8 November 2008

Egypt: Bank Bars Company for Years-Old Bribery Scandal

Cairo — The World Bank has debarred a German engineering company from Bank-backed contracts for seven years for its role in corruption involving an African water project, but Bank watchdog groups say the move is long overdue.

The World Bank, the largest public lender, cited corrupt activities in connection with the Lesotho Highlands Water Project (LHWP), described as southern Africa's largest water development, in its decision to debar Germany's Lahmeyer International GmbH (Lahmeyer).

By paying bribes to the Lesotho Highlands Development Authority's chief executive, Masupha Sole, the engineering company engaged in punishable activities, the World Bank's Sanctions Committee found.

Sole was convicted in 2002 of 13 counts of bribery and sentenced to 18 years in prison for taking more than two million dollars in bribes over 10 years from agents representing 12 of the world's largest construction firms.

Germany's Lahmeyer International was accused of paying Sole just over 250,000 dollars.

The Washington-based Bank says that the company will have to meet certain conditions for the debarment period to be reduced, including fully disclosing instances of past misconduct.

The LHWP is a massive, multi-billion-dollar water transfer and hydropower project implemented by the governments of Lesotho and South Africa. It is designed principally to transfer water from the Maluti Mountains in eastern and central Lesotho to Gauteng Province in South Africa.

This is the second time the Bank has debarred a company for corruption in the project. Two years ago, it excluded the Canadian firm Acres International from Bank projects for three years after it was convicted of paying bribes under the LHWP.

But watchdog groups that have blown the whistle on corrupt practices in the LHWP say the Bank's decision came inexplicably late. After all, the Bank opened its debarment proceedings against Lahmeyer in relation to the LHWP back in 2001. The government of Lesotho announced criminal indictments of Lahmeyer and Sole in 1999.

Although the Bank's corruption policy states that it will sever ties with any firm guilty of corruption on a Bank-financed contract, it allowed the company to continue to bid for Bank-backed contracts until this week.

Lahmeyer received at least 18 Bank contracts totaling nearly 15 million dollars, watchdog groups say. Four contracts worth a combined 1.4 million dollars were granted since the Bank reopened its investigation of Lahmeyer in August 2005.

"Although we welcome this decision, the World Bank's sluggish response has only been to Lahmeyer's advantage. Future action must come more swiftly," said Terri Hathaway of International Rivers Network, one of the groups monitoring the case. "The Bank cannot be serious about fighting corruption if it chases criminal companies, but gives them a generous lead time."

Patricia Adams of the Canadian-based foreign aid watchdog Probe International voiced similar concerns.

"It sends the wrong signal to other corporate bribers," said Adams.

"In those seven years since the original indictment, Lahmeyer was able to carry on business as usual. Rather, the Bank should have taken swift action and suspended the company's right to do business with the Bank when they were originally indicted -- as is allowed for under the U.S. Foreign Corrupt Practices Act -- pending a decision by the Lesotho courts," she said.

The Bank says it had to wait until legal proceedings were concluded in the African nation and that it re-opened its own debarment proceedings against Lahmeyer in August 2005.

"This sanction reflects a serious response to corrupt practices," said Graeme Wheeler, managing director of the World Bank Group and chairman of the Bank's Sanctions Committee.

"At the same time, the sanction is structured to encourage Lahmeyer to demonstrate that its contracts and practices now meet the high standards that are essential to the Bank's work," he said.

The Bank funds hundreds of large projects like power plants, toll roads, water-supply infrastructure, fiber-optic networks, ferry terminals and ports.

Adams says that giving the company leeway under the Bank's newly devised Voluntary Disclosure Programme (VDP) could skirt true justice since such protections are ultimately "bad for developing country citizens and taxpayers, and the rule of law".

"The VDP programme allows 'confessors' confidentiality and thus allows the Bank to cover up its own negligence or complicity, which undermines the administration of justice in countries where it is a criminal offence to bribe a foreign official," Adams said.

Lahmeyer International was part of the consortium which carried out the 1986 feasibility study for the LHWP. The project's first phase is complete, including the Katse Dam, the Muela Dam, 82 kms of water tunnels and 200 kms of access roads, at an estimated total cost of 2.5 billion dollars.

When completed, the project would divert about 40 percent of the water in the Senqu river basin to South Africa's industrial Gauteng region.

Apart from corruption, environmental groups had additional concerns about the Lesotho Highlands Water Project because it directly affected about 27,000 people, displacing hundreds of subsistence farming households, and dispossessing many people of their land. They say the LHWP has caused the vulnerable Highlands population to "lose fields, grazing lands and access to fresh water sources".

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