Saturday, May 24, 2008

Red Flags for Multinational Business

Don’t get involved in mass programs to force people to move from their communities.

That piece of advice is so obvious that it hardly seems worth flagging for the attention of executives of multinational corporations. But there it is, number one on list of nine “red flags”for business on how to act responsibly in the many “high risk” areas of the global economy.

Launched at a seminar in London on May 23, the “red flags” initiative seeks to alert corporate executives to changes in the law and in the expectations for complying with it. The initiative identifies the increased liability risks for companies operating internationally, particularly in high-risk zones.

Each of the nine “red flags” listed on the initiative’s website has a summary of the relevant laws (domestic and international) and a relevant court case or two. The topmost redflag, for example, explains: “The threat or use of violence to force people out of their communities can be a crime under international law.” A court in Japan is hearing a lawsuit against a Japanese company charged with involvement in forced resettlement of people in Indonesia prior to construction of a dam.

Take these other “red flags”:

“Providing the means to kill.” A court in the Netherlands imprisoned a Dutch businessman for allegedly providing chemicals that the Iraqi military used against Kurdish civilians in 1988. An appeals court upheld the conviction and increased the sentence to 17 years.

“Allowing use of company assets for abuses.” The liability exists even if the company did not authorize or intend illegal use of company property, for example. In a case pending in U.S. courts, Indonesia villagers charge that Indonesian armed forces protecting the company’s facilities tortured them on company property.

“Handling questionable assets.”
Handling, managing, or hiding funds associated with criminal activities exposes companies to prosecution and lawsuits. In 2005, an American bank pled guilty and paid a $16,000,000 fine to clear up criminal charges covering suspicious transactions involving the assets of Chilian dictator Augusto Pinochet.

Two international NGOs, International Alert, and the Fafo Insitute, formally launched the Red Flags initiative, after months of preparatory work by an informal group of lawyers, researchers, and diplomat of several countries, including the United Kingdom and Canada.

They have spotted a trend whereby national laws are gradually becoming tools for protecting human rights worldwide. “When it comes to human rights abuses, the law-free zones are shrinking,” says an informative article in

But the "law-free" zones still are huge in number and size, so much so that navigating within them is perilous for multinationals. I am not a multinational executive myself, but I understand why some of them favor adopting a set of rules that fill in the lawless areas.

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