Corruption Corrodes Development Banks; despite Concerted Efforts to Stamp It out, Corruption Still Pervades the World's Development Banks, Where Illicit Rewards for Rule-Breaking Can Be Very Lucrative. (Investigative Report)

Article excerpt

The flurry of e-mail was urgent and angry, and the subject was kickbacks. On the receiving end was a consultant for the Inter-American Development Bank (IDB), one of the major financiers of infrastructure projects in Latin America. Her interlocutor was an IDB operations manager. The correspondence did not mention that under-the-table kickbacks are against IDB policy. In fact the manager wanted to underscore how much the consultant owed him personally, in dollars, now that she had finished her well-paid consultancy work on IDB projects.

The first e-mail, dated May 8, 2000, was curt: "Since you did not stop by my office as you said, I want to confirm what I told you by telephone--you still owe me $5,300, which I hope you will pay me immediately. If you don't I will have to take very unpleasant steps. I expect your reply immediately."

After the consultant responded, asking the manager how he came up with the $5,300 figure, he replied in a second e-mail the following day from his office at IDB headquarters in Washington: "I waited [for you] until the last moment during your stay in Washington last week, in order to clear up several matters personally. One of the things I had to talk to you about is the money that you owe--the 10 percent from the current contracts and the late payments from previous contracts. The consequences of not paying, or of more late payments, will be, I repeat, very disagreeable."

These e-mailed threats and demands for illegal kickbacks were obtained by INSIGHT from the consultant.

A four-month investigation of corruption at the IDB and other multilateral development banks has found that payments also were made by other long-term bank consultants to the manager, and that he was just one of several IDB staff who demanded and received them.

The investigation revealed that a culture of corrupt practices flourishes at the bank, which receives large sums from the U.S. Treasury Department. These practices include serious and ongoing irregularities in the purchase of goods and services, cronyism in the hiring of both staff and consultants, pre-selection of job candidates, sexual favoritism and harassment practiced at senior levels, as well as a "no-fail" culture of internal evaluations of IDB-funded projects. Several U.S. businessmen interviewed by INSIGHT complained that IDB bidding processes frequently are rigged, though none would allow their names to be used for fear of being blacklisted for future IDB business.

The IDB is one of several U.S.-backed development banks that serve as the major sources of financial capital in the developing world. In recent years, the senior IDB officials, together with those of the World Bank, the European Bank for Reconstruction and Development (EBRD), the Asian Development Bank and the African Development Bank, explicitly have cited the corrosive effects of corruption on democracy and development. But the challenges of fighting such corruption are enormous because the illicit rewards for bending or breaking their rules are so large.

The World Bank, which after the federal government is one of the largest employers in Washington, manages a portfolio of approximately 1,500 projects valued at more than $121 billion. Most observers credit it with taking the lead in global anticorruption efforts. Since 1996, when bank President James Wolfensohn scored corruption as a major tax on the poor which inhibited sound development policies, the World Bank has initiated more than 600 anticorruption programs and projects in nearly 100 client countries.

In part, the Wolfensohn initiative appeared to anticipate the firestorm of criticism that met the revelation that in one country, Indonesia, an estimated 20 to 30 percent of all development funds--several billion dollars a year--had been diverted systematically by corrupt officials. Already the World Bank/IDB-financed Yacyreta Dam on the border between Argentina and Paraguay--dubbed a "monument to corruption" by no less an authority than Argentina's then-president Carlos Menem--ended up costing $11. …