With the Asian Infrastructure Investment Bank having just completed its five-year startup phase, general counsel Gerard Sanders will be leaving his role at the helm of the legal team that he has led since the bank’s inception. Here he talks to Asia Business Law Journal about his masterplan and how the global crisis has changed the bank’s focal point. By Putro Harnowo
The Asian Infrastructure Investment Bank (AIIB) officially turns five this January, marking the end of its startup phase and a new role for Gerard Sanders as a senior adviser to the president and general counsel emeritus at the institution. Sanders has been with AIIB since shortly after its establishment in 2015 as general counsel, creating the legal framework that has enabled the bank to invest in multiple jurisdictions, on projects with the potential to change the lives of millions.
During these initial years, the bank has established a good record of achievement, with a strong capital base, a triple-A credit rating and known capability of fundraising competitively in international markets. Its membership has grown from an initial 57 to 103 countries and one territory, Hong Kong, including 46 regional members and 39 non-regional members, plus 18 prospective members whose membership applications have been approved by the bank, and where the ratification or accession processes are being completed.
The unprecedented global pandemic extended the AIIB’s focus from financing infrastructure to include crisis response projects. The bank initiated its foray by extending a US$355 million emergency loan to support the public health response in mainland China, when covid-19 went on its first rampage. Since then, it has set aside a total of US$13 billion to support 25 members and non-members for covid recovery facility projects, more than US$7 billion of which has already been invested.
“We now have created a flexibility to invest in areas that we previously did not invest in,” says Sanders. “Obviously, the health sector is the key one there. We have been investing in the health sector of countries that are especially badly affected by the pandemic.”
Such adaptive responses involved institutional arrangements that were rapidly put in place early by the board of directors, including a streamlined process for formal loan approvals. Most of the investments given are in the form of policy-based lending or budgetary support for countries that are in particular need of financing.
“We are providing fast disbursing loans to many countries,” says Sanders. “I think 11 of them borrowed from the AIIB for the first time. It’s basically designed to enable the countries to keep going, to apply those funds where most needed, to preserve their existing infrastructure and the existing productive capacity. The bank’s priority there is really in terms of supporting the health response to the pandemic.”
As vaccines come into the picture, the bank will be able to play more of a role in financing their distribution as well. Many factors contribute to a successful vaccination programme, including production capacity, shipping, storage and infrastructure, the lack of which will affect those countries that are least able to cope with the pandemic.
The bank is trying to ensure that facilities are available for all of its members across Asia. With the severity of the global pandemic, members outside Asia also benefited from its support this year, for example Ecuador and the Cook Islands.
“This [covid-19 pandemic] will continue to impact the world economy, especially badly on the countries that are the least resilient, the least developed, those that have the weakest health infrastructure, and that have more challenging systems generally – these are the ones who have been hardest hit,” says Sanders. “This is why the AIIB has been so keen to help those countries first.
“The idea is the AIIB is a very counter-cyclical institution. We are at our most active when the countries are in most need. You can actually see that now, with the covid response of the bank to our level of investment being much higher this past 10 months, and it will be again in 2021. What would ordinarily be the norm? We’re probably investing about almost twice as much as what we would ordinarily.”
With the ongoing covid response, Sanders says the bank has demonstrated how nimble and flexible it can be, as enabled by its charter (which is interpreted by the board of directors after receiving his advice). The bank’s response has demonstrated that there is a need not only to provide infrastructure over the longer term, but also to help countries meet their immediate needs in a crisis.
AIIB’s crisis recovery Projects
After navigating the legal agenda for half a decade, the time has come for Sanders to step back and let someone else take his role for the next stage, the growth phase. However, he will stay on at the institution in the role of general counsel emeritus, which will be mainly a representational and promotional role, as well as an adviser to the bank’s president, Jin Liqun.
“I have been at the AIIB since pretty much the outset of the institution,” says Sanders. “There was an inaugural general counsel in place when I arrived who played a critical role in putting the institution together, particularly in drafting the charter. That’s Natalie Lichtenstein, and I would like to pay tribute to her for the tremendous contribution she put in place to make sure that some of the legal foundations were firmly rooted.”
Looking back, Sanders is proud to have had an opportunity to help in the establishment of the first major international financial institution that is owned and controlled by countries that are expected to be borrowers. Despite this unique characteristic, the AIIB has claimed its rightful place at the top table of international financial institutions (IFI).
“Ordinarily, in the history of international financial institutions, IFIs are capitalised primarily by the rich countries, by the so-called donor countries,” he says. “They have the power to shape the rules and the recipient countries are in a somewhat passive role. That is a model that we have parted from at the AIIB. The majority of the shares are held by countries that are expected to and have borrowed from the bank.
“In the collective efforts to improve the lot of the countries for which we are working, it is understood that there is a massive infrastructure gap. It is understood that the least developed countries need some special assistance. That is, in fact, an understanding that is actually reflected in the charter of the AIIB. It is understood, too, that if you want to support a development, it is very important that the countries themselves take ownership for their own development agenda, and for their own infrastructure investment plans.”
This notion came with criticism. There was a concern over lower standards to enable the borrower countries to receive support from the bank, with lesser safeguards, and putting the capital at risk. This never occurred, in Sanders’ view, because of the institution’s consciousness of the risk, along with the high standards that have been put in place.
“We have very high environmental and social safeguards,” he says. “We have elaborate redress mechanisms and we have
operational procurement rules that are comparable to more established international organisations, so the way the bank is run is to standards that are really first in class.”
Sanders explains that there is a clear demarcation between what to expect from the board of directors and what is expected from the management, which is led by the president. The board is involved in setting the strategy and approving policies, holding the president to account, while the president and management are charged with implementing those strategies and policies, and delivering on projects.
“A practical demonstration of that is that the board delegated to the president its power to approve projects,” he says.
“For a time, there will be many projects that are still approved by the board, but over time, the president is expected to approve most of the projects.”
On the flip side of this, Sanders says, the president is subjected to an annual review by the board of directors. This is a robust exercise of accountability that cannot be found elsewhere, something he believes that the AIIB can be proud of.
“There are also high standards of transparency,” he says. “One area where I think we are ahead of the comparator organisations is that we have a high degree of clarity around the rules that are in place for electing the president. We have an open, transparent and merits-based process. We have elaborate rules that have been approved by a board of governors, which are published on our website. I don’t think you will find the election rules of many other international financial institutions on their websites.”
Lawyers at the bank routinely inform the decisions made by the board of directors and their committees, as well as by the various management committees, such as those that approve investment proposals. Lawyers work closely with the internal clients, seeking to provide quality advice, and facilitate investment and other decisions.
A key focus, says Sanders, is on ensuring that the bank is a rules-based institution and that there is respect throughout the organisation for ensuring that those rules are properly made, known to all and applied consistently. Furthermore, the content of those rules needs to approximate international standards as befits an international organisation.
Apart from establishing a strong rule-of-law culture in the institution, Sanders is also proud of having built up a first-class legal team that co-operate closely with other international organisations and multilateral development banks.”
The AIIB’s legal department consists of 20 full-time staff and 12 consultants, excluding a number of secondees and interns. The team has a rich mix of experience and backgrounds from within and outside the Asia-Pacific, with a 50-50 gender balance. The mix is as unique as the region itself, which consists of jurisdictions with common and civil law, along with other legal traditions. Some of the lawyers are also well versed in working with multilateral development banks from the public and private sector, as well as civil society organisations and academia.
“As the AIIB comes towards the end of its startup phase, it can look back and take pride in having established itself as a relevant player in the field of development financing, support countries to achieve sustainable and equitable growth, and to enhance connectivity between countries and across regions,” says Sanders.
Compared to well-established development banks, the AIIB, as the newcomer, has experienced significant growth, reaching its 100 approved member mark in 2019. With his new role as general counsel emeritus, Sanders’ mission is to make the AIIB better understood, particularly in the legal communities of countries that may be thinking about membership.
“There are a few very large economies that are not part of the AIIB,” he says. “The US, Japan, Mexico and Nigeria, for example, are not members of the bank, but they are eligible to become members, and are welcome to become members.”
In order to underscore its status as an international organisation and part of the community of international financial institutions, the AIIB has been actively hosting legal conferences and law lectures that are focused on the law and practices as they impact international institutions.
These events, says Sanders, are crucial for improving the understanding of the role of international financial institutions in international development.
“Part of the idea will be to try to engage with the various legal communities, not only lawyers of the international organisations that finance development, but also others who help set or influence a governmental policy that impacts on the activities of the AIIB,” says Sanders.
“This will cover both member countries and certain non-member countries.”
A good example of this is Japan, a non-member yet an important economy in Asia, which Sanders will be focusing on by teaching as a visiting professor at the University of Tokyo. He will give a course of lectures on multilateral financial institutions with particular reference to the AIIB and its relationship with the country.
Sanders has close relationships with a number of other academic and professional institutions, especially in Asia and Europe, and hopes to leverage off these in order to provide lectures that advance the interests of the AIIB. He also expects opportunities to speak at other events, particularly where there is a close association with the financing of infrastructure in Asia.
In his new role, Sanders would also like to strengthen the ties between the AIIB and the UN, where he once worked as general counsel at the International Fund for Agricultural Development in Rome. Under his watch, the AIIB has obtained observer status at the UN General Assembly and the Economic and Social Council.
“I hope that the bank’s mission and operations, and also the way it’s run, its governance, will become better understood as a result of my carrying out this new function,” he says.