White House: Options Open on Wolfowitz

World Bank President Paul Wolfowitz departs his home in Chevy Chase, Md., Tuesday, May 15, 2007. Wolfowitz is tangled in an ethics controversy over securing a promotion and pay raise for his girlfriend after she was assigned duties outside the bank to avoid a conflict of interest. (AP Photo/J. Scott Applewhite) (J. Scott Applewhite - AP)

The controversy that has put Wolfowitz's job in jeopardy involves his handling of the 2005 compensation package for his girlfriend, Shaha Riza, a bank employee.

The special panel said that Wolfowitz's involvement in the details of Riza's salary "went beyond the informal advice" given by the ethics committee and that he "engaged in a de facto conflict of interest."

Under Wolfowitz's contract as well as the code of conduct for board officials, he was required to avoid any conflict of interest, the report said.

Riza worked for the bank before Wolfowitz took over as president in June 2005. She was moved to the State Department to avoid a conflict of interest, but stayed on the bank's payroll. Her salary went from close to $133,000 to $180,000. With subsequent raises, it eventually rose to $193,590. The panel concluded that the salary increase Riza received "at Mr. Wolfowitz's direction was in excess of the range" allowed under bank rules.

Wolfowitz said he believed the bank's ethics committee wanted him "to take responsibility to resolve the matter rather than handling it themselves" and that Riza _ who did not want to leave the bank _ did not view Wolfowitz as her ally in the matter.

Before taking over the bank nearly two year years, Wolfowitz had served as the No. 2 official at the Pentagon and played a lead role in mapping out the U.S.-led war in Iraq.

European members are pushing for Wolfowitz to resign. The United States is the bank's largest shareholder. Bush tapped Wolfowitz for the job, a move that was approved by the bank's board even though Europeans didn't like him because of his role in the Iraq war.

The White House believes that the controversy that has embroiled Wolfowitz is rooted not as much in what he did, but in his role as a key architect of the Iraq war. This proxy fight has made the president more determined to stand behind Wolfowitz, unless the facts make it absolutely clear that his behavior was egregious, a senior administration official said. The official was not authorized to speak publicly on the matter and thus spoke only on the condition of anonymity.

Secretary of State Condoleezza Rice and Treasury Secretary Henry Paulson also said they don't think the facts in the conflict-of-interest case merit Wolfowitz's dismissal.

"It doesn't seem to be the kind of thing that you would want to see the dismissal of the World Bank president over," Rice said. "I hope it will be resolved in a way that is true to what really happened there but also strengthens the bank, which is a really important institution."

By tradition, the World Bank has been run by an American. The Bush administration wants to keep that decades-old practice firmly intact in any discussions about the bank's future leadership.

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Associated Press Writer Jennifer Loven contributed to this report.