Fraud, misuse of funds charge over Bank’s Internet project

by Chakravarthi Raghavan

Geneva, 19 July 2001 -- The World Bank’s Oversight Committee on Fraud and Corruption has been asked to investigate the misuse of the Bank’s funds for misleading public opinion through the ‘Development Gateway Initiative’.

The ‘hotline’ complaint, lodged Wednesday noon (Washington time), names Bank President James Wolfensohn and the former Vice-President Richard Stern (now the Chief Executive Officer of the private US foundation set up to run the project) whose conduct in relation to the project is asked to be investigated.

The complaint charges that there has been “misuse of Bank funds and positions, gross waste of  the Bank’s funds, cost mischarging or defective pricing and perhaps even fraud and misleading  of public opinion.”

The complaint has been lodged by Mr. Roberto Bissio and Carlos Abin, two leading Uruguayan civil society leaders. Mr Bissio is the coordinator of the Social Watch (which monitors and publishes implementation by countries around the world of their commitments at the Copenhagen Social Summit), and the Latin American Secretary of the Third World Network, and has been writing extensively on information technology and development and is a member of the UNDP’s Civil Society Advisory Committee. Mr Abin, a lawyer, is the executive director of the Uruguay-based Instituto del Tercer Mundo (ITeM).

From the complaint and the issues raised there, the setting up of the Foundation (and getting US clearance for it as a non-profit operation), and the actual activities of the GDG, may also turn out to be a violation of the US law governing such foundations and non-profit organizations which might raise funds, that may be tax-deductible for corporate and private donors.

With the World Bank, raising funds from the capital markets (on the basis of government guarantees), and with its policies under challenge before the US Congress (in its budget role of voting funds), the activities of the gateway initiative may in effect involve ‘lobbying’ Congress in its legislative and other activities.

[In a comment to Abid Aslam of the Inter Press Service, the Bank’s deputy chief spokesperson, Ms. Merrell Tuck, acknowledged that the complaint had been received by the Bank’s department of institutional integrity, but that “as a matter of policy, we will not comment on allegations that we receive through our hotline.”]

The complaint was lodged on the eve of a World Bank Executive Board meeting Friday to consider ‘additional funds’ for  the ‘launch’ of  the “Development Gateway Initiative” on which the Bank has already expended an estimated $7 million. The prototype of the Gateway initiative is already there on the World Wide Web.

The GDG foundation is largely capitalized and staffed by the Bank; the foundation is also largely contracting back its work to the Bank.  Besides the Bank, the Foundation (hiding behind a non-existent independence) will also receive funds from corporate donors and other governments.

The entire project and initiative have been  rejected in regional consultations, and extensive online consultations, by civil society organizations who charge the Bank with trying to manage and guide the development policy through a system of providing ‘development policy information’, where the Bank’s chosen moderators would decide what should be posted.

Alex Wilkes of the British NGO, Bretton Woods Project, who has written a critical analysis of the GDG, has pointed out that the Bank initiative would not promote any dialogue with the poor communities in the developing countries. Some 70% of the ‘external visitors’ to the Bank’s website are in fact from the United States.

South African groups - the South African NGO network, the Congress of South African Trade Unions, and the South African NGO coalition, after extensive consultations, earlier this year rebuffed the Bank and issued a statement that they “firmly and unequivocally” declined to participate in the Bank’s project. Though claiming to promote the interests of local communities, the real intention of the entire scheme is to control the ‘development information discourse’ to promote its own perspectives and policies, the South African groups said.

Many leading civil society public interest organizations have separately announced that they would not participate or cooperate with the project.

Though filed on behalf of  two individuals, the Bank’s Gateway Initiative and the stance of civil society and how to deal with the Bank initiative has been the subject of wide consultations among civil society groups, and is the subject of an updated briefing paper by Alex Wilks, of the Bretton Woods Project, ‘A Tower of Babel on the internet?  The World Bank’s Development Gateway’, and a sign-on letter from civil society groups on ‘avoiding’ all contact with the Gateway.

The procedures for the Bank’s internal oversight  investigations are both lengthy and bureaucratic, but the filing of the complaint, along with the campaign, is likely to have some public impact, the civil society groups hope.

Bissio and Abin have established an internet portal in Uruguay (, which they say in their complaint delivers one million page views per month after two years in operation, and at less than half a million dollars in expenditure. While the is a Uruguay website for Uruguay items, which houses this website, also houses other websites, including the sunsonline, and if all these sites which editorially are not controlled by Chasque are taken into account, there will be many more webpage views, says Bissio.

The business plan of the Development Gateway, in contrast projects an expenditure of more than $100 million over the next five years, in the hope of attracting just five times the number of visits for the Uruguay NGO site.

The financial losses of the Gateway  plan are to be offset with subsidies by the Bank, and its other backers, including the governments of rich nations and the corporations.

To spend so much “on a website of global interest to achieve in five years just five times the present usage of a local interest portal in a developing country of three million inhabitants seems to be a case of over-spending that needs scrutiny,” the complaint says.

The hotline complaint against the Bank asks for investigations of the project, misuse of Bank funds to create a private US foundation, in which President James Wolfensohn and former Vice-President Richard Stern and now the CEO of the foundation, will hold positions (and may derive pecuniary advantages), thus violating the Bank’s own internal guidelines. The complaint also asks for an investigation of the way the project is being set up, through a US foundation, to run the internet portal and ‘national gateways’, which are no more than public relations tools aimed at running cyber-campaigns to drown out the critical voices against the dominant development policy paradigms promoted by the Bank and the Washington establishments.

The Bank has promoted the Development Gateway as a convenient tool for civil society groups, officials, journalists and independent researchers to access development information.

However, points out the Bretton Woods Project ( briefing paper and the critique  of  the project, on (, ‘Knowledge is power: the World Bank’s Development Gateway is a way of centralising and entrenching their power’, and  that the initiative  “is less of an attempt to encourage debate than a means to stifle, moderate and control dissenting opinion.”

Other communication experts note that what the portals set up, and the links to guide those accessing ‘development information’, is in fact no different from the new version of Microsoft’s Works suite and its Office XP, which have been criticised for trying to guide its users, even without their knowledge, to the Miscrosoft’s own websites.

The Bank’s initiative was rejected in widespread consultations with civil society on internet, and in two regional consultations in Africa and Latin America.

These civil society groups in the North (such as the Association of Progressive Communicators), have, through the 80s and 90s, in fact been enabling groups in the South to communicate via email, with costs being met by email users in the North voluntarily paying a gateway charge for their messages to the South (thus enabling without charge email messages from the South).

The Bank sponsored initiatives in the South, for telecom liberalisation and privatisation of internet and other facilities, and the take-over of these by the commercial companies of the North, virtually destroyed the earlier civil society efforts, and over time have increased the costs for the South. The Bankùs current initiative may end up by creating a monopoly gateway for development information and debate, and thus guide the information for policy-makers and others in the direction favoured by the Bank, and stifle critical voices.

After the consultations initiated by the World Bank, and when no satisfactory answers were provided by the Bank, the NGOs drew up their briefing papers and a campaign.

Three fundamental objections to the gateway initiative have been voiced by the NGO community:

·        The gateway privileges certain voices over others, and does not prioritise poor people as site contributors, editors or viewers. The Bank’s heavy English-language bias further exacerbates the dominance of the ‘official development knowledge’ - with little in that knowledge base on ‘political economy’, ‘inequality’ or ‘discrimination’ - but just concepts like ‘governance’ and ‘human development’ that have become catch-alls for the dominant neoliberal development philosophy.  And by creating 130 issues and topics, the taxonomy of the project ghettoises cross-cutting issues such as gender and climate change.

·        The claim that the site is independent is untenable, since the clear attempt is for the Bank to consolidate itself and its allies as the main authorities on ‘development knowledge’ - as reflected in the content and process of the Gateway.

Thus, to provide country content, the Gateway has its own country portals, to be run by government officials, private business and civil society groups appointed without any clear criteria of representativeness. The content of the gateways will be policed: within the country gateways, site contributors are told to avoid ‘country/locale specific events’, and not use metaphors, puns or irony.  This is purportedly to help ‘machine translation’.

The Bank is also appointing individual or institutional ‘topic guides’ to filter and organise material in each of  the site’s subject areas.  The Gateway is supposed to represent all perspectives and all types of analysis. 

The NGO critique says: “The only reason to exclude items is if they fail to meet the site’s “quality” criteria, yet it remains extremely unclear as to how this quality threshold is determined. And given the volume and diversity of information posted on the internet daily, it is unlikely that the guides’ coverage will be comprehensive. With the best will in the world, then, topic guides’ selections will be biassed in favour of the intellectual tastes of themselves and their contacts.”

·        The third, and most pernicious, effect of the development gateway is to undermine alternatives.

“Instead of encouraging existing initiatives, the Bank has chosen to centralise internet coverage of development issues in a bid to sift and control the flow of ideas. This is likely to distract from and damage the development of diverse, independent internet sites on these issues.”

The ‘hotline complaint’ lodged Thursday noon (Washington time) with the Bank, asks the ‘Oversight Committee on Fraud and Corruption Policy’, to investigate the ‘misuse of bank funds or positions’, in violation of the Bank’s own guidelines set in  the ‘Ethical Guide for Bank Staff Handling Procurement Matters in Bank-Financed Projects’. 

The complaint says that in the formation of the Development Gateway Internet Initiative, the GDG (Global Development Gateway), several irregularities have been committed that should be investigated. These include misuse of the Bank’s funds and positions, gross waste of Bank funds, cost mischarging or defective pricing and “perhaps even fraud and misleading of public opinion”.

The Bank has so far spent $7 million on this scheme, creating a website that is to be shortly transferred to be managed by a new foundation.  The Bank’s funds are being spent without proportion to the expected results to create a website intended as a public relations tool.

“While this is a legitimate activity of the Bank to defend itself from criticism, it is a clear misuse of funds to divert to public relations, monies intended to combat poverty,” says the complaint.

“Further, it is a gross violation of editorial ethics to misrepresent a propaganda operation as a genuine independent Internet portal about development in the Internet.”

“Potential donors are being misled to make grants to a supposedly independent Foundation that in fact is just an appendix of the Bank.”

Seven million dollars have already been spent, and an annual $30 million is budgeted for a website that will not be sustainable, even if the declared targets are met. The money spent and the sums requested to continue the activity are disproportionate with the product they are supposedly paying for.

While many public-interest or educationally oriented activities may require permanent subsidies, in this particular case,  no external actor has demanded the creation of such a website, and two regional consultations (in Africa and Latin America) failed to garner support.  Solid criticisms were raised, both in the regional consultations and the lengthy on-line consultations held by the Bank, but the criticisms were never properly answered.

Many international websites on development have already been created by multilateral agencies and NGOs, in all countries where Development Gateway plans to establish ‘national gateways’. Internet portals already exist, as can be easily found by looking at the Yahoo directory.

“Instead of contributing to develop national capacities, the GDG plans to establish subsidized state-run media operations to compete unfairly with existing efforts. There is already solid criticism against the Bank, an intergovernmental body, engaging in media activities.

“Through the new ‘Gateway’, further state control of the media is promoted, contradicting the Bank’s declared policies.”

The Executive Board’s allocation of funds for this activity (as per the Wolfensohn memorandum to the EB of 27 June) shows that the grants allocated to the Gateway were intended for development purposes. But an internal Bank memorandum of 26 Jan, setting out the Bank’s aim of using cyber-campaigning approaches (using the internet and mass emails) and what could be done through the GDG, reveals that the real purpose of the Gateway is to influence public opinion in favour of the ‘development community’, meaning in this case the Bank itself.

This is a deviation of funds intended to combat poverty towards public relations.

The Gateway Foundation set up to run the portal, was announced as a reaction against criticism that a portal run and funded by the Bank would not be a credible source of information. But the Foundation is to contract the Bank to provide staff, infrastructure and services to enable the portal to function.

According to the business plan, the Gateway should achieve in five years, five million pageviews a month   a huge amount of money for a very limited achievement. If such a site carried one ‘banner’ (advertisement) per page, and was paid the high sum according to present day standards of $50 per CPM (thousand ads displayed), it would receive after five years a quarter million dollars a month, and will still be operating at a loss, having to receive Bank subsidies, even after achieving its pre-defined target.

These subsidies will mainly benefit a highly paid staff, currently working for the Bank, and in future for the Bank-subsidized Foundation.

The signatories to the complaint have the experience of building and running a Southern-based national portal in Uruguay, delivering one million page views a month in two years with less than half a million dollars of total expenditure. “To spend over a $100 million, according to expenditure projections, in a website of global  interest expected to achieve in five years just five times the present usage of a local interest portal in a developing country of only 3 million inhabitants seems to be a case of over-spending that needs scrutiny,” says the complaint.

The complaint cites Mr. Frank Vogl of Transparency International (and a former senior ethics advisor to the Bank’s Director of Information and Public Affairs, 1981-1990) as stating that “we do not believe this (training of journalists) is an arena that aid agencies, bilateral or multilateral, should enter into. These  agencies are government owned and work first and foremost for governments. There are good reasons not to support state- owned media... it is inappropriate for state-run agencies, including the World Bank, which is totally publicly owned, to engage in media training programs... this is something difficult for the World Bank and the World Bank institute to swallow ... The Bank needs to understand it lacks broad credibility in this specific field... If the Bank wants to be engaged in this area, it should provide support for excellent independent institutes of journalism training that abound... These same concepts apply to creation of ‘portals’ or ‘websites’ which are essentially editorial or journalistic activities.”

In the charge against Stern, the complaint says, he was vice-President until end of last year, and now the acting CEO of the Gateway Foundation. In the final months of last year, he used his position in a way that transgressed a reasonable understanding of his role as Vice-President for Human Resources, and this has resulted in a new position for him outside the Bank. It was inappropriate for him to spend his time last year, while employed by the Bank, to found a new institution from which he might now in turn receive remuneration and recognition. Similar arguments could be extended to Mr.Wolfensohn too, who is rumoured to become a director of the Foundation.

There has been a conflict of interest involved in the Bank spending $7 million in establishing an initative, floating it off as an ‘independent’ entity, and then providing up to three directors and a CEO for the Foundation. This is hard to justify in a publicly funded institution supposed to work for the public interest.

The Gateway was not requested by any of the Bank’s intended beneficiaries and will only benefit a private entity created by the Bank and whose governance is still largely unknown. That entity, formally a US foundation, is using Bank monies to contract services from the Bank without any bidding process like those the Bank usually requires from its grant recipients.

Says the petition: “We are concerned that senior World bank managers, especially the Bank’s President James Wolfensohn and former Vice-President for Human Resources, Richard Stern, have used their positions at the Bank to create a new organisation in which they will hold positions and presumably extract private benefits, distracting time from their core tasks and using diplomatic energy of their positions at the Bank to promote the initiative and raise funds for it, thus contradicting the Bank’s own guidelines on ethical conduct.

Though it is not a classical Bank procurement situation, the same standards should surely apply to the GDG, but has not been the case in practice so far. – SUNS4940

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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