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Lesotho: Anti-Corruption Actions

AfricaFocus Bulletin
Nov 12, 2006 (061112)
(Reposted from sources cited below)

Editor's Note

Search the World Bank's website section on anti-corruption (http://www.worldbank.org/anticorruption) for "Lesotho" and you will get the following response: Your search - Lesotho - did not match any documents. No pages were found containing "Lesotho". But while the World Bank may not be paying attention, the small Southern African country has taken the lead in attacking corruption in the Lesotho Highlands Water Project, a giant scheme financed by the World Bank itself.

This AfricaFocus Bulletin contains several articles about actions against corruption in this project providing water to South Africa from the highlands of the Lesotho mountains - an overview by Hennie Van Vuuren of the Institute for Security Studies in Cape Town, and press releases from Odious Debts Online and the International Rivers Network on the World Bank's belated decision to temporarily bar a German contractor convicted of corruption on the project.

For additional resources see the websites cited below and particularly the site of the Transformation Resource Centre (TRC) in Lesotho, which has mobilized civil society and provided extensive documentation on the project and its flaws. Most recently, the TRC has published a report entitled "On the Wrong Side of Development: Learning from the Lesotho Highlands Water Project (download this and see other resources at http://www.trc.org.ls/water.htm)..

++++++++++++++++++++++end editor's note+++++++++++++++++++++++

Time to listen to Lesotho! - The World Bank and its new anti-corruption agenda

Comment by Hennie Van Vuuren

11th September 2006

[Hennie van Vuuren is the head of the corruption and governance programme at the Institute for Security Studies in Cape Town, South Africa.

To view a detailed case study on the Lesotho Highlands corruption and bribery trials visit the ISS Internet Portal on Corruption (http://www.ipocafrica.org).]

Lesotho, the tiny Southern African mountain kingdom, punches above its weight. This is not reflected in a bossy attitude, rather is has done what is seldom 'expected' of relatively weak African states - it has tackled corruption in the multi-billion rand Lesotho Highlands Water Scheme head on, by prosecuting both corrupt officials and bribe paying corporations. It has in short proved afro-pessimists wrong, while dealing a knock-out blow to those who argue that it's improbable that corporations can be held to account for criminal behaviour in the 'developed world' - and impossible to do so in the 'developing world'. The scheme was the world's biggest construction project when unveiled twenty years ago and was designed to pipe water hundreds of kilometres away to apartheid South Africa's thirsty industrial heartland centred on Johannesburg. In turn, the otherwise resource impoverished Basotho people were, amongst other things, promised the benefit of electrification and monetary compensation.

To finance the project the corrupt South African regime needed access to capital that was no longer readily available as a result of international sanctions against apartheid. The World Bank came to the rescue and effectively helped launder the financing to Pretoria through the project's financial advisers based in London. The deal, argued by some to be on the borderline of illegality, set the tone for what was to come once contracts were awarded to construction companies. By the start of this decade over a dozen international construction companies had been charged of bribing a senior Lesotho official and a number have since been found guilty in the Lesotho courts in landmark judgements that detail the flow of funds through Swiss banks and the hands of intermediaries acting for the corporations. Most recently a senior official with the New Partnership for Africa's Development - who was formerly linked to the Lesotho dam project - was charged with corruption proving again that the political will exists to tackle graft without exception.

The response from World Bank has consistently erred toward caution. Despite promises as far back as a 1999 closed-door meeting that it would provide financial support to the Lesotho prosecutors - no assistance has been forthcoming leaving a poor state to fit the multi-million dollar legal bill. Equally the bank was slow in applying its policy to exclude corrupt companies from future World Bank contracts, eventually debarring the Canadian multinational Acres in March 2004 for three years. This came over thirty months after an internal Bank probe concluded that Acres had paid for influence - reportedly allowing the company to commence big-ticket Bank funded projects in Uganda, Palestine and Sri Lanka in the interim.

Given such a track record, and the Lesotho case is but one World Bank project dogged by corruption in Africa, the announcement that the Bank is now seeking comment on its proposed new anti-corruption strategy are timorous. Two areas in the draft strategy, Strengthening bank group engagement on governance and anti-corruption that need more attention are precisely around prosecution and debarment.

Importantly the policy document sets out the need to support "...country efforts to strengthen their investigations and prosecution of corruption..." The lesson from Lesotho is clear that such support needs to be disbursed rapidly and in the form of both money and where necessary technical assistance to investigate and prosecute corruption in Bank related projects. This must also focus on prosecution of both corrupt officials and contractors, regardless of the political influence they have in their own home countries.

On debarment, the document is also not specific and rather focuses on the need for uniformity amongst development agencies in recognising each other's sanctions rules. This is important because despite agreements between the European Bank for Reconstruction and Development (EBRD) and the World Bank - the EBRD has not debarred any companies including the Canadian Acres according to a comment made at an April 2006 Commonwealth corruption conference in London by a senior EBRD official. If international finance institutions don't co-ordinate sanctions impunity will continue to prevail. In addition the policy has to be clear on a number of other issues such as the need for fast-tracking the inclusion of corrupt corporations and individuals on to the debarment list, issuing penalties that hurt a corporation's bottom line and recognising the decisions taken by national courts. The Lesotho case proves that the practice of second-guessing the African bench by painting it with the uniform brush of 'corrupt' is at the very least discriminatory.

The World Bank, and the home countries of the corporations implicated in corruption in the Lesotho Highlands Water Scheme, have many reasons to be shame-faced for the lack of support that Lesotho has been shown in its tenacious efforts to tackle corruption. At the very least the epitaph on the corruption and bribery trials needs to read that the conduct of international finance institutions and corporations in Lesotho must not be allowed to be repeated over and again elsewhere. It is time the world listens to Lesotho!


German firm barred by World Bank for bribery in Lesotho project; ban should have come sooner, says analyst

Odious Debts Online

Special Edition, November 7, 2006

[Odious Debts Online (http://www.odiousdebts.org) is produced by Probe International, a non-profit organization based in Toronto, Canada.]

The World Bank has suspended contracts to the German engineering firm, Lahmeyer International, after finding the company guilty of paying bribes in the multi-billion dollar Lesotho Highlands Water Project (LHWP).

The World Bank's sanctions committee found that Lahmeyer had engaged in corrupt activities by bribing the Lesotho Highlands Development Authority's chief executive, Mr Masupha Sole, the government official responsible for contract award and implementation under the LHWP, in violation of the Bank's procurement guidelines.

But the decision to debar Lahmeyer for bribery - a crime for which it was indicted in 1999, and convicted and affirmed on appeal in 2004 - has been too long in coming, said Patricia Adams of the Canadian-based foreign aid watchdog, Probe International.

"It sends the wrong signal to other corporate bribers," said Ms Adams. "In those seven years since the original indictment, Lahmeyer was able to carry on business as usual. Rather, the Bank should have taken swift action and suspended the company's right to do business with the Bank when they were originally indicted - as is allowed for under the U.S. Foreign Corrupt Practices Act - pending a decision by the Lesotho courts."

Declaring the Bank's support for Lesotho's lead in holding corporate bribers to account, World Bank President Paul Wolfowitz said:

"The Government of Lesotho has shown courage and leadership in successfully prosecuting its own officials and several large foreign companies for corruption. Institutions like the World Bank, and the governments of rich countries, should support the bold stance of poor countries like Lesotho which are working to make sure that precious public resources go to help the poor, for whom they are intended."

In its statement announcing the debarment, however, the World Bank said the period of Lahmeyer's ineligibility to bid on Bank-financed contracts could be reduced by four years if the company introduced a "satisfactory corporate compliance and ethics program" and disclosed any other past misconduct, presumably under the Bank's new Voluntary Disclosure Program (or VDP).

Despite the Bank's outward appearance of support for Lesotho's actions, the protection offered by Bank programs like the VDP are ultimately "bad for developing country citizens and taxpayers, and the rule of law," said Ms Adams.

"The VDP program allows 'confessors' confidentiality and thus allows the Bank to cover-up its own negligence or complicity, which undermines the administration of justice in countries where it is a criminal offense to bribe a foreign official," she said - the same stance the Bank is publicly congratulating Lesotho for.

In addition to debarment from World Bank contracts, Lahmeyer was fined $10 million rand ($1.63 million) in 2003 after being found guilty of bribing Masupha Sole in relation to the Lesotho project, touted as southern Africa's largest water scheme undertaking to date.

Three other companies previously charged by the Lesotho courts for paying bribes to win contracts for the Lesotho Highlands Water Project are Impregilo, an Italian construction company, and engineering firms Acres International, based in Canada, and the French company, Spie Batignolles.

The official World Bank statement regarding Lahmeyer's debarment is available on the Odious Debt website
(http://www.odiousdebts.org)


Corrupt Lahmeyer Debarment Welcome but Late -- NGOs

Press Release
November 7, 2006

International Rivers Network
http://www.irn.org

Contacts

Environmental campaigners welcomed yesterday's decision by the World Bank to debar German-based Lahmeyer International for bribing officials to win contracts for Africa's largest inter-basin water transfer scheme, the Lesotho Highlands Water Project (LHWP).

Korinna Horta of Environmental Defense said: "We welcome the World Bank's decision to suspend Lahmeyer International from doing business with the Bank for a period of seven years. This decision represents an important departure from just talking about corruption to taking serious action. It sends an important signal to international companies that bribery of foreign officials carries considerable risk."

However, the Bank's decision comes three years after the Lesotho court found Lahmeyer guilty of corruption, during which time Lahmeyer received at least 18 Bank contracts totaling nearly US $15 million. Four contracts worth a combined US $1.4 million were granted since the Bank reopened its debarment investigation of Lahmeyer in August 2005.

Terri Hathaway of International Rivers Network said: "Although we welcome this decision, the World Bank's sluggish response has only been to Lahmeyer's advantage. Future action must come more swiftly. The Bank can not be serious about fighting corruption if it chases criminal companies, but gives them a generous lead time."

Environmental Defense and International Rivers Network call on the World Bank to ensure that future court convictions for corruption occurring under World Bank contracts carry immediate debarment and for the Bank to work with other multilateral development banks and bilateral aid agencies to obtain cross-debarment of guilty contractors.

Besides serious allegations of corruption, the LHWP has caused the vulnerable Highlands population to lose fields, grazing lands and access to fresh water sources. Despite promises, their livelihoods have not been reestablished, and poor people have been pushed closer to the edge in their struggle for survival. Problems of erosion and the downstream effects of massive water diversion are disrupting ecosystems and people's livelihoods.

Mabusetsa Lenka Thamae of the Transformation Resource Centre in Lesotho said: "Corruption on large infrastructure projects is a serious problem that directly affects project benefits, especially for project-affected people. Corruption is a two-way street, and companies that bribe must be brought to justice just like project officials who have accepted bribes."

"In addition to corruption, the Lesotho Highlands Water Project has been marred by environmental problems and impoverishment of the affected communities. The World Bank should not close its books on the project as long as these serious problems remain to be solved," said Horta.

Background

Lahmeyer International was part of the consortium which carried out the 1986 feasibility study for the LHWP. The Project's first phase is complete, including the Katse Dam, the Muela Dam, 82 km of water tunnels, and 200 km of access roads at an estimated total cost of US$2.5 billion. If completed, the entire scheme would divert about 40% of the water in the Senqu river basin to South Africa's industrial Gauteng region.

In 2002, the Lesotho courts handed down its first corruption conviction, to Acres International of Canada. The World Bank delayed its decision to debar Acres for more than two years after the conviction, allowing the company to receive at least four Bank contracts, including just one week prior to debarment. Acres was debarred from receiving Bank contracts for a period of three years.

The World Bank decision makes Lahmeyer ineligible to receive Bank contracts for a period of seven years, although this may be reduced to only three years should Lahmeyer meet the Bank's criteria.


AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

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