Cambodia Plantations Not IFC’s First Controversy

In the wake of a new report from environmental rights group Global Witness rebuking the World Bank’s International Finance Corporation (IFC) and Deutsche Bank for investing in rubber plantations accused of illegal logging and forced evictions, both institutions have denied responsibility and deflected the blame elsewhere.

But the investments targeted in the new report are not the first projects for which both the IFC and Deutsche Bank have received criticism in Cambodia.

Local NGOs filed a complaint with the IFC’s compliance ombudsman in 2009 on behalf of 79 families worried that the expansion of Sihanoukville airport was moving forward without their consultation or guarantees of compensation should they be evicted.

The IFC ombudsman agreed to intervene the following year and facilitated a resettlement plan for the families, which is now being monitored.

Since 2003, the IFC has helped finance Cambodia Airports, which is owned by French construction giant Vinci Group, for projects involving runway expansions at Phnom Penh and Sihanoukville airports.

In July, 387 families living along the outskirts of the Phnom Penh International Airport were served with eviction letters due to expansion plans to the runway. The families insist they have legal tenure to their homes, but the government disagrees and has refused their demands for compensation.

Though the evictions have yet to take place, families have been told by local authorities that the eviction will take place. It was not known yesterday if the ombudsman is monitoring the Phnom Penh airport expansion plan.

The new Global Witness report focuses on $14.95 million the IFC has put into Vietnam Enterprise Investment Limited (VEIL), an investment fund that in turn holds shares in Vietnamese rubber firm Hoang Anh Gia Lai (HAGL). Global Witness accuses HAGL of breaching a raft of Cambodian laws related to forest clearing and forced evictions at its various rubber plantations in the country and calls on the IFC to divest unless the rubber firm reforms soon.

Global Witness also called the IFC’s oversight and monitoring of its investment in HAGL “derisory,” a conclusion that the IFC’s own compliance ombudsman came to earlier this year.

In a statement issued in February, after auditing hundreds of the IFC’s investments around the world, including Cambodia, the ombudsman said the financier had no honest way of knowing whether any of its investments were making things better or worse.

“IFC does not have a methodology for determining whether its principle requirement on clients, the implementation of an environmental and social management system, achieves the core objective of ‘doing no harm’ or improving environmental and social outcomes at the sub-client level,” the IFC ombudsman said. “This means that IFC has no quantitative or qualitative basis on which to assert that its financial intermediation investments achieve such outcomes.”

“IFC procedures are not designed to support the broader environmental and social outcomes that are commensurate with IFC’s prominent leadership role as a promoter of environmental and social responsibility,” the ombudsman added.

In a response to Global Wit­ness’ report yesterday, IFC regional spokesman Hannfried von Hindenburg said his organization favored funds such as VEIL be­cause they allow it spread its in­vestment further afield.

Mr. von Hindenburg said the IFC also preferred to manage the risk of the investment funds rather than manage such investments themselves. Even so, he said the IFC would study the Global Witness report as “part of our ongoing monitoring” of the VEIL fund.

Global Witness in its report also rebukes Deutsche Bank for holding $4.5 million worth of shares in HAGL through the DWS Vietnam Fund and another $3.3 million worth of shares in a subsidiary of Vietnam Rubber Group, Dong Phu, which is also accused of breaching Cambodian laws with its local rubber plantation.

Deutsche Bank regional spokes­man Michael West yesterday denied the Global Witness claim that the bank itself financed either HAGL or Dong Phu.

“The DWS fund shares referred to are held on behalf of other investors,” he said. “Deutsche Bank provides clerical trustee services to HAGL, which is a listed company, as it does to thousands of publicly listed companies globally.”

According to Equitable Cambodia, a land rights NGO, Deutsche Bank through DWS was also invested in KSL—a Thai firm that owns two sugar plantations in Cambodia, which are accused of causing the eviction of hundreds of local villagers. DWS divested from KSL in 2011.

Mr. West said the sugar plantation investment arrangement was likely the same as its financial involvement with the Vietnamese rubber firms that Global Witness targets in its report.

“Generally, large banks such as Deutsche may often appear on company share registries simply due to their consolidated holdings in managed funds and other products…which are beneficially owned by other investors, not the bank,” he said.

(Additional reporting by Aun Pheap)

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