World Bank meets with senators, stands firm on findings

MANILA, Philippines – World Bank officials led by country director Bert Hofman told lawmakers yesterday that it was up to authorities to prosecute contractors the bank had banned for collusion in bidding for road projects.

Hofman said the lending institution welcomed a Senate inquiry into the case and was working closely with the government to improve procurement systems.

He presented bidding documents that formed the basis for the debarment of seven contractors as he stood firm on the Bank’s findings of collusion.

The World Bank brought up the issue of collusion in a Referral Report that it relayed inNovember 2007 to the Department of Finance and the Office of the Ombudsman. The WB had briefed the Ombudsman about the case as early as May 2006.

 “It’s the discretion of the Philippine authorities to pursue or not to pursue anything that we referred to them in the Referral Report,” Hofman said in a press conference after briefing the senators about the report.

“It does not mean that since it is confidential, it cannot be used,” Hofman said, apparently referring to Ombudsman Merceditas Gutierrez’s explanation for not investigating the allegations contained in the report early enough. Gutierrez was present at the briefing.

Hofman welcomed Gutierrez’s assurance that her office would come up with its own findings by the first week of March.

“We’re looking forward to that,” Hofman said.

The bank had earlier blacklisted several Chinese and Filipino firms it said colluded in the bidding for a $33-million road rehabilitation project.

Hofman said the World Bank was mandated to make sure that its funds are used properly, stressing that its internal investigations and sanctions “ultimately protect the taxpayers’ money” of member countries.

A full copy of the World Bank report has not been publicly released, but it is believed to detail the operation of a cartel in the Philippines composed of powerful politicians – allegedly including First Gentleman Jose Miguel Arroyo – local contractors and public works officials to rig the bidding for government projects in the Philippines.

“As described in the report, INT (Integrity Vice Presidency of the WB) has concluded that the Bank’s own rules on procurement have been violated as a consequence of a collusive scheme entered into by bidders, government officials and public figures, which was designated to manipulate the Bank’s procurement process on two Bank-financed contracts under NRIMP-1 (National Roads Improvement and Management Program-1),” the Referral Report read.

With Hofman at the briefing were communication officer David Theis Sr. and regional chief counsel Anthony Thoft.

The WB officials assured the Senate and the Philippine government of cooperation in the latter’s investigation into the matter.

“The Bank welcomes actions by member governments on investigation of possible fraud and corruption and the Bank has informed the senator that the institution, and INT in particular, would be happy to bring our technical assistance on the bank’s procurement process in relation to this investigation to those who have been tasked with investigating the matter,” Theis said.

No detailed explanation

Hofman clarified they did not tackle the details of the report but only the bank’s investigative and sanctions processes, the types of documents and reports produced in the course of these processes and how such reports might be used for follow up actions appropriate under the laws of the member country where the alleged wrongdoing occurred.

However, a copy of the “Referral Report” authenticated by the WB was made available to the media by the Senate economic affairs committee, which presided over the meeting.

Sen. Manuel Roxas II, committee vice chairman, said the contents of the report should have been enough for the Ombudsman to pursue an investigation as early November 2007 when the document was forwarded to her office.

The World Bank stressed in its “Referral Report” that its findings should not be used by the Philippines as basis for initiating any administrative, criminal or civil proceedings but only as “basis for undertaking its own investigation into the allegations in order to determine whether any laws of the Philippines have been violated.”

The World Bank investigation consisted of document reviews as well as interviews in the Philippines, South Korea and Japan.

“Numerous witnesses testified that a cartel exists in the Philippines, controlling bidding on road projects by international and local contractors,” the report stated.

Witnesses named in the report alleged that Eduardo C. de Luna, president of EC de Luna Construction Corp., “was at the center of cartel.”

Also named in the report were former secretary Florante Soriquez, Region IV-A Assistant Director Huillio “Boy” Belleza and Assistant Director Tito Miranda.

The report quoting witnesses said “DPWH officials arranged for contracts to be awarded to particular contractors in exchange for bribes and kickbacks.”

Based on a scheme followed by the cartel, the INT said other bidders would agree to protect the cartel by bidding higher than the agreed price for the project and be paid for colluding with the cartel.

“Some witnesses told INT that normally, the politician representing the area in which the project is to be carried out (generally, the local governor or a congressman) selects the winning contractor. Then usually before the bid opening, the colluders met at a local hotel and the designated losing bidders were told the pre-arranged prices that they were to bid. These prices were significantly inflated, to be above already inflated price of the designated partner,” the report said.

“The entire system operated under a ‘gentlemen’s agreement,’ with the implicit understanding that those who violate the agreement would be denied the prospect of winning future contracts,” the report said.

Japanese contractor Tomatu Suzuka was cited in the report as the witness who claimed that his bid was a forgery and was higher than the others, placing fifth among the bidders.

From the bidding documents themselves, the INT said there were already indications of collusion as there were patterns indicating that the bidders coordinated with one another.

“Multiple companies submitted fraudulent bid securities, apparently with no intention of winning the contracts on which they bid,” the report noted.

The report further quoted witnesses as saying politicians and government officials demanded large percentages of the contract price as kickbacks and “that doing work at a profit is actually impossible for honest contractors.”

“Some companies told INT they would no longer bid on public works projects, others have left the Philippines altogether. Some of those who intended to stay spoke of how dangerous it was to cross the cartel, and told investigators they feared for their safety because of the impunity of the corruption they faced,” the report said.

‘Preponderance of evidence’

Hofman, however, said they did not authenticate for the senators the “Notice of Sanctions Proceedings” given to the contractors implicated and which contained detailed statements of the witnesses.

Roxas said there was “preponderance of evidence” that the Ombudsman should have used as leads.

Roxas said the World Bank representatives stressed that “we all start from the same base” and that the “Referral Report” was enough for other countries to conduct and complete its own investigations.

“The World Bank is not a taxpayer, employee and certainly not the law enforcement arm or the police of the Philippines,” Roxas said.

Roxas said had the Ombudsman not sat on the issue, the investigation would have already been complete by this time.

The World Bank first briefed her office about the matter in May 2006 and gave her the “Referral Report” on Nov. 13, 2007.

Roxas said the Blue Ribbon committee would take over the investigation from the economic affairs panel given the findings of the World Bank.

‘Unfair’

Gutierrez said it is unfair to compare her office’s treatment of the World Bank report on corruption to the prompt action made by other countries confronted with similar reports from the lending institution.

“We are not aware of the circumstances surrounding the report submitted to them by the World Bank regarding the said irregularities. We do not know if the WB in those countries submitted solid evidence or even leads which is wanting in the Report they submitted to us,” Gutierrez said in a statement.

She said that the fact that the World Bank itself labeled its report “strictly confidential” meant that it could not be used as basis for any investigation.

She also claimed that the World Bank declined to name the witnesses in its report despite the Ombudsman’s request.

But just the same, Gutierrez said she ordered a fact-finding team as far back as November 2007 to properly identify those persons involved in the alleged corrupt practices reported by the World Bank.

She also lamented that her office is being criticized for allegedly “sleeping” on the said case when it actually took the World Bank six years to finish its own investigation.

Not clueless

Contrary to Gutierrez’s claim that her office knew of the irregularities in the World Bank-financed roads project only last November 2007, the multilateral bank said that the anti-graft agency was aware of the issue three years ago.

As early as May 2006, World Bank investigators personally briefed a staff of Gutierrez on the corruption issues involving a portion of a $150-million roads project. Since then, the World Bank had been in touch with the Office of the Ombudsman.

The World Bank investigators and Gutierrez’s staff met for the second time in January 2008. On Feb. 10, 2009, before the congressional hearings on the roads issue started, the lender provided the Ombudsman additional documentary evidence.

These meetings were revealed in an investigation timeline released by the World Bank yesterday.

Since 1999, the World Bank has investigated 3,000 allegations of fraud and corruption involving its projects worldwide. A total of 351 firms and individuals in 24 countries have been debarred either permanently or temporarily. –Aurea Calica with Michael Punongbayan, Ted Torres, Philippine Star