Procurement is at the heart of the work that the World Bank and other international development banks do. Countries borrow from these multilateral organisations to develop the public works and services their citizens need: such as healthcare, education, sanitation and infrastructure.
Through public procurement, countries use the borrowed funds to acquire expertise, labour and supplies needed for these projects. And public procurement is an area that we know is fraught with corruption risk.
That’s why Transparency International USA organised a panel as part of the World Bank Civil Society Policy Forum, held in Washington in conjunction with the World Bank/International Monetary Fund spring meetings, focusing on transparency and accountability in public procurement. Our aim was to demonstrate how anonymous shell companies are often used to facilitate corruption in public procurement.
Public procurement typically accounts for the largest share of government expenditures aside from public sector salaries and social benefits. It’s generally between 15 and 30 per cent of a country’s gross domestic product.
Conflicts of interest are a huge issue in public procurement. Too often, public contracts are awarded to family members or associates of the government officials overseeing them. By using anonymous shell companies, connected bidders are able to conceal their links to government officials.
These anonymous shell companies are set up by a network of bankers, lawyers, and accountants all over the world, and may be incorporated in both onshore and offshore jurisdictions. For example, the state of Delaware in the US has become a popular location for anonymous shell companies. Many small island nations such as the British Virgin Islands, the Cayman Islands and the Seychelles are frequently used for this purpose too.
Transparency International believes that transparency and accountability are essential to preventing corruption and fraud in public procurement. The World Bank plays an enormous role in international development worldwide.
It is important that the bank also plays a leading role in adopting best practice procurement policies, not only because of the billions of dollars of procurements it oversees, but because other international financial institutions and governments have traditionally adopted World Bank policies on a wide variety of subjects. This means that it should insist that ultimate beneficial ownership information of all corporate bidders is collected and disclosed for all World Bank-funded procurements.
There is a growing international consensus among policy experts, civil society and governments that public beneficial ownership registries are a critical element in the fight against corruption fuelled by anonymous shell companies.
The UK, Denmark and the European Union have all either taken action or pledged to take action on the creation of beneficial ownership registries.
The G20 countries have also committed to increase transparency of legal entities by endorsing the High Level Principles of Beneficial Ownership Transparency. The World Bank should add its voice to this growing chorus. By doing so, it can simultaneously strike a blow in the fight against corruption, set an example for countries around the world, and protect its own interests in ensuring that its funds benefit those its projects are aimed at helping. It is time for the World Bank to act.
Co-written by Shruti Shah, Vice President of Transparency International USA.
Carousel image: Flickr, John Connell