The Next World Bank President’s Reputational Risk

Washington, DC

If the World Bank’s board had applied the same kind of “due diligence” to Paul Wolfowitz that they purport to apply to major development projects, they might have uncovered a significant conflict-of-interest that could have led them to rethink their embrace of the architect of the Iraq war.
Just consider his role in the U.S. occupational authority’s (CPA) looting of the Iraqi people’s oil revenues to pay off well-connected crony contractors like Halliburton. As President of the World Bank, he will be in a position to quash an important related investigation.

The President of the World Bank is a leading member of the International Advisory Monitoring Board (IAMB) – a multilateral organization established by UN Security Council Resolution 1483 in May 2003. The IAMB’s principle mission is to oversee U.S. stewardship of the Development Fund of Iraq (DFI), the successor to the Oil-for-Food Program.

Despite delays and efforts by the Bush administration to obstruct their work, the IAMB’s auditors have so far uncovered significant financial abuses. More worrisome for Wolfowitz and the Bank is the potential for the investigation to lead up the Pentagon’s chain-of-command to Wolfowitz himself.

The evidence for this is a March 6, 2003 email, first uncovered by conservative watch-dog group Judicial Watch, which indicates that Wolfowitz authorized a sole-source contract to Halliburton for Operation Restore Iraqi Oil (RIO) before the war began.

A U.S. Army Corps of Engineers official, whose name is redacted, writes that he or she secured “authority to execute RIO” after “DepSecDef [that is, Wolfowitz] sent us to UnderSecPolicy [Under Secretary of Policy Douglas] Feith and gave him authority to approve” a decision to give it to Halliburton without seeking bids from any other potential contractors.

The coded e-mail added that the “action has been coordinated with the Vice President’s office.” Vice President Dick Cheney, of course, was Halliburton’s boss from 1995 to 2000. Cheney also has been Wolfowitz’s political patron since the first Bush administration.

That contract has become a source of huge controversy, as allegations have mounted concerning Halliburton’s long series of improprieties in executing it. (For details see the Halliburton Watch web site).

As Deputy Secretary of Defense, Paul Wolfowitz played a major role in the reconstruction program, which before the war was projected to be a kind of Middle Eastern Marshall Plan.

If the CPA had finished the job, perhaps the various tales of cronyism and corruption might not be a big deal. But pervasive mismanagement and endemic corruption aggravated many problems that broadened and hardened popular opposition to the occupation.

For example, at the end of 2003 Wolfowitz barred foreign companies from receiving reconstruction contracts, a policy that delayed the procurement of spare parts for machinery and electrical generating equipment. The result: lower-than-estimated electrical generating capacity, further civil unrest and increased support for the resistance.

So far, Wolfowitz and Cheney’s friends who control Congress have expressed far less interest in these matters than the alleged Oil-For-Food Program “scandal” that Paul Volcker’s investigation reveals to be a minor transgression by comparison. (This week, Newsweek published a photo of CPA officials holding stacks of cash, with a caption that reads “Free Fraud Zone.”)

“We arguably have a greater obligation to oversee the DFI than the Oil for Food Program given that the DFI was under U.S. control,” Congressman Henry Waxman (D-CA) pointed out in a letter to U.S. Rep. Christopher Shays (R-CT), chair of one of the five committees investigating the former.
On March 15, Waxman published what he called “evidence that Administration officials – acting at the request of Halliburton – intentionally withheld information from international auditors in violation of U.N. Security Council Resolution 1483.” He said this “suggests that the United States used Iraqi oil proceeds to overpay Halliburton and then sought to hide the evidence of these overcharges from the international auditors.” Waxman’s dogged investigation has so far been met with little interest by his colleagues.

The IAMB’s ongoing investigation began at a meeting on March 17 2004. The board decided to conduct a special audit of large, sole-sourced contracts paid out of the DFI. In April 2004, the IAMB requested further information from the CPA regarding the $1.4 billion Operation RIO contract awarded to Halliburton.
In June 2004, and again in September, the IAMB registered its “regrets” that CPA officials had not complied with its “repeated requests.” Finally, in October 2004, the Bush/Cheney administration provided the IAMB with the audit, but only after Halliburton was allowed to redact key information.

Halliburton itself edited the audit, according to Waxman, who produced a September 28, 2004, letter from Halliburton’s KBR subsidiary to the U.S. Army Corps of Engineers in which contract manager Michael Morrow says KBR redacted information that “could be used by a competitor to damage KBR’s ability to win and negotiate new work.”

Waxman produced two versions of the audit, before and after Halliburton made the changes. In the final version, black boxes hide language that specified over $162 million in “questioned,” “unsolved,” and “unreasonable” payments to KBR. References to many other KBR “noncompliances and inadequacies” also vanished. According to Waxman, independent experts said “both the redactions and the process by which they appear to have been made would be improper.”

On March 15, Waxman requested that the House National Security Subcommittee, chaired by Rep. Shays, issue a subpoena for documents related to Halliburton and government officials’ attempts “to conceal the extent of the overcharges.” The potential subpoena would force hearings and testimony by “Defense Department officials responsible for reviewing Halliburton’s redactions and submitting the audits to the IAMB.”
The underlying questions are those timeless Washington favorites: What did Wolfowitz know with regard to Halliburton’s inside advantage, and when did he know it?

These are questions that the world’s governments should have considered before acceding to Wolfowitz’s installation as the head of the World Bank.
The fact that they did not is a troubling sign. As Joseph Stiglitz, the Nobel-winning former chief economist at the World Bank has suggested, the Bank under Wolfowitz’s leadership is likely to “become an explicit instrument of US foreign policy” around the world. “It [the Bank] will presumably take a lead role in Iraqi reconstruction. That would jeopardize its role as a multilateral development body.”

By recusing himself from a position that will allow him to influence the monitoring board’s investigation, Wolfowitz would be taking a modest first step toward dispelling such concerns.

Charlie Cray is director of the Center for Corporate Policy and a collaborator with HalliburtonWatch, which is tracking the company’s war profiteering in Iraq.

Jim Vallette is research director of the Sustainable Energy and Economy Network, a project of the Institute for Policy Studies. Vallette is the author of The Wolfowitz Chronology, and several related articles, available at the IPS website.

They can be reached at: ccray@corporatepolicy.org







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