Procurement Policy and Advisory Department Political and economical Sanctions and IFI Procurement Global Procurement Conference – 8-9 June 2019 Jan Jackholt Director Procurement Policy and Advisory Department

Political and economical Sanctions A sanction may be either a permission or a restriction, depending upon context, as the word is an “auto-antonym“ Some defines sanctions as "a lower-cost, lower-risk, middle course of action between diplomacy and war." Economic sanctions, typically a ban on trade, includes Tariffs, Quotas, Embargos (trade or individuals), Non-tariff barriers (like onerous regulatory requirement) or Asset freeze Political/Diplomatic sanctions, can be unilateral, meaning they are imposed only by one nation, or bilateral, meaning a bloc of nations International sanctions, coercive measures adopted by a country or a group of countries against another state or individual(s) in order to elicit a change in their behaviour. Example UN Chapter VII According to studies, sanctions have only about a 30 percent chance of succeeding. The longer sanctions are in place, the less effective they become, as the targeted nations or individuals learn how to work around them. International sanctions can however work sometimes, example South Africa Sanction against countries, state owned or private entities, individuals

Examples OFAC - The US Treasury Department's Office of Foreign Assets Control (OFAC) administers and enforces economic sanctions imposed by the United States against foreign countries. EU - restrictive measures (sanctions) are imposed by the EU to bring about a change in policy or activity by the target country, part of country, government, entities or individuals. Arab league – Boycott to designed to weaken Jewish industry in Palestine and to deter Jewish immigration in the region Unilateral sanction – Imposed by individual countries to further strategic interests or to penalise as an example for hostility . Can be imposed on a country, firm or individuals (ex. Ukraine, Turkey) UN Sanctions – According to the Charter of the United Narions, only the UN Security Council has a mandate by the international community to apply sanctions that must be complied with by all UN member states. RESTRICTED 23 November, 2019

What if you do not comply? Example OFAC Criminal fines for violating the Executive Order or regulations to be issued pursuant to the Executive Order may range up to the greater of $500,000 or twice the pecuniary gain per violation for an organization, or up to the greater of $250,000 or twice the pecuniary gain per violation for an individual. Individuals may also be imprisoned for up to 10 years for a criminal violation. Knowingly making false statements or falsifying or concealing material facts when dealing with OFAC in connection with matters under its jurisdiction is a criminal offense. In addition, civil penalties of up to $11,000 per violation may be imposed administratively. Note: Some sanctions are more restrictive than others, and apply to the whole country, while others are specifically target  certain individuals or entities within a country.  Currently, sanctioned countries include the Balkans, Belarus, Burma, Cote D'Ivoire (Ivory Coast), Cuba, Democratic Republic of Congo, Iran, Iraq, Liberia, North Korea, Sudan, Syria, and Zimbabwe. RESTRICTED 23 November, 2019

EBRD Procurement related Policies DOCUMENT OF THE EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT EBRD FINANCING OF PRIVATE PARTIES TO CONCESSIONS DOCUMENT OF THE EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT EBRD RETROACTIVE FINANCING POLICY 1

EBRD Articles of Agreement establishing the Bank “(xii) the Bank shall place no restriction upon the procurement of goods and services from any country from the proceeds of any loan, investment or other financing undertaken in the ordinary or special operations of the Bank, …….

EBRD sanctions PP&R Paragraph 2.6 Any conditions for contract award shall be limited to those that are essential to ensure the eligible firm or individual’s legal, financial, commercial and technical capability to fulfil the contract in question. Clients of the Bank will not exclude a firm or individual from participation in a tender process or contract award for reasons unrelated to its capability to perform the contract unless the firm or individual (a) has been declared, and remains, as at the relevant date, ineligible pursuant to the Enforcement Policy and Procedures; (b) has a conflict of interest or an unfair competitive advantage;(c) has been convicted of an intentional crime, …………or (d) is prohibited under relevant national law from entering into commercial relations with the client, provided the prohibition relates to a Prohibited Practice, which had been determined through judicial or administrative proceedings with adequate due process acceptable to the Bank.

EBRD sanctions PP&R Paragraph 2.7 Consistent with international law, the proceeds of the Bank’s loans, equity investments, guarantees or grants shall not be used for payment to persons or entities or for any import of goods, if such payment or import is prohibited by a decision of the United Nations Security Council taken under Chapter VII of the Charter of the United Nations. Persons or entities, or suppliers offering goods, works and services, covered by such prohibition shall therefore not be eligible for the award of Bank-financed contracts.

Topics for discussions Do all the IFIs apply the same sanction regimes? If not, what are the consequences for “mutual reliance agreement”? What should the tender documents state about sanctions when using National Procedures or Local Competitive Tendering for contracts financed by an IFI? Country X refuse to sign a loan with an IFI unless the IFI accepts the national sanction regime! Will the Bank maintain its policy? Do the legal agreement between an IFI and a country also cover the national contract law? What if it is a sub-sovereign project? The client signs a contract after a no-objection provided by the Bank. Two weeks after one of the owners is put on the OFAC list. What do you do? An IFI client evaluates a tender and the lowest evaluated tenderer is an Iranian company. The company is using an Iranian bank for the tender security and for its company account. The bank is during the evaluation put on the OFAC list. What happens with the credit rating, the ability for the bank to pay and does it change the outcome of the tender?

Thank You! Jan Jackholt Director EBRD Procurement Policy and Advisory Department Email: jackholj@ebrd.com Tel: +44 20 7338 6543 EBRD Classification:  INTERNAL