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17 Jul 2018

Holding companies criminally liable for human rights abuses

The idea of holding companies criminally liable for human rights abuses committed overseas has gained traction over the past decade. In 2011, the UN Guiding Principles on Business and Human Rights encouraged states to legislate so that companies within their jurisdiction respect human rights, including through “criminal regimes that allow for prosecutions based on the nationality of the perpetrator no matter where the offence occurs.”[1] In 2016 the Committee of Ministers of the Council of Europe called on states to “ensure that business enterprises can be held liable under the criminal law […] for the commission of offences constituting serious human rights abuses.”[2] In 2017 the Joint Committee on Human Rights recommended the imposition of a duty on companies to prevent human rights abuses and the creation of a criminal offence of failing to discharge that duty.[3] However, in its response published at the start of this year, the Government made it clear that it had “no immediate plans to legislate further in this area.”[4]

Can the Government maintain this position? It no longer makes sense to argue that only states – and not companies – are capable of abusing human rights. This mantra is now obsolete. The dominance of neoliberalism means that multinational companies wield ever-increasing economic and political power. The legislative appetite for criminalising abuses of this power through a “failure to prevent” model of liability – first with failure to prevent bribery, then failure to prevent the facilitation of tax evasion, and in the future probably failure to prevent economic crime – sees no sign of abating. Given a UK company can be prosecuted for failing to prevent a bribe paid by its overseas agent, it is arguably morally incongruous that it cannot be prosecuted for its failure to prevent its overseas workers being held in conditions amounting to slavery.

Under existing law, it is extremely difficult to prosecute companies for human rights abuses committed overseas. This is for a variety of reasons. Some of the most serious human rights abuses constitute crimes of universal jurisdiction – such as torture under section 134 of the Criminal Justice Act 1988 – allowing a prosecution to take place in the UK even if all of the offending conduct occurred overseas. However, successfully prosecuting companies for these crimes depends on identifying a directing mind and will (“DMW”) in the company who aided and abetted the offending. A small number of criminal investigations in continental Europe have proceeded on this basis, but to date none have resulted in corporate convictions.[5] This partly reflects the fact that accessorial corporate liability for human rights abuses is a complex and controversial legal principle.

It is, of course, possible to prosecute companies for extraterritorial offences without relying on accessorial liability. For example, a company can be prosecuted for money laundering if the proceeds obtained from, say, its pillage of natural resources represent criminal property as defined in section 340 of the Proceeds of Crime Act 2002. However, an offence such as money laundering is only an indirect method of criminalising the company’s predicate complicity in human rights abuses – and one that still depends on identifying a DMW. The only offence relevant to human rights abuses that does not require the guilt of a DMW as a precondition of corporate liability is corporate manslaughter under section 1 of the Corporate Manslaughter and Corporate Homicide Act 2007, but that offence is not extraterritorial. It cannot be used to prosecute a UK company that is complicit in a fire in its overseas factory resulting in multiple deaths.

Given the moral case for holding companies criminally liable for human rights abuses – and the difficulty in prosecuting companies for such abuses under the existing law – how might a “failure to prevent” offence be fashioned?

The first challenge is identifying the human rights abuse of which should trigger corporate liability. There are many conventions elucidating fundamental human rights, but not all abuses of those rights are criminal. For example, a company that discriminates against a minority, contrary to Article 7 of the Universal Declaration of Human Rights (UDHR), may face civil sanction and moral censure, but it is not acting criminally. Failure to prevent offences require the underlying conduct – whether bribery, the facilitation of tax evasion or fraud – to amount to a criminal offence both in the UK and the state where the offending occurred. Without this requirement of dual criminality, UK companies would face criminal liability for failing to prevent human rights abuses, but not for committing those same abuses in the UK or the foreign state. A corporate offence of failure to prevent human rights abuses would therefore need to define “human rights abuses” by reference to:

  1. A list of relevant human rights (e.g. the right not to be held in slavery or servitude under Article 4 UNDR);
  2. A requirement for the abuse to amount to a criminal offence in both the UK (e.g. section 1(1) Modern Slavery Act 2015) and the state where the offence occurred (or that the abuse amounts to an offence of universal jurisdiction under UK law); and
  3. A requirement for the maximum sentence for the offence to be, say, a term of imprisonment of two years or more in the UK.

The next challenge is establishing criminal liability based on the conduct of an overseas associated person. UK clothing companies now have nearly all their merchandise manufactured in developing countries by local companies. When one of its overseas factories is destroyed by fire resulting in multiple deaths, the UK company can claim it did all it could by pointing to health and safety provisions in its contracts with the local companies. It is often blameless in civil law and has only a PR problem. A failure to prevent offence, coupled with a defence of adequate or reasonable procedures, would have to criminalise a company that has done no more than sub-contract its responsibilities to its overseas subsidiaries or suppliers; it would require active due diligence and monitoring.

However, even with workable definitions of human rights abuses and a defence of adequate procedures or reasonable procedures, conceptual difficulties remain with the idea of criminalising companies through their failure to prevent abuses committed by associated persons.

First, whilst the offence would benefit victims inasmuch as it would promote a corporate culture that deters human rights abuses, it is questionable whether this is as important as ensuring that victims of those abuses have effective access to civil remedies. The UN and Council of Europe have repeatedly recognised the hurdles faced by such victims in civil proceedings. Helping victims to negotiate these hurdles better to improve their prospects of receiving compensation within a reasonable timeframe is arguably more of a priority (at least for the victims themselves) than utilising the criminal justice system to punish the company.[6]

Secondly, introducing the offence would disregard the company’s separate legal personality and, in at least some cases, produce an inconsistency with the company’s civil liability on the same facts. The offence means that the UK parent company would face criminal but rarely civil liability for abuses committed by their overseas subsidiaries or suppliers, unless the victims could satisfy the limited circumstances for attributing a civil duty of care to the UK parent company.[7]

Thirdly, it is questionable whether criminal liability should arise unless the UK corporate benefits economically from the abuse in question. Defining benefit outside the context of acquisitive crime is complex. However, there are human rights abuses, particularly in developing countries, which result in discernible financial benefits for the parent company, as the abuses reduce costs and/or exploit economic opportunities (e.g. knowingly using workers who have been trafficked to the local country and who are low wages due to their immigration status).

Fourthly, the offence risks inhibiting companies from reporting and addressing human rights abuses they identify in their supply chain. (This admittedly assumes a cynical view of companies many of whom may want to do the “right thing” by disclosing the abuse in order to seek a deferred prosecution agreement or other leniency).

These conceptual difficulties explain, at least in part, why the Government is reluctant at this stage to introduce a corporate criminal offence. The Government can also justify its current position by pointing to the measures it recently introduced in the Modern Slavery Act 2015 – notably section 45, which imposes a requirement on large companies to improve transparency in their supply chains by preparing slavery and human trafficking statements. However, the next logical step would be to criminalise corporate failure to prevent not just slavery and human trafficking, but other serious human rights abuses such as sexual exploitation, child labour and crimes under the International Criminal Courts Act 2001.

The failure to prevent model of corporate criminal liability has achieved practical results in the field of bribery – a positive shift in corporate culture and huge fines from which the Government benefits. There is no reason to suppose that these benefits cannot be replicated in the field of human rights abuses. Moreover, as a matter of principle, there will likely be a growing acceptance that the actions (or inaction) of a UK company are inextricably connected to the appalling working conditions of its foreign workforce, or the overseas oil spill or factory fire the company was warned might happen. Indeed, Brexit may well have the effect that UK companies, liberated from an over-regulated bloc and with new trade relationships to forge outside the EU, enter into contracts in countries where human rights abuses are rife and where the rule of law is weak. In these circumstances, the calls for corporate criminal liability for human rights abuses committed overseas are only likely to get louder.

[1] https://www.ohchr.org/Documents/Publications/GuidingPrinciplesBusinessHR_EN.pdf

[2] https://edoc.coe.int/en/fundamental-freedoms/7302-human-rights-and-business-recommendation-cmrec20163-of-the-committee-of-ministers-to-member-states.html

[3] https://publications.parliament.uk/pa/jt201617/jtselect/jtrights/443/44302.htm

[4] https://publications.parliament.uk/pa/jt201719/jtselect/jtrights/686/686.pdf

[5] See, for example, the investigation in France concerning Exxelia Technologies (complicity in alleged war crimes) and in Switzerland concerning Argor-Heraeus (complicity in pillage and associated money laundering).

[6] A counterargument is that part of any financial penalty paid by a company in a deferred prosecution agreement or guilty plea to the offence could be used to compensate the victims.

[7] For an illustration of these difficulties, see the recent judgment in His Royal Highness Okpabi v Royal Dutch Shell Plc [2018] EWCA Civ 191, a failed claim brought by Nigerian claimants for damages against an oil company in respect of pollution and environmental damage in Nigeria.

This article was originally published in Law360 and can be accessed here, behind a paywall.

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