The Delhi Games have been chaotic. But the real Commonwealth scandal is closer to home, at the governing body's headquarters in London...

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The Commonwealth of Nations is facing potentially damaging legal proceedings amid allegations of a "culture of bullying and neo-colonialism" at one of its key institutions.

Sources at the Commonwealth Foundation, which says it works "on behalf of the people" in the group's 54 nations, claim that the organisation is gripped by a "climate of fear", and some non-white staff members are complaining of harassment and aggression.

The foundation, which is funded by Commonwealth taxpayers, is said to be handling internal complaints from women of colour alleging bullying. As the Commonwealth's showpiece Games reach their midpoint in Delhi, the club of nations is also facing a potentially costly hearing at a British employment tribunal where a former employee is claiming unfair dismissal.

It also comes at a time when the British Government is considering increasing its funding to Commonwealth organisations, despite a warning that its institutions, which grew out of the end of empire, are not "fit for purpose in the 21st century".

The post-colonial club was rocked by a similar scandal four years ago at the foundation's sister organisation, the Commonwealth Secretariat. At the time, an independent investigation described a "climate of fear" at the organisation.

The current case, due to be heard in December, centres on the treatment of Anisha Rajapakse, who was a respected HIV/Aids programme manager at the foundation, prior to her dismissal last year. Described by her lawyers as a "whistleblower", her case centres on alleged bullying by senior management at the foundation, and contends that she was fired on what she claims was a fabricated charge.

"The allegations made against her were absurd," said her lawyer, Edward Cooper. "She was dismissed because she raised complaints about bullying by senior staff."

A senior source from the foundation, speaking on condition of anonymity, claimed "everyone knows she [Ms Rajapakse] was pushed out".

Ms Rajapakse was unavailable to comment pending the outcome of the tribunal. Mark Collins, director of the Commonwealth Foundation, described the tribunal claim as "complete nonsense" and said the foundation was "very confident" of a "favourable outcome".

The foundation provoked a storm of protest from non-governmental organisations last year when it unexpectedly withdrew funding for HIV/Aids prevention. The pandemic is acknowledged as a "Commonwealth emergency" as its members states are home to 60 per cent of the world's HIV victims.

The foundation denied cutting funding, and claims that money was switched to a new grants system, with £100,000 awarded last year.

Ms Rajapakse alleges she was falsely accused by the foundation of asking an intern to pose as an angry member of civil society and send a letter to the London office complaining about cuts to HIV funding. Her lawyers reject the accusation as "absurd" and say there was a subsequent decision to promote the intern and send her on a foreign trip. In response to this suggestion, Mr Collins told The Independent that, after a mid-term review, the worker in question was put on a short-term contract.

Ms Rajapakse is not alone at the foundation in alleging bullying and harassment. Two other women have lodged formal grievances. These cite: "Subtle racism ... demonstrated by the number of ethnic minority staff who have ... had contracts terminated or reduced."

They also allege "systematic and continuous aggression and harassment" and a "culture of undermining, victimisation, discrimination and outright hostility". Other employees have allegedly left the foundation rather than confront management.

A former senior official at the Commonwealth Secretariat said allegations of bullying at its sister organisation were causing "serious concern" and that Ms Rajapakse's alleged victimisation was "reprehensible".

"The racism and neo-colonialism is embedded in the management," the recently retired official claimed. "If you are from a developing country and you are compliant, you are a good boy, you survive. The message is 'toe the line and be good children'. If you are outspoken and not prepared to pander you will be intimidated and harassed.

"There is a climate of fear. People are afraid if they speak out they will be victimised," said a source at the foundation, who asked not to be named.

The foundation confirmed it has a number of ongoing grievances but refused to discuss the nature of the complaints. Mr Collins said: "I deny displaying any racist or neo-colonialist views or bullying colleagues, it's not part of my management style." The Independent has been told there is concern among the foundation's governors and that earlier this year they recommended that the dispute with Ms Rajapakse be settled out of court. Mr Collins told the paper this reflected routine attempts to settle cases in accordance with conciliation procedures.

The working of Commonwealth institutions is back in the spotlight this month after suggestions that the British Government is to increase funding to the club of nations. Last week, David Cameron described the Commonwealth as a "valuable network" in what was seen as a signal that the Coaliton will be handing it increased resources in the coming months.

However, many of the groups which work with Commonwealth organisations are concerned that they are outdated and overly bureaucratic.

Dhananjayan Sriskandarajah, the director of the London-based international charity, the Royal Commonwealth Society, said: "I do worry about the fact that many of the Commonwealth's institutions were created decades ago, and have structures and ways of working that often seem outdated. The Commonwealth needs to modernise its institutions if it is to be fit for purpose in the 21st century."

About the foundation

Assumed by many to be little more than the remnants of the British Empire, the Commonwealth's efforts to transcend those difficult beginnings are partly manifested in the work of the Commonwealth Foundation.

Established in 1965, the 47-country organisation is careful to emphasise that its work is firmly internationalist, the project of a group of nations that "support each other and work together towards shared goals in democracy and development", to quote its website. Funded by those member countries, it hands out grants to the tune of £1m a year to non-governmental organisations that it believes will promote democracy and a thriving civil society in its participant states.

The work it supports can range from climate change mitigation to making improvements in slum conditions. And the foundation also runs cultural prizes that are supposed to promote cultural diversity in its member states.

Despite its internationalist agenda – and its efforts to ensure that its work could in no way be seen as colonialist – the foundation continues to be based in London, at Marlborough House, which has played host to many independence negotiations in the past. Its associations could hardly be more old-fashioned and British: it was the London residence of the Duke of Marlborough for over a century and later became home to the Prince of Wales. Given to the Commonwealth by the Queen in 1953, it has been its headquarters ever since.