Corporate lawsuits pose a growing threat to developing and impoverished countries across the world. Often employed to punish public efforts to regulate companies, protect local communities and their environment, or fight corruption, these lawsuits are a serious threat to democracy.
Honduras, one of the Western Hemisphere’s most impoverished countries, offers a case in point. The country faces 15 claims before the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) — 14 of which were filed in the last two years — for at least $14 billion. That’s about 40 percent of the country’s GDP.
Investors bringing these claims come from sectors that benefited after the 2009 coup d’état, the so-called narco-dictatorship period, many of which have direct or indirect links to criminal networks in the country. These findings and many more are laid out in a new report called “The Corporate Assault on Honduras.”
Investors from the energy sector, Employment and Economic Development Zones (ZEDEs), and public-private partnerships, which all benefited from legislative decisions made during this timeframe, filed 12 of the 15 claims pending against the country before ICSID.
Since the announcement in February 2023 of the multi-million-dollar lawsuit by investors in the ZEDE Próspera for $10.775 billion, the number of lawsuits has multiplied, and with them so too has fear among Hondurans.
Raúl Ramírez, a member of the Agrarian Platform, admitted his concern about the economic risk associated with these claims against Honduras. “They are taking away the possibilities for development in our country,” he said.
Ramirez, who participated in a September event to present the “Corporate Assault on Honduras” report, described those who “reached agreements with corrupt governments to bankrupt” the country as “bad investors.” He added that it’s alarming “that governments take power and don’t know how to handle investment policies.”
The Four Legal Instruments That Allow Investors to Sue Honduras
Jen Moore of the Institute for Policy Studies, one of the organizations that released the report, explained that Honduras currently has four legal avenues through which “companies have recourse to private international tribunals.”
These legal instruments are: bilateral investment treaties; free trade agreements, including the the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR); Honduras’s 2011 Law for the Promotion and Protection of Investments; and contracts, which are frequently marred by lack of transparency and an imbalance in the country’s negotiating capacity to its own detriment.
Of “the 15 ongoing claims, the vast majority correspond to reforms that deepened privatization and the surrender of national sovereignty [to private interests] after the coup d’état,” Moore explained. She added that in the first decade of the 21st century, Honduras faced only three international arbitration claims — and the rest were filed after the coup d’état.
Since 2023, investors “have used all four instruments to sue Honduras,” Moore explained. “There have been six contract cases, free trade agreements and bilateral investment treaties have been invoked 10 times, and investors have resorted three times to such tribunals using the Law for the Promotion and Protection of Investments passed in 2011.”
Criminal Ties and Corruption: What Are “Mafia-style Investments” in Honduras?
The report coined the term “mafia-style” to describe investments that meet most of three criteria.
“Mafia-style” investments are…
- Irregular, because the contracts, investment commitments, or the nature of the projects did not follow due process.
- Odious, because the investments did not benefit the population or have their consent, and were signed in a context of oppression.
- Linked directly or indirectly to criminal networks.
Karen Spring — co-coordinator of the Honduras Solidarity Network, another of the organizations that authored the report — said that they borrowed the concept of “odious debt,” referring to debts acquired against the interests of a country’s population, often to strengthen a despotic regime in power.
However, after interviewing affected populations and learning about the links that many of these deals have with criminal networks, it became clear that the term “odious” failed to capture the full extent of what had happened, so they used “mafia-style” instead.
“Almost all of the claims, the majority, are connected to irregularities, acts of corruption, repression, exploitation, and some have direct or indirect links to criminal networks,” Spring shared. “We are talking about drug trafficking, especially the drug trafficking networks that took over the Honduran state after the coup d’état.”
Corruption and Drug Trafficking in Honduras: Inversiones Continental’s Claim
The lawsuit filed by Inversiones Continental (Panamá) S.A., owned by the Rosenthal family of Honduras, was registered with ICSID in October 2018 and is an example of what’s meant by “mafia-style.”
The report authors explain that Inversiones Continental’s $1 billion lawsuit “reflects a dispute between de facto powers in Honduras and the personal interests of former President Juan Orlando Hernández.”
In 2015, businessmen Jaime Rosenthal, Yani Rosenthal, and Yankel Rosenthal were designated by the U.S. Office of Foreign Assets Control (OFAC) as Specially Designated Narcotics Traffickers under the Foreign Narcotics Kingpin Designation Act for their involvement in providing money laundering services through Banco Continental and supporting multiple drug trafficking organizations, including the Los Cachiros cartel.
Los Cachiros, led by Javier Eriberto and Devis Leonel Rivera Maradiaga, “received contracts from the Honduran government to launder drug money” during the administrations of former presidents Porfirio “Pepe” Lobo and Juan Orlando Hernández, both corresponding to the so-called narco-dictatorship period.
Both Lobo and Hernández were implicated for their drug trafficking ties in the New York Southern District Court. Fabio Lobo, son of former President Lobo and a collaborator of Los Cachiros, was recently released on supervised release after testifying against former President Juan Orlando Hernández, who was sentenced to 45 years in prison after being convicted of crimes linked to drug trafficking and weapons possession and use.
Continental Investments’ ICSID claim against Honduras is related to how the Rosenthals’ assets were confiscated. Honduran authorities under the administration of Juan Orlando Hernández confiscated, within weeks, 60 properties and assets of this wealthy family who are members of the Honduran political elite and supporters of the rival Liberal Party.
While the Administrative Office of Seized Assets (OABI) in Honduras claims that there is no data or record of what happened to these assets during the Hernández administration, the Rosenthal family’s lawyers claim that the confiscation of their properties, including some that did not appear on the OFAC list, as well as the sale of assets, did not follow due process in Honduras.
The “Corporate Assault” report highlights “the harshness and abusiveness with which the JOH administration” (as former President Hernandez is also known) “confiscated the Rosenthals’ assets.” It also notes that in similar cases — against his brother Juan Antonio “Tony” Hernández, and former mayor Alexander Ardón of El Paraíso, Copán — assets were not confiscated by authorities or were only partially confiscated, demonstrating the selectivity with which the authorities acted.
Now the Honduran people may be on the hook for up to a billion dollars for this dispute between elite factions with ties to criminal networks.
Honduran and Central American Investors Also Sue Honduras at ICSID
While most of the claims against Honduras before ICSID have been brought by foreign investors, there are also Honduran and Central American businesspeople involved, as in the case of Inversiones Continental, which is based in Panama and owned by Hondurans.
Although 10 claims have been brought by U.S. and European investors, Jen Moore notes that the role of investors from neighboring countries and even domestic investors suing Honduras at ICSID in six of these cases is notable.
Moore pointed out that Honduran businessmen have structured their investments through other countries, such as Panama, enabling them to sue their own country in arbitration tribunals such as ICSID.
At the same time, through the use of the fourth legal instrument, Public-Private Partnership contracts, Honduran companies have also gained access to sue through international arbitration, as is the case with Autopistas del Atlántico; Palmerola International Airport, and Operadora Portuaria Centroamericana.
Alexis Mourre, former president of the International Court of Arbitration of the International Chamber of Commerce, has pointed out that developing countries often enter into contracts with powerful multinational companies with a low negotiating capacity — which together with cases of corruption, jeopardizes the contracts being negotiated in the public interest.
Putting Human Rights First
Ultimately, the report authors recommend that Honduras withdraw from any current or future trade agreements that allow investors to sue the state over investment profits, as well as a comprehensive, inclusive review of the various domestic measures that allow these suits as well. “All trade treaties, investment protection treaties, the 2011 Investment Law, and contracts that include arbitration must be revisited,” they write.
And they also have a demand for Washington: “The U.S. government should end its support for any trade and investment agreements, current or future, that allow corporations to sue governments under the current rules, which privilege corporate interests against peoples’ self-determination, public welfare, and environmental protections.”
Instead, they call on all parties to “give primacy to international human rights, indigenous, environmental, and labor rights treaties.”
This article was adapted from an earlier version published in Spanish by the Honduran outlet Criterio.