WASHINGTON (Reuters) - A World Bank committee found bank President Paul Wolfowitz violated ethics rules in his handling of a promotion and generous pay rise for his companion and his involvement represented a conflict of interest.
Wolfowitz rejected the critical report on Monday and the United States showed no sign of yielding in its steadfast support for the former U.S. deputy defense secretary, saying the findings were no grounds to dismiss him.
"Mr. Wolfowitz's contract requiring that he adhere to the Code of Conduct for board officials and that he avoid any conflict of interest, real or apparent, were violated," the panel said of Wolfowitz's handling of a pay and promotion deal for World Bank Middle East expert Shaha Riza in 2005.
"The salary increase Ms. Riza received at Mr. Wolfowitz's direction was in excess of the range established by Rule 6.01," the panel said.
In documents released late on Monday, Wolfowitz called the findings "unbalanced and flawed" and argued that the panel had omitted statements and documents that support his position.
The panel said Wolfowitz believes the blame lies with others and not with him.
It said he did not accept the bank's policy on conflict of interest and tried to bypass rules that he believed did not apply to him.
"The ad hoc group concludes that in actuality, Mr Wolfowitz from the outset cast himself in opposition to the established rules of the institution," it found.
"He did not accept the bank's policy on conflict of interest, so he sought to negotiate for himself a resolution different from that which would have applied to the staff he was selected to head."
The panel referred a final decision to the bank's 24-nation board of shareholder governments, which meets on Tuesday when Wolfowitz will make a final pitch to hold on to his job.
The board is unlikely to make a final decision before Wednesday and it was still unclear if they would be forced to vote on the issue or decide by consensus.
The panel recommended that in deciding the issue, the board should consider "whether Wolfowitz will be able to provide the leadership needed to ensure that the bank continues to operate to the fullest extent possible in achieving its mandate."
Officials involved in a month of turmoil at the bank said that behind-the-scenes diplomatic maneuvering would intensify now that a decision on Wolfowitz's future was closer to a final resolution.
One board official said member countries will make another effort to resolve their differences and Wolfowitz still had a chance of rescuing his job, depending on whether he could present a clear plan for how he could rebuild his credibility.
Meanwhile, 37 country directors on the front line of the bank's operations said in a letter to the board and to Wolfowitz that the leadership crisis had damaged the bank's reputation and effectiveness in fighting poverty.
From the start Wolfowitz was a controversial choice by President George W. Bush to head the poverty-fighting institution because of his neoconservative background and high-profile role as an architect of the Iraq war.
U.S. Treasury Secretary Henry Paulson spoke to his counterparts in several other countries telling them he did not think "the facts merit dismissal," according to a spokeswoman.
"The facts reveal that President Wolfowitz acted to find a pragmatic solution and to carry out the direction he received from the Ethics Committee," she said.
The United States has stated that Wolfowitz apologized for his mistakes, because he was new to the job, and deserved credit for participating in the board's investigation.
But the panel said Wolfowitz's claim that he was new at the time and followed the direction of others was "troubling".
"The Ad Hoc Group finds this posture troubling for what it says about the leadership the bank could expect from the man who had been selected to head a global institution with the central mission of fighting poverty," it said.
"The Group finds the submission notable for absence of any acceptance by Mr. Wolfowitz himself of responsibility or blame for the events that transpired."
(Additional reporting by Glenn Somerville and Tabassum Zakaria in Washington)