Paul and Shaha: How Sweet It Is!

From my "Capital Games" column at www.thenation.com.....

At the start of the scandal triggered by the revelation that World Bank President Paul Wolfowitz had helped arrange generous pay boosts for his girlfriend Shaha Riza, Wolfowitz declared, "I made a mistake, for which I am sorry."

Two and a half weeks later, Wolfowitz had readjusted his rhetoric. "The ethics charges are unwarranted" and "bogus," he said.

On Friday, the Bank's board of directors was working to complete its report on the Wolfowitz affair and pondering whether to reprimand or even remove Wolfowitz. But regardless of the outcome of the official deliberations--which have been affected by behind the scenes maneuvering and the individual agendas of member nations--the Wolfowitz and Riza tale is one of Washington insiderism, a story in which a powerful player was able to guarantee that his companion would make hundreds of thousands of dollars a year and be entitled to a lucrative pension while working at a fledgling foundation with a friend of his. This is not how most public servants in Washington live.

After Wolfowitz, a former deputy defense secretary who was a prime architect of the Iraq war, assumed the Bank's presidency, he was faced with what he has called "a potential conflict of interest." He would be the boss (albeit not the direct boss) of his girlfriend, who was a communications officer in the Middle East section. He subsequently worked out a deal under which Riza would remain a Bank employee but be reassigned out of the Bank. What has caused the fuss is that this arrangement included a 36 percent pay hike--which raised her annual salary from $132,660 to $180,000--and guaranteed yearly pay increases of 8 percent. (She is now pulling in $193,000 a year.)

Wolfowitz has justified the initial compensation boost by arguing that when he arrived at the Bank Riza was short-listed for a promotion to communications adviser to the vice president of the Middle East region. Such a promotion would entail a jump in pay grade. The office of the vice president of the region had placed Riza's name on a short list of nine candidates, but, according to an official familiar with the deliberations of the human resources committee overseeing this job opening, Riza's position on the short list was not initially approved by the committee--a necessary step for her to receive the job. That did not end the matter. "It became clear the board was under strong pressure from upstairs to keep her on the short list," this official says.

Whether or not she made it to the final short list--Bank officials have different recollections--she was no shoe-in for the promotion. Two years earlier, Jean-Louis Sarbib, then the vice president for the Middle East region, had proposed Riza for a similar position, and the human resources board had rejected her. The board noted, according to a report made available to The Nation, that Sarbib should have sought other applicants for the position, that Riza "needs to establish herself as a communications professional," and that she should not receive a "promotion through the backdoor." Riza did not meet the minimum job qualifications: an advanced degree in communications and 15 years of experience. She was a gender specialist at the Bank--a well-known Arab feminist-- who had done communications work for only a few years.

In statements to the Bank's board, Wolfowitz has pointed to Riza's candidacy for the communications adviser post as a reason for awarding her a $47,340 compensation increase. "This raise is about double what you'd be allowed to get if you got that promotion," the official familiar with these deliberations said. "For Wolfowitz to use the argument that she was short-listed goes against what the committee said about her two years before. It does not justify the salary increase."

The Riza deal included more than that first big pay hike and annual increases. It also essentially guaranteed Riza subsequent promotions to higher pay grades. And the deal would provide her the yearly pay increases for up to ten years, if Wolfowitz remained at the Bank for a second term. By the end of a second Wolfowitz term, Riza, were she to stay a Bank employee, would make close to $400,000, possibly more.

These pay increases would lead to an outsized pension. According to a Bank source familiar with the institution's pension rules and formulas, pensions for Bank retirees are based on the average salary of an employee's last three years at the Bank. Under the Wolfowitz deal, Riza could expect an annual pension of about $110,000, if she retired in 2015 (assuming Wolfowitz served two terms). If Wolfowitz had not awarded her that initial salary hike of nearly $50,000 and she instead received steady annual raises of 4 percent over this ten-year period, her pension would be about $56,000. With the Wolfowitz deal, Riza could look forward to a rather comfortable pension.

And she could retire after working with a close friend of her boyfriend.

In September 2005, the Riza deal was finalized, and the World Bank and State Department agreed she would be seconded to the department's Bureau of Near Eastern Affairs. She was given the task of developing a foundation that would focus on reform in the Middle East and North Africa. It would eventually be called the Foundation for the Future. (At the time, Elizabeth Cheney, the daughter of the vice president, was a principal deputy assistant secretary in the bureau, coordinating Middle East initiatives.) But there apparently was some question about her status at the State Department. The next month, J. Scott Carpenter, a deputy assistant secretary in the Bureau of Near Eastern Affairs, faxed a note to the World Bank saying that "we do not view Ms. Riza as detailed or seconded to the U.S. Government." He offered to "further refine this arrangement." Documents released by the World Bank do not indicate what subsequently transpired between the State Department and the Bank regarding Riza's employment status.

Over a year later, on October 1, 2006, Anwar Ibrahim, chairman of the Foundation for the Future, wrote Robin Cleveland, a senior Wolfowitz aide at the Bank, and requested the transfer of Riza from the State Department to the Foundation for the Future. Two months later, after Cleveland instructed the Bank's vice president of human resources to approve the transfer, the Bank okayed the switch.

The Anwar letter and other Bank documents related to this transfer did not mention that Anwar is a longtime friend of Wolfowitz. One of Asia's most prominent Muslim politicians, Anwar was a former deputy prime minister of Malaysia. He and Wolfowitz met and developed a friendship in the mid-1980s, when Wolfowitz was U.S. ambassador to Indonesia, according to Aasil Ahmad, an adviser to Anwar. In 1998, after addressing a rally protesting the government, Anwar was arrested and subsequently jailed on corruption and sodomy charges. During his years in jail, Wolfowitz was an outspoken champion of Anwar. Shortly after the 9/11 attacks, Anwar, while still imprisoned, wrote an essay condemning the attacks and calling on the Muslim worked to address "the suffering inflicted on the Muslim masses in Iraq by its dictator."

When Anwar was released from prison in 2004, Wolfowitz flew to Germany to meet him. The next year, Anwar, a former finance minister for Malaysia, endorsed Wolfowitz's appointment to the Bank, though he noted that he didn't share Wolfowitz's view of the Iraq war. ("The best the Americans can do is to withdraw their forces from Iraq," Anwar said.) These days, Anwar is back in Malaysia, advising the PKR opposition party, which is led by his wife, and preparing to run for president.

While helping to establish the Foundation for the Future at the State Department, Riza had recruited Anwar to serve as its initial adviser, according to Ahmad. The two then went about selecting a board of directors and drawing up the mandate for the group, which calls on the foundation to "advance and strengthen freedom and democratic trends and practices" in Middle Eastern and North African nations by supporting reform, media, human rights, and women's groups in those countries. The foundation, which is not a US government entity, has received a $35 million funding commitment from the United States and about $20 million in pledges from other governments. The board includes prominent citizens of Muslim nations. Former Supreme Court Justice Sandra Day O'Connor is the only American on the board.

The foundation has not gotten off to a big start. It has yet to provide a single grant. Its first president, Bakhtiar Amin, an Iraqi who served as a minister in the first interim government set up following the invasion of Iraq, left the post after a short time in the job. "He was not up to the task," says a source who has worked with the foundation. No replacement has yet been selected. The group also does not have a chief financial officer or a chief operations officer at this time. Last year, it decided to open its main Middle East office in Beirut--right before the war in Lebanon. It has no permanent office in Washington. Email requests for information on its activities have gone unanswered. Its website lists no phone number. But Ahmad, the adviser to Anwar, says the foundation will soon begin awarding grants, perhaps in the beginning of June. Riza, he says, has continued to handle the day-to-day operations of the foundation. Riza, who is qualified for the job, has not been talking to the media.

Bloggers have raised conspiratorial questions about the foundation. (See here.) The available evidence is that the outfit is legitimate, though it has been beset with logistical problems. But until it gets around to handing out grants, its work and aims cannot be fully assessed.

In the Paul and Shaha saga, the work (or non-work) of the Foundation for the Future is not the main issue. Riza ended up there after a Wolfowitz friend (Anwar) wrote the Bank and asked for Riza to be detailed to the foundation--and a Wolfowitz crony (Cleveland) said yes. Whether such actions violate any Bank rules, this is incestuous. Consider the overall scenario: thanks to her boyfriend, Shaha Riza, after receiving a hefty pay raise, could serve as an adviser to a barely-functioning foundation she helped create, working with a friend of her romantic partner, and pull in $200,000 to $400,000 annually over the next ten years. And then she could retire with a $110,000 per year pension. This is quite a deal for the average foundation aide in Washington. In all that, is there nothing wrong? (Wolfowitz attorney Robert Bennett told Newsweek that it was Riza who "worked up the numbers" and pressed Wolfowitz to craft such generous terms.)

After first admitting he committed an error, Wolfowitz now fiercely argues he is the victim of a smear campaign waged by Bank employees who opposed him from the get-go due to his role in the Iraq war. His detractors at the Bank may be out to bring him down as payback for Iraq and for his heavy-handed management ways at the Bank. But Wolfowitz, who entered the Bank a self-styled scourge of corruption, has handed them potent ammunition. Every recipient of World Bank money must now want deals with terms so sweet.

With reporting from Stephanie Condon.

Posted by David Corn at May 4, 2007 04:56 PM