The World Bank Group will host its 2018 Spring Meetings next week, bringing together representatives of governments, banking institutions, civil society, the private sector, and academics to “discuss issues of global concern, including the world economic outlook, poverty eradication, economic development, and aid effectiveness.” But if you take a look at the schedule of Bank-sponsored discussions and Bank-approved civil society panels, one pretty significant topic is noticeably absent: immunity and the Bank’s accountability problem.
Despite what the schedule might suggest, the accountability gap is more relevant than ever: in May, the U.S. Supreme Court will consider a petition from communities suing the International Finance Corporation (IFC), the Bank’s private lending arm, and challenging the IFC’s claim that it is entitled to “absolute” immunity from legal liability and cannot be sued.
Since we’re guessing the Bank and the IFC aren’t going to want to talk about its accountability problem next week or the lawsuit trying to fix it, here’s a quick overview of the case, some of the arguments the IFC has made, and a look at what’s at stake and why allowing suits like this one is ultimately in the IFC’s institutional interest.
In 2015, we filed suit on behalf of fishing and farming communities from Gujarat, India in federal court in Washington, D.C., against the IFC for its role in providing the critical funding for the destructive Tata Mundra coal-fired power plant project, despite recognizing the substantial risks it posed the community and the environment they depend on. The plant has destroyed the local environment and the local way of life. Saltwater intrusion from the plant’s construction has left many without access to freshwater to drink or use for irrigation and thermal pollution from the plant has killed off the marine life on which the fishing community relies. Coal ash, and coal dust from the nine-mile-long coal conveyor belt, contaminate the surrounding land and air, and pollutants are at levels dangerous to human health.
The IFC’s own compliance mechanism, the Compliance Advisor Ombudsman (CAO), has repeatedly called for remedial action, finding the project remains out of compliance with numerous environmental and social requirements and that the IFC had violated its obligations in numerous respects and failed to take necessary steps to protect local communities and the environment. But the IFC ignored the CAO, and has failed to take any meaningful action. With no other choice, the communities turned to the courts in the place where the IFC is headquartered: Washington, D.C.
The IFC has not denied any of the harms alleged by the Plaintiffs in the case. Instead, the IFC has argued it simply cannot be sued in U.S. courts, no matter how much harm it causes or how illegal its conduct, because it is entitled to “absolute immunity” from suit.
In June, although recognizing the “dismal” conditions, a three-judge panel of the D.C. Circuit Court of Appeals ruled that previous decisions of the court required it to find the IFC was entitled to complete immunity from suit. But one of the judges wrote separately to criticize immunity, saying those prior decisions were “wrongly decided.” Other courts have similarly disagreed with the D.C. Circuit, finding international organizations like the IFC are not entitled to such sweeping immunity.
The U.S. Supreme Court has never before addressed the question of whether international organizations (like the IFC) can be sued, or whether, as IFC claims, they are entitled to special immunity from suit in U.S. courts, far greater than that of any other person or entity. The petition makes the case that the D.C. Circuit got the law wrong; the immunity of organizations like the IFC is in fact far more limited and allows suits like this one to be heard. The petition urges the Court to hear the case to reconcile the conflicting court decisions and finally resolve this accountability gap.
The IFC’s stated “mission is to fight poverty,” while doing “no harm” to people or the environment. The IFC developed its Sustainability Framework, which dictates the conditions of IFC involvement in projects and the obligations of both the borrower and of the IFC, to ensure that these projects promote positive development objectives while protecting local communities and the environment.
The Tata Mundra power plant project was supposed to provide affordable energy and improve the quality of life and standard of living of Gujarat’s poor. But the project has been, and remains, a failure. The project has failed to comply with the IFC’s Performance Standards and the other environmental and social conditions of the loan agreement, and it has pushed many of the surrounding communities further into poverty, made them sick, destroyed their means of supporting their families, and made their environment dirtier and more dangerous. It has also been a financial disaster, operating at a loss for its entire existence (the company announced last year it was trying to offload a majority of its shares for 1 rupee – less than 2 cents) and the company has sought to pass these costs off to consumers.
Is immunity from any accountability really in the IFC’s interest, where a project has not only failed to produce the intended development benefits but has also harmed the very people the IFC is supposed to protect? The IFC believes it is, and that’s concerning. Indeed, a closer look at some of the arguments the IFC has made in this case reveals the IFC’s troubling perspective on its mission and its responsibility with respect to the projects it enables.
In particular, it has been extremely disappointing to see the lengths the IFC has gone to downplay and minimize the importance of its environmental and social protections and safeguards in this case. The IFC has repeatedly said in its public materials that its environmental and social commitments are “central” to its mission, and the IFC management’s willingness to disregard those protections and to deny their importance in this case only highlights just how much local people and the the IFC as an institution need lawsuits like this one.
The IFC requires broad community support before going forward with high-risk projects, like the Tata Mundra project. But what community would trust the IFC to follow through on its commitments to protect them and their environment if they have no way to hold the IFC to those commitments? If the IFC continues to act as if its environmental and social assurances are meaningless, potential host communities will have little reason to trust the IFC in the future, and may, with good reason, refuse to support any projects that pose risks to their livelihoods and safety.
The IFC has also argued that victims do not actually need access to the courts at all because the CAO “already provides Plaintiffs with an alternative means of recourse.” But the plaintiffs in this case already went to the CAO – and the CAO agreed with them. But the CAO lacks any enforcement power, which leaves it unable to provide meaningful relief. By asserting that victims may only complain to the CAO, a mechanism which the IFC can choose to ignore, the IFC is essentially saying it will account for community concerns only if it feels like it. Such hubris is at odds with the IFC’s institutional mission.
At times, the IFC has tried to justify its failure to take remedial action in cases where its projects result in harm by disclaiming any ability to affect the actions of the borrower or change the situation on the ground. But the IFC’s Loan Agreement for the Tata Mundra project, obtained by the plaintiffs in the course of the lawsuit, shows that is far from true. The agreement gives the IFC immense power and control over virtually all aspects of the project from the very beginning and throughout the course of the project’s life, including legal rights to compel compliance with the environmental and social conditions of the loan meant to protect the communities, and to require substantial changes in the design, operation of, and conditions at and around the plant that would remedy the worst suffering of the people living in its shadow. In short: the IFC has all the power it needs to effect change, it has simply chosen not to do anything.
Persons or entities who believe they are above the law behave as if they are: Immunity gives the IFC no incentive to act accountably or responsibly, to worry about the impact of their actions on others, nor even to carry out their mission as the institution’s founders intended. That’s a fundamentally dangerous way to run an institution like the IFC that has tremendous power and influence around the world, and the ability to directly impact the lives of so many. Although founded with the purpose of alleviating extreme poverty and promoting sustainable development, the costs of the IFC’s arrogance and lack of accountability consistently falls hardest on the poorest and most vulnerable – the very people it is supposed to be helping.
We share our clients’ fundamental belief that no one – and no institution – is above the law, and we believe the law is on their side. We hope the Supreme Court will agree to hear the case to fix this mess and close the massive accountability gap for communities who are harmed by the IFC when it fails to uphold the promises and commitments it makes to protect them.
The IFC and the rest of the Bank may be working overtime to keep immunity and accountability out of the spotlight next week, but these issues definitely aren’t going away. And with the IFC’s institutional credibility increasingly in doubt, a measure of accountability is in the IFC’s interests, too.