World Bank's ethics under scrutiny after Honduras loan investigation

Private lending arm lent millions to palm oil company accused of links to assassinations and forced evictions, audit reveals

theguardian.com, Nina Lakhani, 13 January 2014

Members of the Peasant Unified Movement of Bajo Aguán, in Tegucigalpa,
 carry mock coffins bearing pictures of people murdered in land clashes.
Photograph: AFP/Getty

The verdict could not have been clearer: the World Bank's private lending arm failed to comply with its own ethical standards when it lent millions of dollars to a Honduran palm oil company accused of links to assassinations and forced evictions.

This was the damning verdict by the World Bank's Office of the Compliance Adviser/ Ombudsman (CAO) on Friday. It had investigated whether a $30m (£18.2m) loan by the International Finance Corporation (IFC) to Corporation Dinant, an agribusiness owned by one of Honduras's richest and most powerful men Miguel Facussé, was made after proper environmental and social due diligence.

The investigation was triggered by local NGOs accusing Dinant of direct and indirect involvement in a campaign of terror against campesinos, or peasant farmers, in the fertile Bajo Aguán valley in the north. Dinant claimed any violence was either unconnected to the company or legitimate self-defence.

The audit, one of the most critical issued by the Bank's internal watchdog, was unequivocal. The IFC failed to spot the serious social, political and human rights context in which Dinant operates, or if it did, failed to act effectively on the information; and failed to disclose vital project information, consult with local communities, or to identify the project as a high-risk investment.

The CAO also said staff were incentivised "to overlook, fail to articulate, or even conceal potential environmental, social and conflict risk". They warned that such incentives could lead to, as indicated by the loan to Dinant, the IFC taking "uninformed risks with serious consequences for people, the environment and/or the Bank Group's reputation". The CAO refers to allegations that 102 campesino leaders have been murdered since 2010 in Bajo Aguán, 40 of which were linked to Dinant properties or security guards. This is vigorously denied by Dinant.

Strong stuff from the CAO, but the IFC's written response, also published on Friday, was predictably weak.

In the first paragraph the IFC rejects some of the CAO findings, though fails to specify which ones or provide evidence to support its rebuff. The IFC states that at the time it approved the loan to Dinant in 2008 the project risks were manageable and there was no evidence of land claims. But this is not correct. The Bajo Aguán land disputes date back two decades to another World Bank-funded land modernisation programme, when campesinos claimed thousands of acres used for subsistence farming were transferred fraudulently and coercively to Facussé and other palm oil industrialists.

The IFC goes on to say that it could not have foreseen the coup d'état in June 2009 that toppled president Manuel Zelaya, days after he ordered an investigation into the land conflicts, nor the social unrest, arms and drugs trafficking, and violence that have since plagued the region.

But the IFC gave Dinant its first instalment of $15m in November 2009, when there was already evidence of worsening security problems relating to the land disputes in Bajo Aguán.

Add to that the US diplomatic cable published by WikiLeaks, which suggests Facussé backed the 2009 coup, which he denies. What's more in 2011, by which time Honduras was officially the most murderous country in the world, the Bajo Aguán had been militarised by US-trained troops, and allegations of human rights abuses perpetrated by Dinant security guards in conjunction with state security forces were piling up – the IFC approved a $70 loan to one of Dinant's biggest creditors, Banco Financiera Comercial Hondureña.

This loan, which gave the IFC a 10% stake in the bank, is subject to another CAO investigation, due to report before the end of June. The IFC's pattern of investing in financial intermediaries over the past decade is criticised by some observers as a way of circumventing its own safeguard policies.

Dinant, whose lucrative African palm plantations dominate the Bajo Aguán, issued a statement rejecting some of the CAO findings. The company, which pointed to multiple killings of its security guards since 2010, said it would continue working with the IFC to comply with its performance standards. The problem is, according to the CAO audit, in practice these standards are not very high.

Many civil society organisations believe continued support from the World Bank is grossly negligent and endorses violence with impunity. The IFC generally prefers to effect change from within, and says it will steer Dinant to collaborate with the authorities if credible allegations emerge against its security forces.

But across Honduras state authorities are implicated in countless human rights abuses, especially in the Bajo Aguán, where operations are reportedly conducted jointly between state and private security forces. Impunity is the norm; the justice system is broken.

The CAO has pledged to keep the case open until it is satisfied the IFC is compliant with its own ethical standards. The only lever it has for exacting change is through reporting its findings to the World Bank president, board and public. The president, Jim Yong Kim, has pledged that the Bank will learn from past mistakes. Half of the IFC loan, $15m, is yet to be paid to Dinant. Now is the time for Kim to put his money where his mouth is.