Corruption
The World Bank has received accusations of corruption for many years. Since the Bank is an independent specialized agency of the United Nations and considering the old adage, “The fruit doesn’t fall far from the tree”, this might not come as a surprise to most. The United Nations has a major and documented track record on corruption of every conceivable sort. It would be too simplistic to just leave it at that.
In May, 2004, Sen. Richard Lugar (R-Indiana), as Chairman of the Foreign Relations Committee, kicked off the most recent inquiry into corruption related to the activities of the multilateral development banks, of which the World Bank is foremost.
The heads of the various development banks were invited to testify (voluntarily) before the Committee. According to Sen. Lugar, James Wolfensohn “declined the invitation, citing the established practice of Bank officials not to testify before the legislatures of their numerous member countries.”
Witnesses before the Committee testified that as much as $100 billion may have been lost to corruption in World Bank lending projects.
In Sen. Lugar’s opening remarks, he points out that the entire history of the World Bank is suspect, with between 5 percent and 25 percent of all lending being lost to corruption.
“But corruption remains a serious problem. Dr. Jeffrey Winters of Northwestern University, who will testify before us today, estimates that the World Bank ‘has participated mostly passively in the corruption of roughly $100 billion of its loan funds intended for development.’ Other experts estimate that between 5 percent and 25 percent of the $525 billion that the World Bank has lent since 1946 has been misused. This is equivalent to between $26 billion and $130 billion. Even if corruption is at the low end of estimates, millions of people living in poverty may have lost opportunities to improve their health, education, and economic condition.”10
One must wonder why World Bank officials have been so sloppy and careless with taxpayer dollars. Even further, one must wonder if the corruption was a necessity to achieve the underlying purposes of the Bank, that is, to create bogus and unwanted projects in order to “stimulate” trade.
Sen. Lugar continued his opening remarks,
“Corruption thwarts development efforts in many ways. Bribes can influence important bank decisions on projects and on contractors. Misuse of funds can inflate project costs, deny needed assistance to the poor, and cause projects to fail. Stolen money may prop up dictatorships and finance human rights abuses. Moreover, when developing countries lose development bank funds through corruption, the taxpayers in those poor countries are still obligated to repay the development banks. So, not only are the impoverished cheated out of development benefits, they are left to repay the resulting debts to the banks.”11
It has not been determined which Bank employees might have taken bribes in exchange for influence, but one can be sure that any deal starting with corruption only has one direction to go — down. In the end, it is helpless individuals who are left holding the bag. The incurred debts and failed projects just add to the impoverishment of already poor people.
This is not to say that charges of corruption at the World Bank are modern revelations only. In 1994, marking the 50th anniversary of its creation at Bretton Woods, South End Press released “50 Years is Enough: The Case Against the World Bank and the International Monetary Fund,.” edited by Kevin Danaher. The book details official Bank and IMF reports that reveal the same kind of corruption back then. In addition, it revealed different types of corruption, for instance,
“Beyond the wasted money and the environmental devastation, there was an even more sinister side to the Bank during the McNamara years: the World Bank’s predilection for increasing support to military regimes that tortured and murdered their subjects, sometimes immediately after the violent overthrow of more democratic governments. In 1979, Senator James Abourezk (D-South Dakota) denounced the bank on the Senate floor, noting that the Bank was increasing ‘loans to four newly repressive governments [Chile, Uruguay, Argentina and the Philippines] twice as fast as all others.’ He noted that 15 of the world’s most repressive governments would receive a third of all World Bank loan commitments in 1979, and that Congress and the Carter administration had cut off bilateral aid to four of the 15 — Argentina, Chile, Uruguay and Ethiopia — for flagrant human rights violations. He blasted the Bank’s ‘excessive secretiveness’ and reminded his colleagues that ‘we vote the money, yet we do not know where it goes.’” 12
The text speaks for itself and needs no comment. Readers of this report will likely have a better understanding of where the money went!
Sovereignty and Secrecy
It is not surprising that the BIS, its offices, employees, directors and members share an incredible immunity from virtually all regulation, scrutiny and accountability. In 1931, central bankers and their constituents were fed up with government meddling in world financial affairs. Politicians were viewed mostly with contempt, unless it was one of their own who was the politician. Thus, the BIS offered them a once-and-for-all opportunity to set up the “apex” the way they really wanted it – private. They demanded these conditions and got what they demanded.
A quick summary of their immunity, explained further below, includes
- diplomatic immunity for persons and what they carry with them (i.e., diplomatic pouches)
- no taxation on any transactions, including salaries paid to employees
- embassy-type immunity for all buildings and/or offices operated by the BIS
- no oversight or knowledge of operations by any government authority
- freedom from immigration restrictions
- freedom to encrypt any and all communications of any sort
- freedom from any legal jurisdiction 9
Further, members of the BIS board of directors are individually granted special benefits:
“immunity from arrest or imprisonment and immunity from seizure of their personal baggage, save in flagrant cases of criminal offence”
“inviolability of all papers and documents”
“immunity from jurisdiction, even after their mission has been accomplished, for acts carried out in the discharge of their duties, including words spoken and writings”
“exemption for themselves, their spouses and children from any immigration restrictions, from any formalities concerning the registration of aliens and from any obligations relating to national service in Switzerland ”
“the right to use codes in official communications or to receive or send documents or correspondence by means of couriers or diplomatic bags” 10
Lastly, all remaining officials and employees of the BIS have the following immunities:
“immunity from jurisdiction for acts accomplished in the discharge of their duties, including words spoken and writings, even after such persons have ceased to be Officials of the Bank”
“exemption from all Federal, cantonal and communal taxes on salaries, fees and allowances paid to them by the Bank…”
exempt from Swiss national obligations, freedom for spouses and family members from immigration restrictions, transfer assets and properties – including internationally – with the same degree of benefit as Officials of other international organizations.11
Of course, a corporate charter can say anything it wants to say and still be subject to outside authorities.
Nevertheless, these were the immunities practiced and enjoyed from 1930 onward.
On February 10, 1987, a more formal acknowledgement called the “Headquarters Agreement” was executed between the BIS and the Swiss Federal Council and basically clarified and reiterated what we already knew:
Article 2
Inviolability
The buildings or parts of buildings and surrounding land which, whoever may be the owner thereof, are used for the purposes of the Bank shall be inviolable.
No agent of the Swiss public authorities may enter therein without the express consent of the Bank. Only the President, the General Manager of the Bank, or their duly authorized representative shall be competent to waive such inviolability.
The archives of the Bank and, in general, all documents and any data media belonging to the Bank or in its possession, shall be inviolable at all times and in all places.
The Bank shall exercise supervision of and police power over its premises.
Article 4
Immunity from jurisdiction and execution
The Bank shall enjoy immunity from criminal and administrative jurisdiction, save to the extent that such immunity is formally waived in individual cases by the President, the General Manager of the Bank, or their duly authorized representative.
The assets of the Bank may be subject to measures of compulsory execution for enforcing monetary claims. On the other hand, all deposits entrusted to the Bank, all claims against the Bank and the shares issued by the Bank shall, without the prior agreement of the Bank, be immune from seizure or other measures of compulsory execution and sequestration, particularly of attachment within the meaning of Swiss law. 12
As you can see, the BIS, its directors and employees (past and present) can do virtually anything and everything they want, with complete secrecy, immunity and with no one looking over their shoulders. It was truly a banker’s dream come true, and it paved the international freeway for the rampant financial globalism that we see manifest today.
Day-to-Day Operations
Acting as a central bank, the BIS has sweeping powers to do anything for its own account or for the account of its member central banks. It is like a two-way power-of-attorney – any party can act as agent for any other party. Article 21 of the original BIS statutes define day-to-day operations:
- buying and selling of gold coin or bullion for its own account or for the account of central banks
- holding gold for its own account under reserve in central banks
- accepting the supervision of gold for the account of central banks
- making advances to or borrowing from central banks against gold, bills of exchange, and other short-term obligations of prime liquidity or other approved securities
- discounting, rediscounting, purchasing, or selling with or without its endorsement bills of exchange, checks, and other short-term obligations of prime liquidity
- buying and selling foreign exchange for its own account or for the account of central banks
- buying and selling negotiable securities other than shares for its own account or for the account of central banks
- discounting for central banks bills taken from their portfolio and rediscounting with central banks bills taken from its own portfolio
- opening and maintaining current or deposit accounts with central banks
- accepting deposits from central banks on current or deposit account
- accepting deposits in connection with trustee agreements that may be made between the BIS and governments in connection with international settlements.
- accepting such other deposits that, as in the opinion of the Board of the BIS, come within the scope of the BIS’ functions.13
The BIS also may,
- act as agent or correspondent for any central bank
- arrange with any central bank for the latter to act as its agent or correspondent
- enter into agreements to act as trustee or agent in connection with international settlements, provided that such agreements will not encroach on the obligations of the BIS toward any third parties.14
Why is “agency” an important issue?
Because any member of the network can obscure transactions from onlookers. For instance, if Brown Brothers, Harriman wanted to transfer money to a company in Nazi Germany during WWII (which was not “politically correct” at that time), they would first transfer the funds to the BIS thus putting the transaction under the cloak of secrecy and immunity that is enjoyed by the BIS but not by Brown Brothers, Harriman. (Such laundering of Wall Street money was painstakingly noted in Wall Street And The Rise of Hitler, by Antony C. Sutton.)
There are a few things that the BIS cannot do. For instance, it does not accept deposits from, or provide financial services to, private individuals or corporate entities. It is also not permitted to make advances to governments or open current accounts in their name.15 These restrictions are easily understood when one considers that each central bank has an exclusive franchise to loan money to their respective government. For instance, the U.S. Federal Reserve does not loan money to the government of Canada.
In like manner, central banks do not loan money directly to the private or corporate clients of their member banks.
How Decisions are Made
The board of directors consist of:
Chairman: Jens Weidmann, Frankfurt am Main
Mark Carney, London
Agustín Carstens, Mexico City
Andreas Dombret, Frankfurt am Main
Mario Draghi, Frankfurt am Main
William C Dudley, New York
Ilan Goldfajn, Brasília
Stefan Ingves, Stockholm
Thomas Jordan, Zurich
Klaas Knot, Amsterdam
Haruhiko Kuroda, Tokyo
Anne Le Lorier, Paris
Fabio Panetta, Rome
Urjit R Patel, Mumbai
Stephen S Poloz, Ottawa
Jan Smets, Brussels
François Villeroy de Galhau, Paris
Ignazio Visco, Rome
Pierre Wunsch, Brussels
Janet L Yellen, Washington
Zhou Xiaochuan, Beijing
Of these, five members (Canada, Japan, the Netherlands, Sweden and Switzerland) are currently elected by the shareholders. The majority of directors are “ex officio,” meaning they are permanent and are automatically a part of any sub-committee. The combined board meets at least six times per year, in secret, and is briefed by BIS management on financial operations of the bank. Global monetary policy is discussed and set at these meetings.
It was reported in 1983 that there is an inner club of the half dozen central bankers who are more or less in the same monetary boat: Germany, U.S., Switzerland, Italy, Japan and England.17 The existence of an inner club is neither surprising nor substantive: the whole BIS operation is 100% secret anyway. It is not likely that members of the inner club have significantly different beliefs or agendas apart from the BIS as a whole.
How the BIS works with the IMF and the World Bank
The inter-operation between the three entities is understandably confusing to most people, so a little clarification will help.
The International Monetary Fund (IMF) interacts with governments whereas the BIS interacts only with other central banks. The IMF loans money to national governments, and often these countries are in some kind of fiscal or monetary crisis. Furthermore, the IMF raises money by receiving “quota” contributions from its 184 member countries. Even though the member countries may borrow money to make their quota contributions, it is, in reality, all tax-payer money.18
The World Bank also lends money and has 184 member countries. Within the World Bank are two separate entities, the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). The IBRD focuses on middle income and credit-worthy poor countries, while the IDA focuses on the poorest of nations. In funding itself, the World Bank borrows money by direct lending from banks and by floating bond issues, and then loans this money through IBRD and IDA to troubled countries.19
The BIS, as central bank to the other central banks, facilitates the movement of money. They are well-known for issuing “bridge loans” to central banks in countries where IMF or World Bank money is pledged but has not yet been delivered. These bridge loans are then repaid by the respective governments when they receive the funds that had been promised by the IMF or World Bank.20
The IMF is the BIS’ “ace in the hole” when monetary crisis hits. The 1998 Brazil currency crisis was caused by that country’s inability to pay inordinate accumulated interest on loans made over a protracted period of time. These loans were extended by banks like Citigroup, J.P. Morgan Chase and FleetBoston, and they stood to lose a huge amount of money. The IMF, along with the World Bank and the U.S., bailed out Brazil with a $41.5 billion package that saved Brazil, its currency and, not incidentally, certain private banks.
Congressman Bernard Sanders (I-VT), ranking member of the International Monetary Policy and Trade Subcommittee, blew the whistle on this money laundry operation. Sander’s entire congressional press release is worth reading:
IMF Bailout for Brazil is Windfall to Banks, Disaster for US Taxpayers Says Sanders
BURLINGTON, VERMONT – August 15 – Congressman Bernard Sanders (I-VT), the Ranking Member of the International Monetary Policy and Trade Subcommittee, today called for an immediate Congressional investigation of the recent $30 billion International Monetary Fund (IMF) bailout of Brazil.
Sanders, who is strongly opposed to the bailout and considers it corporate welfare, wants Congress to find out why U.S. taxpayers are being asked to provide billions of dollars to Brazil and how much of this money will be funneled to U.S. banks such as Citigroup, FleetBoston and J.P. Morgan Chase. These banks have about $25.6 billion in outstanding loans to Brazilian borrowers. U.S. taxpayers currently fund the IMF through a $37 billion line of credit.
Sanders said,
“At a time when we have a $6 trillion national debt, a growing federal deficit, and an increasing number of unmet social needs for our veterans, seniors, and children, it is unacceptable that billions of U.S. taxpayer dollars are being sent to the IMF to bailout Brazil.”
“This money is not going to significantly help the poor people of that country. The real winners in this situation are the large, profitable U.S. banks such as Citigroup that have made billions of dollars in risky investments in Brazil and now want to make sure their investments are repaid.
This bailout represents an egregious form of corporate welfare that must be put to an end. Interestingly, these banks have made substantial campaign contributions to both political parties,” the Congressman added.
Sanders noted that the neo-liberal policies of the IMF developed in the 1980’s pushing countries towards unfettered free trade, privatization, and slashing social safety nets has been a disaster for Latin America and has contributed to increased global poverty throughout the world.
At the same time that Latin America countries such as Brazil and Argentina followed these neo-liberal dictates imposed by the IMF, from 1980-2000, per capita income in Latin America grew at only one-tenth the rate of the previous two decades.
Sanders continued,
“The policies of the IMF over the past 20 years advocating unfettered free trade, privatizing industry, deregulation and slashing government investments in health, education, and pensions has been a complete failure for low income and middle class families in the developing world and in the United States. Clearly, these policies have only helped corporations in their constant search for the cheapest labor and weakest environmental regulations. Congress must work on a new global policy that protects workers, increases living standards and improves the environment.”
One can surmise that a financial circle exists where the World Bank helps nations get into debt, then when these countries can’t pay their massive loans, the IMF bails them out with taxpayer money – and in the middle stands the BIS, collecting fees as the money travels back and forth like the ocean tide, while assuring everyone that all is well.
Conclusions
This report does not pretend to be an exhaustive analysis of the World Bank. There are many facets, examples and case studies that could be explored. In fact, many critical and analytical books have been written about the World Bank. The object of this report was to show how the World Bank fits into globalization as a central member in the triad of global monetary powers: The IMF, the BIS and the World Bank.
The World Bank is likely to continue to operate despite any amount of political flack or public protest. Such is the pattern of elitist-dominated institutions. Such is the history of the International Monetary Fund and the Bank for International Settlements.
It is sufficient to conclude that…
- of the two architects of the World Bank, one was a top Soviet communist agent (Harry Dexter White) and the other was a British idealogue (John Maynard Keynes) totally dedicated to globalism (See Global Banking: The International Monetary Fundfor more details on White and Keynes)
- From the beginning, the Bank has been dominated by international banking interests and members of the Council on Foreign Relations and later by the Trilateral Commission
- the cry of “poverty reduction” is a sham to conceal the recycling of billions of taxpayer dollars, if not trillions, into private hands
- the cry of “poverty reduction” defuses critics of the Bank as being anti-poor and pro-poverty
- corruption at the World Bank goes back decades, if not all the way to the very beginning
Footnotes
- World Bank web site, About Page
- The August Review, Global Banking: The International Monetary Fund
- World Bank web site, IBRD Articles of Agreement: Article I
- Stiglitz, Globalization and its Discontents (Norton, 2002), p. 234
- ibid, p. 13
- ibid
- Wallach, Whose Trade Organization? (The New Press, 2004), p.125]
- See also, Bechtel Vs. Bolivia: The Bolivian Water Revolt
- See also, The New Yorker, letter on Leasing the Rain
- See also, PBS, Leasing the Rain
- World Bank web site, Bolivia Country Brief
- Stiglitz, op. cit., p. 234
- Lugar, U.S. Senate Website, $100 billion may have been lost to World Bank Corruption, May 13, 2004
- ibid.
- Hanaher, 50 Years is Enough: The Case Against the World Bank and the International Monetary Fund, (South End Press, 1994), p. 10
Source: https://geopolitics.co/2020/07/25/the-dark-past-of-the-bank-for-international-settlements/
