Jonathan Kaufman's blog

Corporations Hiding Behind the Constitution to Keep Secrets

Do corporations have the constitutional right to keep secrets, just because the information might be embarrassing or hurt their reputation if it became public?  Our friends at Global Witness and Free Speech for People have just filed an important amicus brief that answers this question with a resounding “no.”

The amicus brief defends Section 1502 of the Dodd-Frank Act, a law that requires companies to report on their use of “conflict minerals” coming from the Democratic Republic of Congo.  It’s worth a read, because it does a great job of undermining companies’ argument that the government violates their First Amendment freedom of speech rights when it requires them to disclose factual information about their operations.

In response to a lawsuit by the National Association of Manufacturers, the powerful D.C. Circuit ruled earlier this year that most of Section 1502 of the Dodd-Frank Act was constitutional.  However, it struck down a part of the law that requires companies to declare whether their products are “DRC conflict-free,” reasoning that this requirement violated the corporations’ constitutional right under the First Amendment to not speak. This was based on prior D.C. Circuit decisions that had set a very high constitutional bar for most rules that require corporations to disclose information to the public. Under this rule, unless requiring the disclosures was the narrowest possible means for the government to pursue a very important public interest, then companies could seek to have them overturned under the “compelled speech” doctrine, which is meant to prevent authorities from forcing people to say things that that they don’t want to say.

Just a couple of months later, however, the D.C. Circuit changed the rule and made it easier for the government to require companies to make commercial disclosures in the public interest.  In doing so, it . . .

Court sides with Chiquita, Delays Justice for Victims of Paramilitary Violence in Colombia

If the top executives of a U.S. company, sitting in a Board room in Ohio, approve and hide illegal payments to a terrorist organization, does it concern the United States? 

What if that company pleads guilty to the Department of Justice for the crime of paying the terrorist organization and then pulls out of the foreign country where the terrorists operate?  And if Congress says that foreigners can come into U.S. courts to seek justice for violations of international law, can that law encompass torture, war crimes and crimes against humanity committed by those same terrorists, if the abuses were committed abroad?

According to two appellate judges in Florida, no, no, and no.

The case in question is In re Chiquita Brands International, Inc., in which the family members of victims of Colombian right-wing paramilitary death squads are suing the banana company for paying and giving logistical support to the murderers. A paramilitary group called the United Self-Defense Forces of Colombia, or AUC (Autodefensas Unidas de Colombia) in Spanish, used Chiquita’s support to spread terror in the banana-growing region of Urabá, where it killed thousands of villagers, labor leaders, and community organizers, who were suspected of favoring leftist guerrillas or making trouble for the plantation owners.  Chiquita made a deal with the AUC: a 3-cent payment for each box of bananas shipped from the area.  These payments to the AUC were illegal under U.S. law, and Chiquita pled guilty and paid a fine to the Department of Justice in 2007.

The law at issue in yesterday’s decision is the Alien Tort Statute (ATS).  The ATS is an 18th-century law that opens U.S. federal courts to the claims of foreigners who have been harmed by violations of “the law of nations” – a category of international law . . .

Shell May Have to Compensate Villagers for Oil Damage from Sabotage or Theft

The Niger Delta region of Nigeria is crisscrossed by thousands of miles of pipelines that leak oil with tragic frequency, contaminating waterways, destroying wildlife, and harming the health of local communities.  But the sprawling network that makes the companies so much money is also a target for sabotage and bunkering, a widespread practice in which people illegally tap into pipelines to siphon off some of the oil for themselves.  When oil leaks and causes environmental harm as a result of bunkering, does the oil company have to pay?

Last week, a British judge gave an intriguing answer: usually no, but sometimes yes.

The issue is particularly important for Shell, the international oil giant that dominates Nigeria’s petroleum industry.  Almost every time a Shell pipeline leaks, Shell blames sabotage and bunkering and insists that it has no responsibility because criminals caused the rupture.  (According to Amnesty International, a higher percentage of Shell’s leaks may be due to the poor state of repair of its pipelines than the company admits, but that the company is able to fudge its numbers because it dominates the process of investigating and reporting on its own oil spills.) 

Advocates for Niger Delta communities, on the other hand, insist that bunkering is a predictable consequence of doing business in the way that Shell does.  Shell installed pipelines for its own benefit, knowing they’d be an irresistible temptation for theft.  If Shell can’t prevent sabotage or bunkering in the first place, then it should compensate impoverished, contaminated communities when thieves cause oil spills, rather than leaving the victims with no recourse.

In Bodo Community v. Shell Petroleum Development Company of Nigeria Limited, a Nigerian community is suing Shell in the British courts over the damages caused by two massive oil spills.  Shell has already admitted . . .

Publish What You Pay Rebuts Industry Claims, Argues for Strong New Transparency Rule

A few months ago, the oil lobby sent a letter to the Securities and Exchange Commission (SEC), demanding that transparency requirements be watered down in the wake of a court ruling that sent mandatory disclosure regulations back to the Commission for a re-write.  Last week, the Publish What You Pay (PWYP) coalition struck back.  In a new submission to the SEC, the coalition underlines the importance of information on extractive companies’ payments to governments for investors and citizens of resource-rich countries and rebuts the industry’s arguments.

In previous posts, I’ve talked about the ways in which the American Petroleum Institute (API) has twisted facts and invented doomsday scenarios to avoid disclosing their payments to the public.  Unsurprisingly (and unapologetically), they regurgitated the same misleading arguments in their most recent submission to the SEC.  API insists that the only way to address their concerns is for the SEC to keep payment disclosures confidential, to publish only an anonymized compilation of country-level data, and to grant reporting exemptions so big, you could sneak an oil tanker through them.  PWYP’s comment puts these absurd arguments to rest.

First, PWYP shows that not only human rights groups that want these disclosures; investors are also keen to see what extractive companies pay for their natural resources.  In fact, investors with over $5.6 trillion in assets under management have come out in support of detailed, public disclosure of natural resource payments to governments.  In addition to socially responsible funds, these investors include UBS, one of the largest asset managers in the world, which clearly makes decisions based on expected returns rather than ethical considerations.  As it turns out, the interests of investors and communities converge when it comes to mandatory transparency.  Both groups have a strong desire to see . . .

Big Oil Outfoxed as Civil Society and Mining Industry Score Big Win for Transparency in Canada

I was excited to see today that Canadian industry associations representing the world’s largest mining companies have endorsed regulations requiring fully public disclosure of companies’s payments to governments for all extractive projects.  According to recommendations released today, mandatory disclosure is good for business, investors, and society.  This could be a strong blow to the oil industry, which is waging a costly legal battle against similar regulations in the U.S. based on arguments that the Canadian recommendations resoundingly reject.

Big Oil’s silence in Canada on revenue transparency is a stunning contrast to its behavior here in the United States.  The American Petroleum Institute (API) has insisted to the SEC and to the D.C. federal courts that mandatory disclosure would cost extractive companies billions, undercut their competitive edge, force them to flout host country laws, and violate their First Amendment free speech rights.  None of these arguments actually stands up to scrutiny, but API’s legal delay tactics have halted the roll-out of disclosure rules and forced the SEC to go back to the drawing board. 

In Canada, by contrast, the oil industry chose to sit on the sidelines as civil society groups and the mining industry formed a collaborative Working Group to bring Canada in line with global momentum on transparency in the extractive industries.  And the results are telling: the Working Group’s recommendations directly contradict the oil companies’ central arguments against transparency.  For example, the Working Group explains that full public disclosure creates a more stable business environment for extractive companies, and debunks the myth that payment disclosures would contain commercially sensitive information.  It points out the ways that investors can use detailed payment information to help them better calculate the riskiness of their investments, and shows that major extractive companies have created value for their shareholders through . . .

Coke's report on responsible business practices in Myanmar sets standard for transparency on both successes and failures

I’ve just finished reading the report Coca-Cola submitted last week to the State Department on its business practices in Myanmar (Burma), and I have to say I’m impressed with how seriously this company seems to have taken the Responsible Business Reporting Requirements.  Those who have read prior ERI commentary on the Myanmar responsible business reports, which are mandatory for U.S. companies making large investments in Myanmar, will know that the Coke report is a welcome change of pace from the reports submitted by other investors. 

What makes the Coke report unique is the level of transparency it provides – both into the company’s successes and its failure in responsible business conduct – meaning that communities, investors, and the U.S. Government alike have a reasonable basis to engage with Coke and trouble-shoot human rights issues that may arise in the course of its operations.  Now, I can’t vouch for the truth of anything that’s disclosed here – though I have no specific reason to doubt the report, I have no idea if Coke and its local partner are actually being as careful and thorough about their human rights, environmental, and labor performance as they say here.  But the level of detail about the due diligence processes they’ve gone through, the concerns they’ve identified, and the steps they’ve taken to ensure that they and their partners are mitigating serious risks is exactly the kind of transparency needed to build trust between a company like Coca-Cola and the communities its operations will affect.

Of course, there are a couple of places in the report where Coke may be hiding the ball.  For example, the report explains that there’s a wastewater treatment issue that is in the process of being resolved.  But it never explains exactly what is happening to that wastewater . . .

U.S. Government’s Myanmar Reporting Requirements FAQs are a welcome (but inadequate) step forward

The U.S. State Department finally released a document providing answers to FAQs about the Responsible Investment Reporting Requirements for new investments in Myanmar, in which it directs investors to consult ERI’s Detailed Guidance on Reporting.  The FAQs are partially a response to the first round of company reports, which were filed in July, and which we criticized as inadequate both on our website and in a coalition letter to the Administration.  Let’s see if the U.S Government agrees that those company reports were as deficient as we suggested.

1. “Passive investors” and the responsibility to respect human rights

One of our biggest concerns with the first company reports was that a number of investment firms excused their lack of human rights and other due diligence policies by explaining that they were merely “passive investors” rather than active participants.  The FAQs appear to respond to this concern, noting that all investors must report regardless of the type of investment or whether they actually have operations in Myanmar, and that companies should answer each question carefully in light of the intended purposes of the Reporting Requirements. 

As the FAQs explain, “Because the human rights impacts of U.S. investment in Burma may be direct or indirect,” and because a company “may have significant influence over the activities of other entities in its supply chain,” it can be important even for investors with only a financial link to Myanmar to apply due diligence policies to their investments.  Note in particular that the U.S. Government does not limit its reporting expectations to companies that an investor actually controls, but rather includes those over which it may exercise significant influence by virtue of a business relationship.

2. Identifying Myanmar business partners

Another area of concern that ERI raised based on the initial company reports . . .

Myanmar Groups Send Letter to Obama on Reporting Requirements

EarthRights International helped to draft and signed a letter to President Obama this week, urging him to ensure that U.S. companies investing in Myanmar make complete and forthcoming disclosures under the Responsible Investment Reporting Requirements.  As we noted last month, the first five reports that were submitted have serious weaknesses that make them less useful for civil society groups and others who want to help businesses avoid human rights impacts arising out of their operations in Myanmar.  Most concerning are the absence of disclosures of local partners and contractors, and the decision of a set of investment funds to disclaim any responsibility for due diligence into their investments in a company owned by a Myanmar national and operating in Myanmar with interests in plantation agriculture, simply because the investors classify their investment is “passive.” The lack of due diligence and disclosures for passive investment are clearly against the spirit of the U.S. Reporting Requirements and do not follow best practices including those found in the OECD Guidelines for Multinational Enterprises, which the U.S. Government has agreed to and is bound to follow.

EarthRights is asking the President to clarify that companies are expected to report on due diligence, regardless of the passive or hands-on nature of their investment, identify their Myanmar partners, and attach copies of or carefully summarize their relevant policies.  We also ask the government to clarify how it is tracking the Reporting Requirements disclosures to ensure that all covered companies are disclosing fully and in a timely manner.

Calling Out the API’s Lies in Oxfam’s Final Brief to the District Court

Last week, I finished working on the final brief of ERI’s client, Oxfam America, in the District Court lawsuit that the oil industry has filed to overturn landmark transparency legislation, American Petroleum Institute v. SEC.  In this brief, my  co-counsel and I underlined the lies and misleading references that the American Petroleum Institute (API) has spun in order to turn a common-sense, straightforward disclosure rule into a bug-eyed monster.

API’s argument revolves around three main themes.  First, they say it would violate their First Amendment free speech rights if oil companies were forced to publish information on the payments they make to governments.  In other words, they claim that companies have a constitutional right to make secret payments.  This argument is the legal equivalent of “swinging for the fences,” because if the court agrees with API, it could actually overturn the law instead of just invalidating the regulations that the SEC enacted under the law. 

It’s also the legal equivalent of a Hail Mary pass, because the argument is extremely thin.  In order to get there, API has to get the court to see these disclosures as a form of political coercion so that it can enjoy the same protections that political organizers receive when they seek to keep their supporters confidential.  To get First Amendment protection, you have to show that government is somehow controlling or chilling the expressive speech that you want make; it’s hard to see how these disclosures do that.

Of course, businesses can be required to disclose information all the time in the public interest, and it’s not political speech.  If API’s arguments were taken seriously, then the government couldn’t require companies to tell you what’s in the pesticides farmers use or to report to their . . .

Lower Courts Set to Address Questions Kiobel Left Unanswered

In all the flurry surrounding last month’s decision in Kiobel v. Royal Dutch Petroleum, perhaps the clearest takeaway has been that the lower courts have their work cut out for them in applying the Supreme Court’s rule to actual cases where people have suffered abuses like torture, war crimes, and crimes against humanity.  The majority opinion, authored by Chief Justice Roberts, created a new presumption that claims arising out of human rights abuses that occurred abroad are not actionable under the Alien Tort Statute – a presumption that can be overcome in cases that “touch and concern the territory of the United States . . . with sufficient force.” 

We know that “mere corporate presence” of a foreign multinational company in the United States is not sufficient to overcome the new Kiobel presumption, but we also know that only Justices Alito and Thomas believed that all the conduct giving rise to a cause of action must take place on U.S. soil.  There is a broad spectrum of scenarios between the two extremes, and many of them are teed up for briefings in the coming weeks and months.

For example, this Friday, a judge in Virginia will hear arguments on how the Kiobel presumption applies in Al Shimari v. CACI Premier Technology, a case involving torture by a U.S. government contractor at the Abu Ghraib prison in Iraq.  According to the plaintiffs:

“Unlike in Kiobel, Plaintiffs’ claims arose out of conduct that occurred in a U.S. occupied territory and detention facility over which the United States had total authority; unlike in Kiobel, Plaintiffs’ claims challenge conduct undertaken by U.S. citizen employees of a U.S. corporation (domiciled in Virginia) in conspiracy with U.S. military personnel in carrying out (unlawfully) interrogations for the United States government and in violation of fundamental U.S. military and legislative prohibitions against torture and

. . .