Legal Remedies for the Resource Curse A Digest of Experience in Using Law to Combat Natural Resource Corruption Legal Remedies for the Resource Curse A Digest of Experience in Using Law to Combat Natural Resource Corruption Open Society Justice Initiative OPEN SOCIETY INSTITUTE NEW YORK Copyright © 2005 by the Open Society Institute. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means without the prior permission of the publisher. ISBN: 1 891385 46 1 Published by Open Society Institute 400 West 59th Street New York, NY 10019 USA www.soros.org For more information contact: Open Society Justice Initiative 400 West 59th Street New York, NY 10019 USA www.justiceinitiative.org Cover designed by Jeanne Criscola/Criscola Design Text layout and printing by Createch Ltd. Cover photo by Associated Press, AP Contents Preface 5 Acknowledgments 7 I. Introduction 9 The Problem: “Spoliation” 9 The International Law Framework 12 Legal Remedies in “Home” Countries 14 Legal Remedies in “Host” Countries 17 II. Criminal Sanctions 19 A. Antibribery Laws in Home Countries 20 The United States 20 Other OECD Countries 22 Legal Strategies to Combat Bribery and Related Crimes 24 B. Antibribery Laws in Host Countries 28 C. Anti–Money Laundering Laws in Home Countries 30 Legal Strategies to Combat Money Laundering in Home Countries 34 D. Anti–Money Laundering Laws in Host Countries 37 E. Stolen Asset Recovery 38 Legal Strategies for the Recovery of Stolen Assets 39 1 III. Civil Causes of Action 41 Civil Actions in Home Countries 41 The U.S. Alien Tort Claims Act 41 Other Common Law Foreign Direct Liability 42 Unfair Business Practices in the State of California 43 Civil RICO Actions 43 The Council of Europe Civil Law Convention on Corruption 44 Secondary Civil Liability: Shareholder Actions 45 Civil Actions in Host Countries 46 The African Commission on Human and Peoples’ Rights 48 Legal Strategies for Civil Causes of Action in Host Countries 49 IV. Access to Information and Transparency Mechanisms 51 Access to Information 51 Transparency Mechanisms 53 V. Conclusion 57 Notes 61 2 LEGAL REMEDIES FOR THE RESOURCE CURSE Case Studies Case Study 1: Oil, Bribery, and Money Laundering in Equatorial Guinea 11 Case Study 2: Elf Aquitaine and the Nigeria Construction Consortium Bribery Investigations 23 Case Study 3: Civil Party Initiation of Criminal Proceedings in France on Behalf of Cameroonians 26 Case Study 4: The Lesotho Highlands Water Project Prosecutions 29 Case Study 5: Riggs Bank and Money Laundering Controls 33 Case Study 6: Riggs Bank and Pinochet—Privately Initiated Action Against Money Laundering 35 Case Study 7: Equatorial Guinea: Bank Controls in Spain and Luxembourg 36 Case Study 8: Mutual Legal Assistance—Nigeria’s Stolen Assets Recovery 38 Case Study 9: Illegal Shipment of Iron Ore from Liberia 47 LEGAL REMEDIES FOR THE RESOURCE CURSE 3 Preface On February 17, 2005, the Open Society Justice Initiative held a colloquium with legal advo- cates and policy professionals to assess the status of legal remedies to curb large-scale cor- ruption arising from natural resource extraction, primarily in Africa. The meeting followed several months of research, consultation, and interviews, driven by three questions: What is the present state of efforts to pursue legal remedies for corruption arising from the exploitation of natural resources, especially in Africa? Why have there not been more—and more success- ful—efforts to secure legal remedies? Which legal strategies are particularly promising and, generally, what more could be done? The present report is a digest of the February colloquium, together with preceding and subsequent research and interviews with experts. When resource extraction companies can access oil, diamonds, gold, coltan, timber, and other natural resources through private and corrupt contacts with unaccountable government officials, the losers are those located in the very places where the wealth originates. The power of corrupt governments frequently derives from monopoly access to natural wealth and the support of private and governmental industry allies elsewhere in the world. Local populations suffer destruction of their immediate environment and official unaccountability, together with the social and economic devastation that follows: arbitrary eviction and dispossession, unlawful arrest or harassment, and neglect of healthcare, housing, and education. Natural resource corruption is often associated with a lack of transparency in the gen- eration, transfer, and investment of the resulting revenues. Recent efforts, including some sponsored by the Open Society Institute (OSI), have aimed to create preventive transparency 5 mechanisms—both voluntary and mandatory—aimed at corporations, banks, and governments in natural resource-rich countries. Legal remedies are here explored as a possible complement to these initiatives. This report reviews some of the main legal instruments used to date, and others as yet untested. Focusing on resource spoliation in Africa, it provides case studies to demonstrate what has and has not worked. The report treats the “home countries” of resource extraction companies separately from the “host countries” where they operate.1 It looks at both criminal and civil means of redress. Although the report finds that corruption in transnational resource extraction is gener- ally subject to weak or nonexistent safeguards, there are grounds for action. The international law framework has not yet addressed trans-jurisdictional spoliation in a coherent, enforce- able manner. Regional treaties have provided some basic legal tools to address spoliation, but national incorporation and enforcement are not robust in much of the world. The pursuit of corruption in foreign countries is a low priority for criminal prosecutors. Civil litigation, on the other hand, is obstructed by cross-jurisdictional complexity and extremely high costs. Nevertheless, there have been efforts in a number of countries to hold corrupt compa- nies and governments to account and find redress for spoliation, using the available legal tools. To date these efforts have had mixed results. Freedom of information laws offer another option for litigators in both home and host countries. Intergovernmental groups and others can also promote transparency through imposed or recommended measures on companies and governments alike, demanding that they “publish what they pay.” The present report is intended as a point of departure—it is not a legal treatise or comprehensive statement of available remedies. The focus is not on legal documents and collections of laws, but rather on the experience of legal experts and advocates on the ground. The hope is that this effort will spark further research, dialogue, and action on this important subject. There will likely be many postpublication developments in the cases discussed here. Nevertheless, by framing and assessing the critical—often seemingly intractable—problems in securing legal remedies, and by cataloging tentative strategies to address them, the report aims at helping law professionals and nongovernmental organizations combating natural resource corruption. 6 PREFACE Acknowledgments This report was co-authored by Ingrid Tamm, Christian Lucky, and Stephen Humphreys. It was edited by Stephen Humphreys with the assistance of James A. Goldston. The present report would not have been possible without the patience, generosity, and insight of a great number of individuals, in the form of interviews given, experience shared, and reviews and comments rendered on draft passages. For a variety of reasons, not everyone whose work and experience is reflected in the present pages can be cited by name. The authors and the Justice Initiative nevertheless wish to acknowledge the following: Kelly Askin, Nina Bang-Jensen, Károly Bard, Rachel Barnes, Joseph Bell, Jack Blum, William Bourdon, Bruce Broomhall, Judith Brown Chomsky, Andrew Clapham, Sandra Coliver, Carlos Cordero, Juanjo Cordero (and all at Sustentia), Andreea Craciun, Helen Darbishire, John Fawcett, J. ‘Kayode Fayemi, Patricia Feeney, Arvind Ganesan, Ian Gary, Jennifer Gleason, Tracey Gurd, Paul Hoff- mann, Bern Johnson, Anna Kirk, Ndiva Kofele-Kale, Ari Korpivaara, François Larocque, Kate Lauer, Susan Marks, Julie McCarthy, Purificación Montaña, Chidi Anselm Odinkalu, Kola- wole Olaniyan, Henry Parham, Jeremy Pope, Anita Ramasastry, Jose Luis Diez Ripolles, Peter Rosenblum, Nicholas Shaxson, Dinah Shelton, Sonja Starr, Simon Taylor, Robert C. Thomp- son, Svetlana Tsalik, Hennie van Vuuren, Robert Yarbrough, Alex Yearsley, and Kofi Woods. The Justice Initiative bears sole responsibility for any errors or misrepresentations. 7 I. Introduction The Problem: “Spoliation” Over the past decade, development economists have remarked that, in many cases, the richer a country is in natural resources, the slower its economic growth. This problem has been described as the “resource curse.”1 Africa presents a special challenge because exports from resource-rich African countries tend to be dominated by primary commodities, in contrast to those in Latin America and Southeast Asia, which have often succeeded in diversify- ing their export bases.2 Studies have linked primary commodity–dependent economies to higher rates of corruption.3 “Corruption” is a notoriously broad term with multiple meanings. The newly adopted United Nations Convention against Corruption, for example, avoids