The World Bank violated its own rules in lending millions of dollars to a company at the center of a deadly land conflict in Honduras, which has seen over a hundred people killed since a coup d’état there in 2009, according a scathing internal audit released today.
The audit drew a grim portrait of an institution created to address poverty that, in a bid to achieve investment results, instead bolstered a climate of impunity in an impoverished nation of 8 million bedeviled by soaring levels of violence. Bank auditors released the report quietly, posting it without prior announcement on the bank’s website just after midnight.
As Honduras teetered on the brink of widespread violence in 2009, the bank’s private-sector arm formed a close relationship with a coup backer, the agribusiness baron Miguel Facussé Barjum, agreeing to finance the operations of his company, Corporación Dinant, which human rights activists later linked to the work of death squads.
In a response on Friday, the International Finance Corp., a bank component which supports commercial investments in poor countries, said it was “deeply saddened” by the loss of life. Policy improvements in 2012 mean that a repeat performance is less likely, the IFC said in a letter to auditors.
“We do believe that if a similar project were presented for financing today, it would most likely be categorized as high-risk,” it said. However, the bank left open the door to releasing the second tranche of the $30 million loan to Dinant that prompted the audit.
In response to the findings, the bank’s “action plan” called for it to “seek Dinant’s agreement” to cooperate with local authorities investigating the violence tied to the company. It was unclear, however, whether any avenue for accountability could exist beyond this. Credible police investigations in Honduras are notoriously infrequent, and human rights organizations said law enforcement authorities themselves were sometimes implicated in extrajudicial killings.
Roger Pineda, a Dinant spokesman, did not immediately respond to questions for comment on Friday. However in remarks prior to the audit’s release, Pineda told 100Reporters that the company stood by its claim to legitimate ownership of its farmlands.
“Our company as well as Mr. Facussé had an open-door policy in regards to the many issues and accusations in the last years,” he wrote in an email. The company has steadfastly denied allegations of targeting its opponents for violence.
The audit report’s findings collectively portrayed the World Bank as siding with the Honduran elite in a bitterly divided country.
By ignoring warning signs, withholding information from project documents and resisting the work of officials responsible for environmental and social policy — at least one of whom was replaced after raising objections — investment officials at the bank’s IFC appeared determined to push the $30 million investment project through–regardless of the risks, the audit found.
Staff responsible for making investments enjoyed “relative dominance” over employees assigned to environmental and social compliance, the report found, noting that there was not a single Spanish-speaking social specialist for all of Latin America despite a committed portfolio of $14.6 billion for the region (see sidebar).
Auditors also found that that the IFC had ignored a history of “acutely violent” land conflict involving Facussé’s agribusiness operations in an area known as the Bajo Aguán, a river valley in northeast Honduras which has been torn by land disputes for decades.
Annie Bird, an American activist working in Honduras who has documented the violence in the Aguán conflict, described the IFC’s action plan in response to the audit as deeply troubling. “Obviously the bank response is absolutely insufficient and facilitates ongoing abuses,” said Bird, who asserted that Dinant and local police have long maintained warm relations.
“To expect that that kind of collaboration will result in prosecutions and an end to the violence is ridiculous,” Bird said.
Money Flows While Bullets Fly
The report said the bank’s IFC failed to consult local communities before agreeing to the loan in April 2009. It then paid out the first $15 million portion later that year, even though Dinant had not met the corporation’s “conditions of disbursement,” such as creating a formal system for citizen grievances.
As this unfolded, an intervening coup d’état in June — supported by Facussé — saw the ouster of President José Miguel Zelaya and marked deterioration of the security environment, with no response from the IFC.
Dinant had a private security force of more than 300 men and its properties or guards, and was linked by specific allegations to at least 40 of the 100 targeted killings reported in the Bajo Aguán area between 2010 and May of 2013, according to the audit. Under the terms of IFC lending, Dinant should have been required to investigate allegations against his own security force but was not, said the audit, done by an office of the bank known as the Compliance Advisor Ombudsman, or CAO.
“Given serious and persisting allegations surrounding the use of force by Dinant security from multiple sources, CAO finds the failings of IFC’s approach to supervision to be of particular concern,” said the report. “[A]ccountability for results defined primarily in financial terms may incentivize staff to overlook, fail to articulate, or even conceal potential environmental, social and conflict related risks”.
The report noted that descriptions of risk on the Dinant loan were watered down “as project documentation passed upward through IFC’s management” to the board of directors. Investment staff failed to pass on negative information about the project.
Honduras Not Alone
Critics have complained that in recent years senior bank management have effectively undermined internal accountability mechanisms by rejecting or disregarding the findings of internal audits and reviews.
Since 2012, critical findings about World Bank support for supposedly environmentally friendly coal-fired power generation projects in India and South Africa and a review of lending practices via financial intermediaries have been variously been refuted or disregarded, according to a November letter to World Bank President Jim Yong Kim, that was signed by nearly 30 civic, development and human rights organizations.
According to Peter Rosenblum, professor of international law and human rights at Bard College, the World Bank has come to view oversight efforts by the ombudsman, and another internal auditor known as the Inspection Panel, as impediments to bank’s work.
“The willingness to disregard the CAO, or the possibility of that, is what is making what is already a weak tool into something that’s completely irrelevant,” Rosenblum said in an interview ahead of the Honduras report’s release.
At 90 years of age, Facussé’s place in the Honduran establishment can scarcely be overstated. He is the uncle of former president Carlos Roberto Flores Facussé. During efforts to resolve the post-coup crisis, he was closely consulted by the U.S. embassy, which described him in a leaked 2009 diplomatic cable as “the wealthiest, most powerful businessman in the country.”
A separate 2004 cable published by WikiLeaks indicated that an airstrip on his property had been used for the transshipment of a one-ton consignment of cocaine. Embassy officials reported privately at the time that they did not find Facussé’s denials of involvement to be credible.
In a submission to the International Criminal Court by the Center for Constitutional Rights last year, Facussé was named as a possible crimes against humanity suspect. The prosecutor’s office reported in November that it was still gathering information on violence in the period following elections held in 2009 and had not formed a judgment on whether international crimes occurred then.
The nonprofit Reporters Without Borders named Facussé a “predator” in violence against Honduran journalists in 2012.
Weighing in on Tug of War
Peasant farmers, or campesinos, began settling the Bajo Aguán in large numbers in the 1970s as part of agrarian reforms aimed at increasing the production of palm oil for export.
But critics say World Bank-sponsored legal reforms in the early 1990s ultimately allowed the Honduran elite, including Facussé, to recapture much of the Bajo Aguán for private industrial use, including by fraudulent or coercive means — touching off the agrarian conflicts still seen in the region today.
“Those new laws were deliberately designed to open the door to the transfer of those lands back to elite interests, and [to do so] through various forms of fraud and intimidation,” said Dana Frank, a professor of history at the University of California, Santa Cruz.
“Miguel Facussé and other elite land owners gradually started taking that land over in the Aguán valley, in complete violation of the concept of agrarian reform,” Frank said.
Following the 2009 coup, Honduras became a far more dangerous place. By 2010, the country had a homicide rate of 82.1 per 100,000, the highest in the world and more than double the country’s rate in 2005, according to the U.N. Office on Drugs and Crime.
The coup of 2009 also cut short official efforts to resolve the impasse, convincing some campesino activists that they had no recourse to regain land other than occupation, said Bird, the human rights activist.
“The World Bank in essence is probably the most directly responsible party next to Facussé of the entire social situation in the Aguán,” Bird added.
Bird sounded the alarm in 2010 in a letter to Kim, the World Bank president, calling for a general suspension of World Bank funding to Honduras and highlighting the accusations against Dinant and Facussé in particular.
In a detailed report published in February of last year, Bird said 88 members or associates of peasant movements in Honduras had been assassinated since 2010. The report cited scores of witness accounts indicating the involvement of state security forces, which were often interchangeable with private security employed by Dinant.
Witnesses implicated Dinant security in deadly attacks with automatic weapons on peasant activists, during evictions and ambushes or while victims traveled on open roads.
“The most common way that people are killed is drive-by shootings. So they’ll be waiting on the side of the road for a bus, walking between towns on their bicycle, and someone will drive by,” said Bird.
“It’s mostly adult men and it’s mostly people who were associated with the campesino movement, often times leaders, but not necessarily the most prominent leaders,” Bird said.
The killers were often identified as Honduran soldiers, members of the Army’s 15th Battalion, a unit which Bird says receives U.S. training, and which is closely linked to the security firm Dinant employed, she added. Large land holders, including Dinant and other large agribusiness concerns, are clear beneficiaries of the violence, Bird said.
The violence intensifies “at key moments in the negotiation process, when they’re trying to decide how much they’ll pay for the land, what the financing mechanisms will be, that kind of thing,” said Bird, noting that these looked like attempts to force concessions from campesino negotiators.
By December of last year, the number of killings Bird claimed to have documented had risen from 88 to 113.
In September 2012, the human rights lawyer Antonio Trejo Cabrera, was gunned down as he attended a wedding near Tegucigalpa, the Honduran capital.
Before his death Trejo — who had just won a legal battle against Facussé on behalf of peasant cooperatives — had publicly said that if he were killed Facussé would be responsible.
The following February, Trejo’s brother José, who had publicly called for an investigation into Antonio’s murder, was himself shot dead while riding a motorcycle in the Bajo Aguán town of Tocoa.
Facussé has denied involvement.
See sidebar: A System Designed to Avoid Oversight