European Commissioner for budget and human resources Kristalina Georgieva speaks with delegates during an economic and financial affairs council at the European Council in Brussels, November 16, 2016 | Emanuel Dunand/AFP via Getty Images Conflict of interest fears over Georgieva’s World Bank dealings A new funding arrangement is raising alarm bells at the Commission and the European Parliament.

Six months before European Commission Vice President Kristalina Georgieva announced that she would be returning to the World Bank, her office negotiated changes in the way the European Union funds her former and future employer, according to EU officials and documents obtained by POLITICO.

The new arrangement with the Bank is raising alarm bells at the Commission and the European Parliament about a potential conflict of interest. The concern comes as the Commission is trying to tighten so-called revolving door rules on what jobs senior officials can take once they leave EU institutions.

Georgieva announced in October that she would be leaving the Commission to take up a job as CEO of the World Bank, where she had previously worked for 17 years. In Brussels, she oversaw human resources and the budget, which includes the EU's hefty development spending.

The EU contributes some €400 million a year to World Bank projects designed to reduce poverty, boost development and combat climate change in Africa, Asia and elsewhere. Most of the money is used to support those kinds of projects, but the contributions also include a management fee provided to the World Bank.

In April, Georgieva's office agreed to a new payment structure, replacing a flat management fee with a more complex formula that three senior Commission officials with direct knowledge of the file say could result in a greater proportion of the EU's contributions going to World Bank overhead. The officials requested anonymity out of fear of political reprisal.

The World Bank said the new charges agreed to by the EU are in line with what other donors are paying, and an official from Georgieva's office dismissed concerns of a conflict of interest. "Vice President Georgieva was not involved in negotiating this framework agreement with the World Bank," the official said in an email. "Her only role was to sign the final agreement on behalf of the Commission upon the request of President [Jean-Claude] Juncker and respecting the appropriate level of institutional representation."

"People will lack food because we need to pay for the administration of the World Bank” -- German MEP Ingeborg Grässle



The decision to change the payment structure, taken in April and published here for the first time, revises what the World Bank says was a temporary 2014 agreement with the Commission to levy a flat management fee of up to 5.5 percent on all EU contributions to the D.C.-based institution.

The new calculation is more complex. Projects directly carried out by the World Bank are subject to a 17 percent charge on the cost of personnel and consultants.

For projects in which the World Bank plays a managerial role rather than directly running the project, the EU will be charged a sliding fee of between 2 and 5 percent depending on the size of the project, plus an additional 17 percent of the cost of any World Bank personnel and consultants working on it.

According to the text of the decision, a copy of which was obtained by POLITICO, in some cases this could result in payments exceeding a 7 percent cap on management fees forbidden by EU financial regulation.

'No justification'

The 2002 regulation that governs how the EU budget is spent allows for “exemptions” to the 7 percent cap when justified by a “reasoned decision of the Commission.” The Commission's April deal with the World Bank does not include a justification.

A Commission official with experience negotiating agreements between the EU and development organizations described the 17 percent charge on personnel costs as "unprecedented." The official said it was hard to tell if the new arrangement with the Bank would end up costing the EU more money than the previous one.

German MEP Ingeborg Grässle, who chairs the European Parliament’s budgetary control committee, said she had never before seen a charge that high for development work carried out by an outside party such as the World Bank. “There is no justification for 17 percent,” she said. “It is huge, it is far too high. People will lack food because we need to pay for the administration of the World Bank.”

EU regulations regarding the allocation of such funds are clear that no institution should get favorable treatment. The decision adopted by the Commission only affects contributions to the World Bank. According to a senior EU official, there are no similar deals with other institutions. This official added the Bank deal does set a precedent other recipients of EU development funds could invoke.

On September 14, Georgieva's budget department proposed a revision to the 2002 EU financial regulations that, among other changes, would discourage the EU from carrying out its own audits on how its funds are spent by organizations like the World Bank when independent evaluations are already being carried out.

Similarly, according to the Georgieva proposal, the EU would be encouraged not to scrutinize the entities that receive donor funding if other groups have already carried out checks. Officials in the Commission say they are concerned this could mean some checks currently required by EU law are not carried out.

The proposed changes to the financial regulation are intended to be finalized by December 2018.

Grässle, the German MEP, said that relying on outside audits and assessments would be “the old dream of accepting what others do and say: ‘We should not check but believe.’”

“This is a dangerous way of doing development," she added.

Fast track

Few commissioners fully understood the changes to the World Bank arrangement that they adopted, according to five EU officials with knowledge of the negotiations.

“The procedure was launched with the highest urgency, and everyone was pressured internally by DG Budget to deliver, without any justification to it,” said one senior Commission official.

The senior official added that such a file would normally be handled by the Commission’s development aid department, rather than the budget office. The development commissioner, Neven Mimica, signed the legally binding decision with the World Bank. But emails reviewed by POLITICO show that Georgieva's office was pushing other departments in the Commission for rapid approval of the new funding formula last spring.

The Commission has asked Georgieva "to refrain, until the end of her term of office, from any involvement in any files linked to relations between the Commission and the World Bank."

Georgieva's team justified its request for fast-track approval, or "procedure d'urgence" in French, by saying that she had confirmed her participation in spring meetings in Washington held by the World Bank and partner organizations, according to an email sent by the budget office to other services involved in the consultation, a copy of which was obtained by POLITICO.

To meet the deadline, the budget office urged the other services to use fast-track procedures that reduce the time for internal consultation among directors-general to two working days from the usual 15. These procedures do not allow for dissenting opinion to be recorded and can exclude consultation with key departments, including the EU’s anti-fraud office.

"There was no disagreement between DG Budget and other services on this issue," an official from Georgieva's office said.

According to internal emails sent to Georgieva's office and obtained by POLITICO, some Commission officials objected to speeding up the decision and wanted Georgieva’s trip to Washington to be postponed. The College of Commissioners went ahead, approving her proposal on April 12, in time for her to travel to the U.S. capital three days later, where she co-signed the revised agreement with World Bank Vice President Axel van Trotsenburg that was made public.

Big donor

The European Commission is currently listed as the third largest donor to the trust funds that the World Bank's uses to manage its projects. Between 2012-2015 it provided the institution with some €2 billion.

The published documents on the agreement signed by Georgieva and Van Trotsenburg say that the increased fees of 17 percent for projects managed by these trust funds represent “less than 10 percent of the total Commission portfolio over the period 2012-2015,” and therefore have a minimal impact on what the EU would pay the Bank. However, the unpublished decision says that the EU will privilege participation in certain trust funds, meaning that this proportion could rise according to a senior EU official.

Massimiliano Paulucci, the World Bank special representative to the EU, said in an interview the changes were in line with agreements in place with the Bank's other donors, and that both the World Bank and the Commission had taken care to ensure that no project under the new agreement exceeded the 7-percent cap on management fees. According to the World Bank, the 17 percent fee is intended to cover costs like pensions and health care and won't hike up the bill for the EU.

“What we have done is clarified to our donors as a matter of transparency how we calculate our costs,” said Daria Goldstein, lead counsel for the World Bank in Brussels, who added that any concerns were probably due to confusion in the Commission over the impact. “It takes time to train staff, to understand how it works.”

At the time the changes to the payment structure were approved in April, there was no indication that Georgieva would return to the World Bank, where she worked in various capacities before joining the Commission in 2010.

Shortly after her bid to become the next secretary-general of the United Nations failed earlier this autumn, Georgieva announced that she would be leaving the Commission and returning to the World Bank in a new position created especially for her. Georgieva told POLITICO’s Playbook that her decision was based partly on frustration with the management style of Martin Selmayr, the chief of staff to Commission President Jean-Claude Juncker.

“I think Mrs. Georgieva knows very well what the president and I personally did for her,” Selmayr told POLITICO earlier this month. “I can only say from my side the president and I have very close and good relations with Mrs. Georgieva. We always supported her. She always supported us.”

On November 9 the European Commission ruled that Georgieva's move to the World Bank does not represent a conflict of interest. The verdict is contained in a classified decision which has so far not been made public, according to five senior officials with knowledge of the case. According to the minutes of the meeting the Commission asked "Ms. Georgieva to refrain, until the end of her term of office, from any involvement in any files linked to relations between the Commission and the World Bank."

Quentin Ariès contributed to this article.