The World Bank Is No Longer Above The Law

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Over the past 70 years, the World Bank Group has at times invested in disastrous projects that have left communities impoverished and local ecosystems destroyed. One likely reason for the institution’s checkered history is that its staff and management assumed–correctly– that the institution was above the law. They knew that even when its power plants poisoned the air, its dams forced people off their land, and its oil pipelines spilled toxic chemicals into the soil, victims of these harms had no legal recourse. Last week, that all changed: The World Bank and institutions like it are no longer shielded by absolute immunity, and survivors of destructive “development” projects  overcame a major hurdle to justice.

In a historic 7-1 decision, the U.S. Supreme Court decided in Jam v. International Finance Corporation (IFC) that international organizations like the World Bank Group can be sued in U.S. courts. The court held that the immunity granted to such institutions by a federal law, International Organizations Immunities Act, does not apply to their commercial activities, which are essentially like any other commercial bank.

The case focuses on a power plant financed in Gujarat, India, by the IFC, the private sector lending arm of the World Bank Group. The plaintiffs are members of local fishing and farming communities whose livelihoods, air quality, and drinking water have been devastated by the project. The IFC knew about these hazards, but they sped ahead with the project anyway–and why not, when impunity has always been guaranteed? Previous court decisions had granted the IFC essentially absolute immunity from lawsuits by affected communities.

From the start, the IFC recognized that the plant was risky and could have significant negative impacts on local communities and the environment. Despite this, the IFC provided a critical $450 million loan in 2008, enabling the project’s construction and giving the IFC influence over project design and operation. Yet the IFC failed to to ensure that the project abided by the institution’s own environmental and social standards.

Construction of the plant destroyed vital sources of community water. Coal ash has contaminated crops and killed fish. Air pollutants are at dangerous levels and have led to a rise in respiratory problems. The enormous quantity of thermal pollution – hot water released from the plant – has destroyed the local marine environment that fisherfolk like Budha Ismail Jam, lead plaintiff in the Supreme Court case, rely on to support their families.

(All that would be bad enough even if the project delivered substantial development benefits, including promised cheap electricity, to people living in poverty. But the plant has been a disaster even on these terms; it has been running well below capacity and losing so much money that the developer has tried to sell it to the government for 1 rupee. The government is now in the process of raising electricity rates to make the plant more viable.)

Ending the IFC’s immunity is a critical roadblock that communities affected by World Bank Group  projects had to clear on the path to justice. Now the long fight begins to obtain real remedies for the fishing communities in Gujarat, and in another pending case, for small-scale farmers in rural Honduras murdered in conflicts over land taken as part of another IFC-financed project. These cases may take years to resolve. But a key battle has been won — one that ensures that even a massive global institution like the World Bank Group is not above the law.     

Immunity from lawsuits led the World Bank Group to be careless in these projects. The prospect of legal accountability should now prompt the institution to pay more attention to impacts on local communities, improving the design of its projects and perhaps avoiding ones that are poorly conceived. While no one likes being sued, this accountability will ultimately further its mission — to end poverty and build shared prosperity through actual sustainable development.

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