In 2006 and 2007, GAP received numerous reports from Bank whistleblowers about widespread abuses at INT. GAP also learned that INT had not investigated when the Department received information about the Bank president’s approval of improper pay raises for his romantic partner. After waiting for more than one year, the whistleblower on the pay raises sent the relevant documents to GAP. In January 2008, the controversial head of INT, Suzanne Rich Folsom, resigned, after increasing criticism of her own integrity and effectiveness from a variety of sources, including an independent review prepared by GAP, a subsequent Bank commissioned report from a panel headed by Paul Volcker, and a rising tide of dissatisfaction among her staff.
In 2009, the Bank’s Independent Evaluation Group (IEG) released a Review of IDA Internal Controls that found weaknesses in the Bank’s ability to address fraud and corruption risks. The report also found that staff members in INT reported fear of reprisal more than the staff of any other unit. In response to IEG’s report, World Bank management claimed that reforms at INT have made the investigations unit an effective deterrent to fraud and corruption. Management based these claims on the implementation of recommendations set out by the Volcker panel in 2007. But Bank documents show that the Volcker Panel heard tainted testimony when it formulated those recommendations and received accounts of administrative standards that had been doctored to impress the panel favorably.
December 2009 rulings of the Bank’s Administrative Tribunal (AT) document the ways in which Suzanne Rich Folsom effectively undermined the work of the Volcker panel, while she headed INT. The AT rulings show that Folsom intimidated witnesses and altered both practices and documents to mislead the panel, resulting in weaker reform recommendations. These decisions also revealed that Folsom had undermined the work of the Volcker Panel by recruiting a panel member to act as her informant. The panel member told Folsom which of her staff members were meeting with the panel, and what these staff members had said. According to the Tribunal decisions, Folsom then systematically retaliated against those who criticized her, thus sabotaging the reforms even before they were developed. A special Grievance Panel had to be convoked to address the issue, which awarded affected staff members substantial sums as compensation for the professional and personal harm they sustained. Then-new INT director Leonard McCarthy refused to comply with the Grievance Panel’s recommendations for compensation, and these staff members took their appeals to the Tribunal, which awarded them compensatory payments of nearly $2 million.
In April 2010, when GAP requested that the Bank’s General Counsel investigate the manipulation of the Volcker panel and the weakening of its conclusions, we were told that the matter was closed. GAP subsequently filed a Complaint with the DC Office of Bar Counsel concerning the unethical conduct of Folsom as director of the Bank’s anti-corruption unit. Unfortunately, this complaint was also closed without investigation. However, after GAP issued a press release about the filing, numerous whistleblowers came forward with information about Folsom’s tenure as Chief Compliance Officer at the American International Group (AIG), Inc., which she joined after World Bank President Robert Zoellick forced her to resign in January 2008.
Three months after leaving the World Bank, Folsom was hired by AIG as the chief compliance and regulatory officer. From AIG, she collected a second golden parachute of $1 million (she had previously pocketed a severance payment of about $400,000 from the World Bank) after less than two years at the company, even as other AIG executives fought the imposition of the $500,000 annual pay caps by Kenneth Feinberg, the Paymaster for bailed-out US corporations and banks. During her tenure at AIG, as the company sank deeper into increasingly risky and irresponsible insurance schemes, Folsom terminated many of the corporation’s experienced compliance attorneys, including AIG’s anti-money laundering officer, risk management officer, foreign-corrupt practices officer, global compliance trainer and shared services officer. In their place, consultants who were well-connected to Folsom and AIG General Counsel Anastasia Kelly arrived.
Although Folsom left the Bank in January 2008, the situation at INT was not categorically improved by the new director of INT, Leonard McCarthy. He arrived in April 2008 and less than one year later, actionable allegations of misconduct in his native South Africa surfaced against him in the press. McCarthy was accused, via unimpeachable evidence, of manipulating a high-level corruption investigation for political gain and of using improper and provocative intelligence gathering sources and methods. His conduct was described in a report issued by the Joint Standing Committee on Intelligence in the South African Parliament. When GAP requested that World Bank President Zoellick open an inquiry into this matter, our letter failed to produce a response. Meanwhile, the most recent staff survey shows that INT has the lowest morale of any Department of the Bank, and whistleblowers abused by INT continue to approach GAP.
In March 2010 the World Bank Administrative Tribunal released two decisions that highlight the manipulation of an INT investigation related to the Albania Integrated Coastal Zone Management and Clean-Up Project (AICZM). The decision shows that in January 2008, INT began a preliminary inquiry into the circumstances surrounding the misinformation given the World Bank Board about AICZM resettlement safeguards. What followed at INT amounted to a narrative of abusive, intrusive and improper pursuit of staff members for purposes of convenience. At the same time, senior management did nothing to promote legitimate reforms and ensure that the abuses occasioned by the Albanian project did not recur.
Years of proven, on-the-record misconduct and abuses in INT provide a clear case for independent oversight of this oversight body. All of the problems identified by the Tribunal emphasize a single structural weakness in the internal investigative procedures used at the Bank: the separation between the president’s office and INT is permeable and can be superseded when convenient. GAP believes that the Volcker Panel exercise of 2007 must be revisited and that, in consultation with and with the consent of the Staff Association, a new, more effective Independent Oversight Board should be established with executive authority.