Alleged Key Players Distance Themselves From Wolfowitz Scandal

As World Bank President Paul Wolfowitz clings to his job, two key players in the scandal over his girlfriend’s compensation package — which has since made her the highest paid member of the U.S. State Department — have further distanced themselves from the actions that led to the furor.

When the scandal first broke in early April, top aides to Wolfowitz told reporters that the compensation terms of his girlfriend, longtime bank staffer Shaha Riza, were negotiated and approved, respectively, by Roberto Danino, the bank’s then-general counsel, and by Ad Melkert, the former chairman of the board’s ethics committee in mid-2005.

Both former officials issued short denials at the time. But they declined to elaborate until yesterday, when they insisted to FOX News that their roles in the matter were marginal — with one official claiming that Wolfowitz cut him out of the final discussions entirely.

The embattled Wolfowitz, who vowed on Sunday to continue to lead the bank — the world’s largest and most influential anti-poverty agency — is defying calls by critics to step down over his involvement in securing a huge pay increase and promotion for Riza.

Since Thursday, April 12, the bank’s 24-member board of directors has been holding closed-door meetings that might decide whether to censure or sanction Wolfowitz — or even demand his resignation. The board may make a final decision at its meeting today.

The issue: Whether Wolfowitz broke or bent bank rules to enable the hike and promotion for Riza, at the same time that he helped to arrange her transfer to the State Department to avoid a conflict of interest. Her net wages jumped from $132,660 to $193,590 by 2006, which made her – by far — the highest paid person at the State Department, including Secretary of State Condoleezza Rice.

Moreover, a clause in her promotion allows Riza to jump several “grade levels” upon approval by a peer committee of her choice, all but guaranteeing lavish pay raises for her in the future.

Wolfowitz last week admitted making a “mistake.” But he has declined to explain what that mistake was - beyond saying he regrets taking a direct role in the compensation arrangements for Riza, who had been working as an employee at the bank for six years when he became its president in July 2005. He has said he will accept whatever actions the board decides to take.

In an interview with FOX News, the bank’s then-general counsel, Danino, maintains that he didn't know the final details of Riza’s pay-and-promotion deal by September 2005 — when the deal was finalized — because Wolfowitz cut him out of the loop.

“Yes I was,” says Danino, when asked if he was frozen out of the final discussions. Asked why he believes this happened, Danino says, “Because [Wolfowitz] didn’t like my advice.”

That advice to the bank president, offered in late May 2005 — a month before Wolfowitz took over the presidency on July 1 — was that Wolfowitz’s initial offer in May to recuse himself from all personnel matters involving Riza (while retaining “professional contact” with her) didn’t go far enough to resolve the conflict of interest. Wolfowitz appealed Danino’s decision to the board’s ethics committee, which backed the view of the general counsel.

Danino says that his relationship with Wolfowitz never recovered. “It started with this, but then he
basically avoided all professional contact with me.” Danino, who served as prime minister of Peru from 2001-2002, says this shunning by Wolfowitz prompted him to resign as the bank’s top lawyer in January 2006.

For his part, Wolfowitz says misleading information has been circulating over his involvement in the pay increase. In an e-mail to bank employees, half of whom, through their staff association, have called for his resignation, Wolfowitz conceded the 100-plus pages of documents about the controversy released last week by the board are "a lot to wade through for significant facts so I would like to call your attention to a number of them."

As part of his email, Wolfowitz included an excerpt of a document on the bank’s website that he said shows that Danino in July 2005 okayed both a raise and a promotion for Riza.

Danino tells Fox News that Wolfowitz’s excerpting is “false,” and “very misleading.” He said, “That was not the advice rendered to the president — at no time.”

Danino says that the document Wolfowitz cites – a memo titled “Ethics Committee Discussion” — was “background material for internal discussion” that Danino provided to the board committee — and that it was “not the advice given to the president.”

Click here to read the document.

More importantly, he points out, the memo states that an “ad hoc” raise or a promotion were among the options presented for Wolfowitz to consider – but not both. A promotion would automatically grant a raise of up to 12%, concedes Danino, but “that’s it — not 50%,” which is what Riza ultimately received.

A similar internal document states that the board’s ethics committee decided the “best possible option to be conveyed to [Wolfowitz] would be…reassignment on external service…and a promotion.” No mention is made of tacking on a raise.

Another document offers a hint of Wolfowitz’s own rationale for Danino’s being shunted aside. The president had “the view that the bank counsel (Danino) could not provide legal advice to both parties (i.e. the [ethics] committee and the president),” states a September 2005 email from a top Wolfowitz deputy, Robin Cleveland.

An outside law firm, Gibson Dunn & Crutcher, was therefore brought in by Wolfowitz’s office to review the deal, and it concluded it was a “reasonable resolution.” But Danino says that the Gibson firm “does not opine on whether the deal complied with bank rules.” The former general counsel, while acknowledging to Fox News that the situation involving Wolfowitz and Riza was unique, continues to believe that the Riza deal went way beyond what has historically been acceptable at the bank in similar situations.

But Danino’s charges also raise important questions, among them whether he protested to Wolfowitz or to the board about being frozen out, as he asserts. It is also unknown whether the bank’s human resources chief, Xavier Coll, who was dictated the final terms of Riza’s package by Wolfowitz, felt strong-armed by the president — or saw anything extraordinary in the terms that warranted his alerting Danino or the ethics committee. Coll has declined comment on all media questions.

Finally, it remains unclear whether Danino himself made any effort on his own to find out what was included in Riza’s final package before he quit the bank months later. Danino, who had previously told Fox News that he is “no fan of Mr. Wolfowitz,” declined to answer all of these questions.

The Riza saga is further muddied by the fact that the bank’s board had a fresh opportunity to review the Riza pay matter in February 2006 — a month after Danino resigned — but declined to take action. At that time, the board’s ethics committee chairman, Ad Melkert, wrote a letter to Wolfowitz saying it had revisited the subject due to an anonymous letter complaining about the terms of the Riza package. According to documents examined by FOX News, after what Melkert called a “careful review,” the committee decided that the case had been resolved back in September 2005 and didn’t “warrant any further attention.”

Melkert, now the No. 2 official at the United Nations Development Program, denied in an email yesterday to Fox News that the committee “was aware or should been aware of the terms and conditions” of Riza’s contract. He said the role of the committee was “to advise, not instruct” Wolfowitz about the matter. “I never saw the full official terms,” he tells Fox News. Nor, he adds, did he ever attempt to learn what those details were.

“It was Mr. Wolfowitz’s decision not only to instruct [human resources chief Coll] to settle the matter, but also to direct the terms and conditions,” insists Melkert. “Whether or not those terms and conditions were reasonable, in the context of the bank’s standing practice, was entirely management’s [Wolfowitz’s] responsibility.” As such, the ethics committee had no basis for separately probing the Riza salary terms in 2006, Melkert added.

As to whether Riza’s deal complied with bank rules, Melkert will only say, “That was not within the jurisdiction of the ethics committee.”

Meanwhile, critics and enemies of Wolfowitz continue to face off. The White House reiterated today that it still had “full confidence’ in Wolfowitz, and the World Bank leader has also received support from Japan, Canada and several African nations. But a number of European countries, including Germany and Britain, have reined in their support.

And within the bank itself, there are still signs of restiveness. On Wednesday, one of the bank’s senior officers, managing director and Wolfowitz appointee Graeme Wheeler, asked Wolfowitz to resign to save the reputation of the bank and its current round of funding requests from member-countries.

The president declined — and instead proposed to “reorganize” his office and perhaps fire at least one his aides.