Wolfowitz: Architect of Iraq War Fiasco Embroiled in World Bank Scandal

Financial Times

Paul Wolfowitz was under pressure to resign as president of the World Bank on Thursday after admitting he was personally involved in securing a large pay rise and promotion for a Bank official with whom he was romantically involved.

The Bank president issued a public apology, saying: “I made a mistake for which I am sorry”.

The apology came after the Financial Times revealed that Mr Wolfowitz ordered the World Bank’s head of human resources to offer Shaha Riza the pay rise and promotion as part of a secondment package.

The instructions were set out in a memorandum dated August 11 2005, according to two sources who have seen the document.

The Bank’s board of directors, who represent its shareholder governments, met late into the night in an emergency session to review the findings of their own investigation into the Riza assignment and decide on the next step.

The board adjourned the meeting early on Friday but said in a statement that it would act promptly.

”The executive directors will move expeditiously to reach a conclusion on possible actions to take,” the board said. ”In their consideration of the matter the executive directors will focus on all relevant governance implications for the bank,” it added.

The board also released the report of the ad hoc group that investigated the contract agreed with Ms Riza and also included communications between Mr Wolfowitz, the board and other bank officials.

Pressed at the opening press conference of the Bank’s spring meeting on Thursday as to whether he would resign over his handling of the Riza case, Mr Wolfowitz said he would “accept any remedies” the board proposes.

He did not comment on the specifics of the memo.

Moments later, amid chaotic scenes in the lobby of the Bank’s headquarters in Washington, the Bank president made an impromptu address to staff who had gathered to call for his resignation.

An emotional Mr Wolfowitz told staff the controversy had been “very painful” and apologised to them in person for his handling of the affair.

Alison Cave, the chair of the staff association, welcomed the apology but said Mr Wolfowitz must “act honourably and resign”.

Mr Wolfowitz said he acted as he did in order to shield the Bank from the threat of a lawsuit if Ms Riza was forced to leave because of staff rules that prohibit its employees from working for anyone with whom they are romantically involved.

He denied charges of an attempted cover-up, declaring: “I did not attempt to hide my actions nor make anyone else responsible.”

The Bank president made a plea for “understanding” saying he faced a “painful personal dilemma” at a time when he was new to the Bank and “trying to navigate in uncharted waters”.

Ms Cave said Mr Wolfowitz had “broken the staff’s trust on this and many other issues” and if the board failed to ask him to step down, the staff association would call a vote of no confidence in him.

In the August 11 2005 memorandum, two sources told the Financial Times, Mr Wolfowitz directed Xavier Coll, the Bank’s vice-president for human resources, to offer Ms Riza specific terms as part of a secondment package to the US State department.

These included a promotion, a pay rise above that normally associated with the promotion, and arrangements to ensure Ms Riza received exceptional annual pay increases. Only the promotion had been recommended by the board’s ethics committee, two sources told the FT.

The terms and conditions were not approved by the Bank’s ethics committee or its senior legal officer, then general counsel Roberto Danino.

A copy of the memorandum has been seen by the subcommittee of the bank’s board of executive directors who were charged with investigating the Riza assignment, two sources said.

Mr Wolfowitz went to the board on Thursday morning and proposed that it should “establish some mechanism to judge whether the agreement reached was a reasonable outcome.”

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