World Bank faces setback to war on corruption

A month ago, it seemed as if the World Bank was ready to press forward with renewed zeal to battle corruption – a bane of economic development worldwide.

That effort has been cast into doubt, for now, by allegations of impropriety within the institution itself. At issue: whether bank president Paul Wolfowitz acted improperly in arranging for the employment and compensation of his close companion, Shaha Riza. The matter is a complex tangle, with accusations mounting against Mr. Wolfowitz even as his defenders characterize the storm as more about politics than ethics.

What's clear is this: It is a setback for Wolfowitz's attempt to make a crackdown on corruption a hallmark of his tenure at the World Bank. And such an effort is sorely needed, say experts in economic development.

"We should be extremely concerned about the prevalence of corruption in our world," says Frank Vogl, cofounder of the watchdog group Transparency International in Washington. The problem has stark consequences, he says: more hunger and disease, and less education and clean water "in many of the most fragile and poorest countries of the world."

The problem is far broader, and older, than the World Bank. Yet the Washington-based institution has a central role on this issue for two reasons.

First, experts say, it has helped to make corruption endemic in the developing nations it serves. Since its founding in 1944, the World Bank has doled out billions of dollars annually for building roads and other infrastructure in poor nations, and until the mid-1990s, it rejected the notion that guarding against bribes and theft was part of its mandate.

Second, arguably no institution offers a better platform from which to combat financial impropriety on a global basis. It is the leading agency of global development assistance, so its policies can ripple outward to affect governments and other financial institutions.

Now the bank's image is on the line in a very public way. The question goes beyond alleged wrongdoing by Wolfowitz to whether the bank can fairly and openly address a matter that is fraught with internal politics.

This week, a panel appointed by the bank's board is undertaking an urgent review of whether Wolfowitz acted improperly in arranging for the transfer of Ms. Riza, a bank employee, to a new job at the US State Department, after disclosing his relationship with her to the bank's ethics committee. According to news reports, the investigation will also consider other complaints against Wolfowitz.

"Your credibility as a leader in the fight against corruption … is certainly harmed if there's a perception" of actions inconsistent with good governance, says Mr. Vogl, a former World Bank spokesman. "The situation is very serious. It needs to be resolved in a clear, transparent manner."

The uproar comes barely a month after the bank issued a comprehensive report on its strategy for fighting corruption and promoting good governance – matters of heated debate within the bank during Wolfowitz's two years at the helm.

Most of the world's nations have serious levels of corruption, according to survey-based research by Transparency International. Of the surveyed countries, 71 – or nearly half – showed "rampant" corruption.

The problem spans from the public sector to the private, and across the ideological spectrum. Consider some news reports from the past month:

•In Taiwan, the leading candidate for president is standing trial, accused of graft in diverting more than $300,000 of public money into a private account.

•In Afghanistan, citizens say today's leaders there are more corrupt than were their Taliban or Soviet-backed predecessors, according to a poll by Integrity Watch Afghanistan.

•In the US, major universities are scrambling to clean up a scandal involving financial-aid officers who allegedly accepted financial perks from lenders while steering students toward their loans.

Raymond Baker, a scholar at the Center for International Policy in Washington, says the problem is so big that the very survival of global capitalism in this century is at stake. The reason: Too many of the world's peoples are held in poverty by the illicit transfer of wealth.

Over the past decade, the World Bank has begun to acknowledge the importance of the problem. Bank president James Wolfensohn put it squarely on the agenda in 1996.

Now some observers say that his successor, Wolfowitz, has pushed the issue even further into the forefront.

"He has certainly attacked the corruption issue in a much tougher way than anyone has before him," says Patricia Adams, executive director of Probe International in Toronto, which follows trade and aid issues. "The biggest thing that he did, that no one else has done, is just stop the flow of money" to certain countries.

In the process, Wolfowitz has become embroiled in a longstanding debate, inside and outside the bank, over how to reconcile two priorities – clamping down on corruption and continuing to assist nations that in many cases are desperately poor.

Wolfowitz has been controversial from the start of his tenure. Fairly or unfairly, he has been criticized within the bank for bringing in a handful of advisers from the Bush administration, in which he had served immediately prior to his current post.

And he made what seemed to critics to be arbitrary moves – suspending all aid to some nations, such as Chad, as part of the anticorruption effort. Faced with criticism from Europeans and aid organizations, he has backed off such hard-line tactics.

Regarding Riza, he disclosed their relationship to the bank in 2005, asking to be recused from personnel decisions related to her. But, according to news reports based on documents that the board recently released, the ethics committee asked Wolfowitz to arrange for Riza to leave the bank, with a pay raise or promotion to reflect any unintended cost to her career from this step.

After earning $133,000 as a communications adviser in the bank's Middle East department, Riza got a $180,000 job at the State Department.

Wolfowitz has said he has no plans to step down. At the same time, calls for him to exit have mounted this month.

Vogl says it is hard to judge the matter until all facts are made public.

"There's an awful lot of partial information out there," he says. "We feel in Transparency International that there may have been fault not only on the part of Mr. Wolfowitz, but also on the part of the ethics committee."

In the end, some analysts say this could become one more cautionary tale on the need for clear ethical lines – whether on personnel matters or bank projects.

Mr. Baker says the flow of dirty money is often enabled by the view that "the end justifies the means" – that a little unfairness or bending of rules is acceptable so long as some greater good is being served. The consequences can involve national security as well as poverty.

"We probably wouldn't be in Iraq today if it wasn't for the money that passed through the oil-for-food" program, he says.

Wolfowitz, as a advocate for the Iraq war, knew all about that.

What he might not have guessed is that today, with Saddam Hussein's regime gone, Iraq would remain a hotbed of financial abuse, at the bottom of Transparency International's ranking.

There and elsewhere, there's plenty of anticorruption cleanup work to do.

•Material from wire services was used in this article.