World Bank headquarters in Washington, DCA provision in the recently passed U.S. Consolidated Appropriations Act, 2012 requires three Multilateral Development Banks (MDBs) to make "substantial progress" toward "implementing" best practices for the protection of whistleblowers from retaliation before the U.S. can contribute tens of billions of dollars in cold cash and guarantees to these institutions' general capital increases. This is a major victory for MDB whistleblowers and those who wish to see these organizations operate in a more accountable manner.
According to Section 7082 of H.R. 2055, which was signed into law by President Obama on December 23, prior to the U.S. Congress disbursing funds for the general capital increases of the International Bank for Reconstruction and Development (World Bank), the African Development Bank (AfDB) or the Inter-American Development Bank (IDB), the Secretary of the Treasury must report that each institution is, among other things, making "substantial progress" toward:
implementing best practices for the protection of whistleblowers from retaliation, including best practices for legal burdens of proof, access to independent adjudicative bodies, results that eliminate the effects of retaliation, and statutes of limitation for reporting retaliation.
Prior U.S. legislation related to MDBs only required the U.S. Executive Director at each institution to advocate for best practice whistleblower protections. The new law requires the MDBs – as well as United Nations agencies – to go a step further and actually implement such policies in order to receive a full financial contribution from the United States. (Incidentally, the law also requires the Secretary of the Treasury to advocate for the implementation of best practice whistleblower protections at the International Monetary Fund, although no funding restrictions are attached to that provision.)
At GAP's urging, the U.S. has advocated for stronger whistleblowers protections at the MDBs for the past six years, and all the MDBs have therefore had ample time to consider and adopt such policies. Unfortunately, the World Bank and IDB still fail to meet minimum standards in the 2006 and 2012 Appropriations Acts, including:
- a guarantee of employment/reinstatement when whistleblowers successfully contest retaliatory dismissal;
- access to independent adjudicative bodies, including external arbitration; and
- a best practice statute of limitations for reporting retaliation (the AfDB policy also fails to meet this latter standard).
In addition, the current IDB policy fails to meet best practices for legal burdens of proof. It is clear to GAP that these institutions have not even adopted whistleblower protection policies that meet best practice standards, let alone implemented them.
The Treasury Department is required to submit a report to Congress about the extent to which each MDB has made progress on this reform measure by June 20. GAP has met with the Treasury Department and is committed to seeing that it does a detailed assessment, rather than a rubber stamp report. GAP has, for example, encouraged the Treasury Department to review how many whistleblowers have reported retaliation at each organization and how many have been subsequently shielded from retaliation. A report on this issue that lacks what should be readily available data is simply not a credible oversight effort.
The whistleblower reforms in the Consolidated Appropriations Act are crucial to ensuring that significant U.S. contributions to these Banks are used for their intended purposes and not lost to corruption and fraud. During a 2004 Senate Foreign Relations Committee hearing, Senator Richard Lugar (R-In.) cited experts who estimated that, as of that time, between $26 billion and $130 billion in World Bank resources had been misused over the lifetime of the institution. The Senator stated that "in its starkest terms, corruption has cost the lives of uncounted individuals contending with poverty and disease." Corruption remains a challenge for the MDBs, given the international economic environment in which they operate and the current climate of ethical (shall we say) flexibility that prevails in the financial sector. With the general capital increases, opportunities to divert loan and project funds, and commit fraud, will multiply.
In President Obama's State of the Union address last week, he committed his administration to investigating the financial crimes and fraud that collapsed the U.S. economy in 2008. After three years of refusal to "look back," (i.e. hold culpable institutions and individuals accountable) he finally took this step because of fierce popular pressure. American taxpayers, in this election year, are in no mood to see another bank bailout without accountability. They are even less inclined to approve when the banks in question are openly weakened by corruption and blatantly resistant to reform.
Last March, Treasury Secretary Timothy Geithner assured Congress that Treasury would exact from the MDBs the "best standards for internal controls that we can" before contributing tens of billions of dollars in new funding to institutions that are not subject to U.S. law and oversight. A 2007 survey by PricewaterhouseCoopers of more than 5,400 executives worldwide found that whistleblowers were the initial means of detecting economic crimes in 43 percent of cases, more than corporate security, internal audits, fraud risk management and law enforcement combined.
Clearly, strong whistleblower protections are crucial to ensuring that economic crimes are detected and that funds are spent appropriately. Additional contributions of U.S. taxpayers' money to these institutions should only be made with the strictest of whistleblower protections in place.
Shelley Walden is International Officer for the Government Accountability Project, the nation's leading whistleblower protection and advocacy organization.
