Model Language for an Anticorruption Citizen Suit Provision in Community Development Agreements

Community Development Agreements (CDAs) are contracts between extractive companies and the local communities that reside near their operations. The contracts are designed to funnel some of the financial and non-financial benefits of the project to those who are most likely to be negatively impacted by their inherent destructiveness. Some developing states require CDAs from extractive companies as a precondition for granting permits, and the World Bank publishes model regulations for CDAs—recommendations that hold significant sway for many developing states. The World Bank’s model regulations are often referenced, or adopted wholesale, by countries with capacity constraints.

The World Bank model CDA, and many of the existing national laws which govern CDAs, include required, substantive terms such as monitoring components, dispute resolution systems, etc. However, CDAs have not traditionally included provisions that might allow the contracts to be operationalized in the anticorruption fight. Building on the work of Abiola Makinwa and James Gathii, I have argued that CDAs should include anticorruption clauses that would give recognized community members the right to sue as third party beneficiaries in the case of corruption, and that the World Bank should amend its model CDA to include a third party beneficiary cause of action for corruption in the making or execution of a CDA.

While my previous post advocated for this reform in general terms, my objective here is to suggest specific language that the World Bank should incorporate into its model regulations. These provisions derive in part from recommendations of the Columbia Center on Sustainable Investment’s (CCSI) analysis of Emerging Practices in Community Development Agreements and transform the CDA into an anticorruption tool. The recommended provisions are as follows:

Anticorruption Provisions: 

  1. Anticorruption Clause: The Qualified Community is a third party beneficiary of the mining Agreement. If members or representatives of the Qualified Community can demonstrate harm caused by bribery or other forms of corruption in the making or execution of the Agreement, then such members or representatives may bring a non-exclusive cause of action against the holder of the mining right and government officials. If a civil or criminal action is brought against the holder of the mining right or government officials, whether or not the Qualified Community is the original plaintiff, the Qualified Community has the right to participate in all settlement negotiations and submit evidence of bribery and harms suffered. The Qualified Community has a right to receive [a specified percentage of] any damages awarded.
  2. Qualified Community: For purposes of the Anticorruption Clause, Qualified Community means (1) those with a recognized legal right to the land on and adjacent to the mining project; (2) those negatively affected by immediate project impacts; and (3) those negatively affected by the project’s downstream impacts, including social and environmental impacts.
  3. Dispute Resolution Mechanism: Qualified Community members or representatives may submit allegations of corruption in the making or execution of the contract directly to [an appropriate national, investor-state arbiter, or regional anticorruption court or tribunal], regardless of other dispute resolution provisions in the Agreement.
  4. Termination: If the [appropriate national, investor-state arbiter, or regional anticorruption court or tribunal] finds the holder of the mining right engaged in corruption in the making or execution of the Agreement, such acts shall constitute a material breach, providing the national host state an exercisable option to terminate the Agreement.

 

The proposed draft language incorporates a few choices that should be explained, particularly since some policymakers might prefer alternatives:

  • The Anticorruption Clause provides the Qualified Community with the right to bring an original action. Dr. Makinwa recommends a “sleeping” clause instead–she prefers that the Qualified Community only have the right to join an ongoing corruption suit. Her arrangement limits the possibility of frivolous litigation, but I do not believe it provides the Qualified Community with adequate power.
  • The definition of Qualified Community has important ramifications for developing country policymakers. To enhance the potency of a third party beneficiary anticorruption clause, regulators should define the “community” broadly. If the “community” is defined narrowly, e.g., limited to proximate property rights-holders alone, there may be an incentive to force locals from their land to exclude them from the scope of the agreement. I recommend the CDA cover (1) communities with a recognized legal right to land within or near the project area; (2) other proximate individuals who stand to be adversely affected; (3) communities affected by the project’s downstream impacts. The community members for purposes of the anticorruption clause could be broader or narrower than the “community” to whom benefits are meant to accrue. A broader “community” definition might be more likely to capture civil society organizations (CSOs) that possess the necessary sophistication to enforce their anticorruption rights. A narrower “community” for benefit-sharing might be more manageable in terms of implementation. One problem with the two-tiered “communities” is the potential for conflicting interests: the CSO might want to sue the corporation for corruption, while the narrower community might be happy with their payments. When deciding whether to use a single “community” or a two-tiered approach, policymakers must weigh the trade-off between ensuring aligned incentives and managing the difficulty of implementing benefit-sharing across a broader group.
  • Turning to the Dispute Resolution Mechanism and Termination clauses, a CDA typically uses a consultation-mediation-arbitration approach to dispute resolution, focusing on dialogue between the parties before resorting to a traditional court or tribunal. However, for disputes related to corruption, I recommend a separate, more robust, dispute resolution mechanism. Corruption cases should be brought before appropriate and expert judicial panels, rather than mediated away. When it comes to enforcement, weak legal systems can create a barrier to securing justice. The CCSI recommends tying enforcement to the investor-state agreement such that breaches of the community development provisions result in a material breach of the agreement, allowing the host state to terminate the extractive company’s license. This provides additional leverage and might be a good approach in the absence of a specialized anticorruption tribunal or competent regional court.

These provisions, like all models, can serve as a starting point for policymakers. While CDAs should be tailored to the host country and type of extractive project, the World Bank ought to put forward ambitious model language. Those who benefit from corruption in the extractive sector will surely resist efforts to turn CDAs into an anticorruption tool for local communities. Since the World Bank has made anticorruption a top priority, the Bank should put forward bold new proposals that empower the communities that suffer the most harm from unrestrained resource extraction.

 

One thought on “Model Language for an Anticorruption Citizen Suit Provision in Community Development Agreements

  1. Pingback: 2:00PM Water Cooler 9/20/2017 - Daily Economic Buzz

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s