Perspectives 2019 2020 Public Sector

Citi Perspectives 7 Addressing Post-Integrity Events In addition to setting out a standardized approach to reduce corruption in the pre-award and post- award phases of a project, the NTPI should outline a high-level framework to respond to post-integrity events. A post-integrity event happens when corrupt practices remain undetected until a project is underway, or there is an event that damages the integrity of the sponsor/contractor and causes projects to stop, agreements to be undermined and legal arbitration/litigation to occur. Currently, as the aftermath of recent corruption investigations in the Latin American region demonstrated, there is no codified response or best practice for this situation, nor an agreed process for companies to recover their integrity in the eyes of their counterparties (mainly the government and the project lenders). The recent corruption scandals illustrated the implications of systemic corruption practices for the continuity of infrastructure projects in Latin America. They reinforced the need to initiate a discussion in the infrastructure ecosystem to find ways to isolate, address and remedy material integrity events (MIEs) and allow the uninterrupted execution of infrastructure projects. MIEs relate to systemic corruption practices involving all or some equity shareholders in a consortium that have sufficient influence over management decisions. The definition of a MIE should be codified in debt covenants and/ or any other governing PPP laws and regulations to differentiate it from isolated integrity events, committed by an employee for example, that can be remedied through discretionary managerial actions. A general framework to address post-integrity events would outline a protocol that sets in motion remediation actions once a MIE is flagged. An approach to addressing MIEs is to make use of an administrator once the integrity auditor has flagged and documented a MIE. Similar to proceedings under a Chapter 11 bankruptcy process involving fraud, where a trustee or bankruptcy administrator is appointed to run the company to make sure the business stays afloat and creditors are paid, 9 an administrator would be appointed by the relevant authority to temporarily exercise the rights of the equity shareholders under investigation and continue the execution of the project until a judicial verdict is reached. 9 United States Courts, https://www.uscourts.gov/services-forms/ bankruptcy/bankruptcy-basics/chapter-11-bankruptcy-basics