Federative Republic of Brazil

Alto Solimoes Basic Services and Sustainable Development
      Project in Support of the Zona Franca Verde Program

                                    Redacted Report




                                               December 2021
                                Statement of Use and Limitations

This strictly confidential report (the Report) was prepared by the World Bank Group (the “WBG”)
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 WBG for the purposes of its own policies, rules and procedures (the “WBG’s Anti-
corruption Framework”), in relation to WBG-supported activities. The purpose of the
Investigation was to allow the WBG to determine if the WBG’s Anti-corruption Framework had
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 or otherwise referred 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
institutions comprising the WBG and their officers and employees by their respective constituent
documents and any other applicable sources of law. The WBG reserves the right to invoke these
privileges and immunities, including at any time during the course of an investigation or a
subsequent judicial, administrative or other proceeding that your authorities may pursue in
connection with this matter. These privileges and immunities cannot be waived without the prior
express written authorization of the WBG.




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Background

In August 2008, the International Bank for Reconstruction and Development (“IBRD” or “The
World Bank”) 1 and the Brazilian State of Amazonas signed a Loan Agreement for the Alto
Solimoes Basic Services and Sustainable Development Project (the “Project”). The Project was
approved in February 2008 and closed in June 2014.

The Project’s development objective was to improve the economic and social conditions of the
Alto Solimoes Region by, among other things, improving access to potable water and basic
sanitation. The Project was implemented by the Amazonas State Development Corporation
(“CIAMA” - Companhia de Desenvolvimento do Estado do Amazonas), with oversight from the
Amazonas State Planning Secretariat. The State of Amazonas set up a Project Implementation Unit
(“PIU”), under CIAMA.

In December 2009, Company A bid for a contract (the “Contract”) under the Project. In February
2010, Company A was awarded and signed the Contract, winning all Contract lots as the lowest
bidder.

In April 2010, Company B was selected to supervise Company A’s execution of the Contract.

The total contract value was approximately R$35 million (about US$ 21 million).

Allegations & Methodology

The World Bank Group Integrity Vice Presidency (“INT”) received allegations regarding possible
fraud, collusion, and corruption involving the Contract. As these allegations were in violation of
the World Bank’s Anti-Corruption framework, INT opened an investigation.

As part of its investigation, INT reviewed relevant documents, received information from World
Bank Staff, and exercised the World Bank’s audit and inspection rights over Company A.

Findings

A. Evidence indicates PIU officials omitted to include in the Bid Evaluation Report
   information that could have disqualified Company A from being awarded the Contract.

Evidence indicates that the Bid Evaluation Report (“BER”) that PIU officials submitted for the
World Bank’s “No Objection” to award the Contract to Company A failed to include information
about Company A’s bid that could have disqualified Company A from winning the Contract.

Evidence shows that PIU officials failed to include information from CIAMA’s staff, which stated
that Company A’s bid contained significant changes to the bill of quantities which, according to
CIAMA’s engineers, would compromise the successful implementation of the Contract.


1
 IBRD is one of the five institutions that comprise the World Bank Group. The International Development
Association (“IDA”) and IBRD constitute the World Bank.

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Evidence also indicates that PIU officials, in the BER, represented that Company A’s financial
capacity qualified it for the Contract; in fact, Company A’s bid showed that it did not fulfil the
average sales volume or the liquid assets criteria required by the bidding documents. Evidence
further indicates that Company A had never implemented a contract similar in size to the tendered
Contract, nor did it have experience in the execution of similar works.

B. Evidence indicates that PIU officials and Company A made multiple arrangements to make
   unwarranted payments to Company A during the implementation of the Contract

   1. Evidence shows that a PIU official and Company A had an arrangement to
      renegotiate the Contract’s unit price and quantities after Company A had been
      awarded the Contract

The Contract stated that the provisions for advance payment under the General Conditions of the
Contract did not apply, preventing Company A from receiving an advance payment. However,
evidence shows that PIU officials and Company A arranged to create, and created, various advance
payments for Company A.

First, evidence indicates that Company A and PIU officials arranged to renegotiate the Contract
after it was finalized, which resulted in an advance payment for Company A. Company A claimed
that it agreed to the changes proposed by PIU officials because, in return, it was able to negotiate
a substantial increase in some of the Contract’s unit prices, particularly expenses for mobilization
and transportation.

Second, evidence shows that Company A, PIU officials, and Company B agreed to the
renegotiation of the Contract. Evidence indicates that in November 2010, all parties agreed to
create, backdate, and sign all the work progress certifications, which resulted in an approximately
R$1.5 million (about US$ 871,000) payment to Company A for “mobilization and demobilization
of equipment.” This same line item, originally described as “mobilization of soil boring
equipment,” was previously quoted as approximately R$2,820 (about US$ 1700). Similarly, the
line item corresponding to river transportation increased from approximately R$80,200 (about
US$ 46,500) to R$2,450,000 (about US$ 1.4 million).


   2. Evidence shows that the PIU made unwarranted payments to Company A for
      construction materials

In July 2010, the PIU issued a payment to Company A for all the lots under the Contract in the
amount of approximately R$2,240,000 (about US$ 1.25 million), purportedly for the purchase of
pipes.

Evidence indicates that Company A and two PIU officials met to discuss a request by Company A
that the Project pay for the pipes. Evidence indicates that Company A noted that the bill of
quantities contained a line item for the supply of the pipes, which was different from the line item
corresponding to the service of laying the pipes. Evidence indicates that Company B, the
supervising company, disagreed with the approval of the payment, stating that Company A would

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not be able to install the pipes for weeks, as it had not purchased the required material. Nonetheless,
in July 2010, the PIU paid Company A without a work progress certification signed by Company
B. One PIU official admitted to INT that this payment was made to compensate for Company A’s
lack of capital.

Evidence indicates that the PIU reimbursed Company A for an advance payment that it had made
for the purchase of other construction materials in the amount of approximately US$ 90,000.
Evidence indicates that Company B was not informed of this payment, and evidence shows that it
would not have approved the payment. Evidence further indicates that the PIU approved the
payment without any supporting work progress certification, circumventing Company B’s
required approval.

   3. Evidence shows that PIU officials approved Company A’s invoices for works that
      Company A did not complete.

Evidence indicates that on several occasions, Company A tried to bill the Project for incomplete
and nonexecuted works. In December 2012, Company A submitted a payment request in the
amount of approximately R$816,000 (about US$400,000) corresponding to the construction of
certain works. In December 2012, Company B returned the payment request to Company A, stating
that Company A had only completed works worth R$589,000 (about US$ 288,000), and supported
its assessment with pictures of the work site.

In December 2012, the two PIU officials wrote to Company B, instructing the approval of
Company A’s payment request, despite Company B’s disapproval of the request. Evidence
indicates that Company B opted not to renew its contract with the PIU, which stalled payment to
Company A. The PIU eventually made partial payment to Company A in 2013.

Evidence further indicates that without approval from Company B, in February 2013, a PIU
official approved quotations for additional works that were not included in the scope of Contract.
Company B’s representative stated that it had no knowledge of the purported additional works,
and that they were likely fictitious.

   4. Evidence indicates that PIU officials agreed to pay Company A for works that were
      not in the scope of the Contract.

Evidence indicates that Company A, with the agreement of the two PIU officials, would submit
payment requests for line items that it did not execute, in order to receive payment for purportedly-
additional works outside the scope of the Contract. Correspondence between PIU officials
evidences that after Company A had executed the additional works, one PIU official would instruct
Company A which line items should be used to claim payment for those additional works.
Evidence shows that in some instances, one PIU official, following advice from the supervision
consultant, instructed Company A to use line items from works corresponding to one municipality
to receive payment for works executed in a different municipality.

Evidence shows that Company A would typically submit a separate bill of quantities quoting unit
prices to execute additional works that were not included in the scope of the Contract. For instance,

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according to Company B, the additional works contained inflated unit prices for concrete.
Company B’s statement is supported by documentation showing that Company A presented
inconsistent quotations for concrete.

C. Evidence indicates that Company A remodeled the home of a PIU official, despite not being
   a requirement under the Contract

Evidence indicates that although not required by the Contract, Company A remodeled the home
of a PIU official, who was a signatory of Company A’s payment orders and a friend of Company
A’s representatives. Evidence indicates that Company B and multiple Project officials in the PIU
reported that said PIU official took a keen interest in ensuring that Company A’s payments were
timely—including repeatedly contacting a Financial Specialist in the PIU to inquire when
Company A could expect payment—even though following up on payments was not his/her
official duty. The PIU official denied that his/her home was remodeled by Company A but
confirmed that his/her home was remodeled at the same time Company A was implementing the
Contract.

Evidence indicates that Company A’s books and records showed purchase orders and receipts for
construction material consistent with the renovation works at the PIU official’s home.


Corrective Actions


In October 2020, the World Bank imposed a sanction of debarment with conditional release on
Company A. This sanction extends to any legal entity that Company A directly or indirectly
controls. The World Bank does not sanction the public officials of its member countries.




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