The American Treasury Department is being prodded into more effective action over fraud and corruption in the use of money voted for foreign assistance programs and funding institutions such as the World Bank.

The American Treasury Department is being prodded into more effective action over fraud and corruption in the use of money voted for foreign assistance programs and funding institutions such as the World Bank. Efforts to ensure that public funds allocated by the Congress are used for their intended purpose and not wasted in funding inflated pay-offs will derive fresh impetus from the ongoing Senate Foreign Relations Committee review of government policy led by the Senator for Indiana, Richard G. Lugar.

The formidable Mr. Lugar was not pleased when the Acting Inspector General of the Treasury Department declined his invitation to testify before the committee, pleading diminution of resources since divestiture to the new department of Homeland Security.

Mr. Lugar was even less pleased when he heard that that Inspector General’s office had sent an e-mail to say that they were not currently working on multilateral development bank corruption. “We are”, they explained, “exploring bases for invoking jurisdiction to do work in this area, but have not reached any conclusions.”

In fact, the whole purpose of this hearing was to focus on what the Treasury is doing to stem corruption at the development banks, since this department is responsible for dealing with the MDBs as they are known on behalf of the U.S. Government. The meeting also discussed reports commissioned by the World Bank which make recommendations for improving the Bank’s mechanisms to address fraud and corruption, among other things streamlining the process used to debar companies that fail to abide by World Bank policies, Was it mere co-incidence that two days after this hearing the World Bank announced that it was debarring Acres for a period of three years, indicating that there may well be others to come as a result of the Lesotho trials?

The Senate committee hearings also provided an opportunity to be informed of the Lesotho Government’s campaign against corruption in the award and administration of construction contracts. On this Mr. Lugar said:

“Lesotho has made a significant effort to prosecute a number of companies for bribery related to a World Bank-financed project. The World Bank’s response to the Lesotho prosecutions is important not only in Lesotho, but to the perceptions of countries and companies around the world.”

The committee was to hear more about the significance of the Lesotho trials from the chief prosecutor, Guido Penzhorn SC, who made a presentation on the work done so far in combating bribery in Lesotho, cases involving multi-national construction companies and consultants. Mr. Lugar continued: “How the World Bank deals with international corporations convicted in a court of law for corruption associated with World Bank projects will be a powerful indication of the seriousness of the World Bank’s anti-corruption efforts.”

Corruption allegation: no action by Treasury Commenting on the response of the Treasury Department to the committee’s inquiries, he said:

“Our initial inquiries into this topic suggest that there is confusion or indecision within the Treasury Department about its oversight role. In February 2004 my staff forwarded a specific allegation of World Bank corruption to the Treasury Inspector General’s Office. We received a response stating that, ‘We are in the initial phases of determining Treasury OIG’s criminal investigative jurisdiction in matters like the one you have referred to this office..At this time, we anticipate no further action with this matter.'”

Directing that a copy of the Inspector General’s letter should be entered into the record, Mr. Lugar said: “I am perplexed that the Office of Inspector General of the Treasury Department remains unsure of its jurisdiction in multilateral development banks matters, because the Treasury Department has had the responsibility for MDB oversight since the creation of the World Bank in 1946.”

He added: “Given that the United States has provided more than $39 billion in direct contributions to the multilateral development banks since 1960, I am concerned that the Treasury Department is unable to dedicate sufficient resources to investigate the use of those funds. Congress needs to determine whether the Treasury Department Inspector General is suffering from a lack of resources.

“If we need to direct additional funds to ensure that the Office of the Inspector General can provide effective oversight, we should do so. If this is not the best location for MDB oversight, then the Administration and Congress should work together to provide clear authority for this mission to another authority.”

The banks concerned in the Senate Foreign Relations inquiry include the World Bank, the Inter-American Development Bank, the Asian Development Bank, the African Development Bank and the European Bank for Reconstruction and Development. As Senator Lugar pointed out, in the current year the United States is providing the MDBs with $1.2 billion, and the banks in turn are assisting the aims of poverty reduction and development around the world to the tune of $39 billion. So far into its hearings, the committee has found that though the banks are taking steps to curb corruption, more needs to be done to ensure that the funds they disburse are used properly.

Chartered Institute of Building, August 2, 2004