The International Finance Corp., the World Bank's private finance arm, said Saturday it was taking action to remedy problems in a Honduras palm oil project assailed for human rights violations.
After a report by the Bank's internal ombudsman deeply critical of the IFC's support for the Dinant Corp project, the finance body said it was working to rectify the problems and would cancel its loans if the company did not adequately address concerns.
On Friday, the Bank's Compliance Advisor Ombudsman said the IFC was not diligent enough in reviewing questions about fights over land rights and murders of local farm workers in approving a $30 million loan to Dinant's palm oil plantation and processing expansion plans in 2008.
The project, in Honduras's northern Aguan Valley, has long been criticized by non-governmental organizations due to the land conflicts tied to Dinant plantations.
"IFC takes the audit and its findings seriously. We have worked with the client on an action plan moving forward," an IFC spokeswoman said.
"If the client does not meet its obligations under these plans, we reserve the right to exercise all remedies available, including cancellation of the investment."
The CAO report said the IFC's agreement to lend $30 million to the $75 million project was not supported by an adequate environmental and social assessment of the project, given the history of conflict between Dinant and local peasants.
"In a sector and country where risks of conflict and violence around land were or should have been known to the team, CAO finds that IFC's review was not 'commensurate to risk,'" the CAO said.
"IFC was or should have been aware of a series of public allegations and negative perceptions in relation to its client that went significantly beyond those that were considered in the course of its integrity due diligence process."
The IFC disbursed $15 million of the amount committed in early 2009, but held back the rest as violence mounted in the Aguan Valley and after the government was overthrown in a military coup d'etat in June that year.
The CAO report cites NGO data that 102 people tied to the Aguan Valley peasant movement were killed between January 2010 and May 2013, 40 of the deaths tied to Dinant or security personnel working for the company.
Nine Dinant guards are also reputed to have been killed by people tied to the peasant movement, which contested Dinant's claim to own the land it used for the palm oil plantations.
The IFC said in a response to the CAO report that it is pressing Dinant to reform its security procedures.
"Dinant is in the process of adopting new security protocols that define and clarify the appropriate use of force. Dinant's contracted security company has formally agreed to the Voluntary Principles (on Security and Human Rights). This is a first in Honduras," it said.
But activists in the area have called for the World Bank to hold responsible IFC staff "who failed to adequately identify and address the risks of the project."