Bank Rebukes Wolfowitz On Ethics
Rules Were Broken, Committee Says

By Peter S. Goodman
Washington Post Staff Writer
Tuesday, May 15, 2007

A World Bank investigating committee sharply rebuked President Paul D. Wolfowitz, concluding that he broke ethics rules and undermined the integrity of the institution in engineering a hefty pay raise for his girlfriend.

"These actions manifest a lack of understanding for and a disregard for the institution as a public international organization," declared the committee's report, which was distributed to the bank's executive directors yesterday and released publicly last night. It calls on the executive board to assess "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 a written response, Wolfowitz maintained that he acted in good faith in seeking to resolve an obvious conflict of interest. He accused the bank's ethics committee of forcing him to oversee the raise for his longtime companion, Shaha Riza, as compensation for her transfer to a different job. The ethics panel was afraid to confront her, Wolfowitz said, because its members knew she was "extremely angry and upset."

The ethics committee told Wolfowitz he could not directly supervise Riza, who also worked at the bank, after he arrived in 2005. He said, however, that the panel declined to oversee her job transfer and compensation, instead ordering him to handle those tasks.

"Its members did not want to deal with a very angry Ms. Riza, whose career was being damaged as a result of their decision," Wolfowitz said in his response to the investigating committee's report. "It would only be human nature for them to want to steer clear of her."

Wolfowitz added that the chairman of the ethics panel thought that "due to my personal relationship with Ms. Riza, I was in the best position to persuade her to take out-placement and thereby achieve the 'pragmatic solution' the committee desired."

Wolfowitz effectively blamed Riza for his predicament as well, saying that her "intractable position" in demanding a salary increase as compensation for her career disruption forced him to grant one to pre-empt a lawsuit. He is scheduled to appear before the board this afternoon. The board is expected to begin deliberating on how to respond as soon as tonight. Board members are inclined to issue a resolution expressing a lack of confidence in Wolfowitz's leadership, senior bank officials said.

The officials, who spoke on condition of anonymity because of the sensitivity of the matter, said some board members hope a strong statement of dissatisfaction would persuade the Bush administration to withdraw support for Wolfowitz. But the White House views the stakes as larger than control of the World Bank, said a senior administration official, with U.S. resolve and power on the line -- in particular the longstanding right of the United States to name the head of the institution.

In an interview with Fox News, Vice President Cheney called Wolfowitz "a very good president of the World Bank," adding, "I hope he will be able to continue."

Treasury Secretary Henry M. Paulson Jr. telephoned finance ministers overseas yesterday to urge them to conclude that the facts in the bank report do not warrant Wolfowitz's dismissal, said a senior administration official who was not authorized to speak publicly about the situation.

The Bush administration's representative at the bank, Eli Whitney Debevoise II, delayed circulation of the committee's report among board members yesterday, the White House said. "We asked for a delay this morning to ensure that the report is fair and factual and to allow for a proper process for discussions," said Tony Fratto, a White House spokesman.

Wolfowitz has acknowledged his direct role in the job transfer and pay raise for his longtime companion, who worked in the bank's Middle East department, to avoid supervising her. He has said that he did so only at the direction of the ethics committee.

In his 25-page written response to the committee's report, Wolfowitz portrayed the salary increase, a jump to more than $180,000 a year from about $130,000, as justified compensation. The investigating committee report said, however, that the raise was "in excess of the range" in bank rules.

In testimony to the committee, Ad Melkert, a former ethics committee chairman, and Roberto Daniño, a former general counsel, said Wolfowitz kept them out of the loop on the salary increase.

Wolfowitz's response acknowledged that he "did take steps to ensure that the negotiations were confidential," but he says this was standard course for a personnel matter. He also acknowledged excluding the general counsel from the salary negotiations, asserting this was necessary because Daniño's dual role as an adviser to him and to the ethics committee posed a conflict.

The committee report criticized that argument, saying that "Wolfowitz from the outset cast himself in opposition to the established rules of the institution."

Wolfowitz said it was not his intent to keep Riza's raise secret: He said he assumed the ethics committee and Daniño would ultimately review it. He said he was told by Xavier Coll, the bank's vice president for human resources, who negotiated with Riza, that her final "compensation package would be entered into the bank's personnel system and many people inside the bank would have access."

Wolfowitz argued that bank officials effectively exploited the relationship that posed a conflict -- his ties with Riza -- to try to defuse a tense situation.

"Everyone acknowledges that Ms. Riza was extremely angry and upset about being required to take an external placement to resolve a problem that was not of her making," Wolfowitz wrote, portraying the raise as a "settlement of claims."

Bank officials bought into his approach, he said, citing a memo Coll wrote to himself on Aug. 22, 2005, in which he expressed concerns that "we were in a very difficult situation -- with no precedent at the bank -- and that it had enormous potential to damage the bank's reputation."

Wolfowitz contended that he and Coll both sought to compensate Riza with a lump-sum cash payment but that she insisted on "salary increases over time."

"Given her intractable position, unless Mr. Coll acceded to her on this point it would have been impossible to achieve the prompt resolution of this matter," Wolfowitz said. "The terms that were included to address her career interruption were the only practical, mutually acceptable solution."

But the investigating committee found that Riza had no legitimate grievance meriting a settlement. It flatly dismissed Wolfowitz's contention that the ethics committee forced him to supervise the details of her contract, saying that he could have delegated them to a vice president.

"Mr. Wolfowitz placed his own personal interests in opposition to the interests of the institution," the report found. "In so doing, he undermined the legal safeguards the institution had in place to protect itself from the harm it has unfortunately now come to experience."

The report reserved its sharpest judgment for the public struggle Wolfowitz has waged to save his job in recent weeks, criticizing the bank's probe in the press.

"It has turned an internal governance matter into an ugly public relations campaign," the report said, asserting that in unleashing "public attacks," Wolfowitz "denigrates the very institution he was selected to lead."

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