Accountability for Transnational Corporations Must Be an Active US Goal in the Wake of the Kiobel Decision

The Supreme Court’s decision in Kiobel v. Royal Dutch Petroleum makes it more difficult to bring suit in US federal courts for violations of the law of nations that occur on foreign soil, but the Alien Tort Statute was never the ideal instrument for enforcing corporate accountability, Carasik argues.

In April, the US Supreme Court struck a blow for corporate accountability in Kiobel v. Royal Dutch Petroleum, making it substantially more difficult to bring suit in US federal courts for violations of the law of nations that occur on foreign soil. The named plaintiff, Esther Kiobel, whose husband was summarily executed, brought the suit on behalf of 12 activists who suffered violent repression while resisting oil exploration in the Niger Delta’s Ogoni region. Plaintiffs, all residing in the United States, sued British and Dutch corporations in US federal court, claiming the companies were complicit with the Nigerian government’s brutal treatment of environmental activists opposing environmental degradation in Ogoni territory.

In Kiobel, the Second Circuit had dismissed the suit, holding that the Alien Tort Statute (ATS) did not apply to corporations. On appeal, the court surprised many observers by broadening the scope of the review and requesting parties to re-argue the statute’s exterritorial application. The Supreme Court affirmed the Second Circuit’s dismissal because “all the relevant conduct took place outside of the United States,” holding that in order for the ATS to apply, the claim must “touch and concern” activities that occur in the “territory of the United States.”

Accordingly, plaintiffs alleging violations of the law of nations that occur entirely outside of the United States will not have access to US courts. While plaintiffs may allege that some of the tortious conduct occurred within the United States, the court clarified that “even where the claims touch and concern the territory of the United States, they must do so with sufficient force to displace the presumption against extraterritoriality. Corporations are often present in many countries, and it would reach too far to say that mere corporate presence suffices.” It is unclear how this standard will play out in specific suits, but the facts in Shell are telling. Although headquartered abroad, Shell is listed in the New York Stock Exchange, and by its own admission, generates significant revenue from its business dealings in the United States. As a result of the ruling, analysts predict that more transnational litigation in the United States may premise theories of liability on state law, in suits brought in both state and federal courts. Differing state laws may generate disparate standards of liability depending on the state in which a corporation is domiciled.

The court’s statement that a statute must expressly authorize exterritorial application is likely to trigger pressure for a legislative fix to the decision. Such an effort may draw on the efforts of strange bedfellows. In addition to human rights advocates, those focused on the rights of corporations may argue that US-based transnational companies are at a competitive disadvantage, as they may be subject to suit while foreign corporations with a more attenuated connection to the United States could evade liability under the ATS.

The court left several questions unanswered. Although the initial appeal was premised on the issue of corporate liability, the court did not explicitly address whether the ATS conferred jurisdiction for suits against corporations, nor did it clarify whether the ATS covers liability for “aiding and abetting” human rights abuses. The court did seem to leave intact lawsuits in the United States for violations of foreign law in other countries under a “transitory tort” theory, because the ATS conferred jurisdiction in cases alleging violations of the law of nations rather than a particular foreign law. Although the Kiobel decision left human rights advocates dispirited, the ATS was a blunt instrument for redressing corporate complicity in human rights abuses. Limited to violations of the law of nations, the statute would not likely reach egregious human rights abuses that failed to satisfy that high standard, such as violations involving environmental degradation, forcible displacement, and others.

The implications for corporate accountability are incalculable. Corporations wield unprecedented economic power across the globe. Of the largest 100 economic entities in the world, 51 are corporations. Because of the complexity and tangled relationships between transnational corporations, their subsidiaries and the countries in which they operate, the challenges of holding companies accountable in the countries in which they commit or are complicit with human rights abuses are often insurmountable. Companies are often scaffolded into a series of local subsidiaries, making it difficult to trace ownership, and resource rich and impoverished countries often lack the democratic institutions that provide consistent and effective remedies to victims of human rights abuses. Members of the US Senate have conceded this point.

Against the backdrop of mobile corporate might, other legal developments in the United States are weakening liability and making it increasingly difficult to hold corporations accountable for abusive conduct. For example, critics have expressed concerns about declining standards of corporate criminal liability, including the Department of Justice’s alarming trend of entering into an unprecedented number of non-prosecution agreements, effectively allowing corporations charged with crimes to dispose of suits by paying large fines, while neither admitting nor denying wrongdoing. Such a paradigm creates a two-tiered standard of justice, essentially allowing corporations to purchase criminal immunity. Additionally, advocates of corporate accountability lament the decision in Wal-mart v. Dukes, which makes it harder for plaintiffs to engage in class action suits against large employers, in this case for an alleged company-wide pattern of discrimination against women.

As the United States appears to back away from evolving standards of civil and criminal corporate accountability, the global community has recognized the importance of developing principles of corporate conduct. On June 16, 2011, the UN Human Rights Council unanimously endorsed the UN Guiding Principles on Business and Human Rights, which was cosponsored by the US government. The first pillar of the “respect, protect and remedy” framework obligates states to “protect against human rights abuse within their territory and/or jurisdiction by third parties, including business enterprises. This requires taking appropriate steps to prevent, investigate, punish and redress such abuse through effective policies, legislation, regulations, and adjudication.”

In response to that duty, the US enunciated its efforts to promote the Guiding Principles on May 1. The US Government Approach on Business and Human Rights affirmed that “Anywhere that human rights are under threat, the United States will proudly stand up, unabashedly, and continue to promote greater freedom, greater openness, and greater opportunity for all people.” Outlining its efforts, the US cited legislation including the Foreign Corrupt Practices Act (passed in 1977) intended to deter bribery of foreign officials, efforts to promote transparency in the extractive industries with Sections 1502 and 1504 of the Dodd-Frank Act, and the Trafficking Victim Protection Act (passed in 2000). The US also suggested resources and guidelines, including A Toolkit for Responsible Businesses to reduce child and forced labor, and emphasized the Best Practices for respecting the Guiding Principles.

The day after the US articulated its initiatives, a UN expert group wrapping up a 10-day visit to the US concluded that “[t]he United States still faces significant challenges to address the adverse impacts of business activities on human rights, despite progress and innovation in key sectors of the economy.” While the US Government Approach contains some laudatory efforts in promoting transparency and encouraging voluntary compliance, the initiative is neither bold nor comprehensive, consisting primarily of aspirational, but unenforceable standards, partnerships between governmental and private entities and legislation passed years ago. Notably absent were initiatives to incorporate the Guiding Principles requirement obligating states to deter abusive conduct and provide meaningful redress for those aggrieved by transnational corporations through legislation and adjudication.

Few believe US courts should become the global litigation center for human rights abuses unrelated to US interests. But neither should the US shirk its responsibility to provide an effective remedy for people on foreign soil who are aggrieved by the conduct of corporations enjoying the benefits of domicile in the United States. While the US does not want to become the locus of transnational human rights litigation, it should respect and protect human rights by allowing victims to access the US courts when warranted.

Ending corporate complicity in human rights abuses requires the collective effort of consumers, civil society groups, legislators, courts, multi-stakeholder initiatives and corporations themselves. But the US should honor the Guiding Principles by proactively constructing legal enforcement mechanisms that provide victims of human rights abuses with effective remedies for the conduct of transnational corporations that operate within its borders.