HARRIS GLECKMAN, Ph.D.

[Spring 2008, Volume IX, Issue 1]

Over the past forty years, natural resource exports have increasingly helped finance and sustain bloody conflicts in countries such as the Democratic Republic of Congo, Angola, Sierra Leone, and Cambodia. This has cost millions of lives and is wreaking havoc on development. Natural resource wealth, which should improve the lives of the world’s poorest people, has become a resource curse and a source of civil unrest. The export of natural resources from conflict zones can provide significant illicit resources to purchase weapons, to enhance private fortunes, and to provide an economic motive to perpetuate armed conflict.

The common point of departure is that in pre-conflict, conflict, and immediate post-conflict areas, there is no effective state. Without a functioning state, there are no pre-conditions for sound business activity.  There is no office for corporate registration, no foundation for legitimate contracts for property rental or natural resources extraction, no operative social or environmental laws or regulations, no basis for legitimate state tax collection and no peaceful method of contract dispute resolution.  Without a clear set of enforceable business rules, high-value transactions are very likely to be carried out in an illegal, illicit, or uncertain market. During and before a conflict, these transactions provide both financial resources to arm and re-arm combatants as well as create an incentive to maintain a conflict for short-term financial benefits derived from the grey and black markets.  The elephant-in-the-room is that this creates a significant political and legal vacuum. Inside the territory there is no effective state to regulate business practices and inside the international market there is no governing business rule of law. The vacuum provides a black hole for any range of commercial transactions.

The various solutions that have been proposed to deal  with this issue have to date cumulatively failed to significantly obstruct the illicit flow of war-related natural resources exports and the objectionable flow of arms and wealth back to conflict areas.  It is now worth examining methods by importing and transit countries that might be more effective in the long run. Solutions in receiving countries might be more effective because there is a functioning state and administrative system to block and seize the illicitly exported war assets. Were combined OECD countries to deter just 40% of the exports it would be significantly reduce black and grey market transactions and the motivation for them.

Four types of public and private policy tools could be used importing and transit countries, and firms, to prevent the transformation of illicit war-based exports into apparently legitimate business assets.

Customs seizures

States can use customs services to block the importation of illicit or illegal goods and confiscate assets whose provenance is likely to have been illegitimate seizure in a war zone. For a given shipment of goods, states can be direct actors in challenging the importation by instructing their customs officers to act under a new set of rules. These instructions would need to be based on a modification of WTO rules of origin that could permit custom authorities to have different procedures for the importation of goods from zones of conflicts. This modification, which would require a WTO waiver, would need to define in a neutral manner those areas which were in a state of conflict, probably by invocating pre-existing decisions of the Security Council, the European Community, or a foreign ministry.

Criminalization

A state can complement customs blocking by using its criminal justice system to apprehend the importers and their goods once they have entered national territory.  In principle, appropriate authorities could use the facilities of Interpol to track and capture criminal assets and then jail or fine the perpetrators of the crime of selling stolen war-related natural resources. This approach would probably take the form of an international treaty, perhaps similar in character to the new anti-corruption agreement. It is also possible for individual countries to set conditions in their discretionary law to permit a declaration by a senior government official or the Security Council that declares that imports from a specific war zone should be considered criminal goods. Such unilateral action by a state would most likely also require an explicit waiver from the WTO.

This criminalization option is quite difficult because the underlying action is not really a crime in the conflict zone. Without an effectively functioning state in the war zone, there is often no clear law to violate, no one to issue indictment, no court to hear evidence, and no judge and jury to convict. Without a conviction, there is no recognized international arrest procedure or seizure warrant. In all these cases, the importing and transit state will need to make a series of prosecution decisions that will inevitably be driven by wider domestic foreign policy concerns.

Business civil laws on contested assets

Another option, which is being developed as a new project under the auspices of UNCTAD and UNU, is to employ civil business law systems and corporate social responsibility practices outside the zone of conflict. This approach focuses on using the court and administrative systems of the importing and transit countries (the places where the natural resources are turned into fungible commodities and cash) to de-legitimize the illicit acquisition of the natural resource in the conflict zones. This does not require the war-related party to accept to the binding authority of an arbitration panel; it does not depend on the extreme level of violence overcoming the economic self-interest of individual firms; it does not require the political intervention by a minister of justice to start a criminal proceeding. It does have the potential to work in concert with any state-based certification system that is a second-generation Kimberly process, and it does have the potential to engage civil society organizations in the exporting and importing countries in joint activities using existing business rules of law. One clear limitation is that it is impossible to track most export ships with cargo from war-zones.

Voluntary business sector undertakings

A market-based option is the introduction of voluntary corporate social responsibility standards for trade, manufacture, license, export, and service agreements for a given commodity in a given conflict area. Some groups of firms have voluntarily taken steps to avoid or to minimize dealing with products from countries with extreme human rights and violence histories. Such a declaration would be a reasonable extension of the use of conflict assessment tools developed by International Alert.  A generic voluntary CSR standard for war-zones might open some new doors for industrial trade associations. Yet it is quite clear that only extreme depravations and very high levels of violence can provide the economic motivation for self-declared systems from firms or associations of firms.

A range of international legal regimes and programmes already exist where the administrative and court systems in importing and transiting countries are used to seize illicit, illegal, and otherwise not appropriately owned assets. Perhaps the oldest is the agreement regarding the trade of endangered species and fauna crossing international borders under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES). CITES subjects international trade in specimens of selected species to certain controls of movement through the use of licensing by responsible Management Authorities, and Scientific Authorities to advise on the effects of trade on the status of the species.  Today, it accords varying degrees of protection to more than 30,000 species of animals and plants.

A second ‘older’ scheme involves the return of antiquities ‘stolen’ under prior periods of colonialism and imperialism.  Developing countries, frequently through their museums and supported by their consulates in the ‘host’ country, are now pursuing ‘looted’ items based on the argument that they were and remain a part of their cultural history.1

A ‘new’ scheme is the recent assertion by the G8 that intellectual property rights can include trade restrictions against the exports of products, even from those countries that are not members of the international intellectual property regime. The existing regime, particularly the WIPO and the Paris Conventions require, as most conventions do, that national states sign and approve the conventions for them to be bound by the terms of the convention.  The dilemma for those governments and private firms is that some countries accept knock off-goods, locally produced ‘patented’ medicines, and use of ‘registered’ trade names by local companies and these countries are not inclined to sign on to the existing patent protection system. In a manner that is not too dissimilar to the lack of legal definitions in war zones over products, some firms are seeking to criminalize products produced without royalties through an international agreement without the involved of the producing State.  This initiative has been supported in the most recent 2007 G8 statement from Germany: “We recognize the need for continued study by national experts of the possibilities of strengthening the international legal framework pertaining to intellectual property rights enforcement.”

A fourth arena is the set of already in place trade and financing obstacles to the movement of assets associated with drugs, terrorism and corruption. In the U.S. “War on Drugs,” law enforcement agencies often seize and retain the assets of those arrested. Confiscated property can include houses, cars and money. In the ‘war on terror’, banks and financial institutions around the world were asked to freeze or block terrorist ability to access funds in foreign accounts. The recent G8 statement in Berlin this year is again relevant. “Denying safe havens through our national laws to individuals found guilty of corruption and the return of illicitly-acquired assets with high priority and developing additional measures to prevent such individuals from gaining access to the fruits of their criminal activities in our financial systems” (bold added for emphasis).

Another area that could provide a model is the current effort to stop the involuntary movement of humans. Legally speaking, human trafficking faces many of the same obstacles as deterring illicitly exported natural resources, including corruption, underfinanced programs and a low priority for law enforcement. Strategic implementation of counter-trafficking policies and programs can impair the conditions that permit traffickers to thrive. Innovative, systemic strategies are being developed so that trafficking will become an unattractive opportunity for criminal groups.

A demand-focused strategy reduces the overall size of the industry while decreasing profits for traffickers. In a transnational context, focusing on destination countries is, along with strategies like increased awareness of the problem, can be more effective than exclusively source-country initiatives.

These five existing schemes all share an international consensus that the normal rules of the market should be set aside for broader public goals. These schemes can be legal precedents for a new legal and administrative systems that block the transformation of illicitly seized natural resources in a conflict zone into legitimate business assets in the importing country. At minimum, the legal vacuum needs to be closed. The challenge is to develop a system that allows current experience in using political, economic, and social tools in other arena to support the efforts to reduce violence in war zones.

While this may seem rather straightforward, there are challenging legal, businesses, procedural and political issues to resolve before it can be put in place.  These include the administrative procedures for granting standing to bring an action before a civil court on behalf of those in a third country at war; an acceptable trade definition of natural- resource-exports-from-conflict-zones; rules of evidence and the change in the burden of proof in criminal proceedings, and rules for administrating the trust to hold the recovered assets or to re-direct them to peacekeeping in the region.  It may well be appropriate that these items are clarified in an self-standing international convention or a decision of the  Security Council.

There is clearly a shift in social, corporate and governmental awareness about natural resources and war that provides opportunities to address these issues in a new manner. In addition to an awakened public consciousness has been awakened because of the recent movie, “Blood Diamond”, we have noted a new governmental political willingness to use trade and asset-related policy tools for broader political objectives. Lastly, the economic and social development agencies of the UN system are starting to examine how the practical aspects of business trade and investment can be used for make a significant contributions to peacemaking field.

Dr. Harris Gleckman is the principal and co-founder of Benchmark Environmental Consulting, a firm that specializes in environmental problems through a practical business and technical approach. Over the past twenty five years, he has worked extensively with the United Nations, serving as the New York Office Chief for the UN Conference on Trade and Development (2005,2005) and as Chief of the Environmental Unit at the UN Centre on Transnational Corporations (1989-1993), in an effort to strengthen equity, transparency and accountability in institutions of global governance.