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International Trade

Looted Resources in Global Supply Chains

Supply Chaine

Exclusive from LexisNexis France/Semaine Juridique, General Edition: Looted Resources in Global Supply Chains: Asking the Right Questions{1}

Elise Groulx, Ad.E., LL.M., Attorney at law{2}, Of Counsel, Washington office, Boyle Litigation, District of Columbia, United States of America and for Hincker & Associés, Strasbourg & Paris, France

Lew H. Diggs, MA (Oxon), MBA, Strategic management consultant and expert on conflict economies with the participation of David Levy, Director of the "legal" division at the Conseil national des barreaux - CNB (National Council of Bars)

The authors would like to acknowledge warmly the very valuable contribution of their close collaborators:

Ms C. Buisman, Ph.D., member of a defence team before the International Criminal Court (ICC), and formerly before the International Criminal Tribunal for Rwanda (ICTR), the International Criminal Tribunal for the Former Yugoslavia (ICTY) and at the Special Court for Sierra Leone (SCSL).

Ms H. Dragatsi, LL.M., Attorney, author of a book on the issue of corporate liability of Canadian corporations for international crimes and Research Facilitator at the University of Ottawa{3} and

Ms T. Ducrocq, Editor responsible for international law and Chief Editor of the Journal of International Law - Clunet. Ms Ducrocq has done a remarkable job translating and adapting the article into French.

Business globalization can be the source of Human Rights and environmental violations that trigger criminal and civil liability for corporations and their executives. This is particularly the case in conflict affected areas and weak governance zones, where serious crimes under international law are committed. The perpetrators of such crimes, and those aiding and abetting them, are often funded by the exploitation of natural resources.

In this context, lawyers and in-house counsel have a key role to play. For purposes of prevention, they can conduct "Human Rights due diligence" to identify all potential risks on a systematic basis. They will also intervene in situations where companies face proceedings (civil/and or criminal) before national or international jurisdictions.

Lawyers and in-house counsel face the challenge of mastering the new, complex and multi-faceted legal issues in this emerging landscape.

This article, based on a fictitious scenario, is aimed at presenting what is at stake for practitioners and the business world when confronted with these sensitive issues. This will also be the focus of a major conference jointly organized by Conseil National des Barreaux and American Bar Association on "International Corporate Liability in Conflict Zones" which will be held 21 March, 2013 at the Foreign Affairs Ministry in Paris.

Business globalization has unleashed powerful forces that can expand trade, boost economic growth and create opportunities to reduce global poverty. When it follows certain paths, however, globalization also creates harmful impacts on communities, ecosystems and human rights. Non Governmental Organizations (NGOs) assign themselves the mission of uncovering those impacts, exposing them in the media (traditional and social) and - presumably - of giving victims a voice. Increasingly, governments and international organizations are also moving to prevent human rights abuse and punish offenders. This creates ethical challenges for businesses that are committed to respect global standards of "Corporate Social Responsibility (CSR)"{4} and to uphold the Rule of Law. It also highlights the responsibilities of corporate Directors and Officers to ensure legal compliance, manage strategic reputational risks and protect the long-term economic value of the enterprise.

The Challenge of Governance Gaps in Global Supply Chains. - A classic case of economic globalization is the supply chain that links multinational corporations, brokers, banks, insurers, shippers and truckers with enterprises from lower income countries{5}.  These complex networks reach from the "branded" retail stores of rich countries all the way, in their "upstream" segments, into the remote jungles and mountain regions of lower income countries{6}. Typically, these are the regions where minerals, metal ores and natural resources are extracted and harvested for the world market.

A significant portion of these regions, in turn, are classified as conflict zones and "ungoverned spaces," where various militias and insurgent groups compete for control with sovereign governments. Militia leaders often operate businesses in which resource harvesting may be performed by child labour, slave labour or artisanal labour that is "taxed" excessively, making their working conditions close to those of slavery and certainly below any acceptable international labour norms{7}.

By international legal standards, natural resources with considerable economic value are "pillaged" by armed groups that channel the revenues to finance large-scale armed violence against civilians. This crime has been defined by leading experts in international criminal law as synonymous with "looting", "spoliation" and "plunder" and as the intended deprivation of property and appropriation of that property without the consent of the owner in the context of and associated with an international or non-international armed conflict. The perpetrator must be aware of factual circumstances that established the existence of an armed conflict,{8} subject to certain conditions.{9} Since the 1980s, the use of pillage as a business method has fuelled a series of so-called "resource wars" in Angola (oil and diamonds), Sierra Leone and Liberia (diamonds and timber), the eastern DRC (conflict minerals and diamonds), Cambodia (timber) and the Andes (narcotics){10}.  

Such conflict economies present dramatic examples of the "governance gaps" created by globalization that were identified in the reports of Professor John Ruggie{11}, UN Special Representative for Business and Human Rights appointed by Kofi Annan in 2005. He described the gaps as "permissive environments for wrongful acts by companies of all kinds without adequate sanctioning or reparation."{12}. To close these governance gaps, Ruggie vigorously advocated more open collaboration to protect human rights among governments, business and civil society. He proposed guidelines for collective action in the form of his UN Framework{13} and Principles on Business and Human Rights{14}. He presented the Principles as "human rights soft law" designed to shape corporate policy without imposing new mandatory compliance obligations{15}.

Multiple Legal Challenges in Multiple Jurisdictions. - However, Professor Ruggie also pointed to the importance of "hard law" institutions, notably the International Criminal Court (ICC) and a growing body of International Criminal Law (ICL).  He also focused on the importance of more than 40 Alien Torts civil suits in US federal courts{16} as well as to similar suits in European courts{17}. His reports repeatedly warned corporations of an expanding "web of liability" aimed at catching business enterprises trying to exploit governance gaps. Criminal prosecutions of business executives have been rare but two notable cases were brought in the Netherlands against business associates of Sadaam Hussein (Frans Van Anraat){18} and Charles Taylor (Guus Kouwenhoven){19} and, in DRC military court, against managers of the Anvil mining company, who were acquitted of charges of aiding and abetting a massacre of villagers in Kilwa (Katanga){20}.

The issue of "conflict minerals" in global supply chains is addressed specifically in yet another way - the disclosure, due diligence and reporting requirements in US Dodd-Frank financial reform legislation{21}. These requirements, to be enforced by the Securities and Exchange Commission (SEC), are being challenged in court by US business associations. What does all this mean to a corporate counsel advising a multinational corporation on the issue of legal liability for human rights abuse - civil, regulatory and criminal? It means, practically, that she must put together the pieces of a global legal puzzle.  Multiple legal doctrines and rules are developing in multiple jurisdictions around the world. The law is evolving and very much in flux.  Faced with the global "web of liability", Professor Ruggie suggests a pragmatic solution: conduct Human Rights Due Diligence on a systematic and continuous basis. This due diligence focuses on identifying the human rights impacts of business operations - and then knowing, showing, preventing and compensating for these impacts in a transparent process of dialogue with alleged victims. He suggests a common-sense approach of compliance with relevant legal and international human rights "soft law" standards - obviously adapted to each case.  

Numerous rogue companies thrive in the governance gaps of the global economy. They welcome business opportunities to compete in illicit and criminal industries that openly violate international law: sanctions busting, brokering conflict commodities, arms dealing, illicit timber and wildlife harvesting, etc. They accept the risk of criminal investigation and prosecution as an ordinary "cost of doing business." The commercial risks of operating in governance gaps is quite different for multinational corporations that may need global supply chains but also need to protect valuable reputations and brands. For these business enterprises, the appearance of allegedly "looted" or illicitly harvested resources in the global supply chain can be a shocker for the CEO and boards of directors. They will need to ask serious questions about the legal and ethical integrity of their business model, risk management systems and methods of corporate governance. Inevitably, Directors and Officers turn for advice to the Chief Legal Counsel, who can act as the "conscience of the corporation" and "legal ambassador" of its leadership.

To illustrate the risks, we present a fictional scenario and consider how the Chief Legal Counsel (or Chief Legal Officer) can ask the right questions about a global supply chain. She will need to conduct "due diligence" knowing that most Supply Chain Partners lie far outside her corporation's sphere of control - and even beyond its field of vision.

1. The Case of "Looted Hardwood" in Global Furniture Supply Chains

A. The facts

A major European Retail Group, with 50 stores in cities across the European Union, has long-term supply contracts with nine furniture manufacturers in Eastern Europe, South Africa, East Africa and Southeast Asia. The group is lauded for its progressive sourcing policies, which support growth of the export manufacturing sectors of these emerging market economies. The Group is certified as ECO-FRIENDLY by independent "triple bottom line"{22} auditors for its enterprise-wide process of sourcing raw wood from "responsibly managed" forests. The upstream furniture manufacturers are included in the Group certification, giving them a competitive advantage in the EU market. There is a small gap - unnoticed by top management - in the Group's system of product and process certification. The retail stores market an upscale line of kitchen and home office furniture that includes certain modules fabricated from rare species of hardwood.  It is purchased primarily from expert precious wood brokers who hold private wholesale auctions for select buyers at warehouses in the Persian Gulf, Hong Kong, Bangkok and the Caribbean islands.  (The retail chain is not ranked as a major hardwood buyer and the upscale furniture line does not generate large sales volumes.)

On November 20, 2015, just before peak Christmas shopping season, three global NGOs publish a "shock report," based on a two-year investigation{23}. The report alleges that an estimated 50% of the precious hardwood moving through the auctions of the specialty brokers originates from illicit resource harvesting in seven "conflict zones."  The NGOs imply that the brokers may be part of a scheme to "launder conflict timber" through their auctions onto the global market. But they stop short of making a direct accusation. The seven conflict zones are located in a variety of remote mountainous or jungle border regions. They have been the scenes of armed conflict for 15-20 years, with militias and rebel armies controlling large swathes of territory. The conflicts take various forms, classified by security experts as criminal insurgencies, separatist movements and full-scale civil wars. The armies of neighbouring states fight at times and negotiate at others. Ceasefires are fragile and regularly break down. The NGOs report says, quoting media and speciality websites, that "it is common knowledge that civilians in the regions are the targets of systematic human rights abuse". But few reporters venture into these areas.

Informants interviewed by NGO experts allege that the militia leaders and certain "opposing" army commanders live off a combination of hardwood exports, opium and human trafficking. The hardwood business is centuries old with the traditional markets located in China, India and the Ottoman Empire. Starting in the 1990s, the market became global in scope and tree cutting skyrocketed, generating huge revenue streams. In this campaign, the NGOs focus narrowly on the illegal origins of the precious hardwood. They alleged it is harvested without legal permits, in violation of environmental standards and thus is being stolen from sovereign states and various indigenous tribes. They also allege that the hardwood is the fruit of "resource looting and pillage" - an international crime. The reports suggest that the Retail Group and three competitors should be investigated for knowingly purchasing stolen commodities and knowingly supporting criminal enterprises (or schemes) of "resource looting and pillage" through those purchases.

The NGOs allege that the purchasing of "stolen property" that originates in these particular conflict-prone regions amounts to participation in the war crime of pillage{24}.  This leads to the legal question: Can the hardwood purchases trigger potential criminal and civil liability against the corporation and/or its executives and directors?

The NGOs coalition takes action on a number of fronts:

   Filing with the Chief Prosecutor of the International Criminal Court (ICC){25} at The Hague their reports and confidential annexes, including depositions alleging grave human rights abuse by victims with documentary evidence{26}.

   Filing the same report and annexes with justice ministers of four European countries, all States Parties of the Rome Treaty of the ICC.

   Filing complaints alleging serious human rights violations with the "National Contact Points" of the OECD{27} in two countries. They reference the new chapter on human rights in the revised 2011 edition of the OECD Guidelines on Human Rights for Multinational Enterprises{28}.

   Filing a complaint in Washington DC with the Compliance Advisor/ Ombudsman (CAO) of the International Finance Corporation (IFC), the arm of the World Bank that supports the supply contacts with the furniture manufacturers{29}.

Coalition leaders are also considering civil suits on behalf of victims' groups in two conflict zones. The most likely jurisdictions are the US and the UK. Meanwhile "Parties civiles" (civil parties) are being constituted in France.

B. How to react?  

1. Alert Corporate Counsel

On the evening of November 20, a few hours after the NGO news conference, the Chief General Counsel of the retail chain receives an urgent message from the Chief Executive Officer and the Enterprise Risk Management (ERM) committee of the board. "We require a preliminary assessment of the allegations in the NGO report and your recommendations for a "human rights due diligence" project to assess their validity.  We await your advice." The tone is urgent, since the "responsible forestry" certification (Eco-friendly) is a key to the company's green marketing campaign, which has been running for two years. The company expects to book about 40% of 2015 furniture sales during the next four weeks and needs to avoid a surprise brand attack. As well, the CEO recently held a news conference to express the company's commitment to implement a "human rights due diligence" process - linked to its ERM system - in line with the suggestion of John Ruggie's UN Principles on Business and Human Rights. This makes sense since these principles have been incorporated in the IFC Sustainability Framework and Performance Standards and the OECD Guidelines on MNEs. The Chief Counsel has to pull together a team of commercial lawyers who understand the company's supply chain and throw them together with international criminal lawyers familiar with the ICC and international humanitarian law. They are joined by Corporate Social Responsibility managers (not lawyers) who have tracked the development of the Ruggie Principles{30} and their endorsement by international organizations.

2. Issues Raised in Internal Debate

During 48 hours of marathon discussion and accelerated consultation with supply chain managers, the legal team put together by the chief legal counsel raised the following difficult issues :

   The company needs to commit transparently to "know and show" the human rights impacts of the operations of the company and all supply chain partners, in line with the Ruggie Principles{31}.

   There are serious practical limits to the company's ability to "know" about supply chain partners operating upstream from the hardwood brokers.

   Is it possible to obtain reliable information on banking/insurance services from secretive brokers whose offices are located in tax havens?

    Is it possible to access sensitive information from commercial transactions handled by Supply Chain partners when they operate outside the company's control?

   What are the relationships between the head-office, subsidiaries and Supply Chain partners? Can we establish a chain of control?

   The facts are far from clear and not confirmed. Information on all nodes of the supply chain will probably be incomplete.

   Is the law applicable and unambiguous regarding the NGOs allegations of theft and pillage?

   A key legal issue is whether there is any type of criminal and/or civil liability - whether for theft, handling stolen property and pillage or looting - that can be triggered simply by purchasing hardwood in an auction that is held in a location remote from the region where it is harvested.  It may appear that the hardwood may have been harvested illegally but was the company in a position to find out "in the ordinary course of business"?

   A key legal issue will then be to determine the level of knowledge and/or control that is required to trigger civil and/or criminal liability.

   On the issue of jurisdiction who could be subject to liability? The moral or juridical person and/or the individual executives and directors? Or both jointly?

   A related issue is whether the company has "due diligence" obligations requiring its officials to investigate upstream the supply of chain before making purchasing decisions.

2. Asking the Right Questions

After two days of debate, the deadline for reporting to the board committee is approaching. The Chief Legal Counsel drafts a set of general guidelines for conducting "human rights due diligence" in this case.

   Faced with factual uncertainty and legal ambiguity, the company will attempt to "Ask the Right Questions".

   The set of Questions needs to be as complete as possible, even if Answers are not readily available.

   The due diligence team undertakes accurately and faithfully to report the Answers, even when incomplete.  It will also report when Answers are not available.

Based on her decades of experience in the industry - and past battles over "environmental impact assessments" during certification audits - the Chief Counsel proposes to operate as transparently as possible, borrowing this adage from financial market regulation :      

"Sunlight is the best disinfectant"

Two Reports for the Enterprise Risk Management Committee. - The group has prepared two reports for the Enterprise Risk Management committee. The Legal Assessment (Jurisdiction and Sources of Law (A) and Questions to Guide Due Diligence (B).

A. Report no. 1 : Legal assessment

1. Jurisdiction

Pillage is recognized as a war crime in article 8, (2), b), xvi) of the Rome Statute for situations of international armed conflict and in article 8 (2), e), v) for situations of non-international armed conflict. When a State party to the ICC is unable or unwilling to investigate the allegation of an international crime of the Rome Statute, the ICC may thereafter exercise its secondary jurisdiction{32}. The ICC and international customary law do not recognize jurisdiction over moral persons{33} but this does not exclude the prosecution of Directors and Officers of the company or other "natural persons" which fall under the jurisdiction (rationae personae) of the ICC{34}. If a State party to the Rome Statute decided to exercise its jurisdiction over the situation, its national jurisdiction would take precedence over that of the ICC based on the complementarity principle. In such cases, a majority of states have recognized varying levels of universal jurisdiction as a basis to prosecute international crimes{35}. Thus, the Chief legal Counsel to the corporation must also consider the numerous jurisdictions where one of these civil or criminal cases could be brought either at the national or at the international level.

For example, in the United States, a number of cases have been brought under the Alien Torts Claims Act (ATCA){36}. Recently in Canada, civil lawsuits have been brought against corporations for their alleged implications in international crimes committed abroad under the Crimes Against Humanity and War Crimes Act (CAHWCA), which also allows national tribunals to exercise their universal jurisdiction over international crimes committed on Canadian territory or abroad{37}. The notion of "persons" under this law is said to include "corporations"{38}. As opposed to the United States Alien Torts Claims Act that is restricted to tort law cases only, CAHWCA allows prosecutions under the criminal law system or the civil law system, even if to date, only the latter has been resorted to. In fact, in most national jurisdictions, such as in France, Germany, South Africa, the United States, Canada and others, corporations can be subjects of criminal law, as well as civil law. The only difference between both systems is the standard of liability considered to determine the accused's liability. Importantly, the stigma attached to a civil law determination of guilt could be almost as significant for a corporation as that attached to a criminal law conviction, which are both normally publicized through the media and to shareholders.  Considering the gravity of the offence of pillage, which is recognized as a war crime under which all countries of the world have universal jurisdiction, this stigma could become detrimental to a corporation's activities and financial viability.

In order to protect their clients from such potential risks, corporate counsel would need to consider and inform the CEO and board of the applicable law that apply to the corporation's activities inside and outside of its territory of incorporation.

2. Sources of Law applicable

   International Criminal Law & International Humanitarian Law ;

   European Union Law{39};

   Domestic Criminal law - In particular the elements forming parts of Theft and receiving stolen goods, including commodities, in both Common and Civil Law Systems ;

   Constitutional law (ownership of natural resources) and Property law ;

   Voluntary  Guidelines on the Responsible Governance of Tenure of Land, Fisheries and Forests in the Context of National Food Security{40};

   UN Declaration on the Rights of Indigenous People{41}.;

   Human rights law (Universal Declaration of Human Right{42}, European Convention of Human Rights{43});

   International covenants International Covenant for Civil and Political Rights{44}, International Covenant on Economic, Social and Cultural Rights{45};

   International Law Convention No169 on Indigenous and Tribal Peoples Convention and obligations to provide procedures to resolve land claims{46};

   Body of regulatory soft-law which represent a series of steps in the due diligence process/investigation

   Securities and Exchange Commission Rules and Regulations{47};

   UN Global Compact{48};

   J. Ruggie Guiding Principles on Business and Human Rights (June 2011){49};

   Kimberley Process Certification Scheme on rough diamonds, known as "blood diamonds" extracted in circumstances of armed conflict{50};

   The Extractive Industries Transparency Initiative {51};

   World Trade Organizations Rules{52};

   OECD Guidelines on Multinationals Enterprise{53};

   OECD Guidance on Due Diligence for Supply Chains of Minerals from Conflict -Affected and High-Risk Areas{54}.  

B. Report no. 2: Questions to Guide Due Diligence

There are multiple standards that can be used to guide Human Rights Due Diligence on the European Retail Group's precious hardwood supply chain.  The most relevant ones are: the UN Guiding Principles of Prof. Ruggie{55}; the FAO Voluntary Guidelines on Tenure{56}; the OECD due diligence guidance for supply chains of minerals from conflict-affected areas; Section 1502 of the Dodd Frank Wall Street Reform Act{57}. The baseline standard for our proposed due diligence project is that defined by the International Criminal Law and International Humanitarian Law (notably in the Rome Statute{58} of 1998 and regulations and its relevant regulations{59}). This is a body of law that is widely accepted in the international community. It is "hard law" that is enforced by the ICC, other international tribunals and national courts. It is referenced explicitly by the Ruggie Principles and implicitly by other laws and soft law standards.  In the case of pillage, ICL refer to domestic criminal laws defining theft and handling stolen goods.

Core Due Diligence. - The due diligence process/investigation involves taking a series of steps that can be divided into two phases:

   Assess the situation "on the ground," in region where hardwood is harvested. Alleged acts of theft and pillage perpetrated by armed groups (militias).

   Assess the supply chain. All key partners and commercial relationships that move the hardwood "from forest to furniture maker to retail showroom".

1. Evaluate the situation on the ground

i) Property & Tenure Rights

Who owns the hardwood? Who has a concession or similar legal authority to harvest it? Who has tenure rights in the forest? Are there legal or traditional harvesting limits?  

Legal Commentary. - The first step in assessing allegations of theft and looting is to identify clearly the rightful owners of the hardwood that is being harvested.  This is not a simple issue. Forest resources can be owned, controlled, used and shared by many groups. The investigation will need to focus on a combination of "ownership rights".

   Legal title: Is there a single legal owner of the forest, land, water and trees?  The state or a state agency? Private individuals and companies? Tribes and indigenous peoples?

   Harvesting concessions: Has the government granted concessions to harvest trees to companies?  Other organizations? Families?

   Tenure rights to harvest and use forest resources: Do local communities, tribes or indigenous peoples have informal "tenure rights" to use the forest for hunting, fishing, harvesting, herding and grazing, farming, etc.?  What is the legal status of their tenure rights and claims?

ii) Illegal Harwood Harvesting & "Theft"

Who is harvesting the hardwood illegally, without legal title, legal concession or tenure rights? Who are the victims of theft?

Legal Commentary. - The next step is to identify militias and other groups that are alleged to harvest the hardwood illegally - without ownership or tenure rights. The investigation will need to focus on:  

   Organizations: Militias, army units, companies contracted by them, artisanal harvesters "taxed" by them.

   Violations: What is the law applicable in the domestic regime of the countries under scrutiny{60}? Are there national or international regulations that define harvesting quotas? Are the quotas violated? Overharvesting could constitute the crime of pillage if done in the context of profiting from the insecurity and lawlessness of the conflict zone.   Is harvesting interfering with informal tenure rights of indigenous peoples and tribes.

   Victims: Who is "victim" of theft? The State, local communities, tribes, or all three?

iii) Looting and Pillage.

Is the hardwood being harvested illegally, stolen and sold in the context ("nexus") of an "armed conflict"?

Legal Commentary. - Pillage is the unlawful appropriation of property without the consent of the owner and with intent to deprive him of his property. This must be done in the context of armed conflict.  To qualify as a war crime the hardwood needs to be harvested and exported illegally in the "nexus of armed conflict"{61}.

Type of conflict. - What type of violence is occurring in the region? Does it meet the threshold conditions of an "armed conflict" under International Criminal Law and International Humanitarian Law?

Legal Commentary. - Armed conflict as defined by IHL and ICL needs to be more than criminal activity and more sustained than sporadic insurrections. It can either be an international war (between two or more states) or an armed conflit not of an international character{62}.  The threshold of "armed conflict" varies from case to case depending on a combination of features{63}:

   Intensity of fighting.

   Chain of command and hierarchical structure of armed groups.

   Scale of violence

iv) Illegal Labour Conditions

What are the conditions in which people are harvesting the hardwood?  Do these conditions violate international criminal law or international labour conventions?

Legal Commentary. - The investigation needs to examine how the militias organize and manage the harvesting, particularly the use of methods that violate International Criminal Law and International Labour Law when occurring in a conflict affected area:

   Child labour

   Forced labour

   Excessive taxation by irregular armed groups of artisanal labour working in unsafe conditions

v) Central Government :

Do central governments bordering the region have the capacity to enforce the law and protect the population? If so, do they also have the will to meet this difficult challenge?    

Legal Commentary. - Normally, the governments of the states in these border regions have the authority and responsibility for preventing and punishing illegal hardwood harvesting.

When these activities take place in conflict zones, the following questions need to be asked:

   Control: Which militias are in place? Who controls them? Who controls the territory?

   Shadow states:  Are the militias running "shadow states" that provide security and impose informal taxes?

   Regulatory capacity? Has the State agency responsible for granting concessions the capacity to police and prevent illegal harvesting?

   Rule of law: Can police, courts and military enforce the law and offer security?

2. Supply Chain Partners - Trafficking in Stolen & Illegally Harvested Timber

Supply Chain Partners. - Who are the main organizations in the Supply Chain (SC partners)?  What is the Commercial role of each partner (harvest, transport, ship, insure, finance, trade credit, buy, sell, process, manufacture) ? Which supply chain partners have the intent to support the militias and other organizations engaged in illicit harvesting and trafficking of the hardwood?  What role do they play in the "system" or scheme of trafficking?

Commercial Knowledge. - Which supply chain partners know the geographic origin of the hardwood?  Is there a reliable labelling system?  

Criminal Knowledge. - Which supply chain partners know that the hardwood in question was stolen or harvested illegally"? How do they know (price, secrecy of transaction, word of mouth, communication with organizers and planners, etc.)?

Legal Commentary. - If there are allegations that militias and army commanders have harvested hardwood illegally that is then purchased by the furniture corporation, does it constitute the crime of pillage, theft or handling stolen property? Would it be a defence for the retail furniture chain to claim that its intent in transacting in hardwood was purely commercial - never criminal?

Can economic actors be investigated and eventually held liable criminally and/or civilly for "knowingly" buying, selling and dealing in stolen commodities? The key issues to investigate are:

   Transporting stolen hardwood to market: If there are allegations of theft or pillage, could handling these commodities be considered as dealing with stolen property?

   Buying and selling: The same question would apply for buying and selling along the supply chain.

   Business profit: Could revenues and profit obtained by using the stolen hardwood be considered as a proceed of crime?

   Criminal knowledge: in certain circumstances the mental element of knowledge that the hardwood was stolen may be enough to trigger criminal liability through levels of intent, such recklessness{64} or dolus eventualis{65}.

   Circumstances: Can knowledge be inferred through circumstances such as terms of purchase, prices and secrecy of transactions?

3. Determinate the supply chain partners' participation in looting and pillage

Criminal Knowledge - Conflict. - Which supply chain partners know the geographic origin of the hardwood and also know that armed conflict is occurring in that region? Know about human rights violations? Is this common knowledge?

Legal Commentary. - The same approach can be applied to looting and pillage if businesses in the supply chain are aware of the origins of the hardwood and of the conditions of armed conflict prevailing there and if they accept the inherent risk of doing business anyway in spite of the circumstances{66}.

Knowledge : In some jurisdictions it may be enough both for criminal and civil liability to show that commercial activity contributes to the pursuit of the conflict and therefore the commission of international crimes by enabling the warring factions to harvest the wood in illegal ways in granting ways to sell off the conflict commodities; conflict is unfolding in the open and easily known if corporate executives look into the history of the region and the pattern of violence.

Criminal Knowledge - Pillage & Looting. - Which supply chain partners know that the hardwood is being harvested illegally and "looted" from rightful owners by armed groups?

Criminal Intent. - Which supply chain partners have "criminal intent" to support the militias and other organizations engaged in pillage and looting of hardwood? What role do they play in the system or scheme of trafficking?

Modes of participation. - The law on pillage is still uncertain. The future will tell whether, and in which jurisdictions the purchasing of stolen goods will amount to pillage. Even if not, corporations should be aware that criminal liability may also be imputed through indirect or accessory forms of participation, most notably in the case at bar any of the following modes of participation:

   Aiding and abetting{67}: Is the corporation through its commercial activities aiding and abetting the rebel groups of warring factions to pursue their illegal activities?

   Contribution to a group with a common purpose{68}: Does the corporation through its commercial activities knowingly contribute to a group that has the intent to commit pillage?

   Command responsability{69}: Does the corporation have effective authority and control over those who carry out the pillage?

Conclusion. - The case of the European Retail Group and its global supply chain for hardwood is fictional. It is nevertheless plausible, given the international standards already established with respect to blood diamonds in a number of countries and conflict minerals from the eastern DRC{70}.

The case illustrates several powerful trends.

   Consumers and voters increasingly expect that global supply chains for branded products will become transparent - "from forest to store," "from mine to mobile device," from end to end.

   In this environment, it makes sense to conduct human rights due diligence into high-risk operations on a regular basis, with a forward-looking commitment to "know and show" human rights impacts.

   With global transparency will come multiple issues of corporate responsibility and liability.

   With economic globalization comes the reality of potential legal liability in multiple jurisdictions.

Obvious candidates for human rights due diligence are global supply chains originating in conflict zones.  As the case illustrates, Corporate Legal Advisors need to get a head start, since such investigations may prove to be complex, costly and risky.

The model is not one of traditional legal compliance.  Rather, it can be framed as managing legal and reputational risks proactively, with reference to evolving international standards.

{1} A condensed version of this article was published in French in Semaine juridique, Édition générale, n°11-12, 11 mars 2013, p. 559.

{2} Member of the Québec Bar Association, licensed to practice Law in Québec, Canada.

{3} Criminal Liability of Canadian Corporations for International Crimes, H. Dragatsi, Carswell, 2011, p. 280,

{4} The United Nations Institute for Training and Research (UNITAR) defines "Corporate Social Responsibility" as "a management concept and a process that integrates social and environmental concerns in business operations and a company's interactions with the full range of its stakeholders", Introduction to Corporate Social Responsibility Course, online :, accessed 23 Febr. 2013. In Canada, "Corporate Social Responsibility (CSR) is defined as the voluntary activities undertaken by a company to operate in an economic, social and environmentally sustainable manner" in DFAIT Canada, Corporate Social Responsibility, online :, accessed 23 Febr. 2013. The France Ministry of Foreign Affairs "sees Corporate Social Responsibility (CSR) as an economic, social and environmental issue of global governance, since the impacts (both positive and negative) that enterprises have on the environment and on societies know no borders", France's Domestic CSR Policy, online France Diplomatie :, accessed 23 Febr. 2013.

{5} On business supply chains' role, See in "Clarifying the Concepts of Sphere of Influence" and "Complicity", A/HRC/8/16, 15 May 2008. Due diligence is one of the recommended principles for operationalizing the second pillar of the former Secretary General's Special Representative for Business and Human Rights, "Protect, Respect and Remedy" Framework for Business and Human Rights, A/HRC/11/13, 22 April 2009, J. Ruggie and in OECD, The Terms of Reference for an Update of the OECD Guidelines for Multinational Enterprises, Paris, Investment Division, Directorate for Financial and Enterprise Affairs Organisation for Economic Co-operation and Development, 2010, p. 3.

{6} D. Korten, When Corporations Rule the World, 2nd ed., 2001, p. 293, cited in Bete Nwete, Corporate Social  Responsibility and Transparency in the Development of Energy and Mining Projects in Emerging  Markets; Is Soft Law the Answer?, German Law Journal, Vol. 8, n°4, p. 312 at 318.

{7} See generally : OECD Risk Awareness Tool for Multinational Enterprises in Weak Governance Zones, Paris, OECD, 2006.

{8} "Corporate War Crimes. Prosecuting Pillage of Natural Resources", Conference held in Oct. 29-30 2010, online:, accessed 30 Jan. 2011, (hereinafter, Pillage Conference). The authors are greatly appreciative of the quality of work of James G. Stewart, Corporate War Crimes. Prosecuting the Pillage of Natural Resources, The Hague, Open Society Institute, 2010, online:, accessed 30 Jan. 2011 (hereinafter, the Manual). It is a valuable, documentary and analytical source dealing with the crime of plunder.

{9}   The conditions are mainly related to section III of the Hague Regulations, 1907, "Military authority over the territory of the Hostile State", particularly, article 55, which states "The occupying State shall be regarded only as administrator and usufructuary of public buildings, real estate, forests, and agricultural estates belonging to the hostile State, and situated in the occupied country. It must safeguard the capital of these properties, and administer them in accordance with the rules of usufruct". See International Conferences (The Hague), Hague Convention (IV) Respecting the Laws and Customs of War on Land and Its Annex: Regulations Concerning the Laws and Customs of War on Land, 18 Oct. 1907, 205 CTS 277, online:, accessed 3 Febr. 2011.

{10} Ex. in  J. G.  Stewart, supra note 8.

{11} See "Business and Human Rights: Mapping International Standards of Responsibility and Accountability for Corporate Acts", Report of the SRSG on the issue of human rights and transnational corporations and other business enterprises, J. Ruggie, 4th session, 2007, A/HRC/4/35 and A/HRC/4/35/Add.1 (hereinafter "2007 Report of J. Ruggie") and Promotion and Protection of All Human Rights, Civil, Political, Economic, Social and Cultural Rights, Including the Right to Development, Protect, Respect and Remedy : a Framework for Business and Human Rights, Report of the Special Representative of the Secretary-General on the issue of human rights and transnational corporations and other business enterprises, J. Ruggie , 8th Session, 2008, A/HRC/8/5 and A/HRC/8/5 Add.2 (hereinafter "2008 Report of J. Ruggie").

{12} 2008, Report of J. Ruggie.

{13} Id.

{14} Guiding Principles on Business and Human Rights. Implementing the United Nations "Protect, Respect and Remedy" Framework, J. Ruggie, 17th Session, 2011, A/HRC/17/31 (hereinafter 2011 of J. Ruggie).

{15} Id.

{16} See 2008 Report of J. Ruggie. - See also, Kiobel and Corporate Social Responsibility. An Issues Brief, J. G. Ruggie, Boston :  Harvard John F. Kennedy School of Government, 2012. - The Alien Torts Claims Act {hereinafter, ATCA}, 28 U.S.C. §1350, is an law passed in 1879. ATCA, as interpreted in several recent cases, permits aliens to bring private tort suits against corporations for certain human rights violations committed in the United States or abroad. Most actions require state action, but in a few cases, including slave trading, it is not necessary: {see Doe v Unocal Corp, 395 F .3d 932 (9th Cir 2002) at paras 2-3. - Daphne Eviatar, "A Big Win for Human Rights", The Nation, 21 Apr. 2005, online: The Nation, accessed 26 Apr. 2010. - An example of a case brought under ATCA is Chevron Corporation v. Donziger, et al., U.S. District Court, Southern District of New York, 11-00691. In 2011, the Second US Circuit Court of Appeals in New York lifted an injunction which had frozen an order for Chevron, an American company that merged with Texaco in 2001, to pay a fine for allegedly dumping toxic materials in the Ecuadorean Amazon.  The case was brought to the US courts after an Ecuadoren court ruled that Chevron should pay to clean up pollution, awarding damages of more than $9bn as well as punitive damages of more than $8bn.  Chevron had argued that the case was fraudulent and successfully appealed to a New York judge to have the collection of the fine blocked.  The decision was overturned by the Second US Circuit Court of Appeals in September 2011. The plaintiffs agreed not to attempt to collect the damages until the Appeals Process was terminated in Ecuador.  See US Court Rules against Chevron in Ecuador Oil Case, BBC News, 20 Sept. 2011, online: BBC News . Recently, the San Francisco Business Times reported that a "former Ecuadorean judge has claimed that after stepping down from the bench, he illegally ghostwrote a judgment in which Chevron was ordered to pay $18.2 billion (11.5 billion pounds) for polluting the rain forest, and that the plaintiffs paid a $500,000 bribe to the judge who issued the ruling" with regards to this judgment (See "Former Ecuadoran Judge on Chevron Case Says Plaintiff Bribed Court", San Francisco Business Times, 28 Jan. 2013, online: Reuters , accessed 24 Febr. 2013). - Key jurisprudence expected from the US Supreme Court on the admissibility of cases against corporations based on ATCA in Kiobel v. Royal Dutch Petroleum, 621 F.3d 111 (2d Cir. 2010), on appeal. Reserved by SCUS.

{17} See 2008, Report of John Ruggie, § 51 stating: "The European Court of Justice has confirmed that national courts in an EU member State may not dismiss actions against companies domiciled in that State on forum non conveniens grounds", CJUE, case C 271/02, Owusu v. Jackson {2005} ECR-I-1283. - And in Australia, defendants must now prove that the forum is 'clearly inappropriate'. Voth v. Manildra Flour Mills Pty. Ltd. (1990) 171 C.L.R. 538 (H.C.A.)".  - Most recently a case was dismissed by a Dutch court.  The action involved Shell Oil, a Dutch-registered company for the actions allegedly committed by its subsidiary in the Niger Delta.  The case was brought by the Niger Delta Farmers for reparations for lost income from contaminated land and waterways in the Niger-Delta Region.  The court "dismissed all claims against the parent companies since pursuant to Nigerian law a parent company in principle is not obliged to prevent its subsidiaries from harming third parties abroad", see Shell Nigeria Case: Court Acquits Firm on Most Charges, BBC News, 30 Jan. 2013 :, accessed 24 Jan.2013. See also the background on this case online:, accessed 30 Jan. 2013.

{18} The Hague District Court, 23 Dec. 2005, Public Prosecutor v. Van Anraat, LJN AX6406.

{19} Judgement in the case against Guus Kouwenhoven, Hof Den Haag 10 maart 2008, LJN BC7373.

{20} Geoghagan, Andrew, "Australian Mining Company Cleared of Congo War Crimes", Australian Broadcasting Commission (29 June 2007).  See also a Canadian civil suit which ended by Quebec Court of Appeal (ACCI v. Anvil Mining Ltd. 2012 QCCA 117), confirmed by SCOC in ruling on leave.

{21} Section 1502, Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub.L. 111-203, H.R. 4173 (2010), requires companies to conduct due diligence on their supply chain for products containing certain minerals from the DRC. This legislation spawned the California Transparency in Supply Chains Act, SB 657 (2010), which requires large retail and manufacturing companies to disclose the efforts they have taken to eliminate slavery and human trafficking from their supply chains.

{22} Also known as "People, Planet, Profit".

{23} Local community NGOs and a small human rights audit firm did the investigations.

{24} This type of allegation is also supported by scholars who gave done extensive work on the matter. See Conference on Corporate War Crimes, supra note 8, § 44 to 49.

{25} Rome Statute of the International Criminal Court, 17 July 1998, 2187 U.N.T.S. 90, U.N. Doc. A/CONF.183/9, adopted on 17 July 1998, and corrected by procès-verbaux of 10 Nov. 1998, 12 July 1999, 30 Nov. 1999, 8 May 2000, 17 Jan. 2001 and 16 Jan. 2002. Entered into force on 1 July 2002, online: United Nations , accessed 14 Apr. 2010 (hereinafter, Rome Statute).

{26} Rome Statute, art. 15, (1).

{27} OECD Guidelines for Multinational Enterprises: Text, Commentary and Clarifications, OECD Doc. DAFFE/IME/WPG (2000) 15/FINAL, revised 31 Oct. 2001, updated in the 2011, OECD, 2011, OECD Publishing {hereinafter OECD Guidelines}. (The National Contact Point (NCP) acts as a forum to deal with any questions having to do with the operations of multinational corporations)

{28} Id.

{29} IFC Sustainability Framework and Performance Standards, Policy and Performance Standards on Environmental and Social Sustainability, Access to Information Policy, revised Ed. 2012, online: IFC <, accessed 24 Febr. 2013.  

{30} See supra notes 11 and 14.

{31} Id.

{32} Rome Statute, Preamble and art. 17, 1), (a).

{33} In a 2008 report, the International Commission Jurists published a report describing varying levels of potential participation of corporations in international crimes. The growing difficulties that corporations and their counsel are increasingly confronted with are the shaded lines of accountability in the context of violence and humanitarian crises.  The ad hoc tribunals have decided, in this respect, that although the accused of an international crime did not intend for the offence to be committed, his or her intent to aid or abet the perpetrator of the crime may be sufficient to determine the accused's responsibility for offence. See: International Commission of Jurists, Report of the ICJ Expert Legal Panel on Corporate Complicity in International Crimes: Corporate Complicity & Legal Accountability. Volume 1: Facing the Facts and Charting a Legal Path, Geneva, 2008, online: UNHCR , accessed 17 Apr. 2010.

{34} Rome Statute, art. 25, (1).

{35} The premise of universal jurisdiction is that some crimes are so reprehensible and appalling to the social conscience (jus cogens) that all the tribunals of the world have an interest to and the prerogative to prosecute them. This broadens the scope of jurisdiction of states beyond their own territories for international crimes that include war crimes, crimes against humanity and genocide. Contrary to the ICC and other international criminal tribunals, most states across the world include corporations as potential subjects of their criminal law, and therefore, prosecutions could be carried out against both the individual directors and officers of the entity and the corporations itself. See: Case of the S.S. "Lotus" (France v. Turkey), (1927), Judgment, P.C.I.J. (Ser. A) No. 10, 4. - Orentlicher, Diane F. "Universal Jurisdiction After Pinochet: Prospects and Perils" (Paper presented at UC Irvine as part of the Symposium Series Prosecuting Perpetrators: International Accountability for War Crimes and Human Rights Abuses, 21 Febr. 2003). - Princeton Project on Universal Jurisdiction Steering Committee, The Princeton Principles on Universal Jurisdiction, Princeton: Program in Law and Public Affairs and Woodrow Wilson School of Public and international Affairs, Princeton University, 2001. - O'Keefe, Roger, "Universal Jurisdiction, Clarifying the Basic Concept", 2004, 2 Journal of International Criminal Justice 735.

{36} ACTA, supra note 16.

{37} Bil'in (Village Council) v. Green Park International Inc., 500-09-020084-091, Quebec Court of Appeal (2010) and ACCI v. Anvil Mining Ltd. 2012 QCCA 117, both rejected by the Quebec Court of Appeal.

{38} See Interpretation Act of Canada, R.S.C. 1985, c. I-21, s. 34(2). - See also the same argumentation given by Cory Wanless, "Corporate Liability for International Crimes under Canada's Crimes Against Humanity and War Crimes Act", 2009, 7 Journal of International Criminal Justice 201 at 207 and H. Dragatsi, Criminal Liability of Canadian Corporations for International Crimes, see note 3.

{39} See especially, Regulation (EU) No 995/2010 of the European Parliament and of the Council of 20 Oct. 2010, laying down the obligations of operators who place timber and timber products on the market.

{40} CFS 38 (Food and Agricultural Organization/FAO & Committee on World Food Security/CFS), online:, accessed 24 Febr. 2013.

{41} UN Declaration on the Rights of Indigenous People, A/RES/61/295, 13 Sept. 2007.

{42} UN General Assembly, Universal Declaration of Human Rights, 10 December 1948, 217 A (III), online: UNHCR , accessed 24 Febr. 2013.

{43} Council of Europe, European Convention for the Protection of Human Rights and Fundamental Freedoms, as amended by Protocols Nos. 11 and 14, 4 November 1950, ETS 5, online:, accessed 24 Febr. 2013.

{44} UN General Assembly, International Covenant on Civil and Political Rights, 16 December 1966, United Nations, Treaty Series, vol. 999, p. 171, online:, accessed 24 Febr. 2013.

{45} UN General Assembly, International Covenant on Economic, Social and Cultural Rights, 16 Dec. 1966, United Nations, Treaty Series, vol. 993, p. 3, online:, accessed 24 Febr. 2013.

{46} International Labour Organization (ILO), Indigenous and Tribal Peoples Convention, C169, 27 June 1989, C169, online :, accessed 24 Febr. 2013.

{47} Relevant rules and regulations may be found online:, accessed 24 Febr. 2013.

{48}Information on the United Nations Global Compact is available at online: , accessed 16 Apr. 2010.

{49} 2011 Report of J. Ruggie, supra note 14.

{50} Information on the Kimberley Process Certification Scheme is available at online: Kimberley Process , accessed 24 Febr. 2013.

{51} Information on the Extractive Industries Transparency Initiative is available at online: , accessed 24 Febr. 2013.  

{52} A list of World Trade Organization Legal Texts may be found at: <>, accessed 24 Febr. 2013.

{53} See supra note 27.

{54} OECD (2011), OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas: Second Ed., OECD Publishing.

{55} Supra note 14.

{56} Supra note 40.

{57} Supra note 21.

{58} Supra note 25.

{59} Basic legal texts relevant to the International Criminal Court made be found online:, accessed 24 Febr. 2013.

{60} See J. G. Stewart, supra note 8, Chap. VIII, § 50 to 77.

{61} Art. 8, (2) (b) (xvi) of the Rome Statute defines the elements of  the war crime of pillaging in international armed conflict as follows:


1. The perpetrator appropriated certain property.

2. The perpetrator intended to deprive the owner of the property and to appropriate it for private or personal use.

3.   The appropriation was without the consent of the owner.

4.   The conduct took place in the context of and was associated with an International armed conflict.

5. The perpetrator was aware of factual circumstances that established the existence of an armed conflict.

The same elements of crime apply in armed conflict not of an international character. See art. 8, (2)(e) (v) of the Rome Statute.

{62} Id.

{63} See, ICTY, Appeals Chamber, Prosecutor v. Tadíc, 15 July 1999, IT-94-1-A, Judgment on Appeal, § 84, cited in James G. Stewart, supra note 8, § 23.

{64} Recklessness is a criminal standard of liability in Common law jurisdictions and has been defined as "conduct whereby the actor does not desire harmful consequence but...foresees the possibility and consciously takes the risk" (Black's Law Dictionary 1053, Bryan A. Garner ed., 8th ed. Abr. 2005).

{65} Dolus eventualis is applied in Civil law jurisdictions and refers to foreseeable consequences, Ambos, General Principles of Criminal Law in the Rome Statute, 1999, 10 CLF 1, at 21-22. The ICC, however, arguably requires a higher standard of knowledge, e.g. awareness that a circumstance exists or a consequence will occur in the ordinary course of events (Rome Statute, art. 30 (3)).  

{66} It is however noteworthy that the ICC appears to require "virtual certainty" instead of inherent risk (Bemba Decision Pursuant to Article 61, (7)(a) and (b) of the Rome Statute on the Charges of the Prosecutor Against Jean-Pierre Bemba Gombo, No. ICC-01/05-01/08 123/186, 15 June 2009, § 362). On the other hand, in the context of a common plan, the Trial Chamber in Lubanga held that "it is necessary, as a minimum, for the prosecution to establish the common plan included a critical element of criminality, namely that, its implementation embodied a sufficient risk that, if events follow the ordinary course, a crime will be committed.", Lubanga, Judgement pursuant to Article 74 of the Statute, ICC-01/04-01/06-2842, 14 March 2012, § 984, 987, 1021. The Appeals Chamber has yet to rule on the exact definition of intent under Article 30 of the Rome Statute.

{67} Rome Statute, art. 25, (3) (c).

{68} Rome Statute, art., 25, (3)(d).

{69} Rome Statute, art., 28, (b).

{70} See Kimberly Process Certification Scheme, See supra note 50. - OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, supra note 54. - Final report of the Panel of Experts on the Illegal Exploitation of Natural Resources and Other Forms of Wealth of the Democratic Republic of the Congo, Annex to United Nations Security Council, Letter dated 23 Oct. 2003 from the Secretary-General addressed to the President of the Security Council, S/2003/1027. - Final report of the Panel of Experts on the Illegal Exploitation of Natural Resources and Other Forms of Wealth of the Democratic Republic of the Congo, Annex to United Nations Security Council, Letter dated 15 Oct. 2002 from the Secretary General addressed to the President of the Security Council, S/2002/1146, 16 Oct. 2002). - Nations Unies, Droits de L'Homme, Haut-Commissariat aux droits de l'homme, République démocratique du Congo, 1993-2003. Rapport du Project Mapping concernant les violations les plus graves des droits de l'homme et du droit international humanitaire commises entre mars 1993 et juin 2003 sur le territoire de la République démocratique du Congo, Geneva : UNHCR, 2010. - UN Security Council Reports on eastern DRC. - Section 1502 Dodd-Frank Wall Street Reform and Consumer Protection Act, see supra note 21. - SEC Regulation Securities and Exchange Commission Rules and Regulations, supra note 47.