Memorandum submitted by Margo Drakos,
Tarek Maassarani, and Jenik Radon
INTRODUCTION
The benefits of extractive industry investment,
production, and development have come at the expense of many of
the host states where business is conducted. The world's most
corrupt and least developed countries, such as Angola, the Democratic
Republic of the Congo, Myanmar, Nigeria, Sierra Leone, and Sudan,
contain some of the world's most valuable natural resources. In
theory, the revenue generated from these commodities has the potential
to elevate developing countries out of poverty and thus minimize
the cycles of conflict and humanitarian disasters commonly found
in the developing world. In reality, extractive projects frequently
adversely affect the environment and disrupt the local economic
and social fabric, which potentiates poverty, disease, and conflict.
This submission will describe the Human Rights
Impact Assessment (HRIA), a mechanism for multi-national corporations
(MNCs) to proactively mitigate or eliminate the negative human
rights impacts of their operations in the developing world, while
magnifying their positive impacts. Moreover, it will demonstrate
that pushing for companies to conduct HRIA has the potential to
yield economic rewards, hopefully changing the calculus that respecting
human rights is an expensive departure from the core mission of
extractive enterprises.
The authors have published, practiced, and taught
on the subject, having examined United States-based businesses
and case studies where egregious human rights violations occurred
or were mitigated. Additionally, Tarek Maassarani is a litigator
for the Wiwa v. Shell case which is going to trial in New York
City May 26, 2009. This case centers on Shell Corporation's assistance
and financing of Nigerian soldiers who used deadly force against
the indigenous population, the Ogonis, throughout the early 1990s
to repress a growing movement against the oil company. Although
our work is centered on the United States legal framework, we
believe our findings are applicable to the United Kingdom Government
and business community.
BUSINESS AND
HUMAN RIGHTS
The world's largest MNCs operate where resources
exist, regardless of a host state's infrastructure or capacity.
As a result, three core challenges emerge. First, many of these
valuable natural and human resources are located in developing
countries where the rule of law is weak or nonexistent. Most of
these states do not monitor or enforce minimum internationally
recognized human rights standards. Second, MNCs are often the
only significant economic opportunity for the state. The government
often lacks the capacity or legitimacy to reign in the power and
activities of MNCs even if they so desired. As a result, the ruling
elite, often in an effort to maintain power, overlooks labor,
environmental, and safety standards in order to accommodate MNCs
and to maintain control of the funds generated. Finally, the lack
of uniformity in defining human rights and their relevance to
MNCs results in legal uncertainty and unclear regulations for
private entities operating in a host state.
In spite of the challenges associated with conducting
business in the developing world, there is potential for good.
Capital from MNCs provides the opportunity for economic development,
which can promote an open society. When MNCs operate with sound
judgment, they assist in creating state guidelines that ensure
transparency and the appropriation of funds. They also have the
potential to raise a state's labor, health, human rights, and
environmental standards. In reality, these benefits are rarely
realized. Extractive industry projects in the developing world
commonly cause direct or indirect environmental, health, and human
rights violations; legitimize corrupt regimes; and provide little
to no job opportunities for the domestic economy. These infractions
are intertwined, but they can be classified into five general
categories.
1. Corrupt Regimes Become Legitimized.
When MNCs begin project development planning, dealing with one
regime reduces the MNCs' complexities. In this instance, the ruling
elite controls all aspects of the negotiated deal and services
for the MNC; from transportation and security personnel to payment
and revenue allocation structures, those controlling the state's
power provide all services. When commercial production begins,
the new source of revenue serves to legitimize, empower, and enable
the existing, often autocratic or rebel, regimes. The misappropriation
of economic benefits from resource revenue is rampant and devastating
to the host state.i
2. Forced Relocation of Populations around
MNC Projects. Construction of facilities and infrastructure
necessarily requires resettlement of populations, often involuntarily.
Displaced villagers are rarely provided with explanations and
information regarding their resettlement, meaningful and adequate
compensation, or basic necessities in their new home sites.ii
3. Abuses at the Hands of Security Guards.
Without buy-in from local communities and sufficient planning
for sustainable development, it becomes necessary for MNCs to
employ security guards for their facilities and infrastructure.
When MNCs turn to the ruling elite to secure or clear a production
field or pipeline route, guards are often government or paramilitary
forces. Security personnel are often antagonistic to local populations
and commonly subject them to forced labor and other physical abuses.iii
4. Environmental Degradation Violates
Health and Living Standards. Once production facilities are up
and running, public health catastrophes can result from a project's
toxic leaks, gas flares, and dumping of waste.iv
5. "Dutch Disease": The Boom
Town Effect. Large-scale projects can drastically change local
economies, a phenomenon commonly referred to as "Dutch Disease."
The sale of extractive exports increases the value of the local
currency, making other export goods uncompetitive in the international
market. As a result, a country becomes solely dependent on resource
extraction. As the costs of goods and services rise sharply, labor
is drawn away from traditional sectors, such as education and
agriculture, into temporary cash service jobs. Traditional culture
and social cohesion are disrupted by these jobs and incentives
for corruption are increased. Far from home, workmen often engage
with flourishing drug and prostitution markets, contract HIV/AIDS,
and then unknowingly spread the deadly virus in their home communities.
Additionally, the precarious economic system collapses once a
project matures, leaving vulnerable and dependent workers in an
under-diversified economy with fewer employment opportunities
than prior to the beginning of resource extraction.v
THE HUMAN
RIGHTS IMPACT
ASSESSMENT FRAMEWORK
The HRIA is designed to serve as a practical
medium- and long-term risk management tool that incorporates the
human rights rubric into a company's decision-making process.
Corporate risk through the human rights lens is defined here as
legal liability, potential for project interruption or abandonment,
and/or negative impacts on the corporate brand. An HRIA is designed
to anticipate corporate risk prior to, during, and after project
implementation. An HRIA focuses on human rights impacts occurring
within a corporation's sphere of influence, which may either,
contribute to or detract from the fulfillment and progressive
realization of internationally-recognized human rights standards.
The HRIA framework is grounded in the successes
of environmental and social impact assessments that have been
the cornerstone of environmental and social protection in developed
countries. Both these EIAs and SIAs represent proactive, transparent,
and structured approaches that avoid or mitigate significant and
irreversible damage through describing preexisting conditions
on the site, creating a plan for action, identifying potential
impacts that may occur as a result of the action, and evaluating
impacts and risk-mitigating alternatives. Impact Assessments are
disclosure tools that governments and corporations recognize and
accept. This submission proposes building on the SIA/EIA principles
to create the HRIA, an early warning system and an essential first
step in creating transparent accountability within corporations
and host states. The seven crosscutting basic principles that
should guide the corporate HRIA are described below.
1. Designing an HRIA Team: Work with
Competent Practitioners and Credible Data. It is essential
to choose the right team to work with an MNC in order to devise
an effective and efficient HRIA. External auditors should exhibit
familiarity with HRIAs, and maintain financial and institutional
independence to avoid actual or perceived corrupt practices, the
team should report directly to the MNC's board of directors. Employing
and consulting with credible experts in the field of human rights,
anthropology, political science, and local NGOs provides an MNC
insight into the geopolitical complexities on the ground; this
is essential to building a sound HRIA that is integrated into
corporate decision-making and viable to the international community.
2. The Business Case: Involve All Stakeholders
and Create a Sense of Ownership for All. Once the HRIA team
is defined and has peripherally assessed the host state's social,
political, and economic climate, the team needs to identify and
meet with representatives of all groups that will be involved
with or affected by the project. This should include everyone
from senior staff to under-represented stakeholders such as project
workers, host communities, and local NGOs. Maximum inclusion of
all actors, especially any politically marginalized segments of
the state's population, is particularly critical when operating
in states where the rule of law and infrastructure is virtually
absent. Community buy-in, joint problem-solving, cultural exchange
and liability protection is essential to maximize short- and long-term
project investment opportunities. In the event that misappropriations
of funds or human rights violations result during project implementation,
the MNCs will have established a relationship with all players
and documentation of that interaction.
3. Design Methods for Defining, Measuring,
and Addressing Impacts. Once all potential stakeholders are
determined, impacts need to be identified, defined, and classified
into categories. Similar to a practical risk management tool,
this step simulates the interests and demands of all stakeholders
throughout the length of a project. Each impact should then be
pre-classified as a: (1) potential problem; (2) potentially mitigated
problem; or (3) potentially reversible problem. The HRIA team
should create a methodology to address each category. Each proposed
action should be assessed while examining its impact on local
dynamics. This will create long-term risk management by strengthening
and legitimizing the impact assessment while simultaneously encouraging
accountability. It is timely and cost efficient to discuss, define,
and forecast potential complex issues surrounding the project's
impact on local communities prior to production; for example,
once production is under way, the daily burn rate is significantly
increased compared to the pre-project planning stage. A byproduct
of this step is the creation of a complex emergency response system,
should problems arise during or after production. This system
can be used in tandem with the local and international community
experts, who would have been previously approached by the team.vi
4. Assess Equity of Impacts. After
gathering reliable and informed data, the HRIA team should determine
the positive and negative impacts from the project and any potential
unbalanced distributions between communities, such as the state's
current human rights situation, stability, and any historical
divisions. Assessing the equity of impacts directly confronts
potential complicity and liability issues; this requires MNCs
to be familiar with existing labor, environment, health, and housing
standards around the project as they pertain to human rights.
Groups that are disenfranchised may become frustrated and aggressively
retaliate, thereby threatening production, as is witnessed in
Nigeria.
5. Internalize the Impact Assessment
in Corporate Decision Making. The HRIA assumptions and projections
should be institutionalized throughout the corporate management
structure; otherwise it will be a useless exercise. Clearly delineated
internal codes of conduct need to be outlined for receiving and
internalizing in-formation with explicit policies for addressing
discrimination, labor, security, and indigenous peoples. At this
time, staff training and management protocol should be designed
for overseeing contractors and local employees. If the perceived
risks outlined by the HRIA suggest that the human cost from the
project could be devastating, the board room is required to consider
suspending the project. If the project is recommended, communication
between the HRIA team and the corporate decision-makers should
be clearly outlined. Once revenue is flowing into the community,
bi-monthly meetings are recommended with the HRIA team and the
corporate decision makers. The MNC needs to create a sense of
ownership in the project that permeates through every stakeholder,
including the local population and NGOs, company crane operators
and engineers, the host state government, Wall Street executives,
and stockowners. When team pride and integrity is nurtured at
all levels of a business, optimal production and results will
be realized, even when operating in complex and volatile areas.
6. Transparency: Share Findings.
The first step in gaining credibility with the company's stakeholders,
international initiatives, and human rights organizations is to
publicly disclosing the process and results of a HRIA. The public
disclosure of findings by MNCs sends the right message to the
ruling elite, encourages discussion, media coverage, and transparency,
and potentially decreases corporate complicity in the event of
litigation or human rights atrocities. International organizations,
such as branches of the UN, World Bank, IMF, and Open Society,
can provide economic and development advisors to the state, offering
petroleum revenue allocation structures, debt restructuring, development,
and education initiatives. MNCs are presented with a unique opportunity
to create internal standards early, involve the public, and set
operating procedures on the international stage. The MNCs must
honestly disclose the HRIA study to an appropriate extent in order
to legitimize the corporation's process and decision-making as
well as encourage the host state's government and local population
participation.
7. Ongoing Monitoring and Evaluating:
Managing Human Rights. Once a project is underway, the HRIA
team should aggressively monitor all human rights impacts related
to the project. Detailed monitoring and reporting should include
disclosure of profits, payments dispersed to given entities, estimated
production rates, fluctuations in the value of the commodity,
the impact on the ground, and the status of potential impacts
assessed during pre-project planning. Now is the time for the
team to draw on the HRIA investment, sharing successes with crane
operators, the boardroom, and the press, or working through potential
complex issues surrounding complicity, inhumane practices by subcontractors,
or misappropriation of funds by the government.
A SMART INVESTMENT
With a global economic recession, plummeting
oil prices, and the decrease in oil production, MNC executives
are under pressure to cut costs, promote efficiency, increase
productivity, and maintain strong profit returns and competitiveness.
It may seem contrary to the CEO mindset to dedicate energies toward
promoting transparent and ethical dealings with corrupt state
regimes. To be sure, MNCs cannot be solely responsible for a state's
success or failure to effectively utilize resource revenue to
elevate populations out of poverty. However, conducting HRIAs
has the potential to yield economic returns in the medium- and
long-term. This system is an ethical, promising, and cost-effective
tool for MNCs to assess and control the impact of their development
activity in places where host governments are unable to safeguard
their citizens' rights. HRIAs are win-wins for the corporation.
Although more time and money is initially required, an HRIA is
a sensible insurance policy, especially considering the monetary
and public costs of facing a trail in the long run. Additionally,
while oil production is down, it is an optimal time to integrate
the HRIA into corporate decision-making, design an independent
HRIA team to work with MNCs, and engage the developing world.
New processes and procedures are easier to implement when beginning
new projects.
RECOMMENDATIONS
Drawing on United States legislation and international
voluntary initiatives, the Joint Committee on Human Rights is
presented with the opportunity to lead the Western world in designing
an HRIA for applicable United Kingdom private- and public-sector
overseas projects. The scope of this legislation may encompass
extractive and/or other projects with significant human rights
impacts undertaken, financed, or otherwise supported by corporations
operating or registered in the United Kingdom. This legislation
would include application to private lenders, the European Commission
on Development, the UK Department for International Development,
the British armed forces, and the Commonwealth. The UK Government
may design tax incentives for MNCs that adopt and incorporate
the HRIA tool into their corporate decision making. It is recommended
that the U.K. Government support the creation of an independent
and competent board of human rights auditors and/or an auditor
certification scheme to provide corporations with reliable and
timely impact assessments. To avoid allegations of impropriety,
it is advisable to establish a funding or payment mechanism that
ensures the financial integrity of the HRIA process.
The United Kingdom should encourage the adoption
of Human Rights Impact Assessments at the supranational level
and incorporate the cross-sector codes urged by the Global Compact,
World Bank, International Monetary Fund, Equator Principals, and
others. At the international level, the U.K. Government is encouraged
to seek an agreement among states holding corporations directly
liable for their HRIA obligations in the absence of domestic accountability.
The international community should put significant pressure on
developing world leaders to address any real or potential problems
from an HRIA. This may include resolutions from the United Nations
Security Council, sanctions by the U.K. and other western governments,
or MNC royalty penalties outlined as a result of the HRIA.
The development of HRIA continues apace. In
June 2007, the International Business Leaders Forum, the International
Finance Corporation, and the Global Compact jointly produced their
draft Guide to Human Rights Impact Assessment and Management to
be tested by businesses and finalized by mid-2009. Independent
organizations have also taken salient steps to create HRIA tools
and frameworks. Canadian organization Rights and Democracy is
conducting HRIA methodology trials in five countries; The Danish
Institute for Human Rights and Aim for Human Rights, a Netherlands
organization, have produced HRIA tools that are available online.
May 2009
i For example, DeBeers, the world's largest
diamond producer, enabled multiple autocratic regimes to maintain
power. However, the company realized that dealing exclusively
with corrupt ruling elite often results in human rights atrocities
and damages the company's brand—a massive anti-DeBeers publicity
campaign was launched in New York City after it became apparent
that the company's corporation was legitimizing violent rebels
and funding multiple civil wars. "A diamond is forever,"
the company's popular advertising phrase turned into a marketing
nightmare when grassroots organizations brought worldwide attention
to "blood diamonds." The company operated mines in Botswana,
Namibia, South Africa, and Tanzania, and had effectively traded
guns for gems with rebel groups in conflict zones such as Angola,
the DRC, and Sierra Leone. The diamond industry has a contrived
value, largely through marketing campaigns, and regulates supply
to match demand. DeBeers took this negative press, turned it into
a positive by working with the international community, including
the United States, and avoided liability for passive or active
complicity in human rights violations. In 2002, following UN Security
Council resolutions imposing sanctions against "blood diamonds,"
diamond traders, DeBeers, and major diamond trading countries
created an international protocol known as the Kimberly Process,
which calls for minimum standards of certification of rough diamonds
from conflict regions. The countries and companies agreed to establish
internal controls to eliminate the import and export of conflict
diamonds from their territories. Although steps have been taken
to ensure transparency and independent monitoring, many technical
and operational complexities remain with significant loopholes.
As will be described below, conducting an HRIA has the potential
to add another level of accountability and protection for host-state
citizens.
ii Chevron discovered vast, significant
oil fields in southern Sudan in the 1980s, but was forced to withdraw
from Sudan in 1984, due to the instability in the region; during
this time three Chevron employees were killed by southern rebels.
In 1988, Chevron resumed its activities and developed a six-year
exploration and drilling program. With the Sudanese civil war
intensifying between the north and south, and production facility
and employee safety a significant concern, Chevron relinquished
all of its Sudanese land concessions in 1991, after spending more
than $1 Billion. By 1992, CNPC, Britain's Greater Nile Operating
Company (GNPC), and the National Company of India (ONGC) had moved
into Chevron's former drilling blocks. To provide access for companies
to drilling sites, the Sudanese government forcibly removed local
people, their cattle, and grain from the resource-rich land. The
government, using helicopter gunships to curb resident opposition,
relocated large population groups to "peace camps" in
western Sudan, Darfur, where they were forced to live and work
for the soldiers for free. While 3 Million western Sudanese
citizens have been displaced and over 200,000 killed by the
government-backed janjaweed, China and other consortiums continue
to operate throughout the region.
iii In 1996, the Union Oil Company of California,
UNOCAL, became the first corporation in U.S. history to face trial
for com-mitting human rights abuses abroad under the Alien Tort
Claims Act of 1789. During the 1980s, the oil giant and its partners
had hired local military forces in Burma, now recognized as Myanmar,
to secure a pipeline carrying natural gas from the Andaman Sea
into Thailand. These army units forced locals to work on the pipeline,
raped, robbed, and murdered civilians, and displaced entire villages.
Thirteen peasants from Myanmar filed suit against UNOCAL officials
in U.S. federal and California state courts, accusing the oil
company of forced relocation, slave labor, rape, torture, and
murder. The Supreme Court of California ruled in favor of the
peasants, noting that UNOCAL "knew or should have known that
the military did commit, was committing, and would continue to
commit these tortuous acts." After nearly a decade of litigation,
UNOCAL agreed to a confidential multi-Million-dollar settlement.
UNOCAL was acquired by Chevron Corporation shortly after the settlement.
iv The Amazon region of Ecuador has suffered
grave environmental degradation due to oil extraction. In 1971,
Texaco began building oil wells in areas of the Ecuadorian rain-forest,
which were inhabited by indigenous communities, and continued
project development through 1992. The rivers in the region are
vital to the livelihoods of the native people, providing them
with food, hygiene, and transportation. Texaco's contamination
of the rivers brought about alarming rates of cancerous tumors,
auto-immune diseases, birth defects, and spontaneous miscarriages
to the indigenous populations. Dwindling fish stocks led to widespread
malnutrition, poverty, and migration to the cities where employment
was already lacking. In 2001, the Chevron Corporation acquired
Texaco, which became a brand name under Chevron. In 2003, United
States trial attorneys and thousands of Ecuadorian peasants brought
a class action lawsuit against Chevron for environmental and human
rights infractions while Texaco was operating in Ecuador. Charged
with dumping Billions of gallons of toxic oil waste into the local
rivers and contaminating an area the size of Rhode Island, Chevron
also faces human rights accusations including cultural genocide,
and racial and ethnic discrimination. In early 2008, an Ecuadorian
court-appointed independent geological engineer recommended that
Chevron spend $8 to $16 Billion to clean up the environmental
degradation, if the company loses the case currently in New York
courts. In April 2008, Chevron reportedly lobbied the U.S. government
to end trade preferences with Ecuador over the lawsuit; the New
York court ruled that the case should be tried in Ecuador and
is currently under appeal.
v In the 1960s, Nigeria possessed a diversified
economy; it was the largest producer and exporter of palm oil,
the second largest producer of cocoa, and the leading exporter
of cotton, rubber, and hides. Farmers produced 70% of Nigeria's
exports and 95% of its domestic food needs. Although oil was discovered
in the Niger Delta in 1956 by Royal Dutch Shell and British
Petroleum, it was not until the end of the Nigerian Biafran war
and the rise in oil prices in 1971 that Nigeria began to
receive significant petroleum revenue. In 1983, imports financed
from borrowed resources had risen dramatically to over 33% of
gross domestic product. Today this figure is almost double from
1974 figures when imports were 17.8% of GDP. Nigeria's economy
has become single commodity-based; in 2007 with the high
price of petroleum, oil and gas was more than 95% of Nigeria's
exports, accounted for 85% of government revenues, and 52% of
GDP. Nigeria is now a food-importing economy. Due to corruption,
poor governance, and microeconomic policy, the government incurred
$37 Billion in external debt at its peak in 2005, up from
$1 Billion in 1971. As the Nigerian population increased,
agriculture production decreased, employment opportunities vanished,
and today 54% of the population lives on less than one dollar
a day.
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