In Part 2 of our business and human rights series to mark World Human Rights Day, we discuss the increasing recognition of the linkages between human rights abuses and corruption, and how companies can find efficiencies in their efforts to address these overlapping risks.
Corruption and adverse human rights impacts are often intertwined. This was a key theme at this year’s UN Forum on Business and Human Rights. Representatives of business, civil society and inter-governmental organisations referred to corruption as a key “root cause” of business-related human rights risks, and several businesses shared accounts of situations in which human rights and corruption risks in their global operations had been found to be inextricably linked. Internationally recognised human rights commonly impacted by corruption include labour rights (e.g., the prohibition against forced labour), land rights, rights surrounding security and safety, the rights to education and health, access to justice, and gender equality.
Coinciding with International Anticorruption Day on December 9th and International Human Rights Day on December 10th, in the last two weeks the US government has announced 72 new designations under the Global Magnitsky sanctions program, which targets serious human rights abuses and corruption. Moreover, on December 9th, European Union foreign ministers commenced work on a similar EU-level sanctions regime targeting human rights abuses.
Evolving regulatory landscape
It has long been acknowledged by international organisations that corruption and human rights impacts are intrinsically linked and that “the international legal frameworks for protecting human rights and fighting corruption are complementary and mutually reinforcing” (UN Human Rights Council Resolution 35/25 (2017)). International standards have thus addressed anti-corruption and human rights best practices in parallel. The OECD Guidelines for Multinational Enterprises, for example, indicate that enterprises can root out both corruption and adverse human rights impacts by developing and applying “effective self-regulatory practices and management systems that foster a relationship of confidence and mutual trust between enterprises and the societies in which they operate.” By way of further example, Pillar III of the UN Guiding Principles on Business and Human Rights underlines the importance of judicial processes free from corruption in ensuring access to remedy for victims of adverse human rights impacts. The UN Global Compact also encompasses principles relating to both human rights and anti-corruption.
National legal frameworks have also evolved in a way that recognises the interconnectedness of corruption and human rights abuses. In recent years, for example, several countries have implemented so-called “Magnitsky” laws targeting both perpetrators of serious human rights abuses and corrupt actors. For example, in December 2017, President Trump signed executive order 13818, which authorises sanctions against foreign persons involved in serious human rights abuses or corruption, as well as any US or foreign citizen who materially assists, sponsors or provides support, goods or services to such parties.
In 2019 alone, the US designated 97 individuals and entities under its Global Magnitsky sanctions program. In the last two weeks, the Department of the Treasury’s Office of Foreign Assets Control designated 72 individuals and entities in relation to corruption in Cambodia, Latvia, and Serbia, and serious human rights abuses in Burma, Pakistan, Slovakia, Libya, the Democratic Republic of Congo and South Sudan. In a related press statement, Secretary of State Michael Pompeo indicated that the US government plans to continue to leverage the tools available under the program “to disrupt and deter human rights abuse and corruption around the globe in 2020 and beyond.”
This week, EU Foreign Ministers commenced preparatory work to establish a similar sanctions framework at the EU level. Further, as the new European Commission takes the reigns, a potential mandatory human rights due diligence regulation is under consideration. The direction of the new Commission and the scope of any such potential regulation is currently unclear, but it is possible that such regulation could include due diligence on broader sustainability and business integrity matters, including environmental and anti-corruption matters.
Governments are also beginning to harness anti-money laundering laws, which have long been used to target corrupt actors and the proceeds of bribery, to target human rights abuses. For example, in the UK, the Criminal Finances Act 2017 added the concept of “gross human rights abuses” to the definition of unlawful conduct in the civil recovery section of the Proceeds of Crime Act, meaning that assets held in the UK may be vulnerable to seizure if found to be the direct or indirect proceeds of gross human rights abuses. In the US, the Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”), issued an advisory in June 2018 “to highlight the connection between corrupt senior foreign political figures and their enabling of human rights abuses,” and describing various typologies used to access the US financial system. And in Australia, the financial regulator AUSTRAC has recently been focused on combating child exploitation, including through the use of available enforcement tools to target failures by financial institutions to implement anti-money laundering controls to detect financial transfers related to child exploitation.
Approach to compliance: addressing human rights and corruption risks in parallel
Within companies, anti-corruption compliance has been driven principally by the substantial legal and enforcement risk associated with violations of anti-bribery laws, whereas the legal risk associated with adverse human rights impacts has historically been considerably lower for companies (though there have for some time been considerable reputational and operational risks associated with such impacts). Corporate programmes to address human rights and corruption risks have therefore generally developed along separate tracks, with legal and compliance departments leading anti-corruption efforts and functions outside the legal and compliance departments (such as sustainability and/or human resources departments) leading human rights efforts.
However, as discussed in this post—and in Part 1 of our blog series—recent legal and policy developments have begun to shift the human rights landscape. The emergence of new laws and regulations targeting human rights abuses underlines the increasing importance of expanding integrity due diligence efforts beyond the typical “compliance” focus areas (such as bribery, money laundering, and sanctions risks) to identify evidence of human rights abuses by potential business partners or their beneficial owners. Efficient integration between corporate functions responsible for managing corruption and human rights risks can help to avoid duplicated effort and missed opportunities in several areas, enable more holistic assessment of cross-cutting risks, and facilitate the development of right-sized and practical risk mitigation actions.
Some steps that businesses might consider:
- Assessing the extent to which human rights-focused third-party due diligence processes can be coordinated with existing processes to ensure that any overlapping risks are identified and to avoid duplicating internal effort or subjecting suppliers to unnecessarily complex on-boarding processes.
- Making efforts to incorporate human rights elements into M&A and other investment transaction processes. As with anti-corruption due diligence, human rights due diligence can help a company identify known issues and evaluate their potential impact from a legal, operational, and reputational perspective, shift liability to the counterparty for legacy violations, and prepare to promptly integrate target entities or asset into the acquirer’s compliance programme to mitigate the risk of any continuing issues.
- Ensuring effective messaging to personnel, including through training and the tone set by senior and middle management. This is fundamental to both anti-corruption and human rights compliance programmes, which often depend on obtaining buy-in from employees in jurisdictions where cultural norms or accepted practices may diverge from the company’s standards. Combining anti-corruption and human rights training can help maximise the value of training sessions and ensure that personnel develop a holistic view of the company’s core ethical values, which in turn can help to foster values-based compliance.
- Using traditional compliance exercises focused on corruption risk (such as risk assessments and compliance audits), as an opportunity to explore human rights risks. While we would not suggest that these exercises can or should replace comprehensive human rights impact assessments, they can present valuable opportunities to gather helpful information about human rights risks and/or conduct targeted testing of the implementation of human rights compliance policies and controls.