Your judge may be your henchman

Lesson: Conflicts of Interests Amongst Public Agency Personnel in Promotional and Compliance Roles are Common, Beware!

Another disturbing discovery in our pulp mill case has to do with the systematic (and quite common) ethical and professional conflicts of interest we discovered arising from the roles assigned to State officials by their own governments. In particular, when a single department is tasked with both promoting corporate investments and acting as mediator in any disputes resulting from those same investments. This is quite often the case, for instance, in disputes mediated by National Contact Points that supposedly work to ensure corporate compliance with the OECD Guidelines for Multinational Enterprise. As it turns out, oftentimes National Contact Points are housed in the same ministries that also house Export Credit Agencies, or that at least maintain very close relationships to the activities carried out by Export Credit Agencies.

In practice, this means that if you have a case before a National Contact Point alleging a violation of the OECD Guidelines, the actual staff assigned to sit and listen to your complaint (and act as a neutral mediator) may actually also have a conflicting role in providing the company with financial assistance through and Export Credit loan. This was the case with the Finnish NCP, who was tasked with mediating our complaint but who also worked directly on financing the project through the country’s Export Credit Agency Finnvera.  Surprisingly we later saw this same person in discussions with the Board of Directors of the World Bank (during the period that Finland presided the EU) openly supporting that IFC extend the loan to Botnia.

These unfortunately common conflicts of interest result from what John Ruggie (the UN Special Representative to the Secretary General on the Issue of Business and Human Rights) has called “the governance gap”, which exists in many countries no matter how industrialized or advanced they may seem to be. These inconsistencies are especially frequent when it comes to foreign relations and investment finance. Basically, institutions tasked with dealing with international financial affairs are generally responsible for both promotional and compliance roles- a guaranteed recipe for conflict of interest. And as is usually the case, promotional roles generally trump compliance functions, and thus your judge in one forum, may actually be your henchman in another.

Actions to Consider

What can you do about this? First and foremost, know it may be occurring! Find out about how government agencies are designed. Examine human resources and hierarchies. Know people’s names, and know the agendas they work on. Know their institutional objectives, and be especially aware of conflicting agendas within single agencies that may be addressing your case.

It’s the Politics, Stupid

Lesson: Don’t Underestimate the politics around your case; it’s often a more important determinant than the facts of the case itself.

One of the most incredible aspects of the Pulp Mill case which allowed us access to so much information is that the lead NGO lawyer on the case, Romina Picolotti, became Argentina’s Environment Minister during the height of the case advocacy. As the case lead to an international dispute between the World Bank, Argentina and Uruguay we were able to be party to the interworkings of the international financial and political community. We saw, through Mrs. Picolotti’s international work as minister, how explicitly countries use their power and flaunt their financial and political weight to get what they want in forums like the EU Commission, the International Court of Justice, or the World Bank’s Board of Directors.

Just days before the World Bank’s Board of Directors decided to grant Botnia a multi-million dollar loan, which in turn would free up millions more from other financial institutions (Calyon, Finnvera, Nordea, etc.), Argentina’s Environment Minister paid a visit to Washington DC to try to convince the World Bank’s Board of Directors that it should not finance Botnia’s pulp mill, siting gross violations of IFC’s own social and environmental safeguards.

We thought at the time that we had a strong case. The CAO had agreed with our accusation that neither Botnia nor IFC were in compliance with their required social and environmental due diligence. We figured that if the Minister of a country was visiting the World Bank by request of that country’s president, (former President of Argentina Nestor Kirchner) to voice that the IFC should not finance this project, the Bank would respond accordingly and suspend financing. We assumed, as most would, that the World Bank’s decision would be based on the merits of the case. Wrong!

In fact, the ultimate decision of the World Bank to finance Botnia (as many Executive Directors’(EDs) and their staff have indicated to us off the record) had nothing whatsoever to do with the merits of the case. In fact, several largely political factors greatly leveraged the decision and influenced the outcome of our case:

  1. European countries generally vote as a block. We held meetings with the EU countries and the Executive Directors of the Bank to discuss the loan proposal. Coincidently, at the time of the vote, Finland presided the EU. At the meetings with the EDs (who chose to meet with us as a group) only the ED of Finland spoke. Finland was not only co-financing the Botnia investment but was actually 49% owner of the chemicals plant Kemira which was to be built on the Botnia premises in Uruguay. Not surprisingly, they the EU countries voted in favor of the loan.
  2. Staff of other ED offices such as Japan and Russia, to name a few, indicated to us off the record that our case had become too politicized, and that it was now “out of their hands”. Their opinions no longer mattered for the vote, and the decision would be taken at their respective foreign ministries. At that time, Argentina, which had been recently led into default by economic collapse, and who’s president was openly voicing plans to default on loans from many European private investors , was in no position to ask for favors. These unrelated circumstances ultimately worked against us in the World Bank’s final decision.
  3. Finally, a factor which we failed to anticipate was how Argentina’s recent political alignment with certain governments which were in great disfavor of the Bush administration would work against us. We had had a rather good meeting with the USA ED, which most recognize is the most influential ED of the entire board due to the USA’s majority share ownership of World Bank. The USA ED had heard our arguments about the companies’ and IFC’s violations of their own social and environmental safeguards with seemingly great concern. But then, when it came time for Argentina’s Environment Secretary to meet again with the US ED (in the upper floors of the World Bank building on Penn and 18th) she was cordially invited to visit instead the dungeons of the State Department building, where she was received by one of Condoleza Rice’s aides. The aid quietly heard the Secretary’s arguments about projections of contamination, and about safeguard violations, and for 20 minutes, he did not say a word. Finally, when the Secretary finished her presentation, he spoke frankly and bluntly, “Ms. Secretary, I have just one question for you” he said, “how did Argentina vote on Venezuela’s entry into the UN Security Council?” (that would be Hugo Chavez’ entry)  When the Secretary replied that Argentina had voted for Venezuela’s inclusion, the aid replied “Thank you very much for your presentation, we will be considering your arguments closely”. The US ED voted in favor of the pulp mill loan.

Actions to Consider

Map out the politics. Know what the political scene is before you enter. Identify your allies and your adversaries. Understand that your case is immersed in a predefined political context that shall invariably influence the outcome of the case. The more politicized the scene is the more influential the politics will be and the more the politics will possibly sway the outcome.


El “Qué Dirán?” – What  will they say?

Lesson: Despite their silence, people will talk amongst themselves about you and your case, this can work to your advantage if used creatively.

“Qué dirán?” translates loosely to “what will they say”. It is a very common term in the colloquial speech of Latin cultures, and it refers to how individuals have a tendency to gossip about others’ behavior. The gist of the term not only alludes to fact that people will talk in secrecy about others, and also, almost more importantly, to the insecurities that result in the person being spoken about. “What will they say” if I wear this outfit, or buy that car, or if they see me with so and so? We all tend to have insecurities about what others will say about us, and are sometimes wary of actions that might draw attention to ourselves.

In the same way, staff of corporations and financial institutions worry about what their colleagues will think or say about them. They also worry about what their competitors and their clients will say or do in reaction to any information that might become known about their activities. The power of the “qué diran” factor should not be underestimated. It can put extremely intense pressure on individuals and institutions to address their wrongdoings and oversights, or to take actions to avoid problems altogether.

In this regard, it can be more impactful to name names. It is not the same thing to accuse the World Bank or IFC of a wrongdoing as it is to name an individual staff member that has willingly and knowingly committed a violation, or made a conscious decision to go forward with a project despite knowledge of its undesirabe impact on a given set of stakeholders. The relative weight and potential leverage of naming names can and should be considered in designing an advocacy plan.

The pulp mill case offered many instances where specific people in IFC, or staff of supposedly sophisticated mediation agencies, such as those hired by the Boston based Consensus Building Institute (CBI), did very imprudent things which led put them in very uncomfortable positions.

In the Pulp Mill case, for instance, IFC committed the very serious misjudgment of hiring a team of mediators (from CBI) and sending them down to Uruguay and Argentina to speak to the affected communities just hours before the damning audit from the CAO was published. The decision was hasty, and despite our suggestion to defer the mediation to the CAO’s prerogative, (which would have been taken much more seriously) IFC insisted. IFC clearly was out to undermine the CAO report. They would pay dearly for this decision.

The decision to hastily send mediators to South America right before the CAO audit was an obvious attempt to convince the public that IFC cared about stakeholder concerns. IFC was clearly worried about what the various stakeholders would say about the extremely damning CAO audit. Unfortunately for them, IFC’s mistakes were in fact further amplified by the CBI mediators when their local staff tried to pressure stakeholders into rushed interviews. The interviewers claimed that this would be the community’s last chance to put in their opinions before a decision was made on project finance. The CBI staff then attempted to split the community groups apart by conducting one on one interviews with select stakeholders. CBI and IFC knew that the local community assembly always met en masse at assembly meetings in the local theater, and that it would likely be easier to bend people to their will in an individual forum.

IFC team members had traveled to Uruguay, and were planning to cross to Argentina at the project site. This trip generally takes nearly two hours due largely to customs procedures that cannot be avoided.

We capitalized on this delay, and just hours before the arrival of the IFC team we advised the community assembly leaders to go ahead and announce that the meeting would be held  in the local theater, en masse, as we had originally agreed. By doing so we were effectively ignoring what we knew the IFC and CBI were trying to do- divide and conquer. CBI immediately called us to express their great displeasure with the reversal of their plans, and they also told us that IFC team members feared for their physical wellbeing if the meeting were to be held before the crowd. We knew perfectly well that there was no danger of violence, but (perhaps unfairly) we did not communicate this to the CBI team. They had been quite manipulative in trying to divide the assembly, so perhaps it was a taste of their own medicine.

As the announcements had been made public through the local radio stations, people began filing in to the municipal theater some 30 minutes before the scheduled time of the event. The CBI team asked us to meet shortly before the discussion in a nearby local bar, which we did. There they reiterated their concern for their physical safety before the crowd of people that was by now filling more than 1000 seats. We suggested that the CBI staff go with us go over to the theater to assess the disposition of the crowd and report back to the IFC team, who were, we believed, still in transit from Uruguay.

When we walked in to the theater we saw hundreds of normal everyday people: children, retirees, schoolteachers, etc. No one was screaming, no one was beating on anything, no one was out of control in any way. They were just normal folks, concerned about their environment and health.

We were sure that the IFC team would shortly arrive and that the consultation between IFC and the local population would take place. To our surprise however, one of the CBI team members walked off and began to make frantic phone calls to the IFC team. IFC had in fact not come across the border. They had not even attempted to make the trip  They were still in Uruguay, nearly 2 hours away from their own consultation, which was about to begin. They could not make it to Argentina in time, and indeed, they never did arrive.

We quickly realized the implications of their mistake. They organized a consultation, and then tried to derail it by dividing the community, and when that didn’t work, they chose instead to not show up at all, citing fears of physical harm from an allegedly irate crowd; a crowed which was made up largely of elderly people and primary school children. The fiasco was obvious, and the potential impact on IFC of revealing their conduct in this situation could be devastating. We weren’t about to let this opportunity pass.

Determined as we were to expose IFC’s poor judgment, we prepared a press release containing pictures of little old ladies and school children holding up signs rejecting the World Bank and Botnia. We gave it a subtitle which read, “Violent Protestors Scare off IFC/MIGA team.” Below is the picture that ran with the release.

What’s important is that the press release went out not only to our normal mailing list, but also to a wide range of IFC staff and Executive Directors of the World Bank. Our intent was to shak the nerves of IFC’s responsible staff, as well as their superiors.

Companies and institutions worry about reputational risks they take with their various activities, and staff of those companies are likely to be quite sensitive about being singled out as the intellectual masterminds of stupid, malicious, or unethical decisions.

The choice of naming a name is obviously a very serious one, as it can cause irreversible damage to a person’s reputation and his or her career. The decision may come at the expense of breaking communication with that person. Some individuals in corporations are largely immune to all critique and may even thrive on attacks to their person. In some cases a failed attack can conversely result in significant promotions. This occurred, for example, with certain high level staff of IFC and Botnia, who very successfully climbed the latter of progress as they dodged our bullets. In all cases however, we should say that we chose NOT to name the names.