World Bank Group updates sanctions framework for first time in about a decade: What it means for risk mitigation, sanctions litigation, and M&A

The WBG Sanctioning Guidelines (Sanctioning Guidelines) and the Bank Procedure: Sanctions Proceedings and Settlements in Bank Financed Projects (Sanctions Procedure) govern the architecture, rules, and procedures of the sanctions system.¹ In November 2023, WBG revised the Sanctions Procedure, and in October 2024 the Sanctioning Guidelines. The Procedure and Guidelines were last revised in 2016 and 2011, respectively. 

Sanctions Procedure

Two November 2023 revisions in the Sanctions Procedure stand out. 

Withholding sensitive materials from respondents

The Office of Suspension and Debarment (OSD) may now withhold sensitive evidence in certain situations upon request by the Integrity Vice Presidency (INT), as long as the withheld evidence does not restrict a respondent’s ability to meaningfully defend themselves. 

INT’s request must show that the life, health, safety, or well-being of a person (including data privacy considerations per the World Bank Group Personal Data Privacy Policy²) would be endangered, the evidence would prejudice a WBG Voluntary Disclosure Program participant, or the disclosure would be prohibited under WBG Staff Rules. 

If OSD grants INT’s request, OSD must notify the respondent that certain materials have been withheld in the Notice of Sanctions Proceedings. The Sanctions Procedure do not clarify if OSD is expected to only state that certain materials have been withheld, or also describe the contents of these materials. The latter would further promote fairness and transparency of the sanctions proceedings. 

The Sanctions Board must review OSD’s withholding decision de novo should the respondent file a Response. If the Sanctions Board rules that the evidence should not have been withheld, INT may withdraw it, redact it, or subject it to in camera review, or withdraw the case in its entirety. 

This new process resolves the rare situation under the 2016 Sanctions Procedure in which INT would submit heavily redacted materials to OSD, limiting the respondents’ ability to defend themselves. In the past, a respondent could only challenge redactions before the Sanctions Board, thereby potentially depriving respondents of a defined process earlier in the proceeding by which to challenge redactions – thus hampering their ability to defend themselves. Although challenging redactions has remained the same in the current Procedure, the revisions now provide the sanctions units and respondents an alternative more structured process and criteria that specify how and when evidence may be withheld. 

One could criticize the “meaningful defense” standard for veering from the almost universal right of a defendant to access all inculpatory and exculpatory evidence and for potentially assigning more value to privacy rights of third parties. 

The WBG would likely respond that WBG sanctions are administrative – not criminal – proceedings and that, in any event, most legal systems have mechanisms to protect the identities of witnesses when their safety could be endangered. The WBG could also emphasize that OSD and the Sanctions Board are independent decision-makers whose roles are to ensure fairness in the sanctions process. 

New framework to identify and contest successorship 

The revised Sanctions Procedure establish a framework for extending sanctions to companies determined to be successors of previously sanctioned entities. This addition seeks to mitigate the risk of sanctions evasion by creating a new company in order to continue to receive WBG financing.

The revised Procedure define “successor” as an entity that continues to carry out a significant part of the business operations of a sanctioned entity, which is consistent with the “concept of economic successorship” used previously.³ INT may now submit a “Statement of Successorship” to the SDO explaining the grounds and evidence for extending the sanctions to the entity INT considers to be a successor. OSD may issue a Notice of Successorship, against which the alleged successor can submit its objections in a “Clarification” within 15 days. OSD’s decision can be appealed to the Sanctions Board. 

This process appears to be in response to Sanctions Board Decision No. 101, a 2017 decision in which the Board observed that the Sanctions Procedure lacked a definition of the term “successor” and a clear understanding of how to determine what entities are considered successors, which made it challenging for the WBG to balance fair sanctions and sanctions evasion.⁴

Sanctioned entities that undertake changes in corporate structure should carefully assess the effect of these changes on their sanction. They should also be aware of the possibility that they may receive a Notice of Successorship as well as the ambitious 15-day deadline to respond. 

Companies that consider acquisitions should be aware of the risk extension, which underscores the need for thorough due diligence that specifically covers WBG sanctions and participation in WBG-financed projects. The compliance and risk functions should incorporate these considerations into the M&A diligence processes to mitigate integrity risks.⁵ Should a buyer acquire a WBG sanctioned entity, companies and their counsel may be able to negotiate with INT a limited extension of the sanction to the buyer. 

Sanctioning Guidelines

The Sanctioning Guidelines are another key WBG sanctions system policy, which was updated in October 2024. The Guidelines assist decision-makers on considerations that the WBG believes are relevant to deciding whether an entity should be sanctioned, and, if so, what sanction should be imposed.⁶

Most updates can generally be divided into (1) additions, (2) codification of previously-implemented practices, and (3) clarifications. We list below some of the more notable below, many of which will be helpful in crafting mitigation arguments during the sanctions process. 

Additions

• The 2024 Sanctioning Guidelines added breach of confidentiality of the sanctions proceedings as a new aggravating factor. This may be in response to respondents disclosing information on the record to third parties, which could jeopardize parallel INT investigations. It may also reflect the WBG’s effort to protect personal information.
• The 2024 Guidelines limit the scope of the “past history of misconduct” aggravating factor. Decision-makers can now consider only adjudicated misconduct by another Multilateral Development Bank, not national authorities.⁷ It is unclear if “Multilateral Development Bank” means only other parties to the cross-debarment agreement, or if it includes other international financial institutions more broadly.⁸
• The 2024 Guidelines introduce “undue pressure” as a mitigating factor, where a respondent claims to have acted under threat or intimidation. A showing of undue pressure may mitigate the sanction; however, it does not cancel it out. The implementation of this factor by the sanctions units and their interpretation of what conduct constitutes undue pressure remain to be seen. On first impression, an imminent threat of physical harm is not required for the mitigating factor to apply, which is in contrast to the U.S. Foreign Corrupt Practices Act, where the requisite state of mind would be missing.⁹ This may enable lesser forms of pressure, such as economic extortion, to lead to mitigation. 

Codification of previously-implemented practices

• The 2024 Guidelines direct the sanctions units to consider the period of temporary suspension and the passage of time in their sanctions calculations, which they have historically considered. Respondents that have been suspended pending prolonged sanctions proceedings may receive a more lenient type of sanction or shorter duration of sanction. Similarly, sanctions for older underlying conduct are likely to be more lenient in recognition of evidentiary challenges. 
• The 2024 Guidelines seek proportional sanctions for parties involved in the same conduct based on their respective roles and degree of culpability. This addition highlights the WBG’s understanding that sanctions cases against multiple respondents derive from a single investigation. These respondents should be treated fairly and proportionately. 
• The definition of the "Interference with Investigation” aggravating factor has historically been substantially the same as the definition of the sanctionable practice of obstruction. This has created uncertainty as to which would be appropriate: aggravating a single sanction or imposing cumulative sanctions for at least two sanctionable practices. The 2024 Guidelines clarify that the degree of interference and whether the interference relates to the otherwise sanctionable conduct are factors that may determine if the interference will be considered a separate obstructive practice, or simply an aggravating factor. Under existing practice, a claim of obstruction will typically survive only if there are no other sanctionable practice claims but will be considered aggravating when other sanctionable practices are substantiated. 
• The 2024 Guidelines codify a common INT practice in settlements and now clearly enable OSD and the Sanctions Board to do the same. Although the 2011 Guidelines alluded to the possibility that all decision-makers could impose multiple types of sanctions concurrently or consecutively against a respondent and that they could specify that an initial sanction may be shortened or “converted” into a lighter sanction, the 2024 revisions clarify that the “relevant sanctioning decision” – not just settlements – can specify so. It will be interesting to see how OSD and the Sanctions Board implement this flexibility and the pressure that this flexibility may put on INT to craft appealing terms in the context of settlements. 

Clarifications

• The 2024 Guidelines state that letters of reprimand, the lowest form of sanction, can be issued in minor instances of sanctionable practices, and added lower-level-employee misconduct or minor role and lack of oversight by managers or a controlling affiliate as factors that may lead to this sanction. This clarifies the vaguer 2011 language and can lead to more widespread use of the letters. In similar circumstances as the newly enumerated ones, Hogan Lovells has obtained reprimand letters on behalf of clients under the 2011 Guidelines. 
• The involvement of a public official or WBG staff has been an aggravating factor. The revisions state that this factor will typically not apply where the public official or WBG staff initiated the misconduct, but may apply if the respondent was an individual acting in their private capacity (e.g. as a business owner) when engaging in the misconduct and concurrently held the position of a public official and took advantage of said public position for personal benefit. Although this is a helpful clarification, WBG could have clearly stated that this factor will not apply when being a public official or WBG staff is a condition precedent for the misconduct to occur (e.g., in a corrupt practices case, a respondent should not receive an aggravated sanction because they bribed a public official). Further,  excluding individuals acting in their private capacities while being public officials or WBG staff may lead the sanctions units to reason that WBG-financed individual consultants to government agencies act in their private capacities when engaging in misconduct, thereby invalidating this revision in practice. 

Conclusion 

The changes to the Sanctioning Guidelines and the Sanctions Procedure have not introduced any revelations to the WBG’s sanctioning framework. However, companies receiving WBG financing should be aware of these recent developments and remain vigilant against corruption and fraud in order to avoid sanctions. Individuals and companies should seek competent counsel to assist them in understanding the sanctions framework and guide them through these revisions, as well as ensure that their compliance policies and practices align with leading practices and applicable rules, particularly the WBG’s Integrity Compliance Guidelines.  

Authored by Peter Spivack, Nikolaos Doukellis, and Cameryn Lonsway.