Paul Wolfowitz: fighting to save his position

How did this issue arise?

In June 2005, immediately after his appointment as president of the World Bank, Paul Wolfowitz informed the bank that he had a pre-existing relationship with a bank employee and asked for its views on how to proceed. The bank's ethics committee asked him to name the employee and he told them she was Shaha Riza, a senior communications officer in the Middle East and North Africa department.

The committee began to review whether there would be a conflict of interest under the bank's staff rules, as she came under his authority, even though she was several layers below him in the organisation.

How did Mr Wolfowitz propose to deal with his conflict of interest?

He said he would recuse himself (i.e. he would step aside) from "any personnel action or decisions relating to Shaha Riza". However, his own lawyer confirmed in an e-mail to the bank that this "would not - I repeat not - involve recusal from professional contact."

What did the ethics committee decide?

On 27 July 2005, it informally decided that there was a "de facto conflict of interest." It rejected Mr Wolfowitz's proposed solution, stating that it "does not consider recusal sufficient and would most likely at least propose relocation/absence of professional contact, which is the standard for spouses/declared partners."

However, it was also aware that Ms Riza's interests had to be protected and said that "the qualifications and career perspectives of the staff member should be taken fully into account."

What did the committee propose?

It said in its findings on 27 July that "the staff member" should be "relocated to a position beyond (potential) supervising influence by the President" and that she should withdraw an application she was making for a more senior job.

It also advised that she should be compensated by an "in situ promotion on the basis of her qualifying record".

It thirdly decided to tell Mr Wolfowitz himself, with the bank's senior lawyer, to instruct the bank's senior personnel officer Xavier Coll to implement the advice "with immediate effect". It stated that it could not itself "interact with staff member situations".

The committee chairman Ad Melkert sent a memo to Mr Wolfowitz on 8 August based on this advice. He said that Xavier Coll [the personnel official] should meet Ms Riza. He also referred to the need to "duly recognize the record and career perspectives of the staff member". However, he indicated that final decisions would have to wait for the ethics committee to "formalise its advice".

How did Mr Wolfowitz respond?

He appeared not to wait for the formal advice but wrote a memo to the head of personnel, Xavier Coll, on 11 August saying "I now direct you to agree to a proposal" which involved the following:

Mr Wolfowitz expressed his "deep unhappiness" at the situation, which he felt should have been resolved by his offer of recusal.

Did the bank accept these terms?

Yes. The chairman of the ethics committee Ad Melkert wrote to Mr Wolfowitz on 24 October and said: "Because the outcome is consistent with the Committee's findings and advice above, the Committee concurs with your view that this matter can be treated as closed."

Mr Melkert later sent a handwritten note, thanking Mr Wolfowitz for the "very open and constructive spirit of our discussions" and extending "an invitation to you and Shaha at our place".

So why did this flare up again?

In January 2006, an e-mail was sent to the bank by "John Smith" using a Yahoo address. This appeared to be from a staff insider and it accused Mr Wolfowitz of "important ethical lapses of a corrupt nature".

It complained about the level of Shaha Riza's salary which it said had gone up from $130,000 to the $180,000 mentioned by Mr Wolfowitz. It also said that Mr Wolfowitz had not submitted this increase to the bank's board.

It complained about his appointment of two associates at salaries of about $250,000, net of income tax.

What did the bank do next?

It defended the procedures and appointments. On 28 February, Ad Melkert of the ethics committee wrote to Mr Wolfowitz, saying that the e-mailed comments on Ms Riza's salary "did not contain new information warranting any further review by the Committee" and that "the Ethics Committee decided that the allegations regarding appointments of Bank staff do not appear to pose ethical issues appropriate for further consideration by the Committee".

This did not put the issue to rest however?

No. There was staff dissatisfaction in the bank but it wasn't until 28 March 2007 that the Washington Post gave details that generated new public comment. It reported that Ms Riza's salary at the State Department (though she had been transferred in the meantime to a new organisation called Foundation for the Future) had risen to "$193,590, which is $7,000 more than Secretary of State Condoleezza Rice makes". The increase, it was claimed, was more than double what she would have got at the World Bank.

The bank set up a senior "Ad Hoc Group" to make further investigations.

Many of the documents in the case were released onto the bank's website, which is why we now know so many of the details.

What issues have arisen?

The broad question was whether Mr Wolfowitz broke bank rules and violated ethical procedures in his handling of the case.

The World Bank's staff association claimed that Ms Riza's promotion did not conform to the Bank's procedures and that her pay increases had not followed the rules. They were "grossly out of line", the association said.

Mr Melkert of the ethics committee, despite his letter accepting the deal, said that neither the full Board nor the ethics committee knew the full details.

One issue was whether Mr Wolfowitz went too far by taking informal advice from the ethics committee that an arrangement should be made and using this as the basis for reaching the deal without reference back.

How has the issue affected Mr Wolfowitz's strategy at the Bank?

The controversy over Mr Wolfowitz has particular resonance because he has put great emphasis on the struggle against corruption since taking charge of the Bank.

Mr Wolfowitz argued that development could not be effective while corrupt governments were in charge, and has even suspended World Bank aid to governments where he believed there was corruption.

In one case, Chad, aid was suspended when money was diverted from the aid budget to military spending.

Mr Wolfowitz's critics argued that poor people should not be punished because of the action of their governments, and that corrupt regimes could still promote development.

They also said that Mr Wolfowitz was less vigilant in fighting corruption in the case of countries backed by the US, like Afghanistan.

What about Mr Wolfowitz's apology?

On 12 April, Mr Wolfowitz said he was sorry for the way in which he handled the case. "I made a mistake," he said. He stated that he wished he had followed his first instinct, which had been not to involve himself in the negotiations over Ms Riza's future.

But he said he would not resign and claimed there was a "smear campaign" against him.

What were the conclusions of the "ad hoc group"?

The special panel set up to investigate the issue released its report on 14 May and said that Mr Wolfowitz had violated staff rules and the bank's code of conduct. His actions in determining the terms of Ms Riza's external assignment constituted "a conflict of interest", it said.

The salary he had directed on her behalf was "in excess" of that established and so was the annual increase.

It said that the board would have to consider whether he "will be able to provide the leadership needed" to ensure that the Bank could achieve its mandate.

It accused Mr Wolfowitz of casting himself "in opposition to the established rules of the institution" and of seeking "to negotiate for himself a resolution different from that which would be applied to the staff he was selected to head".

"It evidences questionable judgment and a preoccupation with self-interest over institutional best interest," it stated.

Mr Wolfowitz responded: "It is highly unfair and unwarranted to now find that I engaged in a conflict of interest because I relied on the advice of the ethics committee as best I understood it."

What was the deal under which he is resigning?

He is going on June 30th and had insisted as the price of his resignation that the bank acknowledge that he had "acted ethically and in good faith". The bank issued this statement and he said that "it was in the best interests" of the bank that there should be "new leadership".

His position had been so weakened by the report of the ad hoc group that even his supporters in the Bush administration accepted the inevitable.