The Extractive Industries Transparency Initiative: A Critique and Proposed Reforms

The natural resources sector–particularly extractive industries like mining and petroleum–is famously beset by corruption. In many countries, natural resource extraction is controlled by the wealthy, politically-connected elite, leading to a form of “resource curse” in which the majority of the population does not benefit from natural resource wealth and economic development outside the extractive sector stagnates. One of the most prominent strategies that has emerged in recent years to combat corruption in the extractive sector is a push for greater transparency. While many advocates of this strategy have pushed–with some qualified success–for laws that require greater disclosure by companies and governments, one of the most important pro-transparency initiatives is voluntary: the so-called Extractive Industries Transparency Initiative (EITI).

EITI members include states, companies, civil society groups, and institutional investors. Though membership is voluntary, members must comply with the principles established by the EITI board. Member companies are obligated to disclose the amount they pay for extractive contracts in member countries; EITI also also requires members to disclose revenues generated from the extractive industry and indicate how the revenues contribute to the national budget. Since its inception in 2002, EITI has claimed a number of successes. For example, EITI reports revealed a company owed US $8.3 billion in tax payments to the Nigerian government–more than what the Nigerian federal government spent on education over a period of 3 years.

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Linking Anticorruption to Human Rights Accountability

Corruption and human rights are closely related. Vulnerable groups–including the poor, minorities, women, children, and people with disabilities–are most likely to suffer the effects of corruption, which can compromise their access to basic services, health, and education. Anticorruption efforts can threaten human rights—whistleblowers, journalists, and other anticorruption defenders are often at risk of retaliation in the form of imprisonment, threats, violence, or death.  And countries where corruption is pervasive consistently demonstrate less commitment to the protection of human rights: Of the 15 countries with the lowest scores on Transparency International’s Corruption Perceptions Index of 2013, seven have the worst Freedom House ratings for political rights and civil liberties.

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Brazil’s Clean Companies Act: Ineffective for Combating Local Corruption?

In January 2014, the Brazilian Clean Companies Act (CCA) came into effect. Under the CCA, Brazilian companies and foreign entities with a Brazilian registered office, branch, or affiliate can be sanctioned (civilly and administratively) for the bribery of domestic or foreign public officials, with penalties up to 20% of a company’s gross billings. The Act may be cause for optimism that Brazil is going to get serious about the corruption that has hampered its development, undermined trust in government, and provoked riots.

But despite the CCA’s tough sanctions and sweeping provisions, there are reasons to doubt whether the law will be effective at combatting corruption at the local level (as opposed to national-level officials).  Even if the CCA might go some way toward dealing with corruption at the national level, the new law fails to to adequately address local-level corruption in Brazil — and this is a major limitation, because local corruption in Brazilian business dealings is especially rampant.  There are at least two reasons why it is questionable the CCA will effectively combat local corruption. Continue reading

Rethinking Kiobel: Is there Room for Human Rights in FCPA Enforcement?

Today is the one-year anniversary of the U.S. Supreme Court’s decision in Kiobel v. Royal Dutch Petroleum Co. In its decision, the Court narrowed the admissibility of Alien Tort Statute (ATS) claims related to extraterritorial human rights abuses, ruling that such claims are not actionable unless the claim has a sufficient nexus to U.S. territory. What kind of nexus is enough for an ATS case arising from exterritorial conduct? For cases involving foreign multinational companies, such as the defendant Royal Dutch Petroleum in Kiobel, a “mere corporate presence” in the U.S. is not enough.

A striking feature of this holding is the clear contrast between how a “mere corporate presence” in the U.S. is not enough for an ATS claim based on extraterritorial conduct, but is sufficient for a Foreign Corrupt Practices Act (FCPA) prosecution. Although Royal Dutch Petroleum’s “mere corporate presence” in the U.S. was not a sufficient basis for an ATS claim, if these human rights abuses were tied to corruption for the retention or solicitation of business in Nigeria (and involved U.S. interstate commerce — a requirement not difficult for the DOJ and SEC to overcome), Royal Dutch Petroleum could be liable for FCPA violations. As a foreign multinational company, Royal Dutch Shell Company lists its shares on the New York Stock Exchange and prepares filings for the SEC. Such activity is sufficient for establishing FCPA jurisdiction.

This suggests a possible strategy for human rights advocates dismayed by the Kiobel decision: Perhaps it might be possible to more aggressively utilize FCPA enforcement for circumstances in which corporate accountability for human rights abuses is tied to bribery. Continue reading