On Thursday the European Parliament votes for the first time on the reviewed mandate of the European Investment Bank (EIB) to lend outside of the EU. The EIB lends EUR 10 billion outside of the EU, but its last mandate to do so was struck down by the European Court of Justice, in part because it failed to serve real development. Recent revelations about the continuing failures of EIB projects to create development, including giving loans to tax dodging companies, money ending up in the pockets of corrupt elites and making untraceable loans through financial intermediaries, suggest that little has improved. So the Parliament could play an important role in assuring the EIB does what it is supposed to, delivering sustainable development to the poor in the Global South.

Despite its much-touted good intentions, the EIB has always freely interpreted its development role by supporting controversial projects and using opaque financing mechanisms. Recent revelations about the Mopani Copper Mine (MCM) in Zambia made that once again very clear. An unreleased tax audit revealed by Counter Balance showed that MCM channeled millions of untaxed profits out of Zambia to the benefit of its mother company Glencore, a giant Swiss based commodity trader. To do so it made use of fraudulent book keeping, price manipulation and transfer mispricing, such as using financial derivatives to lock in deliberately low copper prices so they could declare less taxable income.

This is clearly exploitation, the exact opposite of development—yet the EIB saw fit to grant Glencore a EUR 48 million development loan for Mopani. And the loan wasn’t even in line with EU policy goals: if we read through Zambia’s country strategy paper, the mining sector is barely mentioned. The CSP instead promotes good governance, democracy and transparency: exactly the things the EIB overlooked.

Unfortunately the Mopani case is exemplary for the EIB’s business model. While making the right noises about development, the lion’s share of EIB development lending goes to Mopani-like companies. Since 2000 over 80% of its lending in Zambia went to the mining industry, an industry with a highly questionable development reputation. Combined with a serious lack of due diligence done by the EIB, this leads to perverse situations where public development money serves a Western multinational based in Switzerland at the expense of poor communities in Zambia much in need of the money.

There’s a lot of debate these days about development aid and how it can be most effective. It’s doubtful if any of the debaters is proposing channeling billions in tax avoidance out of developing countries. Yet this is what happens with Mopani and dozens of projects like it. As long as the EIB keeps making these investment choices, it might be legitimate to ask whether the EIB is the right institution to manage development funds. At the very least, it is indispensable to impose stringent rules on the EIB to screen the organisations and projects it supports and their social and environmental impact. This is basic due diligence.

The European Parliament has now the chance to set this straight. It will be able to impose stringent standards and perform the necessary controls. The text to be voted on won’t bring any fundamental change but it’s a step in the right direction. It shows that the Parliament is serious on tax havens, stringent due diligence and transparency and that it is ready to thoroughly scrutinise the EIB. If the Mopani case proves one thing, it is the need of serious democratic control not in far off Africa, but to lift the EU house bank out of the shadows from which it loves to operate.

By Berber Verpoest, Counter Balance