Bank has made an announcement related to corruption in less than a week, after it released a report ranking countries according to prevalence of corrupt practices.

It also comes as the Washington-based institution is itself reeling from a major scandal that saw its president, Paul Wolfowitz, forced out of his post for using his influence to benefit his girlfriend and fellow Bank employee, Shaha Riza.

That scandal prompted worldwide concerns that the Bank may need to recast its image and would have to be more serious about fighting corruption in its projects.

The Bank, which funds hundreds of large projects like power plants, toll roads, water-supply infrastructure, fiber-optic networks, ferry terminals and ports, has been fending off accusations of lax oversight in its projects that cost billions of dollars every year around the world.

The decision announced Monday involved corruption in the procurement system of the project, the Reproductive and Child Health Project (RCHI) in India, originally designed to improve the lives of women and children by reducing maternal and child mortality. The first complaint about it was filed in late 2000.

"It really was one of the most complex investigations this department ever did. It turned out from one allegation and one problem to hundreds of documents and hundreds of witnesses interviewed," said David Theis of the World Bank&#39s Department of Institutional Integrity.

The Bank says it cannot reveal more details about the case because of internal regulations that prohibit divulging the specifics of investigations. Theis said that the probe mostly involved reviewing violations of the Bank&#39s own procurement guidelines. Those guidelines require bidders and suppliers to "observe the highest standard of ethics during the procurement and execution of such contracts".

In this case, the two companies were found to have engaged in "collusive practice," a term used when there&#39s an arrangement between two or more parties designed to improperly influence the bidding process.

The Bank said that Nestor has been debarred for a period of three years, while Pure Pharma is debarred for one year.

The Bank says the findings were passed on to the government of India, which has reportedly taken strong action in response to the decision.

"The Reproductive and Child Health programme was designed by the government of India to help deliver much-needed medical services to some of the most vulnerable citizens," said Praful Patel, World Bank Vice President for South Asia. "The actions of both companies harmed the very people this project was meant to help."

The Bank said that the decision was taken by the Sanctions Board following a probe by its Department of Institutional Integrity (INT) into allegations of fraud in the procurement of pharmaceuticals under the RCHI project.

The INT, which reports directly to the World Bank&#39s president, is charged with investigating allegations of fraud and corruption in Bank-financed projects. It has previously been criticised for dragging its feet in looking into such charges. The last update on its news website dates back to Feb. 22.

The case was the first heard by the Bank&#39s Sanctions Board, which replaced the Sanctions Committee in October 2006 when a series of reforms took effect.

"The Sanctions Board decision is in keeping with the Bank&#39s mandate to ensure that its funds are properly utilised, and in this case, it was found that the two firms had behaved improperly and the requisite penalties were imposed," said Danny Leipziger, vice president of the World Bank Group and Chairman of the Bank&#39s Sanctions Board.

The Bank has also been criticised by anti-corruption advocates for approving another loan to the same project despite findings of corruption. In August last year, the Bank approved 360 million dollars for the Reproductive and Child Health (RCH) II Project.

While the bank&#39s original anti-corruption policy states the public funder will cut ties with any firm guilty of corruption on Bank-financed contracts, the Bank&#39s fight against corruption was incomplete after passing the Voluntary Disclosure Programme (VDP) which allows &#39confessors&#39 confidentiality and possible a return to work in Bank funded programmes.

The Bank says that since 1998, it has sanctioned more than 330 firms and individuals, either permanently or for a period of time, most of them small firms in developing nations.