Thursday, 30 July 2015

World Bank fraud chief: “I’m going to get the big guys”

Feared and fearless: Leonard McCarthy
Interview with Leonard McCarthy Vice-President, in charge of Institutional Integrity at the World Bank in October 2010

When it comes to fighting corruption, few investigators are more feared than Leonard McCarthy, Vice-President, in charge of Institutional Integrity at the World Bank. Before starting at the Bank in 2008, he was Head of South Africa’s Directorate of Special Operations, the specialist team of the nation’s best fraud and crime investigators, also known as the Scorpions.

 It is estimated that $1 trillion a year is spent on bribery and corrupt practices. Since starting at the World Bank, there have been 117 investigations in 84 countries that have led to 45 companies and individuals being debarred from bidding for Bank funds and 32 cases going to national courts.

Being barred can have significant costs for a company. In one case, an Indian firm lost $150 million in value after being debarred. Siemens were also debarred, but after reaching agreement with the Bank, their share price rose 11%.

He also advocates broadcasting their work to the public, believing it makes them more effective and accountable. Among other initiatives, he is developing a new aspect, the preventative services, who are working with evidence, uncovered during investigations, to develop a series of ‘red flags’ that can provide an early warning of possible fraud.

What would you say are the main challenges you face?

The first one is that I want to deal more with high impact cases. Right now we have a small number of big cases, most are in the middle and a few, what I call fly by night cases at the bottom. I joined the World Bank to deal with serious problems and deal with them aggressively.

Secondly, I want to commit myself to the stolen asset recovery side. It’s out there, but you need the political will from countries and you need to work through competent legal systems. All of that takes time but I want us to be in the position where we can see some real action by next Christmas.

Thirdly, it’s a structural and procedural issue, but I want to see it through. Investigators should be able to follow money that is deposited in the commercial institutions by people who have benefited from World Bank funds. We want to track the money from where it left our account to wherever it goes.

It’s not easy to do right now. It’s a political thing. You need shareholder buy-in, legal agreements and so on.

I am committed to find ways to bring restitution to victims of corruption. One thing I am beginning to consider is when debarred those who have been caught, come to us and say that they have co-operated and offer a large sum to reduce the period they are prohibited from bidding.

This is not a perfect world, but if we can structure a punishment that makes it weighty, payable in money and overseen, then it sounds like success to me.

You are talking about companies who have reformed and co-operate, but it looks like you’re trying to fine companies without the difficulties of legal action

Yes. You’ve got to be pragmatic in life. Any enforcement strategy has three elements. You need to clean up. You look for where you can use evidence to try to go to the big fish. The third area is someone has to prosecute the hard cases.

Africa has been perceived as corrupt, but it is often Western companies who have been doing the corrupting. How do we deal with multi-nationals, who sometimes have a corrupting influence?

If I look at the referrals in the last two years, 40% are to developed countries and although a project may not reside there, the company does. What you find with corruption is that money goes to the developed world and back. Many roads lead to London, but there has been so much done on the side of international enforcement in the last three years.

 I think it has something to do with systems being shock tested by the financial crisis. I think we are doing better now, the same with companies. Major companies are committed to clean things up. As recently as 1999 it was acceptable to pay bribes in most of the world.

The best thing to do is what Siemens did. Cut your losses. Come to us and sort it out.

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