Stijn Lamberigts, PhD researcher at the University of Luxembourg and junior affiliated researcher at the Institute of Criminal Law of the KU Leuven. These comments are a contribution to a public consultation on foreign bribery and the liability of legal persons by the OECD Working Group on Bribery.
Corporations in general, and multinationals in particular, wield substantial financial and socio-economic power. They can and do commit different types of offences through the individuals that work for them. Faced with this reality, the use of corporate criminal liability (CCL) has increased over time. However, CCL raises many theoretical and practical questions. To what extent can corporations be held criminally liable for offences requiring a mens rea element? How should criminal proceedings be conducted against corporations? Who will represent the corporation throughout an investigation or trial? To what extent do corporations benefit from procedural safeguards that were historically conceived for individuals?
These questions have been answered differently around the world. Some systems base CCL on a model of vicarious liability, whereas others favour an anthropomorphic model. Procedural questions, such as those above, on how corporations should be tried and how fair trial rights should apply to corporations, are often overlooked.
Whereas the applicability of some fair trial rights to corporations may be easily accepted, other rights such as the right to silence and the privilege against self-incrimination, are less obvious when corporations are suspected of a criminal offence. These rights were traditionally developed to protect individuals against physical or psychological compulsion. If they are to be applied in the corporate context, several questions arise, such as: which of the corporation’s employees can invoke these rights? All employees? Only middle or top management? Only the corporation’s legal representatives? What would be the impact if corporations could rely on the privilege against self-incrimination and refuse to hand over self-incriminating documents?
The (un)availability of the privilege against self-incrimination and the right to silence can substantially impact defence strategies available to corporations. If they cannot rely on these rights when confronted with a demand for incriminating evidence by prosecuting authorities, the choices available to corporations are limited. Corporations can have good reasons for deciding to cooperate with prosecuting authorities in an effort to obtain the most favourable outcome, for example because they want to avoid the stigma that can come with criminal conviction. Then, they are likely to cooperate, for example by handing over evidence of any wrongdoing. Conversely, a corporation may decide that it does not want to cooperate with the prosecuting authorities. In such cases, the right to silence and the privilege against self-incrimination are particularly relevant.
The question about whether a corporation can rely on the privilege against self-incrimination and the right to silence has been answered differently in different jurisdictions. The variety of approaches can be particularly challenging in the context of cross-border corporate wrongdoing, such as bribery of foreign public officials.
The US approach is very clear: corporations, like other collective entities, cannot benefit from self-incrimination clause of the Fifth Amendment. This Supreme Court doctrine can be traced back to Hale v Henkel handed down at the beginning of the 20th century and the cases that further developed the doctrine. The exclusion of corporations from the scope of these rights was based on several arguments, some of which have lost their appeal over time. The Supreme Court considered that, as the privilege against self-incrimination is a purely personal privilege, it cannot be exercised by corporate employees or agents on the corporation’s behalf as it feared the detrimental impact on the prosecution of cases in a business context. Nevertheless, the US Supreme Court has accepted that corporations can benefit from several other fundamental rights.
The Belgian Court of Cassation’s approach is at the other end of the spectrum. It was confronted with a case in which a financial institution had been required to produce self-incriminating evidence and failure to do so could result in a fine. The Court of Appeal had excluded evidence that was produced under that threat as it considered that the right to silence had been infringed. Its judgment was confirmed by the Court of Cassation on 19 June 2013 (Case P.12.1150.F).
The European Court of Human Rights, which has handed down several cases dealing with the right to silence and the privilege against self-incrimination in the context of natural persons, gives no detailed answer to the aforementioned question.
The Court of Justice of the European Union (CJEU) has ruled on the right to silence and the privilege against self-incrimination of undertakings in the context of competition law. It should be stressed that EU competition law is not considered to be criminal in nature by the CJEU. Thus, it may be that the CJEU would be more generous when corporations face classic criminal sanctions instead of punitive administrative sanctions. The Court’s position can be summarized as follows: undertakings cannot refuse to hand over incriminating documents when the European Commission issues a Decision based on Council Regulation (EC) 1/2003, nor can they refuse to answer its questions, except where answering a question would entail an admission of an infringement of competition law.
The recently adopted EU Directive 2016/343, which includes a provision on the right to silence and the privilege against self-incrimination, excludes legal persons from its scope. The Preamble to the Directive makes it clear that legal persons can nevertheless rely on existing legislative safeguards and case law.
In conclusion, several uncertainties have been highlighted. Whether and how procedural safeguards are to be applied when a corporation is being prosecuted, is a complex question, which has been answered differently by various countries. The wide variety of approaches taken in Europe and elsewhere highlight some of the challenges in the field.
As the UN Forum on Business and Human Rights opens today in Geneva, Quintin Lake, Research Fellow at Hult International Business School, discusses modern slavery.
Addressing modern slavery is becoming a business-critical for companies – for credibility with customers, investors, NGOs and the public – according to new research by Hult International Business School and The Ethical Trading Initiative (ETI). 77% of companies think there is a likelihood of modern slavery occurring in their supply chains, up from 71% last year, and it is perceived to be more widespread – in particular in the UK, and at the farthest reaches of the supply chain.
Reputational risk, resulting from public exposure to worker abuse found in the supply chain or company operations, was the biggest driver for company action on modern slavery, cited by 97% of companies. The factors which underpin a company’s reputation such as the views of customers, investors, staff and the risk of litigation, have all significantly increased as drivers for action over the last year.
Key modern slavery risks that companies are focusing on
So what are companies actually doing to address this challenge? The study particularly focused on understanding what ‘good’ looks like, by engaging 71 brands, retailers and suppliers in in-depth interviews and a detailed survey. The research found that the UK Modern Slavery Act is galvanising leadership engagement, with twice as many CEOs and senior leaders actively engaged with addressing modern slavery since the Act was passed.
It also found that engagement of senior leaders is seen by all companies as crucial in driving effective responses and overcoming critical challenges, with 79 per cent of companies citing senior leadership passion and engagement as a key driver of their modern slavery response. As a result, most companies have made modern slavery training and awareness-raising for senior leaders a priority.
What is good practice in addressing modern slavery, and who is involved?
Among this group of companies with more experience in tackling labour exploitation, a high degree of consensus has emerged about the critical elements of an effective response to the risks and realities of modern slavery. More companies know what they need to do, but are finding some activities harder to put into practice than others. There was a high degree of convergence between companies in what they cited as corporate leadership and good practice in tackling modern slavery, including:
- Addressing fundamental business models and sector specific challenges.
82% of companies believe that addressing human rights within their core business model is the most significant strategic indicator of corporate leadership on modern slavery. Examples of issues being examined included sourcing decisions, pricing, last-minute changes to orders, short lead times and sector-specific issues such as seasonal labour recruitment practices. Companies are finding activities to address these issues particularly hard to put into practice.
- Long-term, partnership-based relationships with suppliers.
93% felt long-term relationships and working with suppliers to address issues would be far more effective in the long term than simply switching suppliers to manage short-term risk. The majority of companies were making significant progress on putting this type of approach in place
- Due diligence.
90% of respondents saw due diligence on core labour standards as crucial. Leading companies are increasingly conducting human rights risk analyses by country, sector or type of labour and prioritizing their salient risks accordingly. 71% had these processes formalized and embedded in their operations.
- Involving workers in finding solutions
All responding companies are increasingly trying to directly involve workers who are most at risk of modern slavery. This means recognizing that workers themselves need to be actively engaged in mitigating modern slavery risks. Whilst some companies are engaging with trade unions to raise worker voice, only 31% see trade unions as critical stakeholders in addressing modern slavery.
- Corrective action and remediation
Once an issue of modern slavery is uncovered, 93% of companies highlighted that they have a responsibility not only to do everything in their power to address it, but also to ensure that workers most affected are protected from further harm and compensated appropriately. While companies were making strong progress on corrective actions with suppliers, only 40% of companies had clear remediation plans in place.
- Key performance indicators (KPIs) focused on impact rather than activity
The majority of responding companies cited developing KPIs that are focused on impact rather than activity as key to improving conditions for workers, yet fewer than 37% of companies have managed to put these in place. All participants highlighted the need for greater effort to develop KPIs that drive the right kinds of outcomes.
Companies report greater levels of collaboration since the Modern Slavery Act was passed. Companies recognized their role as just one of many actors on modern slavery, and that they cannot deal with modern slavery risks alone. They are collaborating with, and want to partner more with other companies, suppliers, governments, trade unions
and NGOs to develop effective solutions to address modern slavery.
CEOs and other senior figures have a key role to play in engaging with these external stakeholders, whether with industry peers, governments or NGOs. In many cases, they are using this external engagement to refine the company’s own strategy – i.e., what are others doing? Where can we lead? Where can we support? Leaders are driving the discussion on what can be done on a strategic, industry level to address modern slavery challenges.
Companies strongly believe effective engagement and action in partnership with governments, NGOs and charities, and other local stakeholders is critical for significant change, as many of the systemic, underlying challenges of modern slavery are linked to a lack of government policy or enforcement i.e. insufficient regulation or enforcement of standards to protect migrant workers.
Ultimately, addressing the risk of modern slavery is about addressing the human rights risks to people – whether they are directly employed, agency workers, or are working in the supply chain. Though there is much more work to do, it is encouraging to see the steps, leading businesses are taking, and as more good practice emerges it is hoped that more companies will be able to make faster progress for those who are most at risk.
Breaking the link between exploitative recruitment and modern slavery Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct (@nieuwenkamp_csr)
Landmark human rights cases show value of OECD grievance mechanism for responsible business
Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct (@nieuwenkamp_csr)
Compensation for indigenous people for adverse impacts of business activities, companies agreeing to carry out human rights due diligence concerning products in their value chain, authoritative statements that set the standard for the garment industry worldwide in the aftermath of Rana plaza – these are just some examples of achievements by the National Contact Points (NCPs) for responsible business in recent months.
In the run up to the 2016 UN Forum on Business and Human Rights it is good to highlight the importance of the NCP mechanism for business and human rights. Five years ago the OECD Guidelines for Multinational Enterprises were revised and the UN Guiding Principles were embedded in its human rights chapter. This way the OECD’s globally active grievance mechanism for responsible business became a de facto grievance mechanism for the UN Guiding Principles on Business and Human Rights.
The complaints mechanism is globally active as it covers global value chains with a link to companies from the 46 adherent territories. Over 360 cases have been brought to the NCP mechanism since 2000 addressing impacts from business operations in over 100 countries and territories.
What has been the experience thus far?
Since the 2011 addition of a human rights chapter 54% of all complaints brought to the NCP mechanism concern human rights and business.
From 2011 to 2015 about half of all complaints brought which were accepted for mediation, resulted in a mediated agreement between the parties.
Concrete results were for example ending forced and child labour in supply chains, improved health and safety for agricultural workers and better human rights due diligence for mega sport events. I would like to highlight a couple of landmark business and human rights cases that are worth looking at.
Value chain responsibility concerning the death penalty
Most attention has been paid to supply chain responsibility of business. Yet it is largely unknown that with the 2011 revision, the scope of the OECD Guidelines was extended to cover the entire value chain, meaning that they apply to the supply and distribution chains, or in simple words: it matters from whom you buy and to whom you sell taking into account the potential end use. The far reach of the Guidelines has been illustrated in a number of instances.
Last year a case was brought to the Dutch NCP involving Mylan, a pharmaceutical company, for possible human rights abuses associated with the production and sales of rocuronium bromide to prisons in the United States for use in lethal injections. The Dutch NCP concluded that the Guidelines are applicable to the value chain and in particular to the distribution chain. The case is also noteworthy as it demonstrated the force of finance used by the shareholders to exert their influence to hold the company accountable for responsible business conduct. In parallel to the specific instance proceeding, several investors entered into dialogue with Mylan to persuade the company to ensure that its products are not used to carry out lethal injection executions. One pension fund even decided to sell its shares in the company, whereas others continued the dialogue. The parties in the case concluded a mediated agreement and Mylan has taken active steps to prevent rocuronium bromide from being used in US prisons for executions.
Value chain responsibility concerning sales of teargas
In another case the French NCP also considered the distribution chain. The complaint concerned the sale of tear gas by Alsetex to the government of Bahrain allegedly used by security forces in the pro-democracy protests in 2011 and thereafter to violate human rights. The consideration of the case demonstrated that the Guidelines go beyond enterprise compliance with the export control regulations for strategic goods and require companies to take risk-based due diligence measures. With due consideration to the State duty to protect human rights, the French NCP concluded that Alsetex complied with the Guidelines, however recommending the company to formalise in-house due diligence procedures particularly in order to increase the traceability of its exports. The parties agreed with the conclusions of the NCP.
Indigenous people’s rights
Indigenous people’s rights have also been addressed by the NCP mechanism in the context of a complaint by the Saami village alleging that Statkraft AS, a Norwegian multinational enterprise, had breached human rights chapter of the Guidelines by planning to build a wind power plant on reindeer herding ground in Sweden. The case reveals the possible tensions between environmental concerns for sustainable energy production and the indigenous peoples’ rights for their community’s economic and cultural survival. The Swedish and Norwegian NCPs applied the principle that enterprises are expected to carry out consultations with a view to obtaining from the parties Free, Prior and Informed Consent (FPIC consultations) based on the UN Declaration on the Rights of Indigenous Peoples. While the NCPs found that the company had not failed to comply with the OECD Guidelines, some areas for improvement were identified. Following the conclusion of the NCP case, the parties have subsequently themselves reached an agreement last August on compensation for the impact and negative effects of the windmills.
Supply chain responsibility regarding the Rana Plaza tragedy
In practice a lot of human rights cases under the NCP system concern labour rights issues. The collapse of the Rana plaza factory has symbolised poor working conditions in global textile supply chains. The responsibility of global brands has also been brought to the attention of the NCPs. The Danish NCP for example recently concluded its consideration of a case involving PWT Group, a Danish retailer, for failing to carry out due diligence in relation to its textile manufacturer which was located in the Rana Plaza building. The case confirms the importance of the Bangladesh Accord on Fire and Building Safety which includes inspection of building structures as part of occupational safety and health. Under the OECD Guidelines, companies cannot hide behind the industry practice that risk-based analyses did not include the inspection of building safety. Following the Rana Plaza tragedy, the OECD has convened governments, business, civil society and trade unions to develop a Due Diligence Guidance on Responsible Garment and Footwear Supply Chains, which provides specific recommendations to support a common understanding of due diligence and responsible supply chain management in the sector. This Guidance is expected to be finalised soon. Both the Guidance and the conclusions of the Danish NCP in this case are significant for the future of human rights due diligence in the textile sector globally.
Delivering important results
This year marks the 40 years anniversary of the OECD Guidelines. Five years ago the Guidelines were dramatically revised, increasing the scope to global value chains and embedding the UN Guiding Principles into the human rights chapter. Five years down the road the OECD’s globally active grievance mechanism for responsible business has proven its potential added value for reinforcing the UN Guiding Principles on business and human rights, delivering important results.
Roel Nieuwenkamp maintains a blog where all of his articles are archived. Please visithttps://friendsoftheoecdguidelines.wordpress.com/
Brandon L. Garrett (@brandonlgarrett), Justice Thurgood Marshall Distinguished Professor of Law at the University of Virginia School of Law and author of Convicting the Innocent (2011) and Too Big to Jail (2014).
The OECD Working Group on Bribery (WGB) is correctly interested in examining more closely the question of legal liability of organizations, including corporations. The broad question raised is what makes for an effective system for the liability of legal persons and as the WGB recognizes, there are many choices that follow if corporate criminal liability is adopted. Corporate criminal liability has evolved enormously in the United States, not in the legal standard, but in the details of its implementation, and many lessons can be learned from that experience.
Costs and Benefits of Corporate Criminal Liability
One advantage of entity legal liability for foreign bribery, and a range of crimes, is that often employees and agents are not facilitating the payment of bribers purely or even chiefly for their own benefit, but rather for the benefit of a corporation. The bribe money may come from the corporation, with the intent of securing business for the corporation, and the employees may at best want to be rewarded in their careers at the corporation. The corporation may create the environment that encourages employees, officers, and agents to pay bribes to secure business. The corporation itself must be deterred from promoting bribery. The corporation may also be in the best position to adopt measures to prevent bribery in the future. Employees may be fired or prosecuted, but their replacements will continue the same practices if the corporation does not change its own policies and culture.
For those reasons, punishing only individuals may not affect the incentives and the culture that the corporation created. That said, corporations need not be punished criminally if civil alternative suffice to deter bribery. Whether civil fines and civil injunctions are adequate to do so, may depend on what penalties are available to civil enforcers and whether they have the investigative resources to effectively uncover and penalize bribery schemes. In many countries, civil regulators cannot impose punitive fines. If a company, for example, need only disgorge its gains from bribery when it is caught, there is little incentive not to continue paying bribes to secure profitable business. However, if civil regulators can impose punitive fines (for example fines up to twice the gains to the company or the losses to victims – the standard under the criminal Alternative Fines Act in the US) then the outcome may not be much different than if the case was denominated as criminal. The only difference may be the reputational threat of a criminal case, the collateral consequences of a criminal action, and requirements in criminal cases that a company cooperate in any investigations of individuals. Each of those features of criminal enforcement in the US could in theory be made part of a civil enforcement scheme – even cooperation in any pending criminal investigations of individuals. Collateral consequences such as debarment or suspension can also (and often are) be associated with civil enforcement.
The main reasons to denominate penalties and sanctions (such as monitoring or compliance) as criminal would be that civil authorities in a given country might not have the enforcement resources, investigative resources, or penalties and sanctions available to sufficiently deter and punish foreign bribery.
Procedure may enhance or limit the ability to adopt corporate criminal liability in a jurisdiction. For example, if entities have self-incrimination rights, then an entity target will be able to resist providing documents and information about wrongdoing – corporate criminal liability will make it more difficult for enforcers to secure information about what transpired. Or if corporate criminal liability better incentivizes cooperation in investigation of individual offenders, it may enhance accountability in such cases.
Jurisdictional obstacles to bringing bribery cases against employees of a multi-national corporation may not exist for corporations that have an operating presence in a country. As a result, jurisdiction may be another practical reason to have corporate criminal liability (however, civil liability could also be premised on the same concept of jurisdiction).
Form of Corporate Criminal Liability
Some countries adopt modified forms of corporate criminal liability in which prosecutors must prove involvement of high level officials, for example, or that the criminal actions were endorsed or ratified by top-level officers. Such approaches make it far too difficult to impose liability and they lead to complex investigation and litigation of questions regarding knowledge of particular actors within a company. Individual accountability can and should be investigated separately, but to intermingle such questions with the question of corporate liability hinders effective enforcement.
A strict or respondeat superior standard imposes liability on a company for the actions of agents acting with the scope of their employment and at least in part to benefit the corporation. That broad standard, adopted in federal court in the United States, makes it clear that a company cannot avoid liability for actions of employees, or of contractors or subsidiaries acting at least in part in the interests of the corporation. If a jurisdiction is to adopt corporate criminal liability, that liability standard is preferable, in my view. All conduct by agents, including hired intermediaries, contractors, broadly defined, should support liability. Nor are such agents “unrelated” if they are hired by the corporation.
There is no reason to excuse bribery when it is a “low-level” employee that commits it. The problem is not a mere failure to supervise; the low level employee has no reason to engage in bribery except to benefit the corporation. If there is a low-level employee exception to bribery law then corporations can tacitly encourage the most dispensable low-level employees to violate bribery laws.
Nor is there any reason to excuse successors from the criminal actions of the entity they acquired. A sale or merger should not wipe the criminal slate clean. Otherwise, companies would play a shell game, engaging in mergers or sales simply to avoid consequences of their crimes. Companies should be expected to do due diligence regarding criminal exposure before making a purchase, and that potential liability and need to do due diligence will further encourage compliance to detect and prevent bribery.
More nuanced questions concerning whether the corporation should be fully blameworthy can be addressed as a matter of sentencing or through settlement with prosecutors. Whether to credit corporate cooperation and self-reporting or existing compliance efforts, for example, can be considered as a matter of sentencing, or in negotiation of settlement agreements. Keeping such case-specific questions separate from the question of the liability standard, however, has real advantages.
Settlements and Remedies
There is much to discuss regarding how settlements can or should occur and options for guiding and structuring corporate settlements. I have argued that having judicial involvement in the approval and supervision of settlements enhances the legitimacy of the process and permits the public interest to be better considered. Purely out-of-court settlements should be avoided.
Compliance may be important to reforming a corporation going forward, and as a condition of resolving a bribery case. Prospective compliance is more important, in my view, than the question whether to reward retrospective compliance. It is problematic to excuse penalties based on pre-existing compliance – which was by definition ineffective in detecting bribes – and because assessing compliance from the outside is challenging. It is important to carefully assess a company’s compliance, and if it truly did everything it could to prevent bribers, then it should be mitigating factor, but not a shield from liability.
There should also be clear incentives to audit and assess compliance, even if the result uncovers self-critical information. Indeed, there should be incentives to share best practices across industry. Enforcers and prosecutors should make the rewards for sharing best practices clear and they should promote sharing of best practices.
More important will be imposition of deterrent fines – and on the detection side of the equation, rewarding self-reporting by companies, since it can be very difficult for enforcers to know whether bribes were paid. Enforcers should also reward whistleblowers who report bribery.
General Corporate Criminal Liability
Having a general standard for corporate criminal liability has the advantage that bribery crimes may be accompanied by other corporate crimes, like money laundering, fraud, or antitrust violations, to name just a few examples. Adopting anti-corruption crimes but not having mechanisms to address accompanying criminal conduct can weaken enforcement. That said, as with any crime, it is far better for bribery crimes to be detailed in statutes to provide clear notice as to what conduct is prohibited.
Finally, I note that as more countries adopt corporate criminal liability for bribery and other crimes, it will be important to develop coordination rules, including double jeopardy norms, so that corporations do not face multiple overlapping punishments for the same conduct.
These comments on corporate criminal liability are a contribution to a public consultation being conducted by the OECD Working Group on Bribery in the lead-up to a Roundtable being held on International Anti-Corruption Day on 9 December. This will provide inputs to the fourth round of Working Group monitoring of the Anti-Bribery Convention, which will include a focus on corporate liability.
By Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct (@nieuwenkamp_csr)
Ahmed, from India, paid over 1,300 USD to a recruiter to accept a position as a driver in Saudi Arabia. However, upon arrival his employer confiscated his passport and refused to pay him although Ahmed worked 12 to 14 hour days. Benny, from the Philippines, invested over 2,000 USD in recruitment fees in exchange for the promise of a well-paid factory job in Taiwan. Upon arrival Benny’s wages were half of what was originally promised to him and after three years of working 12 to 17 hour days he barely managed to save enough to pay off his initial investment, returning home with no savings. These men’s stories are not unique. A quick scan of the website of Verité, an organization committed to promoting fair labour standards and combating exploitative recruitment practices, reveals many shocking histories of migrant workers who have been subject to abuse and fraud.
Exploitative recruitment of migrant workers often results in situations of de facto modern slavery. Recruitment can involve up to seven different middle men all charging a fee which means workers incur debts in the thousands of dollars before they even take up employment. Even in situations where employment is provided as promised, these upfront debts can mean that any wages a worker manages to save simply go back to paying off their debt to the recruiter.
Issues around recruitment of migrant workers have received particular attention in the context of the Gulf countries. In this region use of the Kafala system, a sponsorship-based employment system for migrant workers, is common. Under the Kafala system migrant worker’s legal residency is tied to their employer, giving employers power over working conditions and whether workers can change jobs, quit jobs, or leave the country. This system paired with exploitative recruitment practices leads to situations where workers, thousands of miles from home and severely indebted, are at the mercy of their employers.
However de facto modern slavery is by no means an issue limited to the Gulf region. Recent research produced by Verisk Maplecroft found that almost 60 percent of countries are at high risk of using slave labour.
Source: Modern Slavery Index, Verisk Maplecroft
In previous articles, I have highlighted some of regulatory approaches that nations are taking to combat modern slavery at home and throughout global supply chains, including through the UK Modern Slavery Act, trade regulations in the US prohibiting imports made with forced labour, and more generally regulations promoting increased due diligence and reporting across global supply chains to promote responsible business conduct including the EU Directive on non-financial disclosure. Additionally, earlier this year an executive order was a finalised by the Obama administration which prohibits companies from receiving US federal contracts if they recently violated labour laws. This regulation has provided even more impetus to companies to ensure that they are not linked to exploitative labour practices.
In addition, tools and standards are also being developed to target the issue of exploitative recruitment practices specifically. For example the Dhaka Principles for Migration With Dignity were launched in 2012 and provide a set of human rights based principles to enhance respect for the rights of migrant workers from the point of recruitment, during employment and through to further employment or safe return. The principles align with the UN Guiding Principles for Business and Human Rights and thus also with the OECD Guidelines for Multinational Enterprises.
Verité has developed a Fair Hiring Toolkit which provides targeted guidance around recruitment issues for various actors along the supply chain including for brands, suppliers, governments, advocates, auditors, and investors. This tool kit includes a list of red flags with regard to recruiter-induced hiring traps. For example one red flag is long ‘’supply chains’’ between the worker and employer in terms of intermediaries used in the hiring process and degrees of separation such as language barriers, cultural and social differences, and geographical distances.
Brands are also taking initiative to combat exploitative recruitment processes. Earlier this year five of the world’s largest multinationals, the Coca-Cola Company, HP Inc., Hewlett Packard Enterprise, IKEA and Unilever, launched the Leadership Group for Responsible Recruitment. This initiative focuses on promoting ethical recruitment, specifically through recognizing the employer pays principle. Under the employer pays principle, workers are never responsible for their own recruitment fees.
According to the Ethical Trading Initiative 71% of companies suspect the presence of modern slavery in their supply chains. Thus it is important to promote human rights due diligence that addresses recruitment issues throughout supply chains. In this regard the OECD has developed detailed guidance on carrying out supply chain due diligence in several sectors based off of the general principles of the OECD Guidelines for Multinational Enterprises. For example the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, the global standard on mineral supply chain responsibility, provides a 5 step framework for due diligence to manage risks in supply chains of minerals including forced labour in the context of artisanal mining. This Guidance is now the leading standard for avoiding child and forced labour in mineral supply chains and has been integrated as an operating requirement in the DRC, Rwanda and Burundi.
The FAO and OECD recently jointly developed a Due Diligence Guidance for Responsible Agricultural Supply Chains which also provides due diligence recommendations to manage risks related to forced labour in high risk agriculture sectors including palm oil and cocoa. Such approaches could be applied in the context of the Thai shrimping industry as well. Additionally, the OECD is also developing a Due Diligence Guidance on Responsible Garment and Footwear Supply Chains, which provides specific recommendations for addressing risks of forced labour. This Guidance will be launched later this year and will be relevant to migrant workers in textiles factories.
Resources to help businesses identify responsible recruitment agencies are also needed. This has been one of the objectives behind the International Recruitment Integrity System (IRIS) an initiative of the International Organization for Migration. As part of its principle activities IRIS is planning to develop an accreditation framework under which members can be recognized as fair recruiters. This will be based, among other criteria, on the fact that no fee is charged to job seekers, worker’s passports of identity documents are not retained and there is transparency in labour supply chains.
A strong relationship exists between exploitative recruitment practices and forced labour. Breaking this link through promoting ethical recruitment will be very important given the vast scope of the issue as well as increasing regulation seeking to prevent these practices. The initiatives discussed in this article provide promising ways forward. In order to effectively eradicate abusive recruitment practices companies should engage in supply chain due diligence processes which take into account these risks. Commitments to the ‘’employer pays’’ principle must be scaled up. Companies faced with significant risks with regard to these issues should follow the recommendations of the Leadership group for Responsible Recruitment and use the resources being developed through the IRIS initiative.
Roel Nieuwenkamp maintains a blog where all of his articles are archived. Please visit https://friendsoftheoecdguidelines.wordpress.com/
Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct (@nieuwenkamp_csr)
The construction industry employs approximately 7% of the global work force and it is predicted to account for approximately 13% of GDP by 2020. The sector is a major positive force for development. However, large scale construction projects, such as those involving development of infrastructure, can come with significant impacts on local communities such as displacement and environmental damage. Furthermore, labour rights issues are particularly salient in this sector as it relies strongly on migrant labour and workers are predominantly unskilled and earn low-wages.
Recent high profile events, such as the preparations for the 2022 World Cup in Qatar, have showcased some of the most troubling labour issues related to large scale construction projects, including forced labour, dangerous working conditions, excessive overtime, and inhuman living conditions. Particularly, the kafala system, a system of sponsorship-based employment common in the construction sector in the Gulf, has been heavily documented and criticised. Under the system, migrant labourers are sponsored by employers to come and work in Gulf countries and their legal residency is tied to their employer, giving employer’s power over working conditions and whether worker’s can change jobs, quit jobs, or leave the country. Additionally workers often arrive in the Gulf significantly indebted due to fees paid to recruitment agencies which employ various middle men.
Certain characteristics of the construction sector make it more vulnerable to abuses. The industry is very competitive and characterised by low profit margins (about 2%); it relies heavily on sub-contracting which can go nine layers deep in certain contexts; and is subject to tight fixed deadlines, such as those related to preparation of global sporting events. It is also often under-regulated by local governments and is recognised as a high-risk sector for corruption.
The construction sector is clearly an area where there is urgent need for global initiatives to promote responsible business conduct and industry actors are feeling increasing pressure in this regard. Widely documented cases of labour abuses related to global sporting events have attracted significant public scrutiny. For example, Human Rights Watch has carried out detailed investigations of human rights issues in the construction sector in the Gulf region. In December of last year they released a report entitled Guidelines for a Better Construction Sector in GCC, which both describes the human rights impacts associated with this sector and provides recommendations on how companies can avoid and address these risks. Beyond reputational harms there are increasing legal consequences for construction enterprises that do not behave responsibly. Recently for example, Sherpa, a French human rights organisation, filed a complaint against Vinci, a large French infrastructure company, in regard to their operations in Qatar and associated labour abuses.
Governments are making efforts to regulate these issues through stronger reporting laws. Under the recent EU Directive on non-financial disclosure, companies incorporated in the EU or listed on EU stock exchanges must report on principle risks and due diligence processes with regard to environment, labour, human rights and corruption. Under the UK Modern Slavery Act enacted in 2015, companies registered or operating in the UK will have to report annually on their due diligence processes to manage risks of slavery and human trafficking within their operations and supply chains. The implementation guidance to the UK Modern Slavery Act references the OECD Guidelines for Multinational Enterprises noting that “whilst not specifically focused on modern slavery, they provide principles and standards for responsible business conduct in areas such as employment and industrial relations and human rights which may help organisations when seeking to respond to or prevent modern slavery.”
The OECD Guidelines are the multilateral agreement of 46 governments defining corporate responsibility. They form the most comprehensive set of guidelines for responsible business conduct (RBC) covering all areas of corporate responsibility, ranging from labor and human rights to environment and corruption. The Guidelines are equipped with a unique globally active grievance mechanism, known as the National Contact Points, where parties can submit complaints regarding non-observance of the Guidelines by companies.
Under the NCP mechanism there have been 12 cases reported involving the construction sector, representing approximately 3% of all cases brought to NCPs. These cases most frequently involved impacts of large scale construction projects on local communities. For example, two cases brought to the Norwegian and Austrian NCPs, respectively, dealt with human rights impacts associated with construction of a large dam in Malaysia and Laos. Labour issues are also a common theme. A case brought to the German NCP involving labour rights issues at Heidelberg Cement Co in Indonesia ended in a mediated agreement. Recently a case was brought to the Swiss NCP by Building and Wood Workers’ International (BWI) regarding alleged human rights violations of migrant workers by the Fédération Internationale de Football Association (FIFA) in Qatar. According to the complaint the human rights violations of migrant workers in Qatar were widely documented in 2010 when FIFA appointed Qatar as the host state for the 2022 World Cup and FIFA failed to conduct adequate and ongoing human rights due diligence after the appointment. The case was accepted for further examination and is currently under mediation at the Swiss NCP.
Several months back the UK NCP and the Institute for Human Rights and Business (IHRB) organised a workshop on responsible business conduct in the construction sector. My take away from the event was that it is high time for the sector to come together to address ongoing issues in this sector. Many high-impact, high-risk sectors have engaged internationally to launch initiatives to promote responsible business conduct, including development of standards or sectoral codes of conduct. While there are some promising initiatives seeking to improve conditions in the construction sector, there is currently no global corporate responsibility effort underway. However, given the serious risks associated with this sector as well as the amount of unskilled workers it employs globally, improving standards and performance in this sector will be crucial to advancing the Sustainable Development Goals (SDGs).
A large portion of global construction projects are publically financed. As such, government agencies and public finance institutions such as the World Bank have a significant opportunity to promote better conduct in this sector. Many governments already promote the recommendations of the Guidelines through export credit agencies, which are a significant source of global financing and insurance, specifically with regard to financing of large scale infrastructure projects in developing countries. The 2016 OECD Common Approaches for Export Credit Agencies signed on to by all OECD member countries explicitly recognise the recommendations of the Guidelines, and provide that “[m]embers should… [p]romote awareness of the [the Guidelines] among appropriate parties.” Governments could also build in criteria associated with RBC into bid evaluations for construction projects and public procurement criteria generally. Public finance institutions can build in conditionality measures associated with strong due diligence systems and standards into their financing terms.
The construction sector is a critical industry: it is crucial to sustainable development and a significant source of employment globally. However, serious impacts associated with the sector can no longer go unnoticed and mounting pressure on the industry makes this an opportune time to take significant steps internationally to address ongoing problems in the sector. However, companies cannot solve these problems on their own. Governments and public finance institutions also have a critical role to play. Governments should push construction companies to launch or participate in global corporate responsibility efforts. They should also put their money where their mouth is and condition contracts and financing for construction projects on a demonstrated commitment to international RBC standards.
Roel Nieuwenkamp maintains a blog where all of his articles are archived. Please visit https://friendsoftheoecdguidelines.wordpress.com/
 Vinci has responded denying the allegations and filing a defamation suit against Sherpa.
The Force of Finance for Responsible Business: How the financial sector could and should contribute to responsible business conduct
Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct (@nieuwenkamp_csr). This article also includes a contribution by Bob Jennekens, LL.M./M.A. student, Maastricht University Faculty of Law/Arts and Social Sciences.
These days a critical mass of investors promote investment approaches which take into consideration environmental, social, governance (ESG) factors, otherwise known as responsible investment. Investors involved in the ‘Principles for Responsible Investment (PRI) Initiative, a membership based organization which seeks to promote responsible investment, currently manage over $60 trillion in assets.
Responsible investment is not only an ethical consideration but also relevant to managing risks regarding returns on investment as often there will be alignment between salient ESG risks and financial materiality. A wide body of research suggests that responsible business practices can represent a competitive advantage for firms, creating increased returns for investors, while irresponsible practices can pose serious risks and costs. For example, earlier this month investors of ExxonMobil and Chevron voted to support a resolution for a climate ‘stress-test’, signalling that investors view climate change as a material financial risk.
In this context many investors rely on the OECD Guidelines for Multinational Enterprises (the OECD Guidelines) as an important benchmark for responsible business conduct (RBC) for their investee companies. The OECD Guidelines are a comprehensive multilateral agreement on corporate responsibility which are accompanied by a globally active grievance mechanism that aims to resolve issues arising under the Guidelines, including those linked to investments in companies which may be behaving irresponsibly. This mechanism is known as the National Contact Point (NCP) system.
Because they hold the purse strings, investors have the potential to exert substantial influence, or leverage, on their underlying companies. Under the Guidelines institutional investors are expected to conduct due diligence and use their leverage to influence companies they invest in to prevent or mitigate negative impacts they are causing. Similarly, PRI members subscribe to the principle of being active owners of their investments, which in practice also includes engaging with and exerting leverage on investee companies to promote responsible business practices. We have already seen many significant examples of the ‘’force of finance’’ in promoting responsible business practices. In the context of the OECD Guidelines’ grievance mechanism, investors have helped persuade companies to come to a mediated agreement with parties raising complaints and have followed up on NCP statements with recommendations, adding ‘teeth’ to the process. In practice this has resulted in investor engagement to fight forced labour in Uzbekistan, to prevent environmental damage in the Democratic Republic of the Congo (DRC) and to prevent human rights violations in India.
These examples, described in more detail below, have demonstrated that harnessing the “force of finance” can create real market incentives for responsible business and promote respect of non-binding international standards, such as the OECD Guidelines.
The OECD Guidelines and National Contact Points (NCPs)
The OECD Guidelines, affectionately referred to as the grandmother of all corporate responsibility standards, celebrate their 40 year anniversary this year. The Guidelines are a comprehensive set of recommendations directed towards multinational enterprises (MNE’s). While they are non-binding for companies they represent a “firm expectation by governments on company behaviour.”
They are however binding for member states of the OECD, who are obliged to 1) promote the OECD Guidelines amongst MNEs operating in or from their territories and 2) establish National Contact Points (NCPs). NCPs are mandated to promote the OECD Guidelines within their jurisdictions and to serve as the unique grievance mechanism of the OECD Guidelines. NGOs, citizens and other interested parties can refer complaints to NCPs regarding alleged non-observance of the OECD Guidelines, termed as “specific instances.” Specific instance proceedings usually involve mediation between the parties followed by a final statement on the issues.
The role of the financial sector in promoting RBC is increasingly being discussed in the context of specific instance proceedings. Specific instances involving the financial sector have seen significant increases in terms of submissions of complaints, from about 8% of specific instances from 2000-2010 to 17% of specific instances from 2011. Increased attention to expectations of investors to manage environmental and social risks in their underlying companies as well as recognition of the financial materiality that such risks may bring has encouraged investors to take an active role in promoting responsible business conduct. Below we highlight five specific instances to illustrate the potential force of finance in promoting the recommendations of the OECD Guidelines.
Divestment based on poor stakeholder engagement and risks to Indigenous Peoples
In 2009 the UK NCP handled a specific instance involving Vedanta Resources, a diversified metals and mining group, with regard to establishment of a bauxite mine and the expansion of an aluminium refinery in Orissa, India. The NCP concluded that Vedanta Resources had failed to adequately consult indigenous communities about the proposed mine. In response to this finding and the ongoing controversy, some investors made an effort to engage with Vedanta while others disinvested or significantly decreased their stakes in the company. Investors that chose to divest included the Norwegian Government Pension Fund (one of the largest pension funds in the world), the Church of England, the Joseph Rowntree Charitable Trust and more recently, the PGGM, a large Dutch pension fund manager. PGGM noted that it had attempted engagement with Vendanta for two years with regard to its mining activities in Orissa, and that it had met with the company’s management and non-executive directors. PGGM stated however that when it had tried to organise a meeting with a group of other investors: ‘to discuss possible solutions to the problems in Orissa, Vedanta did not accept the invitation to participate.’
Engagement with government regarding human rights and forced labor in the cotton sector
In 2014, the Korean NCP received a complaint alleging that Daewoo International had breached the human rights provisions of the Guidelines by purchasing cotton produced in Uzbekistan despite their awareness of on-going state-sponsored forced labour in the country. The Korean NCP recommended that the company continue to monitor the situation and respond actively to the issues by means of dialogue and co-operation with the government of Uzbekistan, state-owned companies, related international organisations, NGOs, and local communities.
Upon issuance of these recommendations by the NCP the CEO of Daewoo and other senior executives of the company asked the government for consistent efforts to eliminate the risk of forced labor in Uzbekistan. Pension funds from Sweden, UK, Denmark, Poland, etc. have also been engaged with Daeweoo to encourage them to contribute to improved labor conditions in the cotton industry. These major global investors want the company to keep pressing the government of Uzbekistan to introduce risk mitigation measures in this context, for example, independent monitoring of the cotton harvesting.
Exclusions and human rights violations in the mining sector
In 2012 three complaints were filed claiming POSCO, a South Korean steel company had not engaged in meaningful stakeholder consultations and had not respected environmental and human rights standards when establishing a new plant in India. In addition to bringing a specific instance involving Posco’s parent company, two other specific instances were filed implicating pension funds with investments in POSCO. These were ABP, one of the Netherlands’ largest pension providers, and its administrator APG and Norges Bank Investment Management (NBIM).
As a result of the NCP process ABP agreed to use its leverage in the future to bring the operations of POSCO up to the required international standards and proposed organizing a fact finding mission to India to map the adverse impacts. However this fact finding mission was not undertaken and POSCO was effectively excluded from ABPs portfolio. Subsequent to the issuance of a final statement from the Norwegian NCP, POSCO has been included on NBIM’s conduct-based investment exclusion list.
Prevention oil prospecting in a World Heritage Site
In 2013 a complaint was lodged by the World Wildlife Fund (WWF) at the UK NCP against SOCO, a British oil and gas exploration company for its operations in the Virunga National Park in the DRC. These operations were deemed to be contrary to the DRC’s treaty obligations to protect the Virunga National Park as a UNESCO World Heritage Site. WWF also appealed to SOCO investors to engage with the company. The investors, including Aviva, heard WWF’s call and responded by engaging with SOCO to bring it in line with expectations under the OECD Guidelines. Some even called to remove SOCO’s CEO in reaction to the event. As a result of the NCP case and pressure exerted by investors SOCO committed to cease exploration in the park unless UNESCO and the DRC government agree that such activities are not incompatible with its World Heritage status and also committed to “not to conduct any operations in any other World Heritage site.”
Protesting the pharmaceutical sector’s involvement with capital punishment
Recently a case was brought to the Dutch NCP involving Mylan, a pharmaceutical company, for possible human rights abuses associated with the production and sales of rocuronium bromide to the United States for use in lethal injections. In parallel to the specific instance proceeding several investors entered into dialogue with Mylan to persuade the company to ensure that its products are not used to carry out lethal injection executions. ABP had been in talks with Mylan since October 2014 about the use of muscle relaxants in executions in US prisons, however because it felt its requests to alter its distribution systems were not met with an adequate response, ABP decided to sell its shares in the company. Other shareholders, such as ROBECO, PGGM-Pensioenfonds Zorg & Welzijn and NNGroup N.V., indicated their intention to continue the dialogue. Excluding investments was seen to be ‘a last resort that should be used only when all other forms of active shareholdership have not led to the desired result.’ Since the specific instance was first filed Mylan has taken active steps to prevent the rocuronium bromide from being used in US prisons for executions. The Dutch NCP concluded in its final statement for the specific instance that “dialogue as well as disengagement by some [investors] appear to have contributed to improvements in Mylan’s conduct.”
Investors have the power
Investors have significant potential to use the “force of finance” to promote better business behaviour amongst their investee companies. Indeed, applying this leverage is an expectation under the OECD Guidelines as well as Principles for Responsible investment.
These five specific instances represent fascinating case studies of how investors can exert leverage on their underlying companies, either through engagement or divestment, to promote responsible business conduct. In practice, often investor engagement with investee companies is done in confidence and thus likely many more examples of successful outcomes exist. Furthermore, direct engagement and divestment represent only two approaches investors have at their disposal in using the force of finance to promote responsible business practices. Shareholder activism is another potentially effective approach. Recently AFL-CIO, the most powerful trade union in US, introduced a shareholder resolution at seven companies urging them to participate in mediation processes to remedy human rights violations, including through NCPs. Even if these resolutions are not ultimately successful they nevertheless will serve to heighten awareness amongst investee companies at the board level about the NCP procedure as well as importance of these issues for their investors.
While these initiatives and results are promising, active ownership and application of due diligence as promoted by the OECD Guidelines by institutional investors is a trend that is still only in its infant stage. In order to have greater impacts these ESG initiatives will have to be scaled up considerably and global investors will have to collaborate with one another to encourage positive solutions to pervasive challenges in the context of corporate responsibility.
Roel Nieuwenkamp maintains a blog where all of his articles are archived. Please visit https://friendsoftheoecdguidelines.wordpress.com/
 Established per article I, paragraph 1 of the Amendment of the Decision of the Council on the OECD Guidelines for Multinational Enterprises