Probe finds no fraud in World Bank Chinese loan deal

An internal investigation over the controversial handling by the World Bank, pictured on May 8, 2007, in Washington, DC, of a $1 bn loan from China to help poor countries has found no evidence of fraud, according to documents reviewed by AFP (AFP Photo/Karen Bleier)

An internal investigation over the World Bank's controversial handling of a $1 billion loan from China to help poor countries has found no evidence of fraud, according to documents reviewed Thursday by AFP. A law firm hired by the global development lender said there was nothing untoward in the unusual structure to accomodate the loan created by two of the Bank's arms, the International Development Association (IDA) and the International Finance Corporation (IFC). World Bank President Jim Yong Kim initiated the review in early February to address concerns by some staff related to the concessional loan. Kim at the time stressed that the questions did not implicate Beijing. In a staff memo Thursday, Kim said the law firm Locke Lord Edwards had found no wrongdoing in its investigation. "We found no evidence of fraud or dishonesty in connection with the IDA-IFC transaction or the China concessional loan, and found that IDA was authorized to enter into each of them," the law firm said in its report. The law firm said there was no sign of a conflict of interest or governance violations in the IDA-IFC transaction. But the firm highlighted "a lack of clarity" regarding the roles and responsibilities of the people involved in the process. "Clarifying those roles, and working to improve communications between the groups, would help reduce the risk of issues such as these arising in the future," the firm said. The Bank's treasurer, Madelyn Antoncic, first raised questions in December over the handling of China's decision in 2013 to lend $1 billion to the IDA, the bank's funding arm for the poorest countries. Because the Chinese government did not have a formal mechanism for granting interest-free loans to an institution like the World Bank, Beijing added a $300 million grant, of which $179 million was to cover the interest payments for the loan. The bank then created a structure for the IDA to service the loan: It combined the Chinese funds and bought a $1.179 billion bond issued by the IFC, which is the bank's arm to finance private sector development activities. Kim, in his memo to staff, said he was "very pleased that this independent review found no wrongdoing on the part of our colleagues." But he pledged the Bank would step up efforts to improve the shortcomings identified in the review. He encouraged staff to bring concerns to the management, "without fear of retribution."

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