Extraterritorial Jurisdiction: Lessons for the Business and Human Rights Sphere from Six Regulatory Areas Dr. Jennifer A. Zerk Jennifer Zerk Consulting A report for the Harvard Corporate Social Responsibility Initiative to help inform the mandate of the UNSG’s Special Representative on Business and Human Rights June 2010 ⎪ Working Paper No. 59 A Working Paper of the: Corporate Social Responsibility Initiative A Cooperative Project among: The Mossavar-Rahmani Center for Business and Government The Center for Public Leadership The Hauser Center for Nonprofit Organizations The Joan Shorenstein Center on the Press, Politics and Public Policy 1 Citation This paper may be cited as: Zerk, Jennifer A. 2010. “Extraterritorial jurisdiction: lessons for the business and human rights sphere from six regulatory areas.” Corporate Social Responsibility Initiative Working Paper No. 59. Cambridge, MA: John F. Kennedy School of Government, Harvard University. Comments may be directed to the author – [email protected] Corporate Social Responsibility Initiative The Corporate Social Responsibility Initiative at the Harvard Kennedy School of Government is a multi-disciplinary and multi-stakeholder program that seeks to study and enhance the public contributions of private enterprise. It explores the intersection of corporate responsibility, corporate governance and strategy, public policy, and the media. It bridges theory and practice, builds leadership skills, and supports constructive dialogue and collaboration among different sectors. It was founded in 2004 with the support of Walter H. Shorenstein, Chevron Corporation, The Coca-Cola Company, and General Motors. The views expressed in this paper are those of the author and do not imply endorsement by the Corporate Social Responsibility Initiative, the UN Special Representative on Business and Human Rights, the John F. Kennedy School of Government, or Harvard University. For Further Information Further information on the Corporate Social Responsibility Initiative can be obtained from the Program Coordinator, Corporate Social Responsibility Initiative, Harvard Kennedy School, 79 JFK Street, Mailbox 82, Cambridge, MA 02138, telefax (617) 496- 5821, email [email protected]. The homepage for the Corporate Social Responsibility Initiative can be found at: http://www.hks.harvard.edu/m-rcbg/CSRI/ 2 About the author Jennifer Zerk is a writer, researcher and business consultant specialising in the legal aspects of corporate responsibility. A former commercial lawyer, she set up her own consulting business in 2003 to help organisations understand and respond better to the legal challenges posed by corporate responsibility ideas and proposals, and to participate more meaningfully in regulatory reform. Her work covers a range of law- related topics, including regulatory design and analysis, trade practices regulation, international law and policy, legal frameworks for multi-stakeholder initiatives and legal ethics. She has advised on several significant law reform studies and initiatives, including the International Commission of Jurists Expert Panel on Corporate Complicity in International Crimes. Her recent work includes advising the Corporate Responsibility (CORE) Coalition on its proposal for a UK Commission for Business, Human Rights and the Environment. She has written extensively on business and human rights related topics and is the author of “Multinationals and Corporate Social Responsibility” (Cambridge University Press, 2006), the first book-length exploration of the international law context for corporate responsibility. Acknowledgments This report covers significant regulatory ground, and it would not have been possible without the help, advice and assistance of a good number of people. First of all, I would like to express my gratitude to the International Bar Association’s Task Force on Extraterritorial Jurisdiction for their very detailed and thoughtful research into the regulatory practices of states, and the practical problems that arise. The 2009 report of the IBA’s Task Force1 contains a wealth of information about current and recent state practice in most of the areas covered in this report, which obviously provided an extremely valuable starting point for the purposes of this study. Secondly, I would like to thank Vanessa Zimmerman and Rachel Davis for their tireless help, guidance and practical support throughout this research project. Thirdly, I would like to thank the many experts who gave up their time to discuss different aspects of extraterritorial regulation with me, to review materials and to provide additional information; in particular, Julio Barnet, Chris Bates, Antonio Bavasso, Joseph Breham, Alan Boyle, Sara Chidgey, Deba Das, Patrick Doris, Daniel Guzman, Richard Hermer, Stephen Humphreys, Jody Ketteringham, John Knox, Lucinda Low, Kate Orange, Marcos Orellana, Mark Pieth, Jasper Teulings, Louise Tolley, Anna Triponel, Christine Uriarte and Jonathan Winer. Finally, I would like to thank Jo En Low and Michelle Chan for their excellent research assistance throughout this project. Obviously, though, the views expressed in this report are the author’s own, and do not represent those of any of the experts or their institutions. Moreover, while this report was prepared for the Harvard Corporate Social Responsibility Initiative to inform the mandate of the Special Representative of UN Secretary-General (SRSG) on Business and Human Rights, Professor John Ruggie, its contents do not necessarily represent his views or those of the Harvard Corporate Social Responsibility Initiative. This report is not intended to be, and should not be taken as, legal advice. 1 International Bar Association, ‘Report of the IBA, ‘Report of the Task Force on Extraterritorial Jurisdiction’, February 6, 2009. A copy of the report can be downloaded from http://www.ibanet.org/Article/Detail.aspx?ArticleUid=597D4FCC-2589-499F-9D9B-0E392D045CD1 (the “IBA Task Force Report”). 3 Table of Contents Executive Summary 5 Preface 11 Introduction 12 Chapter 1: Anti-corruption 30 Chapter 2: Securities law 60 Chapter 3: Antitrust 91 Chapter 4: Criminal Jurisdiction Generally 115 Chapter 5: Civil Jurisdiction Generally 144 Chapter 6: Environmental Regulation 176 Conclusion 206 Annex 1: Abbreviations used in this report 218 Annex 2: Study methodology 220 Annex 3: List of case studies referred to in this report 222 4 Executive summary This study is intended to assist the Special Representative of the UN Secretary- General on Business and Human Rights (“SRSG”) as he works to operationalize the UN “Protect, Respect and Remedy” Framework, and particularly as he develops guidance on the state duty to protect against corporate-related abuse. It does so by exploring extraterritoriality in six different regulatory areas: anti-corruption, securities, antitrust, criminal law, civil cases generally and the environment. The study examines the legal frameworks through which states attempt to influence private actors and conduct abroad, and associated legal and practical challenges, in order to draw some lessons for the business and human rights (B&HR) sphere. In doing so, it adopts the distinction made by the SRSG between the use of domestic measures with extraterritorial implications and the exercise of direct extraterritorial jurisdiction over private actors or activities abroad. The SRSG has suggested that the different ways that states may seek to influence private foreign actors and conduct may be arranged in the form of a matrix. This matrix has two rows, based on the distinction noted above between domestic measures with extraterritorial implications and direct extraterritorial jurisdiction. And it has three columns – public policies, regulation, and enforcement actions. Their combination yields six cells, each offering a range of options. This matrix shows that extraterritoriality is not a binary matter. Instead, it encompasses a wide range of possible regulatory actions. And, as the SRSG has noted, not all of these are equally likely to trigger objections in all circumstances. States’ use of direct extraterritorial jurisdiction is often controversial. This is because of the political and legal importance of territorial sovereignty: the idea that each state should be able to regulate activities within its own territory in accordance with its own policies and priorities. However, globalization has posed challenges to the effectiveness of this territorially-based system. Increasingly, governments recognise that, in some areas, effective regulation of activities within their territories demands some degree of control over private activities beyond their borders. Moreover, globalizing factors – such as international trade and travel, foreign investment, and modern communications technologies – have all greatly increased the potential for overlapping jurisdictional claims. States have made use of domestic measures with extraterritorial implications to help influence the behavior of private actors abroad without the direct use of extraterritorial jurisdiction. Examples include asking locally incorporated parent companies to take certain steps in relation to the management of foreign subsidiaries. Other methods involve the use of reporting obligations, or import or export controls, and taking steps to monitor and reduce risks associated with projects requiring export assistance. These measures can be highly influential in relation to private foreign conduct. They also often seem to attract less controversy than