Syndicated corruption

Get Real
By Solita Collas-Monsod
Philippine Daily Inquirer
02/07/2009

All I have are 18 pages of what has to be a more than 124-page document (the last page of what I have is page 124) studded with at least 433 footnotes (the last footnote on page 124 was numbered 433). But what these pages contain is more than enough to convince me that:

(a) they are indeed taken from the investigation report of the World Bank’s Department of Institutional Integrity (INT) regarding fraud and corruption surrounding a major World Bank-assisted project, the Philippine National Roads Improvement and Management Program;

(b) that the investigation was thorough — the footnotes I came across alluded to 28 interviews with fully identified individuals, and five interviews with confidential (those who refused to be identified) witnesses, not to mention at least 20 exhibits. This, by the way, is necessarily only a partial count. In a statement on its website, the World Bank describes the investigation as involving more than 10 investigators, lawyers, experts and technical staff who conducted field work in six countries over a period of more than three years, conducted more than 60 interviews, studied thousands of pages of documents, and conducted a forensic analysis of the bids submitted over three rounds of bidding.

The document in my possession contains references (five) made regarding the President’s husband — two from foreigners and three from Filipinos. There was the Japanese contractor who stated to the investigator that he had actually had dinner with Mr. Arroyo and a now-deceased senator, and that the two Filipinos “first discussed bribes” and that they had a “rough approach.”

One Filipino, a contractor, said that a Mr. De Luna was behind one of those manipulating the bids, and that “the husband of Philippine President Gloria Arroyo, First Gentleman Mike Arroyo, is ‘behind’ Mr. De Luna.”

The same contractor also mentioned the now-deceased senator as being “very active in using his influence to further the collusive bid.” The head of a Korean company told the investigator that he was told to form a relationship with EC de Luna (one of the companies subsequently debarred by the World Bank) if he wanted a contract, because of Mr. De Luna’s connections to Mike Arroyo.

The fourth reference to the President’s husband was made by a confidential witness, another contractor, who told the investigator that “contractor Eduardo de Luna (of EC de Luna) was ‘masterminding bids, is close to Mike Arroyo, and is a go-between for Mr. Arroyo on foreign-assisted projects’.” And the fifth reference came from another confidential witness who claimed to be one of the bidders, and who adverted to Mr. Arroyo as being extensively involved in the corruption surrounding the bidding processes.

By the way, it is this same Mr. De Luna of EC de Luna who was cleared by the House committee on public works after two hearings, and who was also reportedly cleared by Public Works and Highways Secretary Hermogenes Ebdane, although one has no idea when an investigation was conducted, if at all.

It is unfortunate that the references to Mr. Arroyo’s involvement contained in that document have taken attention away from what I consider their main or structural messages: that infrastructure projects in this country are not only fraught with corruption, but this corruption is organized, institutionalized as it were, in a collusive (syndicate) effort involving Department Public Works and Highways (DPWH) officials, contractors and politicians. The actors may change over time, but the system is firmly in place.

The picture drawn by the report is an ugly one: DPWH officials are the source of confidential information needed to ensure the success of the bids of the contractors in the syndicate; they are also the “enforcers,” if you will, who, with the judicious application of technicalities, ensure that uncooperative contractors are disqualified one way or another. The mantle of leadership in the syndicate falls on those with the strongest political connections (or those who are perceived to have the strongest political connections). And the political connections are obviously provided by those in high office or are very close to that high office.

Even the payoffs are systematized, with everyone getting his share, from the “losing” contractors (who are reimbursed the costs of preparing their losing bids so that the aura of competition is maintained), to the public works officials, to the politicians (including those in whose district the project will be implemented) and to the “padron” — the “capo di tutti capi.”

How much is the take, the amount that is stolen from the Filipino people? Well, if the infrastructure budget is P200 billion, and the “SOP” is 20 percent, it doesn’t take a rocket scientist to conclude that P40 billion of that amount will find its way into the pockets of the syndicate members.

Could it be that the investigative report is all rumor and gossip by disgruntled contractors who are getting back at their more successful colleagues? Given the thoroughness of the investigation, that is unlikely. But what really convinced me was an email message to the investigator from one of the contractors who had referred to the President’s husband. In that message, he predicted not only who the winners of the bids to be opened later that day would be, but also how much above the agency estimates their winning bids would be, and how much above the agency estimates the losing bids would be.

When the bids were opened, the results were exactly as predicted.

It is that syndicate that must be dismantled, once and for all.

The World Bank
Media Contact:
David Theis,
INT, Washington DC(202) 458-8626
dtheis@worldbank.org
STATEMENT ON THE WORLD BANK’S INVESTIGATIVE AND SANCTIONS PROCESS
February 4, 2009
The World Bank has debarred eight companies and one individual for engaging in collusive practices under the Philippines National Roads Improvement and Management Program (NRIMP-1) project. These debarments resulted from an in-depth investigation conducted by the Bank’s Integrity Vice Presidency (INT), which is responsible for investigating allegations of fraud and corruption in Bank-financed operations.

INT’s NRIMP-1 investigation was prompted by the Bank’s project team, which identified indicators of collusion in the bidding for two contract packages worth an estimated US$33 million and reported its suspicions to INT. The Bank does not publicly disclose the details of its investigative findings, but INT’s NRIMP-1 investigation involved more than 10 investigators, lawyers, experts, and technical staff who conducted field work in six countries over a period of more than three years. INT investigators conducted more than 60 interviews with various witnesses; reviewed thousands of pages of documents, including bids, contracts, communication and other project documents; and conducted a forensic analysis of all bids submitted over three rounds of bidding for the tenders in question.
In parallel with the INT investigation, the Bank’s project team continued to closely monitor the bidding for the NRIMP-1 contracts. The project team identified further collusion indicators that led the Bank to reject the award of the contracts. As a result of this swift action, no Bank funds from the NRIMP-1 project were disbursed to the now-sanctioned companies.

The INT investigation uncovered evidence of a major cartel involving local and international companies bidding on the NRIMP-1 contracts. At the close of the investigation in November 2007, INT shared its investigative findings with the Philippines Department of Finance and the Office of the Ombudsman in the form of a
Referral Report. Such referrals are the Bank’s standard practice when INT finds evidence indicating that the laws of a member country may have been violated. A Redacted Report which summarizes the Bank’s investigative findings will be posted on the INT page of the World Bank’s website in the coming weeks.

In addition, based upon the results of its investigation, INT initiated sanctions proceedings against companies that evidence indicated had engaged in collusion. As part of the ensuing sanctions process, these companies received a Notice of Sanctions Proceedings in May 2008 containing all alleged wrongdoing, and each was given 90 days to submit a response in their defense and contest the allegations against them. All of the companies were also offered the opportunity, as part of their response, to request a hearing before the Bank’s Sanctions Board. The Sanctions Board—which is comprised of eminent external legal experts and senior Bank officials—took all of the companies’ submissions into account when making its decision.

The Sanctions Board decided that the entities had participated in a collusive scheme designed to establish bid prices at artificial, non-competitive levels and to deprive the Borrower of the benefits of free and open competition. This constituted fraudulent practices under the procurement rules applying to NRIMP-1, and the Bank sanctioned the companies for those fraudulent practices.

Since 1999, the World Bank has debarred more than 350 firms and individuals from more than 24 countries based on similar investigations.