From October 2021 to July 2023, King & Wood Mallesons (KWM), as a World Bank-accredited third-party independent investigator (Third-party Investigator), conducted an independent investigation into a World Bank Group (WBG) project in which a large construction and engineering group (Group) had been involved. Recently, in recognising the independent investigation report produced by KWM, the WBG confirmed that the Group had fulfilled its obligations to cooperate with the investigation and other compliance and rectification obligations, and lifted the sanctions against the Group.
I. The Group was sanctioned by the WBG and was required to engage an independent investigator to conduct compliance investigations
In recent years, the WBG and other multilateral development banks (MDBs) have attached great importance to the integrity and compliance supervision by means of on-site audits and other investigative measures. In practice, the WBG and other MDBs may retain internationally renowned law firms, accounting firms, and investigative agencies to conduct investigations and audits of Chinese enterprises suspected of committing violations. After reaching a settlement with the sanctioned enterprises, the WBG and other MDBs may also require such enterprises to engage an independent investigator to conduct supplementary investigations.
The Group is a well-known domestic construction and engineering enterprise with a business reach spanning over 20 provinces in China. It has also extended its business presence to Southeast Asia, South Asia, Africa, the Americas and other regions. Previously, in an audit investigation by the WBG against the Group, it was found to have committed corruption and fraud in a project.
As agreed in the settlement agreement, the Group is required to conduct an investigation of historical WBG-funded projects during the sanction period and share the results of the investigation with the WBG. Completion of the investigation and acceptance by the WBG are prerequisites for the WBG to lift the sanctions on the Group. In order to do so, the Group had to engage an independent investigator who is trusted and recognised by the WBG to carry out the investigation.
II. KWM was selected as the independent investigator after rigorous review by the WBG
International regulatory bodies, including the WBG, place significant emphasis on requiring and encouraging enterprises involved in cases to carry out internal compliance investigations. They have developed a range of policies to this end. As a non-state authority, the WBG attaches particular importance to the role of independent investigators in compliance investigations. According to its requirements,
although independent investigators are retained by enterprises, they must carry out investigations on the enterprises in accordance with WBG’s requirements and report to the WBG. The WBG clearly states that independent investigators must be ultimately responsible for the investigation process and the investigation report.
The WBG has very strict requirements for the content and standard of work of independent investigators:
- Investigations need to focus on a wide range of subjects, including the enterprise, its affiliates, employees, directors and officers, as well as its “representatives” and “agents”;
- Investigations need to focus on a variety of violations by each of the above categories of subjects that could lead to WBG sanctions, including but not limited to corruption, fraud, collusion, and coercion;
- To ensure the comprehensiveness of investigations, independent investigators need to review and analyse any information, documents, records or other evidence related to WBG projects. These include various types of project implementation and management information, as well as a large amount of financial data and personnel management files; and
- Independent investigators are required to present findingsbased on the WBG’s requirements and to clearly state the basis on which the findings have been made. The WBG may also require enterprises to provide evidence material.
For this reason, the WBG has strict requirements for the selection of independent investigators: candidates must have full independence, good moral character, rich experience and professional skills in conducting internal compliance investigations, sufficient personnel and professional strength. In addition, independent investigators are required to report to the WBG throughout the entire process, so the WBG also places great importance on independent investigators’ ability to work in English.
In this project, recommended by the Group and subjected to the scrutiny by the WBG, KWM was finally engaged as the independent investigator.
III. Challenges faced by the independent investigator in conducting compliance investigations and reporting to offshore bodies
Independent investigators need to overcome difficulties and challenges in conducting compliance investigations into Chinese companies and reporting to foreign regulators. Independent investigators need to strictly comply with the WBG’s standards to ensure the independence, objectivity and comprehensiveness of their investigations. At the same time, as a compliance investigation often involves vast materials, personnel, and clue information, if the investigator fails to timely and effectively analyse and screen the materials and information and determine and flexibly adjust the investigation strategy, the scope of the investigation will continue to be extended, and the investigated enterprise will therefore bear a heavy burden.
On the other hand, it is inevitable that investigated enterprises and their relevant personnel will have concerns about investigations. For example, enterprises are concerned that internal investigations may further spread the negative impacts of existing sanctions or even incur derivative penalties, and some employees are worried that the findings of investigations may have adverse effects on them. Some enterprises also worry that the findings of investigations will have a negative impact on their relationships with the local government, the owner, and other business partners.
In addition, the WBG project of the Group involved in this case was so long ago that many of the participants had already left or retired, and some project materials were lost. And due to some business models and management characteristics common to Chinese engineering enterprises, many of the project’s financial data and approval records were ambiguous. These factors made the compliance investigation more difficult to carry out.
Finally, as the independent investigator for the Group, KWM must also strictly comply with the National Security Law, the Law on Guarding State Secrets, the Cybersecurity Law, the Data Security Law, the Anti-Foreign Sanctions Law, and other domestic laws on national security and cross-border transfer of data in carrying out the investigations.
IV. The strategy and work program of the independent investigation were endorsed by the WBG.
In this project, relying on the advantages of globally integrated services, KWM has assembled a team of personnel with different professional backgrounds and practice experience in anti-corruption, construction, financial fraud, and investigation of white-collar crimes, so as to provide a “one-stop” solution to the compliance investigation.
On the premise of ensuring a comprehensive and in-depth investigation, we carried out the investigation as accurately as possible in light of the Group’s actual operation and management to avoid wasting resources. Relying on our rich experience in handling MDB sanction cases, we pinpointed the clues worth digging deeper in various WBG projects soon after the investigation was launched, and fully reported to the WBG. The WBG expressed great appreciation for our ability to uncover a large number of clues in a very short period of time and, based on our suggestions, greatly narrowed the investigation scope to ensure the relevance of subsequent investigations.
In the follow-up investigations, we fully communicated with the WBG and the Enterprise and its counsels about the investigation scope, investigation measures, time and work steps. Throughout the investigation, the investigator constantly overcame the differences in culture and language, and became an important bridge for the WBG to understand the operation and management mode of Chinese enterprises. The WBG indicated that through our investigation, it has gained a deeper understanding of the characteristics of the business model of Chinese engineering enterprises and the special compliance challenges they face. In addition, we fully explained to the WBG the Chinese law requirements that the Enterprise needs to comply with when cooperating with overseas regulators in their investigations, and gained the WBG’s understanding.
Our investigation strategy and work program have fully considered the WBG’s investigation requirements and the current conditions of the Group and have been recognised by all parties. The WBG highly commended our thorough and in-depth investigation as well as the efficient methodology and has repeatedly expressed its profound impression of our investigation and approach. All along, the WBG has not raised any objections to our investigation.
Highly satisfied by our investigaiton, the WBG recognises that the Group has consistently exhibited a cooperative approach throughout the investigation and fulfilled the relevant obligations agreed upon in the settlement agreement. The Group will enjoy the WBG’s exemption and will not be subject to the WBG’s sanctions or any other unfavorable impacts due to the content of disclosure.
V. Solid cross-border service capacity helps to ensure the successful completion of independent investigations.
This project is one of the very few in which Chinese lawyers have acted exclusively as independent investigator for a foreign regulator, marking another benchmark project completed by KWM in the area of MDB sanctions.
Through this project, KWM’s investigation and compliance team adeptly navigated the complexities posed by multiple regulatory systems, cultural backgrounds, languages and other factors to the compliance investigation work. The team further built up a good relationship of trust and communication with the WBG. KWM has not only demonstrated its proficiency in the standards and requirements for compliance investigations of MDBs, but also helped international regulators to better understand the operation and management characteristics of Chinese enterprises. This contribution, in turn, has facilitated the application of standards more in line with the characteristics of Chinese enterprises in the future regulatory process.
The project was led by partners Wu Wei and Zhu Yuanyuan, with core members including Zhang Shuang Yao Naijia and Zheng Yanling.
