'Trade Deals' & Corporate Sovereignty: How Convicted Executives Escape Punishment

Legal Issues

from the the-shadow-court-system dept

Okay, we’ve been trying to raise the alarm bells about “ISDS” — “Investor State Dispute Settlement” — systems for many, many years, even helping to push the term “corporate sovereignty” to help describe it, since people’s brains seem to turn to mush when you spell out ISDS. We’ve pointed out over and over again the problems of such a system where it basically allows companies to sue countries for passing regulations they don’t like. We’ve noted over and over and over again how problematic this is… and yet people still tell us it’s no big deal and the system is fair and “necessary” to keep countries from doing things like simply nationalizing an industry that foreign companies build up. Of course, that doesn’t happen that often. ISDS corporate sovereignty cases are happening quite frequently, over subjects like Eli Lilly being upset that Canada rejected some patents and Philip Morris suing lots of countries for passing anti-smoking health regulations.

Thankfully, Chris Hamby, an excellent investigative reporter with BuzzFeed*, has done a massive detailed investigative report into the ISDS corporate sovereignty system and what a complete disaster it is. Much of this was assumed before, but many of the ISDS cases are done in complete secrecy, so there are few details out there. Hamby’s reporting, though, will hopefully change that.

You know how we’ve written about the whole “high court, low court” thing where those in power and with connections get treated differently in court than those without? Well, consider the ISDS corporate sovereignty system an international version of the high court. You can only access it if you’re a company, but it’s also used, repeatedly, to protect executives who have been convicted of crimes for actions by companies. In just the first report (apparently more is coming), Hamby reveals:

A Dubai real estate mogul and former business partner of Donald Trump was sentenced to prison for collaborating on a deal that would swindle the Egyptian people out of millions of dollars ? but then he turned to ISDS and got his prison sentence wiped away.

In El Salvador, a court found that a factory had poisoned a village ? including dozens of children ? with lead, failing for years to take government-ordered steps to prevent the toxic metal from seeping out. But the factory owners? lawyers used ISDS to help the company dodge a criminal conviction and the responsibility for cleaning up the area and providing needed medical care.

Two financiers convicted of embezzling more than $300 million from an Indonesian bank used an ISDS finding to fend off Interpol, shield their assets, and effectively nullify their punishment.

The report notes that lawyers have increasingly looked to ISDS not as a system of last resort, as it was originally intended, but as a creative way to pad their billing help companies get all sorts of advantages over governments.

Driving this expansion are the lawyers themselves. They have devised new and creative ways to deploy ISDS, and in the process bill millions to both the businesses and the governments they represent. At posh locales around the globe, members of The Club meet to swap strategies and drum up potential clients, some of which are household names, such as ExxonMobil or Eli Lilly, but many more of which are much lower profile. In specialty publications, the lawyers suggest novel ways to use ISDS as leverage against governments. It?s a sort of sophisticated, international version of the plaintiff?s attorney TV ad or billboard: Has your business been harmed by an increase in mining royalties in Mali? Our experienced team of lawyers may be able to help.

A few of their ideas: Sue Libya for failing to protect an oil facility during a civil war. Sue Spain for reducing solar energy incentives as a severe recession forced the government to make budget cuts. Sue India for allowing a generic drug company to make a cheaper version of a cancer drug.

There are even lawyers who basically just scour the world for any regulatory change, and then go hunting for companies who can bring ISDS corporate sovereignty cases over those regulatory changes. In other words, the cart is not just in front of the horse here, it’s dragging it down the hill.

And don’t buy the claim that the “newer” versions of ISDS found in agreements like the TPP and the TTIP are somehow better and have fixed the problems of the old ones. The BuzzFeed report notes that there are massive loopholes, and lawyers are already preparing their clients on how to exploit them, should the TPP get ratified. As for the claim that ISDS must be fine because the US has never lost a case — according to the report, that’s basically mostly been luck, and it’s unlikely to hold up much longer.

But, really, it’s the escaping criminal charges stuff that’s eye-opening in this first report:

Reviewing publicly available information for about 300 claims filed during the past five years, BuzzFeed News found more than 35 cases in which the company or executive seeking protection in ISDS was accused of criminal activity, including money laundering, embezzlement, stock manipulation, bribery, war profiteering, and fraud.

Among them: a bank in Cyprus that the US government accused of financing terrorism and organized crime, an oil company executive accused of embezzling millions from the impoverished African nation of Burundi, and the Russian oligarch known as ?the Kremlin?s banker.?

Some are at the center of notorious scandals, from the billionaire accused of orchestrating a massive Ponzi scheme in Mauritius to multiple telecommunications tycoons charged in the ever-widening ?2G scam? in India, which made it into Time magazine?s top 10 abuses of power, alongside Watergate. The companies or executives involved in these cases either denied wrongdoing or did not respond to requests for comment.

Most of the 35-plus cases are still ongoing. But in at least eight of the cases, bringing an ISDS claim got results for the accused wrongdoers, including a multimillion-dollar award, a dropped criminal investigation, and dropped criminal charges. In another, the tribunal has directed the government to halt a criminal case while the arbitration is pending.

The report then goes on to detail some specific case studies of people accused of criminal activity using corporate sovereignty tribunals to effectively get away with it.

There’s also evidence that all this game playing with corporate sovereignty involves lawyers effectively doing “treaty shopping” to figure out where to set up companies so they can sue specific countries for money. Really.

A key service offered by the ISDS legal industry goes by various euphemisms: ?corporate structuring,? ?re-domiciling,? ?nationality planning.? Critics have a different term: ?treaty shopping.? It amounts to helping businesses figure out which countries? treaties afford the most leeway for bringing ISDS claims, then setting up a holding company there ? sometimes little more than some space in an office building ? from which to launch attacks.

So it is that a private equity firm based in Texas can fly the flags of Belgium and Luxembourg, enabling it to sue South Korea, which convicted one of its executives of stock manipulation. The private equity firm declined to comment.

That means that even though domestic people aren’t supposed to be able to use ISDS against their own governments, it still can happen:

ISDS was designed to protect foreign investors, not people suing their own government. But members of the once-prominent Turkish Uzan family ? accused of perpetrating a fraud worth billions and derided at one point by a US federal judge as ?business imperialists of the worst kind? ? found a way to sue their native land through a variety of companies primarily under their control in Cyprus, Poland, and the Netherlands. (Turkey won each case, but at a cost of tens of millions in legal fees.) The family?s telecommunications company, however, remained Turkish so it could bring a claim against Kazakhstan, with which Turkey has a treaty ? and win a $125 million award.

And, yes, lawyers specializing in this kind of money making effort are also the ones (shocker!) using the infamous revolving door at the US Trade Representative’s office to cash in:

Daniel M. Price negotiated the section of NAFTA containing ISDS when he was a lawyer at the Office of the US Trade Representative. He later served as a top international trade official in the George W. Bush White House.

In between these government stints, he worked as a private lawyer helping clients in ISDS cases. Twice he used the treaty he himself had helped negotiate to help US-based businesses pursue claims against Mexico.

He founded and chaired the unit handling ISDS claims at Sidley Austin, a leading global law firm. Today, he promotes his services as an arbitrator and, along with a powerhouse team that includes other former government lawyers, sells international expertise on ISDS and related matters.

Nice work, if you can get it.

Another key point in the report is that the talking point from ISDS defenders that governments win more ISDS cases than companies is basically bullshit:

To prove that ISDS is not biased in favor of businesses, they point to the outcomes of known cases: Governments have won about 35% of the time, while business interests have won only about 25%.

But that statistic is anything but straightforward. It pertains only to the outcomes of known cases; ISDS is so secretive no one even knows how many additional cases there have been. Also secret are most of the settlements. Roughly a quarter of the known cases were settled, but the terms are almost never disclosed.

Moreover, subtract the cases that arbitrators tossed out because they didn?t have jurisdiction to hear the claim, and that win?loss balance flips: Business interests have won 60% of the time. Even then, cases recorded as losses for the corporation can actually be wins. In one case, an executive failed to garner a monetary judgment but obtained a finding that helped him wipe away a criminal punishment.

There’s much, much, much more in this story, and it’s just the first in a series. Hopefully things like this will start to wake people up to just how incredibly bad ISDS corporate sovereignty provisions really are. They’re not just some obscure system that involves big companies fighting. They’re becoming an alternative court system for the super powerful and connected — and letting them literally get away with criminal behavior.

* Okay, okay, I know some people still insist that BuzzFeed is just a horrible site full of nothing but junk, but it’s actually got a really great reporting team, that has done some amazing work over the years — it’s just that very few people know about it.

Filed Under: corporate sovereignty, crimes, isds, tpp, ttip