Do whistleblowers get the bum’s rush at this finance agency?

The U.S. Development Finance Corporation fired a whistleblower who refused to sign off on a road project in Africa. That is according to the Project on Government Oversight. POGO reports, the project didn’t meet the agency’s standards for displacement of people and the fired analyst who wouldn’t sign off on it. For more,  the Federal Drive with Tom Temin  spoke with POGO senior investigator Nick Schwellenbach.

Interview Transcript: 

Nick Schwellenbach Well, thanks for having me on, Tom. This is a fascinating story. Most people haven’t heard of the International Development Finance Corporation (DFC), as we’ll probably refer to it throughout this interview, but it was created a couple of years back. It was a law passed by Congress in 2018, created this agency. It succeeded an older predecessor agency called the Overseas Private Investment Corporation. They also took a piece out of the US agency for International Development, mash them together, and lo and behold, we have DFC, which opened its doors in 2019. So DFC, just a little bit of background before we get into the weeds of the story here. What are the main motivations for creating DFC is to counter, China in places like Africa. And China has done a very good job of, at least from one perspective, of soft diplomacy in many countries, building infrastructure, investing in the economies of countries throughout Africa and other parts of the world have this sort of a U.S. counterweight to do more of that in places like sub-Saharan Africa. There’s also a strong interest, particularly in the Biden administration, in securing access to minerals used in electric vehicle and so-called clean energy supply chains as we try to transition from a fossil fuel economy. One of those key minerals is cobalt. And that’s very much a central part of the story. The story in a nutshell is back, last summer, the agency was considering a deal to fund a toll road project in the Democratic Republic of the Congo, which is the source of 70% of the world’s cobalt, which is essential mineral for lithium ion batteries, which are used in electric vehicles and other technology. And this toll road would go through DRC, the Congo, Zambia, a neighboring country, and connect to an existing road in Tanzania, to ultimately connect to the port of Dar es Salaam. The problem with this whistleblower took a close look at this project, is that companies consultants didn’t do a good job, good enough job consulting local communities. And one of the biggest problems was the consultants mixed up the number of households with the number of people that would have been affected by the route as it was planned at the time. So instead of 1500 people being affected, they actually just figured out that 1500 households would be affected. And when you do the math, because the households are much larger in the DRC than they are in the United States, somewhere in the territory of 9,000 to 10,000 people could have been displaced.

Tom Temin Right. So like many highways, this would have resulted in the taking of homes and the displacement of people. And the Development Finance Corporation (DFC), has standards for its projects on how many people can be displaced. This would have violated those.

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Nick Schwellenbach Correct. Yeah. When DFC was created by Congress, Congress said in the law that created DFC called the Build act, that DFC, the agency was supposed to adhere to that sort of high environmental and social standards. And what that means here is the agency is trying not to harm the environment or the sort of social community side, unless absolutely necessary, to really minimize the impacts it has. And it’s not just necessarily physically displacing people, it’s also removing their access to their livelihoods, such as farming or access to firewood, and or other sort of raw materials that these people use in their daily lives. And so the agency has a standard that if a project will displace more than 5,000 people or more, it’s sort of categorically prohibited. So this analysts said, like, hold the phone. If we’re going to displace just under 10,000 people, that just violates the agency policy. I can’t sign off on this. Concerns were raised. They went up to the very highest levels of this agency to Chief Executive Officer Scott Nathan. This analyst was told despite the concerns, leadership wanted to move forward anyways. This analyst, the whistleblower, was fired on Aug. 11 of last year. He went to the inspector general. The agency unbeknownst to the whistleblower, after he was fired, some of his colleagues still met with Nathan. Nathan ultimately agreed to shutter the deal.

Tom Temin We are speaking with Nick Schwellenbach, senior investigator at the Project on Government Oversight. So they canceled their backing of the deal, but the whistleblower didn’t get his job back.

Nick Schwellenbach Yeah. That’s correct. So the whistleblower didn’t want to go through the trouble of fighting his retaliation claim. So he didn’t ultimately challenge it at the end of the day. But this person has decades of experience in the international development finance community, including at the world Bank. This person had been a contractor employee who had been converted into a federal employee by the agency. He had received a bonus earlier last year. So all the signs were that this is a good employee, not someone who has performance issues. And so this whistleblower ultimately believes that he was fired in retaliation. We don’t have, however, sort of an adjudicated claim. We don’t have an independent investigation of it, but it is one of a number of reprisal claims at this agency. The Congressional Labor Caucus in December of last year sent a letter to DFC CEO Scott Nathan saying that they have been made aware of a number of claims of reprisal, including one that had been substantiated in the fall of last year by the agency’s inspector general. That’s a different issue, it involves ethical concerns involving a now former high level official at that agency. It’s not one that I focus on in this story, but that report of investigation by the inspector general is public.

Tom Temin And just a question about something like that standard of 5,000 people or 10,000 people can’t be displaced. Does the agency leadership have discretion to override those types of things when they feel it’s in the agency’s best interest, even though they actually didn’t in this case?

Nick Schwellenbach Yes. There is the authority for the CEO of the agency to waive the agency’s Environmental and Social Policy and Procedures (ESPP). So this is ESPP, and I’ll try to avoid using too many acronyms here. But the environmental and social policy and procedures has a number of elements. It derives from U.S. law. It also draws from the International Finance Corporation’s performance standards. And there are also standards that the agency has sort of taken on itself. One of those is this categorical prohibition on displacing 5000 people or more.

Tom Temin And yet it didn’t go ahead with the project. So what’s the upshot of all of this?

Nick Schwellenbach Yeah. So ultimately, no waiver was issued. DFC removed itself from the project. So all is good, I guess from one perspective in terms of this one project. However, there have been other projects that have received, there’s at least one other notable project that’s received the waiver. In 2020, the agency issued a waiver for a project, a solar farm project in India where there have been at least three worker deaths on site. The agency at the time waived all of the International Finance Corporation’s performance standards. The agency has also done a poor job, according to the inspector general, of sort of vetting what’s going on and doing monitoring of what’s happening at this DFC funded project in India. But there’s also just bigger tensions at this agency. The agency has seen a ten percentage point drop in its federal employee viewpoint survey scores. Among respondents, base respondents say there’s been a 10% drop in the number of people who say they can disclose concerns without fear of reprisal. A number of agency attorneys have left in the last few years, partly because they don’t agree with how the agency leadership has been steering the agency. Agency leadership under the Biden administration, they pushed the career staff to take more risks. A number of former DFC political appointees have written in publications like Just Security and Devex that the agency’s too risk averse.

Tom Temin You did ask the agency itself about this case. What did it say?

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Nick Schwellenbach Yeah. So the agency said that they had pulled out of the deal for a variety of reasons, including concerns about the viability of the project, credit concerns, also concerns about development impact. The agency says they’re committed to protecting whistleblowers. They wouldn’t comment on personnel matters. And the agency says they’re committed to also vetting deals thoroughly. They have taken some actions. They’ve recently hired a new person to run their Accountability Office, which takes in grievances from local communities that feel that they’re being negatively impacted by DFC projects. Then they’ve also recently stood up a new suspension and debarment program at the agency, which allows the agency to to stop doing business with companies that don’t remediate projects that have environmental and social impacts. So the agency says it taking steps to fix these issues. Others, including insiders, are skeptical.

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