Financial power: Behind the lack of remedy for corporations’ human rights abuses

By Audrey Gaughran
Director of Global Issues, Amnesty International

For more than five years now Amnesty International has been working on a project on the right to effective remedy in cases of corporate-related human rights abuses.  We have focused on cases where poor communities have confronted powerful multinational companies (MNCs) in an effort to seek justice. The project has included wide-ranging research as well as support to strategic litigation in several countries. Last month (March) we published a book, Injustice Incorporated, based on our research and practical legal work. The book highlights several obstacles to access to justice – one of which is the political power of MNCs, and the structures that underpin this power. These structures include the role of international financial institutions (IFIs) in laying the foundations for undue corporate influence on the governments and regulators in developing countries.

The decision to examine the political influence of MNCs was based on our review of four emblematic cases; we initially began looking at the legal challenges that victims faced in these case, but repeatedly found ourselves confronting the way companies exercised political power to the detriment of the right to remedy. The cases we examined in depth during the research were:

• The 1984 Bhopal gas leak in India, which resulted in the deaths of more than 20,000 people. More than 570,000 people, many of whom are still suffering, were exposed to damaging levels of toxic gas. Ongoing environmental pollution resulting from prior operations at the old plant site continues to pose serious risks to the health of surrounding communities.

• The case of Omai gold in Guyana, where a waste containment system failed in August 1995, flooding a river with hazardous material and causing serious harm to local livelihoods. The contamination has never been properly cleaned up.

• The Ok Tedi mine in Papua New Guinea, which also involved the failure of a mine waste containment system and the flooding of local rivers with harmful waste. The initial event occurred in 1984. No clean-up has ever taken place and the law was changed to legitimize ongoing pollution of the river system, which continues to this day, despite the damage to the environment and the risks to human health.

• The dumping of toxic waste in Côte d’Ivoire in 2006, which resulted in more than 100,000 people seeking medical treatment. The waste originated in Europe, was unlawfully transported to Abidjan and dumped in 18 locations around the city. The long-term health impacts of the dumping are unclear and the decontamination process remains incomplete.

In the first three cases, the abuses originated between two and three decades ago, and in the case of Bhopal, the impact has been inter-generational. The reason these cases were chosen was in part because of the length of time victims have been trying to seek an effective remedy, with only very limited success. As no effective remedy has been provided, the abuses are ongoing. The failures cannot be relegated to the past – the efforts to achieve remedy continue today. In addition to these four cases we also drew on many other cases on which Amnesty International has worked over the last decade.

Undue influence on the State

States have a duty under international human rights law to ensure that companies do not have a negative impact on human rights, and to provide mechanisms of redress when rights are infringed. The autonomy and capacity of governments to discharge these legal responsibilities is therefore of paramount importance. However, our research found that many governments confront a range of direct and indirect pressures and constraints associated with the mechanics and structures of contemporary international political economy that limit their capacity to discharge these responsibilities.

We found that corporate influence on the right to remedy often began at a very early stage in the investment process – when companies influenced, behind the scenes, the laws and regulations that would govern their investments in developing economies. In some cases companies directly shaped the laws; in other cases we found that the influence of home state governments, directly or via IFIs, promoted laws and frameworks in developing economies which fundamentally undermined human rights, including the right to remedy.  Amongst the most egregious examples we documented were laws in Papua New Guinea  and Guyana the legitimised damage to the environment on which thousands of people relied for food and livelihoods; as the company’s harmful actions were deemed legal, the affected communities’ ability to seek a remedy was undercut form the outset.

Economic power behind corporate influence

Although corporate influence is well-recognised, there has been relatively little analysis of the mechanics and impacts of this phenomenon. On one level the basis of power of MNCs is obvious – companies derive power from the fact they help create wealth, jobs, goods, services and revenues. These are things most countries in the world want and need. For many businesses – particularly small and medium enterprises – their power is relatively limited. But MNCs often have significant power and influence. This is more pronounced in certain contexts – when the company is dealing with a relatively poor State that needs foreign investment or needs the company’s expertise to leverage national resource wealth, as in the case of extractive industries. It is further enhanced when a country is indebted. The majority of developing-country debt is owed in foreign currency such as US dollars. To repay this debt, developing countries need to promote growth in export sectors that generate income in hard currency.

The need for foreign direct investment (FDI) can leave developing countries relatively powerless in their dealings with corporate interests. However, the power imbalance is not due merely to one party’s relatively greater need for the other. The structural sources of corporate power are multi-layered and interconnect with the economic and political interests of both the home and host States.

The role of International Financial Institutions

International financial institutions (IFIs) such as the International Monetary Fund (IMF) and the World Bank have played a key role in promoting investor-friendly regulatory environments in many countries, particularly developing countries. During the 1980s and 1990s, as part of structural adjustment programs, many countries were put under considerable pressure by IFIs to reform their legal frameworks to encourage foreign investment. This phenomenon has re-emerged in some ways as IFIs work with countries affected by the financial and economic crises that emerged in 2008.

IFIs have promoted rules that reduce bureaucratic processes and strengthen the protection of corporate property and rights; this enabled companies to invest in developing countries with a higher level of security about their investment. IFIs have also promoted measures that go beyond guaranteeing the security of investments and actually enhance the potential for investors to secure – and export – profits.   IFIs prescriptions to attract foreign investment have included reducing or removing regulations that protect the environment and human rights. This has been particularly notable in the context of the extractive sector where we have seen mining and forestry codes relaxed, the removal of bans on raw log exports, liberalization of land ownership rules and the introduction of legislation granting companies exemptions from existing laws and guaranteeing indemnity from environmental damage.

The capacity of IFIs to press such policy frameworks on host governments has been particularly pronounced in those countries encumbered with significant foreign debt burdens. For example, the IMF has encouraged countries to prioritize export sectors because boosting exports enables countries to raise the capital needed to pay back loans from the IMF and other lenders. Such export-oriented development strategies have often been pursued with particular fervour in mining, oil, gas and logging. IFIs have effectively pushed many developing countries into a greater dependence on foreign companies that invest in just a few sectors. In the cases of Ok Tedi and Omai, this very circumstance of the country’s high dependence on a few major corporate investors created a significant power imbalance that companies could exploit. In effect, IFIs – particularly in the 1980s and 90s – laid the foundations for abusive corporate practices in developing countries, and many of the policies they promoted remain in place today.

In addition to promoting investor-friendly rules and a reduction in the scope of environmental and social protections, IFIs have promoted – and at times required – cuts in public expenditure as part of structural adjustment programmes. Therefore, at the same time that regulatory regimes were relaxed to attract foreign investment, funding was often reduced for vital government functions to monitor and control any adverse social, environmental and human rights consequences associated with corporate operations. The outcome: less regulation and then less capacity to enforce what is left of it.

The Ok Tedi mine illustrates the support an individual project can enjoy from the investor friendly environment encouraged by IFIs. Since the early 1960s, various IFIs (in particular, the IMF, World Bank and Asian Development Bank) have encouraged a range of institutional and policy changes to attract foreign investors into the mining and petroleum sectors of Papua New Guinea. During the 1990s, the IFIs moved forward with a structural adjustment programme for the country which included US$10 million for an institutional strengthening project in the mining sector. This project was primarily intended to strengthen the capacity of national government agencies to attract new foreign investment. At the same time Papua New Guinea was expected to reduce government spending and the size of the civil service. This resulted in the Department of Environment and Conservation being dismantled, which affected the government’s ability to regulate mining and forestry projects. In 2009 Amnesty International asked Papua New Guinea’s [then] Health Minister, Sasa Zibe, about the adequacy of environmental and health protection in the context of mine operations in the country. The minister emphasized the serious constraints confronting the government, which he said was “facing pressing economic problems to meet debt needs.”

Guyana’s willingness to shape policy frameworks in line with foreign investor interests was similarly affected by the conditions of loans from IFIs and the need for FDI. The mining, oil and logging sectors were targeted as part of the export-oriented strategy promoted to help Guyana meet its foreign debt repayments. As part of a structural adjustment programme that began in the late 1980s, the IMF sought to make these industries the country’s key economic sectors. During the 1990s, the government opened up exploitation of the country’s natural resources, especially timber and minerals, in order to generate income and satisfy the conditions of a 1991 IMF/World Bank structural adjustment programme.

The Omai project was a direct result of the policies encouraged by the IFIs, and one of the centrepieces of the World Bank’s structural adjustment programme for Guyana. The World Bank’s Multilateral Investment Guarantee Agency (MIGA) was a key financier for the project. There are several accounts of direct political pressure exercised by MIGA to prevent tightening of environmental regulations following the waste spill, including reports that a MIGA representative told parliamentarians that any new environmental regulations placed on the Omai would be tantamount to nationalisation.

More recent IFI policy – particularly that of the World Bank – has incorporated some recognition of the need for a sustainable development approach in projects in the natural resource sectors. However, a 2004 study of mineral development in Papua New Guinea found that the IFIs remained far more strongly focused on building systems and institutions to enable and facilitate FDI than on building regulatory capacity to manage the impacts of FDI projects. Such concerns remain largely unaddressed by IFIs.  In the past year concerns have been expressed about the influence of IFIs on the frameworks for private-sector engagement in export industries in a number of countries, including Myanmar and Burundi.

While IFIs have been a significant source of corporate power, they are not the only source. The way in which IFIs help to create a strong foundation for corporate influence intersects with a number of other features of contemporary political economy. Over the past 15 years we have seen the expansion of law to protect global economic interests, through a wide range of international investment and trade agreements backed by enforcement mechanisms. But while economic interests have been able to make the law work for them, those most affected by their operations have often seen the law and protection of the law recede in the face of corporate power. Deregulation, the need to attract foreign investment, and provisions in trade and investment agreements have all squeezed the protection the law can provide people affected by corporate operations – particularly in developing countries.

This reality – which has allowed companies to exert undue influence on the very laws and structures that should regulate them and protect people and the environment – has yet to be properly recognised in the debates around business and human rights.  However, until the sources and impacts of corporate political power are addressed, efforts to fine-tune legal systems will likely have little impact.

Audrey Gaughran is Director of Global Issues at Amnesty International. Amnesty’s new book “Injustice Incorporated: Corporate Abuses and the Human Right to Remedy” can be downloaded for free by clicking here.