Michael Scott – the incompetent but somehow highly successful manager at the heart of the US comedy The Office – once claimed, “Truth be told, I think I thrive under a lack of accountability.” Scott wastes the company’s money, prevents his subordinates from doing their jobs, makes promises he does not keep, and is racist, sexist, and homophobic in that low-key oppressive way that makes it difficult to file an official complaint and transfers all the responsibility for his education and growth onto those who suffer from him. But it’s also hilarious and has a sweet love story.

As Scott demonstrated weekly, a lack of accountability is dangerous in the best of circumstances. In the worst, the consequences are never fully known but they ripple out endlessly, changing the fabric of a society. Following an armed conflict, the process of transitional justice is aimed at helping societies re-establish a sense of accountability in order to secure a more sustainable peace. Transitional justice is international law’s response to the oft repeated (and accurate) chant ‘no justice, no peace.’ While sometimes disputed, there is broad-based agreement that transitional justice has four pillars:

• ‘justice,’ meaning accountability for those who are responsible for past violations;
• ‘truth,’ referring to the establishment of a historical record of what occurred;
• reparations, meaning the comprehensive measures needed to rectify the harm done (or compensate for that which cannot be rectified) to both individuals and communities; and
• guarantees of non-recurrence, which requires the institutional, social, political, legal, and economic reform necessary to ensure the past does not repeat itself (or at least provides a good-faith effort at making it more difficult for a reoccurrence).

Each of these pillars has the potential to address past human rights and humanitarian law violations committed by businesses. Under the UN Guiding Principles on Business and Human Rights, states should be ensuring that such measures address corporate actors, ensure their accountability, and result in adequate reparations for affected for victims.

Unfortunately, international investment agreements (‘IIAs’)—treaties aimed at protecting the financial interests of foreign investors, generally businesses—can function as an effective barrier to transitional justice and institutionalize the effects of war crimes, crimes against humanity, and genocides. In this post, I will highlight why a common provision in IIAs, the fair and equitable treatment provision, is incompatible with the needs of a state engaged in transitional justice. I first set out these and other concerns about the relationship between businesses, human rights, investment protections, and transitional justice in a 2016 article on the threat investment law poses to Colombia’s Land Restitution process.

Fair and Equitable Treatment: A Demand for Stability

The ‘fair and equitable treatment’ clause used to protect foreign investors from the kind of due process, non-discrimination, and torture violations that states are wont to inflict on foreigners. It’s too easy to scapegoat foreigners for the troubles of a nation and bad leadership so there is a legitimate international interest in ensuring a state does not abuse that possibility.

Unfortunately, that legitimate purpose has expanded into illegitimate uses over the past two decades via investment arbitration. Disputes arising under IIAs are commonly addressed by 1 or 3-person arbitration panels, partly appointed by the foreign investor. They are not subject to binding precedent or to appeal. They must be enforced with only procedural reviews in over 180 state and territories via two treaties. They generally cannot be from the defending state (ICSID Convention Arbitration Rules, Rule 1(3)) and therefore are disconnected from any harm they cause.

Investment arbitration panels have determined that ‘fair and equitable treatment’ protects not only due process and non-discrimination but also the ‘legitimate expectations’ a foreign investor has to ‘regulatory stability.’ Any reforms must be reasonable, proportionate, and not ‘amount to suddenly and unpredictably eliminate the essential characteristics of the existing regulatory framework’ (Charanne and Construction Investments v. Spain (Final Award), para 517). In practice, this has meant that states cannot adopt significant regulatory reform if the investor could not anticipate those specific reforms at the moment of investment. While investors are expected to do due diligence to understand the existing regulatory regime, arbitration panels are split as to whether investors should take account of the larger social and economic order.

Transitional Justice: A Need for Radical Reform

For transitional justice to work, however, states often need robust and monumental regulatory transformation. These reforms are a core component of a state’s commitment to a ‘guarantee of non-recurrence.’ States emerging from armed conflict face a high rate of recidivism to conflict but evidence suggests that well-designed and implemented peace agreements, including through transitional justice measures, reduce the risk of new or renewed conflict.

For example, the Colombian conflicts related to the unequal distribution of land ownership and use. Over 5 million people were displaced as a result of the armed conflicts and the factual situations underlying many of the displacements involved war crimes and crimes against humanity. This included intentionally targeting civilians (often indigenous or racialized populations), disproportionate attacks, and torture, cruel, inhuman and degrading treatment or punishment were all common realities. Businesses, including foreign investors, often sought or benefitted from the displacements and titles were claimed or forcefully transferred. Courts serving the interests of those in power sometimes signed off on land transfers even if they were obtained unlawfully.

In response, Colombia adopted its Victims’ Law, which allows for displaced persons to reclaim their land. Documentation over decades indicates where and when such forced displacements were particularly harmful and the pattern of conduct that surrounded these displacements. These factors now inform rights and obligations under the Victims’ Law. A victim can meet the initial burden of proof for a claim of property restitution by establishing that they were displaced in relevant areas and at relevant times, or that the immediate purchaser has been implicated in relevant criminal activities. To retain their ownership rights, a foreign investor sitting on the victim’s land would bear the burden of proving they had engaged in a good faith purchase or that other circumstances justify retention of the property. The inversing of this burden of proof represents a radical change from previous Colombian practice, and one that a foreign investor may not have anticipated twenty years ago when they started an investment. But, given the factual situation in Colombia during the conflict, it is the only means of establishing appropriate accountability and reparations for war crimes and crimes against humanity committed during the conflict.

Colombia is but one example of the radical reform needed: The Swedish company Lundin has been accused of sparking an armed conflict and complicity in the commission of international crimes committed during that armed conflict. In Myanmar, US oil company Chevron continues to fund the military junta despite credible allegations of genocide.

The Syrian government has also taken property from its displaced civilians, in violation of international human rights law, for ‘redevelopment’ purposes.

The list could go on. Armed conflicts in Uganda, DRC, Rwanda, Burundi, Sierra Leone, Liberia, Timor Leste, Indonesia, Afghanistan, Yemen, Palestine, Peru, Guatemala, and Honduras have resulted in disturbing allegations of corporate involvement in serious and grave violations of human rights, war crimes, and/or crimes against humanity.

Transitional justice and the establishment of a durable peace requires righting the wrongs of the past and reforming the systems that allowed that abuses to emerge. Reforming the economy, environmental protections, and human rights provisions are a part of that effort.

No Means of Reconciliation

The radical reform required for sustainable peace conflicts directly with the demands that states provide regulatory stability to foreign investors. (For that matter, democracy more generally conflicts with the demands of regulatory stability. Democracy is chaotic and rightly subjected to the whims of a population.) For states emerging from conflict to peace, there will be—there needs to be—a (sometimes significant) period of adjustment and chaos before regulatory stability can be expected. There needs to be room for trial and error and for some growth as they learn what works in their reality.

Terminating an IIA may not terminate disputes arising from the inherent because they often have ‘sunset clauses’ that allow investors to rely on an IIA for years after its termination. Similarly, states may not be able to rely on the international legal defence of ‘necessity’ when their transitional justice measures harm foreign investors. We know from Argentina’s experience with its financial crisis that some investment arbitration panels—the bodies who usually adjudicate disputes under IIAs—will refuse a defence of necessity if (1) the state has been involved in the underlying conduct that resulted in the need for the defence of necessity; or (2) when there is any other alternative approach that the state could have taken, even if it is less desirable from a human rights perspective. These are formal requirements for the defence under international law that a state emerging from conflict cannot meet. A state who is involved in human rights or international criminal law violations will always run afoul of the former requirement, even if they are attempting to remedy those violations. A state that has more than one regulatory option before it—meaning any state trying to reform its past regulatory approaches—will always run afoul of the latter requirement.

There is no real means of reconciling the irreconcilable demands of transitional justice and the fair and equitable treatment provision. The closest I can offer is that states could include clauses that exempt from the fair and equitable treatment provision any impacts from any transitional justice measures. This is unlikely to be successful; any attempt to draft better provisions is subject to the sympathetic interpretation and understanding of arbitrators who are subject to no real accountability.  States that value sustainable peace and support transitional justice need to stop using investor-state dispute settlement processes so that the decisions about the balance to be struct in a process of transitional justice is not determined by three arbitrators partly appointed by a corporation with little to no accountability for the pain they inflict on the communities and states at issue.

Tara Van Ho, JD, PhD, is a Lecturer in the University of Essex School of Law and Human Rights Centre, a co-Director of the Essex Business and Human Rights Project, a co-President of the Global Business and Human Rights Scholars Association, and a member of the IEL Collective steering group. She tweets on international economic law and business and human rights @TaraVanHo

This post is part of the Business and Human Rights Journal (BHRJ) Symposium on Business, Human Rights and Conflict-Affected Areas. For more on this topic from the BHRJ, click here.