The World Bank is conducting an internal investigation into the way a $1 billion loan from China was transferred to the bank’s poverty fund.
The Wall Street Journal reported this morning that the Jim Yong Kim, the bank’s president, hired a law firm to review the situation back in December after its treasurer flagged a certain process used to facilitate a loan from China to the International Development Association (IDA) that’s focused on providing loans to the world’s poorest countries.
In the past, countries would typically would make make straight donations to the IDA, but a new set of regulations in 2013 allowed them to provide low-interest loans for the first time.
China was one of five countries to take advantage of this, along with France, Japan, the U.K. and Saudi Arabia. Unlike the other donor countries, China does not have an agency in place to make concessional loans to the IDA, which made things a bit more complicated.
Last year, the Bank of China provided a $1 billion loan at market rate to the IDA. China’s State Administration of Foreign Exchange (SAFE) donated a $300 million grant, of which $179 million was used to bring the loan to a concessional level.
After this the IDA used these funds to buy a $1.179 billion bond from the International Finance Corporation (IFC) which is another arm of the World Bank led by jin-Young Cai, a Chinese national who once served as head of Goldman Sachs in China. The IFC has also donated to the IDA in the past.
The banks treasury team, emphasizing first that it “had no concerns with China or their good intentions,” sent a memo to the bank’s board auditing committee, asking them to look into the transaction.
“The World Bank Group’s commitment to financial integrity is paramount, and we work to diligently safeguard the resources entrusted to us by our shareholders,” a World Bank Spokerson told International Business Times. “When concerns over transactions were raised internally, we promptly retained an outside law firm with expertise in conducting internal reviews, to ensure a careful and impartial fact finding. The results of the independent review will be provided to our external auditors and Bank management, as well as to our Board, and management will take any necessary action identified in the review.”
The news comes after recent criticism of World Bank head Jim Yong Kim’s leadership, especially after a recent restructuring. Kim shifted authority and money away from regional chiefs and toward thematic practices, such as healthcare and water access. In October, the bank announced plans to cut 500 jobs over the next three years, which incited protests from workers, who argued that these measures were unfair after high-level executives, including Chief Financial Officer Bertrand Badre, who was responsible for approving China’s loan, received large bonuses.