Integrity Due Diligence

The Office of Anticorruption and Integrity’s (OAI's) integrity due diligence advisory function emerged due to the increased need for ADB to evaluate and minimize integrity, tax integrity, and reputational risks in its private and public sector projects. This work has coincided with the rise in ADB’s equity investments, lending, and development initiatives involving private companies, and has expanded to cover ADB’s institutional operations.

OAI responds to inquiries and assists operational departments in identifying red flags and other potential risk areas that could have an immediate or future adverse impact to ADB or on the implementation of its projects, including any perceived reputational risk.

OAI also encourages its internal and external development partners to integrate due diligence practices into their evaluation and assessment procedures and emphasize that due diligence is each individual’s responsibility.

Case examples

Project receives approval after risks and red flags are properly identified and addressed and fully disclosed

The integrity due diligence for a project highlighted a number of issues relating to one of the key shareholders on the project. The issues pertain to corrupt practices by the shareholder on projects unrelated to ADB, which resulted in the shareholder being sanctioned by a Regulator, and subsequently by a development agency.

Numerous mitigating factors were noted through due diligence. The offenses were historical and the shareholder had pleaded guilty and entered into a conditional settlement agreement with the Regulator. The conditions of the agreement (i.e., improved anticorruption policies and compliance systems and training for staff) were deemed by the Regulator to have been met by the shareholder. The shareholders’ improved anticorruption policies and training were also independently audited.

OAI and the Private Sector Transaction Support Division evaluated the risk, and worked with the project team to develop mitigating measures and ensure full disclosure of the matter.

What constitutes reasonable due diligence on ultimate beneficial ownership?

An integrity due diligence check conducted for a project identified numerous entities established in an offshore jurisdiction. Ultimate beneficial ownership (UBO) was determined in this instance by verifying who benefits from the prospective project. While OAI was not provided details of the UBO investees for confidentiality reasons, OAI accepted alternative proxy indicators and concluded that the level of risk associated with UBOs was acceptable.

OAI reviewed the funds’ “Know-Your-Client” policy and procedures and established that the policies were audited annually by a reputable third party and that these funds were periodically reported to regulators, with no irregularities being noted. OAI also accepted assurances from credible third parties that the funds’ due diligence was adequate and in line with ADB’s expectations.