FIDIC 2005 Annual Conference, Workshop 7
ADB Anticorruption initiatives
Prepared remarks
A. Michael Stevens
Director, Integrity Division, Asian Development Bank
FORM WITHOUT SUBSTANCE? Ensuring Value in Certification
Here are two pieces of paper, about the same size. One is $100 United States (US) currency, the other, a
check on my personal bank account, for $1 million. The US currency is printed in mass quantities and has
the printed signature of the Secretary of the US Treasury. My check is one of a kind, handwritten, and
personally signed. Each represents a pledge that the piece of paper represents some value. Like a great piece
of signed artwork, one might be inclined to think a “handmade” item has more value than a mass-produced,
machine-printed one. I can tell you with absolute certainty the opposite is true in this case.
Paper is cheap. Its value only comes from sincere commitments that what the paper represents is true.
Grundfos, a Danish company with more than 12,000 employees,1 had proudly publicized that it supported the
United Nations (UN) Global Compact, which comprises 10 principles. The tenth principle says, “Businesses
should work against corruption in all its forms, including extortion and bribery.” Yet just last month
Grundfos admitted paying bribes to officials related to the UN’s Oil for Food Program in Iraq.
It seems Grundfos’s pledge was not worth very much. Words are even easier to produce than paper. Their
value, too, only comes from the commitments that support what they represent.
Following the many, well-publicized corporate scandals of the past few years, efforts to improve business
governance and integrity continue to grow. That, of course, is the goal of the International Federation of
Consulting Engineers (FIDIC) Business Integrity Management System, or BIMS. And there is no shortage of
similar plans.
One only needs to look at the Internet website of the UN Global Compact, on the page outlining the
anticorruption principle of the Compact,2 to find links to the International Chamber of Commerce (ICC)
Rules of Conduct and ICC’s Fighting Corruption: A Corporate Practice Manual, Transparency
International’s (TI) Principles for Countering Bribery and TI’s Integrity Pact, and the World Economic
Forum’s Partnership Against Corruption Initiative.
Both FIDIC and TI have asked the Asian Development Bank (ADB) to consider assigning value to BIMS or
one of the TI pacts when evaluating consulting or contracting proposals. ADB’s anticorruption procedures3
already allow ADB to consider business governance and integrity commitments when determining if a firm
violated ADB’s Anticorruption Policy, or when determining a sanction to impose if a violation did occur.
Every firm that fulfilled its minimum sanction, after violating ADB’s Anticorruption Policy, professes to
have reformed and improved its governance.
So the question before us is: how do we assign a value to BIMS—or TI’s Integrity Pact, or supporting the
UN Global Compact, or any other integrity pledge?
The well-known American author Mark Twain said, “principles have no real force except when one is well
fed.” Indeed, we saw from Grundfos’s experience that the quest for feeding corporate coffers overcame the
principles it seemingly endorsed with the UN Global Compact.
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http://www.grundfos.com/web/grfosweb.nsf/Webopslag/A671448C6725BD7DC1256AEE003D1C0E
http://www.unglobalcompact.org/Portal/?NavigationTarget=/roles/portal_user/dialogue/Dialogue/nf/nf/transparency
http://adb.org/anticorruption/anticorruptionprocedures.pdf
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So why should ADB, or anyone else, place any value on any of these promises, whether in evaluating
proposals, assessing wrongdoing, or deciding if a firm has reformed?
Let me explain how BIMS, or any of the other tools I mentioned, can relate to the work the Integrity
Division does for ADB. We are the focal point of any allegation of fraud or corruption related to any ADB
financed activity.
When I say “fraud” and “corruption,” it is important to understand that among us in this room today will be
potentially widely varying perceptions of what I mean. ADB has defined these words under its
administrative Anticorruption Policy.4
Let me emphasize the word administrative. The Integrity Division does not (and does not plan to) assess
“fraud” or “corruption” vis-à-vis the laws of any of its 63 member countries. We have three terms that
comprise “corruption”: corrupt, coercive, and collusive practices. We also defined “fraudulent practice.”
Finally, we defined conflict of interest under the Anticorruption Policy, because increasingly they are leading
to what ADB considers fraud and corruption.
The scope of our work includes all parties to ADB-financed activity: borrowers, executing agencies and
project officials; ADB staff; and the private parties involved in ADB-financed contracts—bidders,
consultants, contractors, and suppliers. We deal with each of these three groups slightly differently, but let
me focus just on the third group, because that would include all of you, if you were involved in an ADBfinanced contract.
The Integrity Division will examine every allegation we become aware of to make sure it is within the scope
of our work, is credible, that there is some way to investigate it, and that it is material. If it meets those four
criteria, we will investigate further.
Let me prevent any misunderstandings on “materiality.” Allegations or concerns do not have to involve large
amounts of money for us to investigate them. One of the three objectives of ADB’s Anticorruption Policy5 is
that all ADB projects and its staff will maintain the highest ethical standards. The Policy also says that ADB
will show zero tolerance when faced with credible evidence of fraud or corruption. That policy challenges us
to ensure that ADB projects are free from fraud and corruption, whether small or large.
And investigating these concerns is where the issue of business governance and integrity management, like
BIMS, becomes an issue.
Let me tell you that when faced with “charges” of fraud or corruption under ADB’s Anticorruption Policy,
the “excuses” we often hear are, “this was an ‘honest mistake’ or ‘human error.’” Firms always tell us how
they adhere to the highest standards of ethics, integrity, and governance. We have never, in the nearly five
years I have been with ADB, had the good fortune (from an investigator’s standpoint) of getting the kind of
confession that Grundfos recently made.
Our investigation procedures call for us to gather all evidence to assess an allegation. We may include in that
process an assessment of a firm’s internal controls and governance. Though ADB will hold a firm
accountable for the actions of its officials and representatives, we try to see where so-called “honest
mistakes” and “human errors” become what ADB defines as corrupt, collusive, coercive or fraudulent
practices.
If we conclude a firm violated ADB’s Anticorruption Policy, our Oversight Committee on Anticorruption
will decide the case, and will impose a sanction, usually as debarment—ineligibility to participate in ADBfinanced projects for a specified minimum time. In deciding an appropriate sanction, our procedures call for
the Oversight Committee to consider all mitigating and aggravating factors. Here, the Oversight Committee
can consider business governance and integrity management in deciding a sanction. So having an integrity
system can make a difference.
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5
http://adb.org/Anticorruption/procurement-guidelines.pdf
http://adb.org/Documents/Policies/Anticorruption/default.asp?p=antipubs
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Our procedures do not provide for a firm’s adoption of such a strategy to change a sanction that the
Oversight Committee has imposed. So doing so after ADB finds a firm committed fraud or corruption under
its Anticorruption Policy will have no effect.
But it can matter when ADB considers reinstating a firm at the end of a debarment period. Under ADB rules,
reinstatement is not automatic. Debarred parties should request reinstatement, and demonstrate to ADB that
it can uphold the highest ethical standards that ADB’s Anticorruption Policy requires. Good business
governance and integrity management is one way a firm can demonstrate that.
Yet, Grundfos recently demonstrated that a firm’s word could be meaningless. So just how far should we
have to go to prove what a firm says is true? How much should we have to investigate what a firm says, or
how much it truly adheres to any pact it has agreed to or signed?
Keep in mind that what we do is an administrative process of ADB. The purpose, fundamentally, is for ADB
to decide if it should do business with a firm. The Integrity Division’s “powers,” such as they are, come from
ADB’s policies, rules, procedures, and the contract clauses that allow ADB to audit and examine a firm’s
records.
We are only 11 people, from our two administrative assistants, through me, as the director. We have today
more than 100 open cases—allegations that we either are assessing or have decided to investigate further.
We have some money to hire investigators to support and supplement the work the 11 of us do, but let me
tell you it is not a lot.
In addition to investigating cases, which is most of our time, and particularly investigating the private parties
involved in ADB-financed activity, the Anticorruption Policy demands we conduct project procurementrelated audits to assess compliance with ADB contracting and procurement rules and as a proactive way to
detect fraud and corruption. We also have to make people aware of the Anticorruption Policy and educate
them on our procedures so borrowers, staff, and private parties all understand how seriously ADB takes these
issues.
Suffice it to say, that for all of these reasons, there are significant limits to how much we can do to verify that
a firm’s integrity system actually has any value.
So what will it take for us to consider as having any real value statements that a firm adheres to high ethical
principles or adheres to an integrity system?
One critical factor is credibility. To be credible, there has to be a systematic way to verify any pledge of
principles or integrity system. Without that, you have something that is worth no more than a check I write
for $1 million, that will never be paid, or promises that a world-renowned firm like Grundfos makes that, for
one reason or another, are not fulfilled. For the Integrity Division to assign any value to any firm’s ethics
pledge or integrity system, we need to verify that it is credible.
Equally important to credibility, for ADB to assign any value to a pledge or integrity system, is that the
system needs to be available for all firms to use, large and small firms, from developed as well as developing
countries. However, trying to earn credibility while at the same time ensuring accessibility can create a
conflict.
The International Organization for Standardization (ISO) has, in its 58-year history, established
comprehensive, systematic ways to verify that a firm meets the standards to which it professes. So one
solution to ensuring any integrity system has genuine value would be to follow the ISO example in the way it
certifies a firm.
Yet not all firms—particularly smaller ones and those in less developed countries—have the capacity to deal
with the administrative burden, not to mention cost of that method of certification. So to follow that example
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could create a system that has value only to larger or wealthier firms. Certainly that is not FIDIC’s intent
with BIMS, or any other organization’s intent when they develop business governance guidelines or integrity
systems.
Unfortunately, I do not have the answer to that dilemma. ADB recognizes this challenge for every
organization trying to achieve what FIDIC is trying to do with BIMS. And we appreciate your efforts. We
will continue our dialog for our mutual interest of ensuring an ethical business environment on a foundation
of a credible, verifiable, and accessible integrity system.
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