In 2008, IFC invested in Corporación Interamericana para el Financiamiento de Infraestructura (CIFI), a non-banking financial institution that supports small and medium infrastructure projects in Latin America and the Caribbean. In 2011, CIFI invested in Hidro Santa Cruz (HSC) for the construction of the Canbalam hydropower plant in Guatemala. However, in 2012 the project was suspended shortly after construction commenced.. In November 2015, CIFI terminated its loan to the project developer and the e project was abandoned in December 2016.

In July 2015, CAO received a complaint submitted by community representatives in Santa Cruz Barillas, alleging that the Canbalam hydropower project had not undergone proper consultation with indigenous communities.  
 
Complainants also claimed that opposition to the project resulted in violence and repression from both the company and the government, highlighting a specific incident on May 1, 2012, where one community member was killed, and two others were injured. The complainants believed that a security guard hired by the project was involved. HSC acknowledged that one of the individuals charged with the shooting had worked previously for their security contractor but denied any involvement.

In August 2015, CAO found the complaint eligible and conducted an assessment visit in October 2015. Following the CAO assessment, the case was transfered to CAO’s compliance function. In August 2016, CAO released a compliance appraisal report concluding that an investigation was warranted in response to the complaint. 

In December 2018, CAO concluded its compliance investigation and submitted the report, along with IFC's response, to the President of the World Bank Group for approval. The report and response were reviewed during a meeting of the IFC Board in February 2020, leading to a revision of IFC's response. The revised response, dated April 2020, contains additional information that was not previously provided to CAO during the investigation. 

In June 2020, CAO published its compliance investigation report and IFC's response after receiving clearance from the President. The report highlighted multiple instances of IFC's non-compliance regarding its review and oversight of the investment in CIFI, particularly in relation to the incident involving the Canbalam power plant sub-project.  

CAO's investigation found that IFC's pre-investment environmental and social (E&S) review of the company's E&S management system (ESMS) did not adequately match the level of risk involved. CAO identified deficiencies in IFC's evaluation of both the client's past performance in implementing the ESMS and their ability to meet IFC's standards in implementing the ESMS. 

IFC's failure to properly oversee the implementation of an adequate Environmental and Social Management System (ESMS) by the client resulted in a situation where project activities began without a thorough risk assessment and the implementation of necessary mitigation measures outlined in IFC's Performance Standards. This lack of oversight contributed to the inadequate assessment and monitoring of risks and impacts associated with investments in projects like Canbalam.  

After the violent incidents in May 2012, the client halted disbursements to the project and informed IFC. According to IFC's own Environmental and Social (E&S) procedures, IFC had a responsibility to respond to serious incidents at the project level. This involved assessing the root cause of the incident and implementing measures to prevent its recurrence. 

However, IFC failed to engage with the client regarding the project or the violent incident, contrary to its E&S procedures. CAO's investigation revealed that IFC did not comply with its procedures for responding to serious incidents and did not take the necessary steps to ensure that the client's response aligned with the Performance Standards requirements for addressing project impacts throughout the project cycle, including at project closure. 

The complainants argued that the project has had negative social effects on their communities. They specifically claim that the project caused an increase in conflicts related to the project, resulting in the death of one community member, severe injuries to two others, and the detention of seventeen additional community members. They also assert that the construction of a perimeter fence around the project site has restricted their traditional access to land and natural resources. 

Despite the project being abandoned in December 2016, there is evidence to support the complainants' claim that residual impacts still exist. IFC, being aware of these impacts during the financing period, failed to communicate with its client to ensure that these residual impacts were properly assessed, minimized, mitigated, or compensated for as required by IFC's Performance Standards and Sustainability Policy, particularly during project closure. 

CAO Monitoring Report 
 
In May 2024, CAO completed its first monitoring report on the case and decided to close project-level monitoring. This decision was made because IFC did not commit to any project-level actions in response to CAO's findings, and CIFI has already exited the sub-project investment several years ago. As a result, there is no expectation of further action from IFC to address the remaining impacts of the project. However, CAO will continue to monitor four out of the five systemic commitments made by IFC in response to the investigation findings.  
 
The Omnibus Monitoring Report for this case is available in English and Spanish.