The US Supreme Court Judgment: A Challenge to World Bank’s unfettered immunity

31 March 2019 by Sushovan Dhar

West face of the United States Supreme Court building in Washington, DC

The verdict is finally out. On 27 February, in a historic 7-1 decision, the Supreme Court of the United States ruled that international organizations like the World Bank Group are not above immunity and can be sued in US courts. This was in response to a case (Budha Ismail Jam, et al., Petitioners v. International Finance Corporation) filed about a power plant in Gujarat, India financed by the IFC. The US Court’s decision marks a defining moment for people across the world and also, directly affected communities demanding an end to immunity of the International Financial Institutions (IFIs).

No immunity to IFC

The World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

’s private sector lending arm, International Finance Corporation (IFC), like many other IFIs have hitherto claimed that they were “above the law,” pursuing reckless lending projects that involved serious rights violations. In spite of disastrous consequences, they have been able to pursue an untrammeled march thanks to this “absolute” immunity”. Despite of serious concerns, worldwide, their activities have escaped serious legal scrutiny as they took protection under the International Organizations Immunities Act, 1945 which granted international organizations “the same immunity from suit” as foreign governments. The Supreme Court, this time, denied this exception in consideration of Foreign Sovereign Immunities Act, 1976 that excludes commercial activities by foreign governments from this immunity.

Earlier, two US lower courts upheld the World Bank immunity. The case involves Mundra Ultra Mega Power Project, a sub-bituminous coal-fired power plant in Gujarat, India. Advertised as “India’s most energy efficient thermal plant using supercritical technology” supposed to meet the country’s 2% power needs, is financed by IFC. The local fisher-folk and farmers complained that their livelihoods, air quality, and drinking water have been ravaged by the project. They feel that the IFC and the promoters of the project were well aware about these risks in advance and pushed it forward recklessly without proper safeguard mechanisms. They had, initially, approached the IFC’s internal grievance mechanism, the Office of the Compliance Advisor/Ombudsman (CAO). In July 2012, the CAO concluded the compliance appraisal and highlighted that a number of issues raised by the complainants merited further enquiry. However, the IFC decided to ignore the CAO’s conclusions. The complainants filed suit in the US court as a last resort with the help of EarthRights International and the Stanford Law School Supreme Court Litigation Clinic.

Replying to the litigations, the IFC pleaded that since it enjoyed immunity any legal suit against it would be disastrous, but the Supreme Court, in an opinion by Chief Justice John Roberts, found these concerns to be “inflated.” The Court noted that, unlike many international organizations, the IFC’s founding members did not grant the organization absolute immunity in its charter. This case (Docket No. 17-1011) now will go back to the lower courts for further litigation and certainly, the Supreme Court’s judgment that the World Bank Group can be sued will certainly weigh on it.

Ismet Zerin Khan’s struggle

Earlier, Ismet Zerin Khan, a former World Bank officer in Bangladesh, successfully challenged the World Bank’s immunity in that country’s courts. Her complaint was related to her own illegal termination in 2001. The World Bank, in that case, claimed that it could not be sued due to absolute legal immunity. However, in response to her petition, the Bangladesh District Judge Syed Mashfiqul Islam ruled that the suit should be “decreed against the defendant (World Bank) on contest” and found that “the termination was illegal, malafide, arbitrary and that the Plaintiff is entitled to be reinstated in her post and get all arrear salaries and benefits.”

Unmasking the Bank’s claim of transparency, fairness and impartiality in its conduct, Ismet Zerin Khan reported that she exhausted “all the internal administrative grievance recourses of the World Bank,” including the Appeals Committee and the Administrative Tribunal. However, “all efforts for a fair and just resolution of the dispute failed.”

In response to her petition, the courts of law in Bangladesh confirmed that the World Bank does not enjoy unfettered “immunity” in Bangladesh amidst tall claims, loud protestations and proclamations by the Bank. The Bangladesh courts took cognizance and locus standi of her legal case and challenges against the World Bank. She struggled successfully, for decades, in taking the matter from the lower trial courts to the High Court Division of the Supreme Court of Bangladesh through a very slow and painstaking judicial process, in spite of repeated and continued obstruction by the World Bank through lies, fabrications and false claims.

The verdict by the Bangladesh High Court is not only bold, but also unprecedented and historic. It is perhaps for the first time in the history of the World Bank, since its inception more than seven decades back in 1944, that their absurd and unacceptable claims to immunity have been challenged and ultimately thrown out of the window by the judicial system in a member country. They have been subjected to the jurisdiction of courts of law and forced to appear there. They lost every appeal to date, despite appointing legal counsel of a member country to defend themselves, and all of which have been vindication of Ismet Zerin Khan rights and claims.

IFC accused of ‘profiting from murder’ in Honduras

In another corner of the planet, Honduran farmers are fighting the IFC for knowingly “profiting from the financing of murder.” The local farmers allege that in order to drive them away from their lands, the Corporación Dinant, a palm oil company, waged a war against the farmers and their co-operatives. More than 100 people have been murdered, since 2009, in the Bajo Aguan region of Honduras. A retrograde amendment to the country’s agrarian law in 1992 paved the way for large tracts of land that earlier could only be held collectively are allowed for sale to private landowners or corporations. Since then, there has been a de facto land loot with thousands of acres of land transferred from farming communities to large agro-industrial firms. Wherever farmers have attempted to resist they have been dealt with brutality.

Honduras is a dangerous place for environmental and human rights activists and, this is no open secret. Between 2009 - 2013, the IFC disbursed millions of dollars of loan in several tranches to Dinant; further IFC support later came through indirect investments, through the Ficohsa bank in Honduras and IFC AMC. Further, there are allegations that the IFC made $15 million payment after a destabilizing coup d’état and with actual knowledge that there were ongoing land disputes involving Dinant’s properties in the Aguan.

On March 8th, 2017 EarthRights International filed a federal lawsuit in Washington DC on behalf of Honduran farmers charging two World Bank Group members with aiding and abetting gross violations of human rights. The Honduran farmers requested permission of the court to file their complaint under Doe pseudonyms as a safety measure given the high risks they face. Their Motion to Proceed Under Pseudonym was granted the following day. In October 2017, the Honduran plaintiffs withdrew their suit (via a “voluntary dismissal without prejudice”) from the court in the District of Columbia and refiled their claims against Defendant IFC-AMC in the District of Delaware (where IFC-AMC is incorporated). In November 2017, defendant IFC-AMC filed a motion to set a briefing schedule in which they asked the court to allow them to brief the issue of a proposed transfer back to the District of Columbia before responding to Plaintiffs’ lawsuit. The Plaintiffs opposed this motion on November 22. The parties are currently waiting on the Delaware District Court to decide the order in which the issues will be briefed.

In February 2018, defendant the IFC-AMC filed a motion to dismiss the petition. The US Supreme Court ruling denying immunity to IFC will also bolster the case of the Honduran farmers.

The World Bank can be sued in any country

Contrary to popular opinions, the IFC can be sued. The Section 3 of Article VI of the IFC Articles of Association (as amended through June 27, 2012) clearly states that “Actions may be brought against the Corporation only in a court of competent jurisdiction in the territories of a member in which the Corporation has an office, has appointed an agent for the purpose of accepting service of process, or has issued or guaranteed securities.” The same was adopted in toto by the Indian parliament as the International Finance Corporation (Status, Immunities And Privileges) Act, 1958. Therefore, there is no legal hindrance in suing the IFC for any damages arising due to its actions or lending. Not only can it be tried in a country where it has an office but also in all countries affected by its actions since it appoints representatives wherever there is a project, even if there is no permanent office.

The World Bank is not entitled to immunity either. The Section 3 of Article VII of the IBRD Articles of agreement (As amended effective June 27, 2012) echoes the same provision and explicitly states that the WB may be taken to court under certain conditions. It may be tried by a national court of justice in countries where it is represented and/or has issued bonds. This possibility against the Bank has existed since its foundation in 1944 and has never been modified until now for the simple reason that the WB finances the loans it grants to member-countries by borrowing (by issuing bonds) on the financial markets. Originally, these bonds were bought by the big, mainly North-American, private banks. However, there are currently around fifty odd countries that buys the Bank bonds. Also, other institutions, including pension funds Pension Fund
Pension Funds
Pension funds: investment funds that manage capitalized retirement schemes, they are funded by the employees of one or several companies paying-into the scheme which, often, is also partially funded by the employers. The objective is to pay the pensions of the employees that take part in the scheme. They manage very big amounts of money that are usually invested on the stock markets or financial markets.
and trade unions, buy them too.

The WB’s founder countries estimated that they would not be able to sell the Bank’s bonds unless they guaranteed buyers the right to sue the Bank in case of default. This is why there is a fundamental difference between the immunity status of the WB and the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
. The IMF can have immunity since it finances its loans itself using the money paid in by its members in the form of pro rata shares. If the WB does not enjoy immunity, it is not for humanitarian reasons, but to provide creditors with the requisite guarantees Guarantees Acts that provide a creditor with security in complement to the debtor’s commitment. A distinction is made between real guarantees (lien, pledge, mortgage, prior charge) and personal guarantees (surety, aval, letter of intent, independent guarantee). .

End Impunity!

Not only in India, Bangladesh or Honduras, the World Bank and other IFIs have everywhere operated under the garb of immunity to protect itself from democratic scrutiny while their dubious lending have imperiled the lives of millions. Projects financed by the IFC and the World Bank Group and, other International Financial Institutions have violated all norms : human rights, social, environmental, labor, etc. Yet, all the culprits have evaded legal and judicial procedures at will. They have, in fact, operated as a super-authority above the constitutional ambit of the countries in which they operate. This judgement by the US Supreme Court is genuinely a victory everyone who has attempted to nail the culprits. It has the potential to open a series of prosecution against the Bank and IFIs ensuring justice for the suffered. However, legal actions are not by themselves sufficient to end this oppressive lending practices. We also need popular mobilizations of the affected communities and others to end this anarchy.

Other articles in English by Sushovan Dhar (55)

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