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20/08/2003 | Congress Squeezes Development Banks

Timothy W. Maier

 

Congress sent a clear message to clean up alleged corruption and mismanagement at the Inter-American Development Bank (IDB) when House and Senate Appropriations subcommittees recommended deep funding cuts for the multilateral bank's sister financial institution, the Inter-American Investment Corporation (IIC), Insight has learned. The cuts come on the heels of a series of Insight investigative stories about the bank's procurement procedures and other practices. Both the IDB and the IIC receive U.S. taxpayer funds and consequently are subject to congressional and federal authority.

Congressional sources say the budget cutbacks also are in response to allegations that the IDB shortchanged termination packages. While IDB officials claim they are working to resolve these issues, members of Congress are irked that such behavior has gone on for so long that it became institutionalized. Sen. Mitch McConnell (R-Ky.), chairman of the Senate Appropriations subcommittee on Foreign Operations, and Sen. Patrick Leahy of Vermont, the ranking Democrat on that committee, fired off a letter to the bank in July demanding answers but have yet to recieve a satisfactory explanation.

The multilateral banks are under extensive congressional and criminal investigations covering a series of allegations ranging from cronyism in hiring and contracting to misappropriation of funds [see "Corruption Corrodes Development Banks," Oct. 15-28, 2002, and "IDB Update: Kickback Case Referred to U.S. Attorney" at Insight Online investigative archives]. Congressional investigators say they are convinced that the IDB improperly used taxpayer funds targeted to encourage growth in the private sectors of Latin America and the Caribbean to bail out mounting losses posted by the IIC - a total of $41 million in 2002. This followed reported losses of $15 million in 2001, according to sources familiar with the bank's books [see "Congressional Investigators Begin Probe of IIC" at Insight Online investigative archives].

In response to the corruption allegations and failure of IDB President Enrique Iglesias to deliver on promised reform, Rep. James Kolbe, (R-Ariz.), chairman of the House Appropriations subcommittee on Foreign Operations, Export Financing and Related Programs, recently knocked out all funding for the IIC. The Senate Appropriations subcommittee on Foreign Operations similarly cut the IIC funding from a requested $30.9 million to $8 million.

And the U.S. Senate was not the only legislative body to cut the IIC's budget. The Italian Senate also has been convinced not to fund the IIC or the Asian Development Fund, say sources at the banks and in Rome, because of the corruption allegations reported by Insight. All the cuts are welcome news to the dozens of whistle-blowers who risked their careers by coming forward to report questionable practices, including the ability and willingness of the executives of these institutions to operate without ever having to account for expenses because independent audits are not required.

Tom Devine, legal director for the Washington-based Government Accountability Project, a nonpartisan law firm that supports whistle-blowers' rights, praised the House and Senate for taking a hard-line stance. "It's a healthy warning shot by Congress and the first step in restoring accountability for taxpayer funds," says Devine, whose group is representing some of the IDB and IIC whistle-blowers. "The other multilaterals should pay close attention because in some respects they have it coming, too."

Sources within the IDB say the message from Congress comes at a time when employees have been so distraught about alleged corruption that one employee tried to commit suicide by slashing his wrists and wrote "The bank is corrupt!" on a wall inside the bank's Washington offices. Sources claim that another employee brought in a priest to sprinkle holy water in the bank after becoming distraught in a personal tragedy. While the employee was characterized by others as unstable, a growing consensus believes Iglesias has lost the confidence of the people around him. Insight has reported that possible replacements include former Mexican president Ernesto Zedillo, currently a Yale University professor and Forbes magazine columnist, and Chile's former finance minister Eduardo Aninat [see "'Friends of Enrique' Enjoy Advantages" at Insight Online investigative archives].

Meanwhile whistle-blowers inside the multilateral banks are providing Congress with detailed accounts of the dubious transactions and inner workings of the IDB and IIC. These new allegations, for instance, involve senior bank officers ordering subordinates to create phony expense reports. The sources say at least one supervisor attempted to inflate taxi accounts to pay for prostitutes with tax monies. The bank, however, dealt with the incident and the employee no longer works for the bank. But whistle-blowers continue to fear for their jobs and refuse to be identified on the record. Devine says one problem is that the multilateral banks claim to operate with sovereign immunity, beyond U.S. law, leaving no means other than cutting off funding (or acting out a suicide or even an exorcism) to get the attention of these institutions and persuade them to follow acceptable banking, business and personnel standards.

In another new development, Leahy and Sens. Richard Shelby (R-Ala.), a senior member of the Senate Appropriations Committee, Zell Miller (D-Ga.) and Saxby Chambliss (R-Ga.) have taken up a case involving a Georgia businessman who claims he was unjustly disqualified in a corrupt IIC bidding process. The four senators recently asked the departments of Treasury and Commerce to review allegations made by Bernard van der Lande, who runs Ashford Solutions, a $25 million information-technology company. The IIC claims it reviewed van der Lande's complaints and found no wrongdoing in the bidding process.

But van der Lande insists he was wrongly disqualified from a number of Brazilian opportunities since 1999 after participating and winning contracts throughout the 1990s. "They kept changing the rules on what paperwork they wanted," he says. "They wouldn't accept U.S. documents." At other times, he says, he had to prove he was not bankrupt despite having done business with the multilateral bank successfully for years. When he filed complaints with the IIC about its failure to accept legal documents in conformity with requests he received no explanation. Instead, he believes, the complaints caused him to be blacklisted and he never received another contract [see "A 'Graveyard of Dreams'" at Insight Online investigative archives].

More disturbing to van der Lande is that someone appears to have hacked into his computer and read his private and internal correspondence, including the bids he made on procurement opportunities. "I would bid $5 million and the company who would win the bid would be $50,000 less," he says angrily. "They looked at our computer and figured out what to bid; $50,000 less than my bid. Unbelievable!" When his computer system crashed mysteriously during the bidding process the police suggested it might be economic espionage, but there was no definitive proof.

While van der Lande says he can't prove kickbacks were paid to win contracts, others suggest that such bribes were routine on other contracts involving the development banks and that Congress should not overlook this as a reason why van der Lande suddenly could not land a development-related contract. The alleged kickbacks to development-bank cronies in other cases ranged from 3 percent to 10 percent of the total deal, according to sources familiar with the criminal investigation.

"These development banks are completely independent and have no accountability whatsoever," van der Lande confirms. "There are no internal rules. They don't even see if the money they lend actually is doing some good. The emphasis is on lending but not implementation and the bank has no experience in the bidding process." Van der Lande says that because he has been blacklisted from millions of dollars in contract work he has had to lay off more than 40 employees and his business is hanging by a thread.

In the face of this and many similar complaints, the IDB has said that it is initiating changes, even though it also claims internal reviews have found nothing wrong. But John MacKnight Fitzgerald, the acting international director at the Government Accountability Project (GAP), says that is not nearly enough. MacKnight has called for the banks to bring in independent, external auditors, contending that they have failed at policing themselves.

The House Appropriations Committee apparently agrees with the GAP and has directed the IDB to establish an independent inspection panel to investigate and respond to private-sector procurement complaints. The committee has asked the secretary of the Treasury to report on IDB progress within 120 days after enactment of the panel.

Timothy W. Maier is a writer for Insight.

Insight Magazine (Estados Unidos)

 


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