[Senate Prints 109-75]
[From the U.S. Government Publishing Office]
109th Congress
2d Session COMMITTEE PRINT S. Prt.
109-75
_______________________________________________________________________
EUROPEAN BANK FOR RECONSTRUCTION
AND DEVELOPMENT (EBRD), LONDON
__________
A Report to Members
of the
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
Richard G. Lugar, Chairman
One Hundred Ninth Congress
Second Session
June 16, 2006
U.S. GOVERNMENT PRINTING OFFICE
31-667 WASHINGTON : 2006
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COMMITTEE ON FOREIGN RELATIONS
RICHARD G. LUGAR, Indiana, Chairman
CHUCK HAGEL, Nebraska JOSEPH R. BIDEN, Jr., Delaware
LINCOLN CHAFEE, Rhode Island PAUL S. SARBANES, Maryland
GEORGE ALLEN, Virginia CHRISTOPHER J. DODD, Connecticut
NORM COLEMAN, Minnesota JOHN F. KERRY, Massachusetts
GEORGE V. VOINOVICH, Ohio RUSSELL D. FEINGOLD, Wisconsin
LAMAR ALEXANDER, Tennessee BARBARA BOXER, California
JOHN E. SUNUNU, New Hampshire BILL NELSON, Florida
LISA MURKOWSKI, Alaska BARACK OBAMA, Illinois
MEL MARTINEZ, Florida
Kenneth A. Myers, Jr., Staff Director
Antony J. Blinken, Democratic Staff Director
(ii)
C O N T E N T S
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Page
Letter of Transmittal............................................ v
Summary.......................................................... 1
Background....................................................... 4
The EBRD and the SFRC's Anti-Corruption Legislation.............. 5
The New Public Information Policy................................ 9
Compliance Office................................................ 10
Risk Management.................................................. 12
Evaluation Department............................................ 13
Sakhalin II...................................................... 14
Appendixes
Individuals Interviewed for This Report.......................... 17
Multilateral Development Bank Law................................ 19
LETTER OF TRANSMITTAL
----------
United States Senate,
Committee on Foreign Relations,
Washington, DC, June 16, 2006.
Dear colleagues: From May 18-22, 2006, a Senate Foreign
Relations Committee staff delegation, consisting of Jay
Branegan, visited the European Bank for Reconstruction and
Development (EBRD) in London, as part of the committee's
ongoing inquiry into anti-corruption practices and development
effectiveness at the World Bank and the other multi-lateral
development banks (MDBs). Committee staff had two days of
interviews with U.S. officials and international staff at the
EBRD headquarters, then attended the two-day Annual Meeting of
the bank as Congressional Adviser to the U.S. delegation, which
was headed by Clay Lowery, Assistant Secretary for
International Affairs, U.S. Department of the Treasury. Staff
also met with several representatives of NGOs that are working
on issues related to the committee's oversight of the MDBs. A
complete list of persons interviewed is attached.
Sincerely,
Richard G. Lugar,
Chairman.
TRIP TO EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT (EBRD), LONDON
----------
Summary
The European Bank for Reconstruction and Development
(EBRD), the youngest of the MDBs, has only lately, and somewhat
grudgingly, begun to implement the types of measures for
transparency, openness, and accountability that the committee
has been encouraging and that Congress called for when it
passed legislation last year. The EBRD, for instance, has never
issued an anti-corruption report (the first is expected out
this fall), although U.S. officials attributed this to the
substantial demands on and workload of the Office of the Chief
Compliance Officer. It has only had for two years a process for
indigenous people to lodge protests, and that process, the
Independent Recourse Mechanism, is, by most accounts, inferior
to that of other banks'. It has only recently established,
against much resistance from some important figures in
management, an independent evaluation function. An updated Code
of Conduct, for which the U.S. Executive Director was strongly
advocating, was approved earlier this year after a substantial
delay due to the opposition of certain members of the Board of
Directors. Just before the annual meeting the bank approved a
new Public Information Policy that, while an improvement over
the previous PIP, still falls so far short of best practice
that the U.S. abstained in the board vote. The U.S. Executive
Director, Mark Sullivan, told staff that while he and a few
other EDs are pushing hard on these issues, ``A number of
European Directors were deeply suspicious of transparency.''
If the EBRD seems to be somewhat complacent about
corruption issues, as several officials indicated could appear
to be the case, nonetheless actual reported instances of
corruption have been rare. Loan losses are low, no companies or
individuals have been debarred or blacklisted for corruption on
EBRD projects, and no one has been prosecuted for corruption on
the basis of an EBRD referral. Many of those the committee's
staff talked with conceded that considering the corruption that
is endemic in EBRD's client countries, this laudable record is
a bit of a conundrum. ``How can the incidence of fraud and
corruption be so low?'' one bank employee asked rhetorically.
The question naturally arises whether this is due to luck, or
to willful ignorance and a reluctance to probe too deeply into
deals as long as the money is paid back. Officials said the
latter is not the case: ``Sometimes things smell fishy, but
we've looked and never found the fish,'' one said. Standard
explanations are that unlike other MDBs, the EBRD deals
overwhelmingly with the private sector, not governments, does
little or no program lending, maintains and continually
improves an open procurement process, and has dealt primarily
in countries that rank better on various corruption and
transparency indices than most clients of the other MDBs. It
also uses private investigating firms, like Kroll and
Associates, to check out the background and source of funds of
loan applicants with murky backgrounds, and has turned down
some projects that posed too much ``reputational risk.''
However, the EBRD will soon ``graduate'' eight relatively
advanced client countries that have joined the European Union,
and will devote more resources to the Balkan region and to
Russia and Central Asia, a harsher environment for anti-
corruption efforts. Several bank officials acknowledged that
corruption could pose a greater challenge in the future and
said that more resources will be allocated accordingly.
It should also be noted that in light of the proximity of
the EBRD's area of operations to the Middle East, and the
number of large criminal organizations operating in the area,
the bank has paid special attention to money-laundering and
terrorist financing. Every financial institution with which the
bank deals must have in place anti-money laundering and anti-
terrorist financing procedures. These procedures must be
applied across the board, not just to the institutions'
transactions with the EBRD. The bank is thus seeking to use its
leverage to improve practices on this front throughout the
region. In addition, it offers courses and workshops on money-
laundering and terrorist financing to other financial
institutions, regardless of whether they are doing business
with the EBRD.
On the issue of effectiveness, the EBRD generally gets good
marks from the U.S. Treasury Department. While in London,
Assistant Secretary Lowery said publicly that the bank had done
a better job than most of focusing on its mission, and was
``not trying to be all things to all people.'' Unlike the other
MDBs, the EBRD, set up after the Cold War to help rehabilitate
former Communist economies, does not have poverty alleviation
as a primary goal. Instead, the bank focuses on privatization
and development of basic infrastructure for a market economy so
the ``countries in transition'' can get financing from
commercial banks. The bank is to avoid competing with, or
crowding out, private investment. According to the bank's
Evaluation Department, which reports directly to the board,
about 77 percent of the projects are rated positively when
judged solely on the basis of their ``transition impact.''
However, the overall success rate falls markedly--to 57
percent--when other factors are taken into account, primarily
the financial success of the project. (The EBRD itself rarely
lost money in these deals.) When staff inquired to what degree
corruption was a factor in this relatively low overall success
rate, they were told it was ``impossible to give any
percentage,'' but ``very few cases were corruption.'' USED
Sullivan was surprised that only 57 percent of the projects
were rated successful given that the transition impact achieved
(77 percent) was much more favorable. For the U.S., USED
Sullivan said, transition impact is a major factor to consider
in determining the success or failure of a project for the
EBRD, which has as its basic purpose the transition of the
former Communist countries to multiparty democracies with open,
market-oriented economies.
One measure of the bank's effectiveness is that eight
client countries have been deemed so successful in throwing off
the legacy of Communism that the board decreed at this meeting
that they will ``graduate'' by 2010 and no longer be eligible
for EBRD loans. The U.S. has hailed this a major success for
the bank and for the countries (achieving a certain timetable
for graduation was also a victory for the U.S., which had to
push hard against many Europeans on the board). However, these
eight--the Czech Republic, Estonia, Latvia, Lithuania, Hungary,
Poland, Slovakia and Slovenia--all recently completed a lengthy
process for accession to the E.U., and the prospect of E.U.
membership was a powerful incentive for reform. The E.U.
required them to make major changes in their legal, regulatory,
financial and monetary structures to conform to European
standards. Many in the bank openly acknowledge that these
improvements would not have been so fast or so far-reaching
without the E.U. factor. They said it remains to be seen
whether the EBRD countries east and south that have little or
no prospect of E.U. membership will be as successful in making
the transition.
A possible indication of future problems on this score
comes from an NGO report on Azerbaijan where the EBRD has been
quite involved but has--allegedly--failed so far to bring about
the sought-after policy changes. Azerbaijan is currently
enjoying an oil windfall--GDP jumped 40.5 percent last year--
but with oil production there expected to peak very soon, by
2010, the country needs to diversify its economy. The EBRD and
other donor/lenders have made development of the non-oil
economy a priority, but according to a study by the Bank
Information Center, an NGO with which the committee has worked,
the major IFIs have put a majority of their lending into oil
and gas, while production sharing agreements have led to a
flood of private investment into the sector, at the expense of
non-oil investments. Growth in non-oil exports is slowing,
according to the report. As is typical of countries with a
``resource curse'' the easy money in oil and gas has lowered
the incentive to make structural changes in the rest of the
economy, according to BIC. It quotes a U.S. government report
from last year: ``Government bureaucracy, weak legal
institutions and predatory behavior by politically connected
monopoly interests have severely hindered investment outside
the energy sector.'' The BIC report says that by allowing
energy investors to bypass the rest of the Azeri political and
economic structure, the energy production sharing agreements
promoted by the EBRD ``may be prolonging poor governance and
thus creating an unintended barrier to non-hydrocarbon
growth.''
By another measure, making money, the bank has proved
highly effective: it reported a profit of 1.5 billion euros
last year, and expects to do the same this year, on the basis
of about 4.3 billion euros in new lending. Much of this is
unrealized profit on investments, but nonetheless represents an
enviable rate of return.
The Senate Foreign Relations Committee has also been
following closely a controversial project on Sakhalin Island in
far eastern Russian, known as Sakhalin II, that is currently
the world's largest oil and gas development project.
Environmentalists have for several years sought to stop the
project, which is now 70 percent complete, and the EBRD has for
nearly as long been considering whether to make an investment.
At this point both sides concede that the project--a joint
venture of Shell and two Japanese firms--will be completed
regardless of the EBRD's decision, which is expected this
summer. NGO representatives interviewed by committee staff at
the meeting said that the EBRD has let them participate in many
consultations on the project--at the annual meeting, for
instance, there was one three-hour session between NGOs and
bank officials devoted exclusively to Sakhalin II--and that
some changes have been made to address environmental and other
concerns. Overall, however, they have been very disappointed in
the EBRD's response to their objections, claiming that the
project clearly fails to meet the bank's own stated criteria
for funding. NGOs say they are still pressing the EBRD to turn
down the project in order to send a signal about future large
energy developments. Bank officials told committee staff that
they have not come to a formal decision, but that in all of the
areas that NGOs have raised objections, either the objections
have been met or plans have been drawn up which, if implemented
successfully, will satisfy the objections. USED Sullivan said
the board has never voted down a loan proposal that has been
recommended by management.
Background
The EBRD was founded in 1991 as Communism was collapsing.
It now has 27 client countries and 60 sovereign shareholders
(and two institutional ones, the European Union and the
European Investment Bank). The U.S., with 10 percent of the
capital, is the largest single shareholder on a 23-member board
of directors. The European countries together form a majority,
and the G-7 (which includes Japan, Canada and the U.S.) also
form a majority (votes are weighted according to shares), which
tends to give the balance of power to Britain, Germany, Italy
and, especially, France (which each, like Japan, hold 8.5
percent of the capital). The driving force behind the creation
of the EBRD and its first president was Jacques Attali, a
dashing French intellectual who served as an influential
adviser to France's Socialist president Francois Mitterand. The
Attali period is still remembered for a flap over his decision
to replace Travertine marble with Carrara at the EBRD's London
headquarters at a cost of more than $1 million, more than the
bank had spent at the time on rebuilding Eastern Europe. This
scandale, sharp criticism over the bank's slow start in
lending, and Attali's alleged ``arrogant'' management style,
all contributed to his premature resignation from the bank in
1993. (Two of the three subsequent presidents have been French,
including the current one, Jean Lemierre, who has been serving
since 2000).The EBRD also endured a rough patch during the 1998
Russian financial collapse, when the bank declared a loss of
$225 million. The bank has recovered nicely since then and is
now the largest single investor in its region, which has been
showing solid economic growth in recent years. Last year the
EBRD recorded a profit of 1.5 billion euros (about $1.9 billion
at current exchange rates), more than triple the profit of
2004. (The previous four years' profit had ranged from 66
million to 402 million euros).
The bank's charter established it as a significantly
different institution than its sister MDBs. It was designated
specifically to be an instrument for economic and political
transition: unlike any other MDB, it can only work in countries
that are ``committed to democratic principles.'' All EBRD
investments must meet three criteria--they must help the
country move toward a market economy, i.e., have ``transition
impact''; they must take risks that ``supports private
investors and does not crowd them out''; and it must apply
sound banking principles. This last stipulation is followed by
all the MDBs, but in the case of the EBRD, this is taken to
mean it should lend within time-frames similar to a commercial
bank. In addition, the EBRD is the only MDB that has ``respect
for the environment'' written into its charter. In practice,
the EBRD is a unique mix of development bank and commercial-
style investment bank, functions which aren't always
compatible. Loans are approved through an ``operations
committee,'' the counterpart of a normal bank's ``credit
committee,'' that includes representatives from the office of
banking, risk management, legal counsel and chief economist.
Similar to other French-inspired European institutions, the
EBRD tends to favor a top-down, closed management style, and is
often resistant to efforts at openness and accountability.
Staff was told that President Lemierre, who was in the running
two years ago to head the IMF, typically fights initiatives for
change. It was only last year, for instance, that the EBRD's
Chief Evaluator (formerly called the project evaluation
department) was realigned so that he reports directly to the
board (it used to report to management as well), the
contentious effort to promulgate the Code of Conduct earlier
this year took 18 months, and it was only last year that the
bank finally got what one official called ``a meaningful
compliance function'' and posted a Whistleblower Protection
Policy on its website. These are all steps in the right
direction, and while the EBRD appears to have quite a ways to
go in these areas, USED Sullivan said, ``It's light years ahead
of where it was a few years before.''
The EBRD and the SFRC's Anti-Corruption Legislation
In November, 2005, President Bush signed into law H.R.
3057, the FY 06 appropriations for foreign operations. This law
includes Senator Lugar's MDB reform measures contained in
Lugar's amendment S.A. 1293 that passed the Senate by unanimous
consent. This also represents a significant portion of Lugar's
reform bill S. 1129 that passed out of the Senate Foreign
Relations Committee by unanimous consent and is co-sponsored by
eleven Senators. Because Congress cannot legislate directly on
international institutions, the bill declares what is U.S.
policy regarding transparency and accountability issues at the
banks and directs the U.S. executive directors to seek to have
those policies implemented. This visit was the first by SFRC
staff to any of the MDBs since the legislation was enacted.
Accordingly, staff explained to their interlocutors at the
bank, and to some of the NGOs, the significance and intention
of the legislation, and presented each with a copy of the
legislative language (a copy is attached). Here is a point-by-
point summary of how well EBRD policies currently conform to
those urged by Congress in the bill.
Extractive Industries Transparency (Sec. 585c)
While the bank has no formal policy regarding publication
of oil and gas revenues and the other measures listed, in
practice it supports them and requires EITI-like provisions in
it loans. To his credit, President Lemierre has openly talked
about the importance of revenue management and transparency in
extractive industry projects. ``Revenue reporting is vital in
combating corruption,'' he wrote in an op-ed that appeared in
the Wall Street Journal-Europe last year, in which he singled
out Azerbaijan and the Kyrgyz Republic for path-breaking
disclosure policies in EBRD-financed oil and gold projects
respectively. The EBRD-financed BTC pipeline from Baku to
Turkey also had revenue transparency provisions, and the bank
helped set up Azerbaijan's State Oil Fund, modeled after
Norway's. See below for more on Azerbaijan. (Note: Treasury is
to report 180 days after enactment of the appropriations bill
on all the MDB's loans made to extractive projects.)
Financial Disclosure for Bank Employees (Sec. 1505.a.1)
The EBRD's new code of conduct (updated for the first time
since the bank's founding) does call for disclosure by bank
directors and senior management. The legislation enumerates
``employees'' and ``consultants'' and was originally conceived
to apply to any employee who had decision-making authority over
a loan. The CoC does not cover consultants and appears narrower
than envisioned in the original legislation. It is a step
forward from the previous code and represents a triumph of
sorts over the European aversion to any disclosure,
particularly by directors.
Results-Based Management (Sec. 1505.a.2)
The bank claims it has countered the pressure-to-lend
syndrome by requiring that all loans have ``transition impact''
and contribute ``financial additionality'' to a project.
However, others claim that the performance incentives are not
clear (not as clear, for instance, as in a corporate proxy
statement). As the bank shifts toward riskier and smaller
projects to the east and south, it is expected a new incentives
structure will be required which will give an opportunity for
improvement.
Voluntary Disclosure Program (Sec. 1505.a.3)
The EBRD has no such system for encouraging companies or
individuals to come forward and admit wrongdoing. As noted
above, the EBRD has less experience dealing with corruption
than other MDBs.
Loan Requirements on Transparency and Accountability (Sec. 1505a.4)
USED Sullivan says EBRD loan documents have numerous
covenants and clauses which appear to conform to the
legislative intent.
Debarment and Cross-Debarment (Sec. 1505a.5)
The bank has, as noted earlier, recently formally committed
to publicly blacklisting companies found culpable of fraud in
applying for a loan. Committee staff was informed that
debarment would also be imposed for other loan-related
corruption, and that the bank will also consider debarring
companies debarred by other banks. However, the legislative
provision about clear and published standards for debarment has
not been fulfilled. USED Sullivan said some of these items are
being discussed in the inter-MDB anti-corruption talks and more
guidelines will be issued once the banks agree on common
standards.
Coordinate Debarment, Procurement and Other Policies Across MDBs (Sec.
1505.a.6)
The EBRD is actively engaged in this process with other
MDBs, as noted above.
Maintain High Procurement Standards (Sec. 1505.a.7)
Nearly all bank projects are put to open bid, and the bank
maintains an established process to deal with complaints from
losing bidders in a timely fashion. Bank officials told
committee staff they continually tighten and upgrade
procurement policies, and are constantly on guard against
collusive practices regarding consultants. Officials
interviewed by staff oppose the World Bank proposal, referenced
later in the legislation, to increase the use of country
systems in procurement.
Independent Investigations, Audits and Evaluations (Sec. 1505a.8)
Thanks to changes in recent years, these functions have
gained independence and appear to be in nominal conformity with
the legislation. The internal auditor can, if necessary, meet
with the board's audit committee without management present,
and as noted above, the Chief Evaluator now reports directly to
the board, while the Chief Compliance Officer has been recently
empowered. The post is now held by Enery Quinones, a former
head of the OECD's anti-corruption division, where she led the
drafting of, and implementation of the monitoring for, the
anti-corruption treaty. An American (Puerto Rican native,
graduate of NYU and Harvard law), Ms. Quinones is well-regarded
within the bank. The bank is in the process of searching for a
new internal auditor. USED Sullivan said the previous auditor
had ``the complete support'' of the board's audit committee,
and that that relationship will have to be rebuilt with the new
holder of the post. USED Sullivan raised the question of
whether the auditor's office has sufficient resources, a point
that emphasized more strongly by his Canadian counterpart and
former Audit Committee chairman, Scott Clark (who is returning
to Canada after four years on the board.) He suggested that the
auditing function may be too limited in its scope--the auditor
can't review projects criticized by the evaluation department,
for instance, nor follow up on implementation of the
procurement policy. In fact, he said, the current auditing
function ``is a kind of hit or miss operation in terms of
corruption. We have a group that's supposed to mitigate the
risk of money laundering. I don't know if they're doing a good
job or not.'' He said that when he arrived the board didn't
even have an effective audit committee, raising questions about
effective governance. With the help of USED Sullivan, who has
been a member of the audit committee since 2003, and others,
along with technical advice from Price Waterhouse, the audit
committee was given more corporate-like authority and the
bank's internal controls were strengthened. Canadian ED Clark
said it will be vital that the new auditor have ``gravitas'' to
maintain the office's independence, extend its remit and obtain
sufficient resources. See below for more on the Compliance and
Evaluation functions.
Transparency in Budget Support and Program Loans (Sec. 1505.a.9)
The EBRD does very little of this type of lending.
Recourse for Locals Alleging Adverse Impact by Bank Projects (Sec.
1505.a.10)
The EBRD's Independent Recourse Mechanism (IRM) is
generally regarded as the most defensive and weakest of any of
the MDBs', e.g., the World Bank's Inspection Panel system. Bank
officials also said it is not seen as an important vehicle for
uncovering corruption. (The purpose of the IRM is two-fold,
USED Sullivan explained. It is to review the compliance of the
Bank with its policies, specifically its Environmental Policy
and project-specific provisions of the PIP; and to provide a
problem-solving function to restore dialogue between the
parties, where possible, and to try to resolve the underlying
issues giving rise to the complaint or grievance.) The IRM,
which is operated by the chief compliance officer, only went
into operation in July 2004 (the U.S. abstained in the vote
authorizing it), and by October, 2005, had only received seven
complaints--five of which it rejected out of hand as being
``manifestly ineligible.'' Accepted for review was one
complaint related to Sakhalin II, but it was then put on
holding pending the decision, expected later his summer, on
whether the EBRD will actually commit funding to the project.
(The complainants were local fishermen who alleged that the
dredging and other construction activities are hurting their
livelihoods.) The other complaint was from villagers in
Azerbaijan who charged construction of the BTC pipeline caused
vibration damage to their property. Two of the rejected
complaints related to procurement and were forwarded to
procurement department, one was rejected because the bank
wasn't involved in the offending project, another because the
bank policy allegedly violated was ``outside the jurisdiction
of the mechanism.'' NGOs are particularly upset with the fifth
and final rejection, in which a trade union filed a complaint
on behalf of its members. The complaint was rejected because
the union itself didn't constitute an ``affected group'' under
the rules. It is hoped that the many of the IRM shortcomings
can be addressed and the overall mechanism strengthened during
first review of the policy, scheduled to commence after July,
2006.
Effective Whistleblower Protection (Sec. 1505.a.11)
In 2004, the Government Accountability Project, in a major
report on MDB whistleblower policies, singled out the EBRD as
the only one that had NOT ``embraced the notion of
whistleblower protection.'' It gave the EBRD's policy the
lowest marks among the four MDBs it rated (the African
Development Bank was not included). Since then, the situation
has improved incrementally. The EBRD has now posted its
whistleblower policy on its website, for instance. However, the
policy stills falls far short of best practices in this area.
USED Sullivan says efforts to strengthen the policy have been
hung up over European concerns over the conflict between
whistleblower anonymity and the right to confront one's
accuser.
Draft Country Strategies Published at Least 45 Days in Advance. (Sec.
1505.a.12)
USED Sullivan says this is the policy and will be the
practice.
It should be noted that Assistant Secretary Lowery, in his
formal statement delivered to the annual meeting, alluded to
the bank's transparency record and the committee's anti-
corruption work. He said:
To promote good governance in the region, the EBRD
must make sure that its own practices are best
practices. We are pleased that the Bank is now
implementing improved grievance and appeals procedures
as well as a new, modern code of conduct which includes
disclosure of financial interests. While we believe
that the new Public Information Policy fell short of
what it could and should have achieved, we recognize
that it has improved the transparency of the EBRD's
operations. We also commend the Board and the
Management for breaking new ground among the
multilateral development banks by agreeing to disclose
the compensation provided to members of the Board of
Directors as well as senior management. We continue to
believe that reviewing the operations of the Board and
determining whether it provides good value for money
should be part of the process of bringing the Bank in
line with best corporate practices.
We have worked closely with our U.S. Congress in
strengthening anti-corruption policies at the MDBs.
Achieving this goal requires improved cooperation among
the MDBs. We commend the EBRD for its efforts to combat
corruption and to prevent money laundering and
terrorist financing, but we recognize that there is
still room for improvement.
The New Public Information Policy
Shortly before the visit by SFRC staff, the board on May
18, 2006, approved a new, updated Public Information Policy,
the cornerstone of the bank's own transparency. Both the USED's
office (which ultimately did not vote to approve the document,
but abstained) and NGOs that spoke to committee staff, had the
same general comment: while the new policy draft issued early
in the year represented an improvement over the previous one,
bank management and many on the board of directors basically
ignored or rejected extensive requests and suggestions for
further changes made during the consultation period. Among the
changes sought by the U.S. was disclosure of board votes.
Instead, the PIP calls for publishing minutes that disclose
only who attended, the approval of previous minutes, titles of
agenda items and decisions reached--but not the votes, so the
publics of the various countries can't know how their
representatives voted. As USED Sullivan noted, the PIP
essentially calls on the board to keep two sets of books, one
for the public, another for internal use. The board even
blocked a U.S. proposal that individual countries could
voluntarily opt to disclose in the public minutes how they
voted. The U.S. discloses its votes on the U.S. Treasury
Department website.
Those changes hailed as improvements show how far behind
the EBRD's information policy has been. Until this new policy,
for instance, the bank did not disclose draft country
strategies and did not publish the salaries of directors and
senior management. But the USED's office failed to win approval
for other changes, such as releasing the final draft policies
when they are sent to the board for action, disclosure of
public sector documents connected with a project, or a 120-day
disclosure period for environmental impact statements on
private sector projects (like they have for public sector
ones).
CEE Bankwatch, a Prague-based counterpart to the Bank
Information Network with which the committee has worked,
prepared an extensive set of comments to improve the initial
draft, most of which were not accepted. Said Bankwatch's Klara
Schirova, ``Basically, the EBRD is not willing to accept a
presumption of disclosure.'' The bank, she said, bows too much
to the wishes of its private sector clients, who want as little
disclosure as possible--in part for legitimate commercial
reasons--and argues that if it discloses too much, those
clients will go elsewhere. Moreover, she complains, the EBRD
has a poor appeal mechanism, so that when NGOs or citizens are
denied access to information they feel should be disclosed,
they have little recourse. Other IFIs have some independent
adjudicator to assess whether documents whether documents are
being withheld (the European Investment Bank, for instance,
uses the E.U. ombudsman, while the ADB set up a special Public
Disclosure Advisory Committee), but EBRD appeals go to the
bank's own chief compliance officer through the Independent
Recourse Mechanism, which isn't really set up to handle such
complaints, and is limited to appeals of denial of information
about a specific project. Another NGO, the Global Transparency
Initiative, based in Brussels, likewise criticized the PIP's
appeal mechanism, its leniency in allowing third parties to
decide what is confidential (it points out that all the other
MDBs, including the private sector arm of the World Bank, the
IFC, provide for more disclosure of third party information
than the EBRD), and transparency at the board of directors.
Compliance Office
The compliance office will issue its first ever Anti-
Corruption Report within the next few months. However, the
official in charge of preparing it, the deputy chief compliance
officer Lee Marler, a former British prosecutor, said, ``We're
not picking up too many reports of corruption. It does seem
strange we're not getting more.'' Like other MDBs, they have a
telephone hot-line and an anonymous drop box, but called them
``under-utilized.'' Most complaints come in via e-mail. He
wondered out loud if it might not be a legacy from the Iron
Curtain days that people in Eastern Europe are reluctant to
inform on others. Most of those they do get seem to relate to
procurement, often lodged by a disgruntled bidder who complains
that EBRD officials unfairly chose someone else. There are no
on-going investigations into corruption at the moment, he said.
Mr. Marler praised the efforts of the committee and Senator
Lugar in particular in helping bring corruption issues to the
forefront and for stimulating more inter-MDB cooperation and
harmonization on corruption matters. ``We are indebted to
Senator Lugar,'' he said. ``Senator Lugar has galvanized the
activity in this area.'' He cited the MDB task force against
corruption, which first met on February 18, 2006, and is
scheduled to make a report in September, and a June 7-9
investigators conference in London. (It should be noted that
some observers believe the task force, created at the behest of
the World Bank, actually slowed down anti-corruption efforts,
which had been proceeding apace through more informal
cooperation among the MDB anti-corruption staffs.)
The EBRD compliance office has seven professionals, and is
responsible for fraud and misconduct among staff (expense
account fraud, e.g.), operating the Independent Recourse
Mechanism and assuring compliance with the Public Information
Policy and the Code of Conduct, as well as investigating fraud
and corruption allegations on loans and projects. As mentioned
above, no companies or individuals have been blacklisted by the
EBRD, and Mr. Marler said that the bank is on record as saying
it would publish names of any companies or individuals debarred
for corruption, not just, as the PIP states, for fraud related
to the application for funding.
Although the bank has had a compliance office for the past
seven or eight years, it is only relatively recently that it
has had what former acting compliance officer Chris Holyoak
called ``a meaningful compliance function. Before, it was
mostly about attending conferences around the world.'' Mr.
Holyoak, who has been with the bank since its inception
(employee ID #4), said there had long been reluctance to add
``an extra policeman'' when the bank already had a number of
process controls in place. Belatedly, the decision was made,
``Let's be more pro-active,'' said Mr. Holyoak, who is now the
corporate director in charge of a planned renovation of the
bank's headquarters building. ``There's much greater
interaction with the banking team, and a raised profile. Now we
have a compliance function that is sizable, and serious.'' The
chief compliance officer, Ms. Quinones, reports directly to the
bank president.
I asked Mr. Holyoak in how many projects he thought
corruption was a factor. He replied that he didn't know, but
believed it was ``very low.'' He believes the bank does a good
job on procurement, and the awarding of contracts, and praised
what he called ``independent procurement reviews.'' He
suggested that one area where more attention should be paid is
project implementation, although he said that bank has sent
investigators out to ``dig up a piece of road'' just to ensure
it was built to specifications. ``You just can't make a loan
and walk away,'' he said. And like others, he said the bank's
plans to increase its activities in central Asia and Russia
poses a new challenge. ``The first step is for everyone to
recognize that it's a different world. What worked in Poland
won't work as we go farther east,'' he said.
Mr. Marler said that thanks to the recent changes and the
beefed up staff, he believes the compliance office now has a
sufficient ``tool-kit'' to battle corruption. He's very
enthusiastic about the enhanced cooperation among the banks.
``The MDBs are fired up,'' he said. ``The train is going down
the tracks.'' He said one important focus going forward will be
one of the mandates of the MDB task force, examining what help
the MDBs can provide in enhancing the anti-corruption efforts
of their client countries.
Risk Management
Michael Williams, director of risk management, was one of
several bank employees who said that because of the EBRD's
private sector focus, ``corruption is a much smaller problem
for us, than the public sector-focused MDBs.'' Although
inevitably, given the risk profile, some projects haven't fared
well for other reasons than corruption, ``we've had very few
cases where our money was diverted or disappeared,'' he said.
The bank has declared misprocurement and cancelled loans wholly
or in part on a small number of occasions.
He gave several examples to suggest the kind of insider/
crony corruption to which the bank might be susceptible. In
some CIS countries, he pointed out, it is not uncommon for the
first family and friends to own a large part of the economy.
Such ownership can be public, but it is also frequently alleged
to be hidden. When this is the case there is often the
suspicion that a relative or friend of the ruling family is
able to use political leverage for commercial advantage. When
it looks at a major sale of an asset, the bank asks questions
like ``Is this a fair price? Why is it being paid in cash?
Where does the money come from? Is this truly an arms-length
transaction? Has undue influence been used to improperly gain
commercial advantage?'' The Bank refuses to participate in
deals when suspicions like this arise and the questions cannot
be satisfactorily answered.
As the bank moves further east and south, he said, it will
encounter more of what he called ``this kind of crony
capitalism.'' The bank needs to be careful and vigilant in this
environment, he suggested, but can't simply await the dawn of
universal honesty to begin lending. Instead it tries through
its project conditionality to move its clients in the direction
of better corporate governance and greater transparency.
Because the EBRD does so many deals with private companies, it
often deals with local businessmen who, in these former
Communist countries, may have questionable backgrounds. It is
often unclear where or how, for instance, they got the shares
in their companies and the money to pay for them, or whether
they have undisclosed ties to government officials. Therefore,
in addition to what he called its own normal and stringent due
diligence, the EBRD keeps on retainer several private
investigating firms--what Mr. Williams called ``gumshoes''--who
are experts in performing due diligence and uncovering the
backgrounds of uncertain characters and uncertain businesses.
The bank, he says, takes seriously the work of the risk
management department. Asked if his department can veto a deal
that meets the approval of others on the bank's operations
committee, he said, ``Practically, yes. However, it would be
unusual for risk management to be the only objector in the face
of unresolved integrity issues.''
Evaluation Department
Like the other banks, EBRD has an evaluation department,
separate from the banking and country teams, which goes in
after a project is completed to give what is supposed to be an
independent evaluation of how well the project met its goals.
(The project team also does its own self-evaluation of every
project upon completion. The evaluation department looks at
about 75 per cent of completed projects, usually about 1-2
years after last disbursement.) Because it is supposed to avoid
competing with private sector funding, the bank is supposed to
take on somewhat risky projects that advance the region's
transition to a democratic, market system. ``We are not in it
for the money, we are in it for helping to realize the
project,'' explained Fredrik Korfker, the Chief Evaluator.
He said that by far the most important measure of several
in rating an investment's overall success is its ``transition
impact.'' This includes such goals as promoting privatization,
developing skills in the economy beyond the project itself,
encouraging competition and supporting market expansion. In
addition to transition impact, other factors examined are
financial performance, environmental impact, additionality
(i.e., the ability of the bank to complement, rather than
substitute for, commercial bank financing), fulfillment of
project objectives and investment performance (whether the bank
made money on the deal).
Mr. Korfker said that looking just at the ``transition
impact,'' for the period 1996-2005, 77 percent of the projects
got a passing grade--that is, they were rated satisfactory,
good or excellent. (23 percent were rated marginal,
unsatisfactory, or highly unsatisfactory). In other words,
about one of four projects fails to meet what the bank says is
its most important goal and the rationale for its entire
lending program. In the view of the Evaluation Department, the
Bank is doing well overall and has implemented projects which
largely meet the Bank's mandate.
The outcome is worse, however, when looking at the overall
performance. Taking into account the other factors mentioned
above, only 57 percent are deemed either successful or highly
successful (the rest are either partly successful or
unsuccessful). The main difference, he says, is that many of
those with positive transition impacts showed poor financial
results, i.e., they didn't perform as expected at appraisal,
even though the bank usually was repaid its loan. (In one case,
for instance, the EBRD lent money to a group of five banks, the
transition impact was rated ``good'' but the overall rating
suffered because two of the five banks did not do well
financially.) The bank explains that this lower success rate is
due to the difficult environment it operates in and its mandate
to take on projects where private sector lenders fear to tread.
Still, it raises questions whether the EBRD has been able to
avoid the ``pressure to lend'' syndrome as well as many of its
officials believe. Although these figures are posted on the
EBRD's website, USED Sullivan was unfamiliar with these success
ratings and was unable to shed any further light on the issue.
Asked to what degree corruption was a factor in the poorly
rated projects, Mr. Korfker said ``It's impossible to give any
percentage'' but said in ``very few'' was corruption a
significant factor. In one case, he said, ``a foreign sponsor
seemed to have tricked the bank.'' It delivered machinery with
a high, unwarranted mark-up, and the bank lost about $10
million, he said. In another case, concerning a credit line
facility for small and medium enterprises, the EBRD lent money
to four banks, who were supposed to use the money to lend to
small- and medium-sized companies. The loans the banks made
were to a great extent to medium-sized companies and less to
smaller projects, and some of the loan recipients had
government connections.
In another case in a country in the very early stages of
financial reform, the bank saw a need for changes in the
mortgage system and tried to help restructure mortgage
legislation through a technical assistance project. For a
variety of reasons, this project failed and no immediate
improvements could be made regarding the deficient property
rights system. In retrospect, the Bank had to question whether
the local government was really interested in reform in the
first place. However, the Bank continues to work on improving
the situation through important legal transition initiatives,
Mr. Korfker says.
Mr. Korfker highlighted to staff the tension that sometimes
exists between Management and the evaluation function. A recent
discussion was on the issue of access to information. To do
proper evaluation, evaluators must have full access to all
relevant information, and the evaluation policy allows them to
enter the project cycle at any time and at any place. But
management occasionally resisted granting full access, arguing
that this could lead to evaluation interfering with operational
issues. This debate has recently been concluded between the
Board of Directors and management whereby the evaluation
department continues to have full access to all relevant
information to carry out its function adequately, according to
Mr. Korfker.
Sakhalin II
Sakhalin Island is located in far eastern Russia, in the
Sea of Okhotsk, north of Japan's Hokkaido Island. Once a
Czarist penal colony, it is encased in ice for half the year,
remote--and rich in oil and gas. It is estimated that beneath
its shores lie 45 billion barrels of oil equivalent, as much as
in the North Sea. ExxonMobil has been pumping oil from there
since October, 2005. Shell has been pumping oil--in the summer
months only--from another development since 1999, and is in the
process of completing a major expansion in what is currently
the world's largest oil and gas development project, Sakhalin
II. To quote from a recent Financial Times description, ``Two
of the largest concrete structures ever built in Russia have
been installed in the sea. As large as football fields and as
tall as 15-story buildings, the offshore platform bases have
been towed in from 1,000 miles away. Some 6,000 construction
workers labor in temperatures than can reach minus 40 degrees
laying (twin) 800 km (480 miles) pipelines down the length of
the island.
``On the south side, Russia's first liquefied natural gas
plant is being built on Aniva Bay . . . The big push is
underway to transform Sakhalin into the world's largest oil and
gas province. . . . It is by far the largest direct foreign
investment in Russia. . . . The project is burning through $100
a second and occupying 60 million person hours a year. When
complete, it will deliver up to 150,000 barrels of oil a day,
and 9.6 million metric tons of LNG a year. . . . Future
expansion could see a doubling of that capacity. . . . Winter
temperatures average minus 11 F, and the island is located in a
typhoon area. The platforms have had to be specially designed
to withstand massive ice floes. . . . as well as earthquakes
that frequently shake the island. . . . An endangered
population of only 100 western gray whales feed on Sakhalin's
northeastern shore during the summer months.'' There are fears
the construction will hurt the local salmon industry, and ``the
company does not have a plan for what to do in the event of an
oil spill under ice,'' the Financial Times story said. The
project will cost $20 billion, double the initial budget.
Environmentalists have been contesting the project--and
EBRD's possible involvement in it--for a number of years. They
have achieved such changes as a rerouting of the pipeline away
from the whale feeding area, and efforts by the company to
mitigate shore erosion at the hundreds of crossings the
pipeline makes across rivers and creeks, in order to prevent
silting and damage to the salmon runs. The bank is to make a
decision soon as to whether to help fund the project, which is
now 75 percent complete. Regardless of what the bank decides,
the EBRD's Alistair Clarke told a group of NGO representatives
during the annual meeting, ``The project is going ahead.''
The bank has held extensive consultations with various
stakeholders, including in London, Sapporo, Moscow and on the
island. At the annual meeting, Sakhalin II was the subject of
one, dedicated, three-hour meeting between the EBRD officials
and NGOs, and the project came up numerous times during the
rest of the NGO Forum discussions with EBRD officials at all
levels. The day after the annual meeting, President Lemierre
also had his regular get-together with the NGO community, where
it was brought up again. According to the EBRD's Mark King and
Jeffrey Jeter, they've broken down the issue into four
categories--whales, river crossings, social and legal. On the
whales, they believe that Shell has come up with ``a good
approach,'' which includes the pipe rerouting and the creation
of a special advisory committee from the World Conservation
Union (IUCN) to advise on whale issues. The issue of river
crossings and erosion caused by the pipeline ``is not being
handled very well.'' They seem to regard the social issues as
either solved or solvable, involving relatively few
inhabitants, although there had been quite a few problems. They
said that the Sakhalin project had been slow to address these
matters, in contrast to the BTC pipeline from Azerbaijan
through Georgia to the Turkish Mediterranean coast. ``They got
it right up front. There was a lot of interaction with the
NGOs,'' Jeter said. The legal issues relate primarily to
whether the project has complied with all the requirements
surrounding an Environmental Impact Assessment. The two EBRD
officials again believe that the issues here have been either
put to rest or are on a path to being resolved. In their view,
the primary outstanding matter relates to environmental
concerns, but all are still technically under review. If the
project meets certain benchmarks, staff will recommend that
funding be approved.
Where the EBRD sees the glass as half-full, the NGOs see
the glass as completely empty and cracked. During the annual
meeting, for instance, they highlighted news stories,
supposedly based on leaked documents, which alleged that
Shell's consortium is misleading the bank and others by keeping
two sets of books regarding its compliance with environmental
standards. Internal documents showed 15 violations by
contractors at two river crossings, the stories alleged, but in
the reports the consortium posted on its website, the
violations were not mentioned. The consortium's spokesman
denied any wrongdoing. The WWF-UK's James Leaton disagreed:
``This is material misrepresentation. This is fraud, this is
corruption.''
The NGOs cite numerous instances where they claim the
project is in irreversible non-compliance with EBRD policies,
and ask why the EBRD is still considering funding. They claim
the whale panel is not effective because the consortium doesn't
listen to it; an assiduous Russian researcher regularly
produces pictures he's taken of eroded river banks; there is
still no plan for coping with an under-ice oil spill; they
complain the plan for indigenous people's development was
produced far past the deadline and that the environmental
assessment should have been completed well before the project
was started, not mid-way through, in order to consider
alternatives. In the view of the NGOs, the bank had for some
time been openly skeptical about the project. However, said
Leaton, ``About six months ago they started to get
laryngitis.''
The bottom line is that the NGOs reject the argument that
regardless of its shortcomings, it would be better for the bank
to be in the project than out of the project, that having some
influence is better than having none at all. Those who support
EBRD involvement claim that by joining in, the bank will better
able to hold the project to account on environmental standards
during its operations. But Doug Norlen, a tireless anti-
Sakhalin campaigner for Pacific Environment, contends, ``The
fact that they are not willing to hold them accountable now,
before financing when their leverage is greatest, demonstrates
that this would be a hollow commitment.'' Instead, the NGOs
believe that no endorsement by the bank would be far preferable
because, as Leaton explained, ``It will send a message to the
big banks that these big projects can't just bully their way
through and still get the blessing of the EBRD.'' This, he
believes, would have an impact on future energy projects by
making it clear to all that the environmental and other social
issues must be taken seriously if that project hopes to obtain
any of the benefits of MDB backing.
A P P E N D I X E S
----------
APPENDIX I
INDIVIDUALS INTERVIEWED FOR THIS REPORT
Mark Sullivan, U.S. Executive Director, EBRD
Pete Wisner, advisor to the USED
Clay Lowery, Assistant Treasury Secretary for International
Affairs
Ken Peel, Deputy Assistant Treasury for International
Development
Dilek Macit, Consultancy Services Unit, EBRD
Maurice Lepage, Procurement and Purchasing Department
Fredrik Korfker, Chief Evaluator
Lee Marler, Deputy Chief Compliance Officer, Office of the
chief compliance officer
Jeffrey Jeter, Senior Environmental Advisor, Environmental
Department
Mark King, Group Head, Environmental Department
Michael Williams, Director, Risk Management
Chris Holyoak, Corporate Director, Administration, Procurement
and Consultancy Services
C. Scott Clark, EBRD Executive director for Canada and Morocco
Klara Schirova, CEE Bankwatch Network
Greig Aitken, CEE Bankwatch Network
Heike Mainhardt-Gibbs, Bank Information Center
Doug Norlen, Pacific Environment
James Leaton, WWF-UK
APPENDIX II
MULTILATERAL DEVELOPMENT BANK LAW
----------
Below is language referring to the mulitlateral development
banks that was included in H.R. 3057, the FY 06 Foreign
Operations Appropriations Bill, and signed by the President
into law on 11/14/2005. This law includes Senator Lugar's
reform measures contained in Senator Lugar's amendment S.A.
1293 that passed the Senate by unanimous consent. This also
represents a significant portion of Senator Lugar's reform bill
S. 1129 that passed out of the Senate Foreign Relations
Committee by unanimous consent and is co-sponsored by 11
Senators.
Environment Programs
SEC. 585. (C) EXTRACTION OF NATURAL RESOURCES
(1) The Secretary of the Treasury shall inform the
managements of the international financial institutions and the
public that it is the policy of the United States that any
assistance by such institutions (including but not limited to
any loan, credit, grant, or guarantee) for the extraction and
export of oil, gas, coal, timber, or other natural resource
should not be provided unless the government of the country has
in place or is taking the necessary steps to establish
functioning systems for: (A) accurately accounting for revenues
and expenditures in connection with the extraction and export
of the type of natural resource to be extracted or exported;
(B) the independent auditing of such accounts and the
widespread public dissemination of the audits; and (C)
verifying government receipts against company payments
including widespread dissemination of such payment information,
and disclosing such documents as Host Government Agreements,
Concession Agreements, and bidding documents, allowing in any
such dissemination or disclosure for the redaction of, or
exceptions for, information that is commercially proprietary or
that would create competitive disadvantage.
(2) Not later than 180 days after the enactment of this
Act, the Secretary of the Treasury shall submit a report to the
Committees on Appropriations describing, for each international
financial institution, the amount and type of assistance
provided, by country, for the extraction and export of oil,
gas, coal, timber, or other national resource since September
30, 2005.
Promotion of Policy Goals at Multilateral
Development Banks
SEC. 599B. Title XV of the International Financial
Institutions Act (22 U.S.C. 262o, et seq.) is amended by adding
at the end the following:
SEC. 1505. PROMOTION OF POLICY GOALS.
(a) The Secretary of the Treasury shall instruct the United
States Executive Director at each multilateral development bank
to inform each such bank and the executive directors of each
such bank of the policy of the United States as set out in this
section and to actively promote this policy and the goals set
forth in section 1504 of this Act. It is the policy of the
United States that each bank should--
(1) require the bank's employees, officers and
consultants to make an annual disclosure of their
financial interests and income and of any other
potential source of conflict of interest;
(2) link project and program design and results to
management and staff performance appraisals, salaries,
and bonuses;
(3) implement voluntary disclosure programs for firms
and individuals participating in projects financed by
such bank;
(4) ensure that all loan, credit, guarantee, and
grant documents and other agreements with borrowers
include provisions for the financial resources and
conditionality necessary to ensure that a person or
country that obtains financial support from a bank
complies with applicable bank policies and national and
international laws in carrying out the terms and
conditions of such documents and agreements, including
bank policies and national and international laws
pertaining to the comprehensive assessment and
transparency of the activities related to access to
information, public health, safety, and environmental
protection;
(5) implement clear anti-corruption procedures
setting forth the circumstances under which a person
will be barred from receiving a loan, contract, grant,
guarantee or credit from such bank, make such
procedures available to the public, and make the
identity of such person available to the public;
(6) coordinate policies across multilateral
development banks on issues including debarment, cross-
debarment, procurement guidelines, consultant
guidelines, and fiduciary standards so that a person
that is debarred by one such bank is subject to a
rebuttable presumption of ineligibility to conduct
business with any other such bank during the specific
ineligibility period;
(7) require each bank borrower and grantee and each
bidder, supplier and contractor for MDB projects to
comply with the highest standard of ethics prohibiting
coercive, collusive, corrupt and fraudulent practices,
such as are defined in the World Bank's Procurement
Guidelines of May, 2004;
(8) maintain a functionally independent
Investigations Office, Auditor General Office and
Evaluation Office that are free from interference in
determining the scope of investigations (including
forensic audits), internal auditing (including
assessments of management controls for meeting
operational objectives and complying with bank
policies), performing work and communicating results,
and that regularly report to such bank's board of
directors and, as appropriate and in a manner
consistent with such functional independence of the
Investigations Office and the Auditor General Office,
to the bank's President;
(9) require that each candidate for adjustment or
budget support loans demonstrate transparent budgetary
and procurement processes including budget publication
and public scrutiny prior to loan or grant approval;
(10) require that for each project where compensation
is to be provided to persons adversely affected by the
project, such persons have recourse to an impartial and
responsive mechanism to receive and resolve complaints.
The mechanism should be easily accessible to all
segments of the affected community without impeding
access to other judicial or administrative remedies and
without retribution;
(11) implement best practices in domestic laws and
international conventions against corruption for
whistleblower and witness disclosures and protections
against retaliation for internal and lawful public
disclosures by the bank's employees and others affected
by such bank's operations who challenge illegality or
other misconduct that could threaten the bank's
mission, including (1) best practices for legal burdens
of proof, (2) access to independent adjudicative
bodies, including external arbitration based on
consensus selection and shared costs, and (3) results
that eliminate the effects of proven retaliation; and
(12) require, to the maximum extent possible, that
all draft country strategies are issued for public
consideration no less than 45 days before the country
strategy is considered by the multilateral development
bank board of directors.
(b) The Secretary of the Treasury shall, beginning thirty
days after the enactment of this Act and within sixty calendar
days of the meeting of the respective bank's Board of Directors
at which such decisions are made, publish on the Department of
the Treasury website a statement or explanation of the United
States position on decisions related to (1) operational
policies; and (2) any proposal which would result or be likely
to result in a significant effect on the environment.
(c) In this section the term ``multilateral development
bank'' has the meaning given that term in section 1307 of the
International Financial Institutions Act (22 U.S.C. 262m-7) and
also includes the European Bank for Reconstruction and
Development and the Global Environment Facility.
Authorizations
SEC. 599C. (a) To authorize the United States participation
in and appropriations for the United States contribution to the
fourteenth replenishment of the resources of the International
Development Association, the International Development
Association Act, Public Law 86-565, as amended (22 U.S.C. 284,
et seq.), is further amended by adding at the end thereof the
following new section:
SEC. 23. FOURTEENTH REPLENISHMENT.
(a) The United States Governor of the International
Development Association is authorized to contribute on behalf
of the United States $2,850,000,000 to the fourteenth
replenishment of the resources of the Association, subject to
obtaining the necessary appropriations.
(b) In order to pay for the United States contribution
provided for in subsection (a), there are authorized to be
appropriated, without fiscal year limitation, $2,850,000,000
for payment by the Secretary of the Treasury.
(b) To authorize the United States participation in and
appropriations for the United States contribution to the tenth
replenishment of the resources of the African Development Fund,
the African Development Fund Act, Public Law 94-302, as amended
(22 U.S.C. 290g, et seq.), is further amended by adding at the
end thereof the following new section:
SEC. 218. TENTH REPLENISHMENT.
(a) The United States Governor of the Fund is authorized to
contribute on behalf of the United States $407,000,000 to the
tenth replenishment of the resources of the Fund, subject to
obtaining the necessary appropriations.
(b) In order to pay for the United States contribution
provided for in subsection (a), there are authorized to be
appropriated, without fiscal year limitation, $407,000,000 for
payment by the Secretary of the Treasury.'.
(c) To authorize the United States participation in and
appropriations for the United States contribution to the eighth
replenishment of the resources of the Asian Development Fund,
the Asian Development Fund Act, Public Law 92-245, as amended
(22 U.S.C. 285, et seq.), is further amended by adding at the
end thereof the following new section:
SEC. 32. EIGHTH REPLENISHMENT.
(a) The United States Governor of the Bank is authorized to
contribute on behalf of the United States $461,000,000 to the
eighth replenishment of the resources of the Fund, subject to
obtaining the necessary appropriations.
(b) In order to pay for the United States contribution
provided for in subsection (a), there are authorized to be
appropriated, without fiscal year limitation, $461,000,000 for
payment by the Secretary of the Treasury.
Anti-Corruption Provisions
SEC. 599D. Twenty percent of the funds appropriated by this
Act under the heading ``International Development
Association,'' shall be withheld from disbursement until the
Secretary of the Treasury certifies to the appropriate
congressional committees that--
(1) World Bank procurement guidelines are applied to
all procurement financed in whole or in part by a loan
from the International Bank for Reconstruction and
Development (IBRD) or a credit agreement or grant from
the International Development Association (IDA);
(2) the World Bank proposal `Increasing the Use of
Country Systems in Procurement' dated March 2005 has
been withdrawn;
(3) the World Bank is maintaining a strong central
procurement office staffed with senior experts who are
designated to address commercial concerns, questions,
and complaints regarding procurement procedures and
payments under IDA and IBRD projects;
(4) thresholds for international competitive bidding
are established to maximize international competitive
bidding in accordance with sound procurement practices,
including transparency, competition, and cost-effective
results for the Borrowers;
(5) all tenders under the World Bank's national
competitive bidding provisions are subject to the same
advertisement requirements as tenders under
international competitive bidding; and
(6) loan agreements are made public between the World
Bank and the Borrowers.
Title IV--Multilateral Economic Assistance
INTERNATIONAL FINANCIAL INSTITUTIONS
Contribution to the International Development Association
The conference agreement provides $950,000,000 for the
International Development Association (IDA), the concessional
lending facility of the World Bank, as proposed by the House
instead of $900,000,000 as proposed by the Senate.
The conferees believe that the IDA could be an appropriate
source of funds to help eligible countries prepare for and
combat a potential avian influenza epidemic. There exists
significant need in Asia for programs to increase surveillance
capacity, compensate small-scale farmers for timely reports of
bird die-offs, modernize animal husbandry practices, and
upgrade infectious disease infrastructure. The conferees urge
the United States Executive Director to the World Bank to use
the voice and vote of the United States to increase support for
this global priority, and direct the Secretary of the Treasury
to report not later than 90 days after enactment of this Act on
the World Bank's plans to do so. The conferees urge governments
in that region to make combating avian influenza a top
priority.
Contribution to the Multilateral Investment
Guarantee Agency
The conference agreement provides $1,300,000 for the
Multilateral Investment Guarantee Agency, as proposed by the
Senate, instead of $1,741,515 as proposed by the House.
Contribution to Inter-American Investment Corporation
The conference agreement provides $1,741,515 for past due
payments by the United States to the Inter-American Investment
Corporation as proposed by the House, instead of $1,500,000 as
proposed by the Senate.
Contribution to the Enterprise for the Americas Multilateral Investment
Fund
The conference agreement provides $1,741,515 for past due
payments by the United States to the Multilateral Investment
Fund as proposed by the House, instead of $3,742,000 as
proposed by the Senate.
Contribution to the Asian Development Fund
The conference agreement provides $100,000,000 for the
United States contribution to the Asian Development Fund, as
proposed by the Senate, instead of $115,250,000 as proposed by
the House.
Contribution to the African Development Bank
The conference agreement provides $3,638,000 for the
African Development Bank, as proposed by the Senate, instead of
$5,638,350 as proposed by the House.
Contribution to the African Development Fund
The conference agreement provides $135,700,000 for the
African Development Fund as proposed by the House and the
Senate.
Conference Agreement Notes
SEC. 599B. PROMOTION OF POLICY GOALS AT MULTILATERAL DEVELOPMENT BANKS
The conference agreement includes a provision, similar to
that proposed by the Senate, which amends the International
Financial Institutions Act by requiring the Secretary of the
Treasury to inform the multilateral development banks and the
executive directors of such banks of certain reform goals and
to actively promote these reforms. The conferees believe these
reforms would improve transparency, deter corruption, promote
justice and accountability, protect whistleblowers, and enhance
the quality of MDB-financed projects, and should be vigorously
implemented. The House did not address this matter
SEC. 599C. AUTHORIZATIONS
The conference agreement includes authorization language
for the International Development Association, the African
Development Fund, and the Asian Development Fund.
SEC. 599D. ANTICORRUPTION PROVISIONS
The conference agreement includes a provision, similar to
that proposed by the House that would withhold 20 percent of
the funds for the World Bank's International Development
Association (IDA) from disbursement until the Secretary of the
Treasury makes a certification about a number of procurement
issues that would increase transparency in the World Bank
procurement process. The provision includes International Bank
for Reconstruction and Development (IBRD) loans as well as IDA
credit agreement or grants and project preparation advances,
and ``World Bank procurement guidelines'' include the following
World Bank Guidelines: Procurement Under IBRD Loans and IDA
Credits; Guidelines: Selection and Employment of Consultants by
World Bank Borrowers; and, all relevant Standard Bidding
Documents applicable to World Bank-funded tenders. The Senate
did not address this issue.