WASHINGTON (AP) — World Bank President Paul Wolfowitz broke bank rules in arranging a hefty compensation package for his girlfriend, a situation that has caused a “crisis in the leadership” at the institution, according to a report released Monday by a special bank panel. Wolfowitz described the report’s findings as “unfair and unwarranted.”
The special panel said the bank’s full 24-member board must consider whether Wolfowitz “will be able to provide the leadership” to ensure that the bank achieves its mission of fighting poverty around the world. The board will ultimately decide Wolfowitz’s fate.
Board members have discussed a range of disciplinary options. It could fire Wolfowitz, ask him to resign, signal that it lacks confidence in his leadership or reprimand him. Board members have been leaning toward an expression of no confidence or other tough language that would make it difficult — if not impossible — for Wolfowitz to stay on.
Treasury Secretary Henry Paulson, however, does not think the facts merit dismissal, according to department spokeswoman Brookly McLaughlin. Wolfowitz said he acted in good faith in arranging Riza’s pay package. He has accused his critics of launching a “smear campaign” against him.
He is scheduled to make an appearance before the board late Tuesday. The proceedings are not public. A decision could come as early as Tuesday or Wednesday. The controversy that has put Wolfowitz’s job in jeopardy involves his handling of the 2005 compensation pay package for his girlfriend, Shaha Riza, a bank employee.
The special bank panel concluded that Wolfowitz’s involvement in the details of the package “went beyond the informal advice” given by the bank’s ethics committee and that he “engaged in a de facto conflict of interest,” the report stated. Under Wolfowitz’s contract as well as the code of conduct for board officials, he was required to avoid any conflict of interest, the report said.
In a response to the panel’s report, Wolfowitz said, “It is highly unfair and unwarranted to now find that I engaged in a conflict of interest because I relied on the advice of the ethics committee as best I understood it.”
Wolfowitz also said he did not attempt to hide details of the arrangement from bank officials. “I did not have it locked up or placed in a secret drawer; it was a contract of the bank,” Wolfowitz wrote in his submission to the panel.
Riza worked for the bank before Wolfowitz took over as president in June 2005. She was moved to the State Department to avoid a conflict of interest but stayed on the bank’s payroll. Her salary went from close to $133,000 to $180,000. With subsequent raises, it eventually rose to $193,590.
The panel concluded that the salary increase Riza received “at Mr. Wolfowitz’s direction was in excess of the range” allowed under bank rules. Wolfowitz “placed himself in a conflict of interest situation” when he became involved in the terms and details of Riza’s assignment and pay package and “he should have withdrawn from any decision- making in the matter,” the panel said.
The panel acknowledged, however, that the informal advice provided by the ethics committee “was not a model of clarity.” Still, the entire episode involving Wolfowitz’s handling of the pay package “underscores that there is a crisis in the leadership of the bank,” the panel said.
In addition, the special panel said it was of the view that the controversy “has had a dramatic negative effect on the reputation and credibility” of the bank, had raised “serious questions” about the bank’s governance and ability to carry out its mission and was contributing to “erosion in the operational effectiveness” of the bank.
The special panel also raised fears that the fracas could hinder the bank’s ability to raise billions of dollars from countries around the world to provide financial help to poor countries. Before he took the bank’s helm, Wolfowitz was the No. 2 official at the Pentagon and a key architect of the U.S.-led war in Iraq.
European members — led by Germany, France and the Dutch — are pushing for Wolfowitz to resign. European and other countries, however, would still like to avoid a pitched battle with the United States, the bank’s largest shareholder. It’s unclear, though, whether such a battle can be avoided. The Bush administration continued to stand by Wolfowitz.
“A clear reading of the facts in this report demonstrates that this was a unique situation, missteps occurred on all sides and communication may not have been clear enough,” said Treasury’s McLaughlin.
“The facts reveal that President Wolfowitz acted to find a pragmatic solution and to carry out the direction he received from the ethics committee,” she added. “Secretary Paulson spoke to some of his colleagues today from other countries and expressed that he does not think the facts merit dismissal.”
To that end, the administration has intensified efforts to win support for Wolfowitz and is reaching out to the other members of the Group of Seven countries — Japan, Germany, France, Britain, Italy and Canada. A conference call among the G7 countries is anticipated.
The United States requested earlier Monday that the special panel’s report be delayed being sent to the board by a few hours, said White House spokesman Tony Fratto. “But it had nothing to do with phone calls or contact with other countries,” Fratto said. “We just needed the time to ensure that the report is fair and factual and to allow for a proper process for discussions going forward. It had nothing to do with presidential activity.”
By tradition, the World Bank has been run by an American, while the International Monetary Fund has been run by a European. President Bush tapped Wolfowitz, a move that was approved by the bank’s board. The United States keenly wants to preserve that decades-old tradition.
Vice President Dick Cheney said Monday that Wolfowitz should remain chief of the bank. The White House has repeatedly expressed confidence in Wolfowitz. However, many of the bank’s staff, former bank officials, aid groups and Democratic politicians also have called on Wolfowitz to resign. For now, Wolfowitz intends to carry on with his duties. He still plans to make a trip to Europe later in the week.