World Bank Corruption Probe

Doug Henwood dhenwood at
Thu Jul 16 15:52:10 PDT 1998

Speaking of theft of World Bank loans....

Date: Thu, 16 Jul 1998 22:14:37 +0300 (EET DST) From: "Antti.rautiainen" <antti.rautiainen at> Mime-Version: 1.0 Precedence: bulk Sender: owner-50-years at Subject: World Bank Corruption Probe To: <wb-list at>, yly-lista at, 50-years at X-Sender: antra at

>Date: Thu, 16 Jul 1998 10:29:00 -0700 (PDT)
>X-Sender: dnorlen at
>To: "Jozsef Feiler" <jfeiler at>, "MDBs CEE List" <mdbs-europe-l at>
>From: "Douglas P. Norlen" <dnorlen at>
>Subject: World Bank Corruption Probe
>Content-Length: 8422
>Auditors to Probe World Bank Spending
> By Lorraine Adams
> Washington Post Staff Writer
> Thursday, July 16, 1998; Page A01
>The World Bank has hired outside auditors to investigate expenditures
>from its annual $25 billion fund for development projects after an internal
>examination uncovered "alarming information" about possible kickbacks
>and embezzlement, according to bank officials.
>World Bank President James D. Wolfensohn acknowledged yesterday
>that within the past two months he has set up a special internal fraud team
>and hired the global accounting firm PricewaterhouseCoopers and two
>other outside fraud specialists.
>"I am in constant personal contact with the group," Wolfensohn said in a
> statement. A senior Treasury Department official said the Clinton
>administration has been briefed on the special investigation and its
>Wolfensohn said the investigations were triggered by his decision that "if
>the bank were going to campaign against corruption in our borrowing
>countries, we had to be absolutely certain that we held ourselves to the
>highest standards on the inside."
>Projects that have come under scrutiny include bank-funded efforts in
> Russia, Japan and Indonesia, according to a senior bank official who
>spoke on the condition of anonymity. It was unclear whether concerns
>about those projects center on bank personnel supervising the work or on
>the private contractors involved.
>One phase of the investigation, according to Wolfensohn's statement, has
>led to a civil lawsuit in federal district court against a former bank
>Fritz Rodriguez. The lawsuit seeks to recover "tens of thousands" of
>dollars in alleged kickbacks that the bank believes Rodriguez took from a
>contractor on a water utility project in Algeria. The bank alleges in court
>papers that the contractor was a former neighbor and close friend of
>Rodriguez and that the work was never satisfactorily completed.
>Rodriguez, who retired during the bank's internal investigation late last
>year, denied the bank's allegations in court filings. His attorney did not
>return calls yesterday asking for comment.
>"If our original suggestion was true that there was a ton of corruption going
>on in our borrowing countries we couldn't assume that the bank was a
>pristine island in the middle of this," said Mark Malloch Brown, the World
>Bank's vice president for external affairs. "So the question is 'Are we
>clean?' and it's not clear. There are a number of ongoing investigations
>where there is alarming information on the face of it and it needs full
>Wolfensohn said: "Other formal investigations are underway, and several
>other allegations are being reviewed. Some of these cases may result in
>legal action taken by the bank in addition to appropriate disciplinary
>measures. While I have no reason to believe there is a widespread
>problem in the bank, even one case is one too many."
>A senior bank official said that in addition to Rodriguez, two other bank
>officials have been notified that they are under investigation and have been
>suspended while the probe is underway.
>Headquartered two blocks from the White House, the World Bank is a
>major force in global economic development and one of the Washington
>area's largest employers, with about 8,600 workers. The bank pours
>billions into emerging countries each year for projects ranging from infant
>feeding programs to gigantic infrastructure improvements. The bank's
>money comes from selling low-interest bonds backed by its 180 member
>nations. It then lends money to governments of relatively stable emerging
>nations such as Thailand and Brazil and makes interest-free loans to the
>poorest nations such as Bangladesh or Uganda. In the United States,
>oversight of the bank primarily rests with the Treasury Department and
>Questions about program inefficiencies and the many possibilities for
>corruption in dealing with emerging nations have long surrounded World
>Bank programs. Wolfensohn, an Australian-born former investment
>banker who took over as World Bank president in 1995, has talked
>openly about these issues and encouraged his employees to come forward
>with concerns.
>In his statement yesterday, he said the bank is planning to establish a hot
>line within the next few weeks for staff members to use to report possible
>The bank's Office of Professional Ethics is working in collaboration with
>the fraud team. Wolfensohn said the bank's regular outside auditors,
>Deloitte Touche LLP, also have been alerted.
>News of the fraud task force filtered out to World Bank personnel last
>month in an internal newsletter. It said the bank's internal audit department
>was being aided by a "former U.S. federal prosecutor, a head of security
>for two international oil companies and a group of eagle-eyed investigators
>from Price Waterhouse."
>A senior bank official confirmed the newsletter report. The senior bank
>official who asked not to be named said one of the investigations involves
>possible misuse of a "trust fund" set up by the Japanese government to
>subsidize bank staff administrative expenses. Klas Bergman, chief of media
>relations at the bank, declined to comment.
>At the Treasury Department, a senior official said Wolfensohn has kept
>the administration apprised. "These are serious allegations. We've
>encouraged them to investigate fully and take all appropriate action," the
>official said.
>Wolfensohn made a groundbreaking speech two years ago at the World
>Bank's annual meeting concerning corruption, and since then internal
>scrutiny has increased.
>Tips about corrupt bank officials have come from bank colleagues,
>government officials in countries with bank-funded projects and
>consultants, Malloch Brown said.
>"We lend over $20 billion a year, so the allegations have come from a
>wide variety of sources," Malloch Brown said. "We've just been much
>more rigorous in pursuing them and tracking them out."
>Given the current economic turmoil in Asia, officials will be watching
>closely the effect of the bank's new internal corruption investigations on
>congressional support for two pending requests for U.S. contributions to
>the World Bank, and to the International Monetary Fund, the bank's sister
>World Bank officials yesterday cautioned that the investigations are just
>beginning and their scope and size are not yet clear.
>In the lawsuit against Rodriguez, the amount of money cited was not large.
>Rodriguez, of Potomac, was a principal sanitary engineer at the bank
>whose duties included oversight of contracts and projects relating to water
>utilities in Algeria. The court records did not say how long he had been
>employed at the bank, and bank officials declined to comment on the
>pending case.
>According the bank's complaint, in early 1995 Rodriguez was assigned to
>manage a project that would computerize billing for Algeria's water utility.
>He obtained two bids, one from a well-known French company, and
>another from Managed Information Systems of Chevy Chase.
>In its bid, MIS said it had four fully staffed corporate departments and
>planned to join forces with the French company in a joint venture to
>complete the work. The bank contends these statements were false.
>David Pearson was MIS's only full-time employee. Pearson and
>Rodriguez had been neighbors in Potomac for approximately 10 years in
>the 1970s and 1980s, and MIS had for a time employed Rodriguez's
>daughter, the bank alleges. It contends that Rodriguez did not disclose this
>information to his supervisor and awarded the $434,000 contract to MIS.
>The bank alleges that MIS used part-time subcontractors and that most of
>the work was performed on Pearson's home computer.
>"Mr. Pearson strenuously denies the bank's allegations against him and is
>vigorously litigating the civil case they have filed despite the fact that
to do
>so puts great strains on his limited resources," said Barry Coburn,
>Pearson's attorney.
>The bank began an internal audit in December 1996 when it learned that
>MIS had not yet delivered computers to Algeria.
>Staff writers Jeff Leen and Paul Blustein and staff researchers Alice
>Crites and Bobbye Pratt contributed to this report.
> -end-
>Douglas P. Norlen
>Policy Advisor
>Pacific Environment and Resources Center
>phone: (202) 785-8700, fax: (202) 785-8701
>email: dnorlen at
Antti Rautiainen - antti.rautiainen at

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