‘Mafia investments against Honduras’. New report exposes business demands after the coup

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par bilaterals.org | September 2024

‘Mafia investments against Honduras’. New report exposes business demands after the coup

A new report, ‘Mafia Investments Against Honduras’, examines the troubling situation the Central American country finds itself in when it comes to claims brought by transnational companies in international arbitration tribunals. The analysis, conducted by the Institute for Policy Studies (IPS), the Honduras Solidarity Network (HSN), Terra Justa and the Transnational Institute (TNI), shows how investments made during the narco-dictatorship following the 2009 coup has caused an avalanche of multi-million dollar lawsuits in recent years.

An alarming image

Since the 2009 coup, Honduras has been the subject of nineteen requests for international arbitration. Between 2023 and August 2024 alone, Honduras received fourteen requests from the World Bank’s International Center for Settlement of Investment Disputes (ICSID). The scale of these claims is alarming, as they concern investment projects that were largely carried out irregularly during the narco-dictatorship, in an environment marked by corruption, human rights and environmental violations.

What the companies behind these lawsuits have in common is that their investments have been met with resistance from local communities, who have denounced the expropriation of their land, the pollution of their natural resources and the attack on their food sovereignty. Today, however, the same companies are using the Investor-State Dispute Settlement (ISDS) mechanism to seek millions of dollars in compensation, hampering the Honduran state’s ability to act in the name of citizenship.

Parallel justice and multi-million dollar lawsuits

The ISDS mechanism in investment and trade treaties allows foreign companies to bypass national courts and go directly to international arbitration tribunals. This system, known as “parallel justice,” has made it easier for companies to pressure government policy in Honduras, freezing vital regulations in areas such as human rights, the environment and public welfare.

One of the most expensive lawsuits is that of Honduras Prospera Inc, which is seeking more than $10.775 million to halt the government’s efforts to abolish the Zones for Employment and Economic Development (ZEDE). This amount is almost three times the approved public investment plan for 2024. Although Prospera does not meet the legal requirements to develop a ZEDE, it is lobbying the government to allow it to continue in the country.

Impact on government policy

Lawsuits brought by investors not only impact the Honduran state’s finances but also seek to influence government policy, a phenomenon known as the “chilling effect” or “regulatory freeze.” For example, many of these lawsuits are aimed at slowing down the current government’s attempts, among other things, to take over the National Electricity Company (ENEE) or to regain control of the airport infrastructure.

In addition, energy and mining projects, which are strongly opposed by local communities, continue to deprive people of vital resources. The solar energy project ‘Los Prados’, developed by Norwegian investors, is a good example. Local communities are concerned about the impact on their water resources and food sovereignty. The companies involved have filed two lawsuits seeking a total of $400 million.

Honduras and ICSID: a first step towards reform

In February 2024, Honduras took an important step by withdrawing from ICSID, the main arbitration forum for settling disputes between investors and governments. But while this decision is crucial, it is not enough. Honduras remains exposed to corporate claims due to its participation in numerous investment and free trade agreements, as well as the 2011 Investment Law, which grants foreign investors unlawful privileges.

The report emphasizes that withdrawal from ICSID must be accompanied by a thorough review of national legislation, international treaties and contracts to ensure that the country does not remain subject to a system that favors corporations over the rights of the Honduran people.

Recommendations for a sovereign Honduras

The report concludes with a series of recommendations for Honduras to move towards a more just and equitable development model that is not subordinate to corporate interests:

1. Review of International Treaties: The free trade and investment protection treaties that allow transnational corporations to sue the Honduran state before international tribunals need to be reviewed and reformed.

2. Strengthening the National Judiciary: The State should strengthen its national judicial and regulatory systems to ensure that disputes are resolved within the framework of Honduran law, without resorting to international forums favorable to businesses.

3. Support for affected communities: Social movements and affected communities must be supported in their struggle against extractive and energy projects that threaten their well-being and right to territory.

4. Building a National Coalition: It is essential to build an impartial coalition that brings together social movements, communities and other sectors of Honduran society to confront the investment protection system and current and future demands.

LINK TO THE REPORT (in Spanish)

This report was written and published by a team from the Institute for Policy Studies (IPS), the Transnational Institute (TNI), Terra Justa and the Honduras Solidarity Network (HSN): Luciana Ghiotto, Jen Moore, Aldo Orellana López, Karen Spring and Manuel Perez Rocha.