S y n o
p s i s
In 2007 Karen warned the US
Treasury Department and US Congress that the US would lose its right to appoint
the President of the World Bank if the current American President of the World
Bank did not play by the rules. The 66 year old Gentlemen’s Agreement that
Europe would appoint the Managing Director of the IMF and US would appoint the
World Bank President ended in 2010
http://www.imf.org/external/np/cm/2010/042510.htm
In 1999 Karen reported the corrupt
take-over of the second largest bank in the Philippines. Lucio Tan, a crony of
Joseph Estrada, then President of the Philippines, acquired stock owned by
government employees in Philippines National Bank (“PNB”) valued more than 10%
of PNB’s outstanding capital without disclosure, as required by Philippines
securities laws. Tan owned Philippines Airlines, in default on its loans from
PNB. The government of the Philippines loaned $493 million to PNB after PNB’s
depositors made heavy withdrawals. $200 million of a loan from the World Bank
and a $200 million loan from Japan were cancelled. Estrada was ultimately
impeached, and in 2007 an anti-corruption court in the Philippines required
Estrada to refund graft he had plundered. The Bank’s Country Director in the
Philippines reassigned Karen when she asked him to sign a letter warning the
Philippines’ government that the Bank could not disburse its loan without a
waiver from the Board of Executive Directors since the loan conditionality was
not met. The World Bank’s Internal Audit Department refused to correct the
satisfactory evaluation of the Bank’s supervision performance or the flawed
report of the Institutional Integrity Department to the Audit Committee of the
Board of Executive Directors. When the Audit Committee requested an audit of
internal controls over financial reporting, KPMG, the external auditors,
circumscribed the scope of their audit in violation of Generally Accepted
Accounting Principles and Generally Accepted Auditing Standards.
Two days after informing the
Board’s Audit Committee of the cover-up in the Philippines, Karen was
reprimanded and placed on probation. The Dutch Ministry of Foreign Affairs
requested the World Bank’s Audit Committee to look into the cover- up. Instead,
the Chair of the World Bank’s Audit Committee requested an inquiry into the
World Bank’s Institutional Integrity Department. The Senate Committee on Foreign
Relations followed up with three letters to the World Bank. The World Bank
forged documents and fired Karen in contempt of Congress. The World Bank also
fired the Staff Association’s lawyer. The Staff Association stated that what had
happened to Karen had damaged staff morale and prevented others from reporting
misconduct. The World Bank’s Ethics’ Officer left in frustration after her
request for an investigation by the World Bank’s Institutional Integrity
Department was turned down.
Mr. Paul Volcker headed the 2007
inquiry into the Institutional Integrity Department. The Volcker Panel was
discredited after sixteen staff employed in the Institutional Integrity
Department received significant damage awards in compensation for abuses of
authority to intimidate them during the Volker Panel investigation. A
staff-member of the EU’s anti-fraud agency, Office Lutte Anti-Fraude, on the
Volcker Panel wrote to Karen:
“My Director General and I met with a number of European Executive Directors of
the World Bank a few weeks ago to discuss the Volcker Panel report. At the
meeting there was also discussion about governance issues. My impression was
that the European Executive Directors are well apprised of all relevant issues
at the Bank and no further comment by OLAF is warranted even if it was within
our legal competence.”
Karen informed Senator Bayh,
“[t]he ongoing cover-up is an indictment of the probity of US oversight at the
Bank and I would encourage the Senate to request GAO to look into it.” Senators
Richard Lugar, Evan Bayh and Patrick Leahy requested GAO to investigate
“internal resistance to increased transparency and accountability at the World
Bank.”
In 2008 Karen’s Congressman,
Representative Chris Van Hollen, noted “that [Karen's] claims and concerns have
already been provided to the GAO…. and to the relevant congressional
committees.” In 2009 GAO stated that it could not commence the inquiry “because
of challenges we recently faced in gaining access to World Bank officials.”
Senator Lugar asked what was delaying the GAO review during hearings on the
World Bank’s capital increase.
Mr. Pieter Stek, then Executive
Director for the Netherlands, and Chair of the Board Committee on Development
Effectiveness, said:
“In a multilateral institution
which should be governed by the rule of law and high standards of probity the
charge of concealment from the Board of Executive Directors of information
relevant to the exercise of its duty of supervising management and the
persecution of the person who brings this to light is extremely serious. If
correct, which I believe, this poisonous cocktail undermines good governance and
ultimately the effectiveness of the Bank in fulfilling its mandate. I shall
continue to assist Ms. Hudes in her efforts to have due process brought to bear,
preferably by the Bank itself, on these issues of governance.”
David Brooks wrote:
“Then there are violations, when
someone intentionally breaks the rules. Errors can be very hard for outsiders to
detect. It was people inside the companies who were most likely to report fraud,
because they have local knowledge. And yet 80 percent of these whistleblowers
regret having reported the crimes because of the negative consequences they
suffered. This is not the way to treat people who detect error.”
http://brooks.blogs.nytimes.com/2011/06/13/living-with-mistakes/?comments#permid=34
