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EIB commits to review its tax haven policy as CSOs call for greater transparency and accountability

Added 14 Feb 2014
Co-authored by Xavier Sol, Director of Counter Balance 

Civil society organisations (CSOs) are cautiously welcoming the European Investment Bank’s (EIB) commitment to review its outdated tax haven policy in the coming year, while calling for an inclusive consultation process and ambitious objectives. The announcement was made during its annual meeting with CSOs which took place in Luxembourg earlier this month, and which helped set out an agenda for the bank in 2014. The promise to review the tax haven policy follows a letter from several NGOs which demanded change. 

CSOs, including Eurodad and Counter Balance, have been calling for stronger policies in relation to transparency and tax havens for some time. Several development finance institutions have adopted more advanced policies, namely BIO in Belgium, several Nordic agencies and lately the EBRD. But the EIB is not yet equipped to detect tax evasion and avoidance risks, which endanger the bank’s reputation and undermine development efforts. The review is a welcome step in the right direction, particularly if it takes place following an inclusive consultation process similar to the one which led up to revision of the EIB energy policy last year, which resulted in ambitious changes. 
Another positive move was the decision of the bank to pursue a “green” approach by strengthening its Emissions Performance Standards and launching a public review of the climate impact of its lending portfolio in 2014. This was roundly welcomed by CSOs who have demanded change. 

There was also a strong call for the EIB to get serious about tackling the issue of lending though financial intermediaries. Dotun Oloko, whistleblower in theIbori case, revealed a large-scale money laundering scandal by a private equity fund that was supported by the EIB and other European Development Finance institutions, highlighting several times during the meeting the EIB’s poor due diligence when operating through financial intermediaries and its lack of seriousness in dealing with fraud and corruption allegations. Participants raised critical issues such as the lack of transparency, accountability and proper monitoring of these operations. In reaction, the EIB repeated its commitment to a high level of transparency, including the revision of its transparency policy in 2014, which would include specific considerations to the use of intermediary lending. 

The EIB could lead on human rights and on development impacts

However, faced with calls for more accountability - particularly in light of the numerous recommendations from its own Complaint Mechanism - the bank remained elusive. The vice-president Pim van Ballekom noted that the EIB is asked by EU institutions for more transparency, monitoring, evaluation, democratic scrutiny and a zero tolerance on tax and fraud issues, but that ultimately it is up to the bank to ‘strike a balance’. However, this ‘balance’ does not always include the local communities where projects are based. One participant has been fighting the Castor Project in Spain where a gas storage facility financed by the bank under the Europe 2020 Project Bond Initiative had to be stopped because of a series of earthquakes it had provoked. The bank has not announced though that it would stop supporting the project.

CSOs also stressed the role of the EIB in setting the highest standards on human rights and development when operating outside Europe. The bank’s lack of vision when it comes to the social impacts of its operations has been highlighted through its inaction. At the first meeting of this kind in 2011, former president Philippe Maystadt openly spoke of the willingness to place human rights considerations at the heart of the bank’s lending. Three years later, the EIB has not made any commitments in this regard and avoids most critical views. 

During the meeting EIB staff highlighted the work of its ACP investment facility - a revolving fund for private sector investment in Africa, Caribbean and Pacific countries – and its last year capital increase of an additional EUR 500 million. The use of EU blending mechanisms, which link grants with loans, was also highlighted as “a useful tool to leverage additional resources.” Concerns were raised on the financing instruments used, and the EIB was challenged on the need for deepening the discussion around how blending mechanisms are being implemented and how they contribute to development objectives.

The way forward

While most of the commitments were well received by CSOs, the implementation stage will be crucial for the credibility of the bank. Inclusive consultation processes for the review of these policies will be key. 
Looking ahead the EIB should also review the format of this annual gathering as it was disappointing to note the minimal involvement of the Directors of the EIB, which was largely dominated by the management of the bank. Opening discussions with the governing board of the EIB – despite diverging views – is crucial if the bank wants to become a fully accountable institution.