The World Bank, through its private investment branch (the International Finance Corporation, IFC) has funded projects involved in various corruption and money laundering cases exposed by the CICIG in Guatemala and the MACCIH in Honduras, including the TCQ case.
Juan Carlos Monzón, an informer or “effective collaborator” for the International Commission Against Corruption and Impunity in Guatemala (CICIG), takes the microphone and addresses the courtroom. Monzón’s good memory and meticulousness, traits that allowed former Vice President Roxana Baldetti’s private secretary to become her right-hand man and a key player in many of the illegal business schemes masterminded by the Patriot Party’s administration, are now at the service of the criminal prosecution. It’s April 2016 and Monzón is testifying in advance of the trial of those accused of mismanaging the Quetzal Container Port (Terminal de Contenedores Quetzal, TCQ).
The corruption case surrounding the construction and management of a new terminal for Guatemala’s main container port came to light three months after Monzón made this statement. The investigation carried out by CICIG and the Attorney General’s Office concluded that Grup Maritim TCB, the Spanish corporation that was awarded the contract in 2012, had agreed to pay a US$30 million kickback to various Guatemalan government officials (of which it wound up paying only US$12 million).
Monzón acted as an intermediary between Grup Maritim TCB and Guatemalan officials from 2012, when the previous intermediary, Guillermo Lozano, became involved in a drug trafficking case, until April 2015, when the La Línea customs fraud scandal forced the Guatemalan president and vice president to step down. Monzón would later explain how he managed to overcome one hurdle after another in order to secure Grup Maritim TCB the contract despite the fact that the project was dogged by corruption allegations from day one.
“Meanwhile, Juan José Suárez [CEO of the Spanish corporation] said he wanted funding and brought a commission to Guatemala, the IFC, I think it’s called. It’s an organization or institution that belongs to the World Bank. The IFC was going to fund the project and its suspension would have been against its interests,” Monzón told the judge.
The World Bank, through its private sector branch, the International Finance Corporation (IFC), played a key role in the TCQ project. The IFC gave Grup Maritim TCB a US$62 million loan and purchased US$7.7 million worth of shares in the company, thus acquiring a 15 percent stake in TCQ.
And just like that, the biggest bribery case in Guatemalan history unfolded right under the nose of a World Bank institution.
This is the biggest corruption case that has tainted the World Bank’s private sector branch in Central America due to the size of the bribe and the seriousness of the allegations, although by no means is it the only one. Investigations carried out by international organizations that are helping prosecutors with their enquiries have discovered that two other corporations that have received IFC funding, and in which the IFC is a partner, have also been accused of corruption.
The other corporations involved are two major private banks in Central America: G&T Continental in Guatemala and Financiera Comercial Hondureña (Ficohsa) of Honduras. Several investigations carried out by CICIG and the OAS Mission to Support the Fight Against Corruption in Honduras (MACCIH) revealed that both banks were involved in money laundering. Added to this, Flavio Montenegro (since deceased), former CEO of G&T Continental, faced trial in June 2016 for illegally funding the Patriot Party’s election campaign in Guatemala.
The weakness of Central American democracies and their permeability to organized crime fueled the international community’s support for institutions such as CICIG and MACCIH. Both organizations are unique experiments created with the aim of dismantling corruption and organized crime networks. However, the IFC has invested millions of dollars in Central America as if these three countries weren’t weak states prone to corruption and money laundering.
Of the US$850 million that the IFC has invested in the region, including in shareholder equity and loans, US$240 million were invested in projects that are currently under investigation for corruption allegations.
The IFC has chosen to be a shareholder in only five of the active projects, including TCQ, Ficohsa, and G&T Continental. This means that of the total US$152 million invested by the IFC in shares, US$140 million were invested in corporations currently under investigation for alleged involvement in corruption and money laundering, meaning that 92 percent of the shares purchased by the IFC in Central America belong to corporations associated with bad practices..*
An exhaustive review of IFC practices shows the organization doesn’t have operating rules to prevent or punish involvement in illegal activities. The institution only requires that its projects undergo a due diligence process; but as the TCQ case illustrates, this process is not geared to preventing corruption. While other World Bank institutions have exposed bribery cases and have sanctioned hundreds of corporations for bad practices, the IFC has turned a blind eye to corruption.
IFC has no mechanisms to fight corruption
The World Bank estimates that two of every US$100 exchanged in the world are for bribes. The Bank has expressed concern about corruption and since the mid-1990s it has implemented a number of mechanisms to fight it. However, as scrutiny of the IFC’s rules reveals, the World Bank’s private sector branch has far less stringent measures for preventing corruption when it makes loans and has failed to punish bad practices.
Whereas the World Bank has “Guidelines on Preventing and Combating Fraud and Corruption” and “Guidelines for Procurement” to regulate loans to governments, the only such provisions of the IFC are the “Environmental and Social Performance Standards,” which make no reference to corruption or money laundering.
Similarly, whereas the World Bank’s Integrity Vice Presidency has disqualified 1,400 individuals or corporations that have managed Bank funds, the IFC admits that only one of its clients has ever been completely barred from further public-sector contracts: a Kenyan railway corporation that received IFC funding on a number of occasions and was sanctioned for bribing customs officials to cut through red tape.
To date, TCQ hasn’t been sanctioned by the IFC despite its proven involvement in corruption. However, the World Bank has fined a number of corporations for engaging in similar practices to the ones of which TCQ is accused. The most recent case resulted in an US$8 million fine for the French corporation Sediver, accused of bribing Congolese officials to obtain public works contracts. In 2012 Alstom, another French transnational corporation, was forced to pay a US$9.5 million fine for similar reasons; and two years earlier, in 2010, British publisher Macmillan was forced to pay US$17 million following revelations that it had bribed the educational authorities of South Sudan.
IFC regulations merely state that “due diligence” procedures must be followed for all clients in order to ensure integrity but no further details are provided as to what exactly this entails.
In an email exchange, a spokesperson for the IFC said “due diligence” meant preventing fraud and money laundering. “We evaluate risks such as corruption, fraud and money laundering, and establish mitigation measures, if necessary, such as requiring clients to implement a compliance program, among others.”
The red flags in the TCQ case that the World Bank ignored
It all began with a rumor. In August 2012, one of the main opposition parties told the press that the Otto Pérez Molina administration was planning to award a contract for the management of a new container port in Puerto Quetzal, one of the largest ports on Central America’s Pacific coast, to a Spanish corporation.
The allegations turned out to be true. Shortly afterwards the contract, signed on July 11, 2012, was made available to the public, following negotiations that had been shrouded in secrecy.
The main red flag regarding corrupt practices was the fact that the contract had been awarded without a public tender, in violation of Guatemala’s Purchasing and Procurement Law, which states such contracts can only be awarded following a public tender.
However, the Guatemalan government and the corporation had found a loophole: a costly usufruct agreement to lease the land where the terminal would be built. Puerto Quetzal had already signed usufruct agreements with banana and sugar companies that use the allocated land to load and unload their own cargo.
But Grup Maritim TCB would use the land leased to build and manage a container terminal for a period of 25 years that would be used by the general public and would actually compete with the state-owned container terminal.
Several parties in Congress took legal actions against the contract while Puerto Quetzal’s main labor union, STEPQ, began to occupy the premises in order to hinder the project’s progress.
In October 2012, USAID’s Transparency Project published a report expressing concern over the corruption allegations surrounding the contract awarded to Grup Maritim TCB.
Nevertheless, the government insisted in granting Grup Maritim TCB the usufruct agreement. The President ratified the contract in March 2013 after ensuring he would receive part of the kickbacks from the Spanish corporation, says Juan Carlos Monzón.
“On March 27, the media published reports that the government had signed the usufruct agreement during the Easter break. Indeed, that’s how it happened [he laughs]. On March 27, the President gave the Spanish corporation the usufruct agreement, duly ratified,” says Monzón.
By then, the Vice President’s private secretary was busy solving problems as they arose, such as ensuring the Ministry of the Environment would grant the necessary permit and ensuring the General Prosecutor’s Office (PGN) and the Comptroller General’s Office would approve the type of contract awarded.
“I already gave US$50,000 to Gustavo Martínez to ensure he sorted things out with the PGN and the Comptroller General’s Office. I already paid Gustavo [Martínez, the secretary general of the Presidency]to sort things out,” said Monzón.
Although the due diligence was done for the TCQ project, the IFC never doubted it should receive funding.
According to the IFC, Grup Maritim TCB, the Spanish corporation favored by TCQ, was a well-known and respected client that had successfully built two other container terminals, in Buenaventura, Colombia, and Nemrut Bay, Turkey.
The IFC also requested reports on the legality of the concession contract and the management of the port facilities. “The IFC reviewed the project’s legal framework. This analysis included a detailed legal review by external judicial experts, who provided expert advice,” says the IFC spokesperson. “The IFC analyzed a series of written legal opinions and official documents, issued from 2006 to 2014 by various government agencies, including the PGN. These legal opinions confirmed that the contract met all necessary legal requirements.”
During one of the IFC’s visits to Guatemala its representatives met with Manfredo Marroquín, the director of Acción Ciudadana, the Guatemalan chapter of Transparency International. “They came here to defend their views,” says Marroquín, “to justify why they were investing in this project. I told them: ‘I can’t believe the World Bank, which has clear transparency policies, isn’t applying them to this investment, which is clearly illegal and non-transparent.’”
Months later, when the directors of the IFC were discussing the approval of the project, Acción Ciudadana sent an official complaint to the World Bank, reiterating its criticisms. “The IFC shouldn’t fund a project that poses a major threat to the rule of law in this country,” reads the letter.
But the World Bank decided to go ahead and approve funding for the project anyway.
In December 2013, Grup Maritim TCB subcontracted another Spanish corporation, Copisa, to design and build the terminal. When it was chosen to build the terminal, this construction company was already involved in a number of bribery and illegal campaign funding schemes in Spain. Josep Cornadó Mateu, one of the owners of Copisa, faced corruption charges on March 25, 2014, only three days after the IFC approved its contract to design and build the terminal.
As the investigation conducted by CICIG and the Attorney General’s Office would prove, Copisa was used to channel part of the kickbacks paid to Guatemalan officials to secure the usufruct agreement.
None of this led the IFC to reconsider its decision to fund the project. Nor did the fact that the IFC’s Compliance Advisor Ombudsman (CAO) received a complaint from one of Puerto Quetzal’s labor unions.
The complaint questions the legality of the usufruct agreement, points out that the Environmental Impact Study was challenged in court, and states that the project was approved with no prior consultation with civil society organizations.
However, the IFC, which had met with President Pérez Molina and had already listened to the PGN, had already made its mind up. It had decided to go ahead and fund the project and actually increased the funding offered to the Spanish corporation from an initial US$54 million to US$69 million.
In 2015, months after the project was approved, the CAO completed its evaluation of the complaints lodged by the labor union. In its reports the Office concluded that the IFC hadn’t required the Spanish corporation to comply with all the Environmental and Social Performance Standards, but in its opinion these were minor issues that could be resolved during the course of the project and were not serious enough to warrant suspension of the funding.
According to the CAO, the corporation abided by IFC regulations. “We haven’t identified significant concerns regarding the contravention of IFC social and environmental regulations or issues of systemic importance for the corporation that require an investigation into compliance,” reads one of the reports.
The IFC indeed followed its own rules, which don’t explicitly state that corruption is a problem that must be prevented. Due diligence merely meant listening to officials who had been promised a multi-million dollar kickback and receiving official reports.
«This is the biggest corruption case to have tainted the World Bank’s private sector branch in Central America, due to the size of the bribe and the initial suspicions»
G&T and Ficohsa: Two banks accused of money laundering that received major IFC loans
The financial sector is one of the most exposed to receiving proceeds from organized crime; and Guatemala’s main banks have also been involved in money laundering scandals. In 2015, the United States forced Honduras to wind up one of its main banks, the Banco Continental, and secured the extradition of its proprietors, members of the Rosenthal family, for “money laundering and other services that support the international narcotics trafficking activities,” reads the official press release issued by the Department of the Treasury.
This was the first time the United States directly accused a foreign bank of acting in collusion with organized crime under the Kingpin Act.
The financial sector is also the most funded by the World Bank’s private investment branch. Of the approximately US$1.5 billion invested in the region over the past 20 years, about half, US$695 million, has been invested in this sector.
Even though the banks are exposed to the illicit capital flows moving through the region, as has been shown in money-laundering of the proceeds of corruption, the IFC doesn’t have specific regulations to prevent money laundering in the banks in which it invests. Moreover, to date the IFC hasn’t imposed sanctions on any of these banks.
When the IFC purchases shares in a financial institution, as it did with Ficohsa and G&T Continental (it owns a 10 percent stake in each bank), its internal rules state that its liability extends to all of the bank’s activities.
In these cases, the IFC must ensure the bank has an environmental and social management policy that allows it to assess the impact of all its loans as well as a mechanism for receiving complaints from persons negatively impacted by the bank’s activities.
When a bank in which the IFC owns shares makes a loan in excess of US$10 million, the IFC must apply all of the Environmental and Social Performance Standards (on forced displacement, indigenous peoples, etc.), and when a loan exceeds US$5 million it must apply the standards governing labor and working conditions.
As occurs in other IFC projects, it all comes down to “the Standards,” but this doesn’t take corruption or money laundering into account as issues of concern to the institution.
Nor is it clear to what extent the IFC abides by its own regulations. This means the IFC would have to constantly supervise banks such as Ficohsa and G&T Continental to ensure loans exceeding US$10 million adhere to the Environmental and Social Performance Standards.
An audit of investments in financial institutions published in 2013 by the IFC Ombudsman made it clear that the IFC is far from abiding by its own rules. The report concluded that the IFC is largely unaware of to whom or for what the banks in which it is a stakeholder lend money.
“The audit expressed concern about the lack of transparency surrounding how the IFC’s clients used the funds borrowed, which meant the IFC knew very little about the potentially negative environmental and social impacts of the loans it gave the banks,” reads the report.
The report was updated in 2017 and although some improvements were reported, the main findings remained the same.
Concerning measures to oversee the banks, the IFC says “portfolios are periodically reviewed with regard to different control functions in order to identify emerging threats so that appropriate corrective measures can be taken.” “The IFC strives to promote good governance and internal control mechanisms among its clients. The IFC also hopes that companies within its portfolio take the necessary measures to deal with any integrity issues that may arise,” said the IFC’s PR department.
G&T tainted by corruption allegations
The IFC has been G&T Continental’s partner since 2008, when it bought a US$68 million stake in the bank. Since then, it has given the bank three other loans. G&T Continental is controlled by several prominent families of the Guatemalan elite and the IFC has gradually increased its stake in the bank, now owning a 10 percent equity interest .
Even though the IFC has funded G&T and is a shareholder, it hasn’t forced the bank to improve its practices. G&T is still owned by a holding company in the Cayman Islands and owns an offshore subsidiary in Panama. The fact that the IFC is one of G&T’s shareholders didn’t keep the bank from becoming involved in the bad practices exposed during the wave of corruption cases that have rocked Guatemala since 2015.
In June 2016, a few days after the Money Laundering and Politics case came to light, another corruption case known as the Cooptation of the State case hit the headlines, and Flavio Montenegro, former long-time CEO of G&T Continental, was accused of funding former President Otto Pérez Molina’s election campaign. According to the investigation carried out by the Attorney General’s Office, G&T Continental funded Pérez Molina’s campaign to guarantee that public institutions would purchase insurance policies from the bank’s insurance company.
The bank’s Panamanian subsidiary, GTC Bank, was also involved in the Transurbano case, which came to light in February and is one of the biggest investigations pursued by the CICIG and the Attorney General’s Office. Former President Álvaro Colom (2008-2012) and several of his cabinet members face corruption charges as part of this case. According to prosecutors, part of the embezzled funds were sent back to Guatemalan individuals using GTC Bank accounts.
Nevertheless, GTC Bank hasn’t been sanctioned by the IFC. “The bank hired a new CEO (Montenegro was charged but died before facing trial) with solid experience in the banking and insurance sectors, who took a series of measures to strengthen risk management and compliance,” said the IFC.
IFC-funded bank accused of corruption in Honduras
Camilo Atala is regarded as one of the richest men in Honduras. Among other businesses, Atala and family members own Ficohsa, one of Honduras’s main banks, with strong ties to the country’s political class.
Ficohsa has been one of the main beneficiaries of the privatization policies of the Juan Orlando Hernández administration. Hernández was reelected in 2018 in an election marred by fraud allegations. The Honduran government has allowed Ficohsa to manage hundreds of millions of dollars held in government trust funds and has made the bank responsible for conducting public tenders for major public works contracts.
The bank is partly owned by the IFC, which has a 10 percent stake, purchased in 2011 for US$22 million. Unlike G&T Continental, Ficohsa and its directors have not been charged with corruption. However, since the OAS Support Mission to Support the Fight Against Corruption and Impunity in Honduras (MACCIH) was created in 2016, Ficohsa’s name has come up in some of its leading investigations.
In February 2017, Global Witness, an NGO, published a report quoting Honduran anti-mafia prosecutors and stating that a network of public officials that embezzled US$350 million from the Social Security Fund had invested US$300,000 in a property in the Indura Beach hotel complex. The developer behind this project is a corporation whose main shareholder is Camilo Atala and, according to prosecutors, a consortium of Central American banks led by Ficohsa had made a US$20 million loan to the hotel. Indura Beach issued a press release stating it had alerted the authorities as soon as it discovered what had happened.
The Social Security embezzlement scandal has been one of the biggest corruption cases in Central America in recent years and led to the creation of the MACCIH.
MACCIH, which was intended to be a similar to the CICIG, uncovered a corruption scandal involving Rosa Elena Bonilla, the wife of former president Porfirio Lobo (2010-2014), and Ficohsa. Bonilla is accused of embezzling US$680,000 from donations made by the Taiwanese government when she served as first lady.
According to the investigation, Bonilla received the funds through the presidency’s Ficohsa accounts and then transferred the funds to her personal accounts in the same bank using fake invoices.
To date, the IFC has kept silent regarding these cases. Before the Bonilla case came to light an IFC spokesperson said the institution “was aware of the allegations” but pointed out that “they had not been proven in court.”
In 2013 and 2014 Ficohsa was the subject of the first report compiled by the IFC Ombudsman on one of the Central American banks of which the IFC is a shareholder.
The audit was carried out following complaints against Grupo Dinant, a corporation that belongs to the Facussé family and is a major client of Ficohsa. Dinant, a corporation that had also received IFC funding, was accused of intimidating and murdering peasants in order to expand its African palm plantations in the Aguán Valley.
Dinant’s operations were also funded with a US$12 million loan from Ficohsa, according to the CAO report.
The audit concluded that the IFC hadn’t complied with some of its key obligations as a Ficohsa shareholder. According to the report, Ficohsa didn’t have an effective social and environmental management system or a mechanism for receiving complaints, and the operations of its major clients were not abiding by the Environmental and Social Performance Standards.
According to the Ombudsman, the IFC’s criteria had “prioritized financial considerations.” The bank’s credit rating was analyzed but other impacts were minimized.
Other audits of Ficohsa’s performance were subsequently published showing improvements. However, as the TCQ and G&T Continental cases illustrate, it’s still unclear whether the IFC’s transparency mechanisms have improved.
The World Bank’s private sector branch is depicted as an agent for sustainable development but as these cases illustrate it often acts just like any other private bank.
TCQ receiver Alexander Aizenstatd, appointed after the scandal hit the headlines, voiced misgivings about funding from external banks and specifically mentioned the IFC. According to Aizenstatd, during a trip to Guatemala, it appeared that IFC representatives’ only concern was how the state would return the funds. In another interview with Plaza Pública he said: “I treated them like shareholders but they made it clear they don’t regard themselves as such. They regard purchasing shares as nothing more than a means of investing in the corporation.” When asked about the reasons for his suspicions, he said: “I can’t put my finger on it, exactly. Things happened that were not necessarily improper but that were inappropriate given the circumstances.”
While the CICIG continues to uncover corruption cases in Guatemala, the container port remains mired in a lawsuit that has almost driven TCQ, which was taken over by Dutch corporation APM, to bankruptcy. The port remained inactive until February 2017 when the moratorium on its operations was finally lifted but the debts it incurred in as a result of its temporary closure have left it in a difficult financial predicament. The state has not received compensation for the kickbacks paid as part of the TCQ corruption scandal, as it did as a result of the Odebrecht scandal.
Grup Maritim TCB, the corporation behind the TCQ Project, has not been punished even though the individuals involved are currently facing trial in Guatemala. G&T Continental and Ficohsa, which were accused of illegal campaign funding and money laundering, have not been sanctioned either.
*These calculations were made based on figures published on the IFC’s website.
This report was made in the framework of the initiative for investigative journalism in the Americas, the International Center Of Journalist (ICFJ) in partnership with Connectas, to be published in No-Ficción in Guatemala.
