SCOPE AND INTRODUCTION

What forms of governance characterise financial market regulation? This chapter looks mostly at European, particularly Eurozone financial market regulation, with some comparative glances. Bank resolution, prudential regulation and market conduct regulation are discussed. The longest part of the text discusses the new Eurozone ‘mechanisms’ of banking union, with special attention to the European Stability Mechanism (ESM) and to the relationship between this and prudential and conduct regulation. The chapter aims to construct a perspective on the dynamics of governance between these three aspects of financial market regulation.

The European Stability Mechanism (ESM) has a quite specific governance structure, differing from those of prudential and conduct regulation. The ESM is an intergovernmental mechanism outside (but articulated with) the legal framework of the European Union. The ESM was initially set up to offer conditional assistance to sovereign states, however it has been accorded an important role vis-à-vis banks. It is argued here that the ESM is becoming the ‘big brother’ of prudential regulation, with interesting political and legal consequences. For example, the ECB and its Single Supervisory Mechanism must have regard, when supervising banks and assessing their condition, to whatever view might be taken by the Governors of the ESM, who are finance ministers, regarding the availability and applicability of funding for restructuring or orderly winding up of certain banks. For the foreseeable future it is the ESM, not the EU's Single Resolution Mechanism (SRM), which has funds adequate for such purposes.

The chapter starts with a discussion of market conduct regulation, looking first, in an empirical and comparative manner, at US state Attorney Generals, particularly in New York. Locally elected Attorney Generals provide a contrast with appointed market conduct regulators at national level in both the EU and US. The activism of appointees has been lower, historically. Some aspects of cross-jurisdictional conduct regulation by appointee-led agencies are briefly and critically discussed.

Overall, the new architecture of financial market regulation – with its feet variously in EU and national administrative and criminal legislation, in ‘independent’ prudential bank regulation, and in intergovernmental decision making – amounts to a novel and complex governance design.

INTRODUCTION

Examination of the ILC's Draft Articles on State Responsibility reveals that sole reliance on these provisions is not an effective tool for holding States responsible for the illegal activities committed by PMSCs. In determining State responsibility, the central focus of examination is the behavior of certain government officials acting on their own or in cooperation with others. In principle, the State is responsible for the conduct of those individuals, which exercise “its machinery of power and authority”. The purpose of the attribution on the basis of criteria established by international law is to determine whether a certain conduct, such as the illegal activities performed by individuals, is to be perceived as an act of State. This determination is required due to the fact that the State itself remains responsible for its own acts. The comparison of PMSCs with regular armed forces and the assessment of different types of attribu-tion indicate that the question of attribution of the unlawful conduct of PMSCs is not clear cut. An impression is created that States are less likely to be held responsible for violations of international law committed by private contractors than for crimes committed by their military personnel because the attribution of those violations realized by private actors to States proves to be more problematic. The practice of employing PMSCs by governments seems to indicate that it is not possible to attribute PMSC conduct that falls beyond the scope of State control or is ultra vires to States. The same goes for the attributability of illegal activities of the personnel of private contractors that do not belong to the official State military apparatus or exercise elements of governmental authority while acting off duty.

INTRODUCTION

Generally speaking, PMSCs as non-State actors constantly challenging the main conceptions of the international legal system based on the State monopoly of violence require regulation. In legal and other literature, references are often made to the concept of legal void characterizing the functioning of PMSCs in conflict areas. It is, however, not entirely correct to speak of the absence of legal norms concerning PMSCs and States associated with the practice of their employment and applicable to their operations: the industry of private military and security service provision is certainly regulated, but the extent of this regulation at different levels varies considerably. Given that these corporations operate in a complicated legal labyrinth made up of a variety of international rules and principles, domestic legal instruments, self-regulatory mechanisms, and contractual obligations, attention should be devoted to these different forms of regulation in order to understand the legal framework governing their operations and use by governments in zones of conflict. PMSCs are registered or incorporated as private businesses on the territory of home States and legal rules governing the establishment of private contractors allow them to operate and to carry out certain services. These rules may specify obligations of PMSCs during their operations and clarify the nature of their activities, but do not provide much guidance in determining the scope and circumstances of State responsibility for possible misconduct of employees of these companies constituting breaches of international law. In this regard, a variety of international and transnational legal instruments applicable to PMSC operations and the hiring, host, and home States are crucial.

The current Chapter seeks to briefly elaborate on national legal rules of some countries regarding PMSCs while also addressing international and transnational levels of regulation. In essence, this Chapter will set up the framework for further analysis performed through the lens of State responsibility and will accordingly serve as the basis of considerations made in subsequent Chapters.

INTRODUCTION

Without doubt, in the past two decades, private military and security companies hired by a large number of entities have become important actors in both the international arena and domestic affairs of a large number of States. Many scholars agree that there are signs of a “revolution in military affairs”: nowadays, PMSCs freely operate around the world and take an active part in not merely peace support operations, but also international and non-international armed conflicts. They are frequently employed by States in the situations of armed conflict, by non-State entities participating in hostilities in internal conflicts, by international organizations in the course of conducting peacekeeping missions, and even by private companies paying large amounts of money for their military and security expertise. It is no secret that the concept of PMSCs as private corporations exercising core State functions has been around for longer than 20 years. Nowadays, the industry of private military and security specialists still shows signs of significant development and unprecedented growth. Currently, the world has to deal with many challenges posed by the emergence and proliferation of these companies. There are regulatory issues associated with the PMSC industry, transparency and legitimacy concerns raised against its representatives, problems of individual accountability and State responsibility for the actions of private warriors, who carry weapons, fight wars, and protect persons and assets of legitimate governments and other actors. Before going into the substance of the discussion focusing on the responsibility of States for the illegal conduct of those corporations, some attention should be devoted to the historical developments in the field of the use of force by private persons and entities.

In dit boek staan het concept van “de privatisering van oorlog en veiligheid” en het leerstuk van staatsaansprakelijkheid centraal. Tegenwoordig worden de zogenoemde private militaire en veiligheidsbedrijven - “private military and security companies” of PMSCs - door diverse actoren in conflictgebieden ingezet. Internationale organi-saties, NGO's, multinationals en staten gebruiken deze bedrijven voor het uitvoeren van een breed scala aan taken, zoals het beveiligen van diplomaten en het bewaken van gevangenissen. In de afgelopen jaren bleken PMSCs bij verschillende schen-dingen van internationaal recht - internationaal humanitair recht en mensenrechten - betrokken te zijn. Hierbij zijn nationale rechtssystemen, transnationale rechtsraam-werken en internationaal recht vaak niet in staat gebleken om cruciale aspecten van het functioneren van deze ondernemingen en hun personeel, zoals de controle en toe-zicht over hun operaties en aansprakelijkheid voor hun misdrijven, effectief te regu-leren. Het voornaamste doel van dit promotieonderzoek is na te gaan of het mogelijk is om op grond van internationaal recht staten aansprakelijk te stellen voor de illegale activiteiten van PMSCs en hun werknemers. De onderzoeksvraag die dit onderzoeks-project tracht te beantwoorden, luidt:

In deze studie wordt de kwestie van staatsaansprakelijkheid onderzocht aan de hand van de toerekening van misdragingen van PMSCs en hun werknemers aan staten en een spectrum aan positieve verplichtingen van staten onder internationaal humanitair recht en mensenrechtenrecht. Meer in het bijzonder wordt er ingegaan op de omstan-digheden en de reikwijdte van de toerekening en de toepassing van positieve staats-verplichtingen. De hypothese van het onderzoek is dat staten voor activiteiten van PMSCs en hun personeel aansprakelijk gesteld zouden moeten worden en dat ze in bepaalde gevallen en tot op zekere hoogte daadwerkelijk aansprakelijk kunnen zijn.

INTRODUCTION

As was explored in the previous Chapters, nowadays the phenomenon of privatization of war and security forms the core subject of numerous debates in academic circles, while the whole industry of PMSCs shows clear signs of extensive growth and expansion. Various States and even non-State entities, such as international organizations and corporations, more frequently rely on a wide array of military and security services provided by private companies, challenging international and transnational legal frameworks. It has been established that these companies often seem to operate in practice and de jure in a “legal vacuum”. Their employees potentially can and on many occasions do engage in the commission of international crimes and breach international humanitarian and human rights law without being prosecuted, while hiring States can avoid any form of responsibility by pointing out the absence of formal connections to the actual perpetrators of the crimes. Also, home and host States other than those employing PMSCs are not held responsible and remain at a considerable distance from what happens in the reality of deployment of private contractors by being physically removed from the actual situation on the ground or being unable or unwilling to get involved. Using this strategy of hiring private contractors in conflict-affected zones, States can escape international responsibility not only by successfully bypassing international humanitarian law, but also breaching human rights and fundamental freedoms without consequences.

While there is still a spectrum of unsolved issues and uncertainties to be discovered regarding the responsibility of States for such acts and omissions, the body of contemporary international law is not irrelevant and can be used to incur international responsibility. As was pointed out above, domestic legal orders and transnational pri-vate regulatory frameworks are not able to coherently address instances of misconduct of PMSCs and their employees violating international law. Currently, the focus needs to shift to the responsibilities of States and the role of hiring, host, and home States as entities capable of guaranteeing respect for human rights and international humanitarian law. Although there is no extensive framework on the international responsibility of non-State actors, such as PMSCs and terrorists, customary rules and principles on the responsibility of States have been crystallized into a system that is clearer and more coherent due to the efforts of a number of International Law Commission's Special Rapporteurs.

INTRODUCTION

In Chapter II of this study, PMSCs themselves as corporate entities have been scrutinized. It is, however, important to also examine members of their personnel, whose legal status in armed conflicts appears to be quite ambiguous and controversial from the perspective of the law of armed conflict. The assessment of the legal status from the point of view of international law is a crucial step to be taken in the course of analyzing possible relationships between States and PMSCs, which may influence the determination of State responsibility and its scope for the unlawful actions of PMSCs, and examination of a set of positive obligations of the States arising out of international humanitarian and human rights law. This Chapter will include analysis of the legal status of employees working for PMSCs and carrying out their tasks in the situations of armed conflict, focusing on the legal consequences of that classification under international humanitarian law and its relevance for the application of the doctrine of State responsibility. In this regard, it will consider the participation of PMSCs in both international and non-international armed conflicts.

LEGAL STATUS OF PMSC PERSONNEL AND STATE RESPONSIBILITY

The factual legal status of PMSC personnel is perhaps the area where the greatest concern lies regarding their rights, duties, and immunities on a mission. A number of fundamental questions can be posed with regard to the position of the employees working for PMSCs in conflict areas. What is the legal status of military and security experts as members of the PMSC personnel under international humanitarian law? How does the nature of an armed conflict - international or non-international - affect this legal qualification? Can those individuals be attacked during the hostilities and do adversary powers have to treat them as prisoners of war if captured? Do they enjoy privileges and protection as civilians on the battlefield? There is no straightforward answer to all those questions and it becomes apparent that circumstances under which PMSCs operate require a careful examination from the perspective of the law of armed conflict.

INTRODUCTION

The 1990s set in motion the era of “corporate globalization”, while the end of the Cold War that took place with the fall of the Soviet Union in 1991 led to the emergence of so-called private military and security companies (hereinafter: PMSCs). Currently, these PMSCs are actively hired by a wide spectrum of clients ranging from States to international organizations and multinational corporations and this reliance on private military and security contractors has increased dramatically over the last two decades. They play an undeniably significant global role and are contracted to provide various military and security services in horrific times of war and blessed times of peace. Performing these essential tasks as professionally as possible, private contractors strive to gain more financial profit and compete with other PMSCs on the expanding market of military and security expertise. Many questions with regard to the functioning of these firms and its consequences, however, remain largely unanswered. Who is responsible for the misconduct of PMSCs and their employees in case of human rights violations and breaches of the law of armed conflict and what is the extent of this responsibility? Can States be held responsible for the illegal activities of PMSCs and their personnel and, if they can, under what circumstances? Which States should face international responsibility in this regard and what is the legal basis for this responsibility?

Some might be inclined to argue that international law primarily focuses on the conduct of States and State actors and does not extensively deal with non-State actors, such as PMSCs active in many conflict areas. There is, for instance, no elaborate legal framework governing international responsibility of non-State actors and thus there is a certain deficit of responsibility of private actors operating on the international plane. Therefore, it is frequently asserted that PMSCs operate in “a legal vacuum”, “the grey area of law”, “beyond the law”, and even “in the shadows”.

INTRODUCTION

The State use of private contractors providing military and security services is an increasingly popular practice that has notably found its expression in various areas around the world in the era of globalization. In conflict zones, PMSCs have been deployed to carry out numerous tasks ranging from the provision of training and advice to the interrogation of prisoners and actual participation in hostilities. What has come to light, are several violations of international law, including international humanitarian and human rights law, that have been committed by the personnel of these corporations. These breaches reveal the impotence of not only domestic and transnational legal frameworks, but also international law to deal with the issues of control, oversight, and accountability with respect to PMSCs. The main aim of the present study is to investigate the possibility of application of the State responsibility doctrine to PMSC operations in conflict-affected areas. Having analyzed the phenomenon of privatization of war and security and the possibility of invoking international responsibility of hiring, host, and home States for the unlawful conduct of these legal entities and their employees breaching international law, the main focus of this final Chapter is on providing a summary, drawing some general conclusions, and making final observations with regard to the posed research questions. The main question of the study is:

The investigation concerned the extent and circumstances of attribution of the misconduct of PMSCs and their personnel under the law of State responsibility and the scope and circumstances of the application of positive State duties under international humanitarian and human rights law to the deployment of private contractors in conflict zones.

MISCONDUCT AND MORAL IMPLICATIONS

It has been established that currently States rely heavily on the employment of PMSCs and outsource a large variety of tasks to these non-State entities in times of war and peace.