WRITTEN QUESTION P-3211/02

by Antonio Di Pietro (ELDR) to the Commission

(5 November 2002)

Subject: Corruption in Lesotho

On 17 September of this year the High Court in Lesotho convicted Acres International, a large Canadian engineering firm, of paying bribes in order to win contracts put out to tender at international level in connection with the Lesotho Highlands Water Project (LHWP), and on 28 October it imposed a fine of Maloti 22 058 091, the equivalent of USD 2,1 million.

Many other companies based in EU Member States are accused of corruption in connection with the Lesotho project, and the German Lahmeyer International company is currently on trial. The European Investment Bank (EIB) and the European Development Fund (EDF) were involved in financing the project with grants and loans to the tune of EUR 122,5 million and EUR 59,8 million respectively. Export credit agencies from four EU Member States are also involved in financing the project.

According to the World Bank, on 16 November 1999 representatives of the EIB and the EU took part in a meeting of project donors in Pretoria to discuss the implications of the corruption case in Lesotho. According to a report published in the respected South African Business Day newspaper on 30 November 1999, the EU had pledged to provide representatives of the Lesotho government with financial assistance to cover the costs of the trial.

In view of the historic precedent set by the Lesotho government in the fight against corruption at international level and the exemplary conviction of Acres International,

- Does the Commission intend to honour the promise of financial support for the government of Lesotho to enable the corruption case to be carried to its conclusion in the High Court?

- Does the Commission intend to check whether the EDF and the EIB showed due diligence in relation to the grants and loans granted in connection with the Lesotho Highlands Water Project?

- Does the Commission intend to make every effort to ensure that companies found guilty of corruption are excluded from any future projects financed by development assistance and Member States' export credit agencies or with funds from EU institutions?

Answer given by Mr Nielson on behalf of the Commission

(7 January 2003)

The case, to which the Honourable Member refers, concerns a large construction project in Lesotho which was co-financed by the European Development Fund (EDF) together with several other international donors.

The question regarding the possible reactions of the export credit agencies of the Member States and regarding eventual sanctions taken by the European Investment Bank is outside the scope of the Commission's competencies.

Since the questions refer to ongoing criminal court cases, the issue should be considered carefully with due regard for the right of defence of the companies and persons involved and the presumption of innocence.

The Honourable Member refers to a promise which the Commission should have made to finance the costs of the Lesotho court case. For this, the Honourable Member bases himself on an article published in a South African newspaper.

The Commission can not confirm that any such promise was ever made.

In addition, the present case is pending before a criminal court handled by the Public prosecutor. It would seem to be falling outside the EDF's mandate to finance a particular criminal law suit against particular individual companies.

With regard to the specific company to which the Honourable Member refers, the Commission should further point out that the contracts awarded to this company were not financed by the EDF, but by other donors.

In the first part of 2000, the Commission engaged independent auditors to examine whether EDF funds had been misused. They were asked to analyse whether the awarding of the contracts, riders, variation, orders, etc had been executed properly, or might have been biased to favour certain contractors.

The general conclusion from this audit was that it was not possible to demonstrate that there had been a direct misuse of EDF funds. The audit revealed that even if there had been any misuse, for the EDF such a misuse was not likely to be large; since the EDF funding was topped at a fixed amount, the principal victim of any misuse seemed to be the Government of Lesotho, who had to finance any expenditure not covered by the donors.

The European Anti-fraud Office (OLAF), is fully informed about this case.

The general conditions for contracts financed by the European Development Fund entitle the contracting authority to terminate the ongoing contract in which corruption is detected and to recover any contractual loss it has suffered. Since within the framework of the European Development Fund, the Commission is only acting as donor, such a decision formally belongs to the contracting authority of the Beneficiary State.

Moreover, the procurement rules foreseen in the different external aid instruments of the Union, impose that natural or legal persons which have been convicted for corruption by a final judgement, are excluded from future invitations to tender or from future contracts.

For the contracts concluded for the Commission's own benefit, similar rules are laid down in the Procurement directives.

The Union procurement rules for external aid provide that before a contract can be concluded, a tenderer must submit satisfactory evidence that he is not in a situation of ineligibility. Therefore, if a natural or legal person is convicted for corruptive practices by a final judgement, the tenderer will not be able to produce such a certificate and will automatically be excluded from participation in Community financed contracts.