Bank’s pledge to fight corruption put to test

24 July 2002

President Wolfensohn takes credit for introducing the word corruption in the Bank’s vocabulary. But the Bank’s crusade against the ‘cancer of corruption’ has to compete with bigger interests.

In the last few months, the Bank has downplayed allegations of corruption against international dambuilding companies involved in a trial in Lesotho, refusing to disbar them from future contracts (see Bretton Woods Update 27) because of “insufficient evidence”. Now that Lesotho judicial authorities have convicted an official of the Lesohto Highlands Development Authority of receiving bribes from companies involved in the project, the Bank is under pressure to revise its decision. The companies include the UK‘s Balfour Beatty and France’s Spie Batignolles.

Corruption allegations are endangering another Bank-backed project, the Bujagali dam in Uganda. The World Bank has suspended its support to the project after AES revealed its main construction contractor had bribed a Ugandan official in 1999. Suspicion of corruption has long hovered over the project, adding to environmental concerns and doubt about its economic viability. A recent report by International Rivers Network shows how World Bank staff and management misled the Executive Directors in their decision to approve the project by manipulating figures on economic viability. Peter Bosshard suggests the Bank’s persistent support could be due to the fact that AES is one of the biggest clients of the IFC, the Bank’s private investment arm. He notes that AES is in desperate need of new activities to maintain its financial balance after its shares fell sharply in the aftermath of the Enron storm (see “Bujagali dam affected by Enron-fallout”, Bretton Woods Update 27).

To its embarrassement the Bank also has to fight corruption in its own ranks. A former Bank official, Gautam Sengupta, is under trial in the US for corrupt practices in Kenya. He worked for the World Bank from 1981 until May 2000, when he was sacked on the basis of corrupt activities uncovered by the Bank through an internal investigation. The investigation “revealed that [three] staff members were paid or agreed to receive kickbacks by two separate groups of Swedish companies in exchange for steering certain bank contracts to those firms. In other instances the contracts were awarded for ineligible activities”. Projects were aimed at improving the road network in Kenya. $900,000 in contracts were rewarded; the extent of the network involved is still not fully clear but several consultants have already been debarred from future Bank projects.

The World Bank’s pledge to fight corruption is conflicting with many interests. In a recent paper, Are donors promoting corruption in Mozambique, Joe Hanlon argues that the World Bank and other donors “see what they want to see” because they need “the myth of the Mozambican success story”. Hanlon complains the World Bank is rewarding “good performance” by allowing and therefore effectively encouraging corruption and state capture. He says the IMF and the World Bank, under pressure from the US Treasury and campaigners calling for faster debt relief, ignored calls from civil society and other donors in Mozambique to pressure the government for failing to address blatant corruption in the banking sector. Hanlon concludes that despite lip service paid to ‘good governance’ it is in fact a low priority on the donors’ agenda – including the World Bank.

International Rivers Network

Are donors promoting corruption?, Hanlon

Background info on Bujagali, Bretton Woods Update 28

List of debarred firms, World Bank

IRN in the Observer

Inspection Panel Report on Bujagali, World Bank

World Bank Worried Staff Are Aping Crafty Nairobi Officials,

Exporting Corruption: Privatisation, Multinationals and Bribery, CornerHouse briefing

Bank stalls dam after UK firm’s payment to minister, The Guardian, 19 July 2002