El Salvador

Local Government Strengthening Project

                 Redacted Report




                               March 2019
                                Statement of Use and Limitations

This Report was prepared by the World Bank Group (the “WBG”) Integrity Vice Presidency
(“INT”). It provides the findings of an INT administrative inquiry (the “Investigation”) into
allegations of corrupt, fraudulent, collusive, and/or coercive practices, as defined by the WBG for
purposes of its own policies, rules and procedures (the “WBG’s Framework regarding Anti-
corruption”), in relation to the WBG-supported activities. The purpose of the Investigation was to
allow the WBG to determine if the WBG’s Framework regarding Anti-corruption has been
violated.

This Report is being shared to ensure that its recipients are aware of the results of the INT
Investigation. However, in view of the specific and limited purpose of the Investigation underlying
this Report, this Report should not be used as the sole basis for initiating any administrative,
criminal, or civil proceedings. Moreover, this Report should not be cited or otherwise referred to
in the course of any investigation, in any investigation reports, or in any administrative, civil, or
criminal proceedings.

This Report is provided without prejudice to the privileges and immunities conferred on the
institutions comprising the WBG and their officers and employees by their respective constituent
documents and any other applicable sources of law. The WBG reserves the right to invoke its
privileges and immunities, including at any time during the course of an investigation or a
subsequent judicial, administrative or other proceeding pursued in connection with this matter.
The WBG’s privileges and immunities cannot be waived without the prior express written
authorization of the WBG.




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Background

The Local Government Strengthening Project in El Salvador (the “Project”) aimed to: (i) improve
administrative, financial and technical processes, and (ii) improve systems and capacity of local
governments to deliver basic services, as prioritized by local communities, in the medium and long
term. The Project became effective in June 2010 and closed in December 2016. It was financed
by an International Bank for Reconstruction and Development loan.

Project Component 1 sought to support Municipalities in reducing the financial gaps generated by
recent financial crises. It was implemented by the 262 participating Municipalities, following a
decentralized modality adopted by the Social Investment Fund for Local Development.
Procurement activities for Components 2, 3, and 4 were carried out through the Project
Implementing Unit (“PIU”) of the Salvadoran Municipal Development Institute.

Company A bid for and was awarded a Project contract (the “Contract”) in one municipality (the
“Municipality”).

Allegations

INT received a complaint from the Municipality that Company A had submitted a fraudulent
advance payment guarantee and a fraudulent performance guarantee.

Findings

       Evidence indicates that Company A submitted falsified advance payment and
       performance guarantees.

At Contract signing, Company A submitted to the PIU advance payment and performance
guarantees (collectively, the “Guarantees”) per the Contract requirements. Both were purportedly
issued by an insurance company (the “Insurance Company”).

Subsequently, due to contract delays and Company A’s unwillingness to extend the Guarantees,
the Municipality wrote the Insurance Company to encash the Guarantees. The Insurance Company
responded that they had not, in fact, issued them.

The Municipality and Company A’s legal representative (“Representative A”) met to discuss the
Guarantees. During this meeting, Representative A informed the Municipality that s/he had
supporting documentation to show that the Guarantees had been issued by the Insurance Company,
and that there was no intent to mislead the Municipality. Representative A did not, however,
produce these documents during the meeting. The Municipality subsequently wrote to
Representative A, outlined the discussion at that meeting, and once again provided Representative
A with an opportunity to respond to the allegation that the Guarantees were fraudulent. Company
A did not respond to this follow-up letter. As a result, the contract was cancelled.




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INT corroborated the Municipality’s finding that the Guarantees were falsified. Evidence indicates
that the purported signatory of the Guarantees, an Insurance Company employee, did not sign the
Guarantees. Evidence further indicates that the Guarantees were not issued by the Insurance
Company.

Corrective Actions

The World Bank imposed the sanction of debarment with conditional release on Company A. This
ineligibility extends to any legal entity that is controlled directly or indirectly by Company A.




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