Contending with the Limits of Extraterritorial Regulation of Transnational Corporate Wrongs
Dr Valentina Azarova is a Postdoctoral Fellow at the Centre for Global Public Law, Koç University, where she researches peer enforcement and internalisation of international law by domestic orders. She is also Legal Adviser to the Global Legal Action Network (GLAN), a collective working to challenge transnational activities that contribute to rights abuses.
In the wake of the 5th UN Business and Human Rights Forum, which took place in Geneva last week, a reflection on the efforts to implement the business and human rights (BHR) framework in international law seems in order. In particular, this post addresses the as yet underwhelming efforts of home-states to regulate overseas business, which contribute to some of the most egregious human rights violations and perpetuate a North-South dynamic of exploitation.
The reason for this state of affairs, I argue, is found partly in the limited guidance provided by the BHR framework on how states should be looking to address these concerns, and partly in the inherent limits of the regulatory scope of international human rights law (IHRL) in terms of both the state’s regulation of private actors and its extraterritorial reach. When alternatives at the international or company level are remiss, it is asked what is needed to compel home-states to adopt a more vigorous and exigent regulatory approach to overseas business contributing to human rights harms?
This post offers a reflection on the inherent limits of the international law framework for home-state regulation of overseas business, as well as a brief exploratory discussion of the prospects for operationalizing home-states’ duties through domestic processes. It shows how translating the content and regulatory forms of IHRL norms into domestic criteria of legality and applied to assess the basis on which business activities are predicated can further a strict liability approach to BHR that does not depend on the otherwise incoherent practice of domestic authorities in applying IHRL to their corporate nationals’ activities abroad.
The state of international BHR law
International human rights law applies to both state and non-state duty-bearers. The UNGP blueprint for the implementation of the human rights obligations of business acts as a vehicle for the operationalisation of the shared responsibilities of home-states and businesses under IHRL to ensure that businesses do not contribute to or benefit from human rights harms in their domicile country and abroad. While it provides both procedural and substantive insight on the best way to combine company and home-state regulatory duties, it has also been widely criticised for its unequal distribution of responsibilities and protection gaps.
Not unlike other aspects of the project of international law, the BHR framework is a law-in-the-making, which is now geared towards the adoption of a treaty to give transnational business actors direct standing and attribute direct responsibility in international law. In the interim, however, the heavy-lifting of bringing about compliance with IHRL by such businesses is left to home-states. This has created in two kinds of shortcomings in terms of the scope and means of enforcement of corporate duties to respect human rights.
The first concerns the landscape of remedies and accountability at the level of the business’ home-state. The current landscape of enforcement processes is wanting: most states have adopted soft guidance advising businesses of their due diligence duties, while in a select number of cases companies have been taken to court by civil and in fewer cases criminal suits. In practice, judicial fora often have limited capacity legally to adjudicate facts that take place under the jurisdiction of another state, and that politically, depending on the effects of such suits on the home-state’s foreign policy towards the host-state, judges might also be inclined to self-restraint for fear of encroaching on the executive’s competences and committing what might be termed an infraction of the principle of non-interference in the domestic affairs of another state. Even when political concerns are at bay, the evidentiary requirements for substantiating causal links are often too cumbersome and costs too burdensome for victims (particularly from the global South).
A second key obstacle ensues from the limits of extraterritoriality in both international and domestic law. Whereas IHRL obligations provide a weak structure of obligations that is either narrowly applicable to circumstances of a state exercising certain government forms of control over foreign territory or persons, or prescribes a weak obligation of due-diligence to adopt measures to mitigate human rights harms by corporate actors. Domestic laws such as those that guarantee free association and non-discrimination rights apply only within the home-state’s domestic jurisdiction. This means that when businesses act under the jurisdiction of a foreign authority they are at best advised of the risks of such activities, but seldom incur liability under domestic law, let alone international law through domestic processes.
While it should be no surprise that states have intentionally embedded such policy preferences for weak obligations in IHRL, BHR advocates have relied on a progressive interpretation of IHRL obligations to hold states to a more demanding standard in terms of their regulation of overseas business. This stance not only exaggerates IHRL’s conservative position on extraterritoriality, but also fail to understand the domestic legal processes that can and do account for by assessing the effects of overseas business in terms of the legal status of the facts on which such activities are predicated in international law. Given both the limits of IHRL and the emphasis placed by the BHR framework on home-state regulation, a decisive step is to bring home-states to rationalise the regulation of overseas business without either being required to apply domestic legislation extraterritorially, or relying on the host-state’s deficient practice.
Domestic regulation of overseas business
A lesser-known process by which states account for the predicate facts on the basis of which their businesses conduct their operations consists of the routine review by domestic authority of such facts. The application of domestic law entails the assessment of the overseas conduct consistently with the home-state public policy positions and commitments, including a commitment to the implementation of the UNGP. Many developed legal orders that vigorously-enforce domestic law to regulate corporate actors, are also required to ensure consistency between their public policy positions on the unlawfulness of a certain authority’s practices (e.g. labour laws producing being incompatible with international standards), and the assessment of the activities of their businesses under domestic law. To uphold the integrity and effectiveness of domestic law, national regulatory authorities are tasked with ensuring that domestic law does not give legal effect to such unlawful acts.
Based on the internalization of criteria of legality from international law, home-states’ internal regulatory processes undertake the indirect regulation of overseas business in accordance with IHRL as well as other international law, by assigning concrete liabilities in domestic law for businesses that predicate their activities on such unlawful acts. The assessment of the legal basis of a right, title or entitlement constituted abroad as part of the domestic regulation of transnational economic crimes such as money-laundering and bribery, is subject to a similar regulatory rationale.
Examples of this regulatory process and its transnational reach can be found in a number of areas of corporate domestic regulation, including procurement, consumer protection, and investment regulation. Take for instance, the non-mandatory prequalification criterion of ‘grave professional misconduct’ enshrined in EU public procurement law: the assessment of a supplier under this criterion will entail the application of criteria of legality from international law when considering the nature of the activities of a foreign authority to which a given supplier’s operations are proximate. A public procurer in an EU member state would be within its rights to exclude a supplier company that contributes or benefits from wrongful acts of a foreign authority. Similarly, in the domain of investment regulation, a company involved in unlawful conduct by contributing to human rights harms, would likely be classified as a high-risk candidate and excluded from investment portfolios due to the effects of its conduct on its economic viability.
The domestic law-based perspective assesses both the direct and indirect legal consequences of business proximity to wrongs: they can qualify as unlawful activities under domestic law provisions concerning the legality of the company’s conduct (e.g. procurement law), or they can bear on the legality of a business’ proceeds, such as the titles, rights and gains, from activities predicated on unlawful acts (e.g. a tax authority unable to recognize the basis for gains obtained through unlawful circumstances of production, where land was unlawfully appropriated by an occupying power or expropriated by the state).
From a series of case-studies on procurement, investment, consumer protection and tax law, it becomes apparent that home-states are necessitated to instruct national regulatory authorities about the correct assessment of the effects of their overseas activities on their responsibilities in domestic law. European governments issued advisories to alert businesses to the domestic legal risks of operations in Israel’s settlements in the occupied Palestinian territory, under Morocco’s administration in Western Sahara and in Russian-annexed Crimea.
Transnational regulation of corporate wrongs
A detailed and rigorous human rights protection agenda is needed to provide a firmer foundation for the operation of transnational legal processes that can further home-state regulation of overseas business in line with the BHR framework. Koh’s conception of state compliance with international law as a ‘transnational legal process’ that consists of the “interaction, interpretation and internalisation of international norms into domestic legal structures” situates the foregoing domestic regulatory process within a more coherent set of international law enforcement machinery.
Such regulatory processes also demonstrate the operation of obligations of abstention at the domestic level. The state’s need to protect its domestic legal order from the harmful effects of unlawful acts necessitates the regulation of overseas business activities to guarantee that the unlawful facts on which some business is predicated do not become the basis for the implementation of domestic law (see examples, ILA Recognition/Non-Recognition Committee report, March 2014).
Rather than attempting to pressure states to enforce IHRL in the regulation of their businesses’ overseas activities, this approach better fits the BHR regulatory logic by enhancing the regulatory capacity of domestic authorities and can partially compensate for the limits on extraterritorially in international law. By substantiating the role of home-states as enforcers of domestic law based on IHRL criteria of legality, businesses can also be socialized to respect a human rights protection agenda so as to avert against incurring liabilities in domestic law.
The operation and transnational reach of human rights-based criteria of legality in some states domestic legal orders is no panacea for the broader concerns of developing a robust BHR framework in international law. Yet, it offers prospect of a basis for contending with the limits of extraterritoriality in IHRL and specifying both a regulatory rationale and concrete measures to counter the unabated exploitative practices of overseas business.
* This post is based on a review article that explores domestic law-based enforcement processes to implement the BHR framework, which was presented at a workshop on BHR in Turkey co-organised by the Centre for Global Public Law, Koç University and the Business and Human Rights Project, Essex University in May 2016.