January 10, 2014 / 10:11 PM / 4 years ago

World Bank did not fully vet Honduran company's loan -watchdog

WASHINGTON, Jan 10 (Reuters) - An internal World Bank watchdog blasted the lender on Friday for not doing enough due diligence on a loan made to a Honduran company that is allegedly linked to multiple killings and drug trafficking.

The watchdog said the bank’s International Finance Corporation (IFC), which aims to spur private investment in poor countries, should have more carefully researched Tegucigalpa-based Corporacion Dinant before approving the $30 million loan program.

A standard news article search required by World Bank rules would have turned up accusations that Dinant’s owner masterminded the murder of an environmental activist and that his properties were staging posts for drug traffickers, the IFC’s Office of the Compliance Advisor Ombudsman (CAO) said in a report.

The CAO said it did not try to verify the authenticity of the reports and noted that the businessman was acquitted on murder charges. But their existence should have raised red flags because they could damage the reputation of the World Bank.

“IFC staff either knew about these allegations and perceptions and failed to deal with them” or did not conduct required news searches, the CAO said, noting its investigators had conducted news searches using the same parameters mandated by the World Bank’s rules.

The IFC approved the 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 violent clashes that have killed more than 100 people since 2009, according to the Honduran National Commission for Human Rights.

Since the IFC approved the loan program, there have been reports in the media that Dinant helped forcibly evict farmers and that “inappropriate use” of its security forces had resulted in multiple deaths, the CAO said on Friday.

The IFC said it disagreed with some of the report’s conclusions, but it was asking Dinant to retrain its security personnel and vet them more carefully.

“The lessons from this report can help us as we increase out work in fragile and conflict-affected areas,” IFC officials Oscar Chemerinski and Morgan Landy said in a letter to the CAO.

The report offers a cautionary tale for the World Bank as it plans to work more closely with the private sector in order to fight poverty in less developed nations.

The CAO recommended the World Bank put more emphasis on its loan programs’ social and environmental impact, saying a lack of adequate research could stem from a narrow focus on a project’s financial terms.

An official at Dinant did not immediately respond to a request for comment. (Reporting by Jason Lange in Washington; Additional reportin by Anna Yukhananov in Washington and Gustavo Palencia in Tegucigalpa; Editing by Amanda Kwan)

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