Patricia Adams, Odious Debts Online
September 25, 2007

An investigation by former Federal Reserve chairman Paul Volcker into the World Bank’s internal anti-graft watchdog – the Department of Institutional Integrity (or INT) – blames World Bank staff and directors for failing to take corruption sufficiently seriously, says The Financial Times. Moreover, this institutional resistance has been the root cause of strife over the watchdog’s operations.

Mr. Volcker was appointed by the former World Bank President, Paul Wolfowitz, to lead a panel of international experts to conduct an independent review of INT.

The fact is, says the report, “For much of the Bank’s history, the impact of corruption on development generally, and on the Bank’s lending operations in particular, was not faced squarely. … There was then, and remains now, resistance among important parts of the Bank staff and some of its leadership to the work of INT.”

While the report said “the amounts of money lost and project failures because of bribes, collusion, and other illicit activity has never been properly estimated … available evidence from INT investigations suggests that it is a sizable fraction of the funds provided for some Bank projects.” The New York Times reports [PDF] that current and former officials at the Bank say that some form of fraud affects as much as 40 percent of the Bank’s programs.

Volcker’s team notes that the INT has come under “particularly strong” institutional attack since it was created six years ago. One of those attacks came as recently as three weeks ago from the Government Accountability Project (GAP), a public interest law firm and whistleblower protection organization which accused INT in general, and its head, Suzanne Rich Folsom, in particular, of excessive secrecy, inconsistencies in its treatment of cases, links to Republican Party interests, and a conflict of interest stemming from Ms. Folsom’s twin positions as INT director and counselor to the president of the Bank.

But, as the Washington Post points out [PDF] , “While it recommended some tweaks in the INT’s practices and procedures, Mr. Volcker’s panel essentially concluded that, under Ms. Folsom, the office is doing a vitally important job reasonably well” and recommended that her position as head of INT have the rank of Vice President, with its line of direct responsibility to the President.

In interviews, Mr. Volcker said his panel had found no evidence [PDF] of politically motivated, biased work by the INT unit or favoritism from Ms. Folsom, to whom he gave “high marks.”