Enron at the World Bank

Below is Karen Hudes, WB whistleblower, FB wall post.

Enron at the World Bank

Here are our questions:

You worked as a lawyer for the World Bank. Now you accuse them as a whistleblower of massive wrongdoing. What’s wrong with the Bank?

Think of the World Bank as Enron.  The World Bank has issued over $180 billion in bonds on the world’s capital markets, but its financial statements are not accurate.  The US Congress has been unsuccessful in resolving this problem, first identified by the Joint Economic Committee in 2005.[1]  The World Bank stonewalled Senator Lugar’s and Congressman Van Hollen’s four requests for the advice of the executive search firm following my disclosure of internal control lapses during my interview for General Counsel.[2]  I have been fulfilling my professional responsibilities as the World Bank’s lawyer to bring the World Bank into compliance. [3]

In 2006 I wrote to Senator Richard Lugar, “Mr. Eckhard Deutscher, Dean of the Board [and Germany’s Executive Director], has informed me that World Bank Board is treated like a mushroom . .. kept in the dark and covered with fertilizer”.[4]  On October 3, 2007, I informed Kenneth Peel in the US Treasury Department that “Senator Lugar’s office suggested that I contact you about an escalating perception that the US does not respect rule of law in its oversight of the World Bank.  Now the members of the World Bank’s Board are subjected to intimidation for trying to restore rule of law at the Bank.”

Earlier that day, I  had informed Keith Luse and Nilmini Rubin in Senator Lugar’s office, Jay Branegan on the staff of the Senate Committee on Foreign Relations, Jim Greene in then Senator Biden’s office, Tom Crohan in Senator Kennedy’s office, and Jayme Roth in Senator Bayh’s office:

“I have just returned from Holland, and learned there that Messrs. Wijffels and Melkert [the representatives of the Dutch on the World Bank’s Board of Directors] have informed the Dutch public that they were subjected to investigations of their private lives as a form of diplomatic blackmail.  According to Mr. Wijffels, other executive directors on the World Bank’s Board have been similarly intimidated.  This does not augur well for the upcoming Annual Meetings that will start October 20th.  I attach translations and links to the stories in Dutch.

Of course, the Volcker Panel report has not dealt with [the Department of Institutional Integrity’s] record of whistleblower harassment, and only serves to discredit US probity in its oversight of the World Bank.

I would like to speak with you about my discussions with Pieter Stek [former Dutch Executive Director] on September 25 and 26 and with Riny Bus in the Dutch Ministry of Foreign Affairs on September 24th.”

Wijffels angered at “digging” into his past (Novum)

9/22/2007  Herman Wijffels says that his past was delved into “in a shocking manner” this year.  According to the man who formed the current Dutch cabinet, this took place during his work at the World Bank, where he chaired the committee that looked into the controversial dealings of Bank President Paul Wolfowitz.

Wolfowitz had to step down following Wijffels’ inquiry into Wolfowitz’ possible conflicts of interest.  Wolfowitz had given his girlfriend, who also worked at the bank, a very large raise.

According to Wijffels, “third parties” tried to surface issues from his past which might have discredited him.  The former head of the Rabobank did not want to provide details.  But Wijffels said that the White House had played a large role in the struggle over the leadership at the World Bank.

‘In my case, there was nothing to find, but my colleagues on the Board of the World Bank were dismayed. There were definite attempts at disqualification,’ said Wijffels.

Television Interview with Ad Melkert 9/29/07 VPRO Buitenhof ‘Politics on the World Stage’

Ad Melkert, Deputy Director of the United Nations Development Program, and former Dutch Executive Director at the World Bank, confirmed during a fifteen minute interview with Clairy Polak on this Dutch Public Broadcast program that Herman Wijffels’ private life and bank accounts were subjected to investigation.  Mr. Melkert added that ‘very aggravating attempts’ were also made to discredit him.  These attempts were especially intense during the period of May through July, 2007.”

The World Bank refused to cooperate with an inquiry of the US Government Accounting Office into corruption commissioned by three Senators.[5]  The World Bank will not qualify for the US contribution to its capital increase until it has eliminated the effects of retaliation against its whistleblowers.[6]

How do the big international organizations interact – Bank for International Settlements, World Bank, International Monetary Fund?

The Bank for International Settlements is the oldest international financial organization.  It was established by the central banks of Belgium, France, Germany, Italy, Japan, and the United States in 1930 to manage Germany’s reparation payments following World War I.  Now consisting of the central banks of 60 countries, the BIS focuses on two main goals: (1) international monetary and financial cooperation; and (2) monetary and financial stability.

The World Bank and International Monetary Fund share the same Board of Governors from 188 member countries.  The initial purpose of the World Bank was to finance the reconstruction of war-torn Europe.  After this was accomplished, the World Bank became the primary financier of development projects.  The purpose of the International Monetary Fund (IMF) was to allocate access to international currency reserves within the system of par values (set values for each member’s currency in terms of gold), convertibility of members’ currencies, and fixed but adjustable exchange rates.   After World War II, the U.S. dollar became the main currency for international capital flows outside of Europe.

The Bank for International Settlements has one-third the member countries of the Bretton Woods institutions.[7]  The Board of Governors of the Bank for International Settlements consists of the presidents of the central banks, while the Board of Governors of the Bretton Woods institutions consists of Ministers of Finance or Development.  During financial crises, the Bank for International Settlements works with the International Monetary Fund to stabilize monetary and financial markets.  The International Monetary Fund negotiates the conditionality with the governments in need and provides short term loans, and the Bank for International Settlements coordinates funding from central banks and oversees the nation’s banking system.

They all desperately try to save the FIAT money system. Will they prevail?

I doubt it, and this is a good thing.  By the early 1960s, the U.S. dollar’s fixed value against gold was considered to be overvalued.  Increased domestic spending on Great Society programs and military spending on the Vietnam War gradually worsened the overvaluation of the dollar.  In 1971 the United States informed the International Monetary Fund that it would no longer buy and sell gold to settle international transactions.  This resulted in the 1973 decision of the European Community countries and the United States to introduce a joint float of European currencies against the U.S. dollar.  Nevertheless, the U.S. dollar maintained its role as “international money.”  The role of the International Monetary Fund became less well-defined but in principle turned into one of surveillance and support for currencies in maintaining a stable link with major currencies.

The banking system is under enormous stress as witnessed by the risk of permanent gold backwardation: when all offers to sell gold for dollars are withdrawn regardless how high the bid price may go.  On July 7, 2013, gold leasing ended when “GOFO” (the difference between the rate offered for future leases and the rate that applies to leases already in force) became negative.  The gold basis (the difference between the nearby futures price and the spot price of gold) also became negative.  This indicates a shortage of deliverable gold and gold hoarding.

Just like in 1971, negative GOFO indicates the risk of permanent backwardation.  Without restored confidence in international currencies, a chain-reaction leading to a barter economy commences, bringing serial bankruptcies, unprecedented unemployment, and shortages of food, fuel, and medicine.  This would result in famine, pestilence, and a break-down of law and order. When the value of US Treasury paper erodes, no amount of bond buying by the US Federal Reserve will be able to stop the collapse of the fiat dollar. The monetary reserves of the world’s currencies will be extinguished, representing the largest destruction of fiduciary values in all history.  Much depends on how the banking system will hold up while the new gold strategy is being implemented.

How is the crisis going to end? Is there a solution without a crash?

There most certainly is a solution without a crash: the rule of law.  There is a 90-95% likelihood that the cover-up of corruption that I have been reporting since 2000 will end.  I am basing this prediction on political science game theory modeling, discussed in my interview with Lars Schall.[8]  This model predicted in 2004 that the US would lose the gentlemen’s agreement for naming the World Bank president, and that NATO would be dissolved unless the US ended the corruption emanating from the Federal Reserve.  According to the game theory model, the United States must continue to ally itself with the EU and try to include Russia into the coalition.  Unilateral action by the United States, whether in Iraq, Syria, or unwelcome surveillance of its allies, undermines the Western Alliance and accelerates the Asian challenge.[9]

In 2008 I discussed this model with Secretary of Defense Chuck Hagel when he represented Nebraska in the Senate.   I mentioned this in an April 21, 2013 letter to Julia Pierson, Director of the US Secret Service, which I cleared with the member countries of the World Bank:

“Playing cat and mouse with these serious governance issues at the World Bank is also a security risk to the world order, as I informed Chuck Hagel when he autographed his book, “America Our Next Chapter,” for me.   When you get a chance for serious bedtime reading, in addition to Senator Hagel’s book, take a look at “The War Presidency”.  This is by the group which predicted four years ago that the Gentleman’s Agreement [for the US to appoint the president of the World Bank] would end if the US did not stop its hegemony at the World Bank. [10]

In 2010 the US lost the Gentlemen’s Agreement.[11] I bought a World Bank bond, and the World Bank’s Board of Governors settled my bondholder litigation in December, 2012.[12]  But Allied Barton, part of the same “super entity” that owns the Federal Reserve,[13] employs the World Bank’s security personnel, and is refusing to issue me a security badge. The members of the World Bank issued me a security badge for attendance at the Spring Meetings of the World Bank and IMF.  The US Attorney General, Eric Holder, charged me with criminal trespass after I reported to work at the World Bank on May 13, 2013.[14] The DC Superior Court dismissed the trespass charges on July 19, 2013.

I am continuing to remind the Department of Defense of the risk of losing NATO, and the Attorneys General of the 50 states, the 50 governors, and the National Association of Counties of their responsibilities to protect World Bank bondholders in their respective states.  In order to avoid the crash of the fiat currencies, we need to exhume the gold and other treasure that has been buried in the Vatican vaults, the Philippines, Indonesia, and other Asian nations.

What is the role of the politicians in this game? Are they just muppets?

US politicians refused to engage when the European Parliament’s legal department informed the World Bank of my testimony on May 25, 2011 about the corruption.  Now politicians are in disarray as voters learn about their complicity in the state capture and corruption.[15]  The censorship in mainstream media, owned by the shareholders of the Federal Reserve,[16] certainly does not help in holding the politicians accountable.

Sometimes one gets the impression that the central banks have lost control. Could this be?

The end of gold leasing is just the tip of the iceberg.  There is a gradual shift in the control of the international financial system.  An analysis of the financial markets reveals that the world’s finances are in the hands of just a few mutual funds, banks, and corporations.  The eight largest U.S. financial companies (JP Morgan, Wells Fargo, Bank of America, Citigroup, Goldman Sachs, U.S. Bancorp, Bank of New York Mellon and Morgan Stanley) are 100% controlled by ten shareholders and we have four companies always present in all decisions: BlackRock, State Street, Vanguard and Fidelity. In addition, the Federal Reserve is comprised of 12 banks, represented by a board of seven people, which comprises representatives of the “big four,” which in turn are present in all other entities. In short, the Federal Reserve is controlled by four large private companies: BlackRock, State Street, Vanguard and Fidelity.

These companies are losing their grip in relation to the economic strength of the BRICS nations (Brazil, Russia, India, China and South Africa, soon to be joined by Indonesia and Iraq).  These nations account for more than 25% of international trade, and have now agreed to finance trade through a barter system, using gold to settle differences remaining after offsets.  They have also agreed to establish a new Development Bank, that will provide an outlet for unwanted dollars.  Will the dollar continue as international reserve currency under these circumstances?

In Germany people seem to live under the impression: This is not our cup of tea. Should the Germans be concerned?

You can see definite signs of an impending currency war by the Federal Reserve’s seven year delay in complying with Germany’s request to repatriate 300 tons of gold; the difficulty in obtaining gold for immediate delivery; Japan’s devaluation; and legislation in a dozen states to recognize gold and silver bullion as legal tender.  I elaborated on this in a May 5, 2013 interview with gold and precious metals expert, Tekoa Da Silva.[17]  The September 9, 2013 helicopter flyover of the US Consulate in Frankfurt is certainly reason for concern.[18]  An anonymous German official informed Spiegel that  “It is a shot across the bow of the Americans.”[19]  The US Department of Defense is aware of the predictive power of the game theory model, and there are indications that Germany’s constructive criticism is being taken into account.

Do you expect the currency war to intensify – and if so, who will be the winner?  You emphasize that the rule of law needs to be reinstated. Isn’t it too late?

If there is a currency war, everyone will be losers, but ultimately China will emerge as dominant in a much diminished world economy. I expect that the world will succeed in avoiding a currency war through rule of law.  The Bretton Woods institutions were created as a commitment mechanism in the international financial system.[20]  The World Bank’s Board of Governors has settled my bondholder litigation.  The next item on the agenda is for me and the rest of the World Bank’s whistleblowers to be reinstated.

You are collaborating with UK whistleblowers. How did the MPs react?

This is another reason for my optimism.  On July 20, 2013 the UK House of Commons published testimony of Elaine Colville, a Scottish whistleblower, together with my third statement on the UK Parliament’s website.[21]  On September 5, 2013 the Public Administration Select Committee informed Elaine Colville they would publish an additional statement for Part II of their inquiry into: Complaints: do they make a difference? 

How can the manipulations in the financial markets be stopped – if at all?

Our future depends on this. I have asked the other World Bank whistleblowers whether it is possible to reform the World Bank and the international financial system.  We are in agreement that corruption and market manipulation can end, based on the lessons we have learned.

Should the people stand up – or are they too weak for changing this system?

I think that this is a question which you should be asking your readers instead of me.


[2] Letters dated April 18, 2007 and June 12, 2007 from Keith Luse, http://kahudes.net/wp-content/uploads/2012/10/1101.pdf and letter dated November 17, 2008 from Congressman Chris Van Hollen to the World Bank http://kahudes.net/wp-content/uploads/2012/10/147.pdf

[3] I was Senior Counsel in the World Bank Legal Department from 1986-2007.  On May 25, 2011 I testified before a hearing of the European Parliament’s Committee on Budgetary Control on whistleblowing. The European Parliament’s Legal Department recommended for the European Parliament to inform the World Bank about the material to be used at the hearing and that all Members of the European Parliament attending the hearing receive a full version of my written contribution, including this chronology of internal control lapses.  https://s3.amazonaws.com/khudes/chronology17%5B1%5D.doc

[5]  In March 2009 GAO stated that it could not commence the Government Accountability Office inquiry requested by Senators Lugar, Leahy and Bayh “because of challenges we recently faced in gaining access to World Bank officials.” (see p. 24)  http://www.foreign.senate.gov/imo/media/doc/55285.pdf Senator Lugar asked about the delay in the GAO review during hearings on the IBRD capital increase  http://www.foreign.senate.gov/hearings/banking-on-reform-capital-increase-proposals-from-the-multilateral-development-banks

[6] § 7082 of the Consolidated Appropriations Act, 2012 (Pub. L. 112-74). available here: http://www.whistleblower.org/storage/documents/whistleblowerlanguageinHR2055.pdf

[7] The World Bank and International Monetary Fund are named after the Bretton Woods ski resort in New Hampshire where the founding conference of forty-four nations was held in 1944.

[9] Jacek Kugler, Ron Tammen and Brian Efird: “The War Presidency: Options Taken and Lost”, International Studies Association Meetings, Montreal, Canada, published February 2004, available here: http://citation.allacademic.com//meta/p_mla_apa_research_citation/0/7/4/2/7/pages74272/p74272-1.php

[16] A network analysis of the boards of directors of the ten big media organizations in the US revealed that only 118 people are on the boards of directors of the ten big media giants. Eight out of ten big media giants share common memberships on boards of directors with each other, and these people are also on the boards of the “super entity”. See also footnote 14.

[18] Spiegel Online, September 9, 2013, NSA Affair: Germans Conduct Helicopter Flyover of US Consulate https://mail.google.com/mail/u/0/?tab=wm#inbox/14109abbe51f1e06

[20] Kathryn M. Dominguez, The Role of International Organizations in the Bretton Woods System in A Retrospective on the Bretton Woods System: Lessons For International Monetary Reform 357-404, (Michael D. Bordo et al. eds., 1993). available:  http://www.nber.org/chapters/c6874.pdf (Last visited July 18, 2013)

[21] House of Commons Public Administration Committee, Written Evidence for the inquiry into Complaints Do They Make A Difference, published July 20, 2013, pages 186-7 (Elaine Colville, another World Bank Whistleblower’s testimony is on Page 178) available here

http://www.parliament.uk/documents/commons-committees/public-administration/Complaints%20Consolidated%2024%20July.pdf

House of Commons International Development Committee, Written Evidence for the inquiry into The work of the Independent Commission for Aid Impact, published July 7, 2012 available here:

http://www.publications.parliament.uk/pa/cm201213/cmselect/cmintdev/writev/402/contents.htm

House of Commons Public Administration Committee, Written Evidence for the inquiry into Public engagement in policy making, published November 2, 2012 available here:

http://www.publications.parliament.uk/pa/cm201213/cmselect/cmpubadm/writev/publicpolicy/m03.htm

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