The world bank's sanction system as an example.

Author:Forder, Elizabeth Lin

The World Bank (1) has experience in creating an independent sanctions system to address fraud and corruption in Bank-financed projects. Though outside the context of investment arbitration, the Bank sanctions system and its achievements and challenges to date may help inform the discussion as to whether there is value in pursuing any type of sanctions regime to address noncompliance with arbitral awards.

By its charter, the Bank must seek to ensure its funds are used for their intended purposes (2)--that is, to foster development and fight poverty. The Bank thus has a fiduciary obligation to prevent misuse of its development funds through fraud, corruption, collusion, or other misconduct. Past instances of misconduct have included a maternal and child health project under which "new" medical equipment was fully accepted and paid for, though any infant placed in the baby-warmer would risk electric shock; an ecotourism project in which more than half of the funds were disbursed even though key amenities were but a hole in the ground; and a road project in which the contract for a broad surfaced road was paid in full, though only a narrow dirt road was built.

To fulfill its fiduciary duty and counter these types of abuse, the Bank has established an independent sanctions system to assess evidence of potential misconduct in Bank-financed operations and take action in such cases. Notably, the sanctions system was not created to serve any retaliatory or punitive purposes, but simply to fulfill the Bank's charter obligation to protect its development funds from misuse. In this respect, the type of administrative sanctions used in the Bank context, which are protective and preventive in nature, may differ from common conceptions of sanctions as specifically retaliatory or punitive political measures.

The Bank's sanctions system addresses five basic types of sanctionable misconduct: fraud, corruption, collusion, coercion, and obstruction of investigation. (3) So far, the Bank's sanctions system has dealt with only the first three types of misconduct--fraud, corruption, and collusion--with the majority of cases involving allegations of fraud. (4) It addresses the conduct of private parties, such as bidders or contractors on Bank-financed contracts. It does not provide for sanctions on member countries or public officials. To date, the World Bank has sanctioned over 450 respondents, including both entities and individuals.

Where the Bank finds it is more likely than not that an accused party (the respondent) has engaged in one or more types of sanctionable practices, it may issue a letter of reprimand, order restitution or other remedial measures, or--most commonly--debar the respondent. (5) The range of available sanctions does not include punitive or exemplary damages.

Debarment is a declaration that the respondent is ineligible to do further business with the World Bank Group. (6) This type of sanction is...

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