May 17, 2007 — -- World Bank President Paul Wolfowitz has resigned his post, effective June 30.
An internal panel tasked with investigating the lucrative pay and promotion package Wolfowitz arranged in 2005 for girlfriend Shaha Riza found him guilty of breaking bank rules.
The committee also found that he tried to hide the salary and promotion package from top ethics and legal officials within the bank. The report added that there is a "crisis in the leadership" at the World Bank.
Wolfowitz is the first World Bank president to ever leave the bank under a cloud of scandal.
Wolfowitz lost the fight to keep his job after months of controversy surrounding his involvement with securing his girlfriend a pay raise and promotion.
The controversy set off a media firestorm, with questions swirling about the current status of Wolfowitz's relationship with girlfirend Shaha Riza, and it's unclear whether they are still together.
Wolfowitz has defended the pay package, telling the bank's investigative committee he was trying to avoid a potential lawsuit from Riza.
"Ms. Riza was extremely angry and upset about being required to take an external placement," Wolfowitz wrote in a May 11 statement to the World Bank investigative committee.
Riza had been a World Bank employee for eight years, promoting women and democracy in the Middle East, when Wolfowitz was named president of the institution in 2005.
The Bank's ethics committee determined Riza needed to leave the bank when Wolfowitz took control to avoid a conflict of interest.
"I was not given a choice to stay, and against my personal and professional interests, I agreed to accept an external assignment," said Riza in an April 30 written statement to the bank panel investigating her raise and promotion package.
"The irony of my working to ensure women's participation and rights through the work of the World Bank and [was] stripped of my own rights by this same institution," Riza wrote.
Under a lucrative compensation package that Wolfowitz arranged with the vice president of human resources at the World Bank, Riza was moved to the State Department and given a promotion to communications specialist, but the World Bank still retained her on its payroll.
Her income jumped from $133,000 to $193,590 in just two years -- more money than Secretary of State Condoleezza Rice makes before taxes.
"I was ready to pursue legal remedies. … I only acquiesced to signing the agreement so as not to cause turmoil at the bank," Riza wrote in the April 30 statement to bank officials.
At several points in the scandal, the Bush administration insisted Wolfowitz stay on as bank president.
"Wolfowitz has acknowledged mistakes and apologized for them," White House spokesman Tony Fratto told ABC News Tuesday morning. "We don't believe that actions warrant a change of leadership at the World Bank."
But just hours later a senior White House official told ABC News that "all options are on the table" regarding Paul Wolfowitz's future and that "it is an open question" whether he should should remain as president of the World Bank.
"If you don't have board support and you don't have staff support, it is hard to get anything done," the official told ABC News.
In his daily briefing, White House spokesman Tony Snow, who had previously called Wolfowitz's actions "not a firing offense, continued to publicly proclaim White House support for Wolfowitz Wednesday but deflected questions on whether the administration would object if the embattled World Bank president resigned.
Secretary of State Condoleezza Rice and Treasury Secretary Henry M. Paulson Jr. placed calls to their counterparts in Europe to defend Wolfowitz.
Vice President Dick Cheney also spoke highly of Wolfowitz this week in an interview on Fox News from Jordan, calling him "one of the most able public servants I've ever known."
Wolfowitz worked in former President George H.W. Bush's administration as undersecretary for defense policy from 1989 to 1993 under then Secretary of Defense Dick Cheney.
He played a key role in reshaping U.S. military strategy after the end of the Cold War and reviewing strategy for the Gulf War in Iraq.
Dubbed the "architect" of the Iraq War, Wolfowitz was deputy secretary of defense from 2001 to 2005.
Responsible for Iraq War planning, he, along with a group of fellow neo-conservatives, advocated the U.S.-led invasion of Iraq following the Sept. 11 attacks.
The scandal has topped a long list of complaints within the World Bank about Wolfowitz's managerial style. Some of the institution's top managers have openly called for Wolfowitz to resign in recent weeks.
Highlighting the souring relationship between Wolfowitz and the World Bank board of directors, his top aide, Kevin Kellems, resigned May 7.
Kellems moved with Wolfowitz from the Pentagon to the World Bank, serving as a senior adviser and director of external relations strategy at the bank.
Critics said Kellems and another top Wolfowitz aide, Robin Cleveland, were considered by bank staff to be more loyal to Bush administration policy than to the international development mission of the bank.
In a statement to the press, Kellems cited poor working conditions inside the bank for his departure.
"Given the current environment surrounding the leadership of the World Bank Group, it is very difficult to be effective in helping to advance the mission of the institution," Kellems' statement read.
Taking on the job in 2005, Wolfowitz vowed to rid developing countries receiving World Bank aid of government corruption by bypassing their administrations.
But when the scandal broke, critics said Wolfowitz's anti-corruption message was hypocritical and called for his resignation.
"The orchestrated leaks of false, misleading, incomplete and personal information about me and Ms. Riza are all part of a conscious campaign to undermine my effectiveness as president and derail important programs of the bank to aid the poor, especially in Africa," read an April 30 statement by Wolfowitz.
Before Wolfowitz's run as World Bank chief, a coalition of leading European countries mounted a campaign to stop the practice of allowing the United States to select the World Bank president.
The U.S. government is given control over who serves as president to the World Bank, because it gives the bank the most money for its financing.
However, European officials indicated to the Bush administration in early May that they would allow the United States to choose the bank's next chief if Wolfowitz would step down.
The selection of Wolfowitz in 2005 as president drew criticism from European officials, however France and Germany went along, hoping to heal the rifts left from their opposition to the Iraq War.
However in April, Germany's Chancellor Angela Merkel, as European Union chief, called for Wolfowitz to resign, saying she needed to reflect the majority view of European countries.
Many of Wolfowitz's early critics were dismayed that an official so closely tied to the Iraq War would lead the world's anti-poverty institution.
An international activist group staged a rally outside the World Bank on May 9, demanding the development institution let Wolfowitz go.
Unfurling a banner that read "World to Bank: Fire Wolfowitz," about two dozen activists from Avaaz.org chanted "Unless he quits, fire Wolfowitz!"
At a nearby park, World Bank employees on their lunch break watched the rally and voiced their feelings about the controversy.
Everybody is demoralized, we all want a swift resolution," said Mark, a World Bank employee who refused to give his last name.
"He's been standing on this pillar about anti-corruption and governance and it's kind of hypocritical," said another employee.
Some employees pinned blue ribbons to their briefcases and purses; the ribbons were given to them by their staff association to signify that "good governance" was still a key principle at the bank.
Kirit Radia of ABC News contributed to this story.