Questions About a Pricey Conflict
World Bank looks into an ex-official's stock portfolio
In the fall of last year, a rumor swept through the World Bank's opulent headquarters in Washington that a senior bank official, a man named Mohamed Muhsin, had been frog-marched out the door by security personnel because of conflict-of-interest allegations. The rumor, as it turned out, was a bit exaggerated: Muhsin retired after 17 years at the bank and walked out the door under his own steam.
But, yes, Muhsin had a big problem. He was being investigated, and remains so to this day, by the bank's integrity department. Investigators are reviewing whether Muhsin violated bank conflict-of-interest rules by investing in an information technology company that received substantial business from the bank, according to bank personnel and private individuals familiar with the inquiry. Under World Bank rules, officials cannot use the institution's funds or their position for financial gain.
Nice guy. According to the sources, one avenue being explored is whether Muhsin received preferential treatment when he invested in Satyam Computer Services Ltd. Satyam, an India-based firm, describes itself as a leading global software services provider with more than 30,000 employees. Bank officials say that Satyam has won about $100 million in technology contracts since 2000 and has worked closely with the bank's Information Solutions Group, which Muhsin headed until he retired as a vice president on October 31.
Initially, investigators were focused not on Muhsin but on others in the bank. Investigators have conferred with the U.S. Justice Department, some sources say, but there is no indication prosecutors have opened a criminal inquiry.
Bank officials also described the investigation as "very sensitive." The reason: Muhsin is well liked by many old bank hands. "He was a very competent guy," says a senior official, "a great colleague with leadership abilities." Says another former colleague: "He really turned around the IT [information technology] operation. It was a mess." In addition, the inquiry is being conducted by the Department of Institutional Integrity, the bank's investigative unit and a lightning rod for internal critics uncomfortable with its aggressive inquiries. That unit's director, Suzanne Folsom, says, "The World Bank does not comment on ongoing investigations."
The bank's president, Paul Wolfowitz, has given the investigative unit more money and personnel to carry out its mission since taking over the institution in June 2005. He has made corruption-busting a cornerstone of his reform efforts at the bank, which provides grants and loans of more than $20 billion a year to developing countries. In a review of bank programs earlier this year, U.S. News found that kickbacks, payoffs, bribery, embezzlement, and collusive bidding plagued bank-funded projects around the world. Some knowledgeable analysts believe that corrupt practices may be associated with more than 20 percent of the funds disbursed by the bank each year.
Muhsin, 62, a native Sri Lankan, declined to be interviewed when reached at his suburban Washington home. "I would prefer," he said, "not to comment at this stage." His attorney, Joshua Hochberg, wouldn't answer questions or confirm the investigation. But he said, "To our knowledge, significant contracts within Mr. Muhsin's group were publicly bid, rigorously and independently reviewed, and satisfactorily performed by the vendor."
In a statement, Satyam, which generated more than $1 billion in revenue in the fiscal year ending March 31 and is publicly traded on the New York Stock Exchange under the symbol SAY, said it had enjoyed a "long-standing relationship with the World Bank," a "valued" customer. It went on to say that the bank had not "advised Satyam of any concerns about any improper conduct by the company or its representatives." It isn't clear whether Muhsin had close ties with Satyam's management. In May 2005, he was a guest speaker at a Satyam "customer summit" at an Arizona resort. His biography for the event says that "he has implemented major reforms using IT in the World Bank."
"Partnership." Satyam benefited from those reforms. According to bank administrators, the company's $100 million in work has included assisting the bank in developing its Intranet system and providing other technical services. In June 2003, Satyam won a long-term contract with the bank, competing against, it said at the time, "stiff competition from other global IT companies." A bank official, Rakesh Asthana, then a top aide to Muhsin, described the contract award as a major step forward in the bank's relationship with Satyam. "With this contract, our relationship with Satyam has matured from a contractual relationship to a strategic partnership," Asthana said. "Over the next five years, we see Satyam as a key contributor to the implementation of the World Bank's IT strategy." Bank administrators say that Muhsin did not award the contracts. Such awards, they say, are made by the bank's corporate procurement unit.
According to the sources, investigators are reviewing how Muhsin came to invest in initial public offerings issued in the United States by Satyam and a subsidiary several years ago. The sources say that Muhsin profited on one of the investments but lost money on the other venture.
Earlier this year, investigators formally notified Muhsin of some of the allegations. If he is found to have engaged in misconduct, the bank could withhold his separation grant and permanently bar him from ever working as a bank consultant, a lucrative source of income for many retirees. He could appeal any misconduct decision ultimately to the World Bank Administrative Tribunal. Its conclusions are binding.
This story appears in the September 18, 2006 print edition of U.S. News & World Report.