2.1 What are Multilateral Development Banks and What are They Doing

The oldest MDB is the World Bank (or International Bank for Reconstruction and Development, IBRD), which was established in 1944, serving as one of the three pillars of the Bretton Woods system created after the World War II and as a special agency of the United Nations.⁵ All other MDBs are limited to a particular region. These regional MDBs include the Inter-American Development Bank (IDB), the African Development Bank (AfDB), the Asian Development Bank (ADB), the European Bank for Reconstruction and Development (EBRD), and the young AIIB and New Development Bank.⁶

MDBs provide financial assistance and professional advice for economic and social development in developing countries.⁷ The financial supports are supplied in form of loans and grants.⁸ For long-term loans, the MDBs borrow the funding on the international capital market and re-lend the funding to developing countries at a market-based interest rate.⁹ The member states of MDBs will donate funding to the MDBs, which in turn lend to developing countries in need, in form of very-long-term loans at below market interest rate.¹⁰ Some MDBs also offer grant financing, mostly for technical assistance, advisory services, or project preparation.¹¹ In general, the mission and purpose of the MDBs is to increase living standard for people in developing countries by funding a development project in a particular region. For example, the AIIB stipulates its purpose in its Articles of Agreement (AOA):¹²

The purpose of the Bank shall be to: (i) foster sustainable economic development, create wealth and improve infrastructure connectivity in Asia by investing in infrastructure and other productive sectors; and (ii) promote regional cooperation and partnership in addressing development challenges by working in close collaboration with other multilateral and bilateral development institutions.

The purpose of the MDBs should be observed in evaluating MDBs’ actions and the legal institutions applied to the MDBs. Any practice that in effect hampers the realization of the purpose shall be subject to change.

2.2 Multilateral Development Banks as International Organization

To be an international organization, an entity must be created by a multilateral treaty, consist of sovereign states, and possess institutional organ of its own.¹³ MDBs meet all these standards. MDBs arise out of state-created constituent instruments, which are often referred to as Articles of Agreements.¹⁴ The Articles of Agreements not only establish the MDBs, but also set forth all fundamental principles and regulations of the MDBs, including the purpose of the bank, membership, structural framework, capital arrangement, as well as the bank’s legal responsibility and immunity.¹⁵

MDBs are comprised of and governed by their members, most of which are sovereign states. For example, as a subordinate of the United Nations, all the members of the World Bank are sovereign states.¹⁶ Some MDBs, however, involve non-state members. For example, Hong Kong, China is a member of the ADB.¹⁷ The AIIB, by making reference to ADB membership,¹⁸ accepts non-state members as well.

The Board of Governors, Board of Directors and management are the most important institutional organs of MDBs. The Board of Governors is composed of representatives from all member states and is vested with the ultimate power to make policies for the MDB.¹⁹ The power to oversee a bank’s business and daily functions is delegated to the Board of Directors, which comprises certain number of executive directors who work full time at the headquarters of the bank.²⁰ But the AIIB has a unique, non-resident Board,²¹ meeting only four times a year.²² AIIB management is thus expected to be more accountable for daily decision-making than its counterparts in other banks. Usually, MDB members do not share equal decision power on the bank’s business as in international political organizations, such as the United Nations. A member’s voting power at the bank is decided by that member’s financial contribution to the bank’s capital stock.²³

2.3 MDBs’ International Legal Personality

International legal personality is not necessary in order to found an international organization,²⁴ but a great majority of international organizations do possess international legal personality, which allow an organization to enjoy rights, undertake obligations, and assume responsibilities. MDBs are international organizations that have legal personality and are subject to public international law.²⁵

First and foremost, the MDBs declare in their Articles of Agreement that they have international legal personality. For example, the Article 45 of the AIIB’s Article of Agreement provides: “The Bank shall possess full juridical personality, and in particular, the capacity: (i) to contract; (ii) to acquire and dispose of immovable and movable property; (iii) to institute and respond to legal proceedings; and (iv) to take such other action as may be necessary or useful for its purpose and activities.” Almost identical provisions exist in the constituent instruments of the IBRD,²⁶ ADB,²⁷ EBRD,²⁸ and IDB.²⁹ The AfDB’s Articles of Agreement sets forth the bank’s legal status more generally: “To enable it to fulfill its purpose and the functions with which it is entrusted, the Bank shall possess full international personality.”³⁰

The MDBs’ independent legal personality is also reflected in the fact that the banks have separate will from their member states. “Separate ‘will’ is a major, perhaps defining, element of international legal personality.”³¹ The depth of membership, the nature of decision making, and the presence of majority voting in the organs are factors that will be considered in finding separate will.³² Take the AIIB for example. It has 57 founding member states, representing a wide range of international community;³³ it is difficult for a couple of states to seize control of the bank and to deprive the bank of its own will. The bank implements multilateralism. The power to make regular business decisions and important policy decisions are vested in management, the Board of Directors, and the Board of Governors, respectively.³⁴ Their decisions reflect the will of the bank. With respect to the voting mechanism, although the voting power at an MDB depends on a member state’s financial contribution to the bank, which gives economically stronger countries more voice in the bank, the bank’s Articles of Agreement clearly states that “all matters before the Bank shall be decided by a majority of the votes cast.”³⁵ Accordingly, the MDBs possess separate will and international legal personality.

Furthermore, the MDBs are subject of international law. Under international law, the MDBs have treat-making capacity, possess capacity to bring claims, and enjoy privileges and immunities.³⁶ First, MDBs enter into agreements with peer organizations. For example, the AIIB works “in close collaboration with other multilateral and bilateral development institutions”,³⁷ as demonstrated at both MOU (i.e., Memoranda of Understanding)³⁸ and project levels.³⁹ Second, with respect to the capacity to bring claims, the International Court of Justice has opined that international organizations have the capacity to bring claims against a state for damages caused by the state’s breach of obligation towards the organization.⁴⁰ MDBs are international organizations and thus have the capacity to bring claims before a judicial tribunal. Third, MDBs enjoy a broad range of privileges and immunities—mostly as broad as foreign sovereigns—from national jurisdictions. The privileges and immunities for MDBs, as international organizations, are recognized and provided in their own constituent instruments⁴¹ and in national legislation.⁴²

3.1 Immunity Theory under Public International Law

The immunity doctrine derives from the recognition of the “perfect equality and absolute independence of sovereigns.”⁴³ A sovereign and its representatives are absolute within its own territory and are exempt from arrest and detention within a foreign territory.⁴⁴ At its origin, the concern of the immunity theory is to protect a sovereign from the jurisdiction of the territorial courts.⁴⁵ The rationale of the immunity doctrine rests on “the dignity of the foreign nation, its organs and representatives, and on the functional need to leave them unencumbered in the pursuit of their mission.” In theory, the necessity of freedom for a sovereign to properly perform its function is a precondition to grant immunity.

As sovereign states’ involvements in commercial activities grew to a considerable scale at the end of the nineteenth century, the immunity doctrine evolved a distinction between acts of government, jure imperii, and acts of commercial nature, jure gestionis.⁴⁶ In the latter case, a sovereign state’s request for immunity from national jurisdiction is denied.⁴⁷ This so-called restrictive immunity approach gradually received wide recognition in the twentieth century. Many countries have codified the restrictive doctrine of immunity into their national legislations.⁴⁸ Take the United States Foreign Sovereign Immunities Act of 1976 for example: sovereign states generally enjoy immunities, except in cases

in which the action is based upon a commercial activity carried on in the United States by the foreign state; or upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.⁴⁹

In addition to the commercial activity exception, claims against sovereign states for “personal injury or death, or damage to or loss of property … caused by the tortious act or omission” of that sovereign state also deprives the state of its recourse to immunity. Although it is inaccurate to assert that there has been a consensus that absolute immunity has been replaced by restrictive immunity, a trend toward accepting the restrictive doctrine of immunity had been embodied in states’ legislative practices since 1970s.⁵⁰

3.2 The Rationale Behind International Organizations’ Immunities: Functional Necessity

An international organization itself does not enjoy sovereignty; it is an organization established by international agreement between sovereign states and whose membership consists entirely or principally of states.⁵¹ Therefore, the immunity for international organizations cannot stem from the idea of absoluteness and supremacy of sovereignty. The rationale for international organization’s immunity is based on the concept of functional necessity, which means that “an entity shall be entitled to (no more than) what is strictly necessary for the exercise of its functions in the fulfillment of its purposes.”⁵² At core of the concept of functional necessity, the term “function” denotes the tasks of an organization or activities carried out by the organization as a tool for accomplishment of its purposes.⁵³ Function possesses an inherent quality and implication of obligations, pursuant to which the international organization must perform in order to pursue the goals that its member states have in common and refrain from taking activities which may hamper the accomplishment of such goals.⁵⁴ Both the positive and negative obligations define the scope of functional immunities that an international organization may be entitled to.

A number of reasons justify granting privileges and immunities to international organizations based on functional necessity. An international organization cannot truly act for the common interests of all member states, unless it can act independently from control or influence of any individual state. One of the most effective and threatening means of control is to subject the organization’s act to a state’s national jurisdiction.⁵⁵ In order to fulfill its international tasks, it is necessary to grant the organization a certain degree of political independence, which constitutes the primary reason for according privileges and immunities to the organization.⁵⁶ Furthermore, an organization cannot act in a convincing manner towards its member states unless the member states have confidence in that the organization will treat them on an equal basis.⁵⁷ The organization’s seizure by the jurisdiction of a member state will vitiate such confidence in a way that it threatens the possibility that the organization, for fear of the adjudication, would act in preference to the jurisdictional state to the discrimination of other member states. Therefore, privileges and immunities for the organizations are necessary to ensure a feeling of equality among member states. In addition, privileges and immunities form a part of prestige and authorities that an international organization enjoys vis-à-vis other similar organizations.⁵⁸

Functional necessity can serve as a basis for justifying the granting of privileges and immunities to international organizations. At the same time, it can also serve as a criterion that defines the scope of immunities that an organization may be entitled to.⁵⁹ Admittedly, mere the concept of functional necessity will not remove all ambiguities in demarcating the scope of immunities for international organizations, but functional necessity can be a useful guideline in determining what immunities should be granted.⁶⁰ As stated above, function implies an international organization’s purpose and objectives. Therefore, an examination of an organization’s purposes and objectives is indispensable in delimiting the scope of immunities the organization can enjoy. For the great majority of the existing international organizations, their purposes and missions are usually set forth in their constituent instruments. Thus, “the functional necessity criterion can only operate in close cooperation with the instrument embodying the organization’s ‘necessary functions.’ ”⁶¹ Another relevant factor is the nature of an international organization’s function. Arguably, the more activities of political nature that an organization may encounter in performing its functions, the more privileges and immunities the organization should be entitled to. Some scholars suggest that the United Nations, by its nature, is a political international organization and therefore should sit “at the top of the pyramid of privileges and immunities to be accorded to international organization.”⁶² In other words, the privileges and immunities enjoyed by the United Nations should represent the maximum standard in determining whether a similar immunity should be granted to a particular international organization. In contrast to the United Nations, as the political nature in an organization’s functions reduces to an extent that the organization must enter the marketplace and participate in purely commercial competition, the organization should possess the minimum degree of immunities, if any immunity at all must be granted.⁶³

According to the functional necessity concept, the MDBs, as international organizations, should be entitled to only those privileges and immunities that it strictly needs for the exercise of its functions in the fulfillment of its purposes.⁶⁴ In any sense, the MDBs shall not enjoy more privileges and immunities than the United Nations does.

4.1 Immunity for MDBs under International Law

The primary source of MDBs’ immunities is international treaties, which include the constituent instruments of the MDBs. In almost all existing MDBs’ Articles of Agreement (AOA) or establishing agreement, there is a specific provision stipulating the immunities that the MDB enjoys. The Articles of Agreement of the IBRD provide:

Actions may be brought against the Bank only in a court of competent jurisdiction in the territories of a member in which the Bank has an office, has appointed an agent for the purpose of accepting service or notice of process, or has issued or guaranteed securities. No actions shall, however, be brought by members or persons acting for or deriving claims from members. The property and assets of the Bank shall, wheresoever located and by whomsoever held, be immune from all forms of seizure, attachment or execution before the delivery of final judgment against the Bank.⁶⁵

This provision seems to suggest that the immunity for the IBRD from national jurisdictions is not absolute, so long as the action is brought in a jurisdiction in the territories of an IBRD member state. But this provision does not specify on the types of claims that can be brought against the IBRD. On this issue, the immunity provisions in the establishing agreements of both the ADB and the AIIB, which are almost identical, are more specific:⁶⁶

The Bank shall enjoy immunity from every form of legal process, except in cases arising out of or in connection with the exercise of its powers to raise funds, through borrowings or other means, to guarantee obligations, or to buy and sell or underwrite the sale of securities, in which cases actions may be brought against the Bank in a court of competent jurisdiction in the territory of a country in which the Bank has an office, or has appointed an agent for the purpose of accepting service or notice of process, or has issued or guaranteed securities.⁶⁷

EBDB’s Headquarters Agreement expands the scope of exceptions to immunities. In addition to the above exception of commercial transactions,⁶⁸ an action arising out personal injuries, or enforcement of an arbitration award made against the bank, also falls within the permissible types of actions that can be brought against the bank and therefore is included in the jurisdiction of local courts.⁶⁹ Such expanded exceptions to immunities are found in other international treaties, such as the Headquarters Agreement between the Chinese government and the AIIB.⁷⁰

The national courts, however, can use techniques to avoid application of the MDBs’ constituent instruments that grant immunities to the MDBs.⁷¹ For example, even if the MDB’s constituent instrument has been ratified by the legislature of the state where the court sits, the constituent instrument, as an international treaty, is not necessarily self-executing if that state adopts a dualist legal system. In a dualist legal system, an international treaty is not directly applicable in the state’s judicial proceedings until the treaty has been formally incorporated into national legislations.⁷²

Another source of immunities for MDBs is customary international law, which is legally binding and must be abided by all states. Customary international law is largely a gap-filling source for immunities when there is no applicable international treaty or domestic legislation.⁷³ Customary international law may be relevant in cases involving MDBs, when the action against an MDB is brought in a court of a state that is not a member of the MDB and that does not have regulations specific on granting immunities to international organizations. As a general rule of public international law, widespread state practices and opinion juris must exist in order to find customary international law. It has been suggested that a customary international law exists that international organizations enjoy necessary privileges and immunities independently of international treaties.⁷⁴ The most evident example is the United Nations. “The rules governing privileges and immunities [of the UN] were stated to have acquired the status of norms of international law, there being no difficulty with regard to the content of the law, which form a juridical standpoint was considered clear and well-developed.”⁷⁵ With respect to other international organizations, the evidence most frequently cited by scholars to prove the status of customary international is that privileges and immunity clauses exist comprehensively in international organizations’ constituent instruments. This is an implied expression of the willingness and feeling of obligation by states that immunities should be granted to international organizations.⁷⁶ Noticeably, however, the customary international law related to international organizations’ immunities does not speak on the scope of the immunities.

4.2 Immunity for MDBs in National Legislation

Another principal source for international organizations’ immunities lies in domestic legislations. Here, we will focus on U.S. law and the interpretations of the law by U.S. court. The International Organizations Immunity Act of 1945 (IOIA) stipulates the immunity of international organizations in U.S. jurisdiction. The statute provides: “International organizations, their property and their assets, wherever located, and by whomever held, shall enjoy the same immunity from suit and every form of judicial process as is enjoyed by foreign governments.”⁷⁷ According to the IOIA, international organizations enjoy privileges and immunities in U.S. courts to the extent equivalent to that accorded to foreign sovereignties. The IOIA was promulgated over seventy years ago, in an era when the prevalent view of state sovereignty and immunities still preferred the absolute doctrine but also had seen a decline of the sanctity of states and a rise of the theory of restrictive immunity.⁷⁸ In the light of this background, what the U.S. Congress had in mind with respect to the level of immunities for states when it selected the words “the same immunity … as is enjoyed by foreign government” becomes a critical issue in understanding the IOIA. Furthermore, the question of whether the scope of the immunities for international organizations changes with the evolution of state immunity after the Foreign Sovereign Immunity Act (FSIA) was adopted in 1970s must be answered before the level of immunities for international organizations in U.S. law can be determined. These two vital issues were examined by the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit) in Atkinson v. Inter-American Development Bank.⁷⁹

The D.C. Circuit did not address the first issue in details. The court merely asserted that “when Congress enacted the IOIA in 1945, foreign sovereigns enjoyed … virtually absolute immunity”;⁸⁰ it did not provide further review of the law for sovereign immunity during that period. The court then rejected the appellant’s contention that the IOIA incorporated the subsequent change to sovereign immunity in the FSIA; therefore, the IOIA does not follow suit of the FSIA that accepted the restrictive theory of immunity.⁸¹ The court acknowledged that the text of the IOIA does not provide an express guidance on whether the Congress intended to incorporate the subsequent changes to the law governing the state sovereign immunity.⁸² Despite the ambiguity, however, the court declined to consider the interpretation canon, which requires that a statute which refers to a subject adopts all the amendments and modifications of the law subsequent to the time the reference statute was enacted.⁸³ The denial of this interpretation canon, according to the D.C. Circuit, was based on the fact that the IOIA sets forth a separate mechanism for monitoring and amending the immunities of international organizations: “the President retains authority to modify, condition, limit, and even revoke the otherwise absolute immunity of a designated organization.”⁸⁴

This construction of the IOIA by the D.C. Circuit has invited strong criticisms. First, the D.C. Circuit wrongfully denied consideration of the interpretation cannon in construing the meaning of the IOIA. The cannon that a statute shall incorporate all subsequent amendments of the law it refers to has been a well-established principle when the Congress enacted the IOIA.⁸⁵ Therefore, the interpretation cannon should be understood as having been taken into account by the Congress in drafting the IOIA, unless there was explicit evidence that the Congress did not intend the canon to apply.⁸⁶ The canon is not merely a secondary and negligible tool in the court’s construction of the IOIA; rather, the IOIA should be interpreted in accordance with the canon.⁸⁷ Second, the foreign sovereign immunity that the IOIA referred to was not absolute at the enactment of the IOIA. In a line of cases decided in that era, the judicial branch gave deference to the executive’s determination on the level of immunity enjoyed by foreign sovereigns.⁸⁸ Thus, the privileges and immunity entitled to foreign sovereigns were granted by the executive branch on a case-by-case basis. If strictly construing the language “the same … as is enjoyed by foreign government,” the D.C. Circuit should ask the administration in charge of foreign affairs for advice on the status of foreign sovereigns at the current time.⁸⁹

If the Atkinson decision was not a proper construction of the IOIA, the IOIA, by its reference to the immunity enjoyed by foreign governments, should be understood as having incorporated the subsequent change to the law of sovereign immunity represented in the FSIA. Thus, the exceptions to immunity, such as commercial activities and tortious act, will apply in a case where an international organization is involved. Accordingly, when actions against MDBs are brought in U.S. courts, the MDBs should be subject to the exceptions to immunity in the same manner as foreign states.

4.3 Judicial Interpretations of Immunity for MDBs

In Mendaro v. World Bank, the D.C. Circuit stated that pursuant to the IOIA, international organizations are generally entitled to immunity from judicial proceedings, but the immunity conferred is subject to two limitations. First, the organization may expressly waive its immunity; second the President may specifically limit the organization’s immunities.⁹⁰ In interpreting the immunity provision in the World Bank’s Articles of Agreement, the D.C. Circuit held that “the immunity of an international organization may be waived only by an express waiver on the part of the organization,”⁹¹ and a general statement permitting suits to be brought against the bank should not be deemed as an express waiver of immunity within the meaning of the limitations on immunity conferred to the bank.⁹² According to the court’s interpretation, the immunity clause in the IBRD’s Articles of Agreement, which provides that “[a]ctions may be brought against the Bank only in a court of competent jurisdiction in the territories of a member,” is in fact granting the bank absolute immunity, so long as the bank does not waive the immunity explicitly.

But the absence of the World Bank’s express waiver of immunity was not the primary basis on which the court restrained its jurisdiction in Mendaro. The court ruled for the bank because the action against the bank arose out of an employment relationship. According to the court, “one of the most important protections granted to international organizations is immunity from suits by employees of the organization in actions arising out of the employment relationship,” and the purpose of such immunity “is rooted in the need to protect international organizations from unilateral control by a member nation over the activities of the international organization within its territory.”⁹³ Based on this reasoning, the court’s granting of absolute immunity to the bank should be narrowly read to be limited to the situations where the underlying legal relationship of the action is an internal employment relationship.⁹⁴ This reading is confirmed by the court’s statement that with respect to the bank’s internal operations, a waiver of immunity to suits would contravene the bank’s Articles of Agreement.⁹⁵

However narrow the decision in Mendaro can be read, the D.C. Circuit still recognized that international organizations shall enjoy absolute immunity from judicial proceedings, unless the immunity is expressly waived by the bank or by the U.S. President. The United States Court of Appeals for the Third Circuit, however, reached an opposite conclusion in another case Oss Nokalva, Inc. v. European Space Agency in 2010. Although the defendant in that case was not an MDB as in Mendaro, the decision is still enlightening because it provides a different interpretation of the IOIA, which certainly governs the immunity enjoyed by MDBs, from the interpretation offered by the D.C. Circuit in Atkinson and Mendaro. The Third Circuit in European Space Agency re-examined the D.C. Circuit’s holding in Atkinson that the IOIA, while granting international organizations the immunity as enjoyed by foreign sovereigns, does not mean to incorporate the subsequent change to the law of sovereign immunity in the FSIA.⁹⁶

First, the Third Circuit disagreed with the D.C. Circuit in Atkinson, which declined to consider the interpretation canon in construing the meaning of the IOIA.⁹⁷ The court also noticed the fact that nearly half of the international organizations recognized by the United States came into existence after the FSIA was enacted in 1976.⁹⁸ The court then reasoned that “it is unreasonable to assume that those international organizations that were established under the IOIA after foreign sovereign immunity had been altered by the FSIA would still be subject to that level of immunity enjoyed by foreign governments and international organizations in 1945.”⁹⁹ Moreover, according to the court, if the Congress wanted the international organizations’ immunity to remain as it existed in 1945, it could have used explicit languages for this effect.¹⁰⁰ From a policy point of view, the court concerned that if giving a group of states acting through an international organization broader immunity than that accorded to a member state when it acts on its own, it will create a loophole that a state may exploit to evade legal obligations by acting through international organization.¹⁰¹ More importantly, the Third Circuit distinguished European Space Agency from Atkinson and Mendaro by pointing out that the latter two cases addressed claims based on internal employment relationship, while the former dealt with tort claims arising out of external commercial transactions of the defendant organization.¹⁰²

5.1 Administrative Tribunal

An MDB enjoys immunity of jurisdiction from the courts of its member countries for an employment dispute arising between the bank and its staff members.¹⁰⁵ For this reason, each MDB establishes an Administrative Tribunal as an independent judicial forum for the resolution of employment disputes. The Tribunal is autonomous from Bank management, and its decisions are binding and final.

The Tribunal is made up of several judges of whom three form a quorum to hear a case typically.¹⁰⁶ The Tribunal’s members are appointed by the Board from a list of candidates drawn up by the Bank president.¹⁰⁷ The Tribunal is served by a small secretariat or registry, responsible for receiving, maintaining, and transmitting the pleadings in the case.¹⁰⁸

The Tribunal’s members must possess the qualifications required for appointment to high judicial office or be jurisconsults of recognized competence.¹⁰⁹ They are appointed for fixed terms and are completely independent in the exercise of their duties.¹¹⁰ They may not have any prior or present employment relationship with the Bank.¹¹¹ Nor are they eligible for staff employment with the Bank following the end of their service with the Tribunal.¹¹²

The Tribunal hears complaints made by a staff member alleging non-observance of his contract of employment or terms and conditions of appointment. Matters falling within the jurisdiction of the Tribunal include, for example, decisions regarding the payment of staff benefits, promotion, performance evaluation, separation from the service of the Bank, as well as disciplinary measures taken against a staff member.¹¹³ Appropriate remedies to the complainant include compensatory remedies, and rescinding or rectifying the disputed administrative decision.¹¹⁴

The Tribunal adjudicates a case based on the Bank’s internal law comprising the AOA, Bank rules, regulations, policies and procedures.¹¹⁵ The AfDB Tribunal may interpret the legal texts by referencing the jurisprudence of peer institutions. The Tribunal applies generally recognized principles of international administrative law concerning the resolution of employment disputes of staff in international organizations. All MDBs’ Tribunals publish their judgments and orders, which are available on their official websites. A growing body of those cases expects to enrich international administrative law.

The Administrative Tribunal is the final step in the recourse mechanism for aggrieved staff members. And this opportunity is only available when a complainant has exhausted all other remedies available within the Bank.¹¹⁶ The AfDB, for example, has a few specialized appeals mechanisms to adjudicate specified matters such as job evaluation, sexual harassment or staff pension plans. Some of the mechanisms are permanent while others being ad hoc, created as needed to resolve specific matters.¹¹⁷ A similar situation exists in the World Bank.¹¹⁸ The complainant must first resort to one of those mechanisms as applicable before proceeding with the Tribunal.

The competence of some MDBs’ Tribunal may be extended to any international organization, subject to agreements made with each such organization by the MDBs.¹¹⁹ That is to say, if the international organization does not institute a mechanism to handle employment disputes within itself, or the mechanism is not available due to some reason, that organization may utilize the MDBs’ mechanisms for resolving disputes.

5.2 Accountability Mechanism

MDBs have a “clear international obligation to avoid causing environmental harm in developing member countries and indeed to incorporate environmental protection and social development objectives into all of their activities.”¹²⁰ Such primary obligation cannot be observed or duly fulfilled in absence of an appropriate secondary obligation that enforces the MDBs to pay for the damages it has caused. Those adversely affected by the MDBs-assisted projects should be entitled to an opportunity to have their complaints heard in a fair trial. But the MDBs’ claim of immunity hinders the grieved parties’ recourse to judicial remedies in local jurisdictions.

The accountability mechanism is essentially MDBs’ legal efforts to address complaints made by people adversely affected by an MDB-funded project.¹²¹ Such complaints arise from concerns with environmental and social implications, including involuntary resettlement and human rights violations. The mechanism investigates whether Bank staff has fulfilled the obligation to comply with Bank rules relating to project design and implementation.¹²²

The World Bank built the first accountability system among its peer institutions in 1993.¹²³ Pursuant to the Resolution Establishing the Inspection Panel (“the Resolution”),¹²⁴ the Inspection Panel is independent from Bank management.¹²⁵ The Panel reports exclusively to the Board,¹²⁶ rather than to the President. The Panel has three permanent members,¹²⁷ each of whom serves for one non-renewable term of five years.¹²⁸ Panel members cannot have served the Bank in any capacity for the two years preceding their selection,¹²⁹ and can never work for the Bank after the five-year term ends.¹³⁰ The Panel has a separate Secretariat.¹³¹

Panel independence from management has strong evidence in practice as well. For example, some Panel members had extensive experience with environmental NGOs’ work, preparing them well for the Panel work;¹³² the Panel often disagrees with Bank management regarding the eligibility and evaluation of requests;¹³³ and the Panel has even been outspoken in criticizing management.¹³⁴

Over time, the Inspection Panel system has presented some important advantages and achievements. First, where letters written from local communities were frequently ignored, Panel claims immediately triggers attention from the highest levels of the Bank. As a result, immediate positive results occur on the ground.¹³⁵ Second, the Inspection Panel enriches corporate governance of the Bank, counterbalancing the power of management by placing its operational team under broad-based, strict scrutiny. Third, the system improves Bank rule-making process and quality, through the dynamic work of interpreting and applying Bank rules and procedures. Fourth, a perhaps unintended benefit is that the Bank is offered the opportunity to defend itself before a credible forum.¹³⁶ This is particularly important for the Bank given the mounting accusations of the public who often lack accurate information but feel free to blame project failures on the Bank.¹³⁷

As of July 22, 2017, the Inspection Panel has processed 119 cases.¹³⁸ Other MDBs created compliance review mechanisms patterned loosely after the Inspection Panel.¹³⁹ These MDBs generally publish their judgments and orders, showing how MDBs approach each case on its merits, and explain what offenders did wrong. The cases are thus valuable sources of precedent, contributing to a seemingly distant droit commum across MDBs.¹⁴⁰ More important, the cases have been enriching other areas of international law, including international human rights law, international environmental law, and international administrative law.¹⁴¹

The AIIB prioritizes the establishment of a credible accountability culture and mechanism. AIIB Articles of Agreement explicitly authorizes the Board of Directors to establish an oversight mechanism for supervising Bank management and its operations “on a regular basis” and “in line with principles of transparency, openness, independence and accountability.”¹⁴² AIIB Environmental and Social Framework in particular provides for an oversight mechanism to respond to complaints from project-affected communities with the goal of enhancing social and environmental outcomes on the ground.¹⁴³ The mechanism is under construction at the time of writing,¹⁴⁴ and is very much looked forward to.¹⁴⁵

The MDBs, alongside other international financial institutions with comparable accountability mechanisms, have established a Network of Independent Accountability Mechanisms.¹⁴⁶ Through the Network, member institutions exchange ideas and practices, improving their own accountabilities as key components of corporate governance.¹⁴⁷