WASHINGTON Jan 22 The World Bank's
private-sector arm on Wednesday accepted criticism from its
internal watchdog that it should have done more due diligence on
a loan to a Honduran company allegedly linked to multiple
The bank's International Finance Corporation (IFC) said
earlier this month that it disagreed with some of the findings
of the watchdog report, which said it should have done more
careful research before approving a $30 million loan to
Tegucigalpa-based Corporacion Dinant, a palm oil company.
IFC backed away from its initial disagreements on Wednesday
and said it would cancel the loan if Dinant did not agree to
strengthen its community engagement and review its security
It gave the company half the $30 million loan in 2009, but
has not disbursed any funds since.
At issue is just how much due diligence IFC should do before
giving money to companies in conflict areas, and how it should
react to escalating violence after a deal goes through. The
World Bank arm aims to spur private investment in developing
The topic is likely to become even more important as the
World Bank plans to work more closely with the private sector in
order to fight poverty.
The report by the IFC's Office of the Compliance Advisor
Ombudsman (CAO) said a standard news article search, as required
by World Bank rules, would have turned up accusations that
Dinant's owner had masterminded the murder of an environmental
activist and that his properties were staging posts for drug
The CAO said it had not tried to verify the reports and
noted the businessman had been acquitted of murder charges. But
in one of its harshest critiques to date, the CAO said the
accusations should have raised red flags because they could
damage the World Bank's reputation.
"IFC acknowledges that there were shortcomings in how we
implemented our environmental and social policies and procedures
in the Dinant investment, and accepts the recommendations made
in the CAO audit," the institution said in a statement.
"As noted in the audit, IFC must take a broad view of the
country and sector risks when considering projects."
The World Bank's board held an informal meeting last week
about the CAO audit and IFC's investment, according to the
A letter from a coalition of nine local and international
human rights groups said their "outcry," along with criticism
from the bank's board and negative media coverage, prompted the
IFC to admit the errors on Wednesday.
The IFC approved a loan program in 2009 to help Dinant
develop its palm oil and food business. The CAO launched an
audit of the project in 2012.
Through the loan, IFC indirectly got involved in one of the
thorniest land disputes in Central America. Dinant operates in a
fertile region near Honduras' Caribbean coast that has been the
site of clashes that have left more than 100 people dead since
2009, according to the Honduran National Commission for Human
Human rights groups have accused the company and its guards
of human rights violations, including killings and forced
evictions of peasants occupying disputed land.
The coalition of human groups welcomed the IFC's admission
of mistakes, but said the lender had not done enough to change
its institutional culture and hold staff responsible.
"The IFC's new response still falls seriously short of
laying out a plan to ensure that communities' human rights are
respected in future," nine groups said.