Richard G. Lugar, Ranking Republican of the U.S. Senate Committee on Foreign Relations
Richard G. Lugar, United States Senator for Indiana
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Senator Lugar Urges Reform at the Development Banks

U.S. Senate Foreign Relations Committee Ranking Member Dick Lugar announced on July 10, 2007, that the World Bank and its sister institutions are stepping up their efforts to fight fraud and corruption. Senator Lugar, sponsor of a 2005 law to spur further anti-corruption steps by the World Bank and the other multilateral development banks (MDBs), made the announcement after reviewing progress reports he had requested from each of the MDB presidents.

Senator Lugar began championing anti-corruption efforts in 2003, following allegations of fraud.  As Chairman, he held six hearings to examine ways that the U.S. can contribute to anti-corruption and anti-fraud efforts at the multilateral development banks.

"While there are still additional measures that can be taken to ensure that development funds are not lost to fraud, particularly with regard to procurement, I am pleased that the development banks have made significant progress in fighting corruption," said Senator Lugar.  In particular, he noted that most of the banks had improved their ability to investigate fraud and increased the number of anti-corruption projects, which experts who testified before the committee said were important measures to promote better governance and transparency.

The development banks formed an anti-corruption task force in September 2006 and began harmonizing their policies, as well as instituting new ones.  This led to consistent definitions of corruption and fraud and resulted in the first cross debarment by the development banks.
 
Other measures taken by the MDBs include:

  • The Board of Governors of the European Bank for Reconstruction and Development (EBRD) adopted two new codes of conduct, replacing codes adopted in 1991.  The codes separately regulate conduct of the Bank staff, including senior management, as well as conduct of members of the Bank’s Board of Directors.
  • Anti-money laundering and counter-terrorist financing special training courses have been initiated for all EBRD staff this year, plus the EBRD has taken the lead with an EU/Swiss funded initiative that provides hands-on practical training regarding anti-money laundering and counter-terrorist financing for more than 300 bankers from 17 countries.
  • The Asian Development Bank (ADB) has amended its Public Communications Policy to allow the Integrity Division discretion to publicly disclose project procurement-related audit reports.
  • The ADB adopted a Governance and Anticorruption Action Plan to improve ADB’s performance in the implementation of the governance and anticorruption policies.
  • The African Development Bank (AfDB) approved a comprehensive Whistle-blowing and Complaints Handling Policy in January of this year.
  • In late 2005, the AfDB established the Anti-Corruption and Fraud Investigation Division.
  • The Board of the World Bank endorsed a Voluntary Disclosure Program in August 2006, that seeks private sector involvement in stemming corruption in Bank projects.
  • The World Bank Board also endorsed a new sanctions regime “intended to ensure uniform compliance of highest ethical standards in all aspects of Bank-financed projects across the world, …including the adoption of new Anti-corruption Guidelines for projects, expansion in the definition of what constitutes corruption and the appointment of a new, expanded, Sanctions Board.”
  • The Inter-American Development Bank (IADB) has implemented a new Code of Ethics and ethics training for all staff.  A new financial disclosure form for staff has been implemented; a new Ethics Officer position established, and a new Ombudsman hired for the Bank.
  • The IADB has created a new Sanctions Committee and adopted new sanctions procedures for determining when violations of the IADB’s anti-corruption policies have occurred.

Senator Lugar wrote to each of the development bank presidents asking them to detail their accomplishments.  "Copies of the responses from the development bank presidents are being released so that the public can assess the reform measures for themselves," said Senator Lugar.

In addition to Committee hearings, Senator Lugar sent letters of inquiry regarding individual projects to the bank presidents.  Committee staff continue interviewing NGO representatives, bank insiders, academics and others, and visit overseas problem projects. 

Senator Lugar’s development bank reforms were signed into law by President Bush on November 14, 2005, as part of the FY06 Foreign Operations appropriations bill.  The reforms, contained in Senator Lugar’s amendment, S.A. 1293, that passed the Senate by unanimous consent, apply to the World Bank, the African Development Bank, the Asian Bank, the Inter-American Bank, and the European Bank for Reconstruction and Development. 

"These measures are an important step toward leveling the playing field so that honest companies and innocent individuals are not disadvantaged by the corrupt," Senator Lugar said.  "When projects intended to boost economic development are derailed by corruption, the poorest suffer and are cheated of projected benefits in quality health care, clean water and education."

The mission of the development banks is to encourage economic development and reduce poverty.