Corporate Social Responsibility and the Law : Foley Hoag LLP

Isa Saharkhiz, an Iranian journalist who has been in detention in Iran since June 2009, and his son, a resident of New Jersey, recently filed suit against Nokia Siemens Networks (“NSN”), a joint venture of Nokia Corporation and Siemens Corporation.  The lawsuit, filed on August 16 in the District Court for the Eastern District of Virginia, includes claims under the Alien Tort Statute ("ATS") and the Torture Victim Protection Act and alleges that NSN aided and abetted the Iranian Government in detaining and torturing Mr. Saharkhiz.

Plaintiffs specifically allege that the Iranian Government used technology supplied by NSN to monitor the mobile communications of, and locate, Mr. Saharkhiz prior to his arrest.  Both Nokia and Siemens were also individually named in the lawsuit.

NSN has admitted that it sold mobile networks to Irancell as well as Mobile Communications Company of Iran (“MCI”), which is Iran’s largest cellular operator and is owned by the state-controlled Telecommunication Company of Iran (“TCI”).  These networks included lawful intercept capability, as is required by law in most countries and by the global standards developed by the European Telecommunications Standards Institute.  More controversially, NSN provided a monitoring facility to MCI/TCI which allowed Iranian authorities to utilize the intercept capability to monitor local calls made within Iran.  NSN subsequently halted all work related to the monitoring facility in Iran in 2009.

NSN’s provision of telecommunications monitoring capabilities to Iran has brought the company under significant levels of international scrutiny and criticism.  In a June 2010 statement to the European Parliament Subcommittee on Human Rights, Barry French, Head of Marketing and Corporate Affairs for NSN, conceded that monitoring facilities are “problematic and have a risk of raising issues related to human rights that we are not adequately suited to address.”  Mr. French also observed that  "we believe that we should have understood the issues in Iran better in advance and addressed them more proactively.” 

In his June 2010 remarks, Mr. French also emphasized that NSN provides "technology that is intended to be used in ways that support human rights.  When that technology is misused, the accountability must sit with those who misuse it."

NSN and the other defendants in the lawsuit brought by Mr. Saharkhiz will likely challenge both the forum of the suit as well as the ability of the court to properly assert jurisdiction over the defendants.  If the case proceeds, it could bring to the forefront the question of what standard courts should use in evaluating "aiding and abetting” claims in ATS cases.  If the Court reaches this issue, it may decide to endorse the Second Circuit’s standard, as set forth in Presbyterian Church of Sudan v. Talisman Energy, Inc. 582 F.3d 244 (2d Cir. 2009), which held that defendants may only be found liable under an aiding and abetting theory of liability if they provide substantial assistance to the primary violator with the purpose of furthering the human rights violation.  This a high barrier to plaintiffs’ claims.

Under a less strict “knowledge” standard for aiding and abetting liability, plaintiffs may have an easier time surviving a motion to dismiss.  In In Re South African Apartheid Litigation, 617 F. Supp. 2d 228 (S.D.N.Y. 2009) (decided before the Second Circuit's decision in Presbyterian Church of Sudan), the Court held that a defendant could be held liable if it knew that its actions would substantially assist a perpetrator in the commission of a crime or tort in violation of the law of nations.  By that standard, the Court said “[o]ne who substantially assists a violator of the law of nations is equally liable if he or she desires the crime to occur or if he or she knows it will occur and simply does not care.”

In thinking through the implications of a lower “knowledge” standard for the NSN case, it is notable that the Court in the South Africa case denied defendants’ motion to dismiss plaintiffs' claims that International Business Machines ("IBM") aided and abetted the South African Government in carrying out acts of apartheid.  The Court relied upon plaintiffs’ allegations that IBM provided the South Africa Government with computers, software, training and technical support that was specifically used to produce identity documents and administer a denationalization program.  The Court found that “given that IBM provided the programming expertise as well as the hardware, there is a plausible inference that the company understood the nature of the projects it assisted.”  With the standard for aiding and abetting liability unsettled, litigation in the case against NSN will likely involve in-depth inquiry into the nature of the company’s assistance to Iranian officials, particularly with regard to the monitoring facility. 

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In his latest report to the U.N. Human Rights Council, John Ruggie, the U.N. Special Representative on Business and Human Rights, highlighted the significant costs associated with stakeholder challenges and resistance to company operations.  The report noted that one company consulted by his office may have experienced a US $6.5 billion “value erosion” over a two-year period as a result of non-technical factors, including stakeholder opposition. 

The Special Representative's report stated that stakeholder challenges to company operations, which are typically on environmental and human rights grounds, may result in:

• delays in design, siting, granting of permits, construction, operation and expected revenues;
• problematic relations with local labour markets;
• higher costs for financing, insurance and security;
• reduced output;
• collateral impacts such as diverted staff time and reputational hits; and
• possible project cancellation, forcing a company to write off its entire investment and forgo the value of its lost reserves, revenues and profits[.]

The Special Representative noted that current evidence for these costs comes largely from the extractive and infrastructure sectors, but suggested that similar concerns are likely to be a concern for other industry sectors.  He reported that a recent study of 190 projects operated by international oil majors found that “the time for new projects to come on stream has nearly doubled in the past decade, causing significant cost inflation” and that major factor in these delays was “stakeholder-related risks.” 

These findings should raise serious questions for corporate management in many industry sectors.  Many companies do not have adequate internal systems in place to assess the total costs associated with poor stakeholder engagement practices.  For certain industries and companies, depending on the nature of their operations, these costs may be significant.  This is especially true for companies whose operations depend upon land concessions as well as companies operating in conflict-prone areas. 

Failure to assess the costs associated with stakeholder resistance may leave companies ill-equipped to evaluate the effectiveness of existing stakeholder engagement programs and to develop sufficient internal training programs and accountability mechanisms.  High-level standards on stakeholder engagement are often developed at corporate headquarters, but the costs associated with failures to develop and implement sufficient stakeholder engagement plans will first be reflected in project-specific costs and delays. 

Furthermore, in our experience, poor management of stakeholder relations often undermines a project's objectives at the very earliest stages of project exploration and development -- often before an adequate community relations staff, or budget, is in place.  Unless companies have systems in place to evaluate the aggregate costs of poor stakeholder engagement practices, insufficient incentives may exist to ensure that these risks are assessed and mitigated.

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On August 9, many people around the world will observe International Day of the World's Indigenous People, which was first established by the United Nations in 1994.   This year, many stakeholders are using the opportunity to urge the United States to endorse the U.N. Declaration on the Rights of Indigenous Peoples.  As was noted in an earlier post,  the United States government is undertaking a formal review of its position on the Declaration.

Members of the socially responsible investment community have been among the many groups urging the United States to endorse the Declaration.  Calvert Investments, a investment company which manages over $14.5 billion in assets, recently observed, in a letter to Secretary of State Hillary Clinton (.pdf), that U.S. support for the Declaration might "allow more companies to be responsive to our requests to develop policies and programs to promote Indigenous Peoples’ rights or to publicly disclose those that are already established as a model for others."

As discussed in our recent report on free, prior, and informed consent, the Declaration on the Rights on Indigenous Peoples is soft law, not legally binding on states, but the rights and values set forth within the Declaration are increasingly being recognized by national governments. 

Companies, especially those in the extractive sectors, should be familiar with the key international instruments recognizing the rights of indigenous peoples, including both the Declaration and ILO Convention No. 169.   Familiarity with the requirements of these international standards is essential to effective engagement with a wide range of stakeholders. 

Ultimately, companies will be most impacted by the ways in which these standards are integrated into national legislation and regulations.  It is crucial that companies understand national-level requirements, especially regarding indigenous peoples’ consultation rights, as set forth in legislation, regulations, administrative guidelines, and court decisions.  Recent national level developments include:

• In May 2010, Peru adopted legislation in May 2010 recognizing indigenous peoples’ consultation rights with regard to project that impact their collective rights.
• In  November 2009, Chile’s Supreme Court applied ILO Convention No. 169, which Chile ratified in 2008, in finding that indigenous communities had customary rights to a specific source of groundwater. The case involved attempts by a company to secure rights to bottle and sell freshwater from a source historically used by members of the Aymara indigenous population. 

Failure to understand and integrate current requirements regarding consultation with indigenous peoples, or to anticipate future changes that may have retroactive effect, could be quite costly for companies.  For example, in 2003, the South African Constitutional Court found that the Richtersveld indigenous community had a right of communal ownership to land which South Africa had granted to Alexkor Ltd., a diamond mining company. The Court ordered the land returned to the community.  

Failure to consult with indigenous populations can lead to significant reputational, as well as legal, liability.  A recent report (.pdf) by EIRIS, an investment research firm, observed that, by failing to adequately consult with indigenous communities in Orissa, India before proceeding with plans to develop a bauxite mine, Vedanta Resources had subjected itself to intense scrutiny, as well as several divestment actions, on the part of major investors. 

In light of the increasingly clear expectations of the international community, and well as the requirements of national law, companies engaged in operations that have, or may, impact indigenous populations are well-advised to verify that their activities have been conducted in a manner consistent with relevant consultation requirements. 

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