World Bank Fraud and Corruption Investigations
Hotline
P.O. Box. PMB 137
4736 Sharon Road, Suite W
Charlotte, NC 28210
USA
Montevideo, 18th July 2001
Dear Sirs,
Please consider the following
Appeal for investigation on Development Gateway for "misuse of Bank funds
or positions"
Summary
We believe that in the formation of the World Bank's Development Gateway
internet initiative several irregularities have been committed that should
be reported and investigated. These include a misuse of Bank funds and
positions, gross waste of Bank funds, cost mischarging or defective
pricing and perhaps even fraud and misleading of public opinion.
The Bank has allocated around $7 million to this scheme, creating a
website which is shortly to be transferred to be managed by a new
foundation.
We are concerned that Bank funds are being spent without proportion to the
expected results to create a website intended as a public relations tool.
While it is a legitimate activity for the Bank to defend itself from
criticism, it is a clear misuse of funds to divert to public relations
monies intended to combat poverty. Further, it is a gross violation of
editorial ethics to misrepresent a propaganda operation as a genuine
independent Internet portal about development in the Internet. Potential
donors are being misled to make grants to a supposedly independent
Foundation that in fact is just an appendix of the Bank.
The Gateway was not requested by any of the Bank's intended beneficiaries
and will only benefit a private entity created by the Bank and whose
governance is still largely unknown. That entity, formally a US
foundation, is using Bank monies to contract services from the Bank
without any bidding process like those the Bank usually requires from its
grant recipients.
We are also concerned that senior World Bank managers, especially the
Bank's President James Wolfensohn and the former Vice President for Human
Resources, Richard Stern, have used their positions at the Bank to create
a new organisation in which they will hold positions and presumably
extract private benefits, distracting time from their core tasks and using
the diplomatic energy of their positions at the Bank to promote the
initiative and raise funds for it. This appears to contradict the
guidelines on "misuse of Bank funds or positions".
The document called Ethical Guide For Bank Staff Handling Procurement
Matters In Bank- Financed Projects states that: "In dealing with
procurement matters, Bank staff shall [...] avoid strictly any conflict of
interest or even the appearance of a conflict of interest in any matter
related to the performance of the staff member's duties; [and ...]
disqualify him/herself from outside employment or activities, including
dealings with former or future employers and employment after separation,
that conflict with his/her Bank duties and responsibilities. "
Whilst the Development Gateway is not a classical Bank procurement
situation, the same standards should surely apply to the Global
Development Gateway but this has not been the case in practice according
to the evidence we offer below.
No similarly detailed definition is offered by the Bank of the concepts of
"waste of funds", "cost mischarging" and "defective pricing", probably
because they are obvious. In this case, 7 million dollars have already
been spent and some 30 million dollars a year are budgeted for a website
that will not be sustainable even if the declared targets are met. The
money already spent and the sums requested to continue the activity are
disproportionate with the product they are supposedly paying for.
It is obvious that many public-interest or educationally oriented
activities may require permanent subsidies. But in this case it should be
taken into account that no external actor has demanded the creation of
such a site, that two regional consultations with civil society
organizations (in Africa and Latin America) failed to support the proposed
Gateway and that solid criticism was raised and never properly answered
during lengthy on-line consultations. Many international websites on
development already have been created by multilateral agencies and NGOs.
In all countries where the Development Gateway plans to establish
"national gateways" Internet portals already exist, as can easily be found
by looking in the Yahoo directory. Instead of contributing to develop
national capacities, the Development Gateway plans to establish subsidized
state-run media operations that will compete unfairly with existing
efforts. There is already solid criticism against the Bank (an
intergovernmental body) engaging in media activities. Through this new
"Gateway" further state control of the media is promoted, contradicting
the Bank's declared policies.
Further details
1. In his Memorandum to the Executive Directors, dated June 27, 2001, The
World Bank's president James Wolfensohn, informs that "the World Bank
Group is considering contributing [to the Development Gateway] an
additional $5 million over the next three years from its Development Grant
Facility, subject to Board approval. A request for the first tranche of
this contribution, $1 million for the FY02 has been endorsed by the
Development Grant Facility Council." This makes it clear that the grants
allocated to the Gateway were intended for development purposes.
2. Yet, an internal Bank document (SecM2001- 0048) of January 26, 2001,
titled Strategic Directions for External Affairs: Facing Challenges,
Defining New Opportunities, states (page 12) that "the External Relations
Department aims to [adopt] cyber-campaigning approaches using the Internet
and mass electronic mail responses to reply to critics. The Development
Gateway offers an opportunity for a quantum leap in the development
community's ability to network online and engage with new audiences." The
text is clear in the revealing what the real purpose of the Gateway is: to
influence public opinion in favor of the "development community", which in
this case means clearly the Bank itself. We consider that it is a
deviation of funds to spend for public relations monies intended to combat
poverty. Further, it is a gross violation of editorial ethics to
misrepresent a propaganda operation as a genuine independent editorial
activity.
3. The creation of a new "Gateway Foundation" to run the portal was
announced by the Bank as a reaction to the criticism that a portal run and
funded by the Bank would not be a credible source of independent
information. Yet, the Foundation will contract the Bank to provide staff,
infrastructure and services necessary for it to function. Any legitimate
independent recipient of Bank funds is required to conduct an open bidding
process before contracting services from third parties. Why was the
foundation exempted from this rule? On what basis has the Bank decided to
fund an entity even before it was properly created? If it is true that
this "Independent Foundation" is contracting back to the Bank, staffed by
the Bank, situated in the Bank, entirely designed by the Bank and largely
capitalized by the Bank, we may be facing a case where eventual donors and
perhaps even the American authorities that granted it legal status as a
non-profit organization, may have been deceived in their good faith to
accept a non-existing independence.
4. According to its business-plan, the Gateway should achieve in five
years, five million pageviews a month. This is a huge amount of money for
a very limited achievement. If such a site carried one "banner"
(advertisement) per page and was paid for it the high sum (according to
present-day standards) of $50 per CPM (thousand ads displayed), it would
receive, after five years a quarter million dollars a month and still be
operating at a huge loss (i.e. receiving large subsidies), even while
having achieved its pre-defined target. The present and futures subsidies
of the operation are mainly going to benefit a highly paid staff,
currently working for the Bank and in the future for a Bank-subsidized
foundation. The signatories of the present claim have had the experience
of building a Southern-based national portal in Uruguay now delivering one
million pageviews a month in two years with less than half a million
dollars of total expenditure. (http://www.uruguaytotal.com). To spend over
a hundred of million dollars (according to the expenditure projections) in
a website of global interest expected to achieve in five years just five
times the present usage of a local interest portal in a developing country
of only 3 million inhabitants seems to be a case of overspending that
needs scrutiny.
5. Frank Vogl, vice-chairman of Transparency International, senior ethics
advisor to the Ethics Resource Center and World Bank's Director of
Information and Public Affairs from 1981 to 1990, recently stated that "we
do not believe this (the training of journalists) is an arena that aid
agencies - bilateral or multilateral - should enter. These agencies are
government- owned and work first and foremost for governments. There are
good reasons not to support state-owned media. Therefore, I suggest that
it is inappropriate for state-run agencies, including the World Bank,
which is totally publicly owned, to engage in media training programs. I
appreciate that this is something that the World Bank and the World Bank
Institute may find hard to swallow, because they have some expert staff
who have sought to train journalists in developing countries. The Bank
needs to understand it lacks broad credibility in this specific field, and
its engagement is inconsistent with its own research that finds state
media so wanting. If the Bank wants to be engaged in this area, then it
should provide funding to the excellent independent institutes of
journalism training that abound." (see the whole text at
http://www.mediachannel.org/views/oped/vogl.shtml).
These same concepts apply also to the creation of "portals" or "websites",
which are essentially editorial and journalistic activities. The Bank
already has a "window", called InfoDev, to support Internet-related
initiatives and it also has its own website to address the need of
informing the public about its activities. Overfunding an unnecessary
activity is a misuse of funds. Creating and promoting a "trademark" and a
website with public monies and then giving away that asset to a private
institution not accountable to the public is a dubious operation that
requires close scrutiny.
6. Richard Stern, World Bank Vice President for Human Resources until the
end of last year, is now acting CEO for the Gateway Foundation. We believe
that he used his position during the final months of last year in a way
that transgressed a reasonable understanding of his role as Vice President
for Human Resources and which appears to have resulted in a new position
for him outside the Bank. We believe it was inappropriate for him to spend
his time last year while employed by the Bank working to found a new
institution from which he may now or in the future receive remuneration
and recognition. This appears to be in contravention of the above
statement from the Ethical Guide, covering "outside employment or
activities".
We request that you examine Mr Stern's activities over the last year in
connection with the Gateway. In particular his activities at the Annual
Meetings in Prague and thereafter where it is reliably reported that he
was active in meetings to promote the idea of the Gateway, for example in
the UK. Witnesses to Richard Stern's attendance at meetings in Prague and
in the UK can be provided on request. We assume there were many other such
meetings in other countries, but cannot confirm this at this time.
7. We believe that similar arguments can be extended to Mr Wolfensohn, who
is rumoured to be lining up to be the director of the Gateway Foundation.
It is unclear what remuneration or benefits he may receive in this role
while remaining as Bank President (or thereafter), but we believe that
again there is a conflict of interest involved in the Bank spending $7
million on establishing an initiative, floating it off as an 'independent'
entity, then providing up to three directors and the CEO for the
Foundation.
8. This procedure is hard to justify in the Bank, a publicly funded
institution which is supposed to work to promote the public interest. The
principles in the Ethical Guide for Bank Staff should apply to all such
institutions. Particularly so for an organisation which, like the Bank,
works in many countries to promote good governance and anti-corruption
initiatives. (Ref, Wolfensohn's speech at The 9th International
Anti-Corruption Conference, Durban 10 to 15 October 1999
http://www.worldbank.org/wbi/gac/gac_pdfs/durban- jdw.pdf ).
9. Clearly the Bank, which is talking about transparency and good process
in the use of public sector funds, must at all costs avoid perceived or
actual conflicts of interest regarding the use o f Bank time and money.
Bank President Wolfensohn stated that "we have looked, in terms of our
approach, at the issue of governance, at the issues of legal and judicial
reform. We have also said that the same applies to financial systems. You
cannot have e q uity, you cannot have opportunity unless you have a
smoothly and appropriately administered financial system. And that was
most recently proven in Korea, Thailand and Indonesia in the Asian crisis.
And, of course, one needs to confront, in all of these pl a ces, the issue
of corruption." Comprehensive Legal And Judicial Committee Plenary
Session, 5 June 2000.
These allegations are troubling in themselves, but all the more so as we
and many others have been arguing for over a year that the Gateway
represen ts an unneeded, heavily-subsidised initiative which will compete
unfairly and in a damaging manner with existing country- and
topic-focussed internet sites. (See, for example Roberto Bissio's 20 July
2000 message archived on: www.bellanet.org/gdgprinciples).
We therefore request you to investigate this matter seriously. Please get
back in touch with us if you require further information.
Roberto Bissio and Dr. Carlos Abin
About the claimants:
Mr. Bissio, a journalist, is coordinator of Social Watch
(www.socialwatch.org) and Latin American secretary of Third World Network.
He is a member of UNDP's civil society advisory committee and has written
extensively on the role of information technologies in development.
Dr. Abin is Executive Director of the Instituto del Tercer Mundo
(www.item.org.uy). As a lawyer he has advocated diverse actions in defence
of the environment, freedom of communications and defence of human rights.
Both claimants are Uruguayans, working from Montevideo: c/o ITeM, Jackson
1136, Montevideo 11200, Uruguay - Phone: +598 (2) 4196192, fax: +598 (2)
4119222.
Annex:
Ethical Guide For Bank Staff
Handling Procurement Matters In Bank- Financed
Projects
Date: April 23, 1998
To: Procurement Family and Accredited Staff
From: Katherine Sierra, Director and Head,
Operational Core Services
http://www1.worldbank.org/publicsector/anticorrupt/ethicalguide.htm
--------------------------
Roberto Bissio Jackson 1136, Montevideo 11200, Uruguay
Instituto del Tercer Mundo http://www.item.org.uy
Fax: +598(2)401-9222 Tel: +598(2)409-6192
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