Wolfowitz faulted for ‘damage done’ to the World Bank

WASHINGTON —  World Bank President Paul D. Wolfowitz violated his contract, broke the bank’s code of conduct and trampled on numerous staff rules in arranging a promotion and a series of raises for his companion, a bank employee, according to a scathing report by an internal committee investigating the controversy.

Citing “the damage done to the reputation of the World Bank Group and to that of the president,” the seven-member committee recommended that the institution’s board “consider whether Mr. Wolfowitz will be able to provide the leadership needed to ensure that the bank continues to operate to the fullest extent possible” in its mission to fight world poverty.

The report, delivered to the board and released Monday evening, also skewered Wolfowitz for “questionable judgment and a preoccupation with self-interest over institutional best interest.”

“Mr. Wolfowitz saw himself as the outsider to whom the established rules and standards did not apply,” the report said.

He is to defend himself today in a private meeting with the 24 members of the board.

The public release of the 52-page report is the latest salvo in a confrontation that has been growing since early April, when it was publicly revealed that Wolfowitz had played a large role in arranging a new job at the State Department, with a hefty salary increase, for his companion. The conflict is straining relations between the United States and its European allies and could lead to the downfall of yet another public figure associated with the Bush administration.

The committee’s findings were posted on the bank’s website -- www.worldbank.org -- just hours after they were delivered to the board. Though the report was labeled “Strictly Confidential,” bank sources said the board of executive directors decided Monday evening to release it immediately.

In so doing, they increased pressure on the Bush administration, which had been working throughout the day to defend Wolfowitz. Since his 2005 appointment he has been strongly criticized both for his management style and for his role, as deputy secretary of Defense, as one of the chief architects of the Iraq war.

“Paul is one of the most able public servants I’ve ever known, and I’ve worked with him a lot over the years,” Vice President Dick Cheney told Fox News during a visit Monday to Aqaba, Jordan. “I think he’s a very good president of the World Bank, and I hope he will be able to continue.”

Treasury Secretary Henry M. Paulson Jr. contacted colleagues from Group of Seven countries “and expressed that he does not think the facts merit dismissal,” a department official said.

“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,” the official said.

The White House had appealed unsuccessfully to the committee to delay sending its report to the board so that administration officials could do “a little internal reporting” on it, said White House deputy press secretary Tony Fratto.

Wolfowitz, who submitted his response to the report Friday, has maintained that he acted in good faith and has accused his critics of conducting a “smear campaign” against him.

In his response, 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,” according to the Associated Press. He 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.”

The bank’s 185 member nations are moving into uncharted territory as the conflict deepens. The bank has never dismissed a president, and there are no rules to govern such proceedings.

The panel’s second major recommendation seems aimed to prevent a similar situation from recurring. It calls on the board to “undertake a review of the governance framework of the World Bank Group with the aim of ensuring that it is capable of effectively dealing with the challenges raised for the institution.”

The United States, traditionally the bank’s single largest contributor, has always chosen the institution’s president, who serves a five-year term and can be reappointed. European nations select the head of the International Monetary Fund.

In regular bank business, countries on the board cast votes that are weighted based on the percentage of bank funds they contribute. The U.S. holds 16.4% of the vote. Sometimes a 85% super-majority is required for a vote; if that is the case with any vote on Wolfowitz, the U.S. would effectively have a veto.

European countries have more than twice the votes of the U.S., but they have been pushing behind the scenes to avoid a direct showdown.

With Britain and France contending with changes of leadership and Germany preparing to host a summit of top lending nations in July, the Europeans would prefer that Wolfowitz resign or that the board issue a statement of no-confidence that makes it impossible for him to stay on, bank sources say.

The controversy centers on a promotion and pay package that Wolfowitz put together for his companion, Shaha Ali Riza, when he joined the bank in 2005. To avoid a conflict of interest, Wolfowitz arranged for Riza, a communications official, to be transferred to a job at the State Department, although she remained on the bank’s payroll. Her pay was boosted from around $133,000 a year to close to $194,000, more than the salary of Secretary of State Condoleezza Rice.

The report found that Wolfowitz directed raises that exceeded “the permissible range” and, in doing so, went beyond the informal advice provided by the bank’s ethics committee. His involvement constituted a conflict of interest, according to the committee.

The panel also raised concerns that the controversy would make it difficult for the bank to raise money for its mission, saying that it “had had a dramatic negative effect on the reputation and credibility” of the institution.

In an observation signaling that the conflict will not be resolved quietly, the panel said it found “one central theme” throughout one extended rebuttal from Wolfowitz: “the absence of any acceptance by Mr. Wolfowitz himself of responsibility or blame for the events that transpired.”

nicole.gaouette@latimes.com