FIFA headquarters in Zurich, Switzerland. (Ennio Leanza / EPA) The governing body of soccer is the focus of a criminal probe that could result in serous jail time. It's too bad the same standard wasn't applied on the playing fields of Wall Street.
Corrupt the “world’s sport” and Uncle Sam comes after you with handcuffs and tactics usually reserved for organized crime. Wreck the world’s economy and you get cost-of-doing-business fines.
That’s the unavoidable contrast between the dragnet of officials from FIFA, the governing body of what Americans call soccer, and the treatment of the Too Big to Jail Banks.
Without intending to drive up your blood pressure by reviving recent history, let’s recap. These huge, interconnected institutions — aided by compromised regulators — created a historic speculative bubble, preyed on customers, gave executives obscene bonuses based on the degree of the risk they were taking on, gambled with derivatives that even they didn’t understand, until….boom.
But while the profits were privatized, the losses were socialized. The damage continues to this day, from continued lawlessness to the damage done to the wealth of average Americans.
But little changed. The Too Big to Fail banks became bigger. They spent heavily to buy members of Congress and water down new regulation. The Justice Department seemed strangely reluctant to bring the rule of law to Wall Street. The most dangerous practices continue.
Nobody went to jail.
Most recently, six banks accused of rigging the Libor interest rate and foreign exchange markets were fined $6 billion by American and British regulators. Although this scandal was arcane, the scale of it was enormous and the victims were very real. Once again, however, nobody went to jail. Expect the bad behavior to continue.
Indeed, according to the Financial Times, the indictment of the FIFA officials and sports moguls who paid them says they used major banks to make payments and move wire transfers. This raised “the prospect that Wall Street could be in the spotlight again over its involvement in yet another scandal.”
WILMINGTON, Del. (CN) - A pension fund cannot derivatively sue JPMorgan Chase for the $6.3 billion it lost to high-risk trades attributed to the so-called "London Whale," a chancery court judge ruled. Bruno Iskil, the head of Morgan Chase's Synthetic Credit Portfolio, earned the London Whale nickname when he was blamed for $6.3 billion in losses in 2012, in bad bets on credit default swaps he made for the bank. Delaware Chancery Court Vice Chancellor Sam Glasscock took the London Whale nickname and ran with it in his lengthy, May 22 ruling. "The C.W. Morgan is the last surviving ship of the American whaling fleet," Glasscock began. "In 1820, another ship of the fleet, the Essex, was attacked by a sperm whale, which rammed the ship repeatedly until the planking was sprung and timbers broken. The Essex foundered, utterly destroyed," The learned chancellor compared the plight of the Essex to Morgan Chase's fate at the hands of its own trader. "Another Morgan was heavily damaged by another whale - the so-called London whale. JPMorgan did not founder, but suffered losses in the billions of dollars," Glasscock wrote. The bank paid $920 million to U.S. and U.K. regulators in 2013 for its "unsafe and unsound practices" that led to the scandal. In a shareholders' derivative complaint, Asbestos Workers Local 42 Pension Fund sued 22 Morgan Chase executives and board members, including CEO Jamie Dimon, for failing to oversee their traders. But to do so, the pension fund must show asking the board to take action on behalf of the corporation would be futile - i.e., show that the board is not capable of making an independent decision on the issue, Glasscock wrote. This issue: "whether the board is unable to exercise its independent business judgment with respect to a lawsuit against certain directors and officers arising out of the losses caused by the London whale trading episode, has been heard, and rejected, by two New York courts. The plaintiff here is collaterally stopped from re-litigating the issue," Glasscock ruled. He found no precedent of a successful derivative action against directors for failure to monitor business risk. "Business risk is the very stuff of which corporate decisions are constituted," Glasscock wrote. "Where, as here, the allegations are that the level of risk being undertaken by management was reported to the board, and the board acted (or failed to act) in a way that, in hindsight, proved costly to the corporation, and which the derivative plaintiff, with the benefit of hindsight, brands wrongful, it is difficult to see how successful maintenance of that derivative action can be consistent with this jurisdiction's model of corporate governance, short of circumstances that would support a waste claim." Glasscock did not rule on the merits of the claim, but found only that he is precluded from relitigating the issue of demand futility. Iskil, who is cooperating with investigators and prosecutors, has not been charged in the case. His former boss and a junior trader were charged in 2013 - not with the trades themselves, but for allegedly hiding the size of the losses from management. Attorneys for both men, who are in Europe, deny the charges. Despite the $6.2 billion in losses attributed to the London Whale, JP Morgan Chase report a record profit of $21.3 billion in that. And the bank said it would cut CEO Jamie Dimon's 2012 pay in half - to $11.5 million, according to the financial press.
Five major banks Wednesday agreed to plead guilty to criminal charges and pay more than $5 billion in collective penalties to settle charges their traders routinely manipulated the $5.3-trillion-a-day foreign-exchange currency market for their own profit.
The Department of Justice, the Federal Reserve and other U.S. and European authorities and regulators said corporate units of Citicorp(C), JPMorgan Chase(JPM), London-based Barclays(BCS) and Royal Bank of Scotland(RBS) acknowledged their traders rigged foreign exchange prices of U.S. dollars and euros for several years starting in December 2007.
Outlining what she termed a "brazen display of collusion," U.S. Attorney General Loretta Lynch said investigators found that traders in the nearly unregulated foreign-exchange market, the world's largest trading forum, colluded in you-scratch-my-back-and-I'll-scratch-yours forms of plotting.
The $2.5 billion in criminal fines levied as part of the resolutions represent the largest anti-trust penalties ever obtained by U.S. authorities, she said.
"Starting as early as Dec 2007, currency traders at several multinational banks formed a group dubbed 'The Cartel,' " Lynch said. "It is perhaps fitting that those traders chose that name, as it aptly describes the brazenly illegal behavior they were engaging in on a near-daily basis."
Federal prosecutors said Euro-U.S dollar traders at Citicorp, JPMorgan, Barclays and RBS — self-described members of the cartel — used an exclusive electronic chat room and coded language to manipulate benchmark exchange rates of the two currencies in ways that benefited their own trading positions.
"By agreeing not to buy or sell at certain times the traders protected each other's trading positions by withholding supply of or demand for currency and suppressing competition in the FX market," the Department of Justice said.
One chat room exchange showed that a Barclays foreign exchange trader appeared to be desperate to join The Cartel and reap the benefit of its trading advantages in 2011.
After extensive discussion of whether or not this trader "would add value" to the group, the group's trading members invited him to join for a "1 month trial," but warned: "mess this up and sleep with one eye open at night."
Transcripts of other exchanges cited a Barclays employee who said "if you aint cheating, you aint trying," as well as a Barclays foreign-exchange trader who said "[Y]es, the less competition the better."
UBS (UBS) was also involved in the rate-rigging, investigators said. However, the Swiss banking giant received conditional immunity from criminal prosecution because it was the first to report foreign-exchange misconduct to DOJ investigators. The bank and subsequently provided "full cooperation" to federal prosecutors and other authorities in Europe and around the world.
That leniency came with a high price. Making good on threats to deal harshly with banks accused as repeat offenders, federal investigators tore up the 2012 non-prosecution agreement that had settled UBS' involvement in rigging the London Interbank Offered Rate (Libor), a financial benchmark used to set rates on trillions of dollars in mortgages, loans and credit cards.
As a result, UBS agreed to plead guilty to one count of wire fraud, pay a $203 million fine and accept a three-year term of probation for Libor rate manipulation by its traders. UBS also agreed to pay $342 million to the Federal Reserve and make remedial changes to its foreign-exchange business practices.
No individual bank employees were hit with criminal charges as part of the settlements, though several authorities said investigations into foreign-exchange issues are continuing.
The criminal settlements mark the latest result from a global crackdown on systematic manipulation of financial benchmarks by bank traders.
In all, the five banks have now paid nearly $9 billion in total criminal and civil fines and penalties for rigging the foreign-exchange spot market, Department of Justice officials said.
Swiss banking giant UBS agreed Wednesday to pay $545 million to settle a probe by U.S. authorities into its role in manipulating interest and currency rates. In a statement, the bank said it agreed to plead guilty to one count of wire fraud. Wochit
Bank officials took responsibility for the illegal activity, terminating dozens of traders as investigators around the world probed foreign exchange practices.
"The behavior that resulted in the settlements we announced today is an embarrassment to our firm, and stands in stark contrast to Citi's values," said Citigroup CEO Michael Corbat.
Citi also announced that it has agreed to a separate $394 million settlement of a private class-action lawsuit related to the foreign-exchange activity. The settlement is subject to court approval.
JPMorgan CEO Jamie Dimon called the investigation findings "a great disappointment to us," and said "we demand and expect better of our people."
"The lesson here is that the conduct of a small group of employees, or of even a single employee, can reflect badly on all of us, and have significant ramifications for the entire firm," said Dimon.
In Zurich, UBS Chairman Axel Weber and CEO Sergio Ermotti said the Swiss bank has taken "appropriate disciplinary actions" against a small number of employees involved in "unacceptable" behavior.
Barclays CEO Antony Jenkins said he shared the frustration of shareholders and colleagues "that some individuals have once more brought our company and industry into disrepute."
"Dealing with these issues, including taking the appropriate disciplinary action against the individuals involved, is a necessary and important part of our plan to transform Barclays and remains a key priority," said Jenkins.
Eight additional Barclays employees who participated in the wrongdoing are being terminated, said Benjamin Lawsky, the superintendent of New York's Department of Financial Services, the regulator that oversees the bank's U.S. operations.
Lawsky called the trading activity a "heads I win, tails you lose" scheme. He said his office is continuing to investigate whether electronic systems used in Barclays' foreign-exchange trading and foreign-exchange-related products was responsible for additional manipulation of the foreign-exchange market.
RBS Chief Executive Ross McEwan said the serious misconduct found by investigators "has no place in the bank I am building," and represents "another stark reminder of how badly this bank lost its way and how important it is for us to regain trust."
Bank officials nonetheless predicted the settlements were not expected to have a material impact on their financial operations. Lynch said the banks are "working with their regulators" to obtain any waivers might be required to continue normal operations.
Investors appeared to deliver a mixed appraisal of the resolutions.
Shares of Barclays, UBS and Royal Bank of Scotland moved at least 2% higher in early-afternoon trading. But Citigroup shares were down 0.68% at $54.95, while shares of JPMorgan were down 0.70% at $66.54.
Jimmy Gurulé a former assistant attorney general and Treasury official, questioned whether the criminal pleas and massive fines would produce meaningful change in banks' activities.
"Once again the actual perpetrators and criminal architects of the fraud scheme will avoid criminal liability," said Gurulé, now a University of Notre Dame law professor. "While the payment of these large fines may help to reduce the federal deficit, such penalties will do little to change the pervasive culture of corruption that currently exists in the banking sector. Real change will only occur when corrupt bank officials are indicted, convicted and sent to prison for their crimes."
By Sasha Chavkin, Ben Hallman, Michael Hudson, Cécile Schilis-Gallego and Shane Shifflett
With reporting from Musikilu Mojeed, Besar Likmeta, Ciro Barros, Giulia Afiune, Mar Cabra, Anthony Langat, Jacob Kushner, Jeanne Baron, Barry Yeoman, Blaž Zgaga and Friedrich Lindenberg.
THURSDAY, APRIL 16, 2015, 12:01 AM EDT
Find Out First
ICIJ and The Huffington Post estimate that 3.4 million people have been physically or economically displaced by World Bank-backed projects since 2004. For email updates on our investigation, sign up below.
Beneath a gloomy white sky, more than 100 armed police poured into the slum of Badia East in the teeming megacity of Lagos, Nigeria.
As they advanced, they cracked their batons on the unpaved streets and against the ramshackle walls of the shanties.
“If you love your life, move out!” the officers shouted.
Thousands of people grabbed what belongings they could carry and fled.
Then a line of hulking excavators moved in, using their hydraulic claws to smash homes into pieces. Within hours, the neighborhood was a ruin.
Bimbo Omowole Osobe, a former resident of the Badia East slum who was evicted in 2013 when her neighborhood was demolished, sits in the clinic where she now sleeps at night in the reception area. Osobe joined with volunteers from Justice and Empowerment Initiatives, an NGO where she works with other slum dwellers to fight demolitions. A child in the slums of Orisunbare Ijora Badia in Lagos, Nigeria.George Osodi / International Consortium of Investigative Journalists
Bimbo Omowole Osobe briefly lost track of her children in the chaos. When she returned to the community hours later, her concrete-block home and two small shops were gone.
“It’s like when a woman goes in for labor, and the baby comes out dead,” she said. “That’s how it felt to me.”
The Lagos state government flattened Badia East in February 2013 to clear land in an urban renewal zone financed by the World Bank, the global lender committed to fighting poverty. The neighborhood’s poor residents were cast out without warning or compensation and left to fend for themselves in a crowded, dangerous city.
Evictions like the one in Badia East aren’t supposed to happen in the middle of projects backed by the World Bank.
For more than three decades, the lender has maintained a set of “safeguard” policies that it claims have brought about a more humane and democratic system of economic development. Governments that borrow money from the bank can’t force people from their homes without warning. Families evicted to make way for dams, power plants or other big projects must be resettled and their livelihoods restored.
Key Findings
Over the last decade, projects funded by the World Bank have physically or economically displaced an estimated 3.4 million people, forcing them from their homes, taking their land or damaging their livelihoods.
The World Bank has regularly failed to live up to its own policies for protecting people harmed by projects it finances.
The World Bank and its private-sector lending arm, the International Finance Corp., have financed governments and companies accused of human rights violations such as rape, murder and torture. In some cases the lenders have continued to bankroll these borrowers after evidence of abuses emerged.
Ethiopian authorities diverted millions of dollars from a World Bank-supported project to fund a violent campaign of mass evictions, according to former officials who carried out the forced resettlement program.
From 2009 to 2013, World Bank Group lenders pumped $50 billion into projects graded the highest risk for “irreversible or unprecedented” social or environmental impacts — more than twice as much as the previous five-year span.
The bank’s commitment, it says, is to “do no harm” to people or the environment.
The World Bank has broken its promise.
Over the past decade, the bank has regularly failed to enforce its rules, with devastating consequences for some of the poorest and most vulnerable people on the planet, an investigation by the International Consortium of Investigative Journalists, The Huffington Post and other media partners has found.
The World Bank often neglects to properly review projects ahead of time to make sure communities are protected, and frequently has no idea what happens to people after they are removed. In many cases, it has continued to do business with governments that have abused their citizens, sending a signal that borrowers have little to fear if they violate the bank’s rules, according to current and former bank employees.
“There was often no intent on the part of the governments to comply — and there was often no intent on the part of the bank’s management to enforce,” said Navin Rai, a former World Bank official who oversaw the bank’s protections for indigenous peoples from 2000 to 2012. “That was how the game was played.”
In March, after ICIJ and HuffPost informed World Bank officials that the news outlets had found “systemic gaps” in the institution’s protections for displaced families, the bank acknowledged that its oversight has been poor, and promised reforms.
“We took a hard look at ourselves on resettlement and what we found caused me deep concern,” Jim Yong Kim, the World Bank’s president, said in a statement.
The scope of “involuntary resettlement,” as the bank calls it, is vast. From 2004 to 2013, the bank’s projects physically or economically displaced an estimated 3.4 million people, forcing them from their homes, taking their land or damaging their livelihoods, ICIJ’s analysis of World Bank records reveals.
The true figure is likely higher, because the bank often fails to count or undercounts the number of people affected by its projects.
A team of more than 50 journalists from 21 countries spent nearly a year documenting the bank’s failure to protect people moved aside in the name of progress. The reporting partners analyzed thousands of World Bank records, interviewed hundreds of people and reported on the ground in Albania, Brazil, Ethiopia, Honduras, Ghana, Guatemala, India, Kenya, Kosovo, Nigeria, Peru, Serbia, South Sudan and Uganda.
In these countries and others, the investigation found, the bank’s lapses have hurt urban slum dwellers, hardscrabble farmers, impoverished fisherfolk, forest dwellers and indigenous groups — leaving them to fight for their homes, their land and their ways of life, sometimes in the face of intimidation and violence.
Asia and Africa Resettled
Nearly all of the estimated 3.4 million people who have been physically or economically displaced by World Bank-backed projects between 2004 and 2013 live in Africa or one of three Asian countries: Vietnam, China and India. Read about the data and our methodology here.
Continent
Evicted
Asia
2,897,872 people
221 resettlement projects
Africa
417,363 people
136 resettlement projects
South America
26,262 people
31 resettlement projects
Europe
5,524 people
11 resettlement projects
Oceania
2,483 people
2 resettlement projects
North America
855 people
11 resettlement projects
Island States
90 people
1 resettlement project
People displaced
13,580
27,150
40,720
54,300
67,870
81,440
1,255,600
See Countries By:PEOPLE DISPLACEDTOTAL PROJECTS
AL
AM
AR
AZ
BD
BF
BG
BI
BO
BR
BT
BW
BZ
CD
CF
CI
CM
CN
CO
CR
CV
DJ
DO
EC
EG
ET
GA
GE
GH
GM
GY
HN
HT
ID
IN
IR
IZ
JM
JO
KG
KH
KI
TG
SD
KE
BJ
GN
KV
KZ
LA
LB
LC
LK
LR
LS
MA
MG
MK
ML
MN
MR
MU
MW
MZ
NE
NG
NI
NP
PE
PH
PK
PL
PS
RS
RW
SL
SN
ST
TH
TJ
TL
TN
TR
TZ
UA
UG
UY
UZ
VC
VN
ZA
ZM
Source: the World Bank
Only countries where resettlement is known to have occurred are included.
Between 2004 and 2013, the World Bank and its private-sector lending arm, the International Finance Corp., committed to lend $455 billion to bankroll nearly 7,200 projects in developing countries.
Over the same span, people affected by World Bank and IFC investments lodged dozens of complaints with the lenders’ internal review panels, alleging the lenders and their borrowers failed to live up to World Bank and IFC safeguard rules.
In Lagos, the World Bank’s ombudsman, the Inspection Panel, said bank management “fell short of protecting the poor and vulnerable communities against forceful evictions.” Bank officials should have paid better attention to what was going on in Badia East, the panel said, given Lagos authorities’ long history of bulldozing slums and forcing people from their homes.
One year after the evictions, the bank loaned Lagos authorities $200 million to support the state government’s budget.
The World Bank said it was “not a party to the demolition” and that it advised the Lagos government to negotiate with displaced people, leading to compensation for most of those who said they’d been harmed.
Cases involving evictions have drawn the most attention, but the most common hardships suffered by people living in the path of World Bank projects involve lost or diminished income.
A fisherman near Mundra, India, prepares the net for an overnight fishing trip. Locals say a World Bank Group-backed project in the area has depleted fish stocks.Sami Siva / International Consortium of Investigative Journalists
On India’s northwest coast, members of a historically oppressed Muslim community claim that heated water spewing from a coal-fueled power plant has depleted fish and lobster stocks in the once-fertile gulf where they make their living. The IFC loaned Tata Power, one of India’s largest companies, $450 million to help build the plant.
The U.S. and other global powers launched the World Bank at the end of World War II to promote development in countries torn by war and poverty. Member countries finance the bank and vote on whether to approve roughly $65 billion in annual loans, grants and other investments.
In 2014, the bank financed initiatives as varied as training for chicken farmers in Senegal and sewage system upgrades in the West Bank and Gaza Strip.
What Is The World Bank?
The World Bank Group is the globe’s most prestigious development lender, bankrolling hundreds of government projects each year in pursuit of its high-minded mission: to combat the scourge of poverty by backing new transit systems, power plants, dams and other projects it believes will help boost the fortunes of poor people.
World Bank President Kim said in March that the demand in struggling regions for infrastructure spending — to provide clean water, electricity, medical care and other vital needs — will mean the bank will finance an increasing number of big projects likely to remove people from their land or disrupt their livelihoods.
The World Bank also put out a 5½-page “action plan” that it said would improve its oversight of resettlement.
“We must and will do better,” said David Theis, a World Bank spokesman, in response to the reporting team’s questions.
Yet even as it promised reforms to its procedures, the bank has proposed sweeping changes to the policies that underlie them. The bank is now in the middle of a rewrite of its safeguards policy that will set its course for decades to come.
Some current and former World Bank officials warn that the proposed revisions will further undermine the bank’s commitment to protecting the people it was created to serve. The latest draft of the new policy, released in July 2014, would give governments more room to sidestep the bank’s standards and make decisions about whether local populations need protecting, they say.
“I am saddened to see now that pioneering policy achievements of the bank are being dismantled and downgraded,” said Michael Cernea, a former high-ranking bank official who oversaw the bank resettlement protections for nearly two decades. “The poorest and most powerless will pay the price.”
The bank says it has listened to the feedback and will release a revised draft with “the strongest, most state-of-the-art environmental and social safeguards.”
Unsettled History
A man-made disaster in eastern Brazil in the late 1970s helped prompt the World Bank to adopt its first systematic protections for people living in the footprint of big projects.
Rising waters upstream from the Sobradinho Dam, built with World Bank financing, forced more than 60,000 people from their homes. Their relocation was poorly planned and chaotic. Some families fled their villages as water began pouring into their homes and fields, leaving behind herds of animals to drown.
The fiasco gave Cernea, the World Bank’s first in-house sociologist, leverage to convince the bank to approve its first comprehensive policy for protecting people whose lives are upended by the bank’s projects. Cernea based the new rules, approved by the bank in 1980, on a simple premise: People who lose their land, their homes or their jobs should get enough help to restore, or exceed, their old standard of living.
Under the World Bank’s rules, governments seeking money from the bank must put together detailed resettlement plans for people who are physically or economically displaced.
Current and former bank employees say the work of enforcing these standards has often been undercut by internal pressures to win approval for big, splashy projects. Many bank managers, insiders say, define success by the number of deals they fund. They often push back against requirements that add complications and costs.
Daniel Gross, an anthropologist who worked for the bank for two decades as a consultant and staff member, said in-house safeguards watchdogs have “a place at the table” in debates over how much the bank is required to do to protect people. But amid the push to get projects done, they’re frequently ignored and pressed to “play ball and get along,” he said.
In an internal survey conducted last year by bank auditors, 77 percent of employees responsible for enforcing the institution’s safeguards said they think that management “does not value” their work. The bank released the survey in March, at the same time that it admitted to poor oversight of its resettlement policy.
“Safeguards are irrelevant for managers,” said one staffer who was surveyed for the report.
Albanian authorities used a World Bank-backed project to clear the way for a planned seaside resort, partly or completely tearing down 15 homes in the impoverished village of Jale. Andon Koka's home was flattened, and half of his brother's home (in background) was demolished.Besar Likmeta / BalkanInsight.com
No Consolation
In 2007, residents of Jale, a tiny Albanian beach hamlet on the Ionian Sea, found themselves in the path of a coastal cleanup effort backed by a $17.5 million loan from the World Bank. More than a dozen poor families lived in Jale, many in homes with add-ons and extra floors they rented to vacationers.
Albanian authorities had other plans for the seaside.
They saw Jale as an ideal spot for a high-end resort to lure tourists to the country. They decided to use the coastal restoration project — which was managed by the son-in-law of Sali Berisha, Albania’s prime minister at the time — as a vehicle for turning the plan into a reality.
Before dawn one April morning, dozens of police officers streamed into the beach community, heading for structures previously identified in photos taken during aerial surveys paid for by the World Bank. The police rousted residents from their beds and forced them from their homes. Demolition crews leveled entire houses or tore down additions that the government said had been put up without proper permits.
Sanie Halilaj cried as work crews pulled down half of the house she had shared with her husband for more than half a century.
“When you lose a loved one, someone consoles you,” the 74-year-old said in a recent interview. “But when you lose your home, there is no consolation.”
The mass evictions of the devoutly Christian Anuak people from Ethiopia were enabled by money from the World Bank, former officials say. Across the globe, communities are being pushed aside by projects that the bank has financed.Video production by Hilke Schellmann
Bank officials initially denied the evictions were connected to the bank-financed coastal initiative. But a year later, the bank’s Inspection Panel found “direct links” between the project and the demolitions. The panel slammed the bank for embarking on a “systematic effort” to obstruct its investigation, providing answers “at times in total conflict with factual information which had been long known to management.”
After the panel’s report was released in 2008, then-World Bank Group President Robert Zoellick called the bank’s actions “appalling.” Zoellick vowed that the institution would swiftly “strengthen oversight, improve procedures and help the families who had their buildings demolished.”
“The bank cannot let this happen again,” he said.
Seven years later, little has changed. In Jale, most residents still haven’t received payment from the government for what they lost, even though the World Bank has covered their legal costs. At the bank, oversight remains weak.
A 2014 internal World Bank review found that in 60 percent of sampled cases, bank staffers failed to document what happened to people after they were forced from their land or homes.
Seventy percent of the cases sampled in the 2014 report lacked required information about whether anyone had complained and whether complaints were resolved, indicating the bank’s mechanisms for dealing with grievances were “box-checking” exercises that “existed on paper but not in practice,” the in-house reviewers wrote.
These “sizeable gaps in information” indicate “significant potential failures in the bank’s system for dealing with resettlement,” the report said. “The inability to confirm that resettlement has been satisfactorily completed poses a reputational risk for the World Bank.”
Victor Mendoza, the president of a farming co-op near the sprawling Yanacocha gold mine in northern Peru, with his 10-year-old son. The mine, built two decades ago with the financial backing of the International Finance Corp., the private-lending arm of the World Bank, is deeply unpopular in this region. Farmers like Mendoza claim it is polluting their water supply and threatening the health of their families and livestock. Read the story here.Ben Hallman / The Huffington Post
‘They Abandoned Us’
Most World Bank investments do not require evictions or damage people’s ability to earn a living or feed their families. But the percentage of those that do has increased sharply in recent years.
A 2012 internal audit found that projects in the bank’s pipeline triggered the bank’s resettlement policy 40 percent of the time — twice as often as projects the bank had already completed.
The World Bank and IFC have also been boosting support for mega-projects, such as oil pipelines and dams, that the lenders acknowledge are most likely to cause “irreversible” social or environmental harm, an analysis by HuffPost and ICIJ found.
A big project can upend the lives of tens of thousands of people.
Since 2004, World Bank estimates indicate that at least a dozen bank-supported projects physically or economically displaced more than 50,000 people each.
Studies show that forced relocations can rip apart kinship networks and increase risks of illness and disease. Resettled populations are more likely to suffer unemployment and hunger, and mortality rates are higher.
The World Bank acknowledges that resettlement is difficult, but says it’s often impossible to build roads, power plants and other much-needed projects without moving people from their homes.
“We stand by the need to continue financing infrastructure projects, including those that entail land acquisition and involuntary resettlement,” said Theis, the World Bank spokesman.
The bank says it strives to make sure its borrowers provide real help to people pushed aside by big projects. In Laos, the bank says, authorities built more than 1,300 new homes with electricity and toilets, 32 schools and two health centers for thousands of people forced to move to make way for a World Bank-financed dam.
“Through careful project design and proper implementation, land acquisition and involuntary resettlement have resulted in people’s lives improving significantly,” Theis said in a statement.
In a drought-haunted region of Brazil, farm families pushed aside by another World Bank-backed dam say that their lives haven’t been improved.
Thirty-five families live in a tiny, government-built relocation village called Gameleira, named after the dam and reservoir that forced them to leave their homes along the Mundaú River.
In their old homes, they could take water from wells and the river itself, but the relocation village has no fresh water source. A World Bank report acknowledged a delay in getting water access for the new village, but said the village’s water issues had been solved by late 2012.
The villagers say that’s not true. They are still waiting, four years after they were forced to relocate, for local authorities to keep their promise to build a small pipeline to draw water from the new reservoir to the relocation village. Meanwhile, water from the reservoir is being piped to urban areas.
A well in the village produces salty water and, even with desalination equipment, each family is limited to 36 liters of water a day. Families supplement their supply by buying from commercial vendors, sometimes spending as much as a third of their modest incomes.
These purchases provide them enough water to irrigate small gardens of yuca, beans and corn. If they want to plant cash crops — such as cashews — they have to wait for rain, which hardly ever comes.
“We feel that we are suffering so that people from the city can have water,” 39-year-old Francisco Venílson dos Santos, a farmer and father of four boys and two girls, said. “They abandoned us here.”
In a written statement, the World Bank said it is satisfied the village was provided an adequate supply of water “both in terms of quantity and quality.” The bank said it is helping Brazilian authorities deal with northeast Brazil’s prolonged drought by helping “to increase the resilience of small rural communities,” giving them advice on drilling emergency groundwater wells and creating “drought preparedness plans.”
World Bank Group President Jim Yong Kim at a Berlin press conference.Tobia Schwarz / Getty Images
Shortcuts
In July 2012, an unconventional leader took over as the World Bank’s new president. Jim Yong Kim, a Korean-American physician known for his work fighting AIDS in Africa, became the first World Bank president whose background wasn’t in finance or politics.
Two decades before, Kim had joined protests in Washington, D.C., calling for the World Bank to be shut down altogether for valuing indicators like economic growth over assistance to poor people.
Human rights advocates and bank staffers working on safeguards hoped that Kim’s appointment would signal a shift toward greater protections for people affected by World Bank projects.
In March, Kim said he was concerned about “major problems” in the bank’s oversight of its resettlement policies. He announced an action plan calling for greater independence for the bank’s safeguards watchdogs and a 15 percent funding boost for safeguards enforcement.
But while Kim and other bank officials have acknowledged general shortcomings, they have consistently denied that the bank shares blame for violent or wrongful evictions carried out by its borrowers.
In Ethiopia, the World Bank’s Inspection Panel found the bank had violated its own rules by failing to acknowledge an “operational link” between a bank-funded health and education initiative and a mass relocation campaign carried out by the Ethiopian government. In 2011, soldiers carrying out the evictions targeted some villagers for beatings and rapes, killing at least seven, according to a report by Human Rights Watch and ICIJ’s interviews with people who were evicted.
Daily life in a refugee camp in South Sudan. Some of the camp’s residents fled Ethiopia to avoid brutal evictions carried out by government forces. New evidence suggests the government’s actions were funded by the World Bank. Read the story here.Andreea Campeanu / International Consortium of Investigative Journalists
Kim said that while “we could have done more” to help the evicted communities, the bank was ultimately not at fault.
In India, the IFC’s internal ombudsman found that the lender had breached its policies by not doing enough to protect the large fishing community living in the shadow of the coal power plant it financed on the Gulf of Kutch. With Kim’s approval, IFC’s management rejected many of the ombudsman’s findings and defended the actions of its corporate client.
In both Ethiopia and India, the World Bank Group declined to direct its clients to fully compensate the affected communities.
In response to complaints about the Badia East evictions in Nigeria, the World Bank embraced a shortcut that fell short of its promise that people affected by projects will be fully compensated for their losses.
Typically, a community that claims it has been harmed by a bank project can file a complaint that will trigger an investigation by the bank’s Inspection Panel.
But when three Badia East residents submitted a complaint, panel staffers held off launching an investigation. Instead, they guided the residents into a new pilot program for handling disputes. The program put the community into direct negotiations with the Lagos state government.
Megan Chapman, then a lawyer for the Social and Economic Rights Action Center and now a co-founder of Justice & Empowerment Initiatives, represented the evicted residents. The Inspection Panel promised Chapman that the Badia East community could demand an investigation at any time if it wasn’t satisfied with the outcome, according to emails reviewed by ICIJ.
Negotiations didn’t go well for the evicted residents. The Lagos government insisted they had been illegal squatters, even though some of them had lived there for decades. It gave the group an ultimatum: Accept a small payment and sign away any legal rights, or get nothing.
Chapman believed that the government’s offer violated the bank’s resettlement policy because it didn’t provide new homes for the displaced or compensation equal to what they’d lost. The payments that Lagos authorities offered for larger demolished structures, for example, were 31 percent lower than what the World Bank’s own consultants said they were worth.
“It was like David and Goliath. There were these little people fighting against this giant,” Chapman said. The bank “really left vulnerable people on their own.”
The government’s ultimatum divided the community. The leader of Chapman’s organization said it was the best offer the evicted people were going to get. He said he was satisfied with the deal. Many residents and their advocates — including Chapman — objected.
But they had nowhere to turn for help.
Internal emails obtained by ICIJ indicate that by early 2014, the Inspection Panel’s chair, Eimi Watanabe, was already pushing to make sure that the panel would not investigate the World Bank’s role in the case.
After hearing that the leader of Chapman’s group was satisfied with the outcome of the negotiations, Watanabe urged her staff to issue a formal notice shutting down the possibility of any investigation before the fragile agreement fell apart, according to internal emails obtained by ICIJ.
“Pl[ease] issue notice soonest before it unravels,” Watanabe wrote on Feb. 6, 2014.
Watanabe’s directive didn’t immediately kill the investigation, but over the following months the panel made it clear that it didn’t want to dig deeper into the World Bank’s actions.
In July 2014, two of the three residents who had filed the complaint told the panel they were unhappy with the deal and that they wanted to go forward with an investigation. The panel rejected their request and shut the case down with an official notice that said, as an aside, that the bank had fallen short of its own resettlement standards.
Chapman and other advocates say the bank misled them about how the pilot program would work and abandoned the people of Badia East.
Watanabe did not respond to ICIJ’s questions about the Lagos case.
Gonzalo Castro de la Mata, the Inspection Panel’s current chair, said the panel “deliberated carefully at every stage of the case” and did not seek to arbitrarily shut down the investigation before it could start.
He said that although the Lagos government had agreed to follow World Bank rules for resettlement in Badia East and other neighborhoods, the evictions weren’t done under the official umbrella of the bank’s urban renewal initiative. Because of this and other factors, he said, the panel determined that “a lengthy process of investigation would not at the end of day necessarily yield better outcomes” for residents who lost their homes.
Joseph Kilimo Chebet, a father of five, standing next to the burned remains of his homestead in Kenya, destroyed only hours prior by Kenya Forest Service officers. Read the story here.Tony Karumba / GroundTruth
An Uncertain Future
As it enters its eighth decade, the World Bank faces an identity crisis.
It is no longer the only lender willing to venture into struggling nations and finance huge projects. It is being challenged by new competition from other development banks that don’t have the same social standards — and are rapidly drawing support from the World Bank’s traditional backers.
China has launched a new development bank and persuaded Britain, Germany and other American allies to join, despite open U.S. opposition.
These geopolitical shifts have fueled doubts about whether the World Bank still has the clout — or the desire — to impose strong protections for people living in the way of development.
United Nations human rights officials have written World Bank President Kim to say they’re concerned that the growing ability of borrowers to access other financing has spurred the bank to join a “race to the bottom” and push its standards for protecting people even lower.
The bank’s proposed changes to its safeguard rules would grant many borrowers greater authority to police themselves. In the current draft, governments would be allowed to hold off on preparing resettlement plans until after the bank greenlights projects. They would also be permitted to use their own environmental and social policies instead of the bank’s safeguards, as long as the bank determines these policies are consistent with its own.
Some current and former bank officials say these changes would spell disaster for the people living in the growing footprint of the bank’s projects — allowing governments to abide by weaker national standards and decide whether vulnerable populations need protecting after they have already received financing.
In December, the World Bank’s biggest patron, the U.S. Congress, approved a measure directing the American representative on the World Bank board to vote against any future project that would be subject to weaker safeguards than the ones currently in place.
The bank says that the new rules would strengthen the protections for populations affected by its projects.
Theis, the bank spokesman, said that under the proposed rules, “a rigorous upfront scoping of the project is always required” and borrowers still must prepare plans to address resettlement and other adverse impacts of projects “well in advance of any construction activities.”
World Bank officials are now writing a new version of the safeguards that they say will take into account the criticisms of their previous draft. They expect to release the new draft in the late spring or summer.
In the meantime, the bank continues to ramp up its investment in large infrastructure projects, like the one that claimed Bimbo Osobe’s home in Badia East.
Osobe spent months after her eviction sleeping under only a net for shelter, she said.
As of mid-March, she was staying in a medical clinic, sleeping in the reception area after the clinic closes at night. She’s been forced to send three of her children away to stay with relatives, she said.
“It is not a good thing for a family to be divided,” Osobe said.
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