WASHINGTON (Reuters) - A World Bank panel found bank President Paul Wolfowitz violated several rules in his handling of a promotion and generous pay increase for his companion and his involvement in the matter represented a conflict of interest.
Wolfowitz rejected the panel's 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.
Board officials involved in the month-long turmoil 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 himself, 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.
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."
Wolfowitz was a controversial choice by President George W. Bush to head the poverty-fighting institution from the beginning 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 tried to stall the release of the report by the bank panel for several hours but insisted it did so only to make sure he was fairly treated.
World Bank board sources said the United States tried to pressure the investigatory panel to delay circulating the report, which they said was an attempt to halt a push led by Europeans that Wolfowitz should step down and no longer had credibility to lead the bank.
But the board decided to release the findings in full after reports that Wolfowitz's lawyers were preparing to issue a rebuttal.
A White House official, speaking on condition of anonymity, said consideration of the Wolfowitz issue should be split into two -- whether he violated bank rules in Riza's promotion and whether he should continue as president.
"And we think there ought to be a bright line between those two questions," this official told Reuters.
Wolfowitz had apologized for mistakes in his handling of the promotion and deserved credit for fully participating in the board's investigation, the official said, adding that Wolfowitz's mistakes did not warrant his dismissal.
(Additional reporting by Glenn Somerville and Tabassum Zakaria in Washington)