This post was written by GAP International Reform Director Beatrice Edwards for her Daily Kos Blog.

On October 20th, the High Level Commission convened to assess governance at the World Bank transmitted its report, "Repowering the World Bank for the 21st Century," to World Bank president Robert Zoellick. The report concluded (more or less verbatim) that:

• Current mechanisms for strategy formulation are not adequate for setting priorities and guiding operations;
• Mission creep is endemic, weakening accountability and increasing the risk that resources will be misallocated;
• The decision-making process is perceived as too exclusive;
• Insufficient institutional accountability for results weakens the World Bank’s effectiveness and legitimacy;
• The Bank’s resource base is insufficient.

The 'accountability' concerns of the commission, headed by former Mexican president Ernesto Zedillo, are profound. Among other things, the commissioner's wrote, the Executive Board lacks the independence necessary for effective oversight.  The appointment of the president is "opaque and excludes most of the membership."  The conduct of the Bank president is unsupervised, executive directors are not necessarily competent or qualified, and accountability functions are a patchwork of ad hoc assignment.

Unfortunately, the commission produced only superficial recommendations to address all this.  Much of the suggested improvement consists – literally – of rearranging the chairs (on the board).  Board chairs would be switched around and reduced in number.  The president of the Bank would no longer sit in the chairman’s seat.  He would also be subject to a performance review (by the board).  A council of advisors would be established to counsel the president, but its composition "would mirror that of the Board."  The methods to be used to choose council members are unspecified.

To strengthen accountability, additional reviews will be conducted, presumably by similar High-Level Commissions confronting similarly defective arrangements.

This is not serious.  In 2007, cronyism was exposed in the office of the World Bank president: Paul Wolfowitz had installed a network of overpaid and underqualified advisors with carte blanche to intervene anywhere they pleased.  As a result, they wreaked havoc.

During his tenure, Wolfowitz established a position for his romantic partner at a ‘foundation’ putatively run by the US Department of State, paying the woman approximately $70,000 more per year than the salary earned by the Secretary of State.  And, just as the dust settled from these adventures, his General Counsel took it upon herself to obliterate the autonomy of the Bank’s Ethics Office.

At the same time, emails surfaced suggesting that the Bank would defang its anti-corruption program after push-back from the government of China. Meanwhile, longstanding, widespread corruption came to light in Cambodia, the Philippines, India, Kenya and Viet Nam.

A year later, the General Services Division at the Bank was forced to disclose that its three principal IT vendors had been debarred for fraud and corruption.  One of them had bribed the Bank’s Chief Information Officer, who was also (nominally) debarred, and then compensated in the amount of $25,000 by the Bank for damage done to his reputation by the whole affair.

This year, the Bank’s Vice President for Institutional Integrity was exposed in the press for politicizing a high-level investigation in South Africa, an ethical lapse that directly affected the outcome of the recent presidential election there.

At the same time, the Independent Evaluation Group concluded that the inadequacy of internal controls regulating the Bank’s concessional lending rose to the level of a material weakness.

These problems will not be addressed by switching the seats around the table, nor will they be addressed by adopting the second of the commission’s recommendations: "Strengthening the WBG’s Reource Base," i.e. dumping more public money into the same pockets.  Greater taxpayer funding to finance the dubious actions of many of these people (and their friends, relatives, colleagues and cronies) sitting in brand new chairs is not the answer.

On October 5th 2009, the Court of Appeals for the District of Columbia denied a request filed by the Inter-American Investment Corporation (IIC) for a hearing en banc of its motion to dismiss claims filed by Jorge Vila, a former consultant. Vila filed his claim against the IIC – the private sector lending arm of the Inter-American Development Bank (IDB) – in October 2006, and since then the Courts have turned back repeated efforts by the IIC to invoke its immunities. This case is now expected to go to trial before the District Court, where significant issues related to the transparency, internal audit and controls and accountability of international organizations are likely to be raised.

As an international organization, the IIC enjoys certain immunities against Court actions. As decided repeatedly by the Courts however, the IIC, like other international organizations, is not protected by its immunities against claims that deal with the “outside world” commercially. Specifically, the IIC cannot invoke its immunities when hiring private sector consultants to assist in its mission of lending funds for development in Latin American and the Caribbean. As decided by the Courts on at least two occasions now, Vila has filed just such a claim. He argues that, as an IIC consultant, he was asked over six months to identify co-financiers of IIC loans (syndications), negotiate terms and conditions of IIC loans and advise the IIC on market conditions to price loans to Latin American and Caribbean borrowers of IIC funds.

Court papers show that Vila claims the IIC requested his services, accepted them during six months and then refused to pay for them, citing internal audits and control procedures. Vila claims that those internal audits and control procedures were not an impediment to requesting and accepting his services during six months, giving him authority to negotiate terms and conditions of IIC loans with clients and counterparts and drafting internal and external documentation for the signature of IIC’s senior management. He claims that these putative controls should not, therefore, be an impediment to paying for his services.

The District Court for the District of Columbia, on February 22, 2008, agreed with Vila’s interpretation, stating that if the alleged facts were true, they amounted to a valid claim for unjust enrichment. Consequently, the Court denied the IIC Motion to Dismiss Vila’s claim. On January 26, 2009, this same Court denied an IIC Motion for Certification for Appeal.

On June 19, 2009, the Court of Appeals for the District of Columbia ruled that the IIC was not immune from Vila’s claim, denied the IIC request to uphold its alleged immunity, and affirmed the District Court decision of 22 February 2008.

The IIC then filed a Petition to Appeal en banc, and the Court of Appeals denied this petition on October 5th. This last is the fourth Court decision against the IIC since Vila filed his claim exactly three years ago. The law firm of Arnold & Porter has represented the IIC throughout these proceedings, and the law firm of Elitok & Hartnett represents Jorge Vila.

Click here to read the 2008 IIC Memo Opinion Motion to Dismiss

This post was written by GAP International Reform Director Beatrice Edwards for her Daily Kos Blog.

On Friday, October 16th, Raj Rajaratnam, a Sri Lanka national and hedge fund manager was arrested at his Manhattan home and charged with insider trading by the US Justice Department and the Securities and Exchange Commission (SEC).  As the manager of  Galleon Management LP, a  Wall St. hedge fund, Rajaratnam is accused of running a network of IT and health care company insiders who helped him amass $20 million in profits in the past three years.

As it turns out, in addition to benefiting from private information while making trades for his fund’s hedgers, Rajaratnam also cashed in on public largesse through his corporations’ access to generous loans from the World Bank Group.

Rajaratnam, who is now US-based, is one of the largest foreign investors in publicly traded Sri Lankan corporations.  He is the second principal investor in John Keells Holdings, Ltd. (JKH), the largest Sri Lankan conglomerate in the country, and he's an important investor in Dialog, the national telecom firm.  Rajaratnam’s hedge fund also is a principal stockholder in the National Development Bank of Sri Lanka (NDB) and the Commercial Bank of Ceylon (CBC).  All four companies collected credit from the International Finance Corporation (IFC) – the private sector lending arm of the World Bank Group – over the past two years. The NDB established a risk-sharing facility with the IFC for up to $30 million two months ago. The CBC collected an investment from the IFC of $60 million in July 2008; JKH finalized a lending facility for up to $100 million in February, 2008, and Dialog’s most recent IFC loan amounted to another $100 million in August, 2007.

Well before the IFC loans were approved for companies in which Rajaratnam had a major stake, his reputation was, well, dubious. He had been investigated and fined nearly $2 million by the SEC in 2005 for "improper short-selling" of 17 stocks.  In 2007, a charity he had strongly supported was closed down for funneling donations to the Tamil Tigers insurgency in Sri Lanka.

At the time the IFC loan for JKH came Rajaratnam’s way, the company’s reputation for integrity was also highly suspect.  The corporation had effected an extremely smelly privatization deal that was under review by the Supreme Court of Sri Lanka, and four months after the IFC finalized its loan to JKH, the company’s Chairman was found to have worked "to secure illegal advantages....adverse to the public interest."  The privatization deal manipulated by JKH was reversed by the Court as ‘unlawful.’  The Sri Lankan Secretary to the Treasury admitted violating the Sri Lankan Constitution as well as his oath of office for handing over to JKH a prosperous, revenue-producing state asset  for a fraction of its real value, and structuring the deal as a private monopoly on essential port services.

Despite its history of backing Rajaratnam's Sri Lankan investments well after serious questions had been raised about the hedger's ethics, the IFC posts the following statement on its website:

"The IFC is at the forefront of the market and of development institutions in guarding against fraud and corruption in its projects. This approach complements and supports IFC's determination to act as a leader on sustainability. Avoiding fraud and corruption is necessary to ensure that IFC's investments are successful, that its resources are being used effectively, and that its development objectives are met."

Oh, please.

by the Sunday Times (Sri Lanka)

PricewaterhouseCoopers has sent a letter with reference to last week’s article with the above title in the Sunday Times FT.

It said the report, mostly a reproduction of a report by the US-based Government Accountability Project (GAP) provides incomplete and misleading information. The letter says the Supreme Court states that on 4th June 2009, it gave its findings with regard to only executive or administrative action that led to the sale of SLIC.

Although the event – which included an opening address by UN Secretary-General Ban Ki-moon and a panel with Under-Secretary-General for Management Angela Kane (who has been accused of misconduct for publicly retaliating against a whistleblower) – seemed to present OIOS as an effective watchdog (albeit with room for improvement), GAP’s sources beg to differ. A preponderance of the evidence shows that the OIOS Investigations Division (OIOS/ID) – the unit that is supposed to investigate misconduct – is in many cases failing to do so and is also avoiding the implementation of much needed steps to improve its capacity to serve as an effective watchdog:

Exhibit #1: The Secretary-General stated during his opening remarks that the establishment of the UN’s Ethics Office was a significant accountability advance. What he failed to mention was that according to the Ethics Office’s August 2009 report to the General Assembly (para. 66), OIOS/ID failed to investigate a case of whistleblower retaliation referred to it by the Ethics Office, even though OIOS is tasked with conducting such investigations (para 5.5). Several whistleblowers have also approached GAP with complaints about OIOS’ failure to investigate their retaliation claims. How can OIOS expect witnesses to come forward with misconduct allegations when it refuses to protect them from retaliation for doing so? GAP submitted this question to the panel (via email) but the moderator failed to raise it, opting instead to end the panel 20 minutes early for a milk and cookie break. 

Exhibit #2: As alluded to by panel member Inga-Britt Ahlenius, Under-Secretary-General for Internal Oversight Services, OIOS/ID has been without a permanent director for more than two years, despite the nomination of qualified candidates, such as former head of the UN Procurement Task Force Robert Appleton. The fact that OIOS/ID lacks a permanent director who is protected from pressure and retaliation deprives the organization of a needed resource and deterrent to corruption, as pointed out in paragraph 22 of OIOS’ 2009 annual report. GAP also submitted a question regarding this situation, which the moderator once again failed to raise.

Exhibit #3: External reports have found that OIOS-ID is broken. A 2007 review by a UN consultant found that there appeared to be “something fundamentally awry with ID, its operating procedures and its underlying culture.” A separate assessment found similar problems and stated that: “the lack of effectiveness and high quality work of ID/OIOS is of critical importance because it affects the overall functioning of the Organization. First, it is detrimental to the Organization’s ability to manage and detect corruption, fraud and other serious offenses, which has in recent years damaged the reputation of the Organization and has engendered a sense of mistrust. Second, it impedes the ability of the Organization to combat and prevent future instances of wrongdoing.” OIOS has also come under fire from a former OIOS investigator who accused the office of whitewashing a report about wrongdoing committed by UN peacekeepers in the Congo.

Exhibit #4: As reported by the UN’s Independent Audit Advisory Committee, OIOS (especially OIOS/ID), has an extremely high vacancy rate, as more than 27 percent of its authorized posts are unfilled. Meanwhile, sources report that many OIOS/ID investigations into significant cases of fraud, such as one involving the misuse of USAID money by UN agencies in Afghanistan, are languishing. The rumor is that OIOS/ID is not conducting a single external investigation at the moment despite ongoing allegations of serious corruption. The General Assembly has requested that the Secretary-General fill these vacancies as a matter of priority. But instead of filling these positions, OIOS/ID is reportedly trying to reduce its mandate by claiming that it does not have the authority to investigate external contractors or former staff members accused of misconduct. But if they don’t, who will? 

by the Sunday Times (Sri Lanka)

The Government Accountability Project (GAP), a 30 year old nonprofit public interest group that promotes government and corporate accountability and is the leader whistle blower protection organization in the United States, recently published a report on the role of the auditors in the unlawful privatizations in Sri Lanka. Highlighted in the report is the misconduct of auditing firms PricewaterhouseCoopers (PWC) and Ernst & Young (E&Y) who forfeited their reputations Sri Lanka Insurance Corporation (SLIC) privatization.

by the Sunday Times (Sri Lanka)

The Government Accountability Project (GAP), a 30-year-old nonprofit public interest group in the US that promotes government and corporate accountability based in Washington D.C, and has published reports on unlawful privatizations in Sri Lanka, this week wrote on the 'shocking decision' handed down on September 24 by the Supreme Court of Sri Lanka, allowing former Treasury Secretary P.B. Jayasundera to return to public office. The GAP report states that the Supreme Court overturned its own previous ruling allowing Jayasundera to return to public office despite his orchestration of the unlawful privatization of the former public enterprise Lanka Marine Services (LMS) in August 2002.