Overview

When the Parliamentary Commission Study of the Municipal Development Project was eventually completed, it concluded that the Comprehensive Program of Fraud, Corruption and Embezzlement of Public funds was planned even before project implementation formally started.

The problems were reported to the World Bank Armenia Country Manager and the World Bank’s Watchdog organization in Washington, the Department of Institutional Integrity (INT), but:

• The Authorized Representative of the International Operator (subsidiary of ACEA), who was at the center of the Fraud, Corruption and Embezzlement, continued to provide Consultancy services under World Bank funded Projects
• The World Bank did little to resolve the problems, so they continued and escalated
• The World Bank imposed ‘Whistleblower’ Reprisals against The Foreign Public Official, who managed the Study for the Parliamentary Commission
• The Head of Commission did not report the full results of the study to the Armenian Public

The study started with a close look at administrative documents, and it was seen that the Municipal Development Project had been Fundamentally Re-Structured. The International Operator’s Authorized Representative had been Appointed General Director of the Yerevan Water & Sewerage Company, the Beneficiary of the World Bank Credit and the company to which the International Operator was Obligated under the Municipal Development Project Management Contract.

This Violated Operator Independence and created a conflict between the Operators obligations to the Management contract and his Newly Imposed Responsibility to the Armenian authorities - a ‘Serious Conflict of Interests’.

The study found Major Shortcomings and Irregularities in the Commercial and Technical Aspects of the Project, and the Head of Commission explained some of those in a Presentation to the National Assembly. But the full implications of the 'Conflict-of-Interests' were only later fully understood when the Yerevan Water & Sewerage Company finances were studied. Mr. Richard Walkling, the Authorized Representative of the International Operator, in his capacity as General Director of the Yerevan Water & Sewerage Company, had Manipulated Company Finances in an Attempt to Embezzle Tens of Millions of Dollars from the Armenian State Budget. Moreover, it became apparent that the Auditing firm KPMG, which had audited the Yerevan Water & Sewerage Company accounts for Five Consecutive Years, was Compliant in the Affair.

Throughout the four-month process, the problems were discussed in detail with the Commission Members, and with the World Bank Armenia Country Manager. The Head of Commission Instructed the Senior Specialist to Report the Observations in writing to Mr. Roger Robinson, the World Bank Country Manager and at the end of May, the Head of Commission followed up with a Strong Letter, expressing his concerns about the Serious Problems.

After that letter, the Head of Commission’s enthusiasm for the study inexplicably faded and without explanation he Attempted to Terminate the unfinished Municipal Development Project Study. He Pressured the Senior Specialist to Initiate an Alternative Study of the Government’s ‘Integrated Finance Rehabilitation Plan’, in an attempt to draw the Specialists attention away from the Municipal Development Project. But the new study continually led back to the Municipal Development Project study, and the inter-relationship between the two projects became increasingly apparent. It was soon clear that the financial manipulations seen through the Municipal Development Project study were only a small part of a much greater Program of Corruption, built around the Integrated Finance Rehabilitation Plan.

By the end of July, the Commission term was drawing to an end and Government officials were withholding vital documents from the Commission. So, at the end of August, the Senior Specialist submitted his findings in a Report to the Head of Commission. The report detailed numerous Technical and Commercial Irregularities, involving millions of dollars. But more importantly, it alluded to a plan by the International Operator’s Authorized Representative, in his dual capacity as General Director of the Yerevan Water & Sewerage Company, to Embezzle Public Funds totalling in value more than the $35 million cost of the Municipal Development Project.

But by August the study had attracted the attention of the Speaker of Parliament, and he extended the Commission term by three months to allow the study to be completed. When the outstanding documents were eventually released to the Commission, it became apparent that the World Bank had not only been Fully Aware of the Problems, but it had Undoubtedly been a Collaborator in what was already seen to be a Major and Wide-Ranging Agenda of Corruption.

In November, the Commissions Senior Specialist met on a number of occasions with Mr. Jimmy McHugh, the Permanent Representative of the International Monetary Fund (IMF) in Armenia, to discuss the Government’s Integrated Finance Rehabilitation Plan. Armenia has a ‘Technical Assistance’ agreement with the IMF, and under that arrangement, the IMF was Monitoring the Integrated Finance Rehabilitation Plan. Mr. McHugh commented that he had ‘Noticed’ the findings raised by the Commission. The Commission’s Senior Specialist detailed the discussions in a November letter and Mr. McHugh responded with his agreement. In December, President Kocharyan announced the Dismissal of Mr. Merujian Michaelian, a Deputy Minister of Finance & Economy, giving the implausible explanation that his Anti-Corruption Team had found he was involved in a Multi-Million Dollar swindle.

In March 2004, after Vahan Hovhannessyan had Presented the Initial Study Findings to the National Assembly, he Promised that when the study was completed, he would Report the Full and Final Study Conclusions to the Armenian Public. But the Armenian Public Never heard about the Major Fraud, Corruption and Embezzlement exposed by Vahan Hovhanessian’s Parliamentary Commission.

After leaving the Commission, the British national returned to the project work he had previously been involved in for a local fund. But his involvement in the Parliamentary Commission study had not only soured his formerly amicable relationships with senior Government officials; more importantly it had clearly aggravated the World Bank. After two years of ‘Brick-Walling’ by the World Bank, it was eventually confirmed to the British national that he had been ‘Blacklisted’ by the World Bank because of his involvement in the Parliamentary Commission study.

Moreover, the British national found that Mr. Walkling, who had been central in the corrupt activities, continued to provide consultancy services for a subsequent World Bank water project. Moreover, he was implementing a project that the British national had written, piloted and had approved by the Armenian Government.

In January 2007, the Parliamentary Commission Senior Specialist applied to the Government Accountability Project (GAP) for support. In March, GAP applied on his behalf to the World Bank’s Watchdog Organization, the Department of Institutional Integrity (INT) and request that it carry out an investigation into why the World Bank Armenia Country Manager allowed Wide-Ranging Fraud, Corruption and Embezzlement to continue in a World Bank Project, after the problems had been submitted in detail to the Bank by a Parliamentary Commission.

Soon after that application, Mr. Richard Walkling, the Authorized Representative of the International Operator, was dismissed from his consultancy work for the present Yerevan water company World Bank operator, and the Director of the auditing firm KPMG unexpectedly decided to take an early pension.

It is hoped that, through a full investigation into this matter, the World Bank will encourage its Managers to perform more responsibly in the Countries where they work, specifically in Armenia. The Bank will then have a better chance to meet its commitment to Reduce Poverty – not for the small circle of overindulged state cronies, but for the less privileged section of Armenia’s society. And with responsible World Bank (and IMF) oversight, the level of corruption in Armenia will also inevitably start move in a more acceptable direction – Downward.

In the meantime, the details of the corruption exposed by the Armenian Parliamentary Commissions study into the Municipal Development Project and the Armenian Government’s Integrated Finance Rehabilitation Plan will be released through this Blog – in English and soon in the Armenian language.

Bruce Tasker

Senior Specialist and Analyst

Armenian Parliamentary Commission