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[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

                              ----------                              
                                                                   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.

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