The United Nations, through the auspices of the Global Compact Office, the UN Principles for Responsible Investment Initiative and an ad hoc group of experts and academics, has recently released a new paper entitled Guidance on Responsible Business in Conflict-Affected and High-risk Areas: A Resource for Companies and Investors (the "Guidelines"). The new Guidelines provide a checklist of issues as well as recommendations which internationally operating firms are urged to take into consideration when engaging in business activities or investing in high risk locations. These principles do not constitute a legal document per se, however, the Guidelines do contain a number of suggested practices and principles which can impact upon the potential liability of firms working in volatile regions. This short entry will summarize some of the ramifications for legal risk management which the Guidelines may have.

 Preventative Legal Standards

 The increasing acceptance of a duty of corporate social responsibility and the growing number of ways in which corporations may incur civil liability for violations of human rights (eg. the U.S. Alien Torts Act) anti-corruption laws and other standards (eg. environmental ) as well as possible international criminal sanctions, have contributed to the development of principles similar to those found in the Guidelines. Implementing systems of corporate reporting and control based upon the Guidelines will help companies defend against allegations of misconduct which can lead to liability for punitive or compensatory damages. From a preventative counseling standpoint, legal advisors should consider the role which the Guidelines can play in developing internal reporting and compliance programs.

 The Structure of the Guidelines

 The Guidelines were developed as a means of implementing the UN Global Impact's ten principles, a list of overarching core values covering the areas of international human rights, environment, labor standards and anti-corruption laws. The Guidelines themselves are divided into four key categories reflecting various aspects of business operations, including 1) core business, 2) government relations, 3) local stakeholder engagement, and 4) strategic social investment.  The Guidelines are a mix of suggested communication strategies, modalities for local community involvement as well as legal considerations. Summarized below are some of the key legal points raised within the Guidelines in relation to core business operations.

 Legal Considerations Relating to Core Business Activities Conducted in Conflict Zones

 A "core business" is understood under the Guidelines to mean "activities aimed principally at generating profits." The following legal considerations concerning the operation of a core business are raised by the Guidelines:

1.   A key consideration for companies doing business in conflict areas is ensuring that their activities do not contribute to societal instability. The Guidelines strongly suggest that firms involved in projects within conflict zones undertake an initial due diligence which incorporates, inter alia, the principles found in the UN Framework for Business and Human Rights. A periodic review of the initial due diligence report should be regularly performed.

2. A difficulty often encountered when doing business in a conflict zone is the lack of a strong legal framework. The domestic legal system may be subject to undue influence by one or more parties involved in the conflict, or may not reflect the fundamental norms of international law. The Guidelines make it clear that contractors participating in such a jurisdiction should develop policies which comply with fundamental human rights law and other international legal obligations, irrespective of whether the local laws impose a lower standard than international norms.

3. Many contractors and investors in conflict zones will undertake private security for their operations. The Guidelines urge contractors to a) perform a due diligence screening of local security firms for any record of corruption and/or human rights abuses, b) include those best practices necessary for preventing human rights abuses and corruption into their commercial agreements, and c) develop a mandatory code of ethics as part of the commercial terms of any agreement.

4. The procurement of local services and supplies can lead to the inadvertent funding or rendering of assistance to combatants and other interested parties involved in a conflict. Contractors are advised under the Guidelines to perform a mapping exercise in order to better understand the origins of the goods and services they are receiving, and to investigate not only the links of suppliers but also sub-tier suppliers to parties involved in combat operations.

Implementation

From a commercial law standpoint what can be done to implement the Guidelines? Any given situation is different, however, the guidelines have been prepared with business practice in mind, therefore well considered contract clauses can help reduce the risk that a business relationship may fall afoul of the principles outlined in the Guidelines. Here are three points which parties involved in such contracting should consider:

 1. termination clauses which allow for an agreement to be suspended upon the discovery of prima facie evidence of corruption or the rendering of aid and assistance to combatants (such as in cases of smuggling)  in connection with services rendered for a project in a conflict zone may be useful.  Such clauses allow for legal certainty in terms of both the consequence and rights of the parties should these issues arise;

 2. clauses conveying "audit rights" within a contract with local partners will allow foreign contractors to perform periodic due diligence reviews to ensure compliance with international obligations. Audit rights will often require a local partner to make available their records for inspection and certain key personnel for interviewing;

 3. dispute resolution clauses which refer contract disputes to local courts may be inadequate in commercial contracts concerning projects in countries subject to civil strife. Not only is the legal framework of states who endure internal armed conflict often poorly suited to deal with complex commercial disputes, but the judiciary itself may also be subject to political influence. International commercial arbitration is an acceptable alternative in many instances, as it can provide for neutral and competent adjudication of a dispute.

 For more on the UN Guidelines, you can visit the following website.