1. 11 Office of Institutional Integrity Fiduciario Forum 29 April – 3 May 2008 1300 New York Avenue, Washington, DC 20577 Phone (202) 623-2874 Fax (202) 623-157901 Inter- American Development Bank VPC/PDP

2. 2 Communication Investigation Prevention OII’s Mission

3. 3 Allegations of fraud and corruption related to contracts financed by the Bank or with any other Bank activity. Allegations of violations by Bank Staff of the Code of Ethics or the Staff rule 323 “Respect in the workplace” …. solely when required by the Ethics Officer. What does OII investigate?

4. 4 PRIORITIZE AND INVESTIGATE 1.Is the activity IDB financed? 2.Is it fraud or corruption? 3.Is the allegation credible? Preliminary review REFERRAL IF RELEVANT Multiple portals Confidentiality Internal and external sources Reception The investigative process

5. 5 Investigation methods: interviews and analysis of the documents Standard of proof: if evidence is sufficient to confirm that the person who is investigated was involved in an act of fraud or corruption related with a project fincanced by the Bank. Possible results: Substantiated: when the evidence is sufficient to conclude that a violation of the Bank’s anticorruption policies occurred Unsubstantiated: when the evidence is insufficient to confirm or deny the allegation of fraud and corruption. Unfounded: when the allegation proves false. The investigation process

6. 6 The result: If OII finds that the evidence is sufficient to prove that the person who is investigated committed acts violating the Bank’s administrative anticorruption policy, OII can recommend to the OCFC that a sanction be taken by the Bank. These sanctions are administrative in nature and may disqualify the sanctioned firm/individual from participating in activities financed by the Bank. They may also consist of extending an admonition letter to the individual/firm in question. The investigation process (Cont.)

7. 7 The investigation process

8. 8 Political Party Selection Committee Mayor Winning firm Losing Firm Order Selection Manipulated bid A typical case

9. 9 External Auditing Of the project Detects inflated costs Providing firm Ex-employee Of the provider Denouncing non-payment Alerts Inflation of salaries, Creation of employees, Non-payment of the Social charges. Payment of Third-person for Inexisting Services Diversion of the funds Other typical case

10. 10 Internal Activities: Review of the Code of Ethics and Professional Conduct Support in the selection of the Ethics Officer and Ombudsperson Supporting the system for the Declaration of Interests Red Flags system on fraud and corruption in procurement activities financed by the Bank Portfolio review of investigations to analyze trends and lessons learned for OII and the Bank Data Mining Implementation of the Guides on Due Diligence in operations with the Private Sector and special training Prevention: Fiduciary Function

11. 11 External Activities: Support to the implementation of the International Conventions Against Corruption (OEA, ONU, OECD) Special Fund for access to information and control of corruption Technical Cooperation to strengthen the OSC Action Plan to support Anti-Corruption Activities Anticorruption Harmonization with international organizations Annual Report Publication of the list of Sanctions Prevention: Fiduciary Function

12. 12 Red Flags Matrix

13. 13 OII cases (substantiated and unsubstantiated if relevant facts) Information from other Divisions in the IDB ( Project database, monitoring reports, experience of the officials) Local information (Controlling Organs, NGOs, Media) Identification of conditions favoring fraud and corruption Recommendation to optimize investigation of cases Recommendation on ways to reduce the risks of fraud and corruption in projects. Description of the cases and their pattern Recommendations Best Practices OII’s analysis Inputs Sources Prevention – Support to the fiduciary function

14. 14 Bidding firms and individuals participating in too many bidding processes and making, in turn, “losing” proposals. Narrow specifications and unjustified disqualifications. Inconsistent TORs with the project. Contracting of Consulting Services not well defined and which impact is impossible to foresee/evaluate. Falsification of the Contracts of consulting services: the same individuals are systematically contracted, even where there is a larger offer. The assumed short-listed losers deny having participated in a bidding process. Alert Signals

15. 15 Augmenting number of protests from users claiming they have not received the goods or services supposedly covered. Systematic increase of the budget and delays for infrastructure works justified by “unexpected events” High discrepancy between the prices for similar products. Payments diverted to foreign accounts, and more specifically in jurisdictions where Bank information is confidential (Hong King, Cyprus, …) Alert Signals (Cont.)

16. 16 Keep in mind the alert signals and most common cases Use professional discretion. Do not rely on appearances: thoroughly analyze the documentation. Communicate all doubts and questions to OII. What can the fiduciary specialist do?

17. 17 Red Flags Pilot and implementation; Dissemination of lessons learned to mitigate fraud and corruption in Projects; Pro-active participation in the analysis of the portfolio Review of the Due Diligence Framework for the Private Sector; Triage OII’s Program for 2008