Former
senior legal counsel at the World Bank turned whistleblower Karen Hudes
talks about the corruption inside the World Bank and her personal saga
to find out about it. She says a worldwide currency war is certain and
NATO in jeopardy, if the wrongdoing isn’t finally addressed.
By Lars Schall
Karen
Hudes studied law at Yale Law School (J.D.) and economics at the
University of Amsterdam (M.Phil). She worked as a corporate and
securities lawyer at a major New York law firm and for several years at
the Export Import Bank of the US, before she became a senior counsel in
the legal department of the World Bank (1986 – 2007). Her personal web
site can be found here: http://www.kahudes.net.
Lars
Schall: Dr. Hudes, let’s talk about the World Bank, which is often
described as a “Bretton Woods organization,” since it was officially
founded at the famous international conference in Bretton Woods, New
Hampshire in 1944. However, the plan to establish this bank (and the
International Monetary Fund) originated years before with the highly
secretive “War and Peace Studies” that were conducted by the Council on
Foreign Relations and the US State Department, while the money for the
study came from the Rockefeller Foundation. (1) Given this background of
being part of the “Grand Area” design and strategy for the post-war
world order, isn’t the World Bank really a tool to exercise American
hegemony?
Karen
Hudes: I take issue with one part of that question – when you say,
“American hegemony.” If you unbundle the political structure inside the
United States, it’s not what you see is what you get. It’s not that the
American citizens are the ones that are running the country. There is a
very wealthy group that is secretly, through domination of the press,
trying to keep the citizens in the United States in the dark. And so
when you say a tool of “American hegemony,” the answer is it is a tool
of hegemony but I would take the “American” out of the equation. What
you saw in the last presidential election was massive amounts of foreign
money coming in, in an attempt to influence voters. (2) That’s the
group that I’m talking about and I would be very happy, as a sidebar at
some point, to discuss who that group is, where they are, and what
they’re doing. Because I didn’t know about that group when I started on
my saga, but I found out about them later on. Now I try to tell them
that they have to start behaving themselves. They are not above the
law; they think they are, but they are subject to the law.
L.S.: Okay, then let us go straight down to the nitty-gritty: Can you name the individuals and institutions of that group?
K.H.:
I’ll tell you what I can do; I can point you to a very good study that
was done by three systems theorists at the Swiss Federal Institute of
Technology in Zurich, ranked as the best university in continental
Europe. What they did was examine the interlocking ownership of the
world’s 43,000 transnational corporations using mathematical modeling
tools. Are you familiar with that study?
L.S.:
Yes, I am. I believe you are referring to a study which showed
basically that a small group respectively “super-entity” of 147
financial institutions and multinational corporations is pretty much in
control of the world economy. (3)
K.H.:
Yes, that’s right. So, it’s whoever is behind that group which is in
control of 1 percent of the investments but that 1 percent through
corporate interlocking directorships is now in control of 40 percent of
the assets and 60 percent of the revenues of this set of 43,060
transnational companies. That’s who that group is. Now, do I know who
the individuals behind that group are? They’re very good at secretly
hiding, so I’m not going to hazard a guess. But once we get the legal
machinery in place, we will find out in great detail who these
individuals are, and they will be playing by the rules along with
everybody else on this planet.
L.S.: Before we come back to that issue: How do you evaluate the World Bank’s track record in general?
K.H.:
It’s a magnificent place that has been hijacked by that group, so you
really can’t blame it for some of the terrible things that have
happened. But some of the most talented people in the world end up
there. In particular, the group of World Bank whistleblowers that I
have been working with is a dream team. They are fabulous, and by
working together we have succeeded in exposing what the “super-entity”
of financial institutions was trying to take away from the people around
the world behind their backs. I wouldn’t call it a “Coup d’État”
because we have simply taken back what was rightfully ours.
So,
the World Bank is a mixture which includes that group of
whistleblowers. Their lives have been really, really severely damaged by
the power of that group that was trying to prevent them from doing
their jobs. When the World Bank renovated its headquarters in 1997, an
architect/construction engineer tried to prevent a 70% cost overrun
caused by mismanagement. Can you imagine, an organization that’s
teaching everybody how to run projects has a cost-overrun of $220
million dollars over the estimates? Anyway, he warned that this project
was going to have the overruns, and he was fired in gratitude. Where is
this man now? He’s managing projects for China. Anyway, when we were
mentioning him as a whistleblower, he said: “I don’t want this
publicity; I’m not a whistleblower. I was simply doing my job as a
professional project manager and architect.” But some people, their
lives were just completely wrecked.
So
that’s what the World Bank is: you’ve got 5 percent who are fighting
for justice, you’ve got human resources secretly managed by the
“super-entity” of financial institutions, and you’ve got everybody else
in the middle taking cover where they can.
L.S.: Why should anybody care about the World Bank and its actions?
K.H.:
It’s an institution at the very center of the world financial system
owned by 188 countries. This institution can prevent a currency war and
can also serve as a bridge when there is consensus about how to amend
the functioning of the world financial system. It takes 50 years for an
international institution to function. There is a simple convention
that the Board of the World Bank will only vote up or down what is
proposed by the President of the World Bank. When the Board tried to
end that convention in 2009, the following day I was locked out of the
World Bank’s headquarters.
In
1944 there were 44 countries at the Bretton Woods Conference; one of
the Dutch delegates was a young lawyer named Aaron Broches, who later
became the longest-serving general counsel of the World Bank. I wasn’t
at the World Bank when Broches was general counsel, but I got to know
him because I was interested in finding out about the history of the
World Bank. Broches gave me the operation manual. He was there when
Robert McNamara came to the World Bank as the president in 1968. Broches
told me that’s when the World Bank really started to deteriorate.
McNamara made the place much more corrupt than it had been before that.
The World Bank was established by treaty that was negotiated by the 44
countries which came to the Bretton Woods conference. By now, the
Bretton Woods treaties have been signed on to by 144 additional
countries.
So,
the reason people need to care about the World Bank is it is a fabulous
tool. We couldn’t create it today; but we’ve inherited it, we’re
standing on the shoulders of our predecessors, and it is the tool by
which we are taking back the rule of law, and we’re proceeding actually
further than it’s ever gone. People complain about international law,
they say it’s not enforceable, it’s just wishful thinking; no.
International law exists, and it goes from the very bottom of the system
way up to the top. Because the groups that want to be free to dominate
the place and not be subject to law, their game is over, finished. This
is a sea-change.
L.S.:
But isn’t the whole thing related to the financial crisis and the fact
that those people who’ve committed crimes are not punished for their
crimes – isn’t that an clear indication to the contrary?
K.H.:
Yes, but just wait until we finish doing what we need to do, because
when I talk about taking back the World Bank for the rule of law, we’re
talking about the beginning of a different approach. International law
was developed by Hugo Grotius, a Dutch lawyer, famous for his escape in a
trunk from the castle of Loevestein in 1621 where he was imprisoned by
the Calvinists. Grotius believed in freedom of the seas and combined
ethics, politics and law.
He
said: “It is fitting that those who have the leading place in an
alliance should arrogate to themselves no privilege in relation to their
own interests, but should make themselves conspicuous above the others
through their careful management of the common interests.”(4)
Now
here’s where it becomes really interesting. Bond holders are entitled
to accurate financial statements from the World Bank under securities
laws in every single jurisdiction where the bonds are held. The World
Bank has issued $135 billion in bonds denominated in the world’s
currencies; anyone who holds a World Bank bond can hold the World Bank
accountable. And this means that anyone inside that organization with
financial information has got the right to make sure that is correctly
represented in the World Bank’s financials. If there’s an inaccuracy in
the financial information, the correction must take place, and any
person who reveals that inaccuracy must be protected and not retaliated
against. This is now a requirement in the appropriations legislation
for the US contribution to the World Bank capital increase. (5) If you
buy a World Bank bond (and I did so), you are empowered to fight for
international law as an individual.
So, we now have a mechanism for
requiring transparency. Does every government want transparency? Of
course not, that’s why it has taken me fifteen years so far. But that’s
where we are now, with governments accountable to their people in a way
that they weren’t before.
L.S.:
You assume that a world-wide currency war is certain if the World Bank
fails to adhere to the rule of law. How do you come to this conclusion?
K.H.:
It’s a very important question. You can see definite signs of an
impending currency war by the US government’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 recent
interview with gold and precious metals expert, Tekoa Da Silva. (6)
I
have been warning for nearly ten years that US’ failure to play by the
rules at the World Bank would end in a currency war. I come to this
conclusion because one of the things the World Bank is, is it’s a
knowledge bank. You have very clever companies that have developed
services that they would like to incorporate in World Bank projects. For
example, I was working on a project in Ghana on a freedom of
information law. The Ghanaians hired the Sentia Group, headed by Jacek
Kugler, former Chair of the Department of Politics and Policy at Claremont Graduate University He was President of International Studies Association (2004-5) and Peace Science Society (1995-6). He was also editor of International Interactions.
The
model developed by Jacek Kugler is 90 to 95% accurate. (7) There are
actually two models that I am relying upon. The published version is:
“The War Presidency: Options Taken and Lost.” (8) This analysis holds
that what the United States did in the Iraq war may have made some sense
in the context of the regional problems, but it was absolutely suicide
for the US to fly in the face of its major allies. If the corruption
in the United States continues to jeopardize the US’ relationship with
the NATO countries, (which we are now seeing in the refusal of the
United States to comply with Germany’s request for repatriation of its
gold), China would come way up very, very fast, but via a currency war
that will force trade back to a barter system and disrupt the world
economy on a scale that will make the great depression of the 1930′s and
the recent world depression in 2008 pale by comparison.
I
found out in the Ghana project using the Sentia stakeholder analytic
tool that the reason that the freedom of information law was not being
passed was because the German government, which was financing the
project , wanted a perfect freedom of information law. It turned out
that in Ghana the people who were opposed to the law had enough
political power that they could prevent the law from being passed. Once
the German government understood that there was no ownership in Ghana
for a perfect law, the local version of the legislation passed.
I
was fired illegally as a legal officer of the World Bank trying to keep
the World Bank on track in the securities markets. I informed the US
Congress that the World Bank was out of compliance on the capital
markets, and was illegally fired in retaliation. So I thought I would
be reinstated immediately. I didn’t understand that the single biggest
impediment was the fact that that group that I was talking about, the
one that’s dominating the capital markets, is also dominating the media.
I didn’t realize how concentrated the media was in the United States.
In
the last 20 years the number of owners of the media in the US has gone
from 50 down to 5. So I couldn’t get my story out. (9) I can regale
you about what happened with the National Press Club, which has been
hoodwinking the American people by censoring important information.
When we are finished ending the cover-up of corruption, the media will
have admitted that it was certainly newsworthy when the governors,
attorneys general and chief justices of the 50 states were involved in
resolving this illegality. How can it be that the American people don’t
know this now? That is why I’m so grateful to you for bringing my
story to your readers.
L.S.:
When did you come to the conclusion that a world-wide currency war is
certain by using this game theory stakeholder analysis?
K.H.:
In 2004 I asked Jacek Kugler whether he would model rule of law at the
World Bank. This is the second model, and is consistent with the
published model, because the World Bank is a microcosm of the world
economy. The input to the model requires an assessment of where the
stakeholders are on rule of law at the World Bank, how powerful they
are, and also how important rule of law is for them. So for example,
the president of a country may be powerful, but he’s got a lot on his
plate, so that issue is not so important for him. Kugler refers to that
as “salience”. The numbers as to how powerful the countries were is
based on their shareholding in the World Bank; for instance the US has
16 percent. But I had to estimate how important rule of law was to the
World Bank’s member countries, where they stood on the issue, and so
on. However, where I guessed wrong was I didn’t understand the media. I
thought the media was part of a solution; I didn’t understand that it
was very much part of the problem.
In
2007 I warned the US Treasury Department that the model of rule of law
at the World Bank was predicting that the US would lose the 66 year-old
Gentlemen’s Agreement to appoint the president of the World Bank. (10)
That is what happened in 2010. (11) The model started predicting that
rule of law would prevail rather than a currency war as soon as the UK
and European Parliaments published my testimony. (12)
L.S.:
But is the loss of the Gentlemen’s Agreement actually something bad? I
mean the US is just one country out of more than 188 in the World Bank?
K.H.:
Let’s look closer at Hugo Grotius’ point: ‘If you’re at the top of the
food chain in the world and you rule benevolently in everybody’s
interest then this is a good thing. But once you stop doing that, you
stop acting as a trustee for the world and you start acting for the
interest of a small group whose interests are different from the whole,
then it’s a bad thing. So, if the US had acted under the World Bank’s
rules, and complied with the securities laws of the jurisdictions where
World Bank’s bonds are held, the US could have kept its Gentlemen’s
Agreement. It’s only when the US acts illegally and against the
interests of the whole of the group that the Gentlemen’s Agreement needs
to end.
L.S.: Okay, I still don’t get it, and so make it plain, please: a) why do you think a
world-wide currency war is certain by using this game theory
stakeholder analysis? And b) please explain why NATO is in jeopardy –
and maybe more important, give our readers some reasons why it would be a
bad thing if NATO would break-up? Is NATO still a defense alliance?
I
also spoke to Secretary Chuck Hagel on August 6, 2008 when he
represented Nebraska as a Senator in the U.S. Congress, and I told
him that this stakeholder analysis was predicting that the Gentlemen’s
Agreement would end if the U.S. did not stop its hegemony at the World
Bank and that “playing cat and mouse with these serious governance
issues at the World Bank is also a security risk to the world
order.” After Chuck Hagel became Secretary of Defense, I called up the
Inspector General’s office in the Defense Department and said, “I happen
to think that Secretary Hagel will be very interested to know about a
problem that’s going to make him lose NATO.” And the next weekend I got
a request from LinkedIn to contact the Defense Department’s project
manager for their version of the stakeholder analysis. I am also in
touch with NATO.
NATO
is in jeopardy because of tensions with Germany and Europe over the
corruption emanating from the “super-entity” that is trying to dominate
the world economy. The stakeholder analysis is predicting that this
corruption can be overcome through coalitions that demand the rule of
law. Informed citizens demanding an end to the corruption will turn
things around. I believe that the corruption in NATO, like the Bretton
Woods institutions, can be overcome.
As
a lawyer, I believe that institutions can be retrofitted, improved, and
salvaged and that when cover-ups of corruption end it is possible to
close the loopholes that permitted the corruption to exist. When I say
that NATO will break up, I am referring to NATO as a proxy for the
transatlantic alliance. Whether the accession of new countries to NATO
has changed the character of NATO is a larger issue. As the corruption
coming from the “super entity” of financial institutions we discussed
earlier is tackled, many existing institutions will change. Lawyers
prefer incremental change, and working within an existing institutional
framework. The alternative is an approach like the French revolution.
Is that preferable?
L.S.: Was corruption part of the decision to get rid of Paul Wolfowitz and Robert Zoellick as heads of the World Bank?
K.H.:
Yes, of course. The Board of Executive Directors asked Paul Wolfowitz
to leave for promptly giving a 35% pay raise to his significant other
who was working for the World Bank when Wolfowitz assumed the
presidency. That was just the tip of the iceberg; the corruption was
systemic.(13)
L.S.: Well, related to Robert Zoellick I think this is not really clear to the public…
K.H.:
No, of course not, that’s because the “super-entity” of financial
institutions bought up the media. It was because of Robert Zoellick’s
corruption that the World Bank’s Committee on Governance refused a
second term to Robert Zoellick, and Senator Harry Reid, Majority Leader
in the US Senate, told Zoellick that he was not going to be renominated
for a second term as president of the World Bank by the United States.
After Mitt Romney appointed Zoellick to head national security
transition planning during the US presidential campaign, I tried without
success to inform voters about the corruption problems. (13) CBS,
which broadcast the presidential debates, knew about the corruption at
the World Bank because they used my information to embarrass the UK’s
Prime Minister David Cameron during his interview on the David Letterman
show on September 27, 2012. After my testimony in UK Parliament about
corruption at the World Bank, the UK’s Minister of Development, Andrew
Mitchell, was raked over the coals in the “plebgate affair.” (15) But
CBS refused to ask a question on international corruption during the
presidential debate.
L.S.: When did you personally became aware of improper practices at the World Bank?
K.H.:
I learned of the corruption at the World Bank gradually: think of old
Polaroid pictures that develop slowly. My understanding of the problem
increased from working with other World Bank whistleblowers and seeing
what happened after I disclosed corruption up the corporate ladder
within the World Bank. So, the first thing that clearly jolted me was
in 1997 when the Board at the World Bank said under the Strategic
Compact, ‘We’ll contribute to the World Bank budget, but we’re putting a
condition that we want to see improved management’. I was the
representative of the Staff Association on the Drysdale Committee which
was looking at Human Resources Reform under the Strategic Compact. At
the end of the exercise I said, “You know, for reform in an
organization, you need to have monitoring to see whether the reform has
taken hold.” When my recommendation wasn’t incorporated, I was
perplexed, and wondered, “Why don’t people want to monitor reform of
human resources?”
We
called in Alberto Bazzan, a human resources manager from IBM. After
about a year, Alberto came to me — this was when Jim Wolfensohn was the
President of the World Bank — and said “Karen, it’s not working, I don’t
get to see Jim Wolfensohn very often but whenever I do, if I tell him
somebody should be promoted, that person gets fired. If I tell him that
somebody should be fired, that person gets promoted. Alberto also
said, ‘I don’t know how much longer I’m going to last,’ and sure enough;
he got fired too.
L.S.: You also became aware of irregularities in connection with a bank in the Philippines. Please elaborate on this.
K.H.:
At the end of the East Asia financial crisis in 1999, the World Bank
had a ‘structural adjustment loan’ in the Philippines. In structural
adjustment loans, the World Bank finances government reform policies
rather than goods and services. In corrupt regimes these loans are
controversial because the reforms are not owned by the country, and the
proceeds do not end up in government treasuries. So, what happened in
the privatization of Philippines National Bank (PNB) was the man who
owned Philippine Airlines, which was in default to PNB, ended up buying
the government shares in PNB. The investment advisor said, ‘You know,
depositors aren’t going to like that PNB is being managed by a borrower
in default. This is a real problem’.
I
went to the World Bank’s country director for the Philippines and told
him what the investment advisors said; that the man who owned Philippine
Airlines had broken the securities laws in the Philippines by failing
to disclose his acquisition of more than 10% of PNB’s shares. I told
the World Bank’s Country Director in the Philippines to warn the
government the World Bank could not disburse the rest of the structural
adjustment loan. I wrote the letter. It said, ‘Dear Philippines
Government, you’re not going to get the money, you’re not complying with
the conditions’. I said, ‘could you please sign this letter and send
it to the government’. Instead, I was reassigned. There was another
condition in the loan requiring the Philippines’ laws on banking
supervision to be improved, and those laws were never passed after I was
reassigned. So I went to the legal department, and I said, ‘You can’t
reassign lawyers who are doing their jobs.”
I
live on the same street as Larry Summers, and my kid was in the same
elementary class as Larry Summers’ kid. When this nonsense with the
human resources reform happened, I complained to Larry Summers at a PTA
meeting. I said, “The World Bank is not being managed right: when we
try to correct the mismanagement, the wrong people get fired; what’s
going on here?” There was going to be a new general counsel, and a
friend of mine told me that there wasa
good candidate. So, I told this to Larry Summers. After this man came
in as the World Bank’s General Counsel, I asked him, ‘Why are you
reassigning me when I’m doing my job’.
So
after I was reassigned in the Philippines, I told the Executive
Director who represented the Dutch government on the Board what was
going on, and the two of us had a meeting with Jim Wolfensohn. At the
meeting we said, ‘This idiot who you hired as General Counsel is leading
to corruption in the Philippines, you’ve got to do something about
this’. Jim Wolfensohn’s response was to put me on probation.
I
went to the decision meeting when it came time to disburse the
Philippines loan and told the Vice President for the East Asia Region,
“The conditions haven’t been met for disbursement.’ And of course, that
vice president knew that I was going to go back up to the Board, so he
had to cancel the loan for $200 million. There was a matching loan from
Japan which was also cancelled. The depositors in the Philippines got
nervous with a defaulted borrower in control of PNB, and there was a run
on the bank. The Philippines Deposit Insurance Corporation had to bail
out PNB with a $500 million loan. The President of the Philippines,
Joseph Estrada, was ultimately impeached in 2001, and in 2007 an
anti-corruption court in the Philippines convicted Estrada of plunder
and confiscated cash and properties worth $29 million.
When
the World Bank’s Evaluation Department told the World Bank’s Board of
Directors that the World Bank’s supervision performance on the
structural adjustment loan for the Philippines’ financial sector had
been satisfactory, I said that the Evaluation Department was
misinforming the Board. The World Bank never ended its misinformation
to the Board on the Philippines financial sector adjustment loan. That
was the kernel of the cover-up, which kept on mushrooming.
L.S.: Why were you fired ultimately in 2007?
KH:
I was fired illegally in retaliation for informing the US Congress
about the cover-up on the Philippines. In 2006 I was a candidate for
the World Bank’s General Counsel position. During my interview, I told
the Executive Search firm about the failed human resources reforms and
the internal control lapses. Executive Search firms for the general
counsel position of companies with bonds on the securities markets have
to correct internal control problems. When there is an international
organization whose Board consists of member countries, this problem
becomes especially serious. I informed the Treasury Department that the
Sentia stakeholder analysis was predicting that the US was going to
lose the Gentlemen’s Agreement. When the Treasury Department did not
respond, I informed Senators Biden, Clinton, Obama, and Lugar on the
Senate Committee on Foreign Relations.
Senator
Lugar backed me up with three letters to the World Bank before I was
fired, and my Congressman wrote a fourth letter at Nancy Pelosi’s
request after I was fired illegally in retaliation. Senators Leahy and
Bayh also joined Senator Lugar in demanding a Government Accountability
Office investigation into corruption at the World Bank the year after I
was fired. When the World Bank stonewalled the GAO investigation,
Congress put conditions on the US contribution to the World Bank’s
capital increase requiring reform to end the effects of retaliation. (16)
There
are other World Bank whistleblowers reporting the same problems as I
did. They have stories that are equally outrageous. You cannot run a
bank as if it were your personal slush fund. You have got to have
accountability; you have got to have internal controls. When I reported
to Congress that the World Bank had deficient internal controls, I also
pointed out that because of the special position of the World Bank in
the world financial system, not only are you wasting tax payers’ money,
but you’re going to end up with a currency war. When the World Bank
fired me and stonewalled the GAO investigation, the governance crisis at
the World Bank assumed constitutional proportions.
L.S.: In order to deal with your problems, you bought a certain kind of bond. Please tell us this story.
K.H.
The World Bank is an international organization and has immunity from
lawsuits brought by its staffmembers. But the World Bank has waived its
immunities to bondholders. In 2009 the Chairman of the World Bank’s
Governance Committee, the Chairman of the Board’s Audit Committee, and
the Chairman of the Board’s Ethics Committee, together with the Dean of
the Board, reinstated me when I was trying to end the convention that
the Board may only rubber stamp actions initiated by the World Bank’s
President. When I was locked out of the World Bank’s headquarters
building, I bought a World Bank bond and sued in federal court.
L.S.: And what has been the result?
K.H.:
The short answer is that the US is viewed as a scofflaw nation in
violation of its treaty obligations and securities laws in all of the
jurisdictions in which the World Bank’s bonds are traded, including
state blue sky laws. Last week an Ambassador of one of the World Bank’s
members wrote, “I would also like to recognize the work you are doing
in trying to bring the Bretton Woods institutions to bear on the need to
meet the agreed international states in the course of their
operations.”
The
long answer is that the Judge in the District Court ignored the fact
that I was a bond holder and dismissed my suit. So I appealed and the
stakes were increased a little bit. The
day after I blogged that the Board of the World Bank was taking over the
litigation (17), the Court of Appeals issued an unpublished decision
that did not contain the reasoned opinion that was required under
applicable precedent. Then the clerk ignored my notice that the
International Bank for Reconstruction and Development and I were
withdrawing the case after it was settled by the World Bank’s
Development Committee.
I reported the clerical error in the federal courts to the Chief
Justice of the Supreme Court, to the rest of the Judicial Conference,
and again more recently to the Judge who heads the Judicial Conference
Executive Committee. I also reported to the National Governors
Association, the National Association of Attorneys General, and the
Conference of Chief Justices of the state Supreme Courts that the
federal courts were ignoring 187 Ministers of Finance.
On
April 19, 2013 the Development Committee issued me a pass to attend the
Spring meetings of the Bretton Woods institutions. On April 20, 2013
the U.S. Secret Service barred me from attending the rest of the
meetings. On April 21, 2013, in a letter that was cleared by the World
Bank’s shareholders, I informed Julia
Pierson, Director of the Secret Service, that the Secret Service had
acted illegally. Later that day the Secret Service issued me an invalid
barring notice, which had been signed by a World Bank official who
exceeded his authority.
L.S.:
It’s almost unnecessary to ask you this, but anyway: Did you get any
protection as a whistleblower? And what are your thoughts in general how
whistleblowers are treated these days in the US?
K.H.:
That’s a wonderful question. I started out with a law firm to help me
with my case. At one point that firm gave me some documents which were
very helpful, including a report from the Joint Economic Committee of
the US Congress to the effect that World Bank governance is very bad and
its accounting is terrible.(19) A couple of years ago, I went back to
that firm to thank them for having given me that very important
document. And the next thing I knew, that firm referred an assignment
to me in the Philippines. Well, I have gotten some very powerful people
in the Philippines rather angry. I thought it was kind of dangerous to
go to the Philippines, so I said, “I’d be very happy to take that
assignment, but I think I’m going to sub-contract the work in the
Philippines.” The work dried up when I wasn’t going to the Philippines
anymore.
I
have filed many complaints with local, state and federal law
enforcement officials about illegal acts and not a single complaint has
been satisfactorily resolved. It is the job of each and every citizen
in a democracy to inform themselves what is happening to their
whistleblowers and to protect them. The accountability feedback loop
has been largely impaired by the “super-entity” of financial
institutions which bought up the media in the U.S.
L.S.:
There was actually an investigation to address the corruption at the
World Bank, which was headed by former Federal Reserve chairman Paul A.
Volcker. What do you think about the results of this investigation?
K.H.:
After studying Development Economics at the University of Amsterdam, I
have some excellent contacts. In 2005 the Dutch Ministry of Foreign
Affairs asked for an investigation of the Audit Committee into my
complaints about the lapses on the Philippines financial sector
structural adjustment loan.(20) The Chair of the Audit Committee at the
time, Pierre Duquesne, asked instead for an investigation into the
Institutional Integrity Department. The Volcker Panel has been
thoroughly discredited. (19)
L.S.: Have there been other responses, for example in the UK?
K.H.:
Yes. I met with the UK’s Serious Fraud Office on September 28, 2010,
and informed them that KPMG did not follow Generally Accepted Auditing
Standards. The Serious Fraud Office called the SEC on October 10, 2010,
but the SEC only stonewalled. Two Committees of the UK Parliament
published my testimony to this effect. (See note 11) After the SEC
refused to respond to the Serious Fraud Office, that was when a UK
lawyer advised me, ‘It’s time, Karen, to go to the credit rating
agencies.’ All of these problems are going to drive down the US credit
rating, there’s no question about it. That is why the Attorney General,
Eric Holder, is suing the credit rating agencies. Thirteen other
countries have written to me about the illegality I have been reporting
to them.
Now,
I’ve made these points to the state attorneys general, to the state
governors and to the Chief Justices of state Supreme Courts. When
there are these compliance issues, the states are also responsible for
protecting the bond holders under blue sky laws. I finally got a letter
from Maryland’s governor, Martin O’Malley, requesting me to have my
Senators in US Congress solve this problem. So I went to Senators
Mikulski and Cardin, and they didn’t solve the problem. I went to
Senate Legal Counsel and to the House General Counsel, and informed them
that there was an impasse between the state regulators and the SEC.
Then
I went to Secretary Hagel and said, “First of all we’re landing in a
currency war and second of all, we have a serious disconnect between the
states and the federal government. How is this going to be resolved,
martial law? The Judicial Conference is confronting a situation where
188 Ministers of Finance have reinstated me, have granted me a security
pass, and the President of the World Bank and Secret Service prevent me
from entering the building; the clerk of the D.C. Circuit Court of
Appeals has dismissed my case in error; the Judicial Conference refuses
to correct the clerical error, and the citizens with a few exceptions
remain in the dark. What you have is a country which is seriously,
seriously out of compliance. So, when you say the World Bank is out of
compliance; no, it’s the US government. It’s all of the different
pillars of government. It’s the federal government, it’s the
judiciary. The Congress isn’t doing such a great job either; they
passed an appropriations law with conditionality and failed to require
GAO to carry out an audit into corruption that they commissioned.
L.S.:
Yes. You also assume the repatriation of German gold that was
announced by the Deutsche Bundesbank in January of this year has
something to do with the problems at the World Bank. Why so?
K.H.:
That’s a very good question. The Secretary of the Treasury and the
Chairman of the Federal Reserve together with the Chairman of the
Securities and Exchange Commission sit on the National Advisory Council
on International Monetary and Financial Policies, and these are the
entities that have accepted KPMG’s unqualified audit of the
International Bank for Reconstruction and Development when the
bondholders can have no confidence in the accuracy of the World Bank’s
financial statements because of the corruption that I and other World
Bank whistleblowers have reported.
Germany asked
to repatriate 300 tons of gold three months after the New York Federal
Reserve refused Germany´s request for a physical inspection of vaults in
which Germany´s gold was stored.
Instead, the US Treasury offered a paper audit.(21) The Inspector
Generals of both the Treasury Department and the Federal Reserve have
not inspired any confidence in my case, to put it bluntly. A dozen
states are also moving to recognize gold as legal tender,(22) and Texas
is permitting its pensions to invest in gold now.(23)
It’s
part and parcel of this corrupt illegality; this illegality is creating
such turmoil that people have concerns about the soundness of the US
dollar as a currency. Now, I’ve seen the letters that you’ve written
and about why Germany needs its gold. I think probably the best answer
is that in a situation that I’ve just outlined where you have illegality
from top to bottom, you don’t want your gold anywhere else because you
don’t know what’s going to happen to it. I can’t say for sure when the
decision of your audit committee was made that required the audit.
L.S.: Yes.
K.H.:
The strength of my case is that I have documented the illegality from
the very bottom of the financial system to the very top. The only reason
this matter is not resolved is because of this control of the media
which is jeopardizing democracy in the United States. I’ve documented a
serious case of what is called state capture. Is it going to be
resolved? I do know that all of these World Bank whistleblowers have
their own contacts with their governments. Although the credit rating
agencies have had a front row view, most American citizens haven’t, with
the exception of a group called the National Taxpayers Union, which has
a blog about me. (25)
L.S.:
What do you think about the fact that the BRICS nations are creating
their own development bank to rival the World Bank and the IMF?
K.H.: I congratulate them, and I’m very glad that they did this.
L.S.:
Yes, but do you think that this creation of a new development bank by
the BRICS nations is a result of this corruption at the World Bank?
K.H.: Absolutely.
L.S.:
And since we also raised the issue of gold, is it any surprise to you
that these BRICS nations are buying gold, for example, Russia and China,
whereas the western Central Banks and the IMF have a very different
approach to gold?
K.H.:
Professor Antal Fekete has written about the significance of the
current very high demand for immediate delivery of gold.(24) It is
becoming clear that the corruption in the international financial system
is risking a situation in which gold supply will cease as persons who
hold gold refuse to relinquish it for paper money, referred to as
“permanent backwardation.” We have got to prevent this from happening.
It’s the “super entity” of financial institutions that’s unsettling
everything; they have got to play by the rules. They can’t have a free
pass to corrupt the world. No; that’s ended, that’s over. The fact that
most people don’t know about them or what they do or what the BIS is,
that has to end. Everybody has to know, and there has to be an orderly
transition to a world financial system that makes some sense. This
current situation where they control the press makes no sense
whatsoever, and it’s got to end.
L.S.: Apropos the BIS; is it also involved? And you’ve said most people don’t know what the BIS is, so what is the BIS?
K.H.:
The answer is yes, the BIS is involved. The BIS, Bank for International
Settlements, is the consortium of central bankers. The central bankers
are private, they’re not government entities. Anyway, I wrote the BIS
to ask them what on earth is going on? I never heard back from them,
which is kind of curious.
L.S.: Final question. How would you solve the problems we were talking about if the choice was yours?
K.H.:
I’ve been thinking a lot about the answer to that question. I think
there are two very easy answers. The first is that whistleblowers have
to be made whole, as required by US Congress for the US contribution to
the World Bank capital increase. The second is that the democratic
deficit in the international financial system where people don’t know
what the BIS is has to end. People don’t know it’s their Ministers of
Finance that are dealing with these issues and what their Ministers of
Finance are up to. People have to become aware of this because it’s
dangerous to have this democratic deficit. So that’s what I would
change, I would change the flow of information.
L.S.: Yes, but how would you change the flow of information?
K.H.:
Well, that’s a serious, serious question. There has to be awareness
that people are getting their information filtered, and I think once
they’re aware of it, this is going to change. I think a lot of the
solution is going to come from the internet. That’s why there are so
many efforts now to limit the Internet. I went to a conference on this,
and it was no surprise to me that the person who was running this
conference didn’t think it was suitable for me to address the
conference. You know, need I say more. There is censorship, and the
censorship has to stop.
One
of the very positive developments is that people expect that soon there
will be very wide access to the internet by all of the people on this
planet. So we have to ensure that the Internet remains functional, and
that we pay serious attention to what happened with the death of Aaron
Swartz; this is no accident.
L.S.: Yes, yes. But isn’t also the internet a wonderful surveillance instrument for intelligence agencies?
K.
H.: Yes. Recently I’ve gotten to know a US whistleblower who knows a
great deal about domestic surveillance: Mark Novitsky. People have got
to become aware about what all is going on, and that should help us make
a begin in solving this extremely serious and dangerous problem.
L.S.: Thank you very much for taking your time, Dr. Hudes!
K. H.: Thank you very much for having me!
SOURCES:
(3)
See Stefania Vitali, James B. Glattfelder, and Stefano Battiston: “The
network of global corporate control“, ETH Zurich, published September
2011 available here:
(4) See Hugo Grotius: “On the Law of War and Peace”, Book XV, available here: http://www.archive.org/stream/hugonisgrottiide00grotuoft/hugonisgrottiide00grotuoft_djvu.txt
(6) Tekoa
Da Silva, World Bank Whistle-blower: “Precious Metals To Serve As An
Underpinning For Paper Currencies”, May 6, 2013, available here:
http://bullmarketthinking.com/world-bank-whistle-blower-precious-metals-to-serve-as-an-underpinning-for-paper-currencies/
(9) See NSNBC International, “World Bank Whistle-blower. Confidence in the Dollar as an International Currency Is Waning. The End of Bretton Woods ? published May 2, 2013 available here: http://nsnbc.me/tag/karen-hudes/
(10) Analysis on the Rule of Law at the World Bank in 2004 by the Sentia Group available here: http://kahudes.net/wp-content/uploads/2012/05/board-of-governors.pdf See pages 16-23
(11) Development Committee Communique, published April 25, 2010 available here:
http://www.imf.org/external/np/cm/2010/042510.htm (see paragraph 6)
|
(12)
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:
|
House
of Commons Public Administration Committee, Written Evidence for the
inquiry into Public engagement in policy making, published November 2,
2012 available here:
The European Parliament Committee on Budgetary Control Hearing on Whistleblowing May 25, 2011 available here:
(15) Wikipedia entry for “Plebgate”, http://en.wikipedia.org/wiki/Plebgate The Week magazine 24 September 2012 called Mitchell’s public flogging “Gategate” available here: http://www.theweek.co.uk/politics/gategate/49169/gategate-friends-ids-take-pleasure-andrew-mitchell-gaffe
(21) Office of the Treasury Inspector General, Audit
of the Department of the Treasury’s Schedule of United States Gold
Reserves Held by Federal Reserve Banks as of September 30, 2012,
Available here:
(23) James Rickards: Texas Law Would Protect Its Gold from Government Seizure
