Stealing Armenia – How he did it!

Since the turn of the century the World Bank and the International Monetary Fund have been driving a rampantly corrupt agenda in the Republic of Armenia. This was exposed in 2004 by an Armenian Parliamentary Commission, which found that several tens of millions of dollars worth of World Bank credits were being misappropriated and the IMF was failing in its duty to stop the theft of valuable state assets.

By March 2007, the Bank and the IMF had made no effort to resolve the problems, so Americas leading human rights and freedom of speech organization, the Government Accountability Project (GAP), submitted the details to the Bank’s watchdog body, the Department of Institutional Integrity (INT), and GAP has since been pressing for a full investigation. Throughout 2007, the INT ignored repeated requests to investigate the problems, so in February 2008 GAP submitted a petition to Robert Zoellick, World Bank President, asking for his support. By the end of May, the INT was still not cooperating, so GAP submitted a full report to members of the U.S. Congress, who are now looking into the matter.

Today, Khosq provides the opportunity to bring this information to the attention of a new Armenian internet community.

In 2004, Vahan Hovhanissian’s Parliamentary Commission found corruption estimated to be in the region of two hundred million dollars, a massive amount for Armenia which at the time had a state budget of about four hundred million. The problems were associated with the World Bank’s Municipal Development Project, designed to improve Yerevan’s water utility, and the ‘Government’s Integrated Finance Rehabilitation Plan’, a devious mechanism to eliminate hundreds of millions of dollars worth of old electricity debts, supported by the Bank and under IMF ‘Surveillance’.

The Commission concluded that the Bank and the IMF were clearly in cahoots with the Armenian authorities, depriving Armenia’s under-privileged of tens of millions of poverty reduction dollars and using them for state-backed profit-making activities, and illicitly transferring hundreds of millions of dollars worth of state assets to corrupt state cronies and their partners-in-crime.

Roger Robinson, the World Bank Country Manager at the time, initially reacted to the accusations with anger, but he later backed down and paid lip service to the claims. The IMF’s Permanent Representative in Armenia however had a more philosophical view of the affair. When asked: Should he not be stopping a One Hundred Million Dollar scam, as he was meant to do in accordance with his IMF technical assistance agreement? He replied ‘That depends”. When asked: On what does it depend? – He answered – “My Conscience”.

It turned out that Jimmy McHugh’s conscience was not all it could have been and a worthless document, which the Armenian authorities had valued at $107 million was used to privatize Armenia’s Kajaran molybdenum factory.

Jimmy McHugh was later asked to comment on why the $100 million Sevan – Hrazdan Hydro-Power Cascade was transferred to ‘Russian Companies’ at a reduced value of $25 million in 2002, and then in 2003 the newly privatized Russian owned Sevan – Hrazdan Hydro-Power Cascade received a 15 Billion Dram ($30 million) donation from the state budget. He declined to answer that question.

These two scams totalling about $140 million were used to ‘privatize’ two of Armenia’s most valuable state assets, which had a total book value of more than $200 million. Today, more than a billion dollars would be needed to build the five hydro-power stations which make up the 400+ megawatt Sevan – Hrazdan Hydro-Power Cascade, including the man-made reservoirs, kilometres of water channels, and all the electricity generating, transformation and distribution systems! But the entire system was transferred to Russian companies at virtually no charge, in the same way as the molybdenum factory was transferred to a German company – at virtually no charge!

How many other of the billions of dollars worth of state assets must have been ‘Privatized’ in this criminal way?

Vahan Hovhanissian promised to report the details to the people of Armenia in 2004, together with another $60 million dollars worth of corruption and embezzlement his Commission found in the World Bank financed Municipal Development Project, which accordingly failed to bring the significant improvements to the Yerevan water system the Bank had promised. But he chose the more attractive option of keeping the information to himself. Then in October 2007, Prime Minister Serge Sargsyan said he was ready to re-look at the matter, but that also turned out to be empty words.

The UK’s Serious Fraud Office continues to monitor the INT response to GAP’s request for an investigation, the Armenian opposition press has covered the campaign in a string of articles, the Armenia chapter of Transparency International has added its support, the Institute for Democracy and Human Rights (IDHR) has published an article on this scandal in its quarterly journal, and today readers of khosq can see the details for themselves by applying to the writer of this article for copies of documents.

Bruce Tasker

Senior Specialist

Armenian Parliamentary Commission (2003/4)

Armenia – A World Bank New Year Message

Congratulations for successfully completing the year 2008, despite the recent adverse developments in the global economy the economy grew by 8.7% in real terms in the Financial Year 2007/08, slightly lower than the estimate reported in June by 0.2% of GDP, following further validation of economic data by the Bureau of Statistics. This excellent economic performance was because of continued growth in the industry and services sectors.

The regional and adverse global developments in calendar year 2008 have tested the strength of the economy. Once again it has been proved that the economic management policy framework put in place by the Government is sound. The economy quickly and fully recovered from the temporary disruption of trade flows last year, on account of the political upheavals.

The Government knew that the only way forward was to rehabilitate the economy and increase production, so the economy was completely liberalised to eliminate bureaucratic red tape that constrained economic activity. Production increased and the shortages of the 1990s were eliminated and since there has been a situation of plenty where the producers have the right incentives to produce. The temporary disruption of flow of trade caused shortages of fuel and other merchandise during 2008, and that led to increased transport costs and a rise in prices of consumer goods. Although normal trade flow was quickly restored and has since stabilised, the prices of consumer goods and inputs used in manufacturing have remained high. This is due to the rising prices in the economies of trading partners and the effect of high oil prices on the international market earlier on in the year.

There is awareness that the on-going global financial crisis has spread in other countries. This has sparked off an economic slowdown in the world economy. This global crisis may somehow affect the economy, given that it is small and peripherally integrated in the wider global economy. That could be through reduced demand for exports, a decline in remittances from those working abroad and sending money home, reduced private foreign direct investments and other financial flows. However, as historical performance has proven, the economy is resilient. Therefore, there should not be concern that the economy will be badly hurt. The economy remains strong and the Government’s economic policy framework is sound.

The banking sector is sound, stable and solvent, mainly due to adequate regulation and vigorous supervision that has minimized risky credit behavior. It is also because banks are well-capitalized and did not have exposures to the sub-prime mortgages that sparked off the global financial crisis.

Therefore, the banking sector is not exposed to the toxic debt that has caused havoc in the American and European financial markets. Domestic banks were not involved in the sub-prime because they have large reserves that have made the financial sector abundantly solvent. On account of this reason, banks had no reason to borrow externally to finance domestic lending and to meet their operational costs. This is not by accident. It is a consequence of the good economic policies of the Government which have created a supportive business environment that has allowed private banks and other businesses to make profit despite the stiff competition.

Investors should therefore be assured that the impact of the spillover effects of the global financial crisis on the financial sector will be minimal, contrary to those pessimists who profess doom.

The economic outlook remains robust, with real economic growth for the financial year 2008/09 estimated in the range of 7% to 7.5% per annum. While this target may seem ambitious given the global financial crisis, it is lower than what achieved in recent years and is in line with average growth rates in the previous five years. The economic growth target of 7% - 7.5% is also based on the strong and sound policy framework that the Government has worked hard to put in place over the last decade. This has led to a diversified economy that is better cushioned against shocks. As an example, as a result of export diversification, export destinations have also been diversified, with a large proportion going to the regional markets.

The restoration of peace and security and the on-going efforts for the economic recovery of the region gives optimism for a brighter economic future in the year ahead. The outlook for the economy is favorable and the country’s economic fundamentals remain strong. The Government beginning in Financial Year 2008/09 has allocated resources for the development and improvement of major trade routes along the Northern corridor. The preparatory work will start in 2009 and the designs for the road projects are going to be completed during the FY 2009/10 to enable future construction works to commence. On the Western route, services will soon be restored, as these transport routes are critical for regional integration and inter-regional trade.

Previously large investment outlays were being provided by donors; but now the Government has demonstrated that it can take full charge of its investment projects/programs. As far as our development partners are concerned, they should feel happy that the Republic is now graduating from dependency on aid.

In the energy sector, the Government, with its own resources, has kick-started the commencement of the 250 Megawatt Hydro-power Project even while private financiers were yet to conclude their financing arrangements. The Hydro-power Project construction is progressing on schedule and will be complete in the estimated time-frame by January 2011. The Government has also decided to commence construction of a larger-sized Hydro-power Project which will create generation capacity of 700 Megawatts. While commencement of this project may occur slightly later than earlier planned owing to further geo-technical and environmental studies, the site will generate over three times the amount of electricity originally envisaged. The Government is committed to also financing this project from resources generated from revenues in the Energy Fund; and will amount to about US$ 200 million by the end of this Financial Year. The Minister of Finance has been directed to ensure that more resources are budgeted so that we have sufficient resources to complete this dam.

The next stage of development in the energy sector that the Government will implement will be the development of the necessary regional and national transmission and distribution systems, including nationwide rural electrification in order to utilize the increased electricity generation. This will also entail development of Regional-wide transmission infrastructure to export power to our neighbors.

The strategic interventions outlined are therefore meant to ensure that the there are no shortages in infrastructure provision that will constrain the growth of the economy in the near future. The implementation of these critical infrastructure developments will enable take-off into a modern and transformed social and economic nation state with guaranteed prosperity for future generations to come.

In the Industry sector, the construction boom that started a few years ago is set to continue in the coming year; and investment in production of cement has increased substantially. Following a revision in the method of calculation of FDI and remittances, FDI increased to $946m in 2007/08, from $695 in 2006/07 and remittances amounted to $476m in 2007/08 compared to $430m in 2006/07.

In the services sector, tourism continues to do well, as arrivals at the airport which are an indicator of tourist visits, increased from 360, 000 arrivals in 2006/07 to 440,000 in Financial Year 2007/08. The boom in the tourism sector is also reflected in the increasing number of hotels, restaurants and other related facilities. Also, there has been a fast growth in the demand for mobile phones because there had been a chronic suppressed need for communication.

While growth in the agricultural sector is lower than in other sectors, the Government is dealing decisively with the matter, including the addition of value to agricultural production and increasing access to markets to achieve the overall objective of increasing household incomes. The Government has restructured a program to ensure focus on provision of researched varieties of plants and better breeds of livestock to farmer groups organized into model, nucleus, lead and other farmers. All categories of farmers must be reached by the program.

These measures will go along way towards resolving the weaknesses in the agriculture sector that make it lag behind the rest of the economy in terms of growth. Together with the infrastructure developments outlined, market access of increased agricultural production will be assured and, consequently, incomes of households will be increased.

The Ministers of Agriculture and of Finance, and all stakeholders in the agricultural sector, should intervene to support increased production forthwith. Savings and Credit Cooperatives (SACCOs) are needed to build the necessary capacity to manage savings and micro-finance that may come from other sources. The Government will provide micro-finance is to increase agricultural production.

There have been calls by some individuals, including Members of Parliament, for the Government to control the prices of some commodities, particularly food and fuel, in response to the high prices. The concerns are shared; but action must be orderly and not in a panicky way; otherwise confusion may be caused which may not be good for business.

Empathies go out to all who have had problems of one kind or another; especially those who have lost their loved ones.

........................End of Message.

This World Bank New Year Message could apply admirably to Armenia, or possibly to Azerbaijan, or even Georgia. But it is in fact excerpts taken from Uganda’s President Yoweri Museveni State of the Nation Address on New Year’s Day, in which he assured a better 2009.

President Yoweri Museveni has been the President of Uganda since 1986, responsible for:

1. Crimes Against Humanity

Orchestrating Genocide in Northern Uganda, where he has incarcerated nearly two million people in concentration camps, euphemistically known as “protected villages.” Read a Report by the Govt. of Uganda, WHO, UNICEF and others (pdf version). At the height of the crisis, (circa 2005), more than 1,000 people per week were dying from preventable diseases in these Modern Day Concentration Camps. More people have died from conditions in the camps themselves than at the hands of the LRA (Lord's Resistance Army) or government forces, and over 20,000 children have been abducted.

2. Crimes Against Humanity II

In 2005, Museveni’s government was found guilty by the International Court of Justice for committing grave war crimes in the DRC, including: the invasion and plundering of the natural resources of the Democratic Republic of the Congo and of fomenting ethnic cleansing. Uganda was ordered to pay the DRC $6-$10 billion.

3. Rampant Corruption

Under Museveni, Uganda is one of the most corrupt countries in the world. Yet, donor countries including the US, keep donating money to the regime without holding Museveni accountable for corruption.

4. Lawlessness I

President Museveni has no respect for international laws. He came to power using child soldiers and continues to coerce children into joining his armed forces to sustain his regime (See China Keitetsi’s story).

5. Lawlessness II

Locally, President Museveni does not respect the rule of law: he used soldiers to invade the nation’s High Court twice to intimidate judges, has exhibited complete disrespect for human rights, and bribed Ugandan Parliamentarians to amend the constitution to remove presidential term limits. The removal of term limits places Museveni as a de facto life president. Museveni has also been involved in land grabbing without the consent of the owners.

What future for Armenia, whilst the World Bank continues its politically motivated and highly corrupt agenda?

Letter to Senator Leahy

Government Accountability Project

National Office

1612 K Street, NW Suite #1100 • Washington, D.C. 20006

202.408.0034 • www.whistleblower.org

November 18, 2008

The Honorable Patrick J. Leahy

Chairman, State, Foreign Operations, and Related Programs

Subcommittee on Appropriations

127 Dirksen Senate Office Building

Washington DC 20510

Dear Senator Leahy,

We, the organizations and individuals undersigned, write to urge you to hold the World Bank accountable for its failure to comply with the legislated requirements for transparency attached to the contributions of the United States.

According to Sec. 668 (c)(1)(D) and (E) of the 2008 Consolidated Appropriations Act, which became Public Law 110-161 on December 26, 2007, “Ten 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 reports to the Committees on Appropriations that… (D) the World Bank has made publicly available the reports of the Department of Institutional Integrity, and any subsequent review of corrective actions for such reports, including, but not limited to … the May 2006 report on Credit Number 3703 DRC, Grant number H193 DRC, and Grant number H010 DRC; and (E) the World Bank is implementing the recommendations of the ‘Volcker Panel’ report in a timely manner.”

To date, the Bank has not publicly released the May, 2006 Department of Institutional Integrity (INT) report on the Democratic Republic of Congo (DRC). On April 28, 2008, the World Bank released an INT report entitled “Democratic Republic of Congo: Emergency Demobilization and Reintegration Project: Redacted Report”. This undated report – which mentions events that occurred in 2007 – is not the May 2006 report(s) specifically called for in the legislative provision.

Further, the Bank has not responded to Sec. 668 (c)(1)(E), as it has failed to implement recommendation made by the Volcker Panel, which was commissioned to review the practices of INT. In November 2007, the Bank approved the Panel’s recommendations. Among other lapses, however, INT has not complied with the following fundamental recommendation of the Volcker Panel:

Ø Rights of Complainant to Notice of Case Status: The Volcker Panel recommended that “INT should furnish regular updates to complainants and victims on the general status of an investigation and promptly respond to specific queries from complainants and victims.” But when a complainant requested information on the status of his allegations, INT refused to provide this information. Instead, an INT official told the Government Accountability Project, which advises the complainant, that “INT will not provide any information regarding its investigative methodology” and “going forward we will not be engaging in a continuous back and forth negotiation with your client...” The “regular updates to complainants” that the Volcker Panel recommended became, in the parlance of INT, “a continuous back and forth negotiation” that would be eschewed by the department.[1]

Finally, the Bank has failed to respond to Sec. 1505 (a)(11) of the 2006 Foreign Operations, Export Financing and Related Programs Appropriations Act, which became Public Law 109-102 on November 14, 2005. This Act states that it is the policy of the United States that each multilateral development bank “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.” The Bank’s new whistleblower protection policy, which was approved in June 2008, does not meet the last two standards, as it does not offer the right to external arbitration and does not recognize the right to meaningful relief for vindicated whistleblowers.

Without access to external arbitration when protesting retaliatory dismissal, discrimination or demotion, whistleblowers confront a judicial forum in which the Bank is both the defendant and the judge. Experts on judicial proceedings at intergovernmental organizations have recommended independent, external arbitration as a responsible way to resolve this conflict. To comply with the requirements in U.S. law, the Bank must commit to guaranteeing external arbitration as part of its pending conflict resolution system reforms. To date, there is no indication from the Bank that this measure will be adopted.

The Bank’s new staff rule providing whistleblower protection fails to “eliminate the effects of proven retaliation,” as it does not provide for mandatory reinstatement for whistleblowers who prevail. Under the new policy, Bank management retains the right to argue for the dismissal of the whistleblower if it deems that such an action is “in the best interests of the institution.” The party found culpable of misconduct must not retain the right to influence a decision on the remedy available to the whistleblower. A preliminary review of Administrative Tribunal cases, the ultimate judicial forum for staff members, has found that of the complainants who challenged termination successfully on due process or substantive grounds between 2000 and March 30, 2008, less than 15 percent of cases concluded with actual re-instatement. In the remaining 85 percent of cases, plaintiffs were dismissed from institutional employment despite prevailing. Such a dismissal is particularly draconian at the World Bank, as loss of employment often means the “victorious” whistleblower must leave the country.

United States IDA appropriations to the World Bank are contingent upon compliance with these legislated standards and provisions. We urge you to ensure that these accountability measures are fully respected before further IDA disbursements are made.

Thank you for your continued leadership on these transparency and good governance issues at the international financial institutions.

Sincerely,

The Government Accountability Project

Food and Water Watch

International Rivers Network

New Rules

Friends of the Congo

Greenpeace

ActionAid

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[1] These Volcker Panel violations are further detailed in the “Plundering the Yerevan Water Utility” report, which is available at http://www.whistleblower.org/doc/2008/PlunderingtheYerevanWaterUtility8.1.08.pdf .

Blowing the World Bank Whistle - Investigation Report

After 18 months of unrelenting pressure on the World Bank’s Department of Institutional Integrity (INT) and the UK’s Serious Fraud Office (SFO), they have eventually completed their investigations into the ‘Blowing the World Bank Whistle’ claim of multiple acts of fraud, corruption and embezzlement associated with the World Bank funded Municipal Development Project in Armenia, as exposed (but covered up) by Vahan Hovhanissian’s Parliamentary Commission in 2004.

Washington’s Government Accountability Project (GAP), legal counsel throughout the process, submitted the 62-page claim to the INT in March 2007 and has subsequently provided the INT with several packets of compelling evidentiary documentation. GAP has persistently pressured the INT into carrying out the investigation it would otherwise have avoided, and there has been additional pressure from numerous high-ranking British Government officials in the UK, in Armenia and in Washington, who have written to and spoken to the INT on numerous occasions. Extensive human and logistical resources have been expended in the internationally-backed effort to persuade the INT and the SFO to investigate this claim, at a cost of hundreds of thousands of Dollars.

In March 2008, a team of INT investigators travelled to Armenia to interview witnesses and gather information. The work continued in Washington and on the 21st August, the British Ambassador in Armenia advised that the investigation had been completed.

The process was extensive, and investigations found that Mr. Richard Walkling, Authorized Representative for the International Operator in Armenia, ACEA – A. Utilities, managing the Municipal Development Project, was centrally involved in multiple cases of fraud, corruption and the embezzlement of Armenian public funds, in collusion with Mr. Roger Robinson, who was World Bank Armenia Country Manager at the time of the wrongdoings. The total loss to the people of Armenia, who should have benefitted from the $35 million World Bank project, was tens of millions of dollars.

Information has not been released on what corrective action the Bank may take, if any. But Roger Robinson continues to work for the Bank in Kyrgyzstan, despite having colluded in this affair, and it is understood that Richard Walkling now works as consultant in a Yerevan water project, although not financed by the World Bank. However, the recently released World Bank ‘Economic Monitoring Note’ for 2008 indicates that the Bank may now be operating more responsibly in Armenia, under the management of Mr. Aristomene Varoudakis, which is an encouraging sign that this arduous campaign could have been in some way beneficial.

The full report is being translated to Armenian, for distribution and publication, and it will be available to readers of this article upon request.

Bruce Tasker

Senior Specialist
Armenian Parliamentary Commission (2003/4)
Blowing the World Bank Whistle

The UK's Serious Fraud Office - A Dissapointment for the People of Armenia

Over the course of the past year, the Government Accountability Project has backed the 'Blowing the World Bank Whistle' claim of corruption in World Bank-funded projects in Armenia. A number of British nationals were at the centre of the sordid affair, so since July 2007 the UK’s Serious Fraud Office (SFO) has been monitoring the case, in accordance with the new UK ‘Bribery and Corruption Law’, which gives UK courts jurisdiction over crimes of bribery committed wholly overseas by UK nationals.

In February 2008, a senior SFO officer travelled to Washington to discuss the matter with the Department of Institutional integrity (INT), and promised to report on the trip after his return to the UK.

On the 14th August, after many requests to the SFO, and after pressure from the British Ambassador in Armenia, the SFO eventually submitted the report promised on its year-long investigations, a one page letter which included the following statement: “I have explored your allegation that one named UK citizen received what would amount to a bribe. I have spoken to the INT department of the World Bank. They have uncovered no evidence to support your allegation during their extensive enquiries”.

It was later determined that the SFO statement referred only to the matter of bribery, not to the other 10 items of fraud, corruption and embezzlement. The conclusion reached by the INT on this matter, however again brings into question its sincerity with this investigation, after more than a year, which led to this amazing decision.

The UK Government “Law on Bribery and Corruption” clearly defines bribery as “the receiving or offering/giving of any benefit (in cash or in kind) by or to any public servant or office holder or to a director or employee of a private company in order to induce that person to give improper assistance in breach of their duty to the government or company which has employed or appointed them”. This definition of bribery is in line with the UN Convention against Corruption, to which the UK is a signatory.

The INT and the SFO reached the conclusion that Richard Walkling was not offered and did not accept a bribe when he was appointed General Director of the Yerevan Water & Wastewater Company, the company to which he was contracted to manage the World Bank Municipal Development Project. However, throughout the five-year duration of the project, Walkling presented himself to the Armenian public as the Authorized Representative for the Italian water utility company A. Utilities and concealed that he was also General Director of the Armenian state water company. In practice Walkling was contracted to himself, signing his own pay checks and involved in fraud, corruption and embezzlement which cost the Armenian people tens of millions of dollars. On the one side of his contract he was protected by a corrupt Armenian government and on the other by a corrupt World Bank Country Manager - a very beneficial position.

As a result of the INT decision, the UK’s Serious Fraud Office is not able to pursue an action against Richard Walkling, because according to the UK “Law on Bribery and Corruption”, without bribery there can not be corruption – interesting?

Apparently the INT investigation is still ongoing, but in the light of this unbelievable decision on the matter of bribery, there is not much hope that the investigation will find wrongdoings with the other ten items. The action is published on the Government Accountability Project website, "The Fight in Washington against Corruption in Armenia", which has links to the basic evidentiary documents behind the claim. There are eleven exhibits, of which Exhibit 1 gives details of Richard Walkling’s ‘Conflict of Interests’, which came about as a result of him accepting a bribe offered to him by the Armenian Government.

Together with GAP, we are still pressing for a final INT report on their investigation, but in the meantime, GAP is working to have the matter brought before the U.S. Congress.