Institution has failed to deploy any of money reserved to fight graft on the continent
The African Development Bank has admitted that a $55mn integrity fund launched with great fanfare seven years ago has still not been put into operation and has not disbursed any money on its stated anti-corruption purpose.
Non-governmental organisations that have applied for grants from the fund, initiated in November 2016 as a way of combating corruption in Africa, have been told it is not yet up and running.
Failure to deploy the money, collected from companies that settled alleged corruption cases with the Abidjan-based development bank, could raise questions about the efficiency of an institution through which western governments channel billions of dollars to development projects.
In addition to its 54 African member countries, the triple-A rated bank has 27 non-regional members, including the UK, Japan, China and the US, its second-largest shareholder after Nigeria. The AfDB has access to authorised capital of $250bn, money available to be disbursed to infrastructure, power, agriculture and other projects.
“For them to sit on a significant pot of money — tens of millions of dollars — with no transparency is very surprising and disappointing,” said Joshua Meservey, senior fellow at the Hudson Institute think-tank and an expert on corruption.
“This fund was meant to target corruption, a cancer across the continent that undermines economies, development and even political systems,” he said. “What have you been doing with $55mn for seven years?”
When the AfDB’s board approved the Africa Integrity Fund it said it would be funded with $55.25mn collected from companies that had settled alleged corruption or misconduct cases with it. The bank has the power to investigate such allegations on projects to which it has lent money.
The fund would disburse grants to African enforcement agencies, tax authorities, educational institutions and civil society groups involved in fighting corruption, it said.
“We are confident that the AIF will become a model for others,” Anna Bossman, then director of the bank’s integrity and anti-corruption department, said at the time.
The AfDB confirmed to the Financial Times that the integrity fund had never been put into operation and that no grants had been made. “The Africa Integrity Fund was not operationalised to mitigate risks regarding conflict of interest, transparency and due process which were identified during the process of implementation,” it said.
It had decided that the funds should be managed by an external body, it added, to prevent commingling of funds with bank resources.
“Management has identified an independent institution to deploy the funds. The proposal to formally close the Africa Integrity Fund (which requires a board resolution) and appoint the independent institution will shortly be submitted to the board of directors for approval,” it said, without specifying the institution.
The AfDB did not explain why it had taken seven years to seek alternative arrangements, but said it had followed “customary and prudent” procedures for the implementation of any new initiative.
The $55.25mn had been kept in a separate, interest-bearing account and was now worth $57.03mn, it said. The fund was “intact 100 per cent”, a senior executive at the bank said.
The money to establish the fund came from international companies investigated by the bank. One substantial penalty was paid by Hitachi in 2015 after a probe into what the AfDB called “sanctionable practices” in pursuing a power plant contract in South Africa, though the exact sum has not been made public.
Hitachi settled with the AfDB on the basis that part of the fine would be used to combat corruption in Africa. The bank said it had “not breached the terms of any settlement”.
When the fund was launched, the AfDB said it provided a framework through which “financial penalties resulting from the bank’s sanctions regime are reinvested into anti-corruption measures”.
But some bank officials, including Akinwumi Adesina, the president, have had second thoughts about using fines — what one person referred to as “fruit from the poison tree” — to fight corruption, according to one current and one former AfDB executive.
The integrity fund was an “innovative instrument”, the bank said, but after board approval, “aspects of its practical implementation raised some serious concerns”.
Organisations applying for grants from the fund said they had never been told it had been mothballed.
The Pavocat Stellenbosch Academy, a South African based organisation with a counter-corruption mandate, applied for a grant this year. “We were aware of the fund and the conditions of the fund when it was set up in 2016 because we can read,” said James Stuart, co-founder of Pavocat. “And what we got is: ‘Well we haven’t operationalised the account.’ We didn’t get an explanation of why not.”
Several former AfDB officials recall that internal questioning of the integrity fund in the years after board approval received short shrift.
The bank’s governance was publicly questioned in 2020 when whistleblowers accused Adesina of ignoring bank procedures and appointing friends, including fellow Nigerians.
Steven Mnuchin, then US Treasury secretary, expressed “deep reservations” about an internal inquiry into the allegations and pushed for an independent probe.
In July 2020, an external panel chaired by Mary Robinson, former president of Ireland, cleared Adesina of misconduct. He was unanimously re-elected to a new five-year term in August 2020.
Copyright The Financial Times Limited 2023