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World Bank Document Public Disclosure Authorized IJOM1ON(VIMd) 1uiwibeueVq )!wouo)]pue Uo!i)npavd AJiAod (SJO)saIAJas ajo) leuoiejado| r r X t a - 4 f . - I /66L aDU!S lueg pl°oA Public Disclosure Authorized 5t; leSSaJboJd! uQilnoL. S IL Public Disclosure Authorized )IUe8 PIJOM X Public Disclosure Authorized June2000 HelpingCountries Combat Corruption Progressat the World Bank Since 1997 m TheWorld Bank OperationalCore Services (OCS) PovertyReduction and Economic Management (PREM) Network Copyright © 2000 The International Bank for Reconstruction and Development / the world bank 1818 H Street, N.W. Washington, D.C. 20433, USA All rights reserved Manufactured in the United States of America First printing August 2000 The findings, interpretations, and condusions expressed in this book are entirely those of the authors and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The boundaries, colors, denominations, and other information shown on any map in this volume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted. The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. Permission to photocopy items for internal or personal use, for the internal or personal use of specific clients, or for educational classroom use is granted by the World Bank, provided that the appropriate fee is paid directly to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA;telephone 978-750-8400,fax 978-750-4470.Please contact the Copyright Clearance Center before photocopying items. For permission to reprint individual articles or chapters, please fax a request with complete infor- mation to the Republication Department, Copyright Clearance Center, fax 978-750-4470. All other queries on rights and licenses should be addressed to the Office of the Publisher, World Bank, at the address above or faxed to 202-522-2422. Cover design by Naylor Design, Inc. A FREE PUBLICATION ii HelpingCountries Combat Corruption This report was produced as a joint effort of the Poverty Reduction and Economic Management (PREM) Network and the Operational Core Services (OCS) Network at the World Bank, under the general direction of Katherine Sierra, with Cheryl Gray and Caroline Harper leading the inputs from each network. Further information about the Bank's work in this area can be obtained by contacting staff of the PREM and OCS Networks. The report details the progress made to date by the World Bank Group on its anticorruption and governance initiative. The initiative was launched by Mr. James D. Wolfensohn in September 1996. Listof Acronyms and Abbreviations AfDB African Development Bank IMF International Monetary Fund AFR Africa Region INTOSAI International Organization of Supreme Audit AsDB Asian Development Bank Institutions AU Antibribery Undertaking LACI Loan Administration Change Initiative BEI Business Ethics and Integrity Department LCR Latin America and Caribbean Region CAS Country Assistance Strategy MDB Multilateral Development Bank CDF Comprehensive Development Framework MNA Middle East and North Africa Region CFAA Country Financial AccountabilityAssessment NGO Nongovernmental Organization COSO Committee of Sponsoring Organizations OAS Organization of American States CPAR Countr,y Procurement Assessment Review OCS Operational Core Services CPFA Country Profile of Financial Accountability OECD Organization for Economic Cooperation and CPIA Country Policy and Institutional Assessment Development CRD Urban and Rural Commune PER Public Expenditure Review CSA Control Self-Assessment PIP Project Implementation Plan DAC Development Assistance Committee PMR Project Management Report EAP East Asia and Pacific Region PREM Poverty Reduction and Economic Management EBRD European Bank for Reconstruction and PRSP Poverty Reduction Strategy Paper Development PSAL Programmatic Structural Adjustment Loan ECA Europe and Central Asia Region QAG Quality Assurance Group ESW Economic and Sector Work SAR South Asia Region FATF Financial Action Task Force SIGMA Support for Improvement in Governance and FINMI Financial Management Initiative Management in Central and Eastern European FY Fiscal Year Countries GAO U.S. General Accounting Office SOE Statement of Expenditure LAD Internal Auditing Department SSR Social and Structural Review IADB Inter-American Development Bank TI Transparency International IDA International Development Association TIR Transition Impact Review IDF Institutional Development Facility UNDP United Nations Development Program IFAD International Forum on Accountancy WBES World Business Environment Survey Development WBI World Bank Institute IGR Institutional and Governance Review WTO World Trade Organization HelpingCountries Combat Corruption iii C ONTENTS )) 1.Executive Summary: The World Bank's Approaches toCombating Corruption 1 Progress on the Four Pillars of the Bank's Anticorruption Strategy 2 Minimizing Fraud and Corruption in Bank-Supported Projects 3 Helping Countries That Request Assistance 4 Mainstreaming Corruption Considerations into the Bank's Operational Work 5 Supporting International Efforts to Address Corruption 5 Conclusion: The Road Ahead 6 2. MinimizingFraud and Corruption in Bank-Financed Projects 7 Strategic Compact 7 Creation of the OCS Network to Ensure Quality in Business Processes 10 Financial Management Reform 10 Procurement Reform 12 Monitoring and Evaluation 15 Dealing with Allegations of Corruption in Bank-Financed Projects 16 Sanctioning 17 Business Ethics and Integrity 18 External Independent Review 19 3. HelpingCountries That Request Assistance 21 Diagnostic Tools 23 Country Assistance Programs 28 4. MainstreamingCorruption Considerations intothe Bank's Operational Work 37 Country Assistance Strategies 38 Regional Strategies 38 Research and Knowledge Sharing 40 Sensitizing Bank Staff to Corruption Issues 40 HelpingCountries Combat Corruption v 5. SupportingInternational Efforts toAddress Corruption 43 Collaborating with Other Multilateral Development Banks 44 Supporting the Efforts of Other International Organizations 46 The Continuing Partnership with the IMF 47 Consulting both the Business Community and NGOs 47 Communicating the Bank's Anticorruption Strategy to the World 48 6.The Road Ahead 49 AnnexI 54 Anticorruption Action Plan: FY99 (Progress as of July 1999) 54 Anticorruption Action Plan: FY00 61 AnnexII 67 Management, Procurement, and Financial Controls in Bank-Financed 67 Investment Projects Project Preparation, Appraisal, and Approval 67 Implementation and Supervision 68 Field Supervision 70 Other Oversight Functions 70 AnnexIII 71 Partial Inventory of the Bank's Governance and Institutional Reform 71 Programs FY98,FY99, and FY00 (lst half) AnnexIV 103 Empirical Studies of Governance and Development: An Annotated Bibliography 103 vi HelpingCountries Combat Corruption The World Bank'sApproaches to Combating Corruption In1996, President James D. Wolfensohn committed BOX1 .1 the World Bank to "fight the cancer of corruption." This public commitment intensified the strategy the CorruptionIsa Problem Common to Bank has long pursued to ensure internal probity and BusinessesandPublic Enterprises of to encourage the development of new approaches to ll uid fighting corruption in its borrowing countries. It also a nds helped catalyze a truly global response to the problem, *A recent report published by the Association which is essential if we are to make enduring progress. of Certified Fraud Examiners finds that organ- The purpose of this report is to identify the progress tionspublic and private-lose 6 percent the Bank has made to date in this difficult arena and to of annu revenue to fraud and corruption point out the many challenges still facing the Bank. The Ban is comittedtoensuing tht Bank each year. In the United States alone, fraud and The Bank IS committed to ensuring that Bank- cruto li 40bline er financed projects are free from corruption and to help- ing countries build transparent and accountable govern- * Ernst and Young, in a survey of certified fraud ment institutions.The reasonswhy the Bankhas taken examiners,found that one out of four busi- a leadingrole in the fight againstcorruption are clear: nessesloses more than $1 million annuallyto * Corruptionhurts the poor most severely:it diverts fraud and corruption and that 67 percent of publicservices from thosewho need them most and thosepolled believe that fraudis gettingworse. More than three-quarters of respondents believethat the worst of the fraud could be * Corruption underminespublic support for devel- preventedthrough the use of adequatepolicies opment assistanceby creatingan erroneouspercep- and controls. tion that all assistanceis affectedby corruption. HelpingCountries Combat Corruption * Corruption can impede developing countries' access * The Bank would mainstream its concern for cor- to increasingly discriminating private capital. ruption directly into its country analysis and lend- * The Bank has a fiduciary duty to its member coun- ing decisions. tries to ensure that financial support reaches its * The Bank would contribute to the international
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