Elements of Proof of Fraudulent Practices

Definition

IFI Guidelines define “Fraudulent Practices” as:

“Any act or omission, including a misrepresentation, that knowingly or recklessly misleads, or attempts to mislead, a party to obtain a financial or other benefit or to avoid an obligation.”

Elements of proof

  • Any act or omission
  • Including a misrepresentation
  • That knowingly or recklessly misleads, or attempts to mislead
  • A party
  • To obtain a financial or other benefit
  • Or to avoid an obligation

Any act or omission

A fraudulent “act” could include, for example, forging a document or signature or altering (backdating, etc.) a document.

An “omission” refers to knowingly and willfully failing to disclose a material fact, for example, that a contractor has been debarred, to obtain an improper benefit or avoid an obligation.

Including a misrepresentation

A misrepresentation refers to a false statement of fact (e.g., “our company employs 2000 people,” when in fact it employs ten) and generally not to an opinion (“Our company is the leading contractor in the area.”) An exception might be an opinion as to the correctness of a financial statement, issued by an accounting firm, which it knows to be false or which it issued recklessly.

Proof of a misrepresentation should be done in two stages: first prove the representation through one set of documents or witnesses, and then prove that it was false by a second set of documents, or witnesses with direct personal knowledge of the falsity.

That knowingly or recklessly misleads, or attempts to mislead

“Knowingly” means that the subject acted with actual knowledge that a statement was false and would tend to mislead the recipient.

“Recklessly” means that the subject:

o Acted without knowing whether the submitted facts were true or false, or did not make an adequate inquiry to determine the truth, or

o Acted with willful blindness as to the truth or falsity of the statement, i.e., deliberately failed to determine the correctness of the facts, or to put in place procedures that would enable it to do so. “Reckless” implies that the subject acted with something “more than mere negligence.”

Knowledge and intent can be proven directly, for example, by the admission of the subject, the testimony of a co-conspirator or other witness with direct personal knowledge, or by documentary evidence, such as an incriminating email.

Knowledge and intent also can be proven circumstantially, by, for example, showing that the subject knowingly altered or forged supporting documentation, lied to investigators, attempted to obstruct the investigation (e.g., by intimidating witnesses) or refused to produce pertinent records.

A pattern of prior similar “errors” or misrepresentations also can be used to show willfulness and rebut the typical defense of accident or mistake.

A party

Includes a public or private person or organization, such as the Project Implementation Unit, the borrower or the Bank.

To obtain a financial or other benefit

For example, to be short listed, to receive a contract award, or to inflate a payment request.

Or to avoid an obligation

For example, to avoid performing work to contract specifications, or to avoid refunding overpayments received under the contract.