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Multinational Corporations

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Conflict without Borders in the DRC
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As the role of mining companies in fuelling conflict in the Democratic Republic of Congo becomes clear, politicians and security analysts are grappling with a crucial question: what is the appropriate method to deal with corporations that profit from conflict? By Deval Desai and Natalie Zerial.

10th September 2009 - Published by Harvard International Review

These are difficult times for corporate greed. As the financial crisis has unfolded, rapacious profit-making has been hit as hard as stock prices and society is demanding that governments rein in the corporate tycoons who have contributed to the current economic meltdown. Yet, while society subjects them to scrutiny at home, corporations continue to play extraordinarily dangerous games overseas, profiting from the deadliest conflict since World War II.

For over a decade, the Democratic Republic of Congo (DRC) has been consumed by deadly civil wars, which in total have claimed over 5.4 million lives. Last year, the conflict flared up again, this time with a level of viciousness not seen since 2003. Reports from the zone of conflict revealed widespread looting, rape and killing of civilian targets. The international community has struggled to come up with an adequate response, a failure deepened by its neglect of one issue that it has real power to address: the role of multinational companies in fueling this violence. With the US Congress about to consider a bill that would, if passed, create a degree of accountability for companies that source minerals from the DRC, a crucial question has arisen: what is the appropriate method to deal with corporations that profit from conflict?

Multinationals in the DRC

The contribution of multinationals to the continuing cycle of violence and atrocities in the DRC was documented in a 2001 report commissioned by the UN. It named 85 companies that had violated international standards of good corporate behavior, including the standards set out in the guidelines for the ethical behavior of multinationals established by the Organization for Economic Cooperation and Development (OECD). The report categorized the violations as falling into two categories: provision of direct support to militias (including training and equipment); and funding of the war through the acquisition of mineral wealth from areas controlled by warring factions. Corporations from around the world have sought to profit from exploiting the DRC’s natural resources on the cheap – particularly coltan, a mineral used to produce cell phones, laptops and video game consoles.

Furthermore, the report indicated that the failure was a global one. The UN revealed that the DRC’s mineral wealth was being taken out of the country by companies based in, among others, “Austria, Belgium, Canada, China… India, Malaysia, Thailand, Rwanda, South Africa, Switzerland, the Netherlands, the Russian Federation, the United Arab Emirates and the United Kingdom of Great Britain and Northern Ireland.”

The UN has since issued another report, in December 2008, on the renewed conflict in the DRC. This second report reveals that coltan and other minerals continue to flow out of the country while money flows in. In fact, last year’s foreign direct investment into the DRC was the highest in the history of U.N. records on trade and investment. This money perpetuates the conflict by providing financial support to groups involved in the worst of the fighting. These groups include the Forces dйmocratiques de libйration du Rwanda (FDLR) and the Coalition of Congolese Patriotic Resistance (PARECO), who have been accused of abducting children to use as soldiers and of raping and killing civilians.

Companies that profit from these minerals often hide behind a carefully constructed shield of ignorance, arguing that they are not aware of the provenance of the minerals that they purchase. However, these claims of ignorance are disingenuous at best: the latest UN report indicates that companies are carefully avoiding any investigations that might reveal the truth; further, corporate management refuses to perform sufficient due diligence regarding their suppliers, thus failing to meet minimum standards of ethical business conduct. Companies are certainly not going beyond this basic standard by taking steps to ensure that they are not purchasing conflict minerals. Instead, they continue to exploit Congo’s mineral wealth with insouciance.

Domestic Corporate Accountability

To whom do these companies answer? The chaos in the DRC and the wealth of these companies makes it almost impossible to hold them accountable for their actions. The home states of these companies have, until now, been unable – and often unwilling – to exercise control over the companies’ overseas actions. Additionally, many companies use subsidiaries or trading partners located in the DRC to avoid liability in their home states, enabling them to deny their involvement while simultaneously reaping huge profits.

However, there is some hope, as a handful of states have taken small steps toward developing standards of accountability for these multinationals. The British Parliament will be investigating business and human rights this summer when its Joint Committee on Human Rights convenes. In the United States, several influential legislators in Congress are pushing the Congo Conflict Minerals Bill, which will require companies selling products such as coltan, tungsten and tin to reveal the provenance of their materials and to source minerals from “clean” mines. However, Washington industry lobbyists typically respond to the idea of greater corporate accountability with stubborn resistance, and the bill is likely to face significant opposition. Consequently, it is vital that the wider community demands adequate human rights compliance from companies as they operate abroad.

International Corporate Accountability

At the international level, various institutions have sought to rein in corporate human rights violations, using measures such as reporting mechanisms, certification schemes and cooperative educational initiatives. None of these measures have been directed specifically at the problems facing the DRC, but rather focus on the global phenomenon of corporate misconduct. The proliferation of such measures demonstrates both the importance of this issue and the failure of the international community to arrive at a single, effective solution.

This is not to say that these measures are without merit. Not only are they building awareness about the human rights obligations of businesses, within both the corporate sphere and the wider community, but they also contribute to ever-increasing expectations of appropriate corporate behavior. For instance, the UN Global Compact, which centers around a set of ten principles on human rights, the environment, labor and anti-corruption, describes itself as a leadership forum and a platform for the development and dissemination of corporate responsibility initiatives. Companies that choose to participate must sign a letter, committing themselves to upholding the Global Compact’s ten principles. However, they are not otherwise required to meet any standards of performance and are not subject to oversight, monitoring or reporting. While the Global Compact has been criticized significantly for its failure to exclude companies that fail to meet the ten principles, it must nonetheless be given credit for its wide reach, including 4700 businesses in 120 countries around the world.

Another significant international initiative is the OECD’s Guidelines for Multinational Enterprises. They cover a wide range of areas, including human rights and the environment, and require companies to contribute to a country’s economic, social and environmental progress. Unlike the voluntary Global Compact, the OECD initiative seeks to regulate corporate behavior through governments. To this end, the adhering countries must establish a “National Contact Point” (NCP), which is responsible for promoting corporate responsibility and facilitating mutually agreed solutions for problems that arise in this area. To achieve these goals, NCPs are empowered to receive complaints about corporate misbehavior, and thus are, in theory, the closest thing to an actual accountability mechanism for corporations. However, the OECD gives members absolute flexibility in designing their NCP, and most countries have failed to institute an effective complaints procedure or to ensure that their NCP has the status or profile necessary to put meaningful pressure on corporate actors. The US NCP, for instance, is one of many hats worn by the Office of Investment Affairs. It has no separate existence and lacks an institutional architecture.

By contrast, the United Kingdom has given its NCP more teeth, allowing it to receive and examine evidence and issue public reports on corporate misbehavior. Yet even if the NCPs were to realize their potential, this mechanism still relies on the stigma of bad publicity rather than any judicial remedy – a strategy that only works when the reputational costs to the company are not outweighed by the material gains from engaging with states that are rich in minerals but poor in human rights governance. For example, the publicity surrounding the UN reports did little to halt the looting of the DRC: as recently as last summer it was revealed that a British company, Afrimex, had paid money to a rebel group responsible for serious human rights violations. In return, the rebel group allowed Afrimex to extract minerals from mines under its control - mines in which forced labor and life-threatening conditions were present.

The UN has acknowledged the need for greater oversight of multinational corporations and their impact on human rights. In 2005, Professor John Ruggie of the Harvard Kennedy School was appointed the Special Representative of the UN Secretary-General on business and human rights. Since his initial appointment, Professor Ruggie has conducted consultations across the globe, compiling information on the status of corporate accountability measures in various countries and at the transnational level. His results have revealed the widespread failure of states to ensure that corporations observe human rights. As corporations have fallen short of ethical standards, states have consistently failed to hold them accountable, and Ruggie last year called for proactive policy interventions by states to control the involvement of corporations in conflict situations. To this end, he has proposed a tripartite framework, encompassing the state’s responsibility to protect against human rights violations, the general provision of adequate remedies to victims of human rights violations, and the corporate responsibility to respect human rights and operate in accordance with social expectations (that is, respect the “social contract”). Ruggie is currently in the process of operationalizing this tripartite framework. Whether it will be adequate to address the manifold complexities raised by transnational corporate misconduct is yet to be seen— and for millions suffering in the DRC, it will also be too late.

For the international community, individual states and companies, the challenges are significant. Even companies with the best intentions need guidance to ensure that their money is not being funneled into the prolongation of a conflict or the perpetuation of human rights abuses. Unilateral measures by states must surmount the limitations of domestic law enforcement. Accountability across borders requires cooperation between both state and non-state actors.

The Case for State Action

In the DRC, there is some hope. Last year, the Deputy Mines Minister, Victor Kasongo, indicated that 2009 might see the implementation of a certification scheme for coltan, which will hopefully contribute to the larger goal of peace and stability in the Congo. Yet, it is not just the government of the DRC that bears responsibility for responding to corporate complicity in human rights abuses. The domestic governments of companies need to be engaged as well. Governments around the world must clarify the consequences and limits of the franchise granted to corporations, which allows them to obtain the privileges of incorporation and limit their liability. In the process, states must send a strong signal to business that society expects corporate entities to engage in acceptable and human rights-compliant behavior around the world. Measures like the Conflict Minerals Bill are laudable, but governments cannot hope to address this issue by regulating, piecemeal, problems in individual industries and particular geographies.

The resurgence of the conflict in the DRC and the brutality wrought upon civilians is a reminder that multinational companies cannot be allowed to give support to those that perpetrate atrocities. They cannot be allowed to turn a blind eye to the impact that they or their subsidiaries have in perpetuating a cycle of violence. The proliferation of corporate social responsibility slogans and industry self-regulation has not been sufficient to prevent corporate complicity in atrocities in the DRC. Society must insist that corporate accountability transcends borders. Governments must be proactive in monitoring and responding to the actions of their companies overseas. Otherwise, companies will continue to do business in war zones, where they are out of sight of regulators, with the invisible hand of the market pushing them towards profits – at the expense of principles.

Deval Desai is a researcher in business and human rights. Mr. Desai has written for the Human Rights Program at Harvard Law School. Natalie Zerial is a researcher in business and human rights.

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