World Bank suspends German firm over corruption
9 November 2006
This week the World Bank suspended its contracts to Lahmeyer International after being found guilty of bribing public officials in the multi-billion dollar Lesotho Highlands Water Project.
On Monday, November 6, the World Bank suspended its contracts to Lahmeyer International, a German engineering firm, after the company was found guilty of fraud. The firm was convicted and fined $1.63 million by a Lesotho court in 2003 for engaging in bribery to obtain contracts in the multi-billion dollar Lesotho Highlands Water Project, one of the largest dam projects in the world. The suspension bars the company from receiving World Bank contracts for seven years, although the duration of the debarment could be reduced to only four years, according to a World Bank press release, “if the Bank determines that Lahmeyer has met specific compliance conditions and fully cooperated with the Bank in disclosing past sanctionable misconduct.”
The Lesotho Highlands Water Project was co-financed by the World Bank, the European Investment Bank (EIB) and other international donors in the 1980s when apartheid South Africa, the main beneficiary of the massive water transfer and hydropower scheme, was unable to attract sufficient commercial financing because of international sanctions. Although allegations of corruption have persisted throughout the span of the multi-phase project, the World Bank has never followed through on its commitments to help finance the investigation and prosecution of the accused companies.
While some applaud the World Bank for taking action against the Lahmeyer International, others argue that the temporary debarment of the German firm amounts to a mere slap on the wrist and criticize the Bank for failing to curb corruption in the construction of one of its largest projects. A recent IPS article further points out that the Bank’s decision to debar Lahmeyer has come too late, and that “although the Bank's corruption policy states that it will sever ties with any firm guilty of corruption on a Bank-financed contract, it allowed the company to continue to bid for Bank-backed contracts until this week.” Despite being convicted in 2003, Lahmeyer has since “received at least 18 Bank contracts totaling nearly 15 million dollars.” The World Bank reportedly responded that it “had to wait until legal proceedings were concluded in the African nation and that it re-opened its own debarment proceedings against Lahmeyer in August 2005.”
Critics also claim that the Bank’s policy of lending for major infrastructure projects is at odds with its stated commitment to tackle corruption, since studies have shown that massive, centrally planned and financed water, energy, transport and other public works projects are particularly prone to corruption ("The World Bank's Conflicted Corruption Fight").
Additional Resources
- Bank bars company over years-old bribery scandal by Emad Mekay, Inter Press Service, November 8, 2006 (IPS website)
- World Bank blocks German firm over graft, Reuters, November 6, 2006 (Reuters website)
- Press Release: World Bank sanctions Lahmeyer International for corruption activities in Bank-financed projects, World Bank, November 6, 2006 (World Bank website)
- Lesotho case a watershed, by Hennie van Vuuren, Business Day, September 11, 2006 (Business Day website)
- The World Bank's conflicted corruption fight, International Rivers Network and Environmental Defense, May 2006 (IRN website)
- Lesotho Highlands Water Project page, International Rivers Network (IRN website)
- World Bank Department of Institutional Integrity page (World Bank website)