A few days ago, I had the rare opportunity to watch an arm of the World Bank answer in court for the harm one of its projects allegedly caused.
The International Finance Corporation (IFC), the private-sector lending arm of the World Bank, responded to allegations that a power plant it financed harmed fisher folk in Gujarat, India. Such cases are exceptional because the World Bank Group typically claims immunity as an international organization, which US courts have largely accepted.
While private banks manage to lend internationally without immunity, the IFC—which lends money to companies with the aim of achieving the World Bank Group’s twin goals of ending extreme poverty and boosting shared prosperity—contends that it needs immunity from the poor in order to do business.
There is little recourse for communities harmed by World Bank-financed projects. The communities can appeal to the institution’s apparent good will, hope that the media will shame the institution into doing the right thing or complain to the institution’s internal, independent accountability mechanisms. The IFC’s accountability mechanism, the Compliance Advisor Ombudsman, investigates alleged violations of IFC policy. But it is the IFC that determines how to address the investigator’s findings and often it chooses not to.
In India, fishing communities and farmers unsuccessfully tried this approach. Even after the Compliance Advisor Ombudsman found that the IFC had breached its policies, the IFC didn’t fix the problems. So, in April 2015, these communities sued the IFC in the US District Court in Washington. They alleged that the pollution from the IFC-funded Tata Mundra coal-fired power plant in the state of Gujarat was a threat to their health and had destroyed their livelihoods and property. The District Court dismissed the case, finding that the IFC had not waived its immunity.
The communities’ lawyers, EarthRights International, are asking the US Court of Appeals to overturn the District Court’s decision and rule that the IFC’s immunity is not absolute. They have asked the court to find a narrow gap in the IFC’s immunity for cases in which the IFC’s accountability body determined that the IFC caused harm to communities by not complying with its own rules, and in which the IFC failed to address these findings. The case, Budha Ismail Jam v. International Finance Corporation, was heard before a three judge panel of the US Court of Appeals for the District of Columbia Circuit.
The IFC argued that losing “absolute immunity” would open the “floodgates” for a host of other lawsuits against them. One judge seemed incredulous, asking counsel to clarify that this was in fact the IFC’s argument. Is it so commonplace for the IFC to defy its own rules that a deluge of cases would follow? The IFC’s lawyer also said that the IFC would be less willing to make loans if a court could hold the IFC to account when it disregards its own policies.
Meanwhile, the IFC still won’t address the problems with Tata Mundra. The day after the hearing, the Compliance Advisor Ombudsman published its most recent monitoring report, highlighting that the IFC still has not fixed the problems it identified more than three years ago. The IFC is sending a clear message that left to its own devices, it won’t comply with its policies or address the problems it creates. It refuses to fix its mistakes while communities continue to suffer. If the IFC is confident that it is not responsible for the harm the community claimed, it should waive immunity and argue the case on its merits.
This lawsuit could have been avoided if the IFC’s board of executive directors required IFC management to fully address the Compliance Advisor Ombudsman’s findings and work with their clients to remedy all harm that communities suffer. The board is composed of IFC’s shareholder governments. One judge highlighted the “awkward position” that the board is putting the court in by failing to do its job.
Tata Mundra is one of several cases in which the IFC has avoided accountability. In November 2016, the ombudsman found that the IFC failed to identify and address basic risks like grossly inadequate living conditions for workers and child labor when it invested in an Indian tea project. The IFC has acknowledged some of the findings, while contesting and failing to address others.
The IFC’s immunity puts communities harmed by its investments at the IFC’s whim. It allows the IFC to violate its own rules with impunity. Holding the IFC to account is long overdue. No institution should have immunity when it causes, contributes to or exacerbates human rights abuses.
Jessica Evans is the senior advocate and researcher on international financial institutions at Human Rights Watch.
