Bank approves anti-corruption strategy: Back to where we started?

2 April 2007

versión en español

In late March, the World Bank board of executive directors approved a heavily revised version of the governance and anti-corruption strategy. The strategy has become president Paul Wolfowitz’s flagship issue, but has been the subject of intense debate over the past year (see Updates 53, 52, 50).

It was only after pressure from civil society and several countries on the board that the Bank was forced to consult on the version of the strategy released at the annual meetings in Singapore last September. Ironically, the Bank is now taking credit for these consultations. In March, at a conference on fighting corruption in Brussels, Wolfowitz crowed: “we have considered it very important to consult broadly … We had a total of 51 sets of consultations, 35 in developing countries, 12 in donor countries, and four were events with global audiences.” Drawing on selected feedback received, the Bank is emphasising a number of points in the updated strategy:

the cross-debarment of Lahmeyer bodes well for the harmonisation of sanctions procedures
  • Don’t make the poor pay twice: Gone is any language about cutting off support to countries with severe governance problems. In its place, in difficult countries the Bank will outline “the limited areas of engagement which have potential for positive development impact”. Alternative scenarios for implementation of a Bank programme where corruption is a concern are to be specified explicitly in the Country Assistance Strategy (CAS). In so-called “high-risk environments”, the Bank will swoop in with “anti-corruption action plans, teams and governance advisers”.
  • Broad engagement: While governments will remain the “principal counterpart”, the Bank will “engage systematically” with the private sector, parliament, civil society, media, judiciary and local communities. This has been a point of contention with some southern governments who view it as an infringement of their sovereignty.
  • Strengthen country systems: The Bank will work to strengthen country procurement and fiduciary systems, though it does not seem to have resolved the contradiction between this and assurances that it will maintain “the highest standards”. Corruption scare-mongers such as the US appear to have backed down on this issue.
  • Don’t act alone: There is to be greater cooperation with other banks, the IMF and UN agencies on anti-corruption policy frameworks, sanctions decisions, and cooperation against tax havens and asset recovery.

In February, Europe’s development bank, the European Bank for Reconstruction and Development, blacklisted German multinational Lahmeyer over its conviction for bribing officials responsible for awarding contracts in the Lesotho Highland Waters Project. The World Bank’s long overdue blacklisting of Lahmeyer occurred in November 2006 (see Updates 53, 52). The ground-breaking ‘cross-debarment’ of Lahmeyer bodes well for the commitment to harmonise the sanctions procedures of different development banks.

Other positive aspects of the Bank’s anti-corruption strategy include: a revision of its disclosure policy; a commitment to improve transparency in its department of institutional integrity (see below); tentative (if dismissive) discussion of the role of ‘odious’ debt in corruption; and strengthened language on the role of rich country corporations. In a press conference in February, Wolfowitz was at pains to emphasise this last point: “[fighting corruption] is a responsibility of the rich countries just as much as the poor ones. In fact, I would almost say it is a responsibility even more of the rich countries.”

Despite the recognition of the role of business in fomenting corruption, there are concerns about the strategy’s emphasis on private sector solutions: “reforms that rationalise the role of the state, reduce red tape and promote competition can result in stronger firms, more jobs, and better public services”. Buried on page twenty is encouragement for governments fighting corruption to “transparently and competitively privatise state-owned businesses”. Accompanied by assertions that the Bank will “work closely with reform leaders in government”, this will ring alarm bells for those who fear that the anti-corruption agenda will be used as a Trojan horse for all-too familiar prescriptions. A further concern is over the risk of further mission creep. Civil society organisations may regret empowering the Bank by asking for its involvement and financial support for each and every issue that they can link to an anti-corruption agenda, such as civil society and media capacity building.

The framework will go to the Development Committee at the spring meetings for ceremonial approval. The implementation plan will be prepared before end June. This will include monitorable indicators, staff skills and training requirements, and operational guidance for staff. It will also address the thorny issue of budget reallocations since the plan is promised to be cost-neutral, though “sustaining this programme over time may imply additional costs”.

Integrity review lacks objectivity

In February it was announced that Paul Volcker, the former chairman of the US Federal Reserve, will review the Bank’s Department of Institutional Integrity (INT), the unit which investigates allegations of corruption in Bank projects. Volcker, who led the inquiry into the UN’s Iraq oil for food programme, will examine the conduct and procedures of the unit headed by Wolfowitz ally Suzanne Folsom. Bank executive directors demanded an independent review last year following claims by staff that investigators were ignoring due process in their efforts to uncover evidence of wrongdoing.

However US NGO Government Accountability Project (GAP) has questioned Volcker’s independence. Volcker was chairman of Wolfensohn & Co. (1988 – 1996) the investment banking firm headed by James Wolfensohn, who later became the president of the World Bank. When Volcker was appointed chairman of the Iraq oil for food inquiry in 2004, he selected an investigation team that included at least four members hired from INT. GAP’s Beatrice Edwards argues that “to have even a pretense of objectivity, Volker would have to establish a blackout on contact between himself and acquaintances who are now, or were previously, staff members of INT.” The Volcker report is expected in July.