World Bank puts Armenian fraud case on hold

Sunday September 30, 2007
The Observer

Britain wants action on reports that a water project is mired in corruption. Heather Stewart reports

Britain is urging the World Bank to investigate allegations of corruption and embezzlement in a $35m (£17m) water project in Armenia, which the Washington-based body says are only of 'medium priority'. Bruce Tasker, a British whistleblower, says he has presented the bank with evidence of large-scale fraud in a project to improve the water supply in the Armenian capital Yerevan, but it has so far refused to carry out a full-blown investigation.

With its conciliatory new boss Robert Zoellick at the helm, the World Bank is keen to make a fresh start after the humiliating departure of Paul Wolfowitz earlier this year. Wolfowitz stormed into the bank promising to crack down on corruption, but ended up being embroiled in an ethics scandal of his own concerning lavish pay rises for his girlfriend, Shaha Riza.

Persuading the world's richest countries that their taxpayers' money is being well spent is a critical part of Zoellick's job, but the Armenian case is just one of a backlog of allegations waiting to be examined by the Bank's Institutional Integrity Department - or INT, as it is known.

INT wrote to Washington-based pressure group the Government Accountability Project (Gap), which is backing Tasker's claims, saying the case was 'rank ordered "medium" priority, and as such remains in a queue pending the availability of investigative resources'.

The British Ambassador in Armenia has written to the World Bank, urging it to carry out a full investigation.

'We've run into a wall,' said Gap's director, Bea Edwards. 'We have extensive documentation. It involves high-level government officers, a lot of money and basic services. What else do they want? They've been completely unhelpful.'

She says the Armenian case is important, because it could point to potential problems in the way other World Bank projects are run, particularly in the former Soviet Union.

Tasker is a British engineer appointed by an Armenian parliamentary commission investigating the Yerevan scheme. He claims that as soon as he began to examine the details of the project, it became clear that it was riddled with corruption, 'from start to finish, from top to bottom. The fact is it was not an isolated case of a few thousand dollars here or there, it was tens of millions of dollars.'

The original purpose of the project was to repair Yerevan's pipelines, and improve the water supply to households, but he says that by the time the work got under way it had shifted to installing water meters instead.

Tasker claims contractors were able to pocket up to $10 profit on the sale of each meter by charging customers for installation. His commission was told that the average number of water meters per customer was 1.5.

The bank's failure to pursue the allegations underlines the critical findings of a panel chaired by former Federal Reserve chairman Paul Volcker, which revealed serious weaknesses in the way the way INT investigates allegations of wrongdoing. INT is run by a Wolfowitz appointee, Suzanne Folsom. Volcker's team found that the unit had achieved 'some notable successes', but warned of 'serious operational issues and severe strains in relations' with other parts of the bank, and said its work had sometimes contributed to 'counterproductive relations' with both donor and recipient countries.

Wolfowitz's critics had accused him of cracking down hard on alleged corruption in countries where the US has a political axe to grind, but turning a blind eye to problems in more friendly regions of the world.

Jeff Powell, of pressure group the Bretton Woods project, said it was still too often left to politicians to decide which allegations to pursue. 'This case is indicative of the fact that senior management and the board of the World Bank have not taken seriously the issue of corruption,' he said.

A World Bank spokesman said he would not comment on a specific case.

Note: Above are excerpts from the article. The full article appears here. Clarifications and comments by me are contained in {}. Deletions are marked by [...]. The bold emphasis is mine.