The World Bank Group
Integrity Vice Presidency
Federal Democratic Republic of Nepal
Second Financial Sector Restructuring Project
REDACTED REPORT
June 1, 2012


Statement of Use and Limitations
This Report was prepared by the World Bank Group's (Bank's) 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 Bank, regarding one or more Bank-supported activities.
The purpose of the investigation underlying this Report is to allow the Bank to determine if its own rules have
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 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 Bank and its officers
and employees by its Articles of Agreement and other applicable sources of law. The Bank reserves the right to
invoke its privileges and immunities, including at any time during the course of an investigation or a subsequent
judicial or other proceeding pursued in connection with this matter.


Executive Summary
This Report provides the findings of an administrative inquiry (the investigation) conducted by
the World Bank Group's (Dank's) Integrity Vice Presidency (INT) into allegations of fraud and
corruption, ii the award of a contract to a compaRy, hereinafter referred to as Company A, in
alleged partiership with another company, hereinafter referred to as Company B, under the
Second Financial Sector Restructuring Project (FSRP or the Project) in Nepal. INT's
investigation found evidence indicating that Company A submitted a number of forged and
fabricated documents in its technical and financial proposais, and that the Bid Evaluation
Committee (BEC) relied on these misrepresentations when decidingL to award the contract to
Company A. INT did not find evidence indicating that Company A engaged in corrupt practices
under the Project, nor did it find evidence implicating any Government of Nepal (GioN) officials
in corruption, Instead, INT found evidence suggesting that interested parties withi Nepal used
the discovery of Company A's forgery and fabrication to (potentially falsely) allege corruption by
GoN.
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Background
In June 2004, the then-Kingdom of Nepal and the International Development Association (IDA),
a part of the World Bank Group, entered into a Development Financing Agreement (DFA) to
fund the Second Financial Sector Restructuring Project (FSRP or Project). The Project, which
became effective in June 2004 and is scheduled to close in September 2009, was implemented by
the Nepal Rastra Bank (NRB, Nepal's central bank) with the assistance of the Ministry of
Finance. The NRB allocated approximately US$ 2.5 million of the Project funds to finance a
consulting contract to strengthen its supervision capacity. In February 2006, the NRB contracted
with Company A, and allegedly with Company B, to perform this work.
In June 2007, the Bank received an anonymous letter alleging that the contract awarded to
Companies A and B was tainted by fraud. Specifically, the letter alleged that:
(a) Company B had never entered into the contract;
(b) the Company B representatives' signatures on the contract were forged;
(c) Company B staff did not deploy to Nepal or work under the contract;
(d) Company B did not receive an advance payment for the contract; and
(e) Company B never entered into ajoint venture agreement with Company A.
The complainant also stated that the Nepalese authorities were investigating the circumstances
surrounding the award of the contract.
In January 2008, the Bank received a second letter in which a pseudonymous complainant made
the following allegations about Company A's contract:
(a) Company A and B's proposal was submitted by a "false group of people";
(b) the NRB signed a contract with these same people in February 2006 in Kathmandu;
(c) Company B never participated in the proposal and never entered into any contract with the
NRB;
(d) the entire contract was false;
(e) the matter was under investigation by Nepalese authorities; and
(f) Government of Nepal (GoN) officials had corresponded with Company B about the matter.
The complainant provided INT with copies of letters between Company B and GoN officials. In
these letters, Company B stated that: (i) it was not party to the contract; (ii) it had not, as a
corporate entity, signed the contract; and (iii) key documents purporting to have originated within
Company B were forgeries.
Methodology
INT's investigation consisted of a review of relevant Project and contract documentation and
interviews with GoN officials, representatives of the companies, and Bank staff INT also
examined the tenders submitted by the winning and losing bidders for patterns indicating
fraudulent or corrupt activity.
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Findings
1.     The investigation found evidence indicating that Company A submitted forged and
fabricated documents in its proposal's technical and financial components. The oral and
documentary evidence furnished by Company B staff members and other witnesses indicates that
there is sufficient evidence to conclude that Company A engaged in fraudulent practices.
According to Company B representatives, Company B submitted an Expression of Interest (Eel)
with Company A for this contract, but then did not hear more about it. However, the technical
proposal submitted by Company A listed the company as purportedly in partnership with
Company B and another company, and it included page header logos, references, technical
capacity descriptions, r6sum6s, and signatures that included the personnel, experience and
reputation of Company B and consultants associated with another company. Similarly, Company
A's financial proposal also included references to Company B. INT interviewed five current and
former Company B staff members, and all five stated that the proposal documents allegedly
prepared and signed by them were not legitimate: the documents were not on proper Company B
letterhead; Company B had no consortium or partnership agreement with Company A; and the
Company B staff members' signatures on proposal documents and Company A's contract had
been forged. These five witnesses, as well as two consultants associated with another company,
also stated that the r6sumds included in the proposal falsely identified some individuals as
Company B or Company A staff and one r6sum& was of a deceased individual. Moreover, when
INT showed Company A's submitted EoT to a former Company B staff member tasked with
preparing such an Eol, he stated that it was not the document that he had prepared and given to
Company A.
In addition, TNT interviewed an individual whom Company A's tcchnical and financial proposals
falsely identified as a Company A Managing Director. This individual admitted once meeting
with Company A's President-in an effort to promote his personal business-but he denied ever
having been appointed to any position with Company A. When shown Company A proposal
documents purportedly signed by him, this individual stated that signatures on the documents
were not his; they were forgeries.
INT interviewed Company A's President, who said that he could not believe that the Eol was
fraudulent, because he was present when it was submitted by Company B. This statement is
inconsistent with the statement of a former Company B staff member, who claimed that Company
A's Eol differed from the one that he prepared while at Company B. Moreover, Company A's
President did not refute the other witnesses' forgery claims regarding Company A's proposals.
Instead, he denied being personally involved in the preparation of Company A's proposal
documents and stated that another staff member, whom he could not identify, had prepared them.
As detailed below in finding four, some witnesses stated that they believed Company A's
proposal documents to be accurate and Company B's forgery and falsification claims to be lies,
but INT found no evidence to support this allegation. The above evidence therefore indicates that
Company A's proposals contained forged and fabricated documents prepared by an unidentified
Company A staff member.
2.     Evidence indicates that the Bid Evaluation Committee relied upon, and was misled
by, the forged and fabricated documents contained in Company A's proposal. Procurement
documents show that the BEC evaluated Company A's proposal on the understanding that
Company A was associated with Company B and that the rdsum6s contained in the proposal were
accurate. The BEC found Company A to be technically responsive and, combining that
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evaluation with Company A's low proposal price, recommended that Company A win the
contract. INT interviewed three current or former GoN officials who were BEC members, and all
three stated that: (i) at the time of the proposal evaluations, they were unaware that Company B
was not involved in Company A's proposal or associated with Company A; and (ii) had they
known that Company B was not involved with Company A, they would have rejected the
proposal. This evidence indicates that the BEC's contract award decision was influenced, to
Company A's benefit, by Company A's forged and fabricated proposal documents.
3.     The investigation found no evidence to suggest that GoN officials engaged in
corruption. INT's investigation found no evidence of corrupt activities related to the award of
Company A's contract, nor any evidence that implicated GoN officials in corrupt activities.
Indeed, INT found that one GoN official allegedly involved in corrupt activities was not involved
in the procurement process. RatHer, the process was managed by two other officials.
INT examined Company A accounting documents that detailed Company A's receipt and
disbursement of contract-related funds. INT was unable to review all of Company A's books and
records, and there may be other contract-related expenditures not included in the reviewed
documents. The available records, however, contained no evidence indicating payments to GoN
officials.
4.     The investigation found evidence suggesting that interested parties within Nepal
used the discovery of Company A's fraud to allege corruption by GoN officials. Several
witnesses interviewed by INT maintained that a large number of individuals within the Nepalese
business community were subject to investigation and close scrutiny by the GoN. The GoN had,
according to witnesses, focused on individuals engaged in "insider lending"-the granting of
unsecured loans from a bank to its directors-in many Nepalese conunercial banks. These
directors often defaulted on their loans when the GoN challenged them.
INT identified one individual, who allegedly engaged in insider lending and whose bank was
taken over by the GoN, as the author of the two complaint letters sent to the Bank, Witnesses
interviewed by INT alleged that this individual, fulfilling an earlier-announced threat, used his
political connections to have other GoN officials indicted and suspended from their positions.
Witnesses further alleged that this individual alleged Company A's fraud to prompt such
indictments and suspensions.
Witnesses staLed that a senior partner of Company B, whom INT interviewed and who explained
that portions of Company A's proposals were forged and fabricated, was a former business
partner of this individual. These witnesses, who are associated politically with certain GoN
officials, suggested that there was, in fact, no fraud; that the allegedly-fraudulent documents were
actually legitimate; and that Company B was falsely alleging fraud at the individual's request.
However, the only evidence produced to INT to support this allegation was a business agreement
from the mid-1990s between the individual and a current Company B manager. Moreover, five
other witnesses-two of whom did not work for Company B-stated that proposal documents
submitted by Company A were, in fact, forged or falsified. The lack of evidence to support the
"no actual fraud" allegation, and the significant evidence to support its alternative, indicates that
Company A did, in fact, engage in fraud.
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