Development & Aid, Economy & Trade, Eye on the IFIs, Global, Global Geopolitics, Global Governance, Headlines

CORRUPTION: World Bank Panel Urges Anti-Graft Overhaul

Abid Aslam

WASHINGTON, Sep 13 2007 (IPS) - The World Bank has been hamstrung in its efforts to fight corruption by tension between its anti-graft unit and the rest of the lender’s bureaucracy, an independent panel commissioned by the lender has said.

The Department of Institutional Integrity, known as INT, must be overhauled if it is to satisfactorily investigate allegations of wrongdoing and corruption in projects financed by the bank, said the six-member panel headed by former U.S. central bank chief Paul Volcker.

“What is necessary is a fully coordinated approach across the entire World Bank group, ending past ambivalence about fighting corruption,” the panel said in a report issued Thursday.

Robert Zoellick, the bank’s president, acknowledged many of the panel’s findings.

“The Volcker report makes clear the serious challenges ahead in overcoming the cancer of corruption in operations supported by the bank, and it offers constructive recommendations,” Zoellick said in a statement. “Now it will be up to all of us to move forward, as part of our ongoing commitment to address this vital issue.”

The bank lends around 20 billion dollars a year to member countries and employs a staff of more than 10,000. Some of its personnel have been accused and, on occasion, found guilty of misconduct ranging from tolerating to taking an active part in graft.

Volcker’s group made no estimate of how much bank money was lost to corruption but the lender’s shareholder governments long have said they think the figure is large.

The panel report acknowledged “some notable successes” by INT.

“Nevertheless, serious operational issues and severe strains in relations with some operations units have arisen, at times contributing to counterproductive relations between the bank and borrowers and funding partners,” it added.

INT personnel have come to see themselves as under attack from loan officers protective of their projects and lending portfolios. “This contributed to a siege mentality at INT and to INT becoming less communicative and forthcoming than required to maintain the confidentiality of its investigations,” the panel said.

It recommended elevating the unit’s head to the rank of bank vice president; setting up an external board to help oversee INT; and assigning to another bank unit responsibility for investigating staff members accused of violations that do not involve fraud or corruption.

Strains within the bank moved its 24-member executive board last year to order Zoellick’s predecessor and U.S. compatriot, Paul Wolfowitz, to probe INT. In February, Wolfowitz chose Volcker to lead the effort.

Wolfowitz’s own term as president was truncated by a scandal over a pay raise for his girlfriend, a bank employee on loan to the U.S. State Department. When Zoellick took over at the bank in July, he inherited the INT review and the unit’s head, Suzanne Folsom.

Like Wolfowitz, who appointed her, Folsom has proved a polarising figure at the bank in large measure because of her political ties to Republicans. Additionally, the Government Accountability Project, a private government and corporate watchdog, said in a recent report Folsom’s appointment marked a conflict of interest as she also served as Wolfowitz’s counselor. The group said the jobs of probing graft and giving the bank president political advice should be separated.

A bank spokesman dismissed the charges at the time. Volcker subsequently found no fault with Folsom. Early this year, she told the British newspaper Financial Times that the Volcker report would vindicate her unit’s work.

The panel report spared the department but gored the rest of the lending agency, citing “resistance among important parts of the bank staff and some of its leadership to the work of INT.”

It further identified a root conflict of interest: The bank exists to make loans and it pays and promotes its staff on the basis of how much money they move; INT exists to meddle in and, at times, impede that mission.

“There is a natural discomfort among some line staff, who are generally encouraged by the pay and performance evaluation system to make loans for promising projects, to have those projects investigated ex post, exposed as rife with corruption, creating an awkward problem in relations with borrowing clients,” the panel said.

In addition to Volcker, its members included Colombian entrepreneur Gustavo Gaviria; John Githongo, described as a Kenyan anti-corruption crusader; former General Electric Co. top lawyer Ben Heineman; Belgian legal scholar Walter Van Gerven; and Sir John Vereker, governor of Bermuda.

Volcker previously investigated the Iraq oil-for-food programme, an initiative administered by the United Nations under the mandate and supervision of the United States and other leading members of the U.N. Security Council.