LIBERTY SHARED: CORPORATE ACCOUNTABILITY AND

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LIBERTY SHARED:CORPORATEACCOUNTABILITY ANDLIABILITYIN THEMALAYSIAN PALM OILINDUSTRY2019

2PREFACEArchana KotechaDuncan JepsonAsia Region Director and Head of LegalLiberty SharedManaging DirectorLiberty SharedPlam Oil and Societyactions against FGV Holdings Berhad (Felda).6 But hugeand fundamental problems persist and the RSPO’s effortshave not raised the standard of practices, even in thelarge companies, to the levels that convince concernedconsumers, civil society, buyers7 and investors8 that theproblems have been resolved.It could be said that most consumers know little aboutpalm oil or its use, even though it is contained in a verywide variety of products ever present in most householdsacross the world.1 Many people are perhaps only aware ofpalm oil and the palm oil industry because of the ongoingpublic discourse and civil society attention on the social2issues, (e.g. the recent complaint against Felda3, one of thelargest palm oil production companies, for awful labourpractices and worker conditions) and the long standingenvironmental issues,4 such as deforestation.To a degree, the palm oil industry does openly accept thatthe social and environmental issues exist and it recognisesthat broader society increasingly wants these addressedbecause over the years it has responded with variousinitiatives. The most important demonstration of theindustry’s efforts to address the social and environmentalissues is the establishment of the Roundtable onSustainable Palm Oil5 (RSPO) and the willingness ofcompanies to join the RSPO. The RSPO is not a regulatorand has no legal powers, however it does have mechanismsfor certification, complaints, dispute settlement andinvestigation of its members.At the end of November 2018, the RSPO demonstrated,as it has done on many occasions, that it is prepared touse its resources when the complaints panel brought1This lack of resolution is largely driven by the failure ofthe industry and those concerned by the industry’s impactto agree on the nature and extent of the problems. Thosecommitted to examining the industry are motivated bydetails provided by many victims and observers whichdescribe the nature of the social and environmental issuesas often rooted in criminal and unlawful underlyingactivities such as bribery, organised crime, physical abuseand financial crimes. On the other hand, the industrycontinues to treat problems as ethical issues and socialresponsibility, but after several decades of promisesand initiatives, the problems remain the same, only at agreater magnitude. Efforts by the industry to change itsoperating environment to eliminate organised criminalityrecruiting labour, debt arrangements imposed on workerson plantations, injuries caused by pesticides and continuingincidence of child labour, are unconvincing as theystill focus largely on restitution rather than prevention.Disclosure is weak as there is little disclosure aboutrelationships with recruitment agents, payments and thearrangements.WWF, Which Everyday Products Contain Palm Oil?, available at -products-contain-palm-oil (accessed23 Jan. 2019).2 Amnesty International, Palm Oil: Global brands profiting from child and forced labour, 30 Nov. 2016, available at d-labour/ (accessed 23 Jan. 2019).3 Rainforest Action Network, Palm Oil Giant FELDA Sanctioned Over Forced Labor, Human Trafficking, 29 Nov. 2018, available at ng/ (accessed 23 Jan. 2019).4 EIA, Time to get tough on environmental crime: legality in palm oil is essential, 17 Sep. 2018, available at nmental-crime-legality-palm-oil-essential/ (accessed 23 Jan. 2019).5 See RSPO, available at https://rspo.org/ (accessed 23 Jan. 2019).6 Quartz, A palm oil giant has been sanctioned over forced labor and trafficking workers, 30 Nov. 2018, available at ned-over-worker-trafficking-allegations/ (accessed 23 Jan. 2019).7 Unilever, Transforming the palm oil industry, available at orming-the-palm-oil-industry/ (accessed 23 Jan. 2019).8 Sustainalytics, Palm Oil ’s Evolving ESG Risk Profile: Can Issuers Cope?, 29 Mar. 2017, available at mpanies-esg-risk/ (accessed 23 Jan. 2019).

3Crime, unlawfulness, palm oil and MalaysiaThat the operating environment of an industry shouldbe so entwined with criminal and unlawful activity is oflittle surprise, and it is not unique to the palm oil industry.As discussed above there is work to combat this, it is justcurrently insufficient. The complaint against Felda andsubsequent letter to Felda from the RSPO at the end oflast year draws attention to problems that are repeatedlycommunicated to civil society by victims and migrantsproviding their labour to the industry.“(i) FGV had by written agreements outsourced itsforeign workers to FGV’s contractors in violation ofMalaysian laws and this may be considered as actsdone in furtherance of trafficking in persons. This is aviolation of RSPO P & C 2.1 and 6.12 (details of whichare further elaborated in the table below) that must beaddressed by FGV as a matter of priority.(ii) FGV’s recruitment and employment processesneed further improvements as indicators of forcedlabour are present and cumulatively, points to a breachof RSPO P & C 6.12 including issues relating to contractsubstitution, freedom to contract and resign, passportretention and workers’ freedom of movement andworkers’ working and living conditions (details ofwhich are further elaborated in the table below).”It continues.“Reference should also be made to the ILO Indicators ofForced Labour, which are as follows: Abuse of vulnerability; Deception; Restriction of movement; Isolation; Violence; Intimidation and threats; Retention of identity documents; Withholding of wages; Debt bondage; Abusive working and living conditions; and Excessive overtime.”The list above does not focus on the harmful activities thatcreate and sustain the ongoing supply of labour, of whichthe injury to the victim is a consequence. This systemsupplying labour, or at least makes labour available, oftenbegins in a local village or town in another country withthe deceit of an individual and then relies on organisedcriminal and unlawful arrangements to move people andmoney across borders until groups of workers are receivedand then located on a plantation. At present, palm oilbusinesses and governments have not implemented theeffective governance, due diligence, monitoring to preventthe use of this unlawful and criminal system of supplylabour or transform it.Unless there is greater investment in business internalcontrols, governance and risk management concerning theoutsourcing of labour and disclosure of the practices andarrangements so verification and external monitoring canbe conducted then the businesses will continually have tocontend with these issues. Global society, which includesbuyers, product makers and investors, are not going tobe convinced that there is control over these issues andthe risk of abuse and active involvement in criminal andunlawful arrangements until there has been investment inlawful labour supply systems.Why ethics and corporate responsibility areinadequate?The current and continuing reliance of many workers ona system of labour supply that is founded on transnationalcriminal and unlawful arrangements is the clearestargument against the capacity of ethical business initiativesand corporate social responsibility to solve these issues.Several decades have passed and the unlawful and criminalarrangements and structures are perhaps much moreinstitutionalised9 and structural than before. Furthermore,it is likely businesses have adjusted and priced in theethical and social responsibility ‘risk’ and cost to theirvalue propositions and have successfully arbitraged the riskbetween ethical and criminal.The very visible continuation of the use of forced labouracross the industry, as the Felda matter demonstrates,particularly the use of undocumented migrant workers,and the involvement with unlawful and criminal recruitersto provide is certainly proof enough that ethical businessinitiatives and corporate social responsibility efforts are notsufficiently persuasive nor effective. Ethical responsibilityneeds to sit in a framework of clear criminal, civil andregulatory liability so that arguments of business ethics area refinement to an underlying legal position, they cannotbe the primary default position for corporate governance9 UNODC, Transnational Organized Crime in East Asia and the Pacific: A Threat Assessment (April 2013), available at fic.html (accessed 23 Jan. 2019).

4and management. It did not work in the banking andfinance industry and there is little reason to believe it willwork in non-financial industries.As Supt. P.R Gunarajan A/L Ramayal of the MalaysianPolice indicates in the July 2013 paper “Organised Crime:Governments Initiatives, Laws and Investigation of HumanTrafficking In Person and Smuggling of Migrants inMalaysia”10, the problem is at a fundamental level involvingvarious elements of criminality and unlawfulness such assmuggling, trafficking, corruption and networks of organisedcrime. It is a criminal issue, not simply an ethical one.The harm and injury caused from this criminal andunlawful system of labour supply, which touches uponincreasing areas of the criminal, civil and regulatoryframeworks, give rise to direct risk and liability for theplantations and producer businesses. Similarly so, forthose stakeholders providing supporting services to theseindustry participants such as banks and auditors. Indirectly,laws and regulations with local and extra-territorialeffect, give rise to risk and liability to those benefiting andprofiting from the products such as buyers and investors.There must be greater liability and greater effort to holdliable and accountable those who deliberately continueto seek to profit from exploitative labour practices andfail to develop and implement robust risk management,governance and management for prevention andprotection.Accountability of corporations and theirstakeholdersTo the question of accountability and liability, one is leftasking – if not the corporations and their stakeholders thenwhom?No doubt, to sustain and improve the rule of law, if it is sodesirous, it is a government’s responsibility to apply moreresources to rooting out corruption, as is arresting andconvicting those found guilty of relevant offences. And it isa government’s function to propose legislation concerninganti-trafficking, modern slavery and the underlying issues.It is clear who benefits from the abused labour and whoowns and perpetuates the business model and so thosewho are accountable. In the long term, it is better for theworkers, investors, service providers and the economics ofthe industry if these parties are also held accountable andliable, allowing businesses with good practices to thrive andbe rewarded appropriately.Compliance and adherence with all laws and regulationsis inherent in the capitalist model and so where it isfailing then risk increases and business valuations must beadjusted. Society is increasing past the point of consideringprofiting from abuse of labour simply an ethical issuebut one that should be punished and penalised. Newlegislation, consumer action, investor attitudes and civilsociety activity all demonstrate this changing perspective.At first blush, the controllers of a company and thecompany itself owning the businesses using labour inthis unlawful and criminal manner are accountable, thequestion is the degree of liability.10 Supt.P.R Gunarajan A/L Ramayal, Organised Crime: Governments Initiatives, Laws and Investigation of Human Trafficking In Person and Smugglingof Migrants in Malaysia, available at ing.pdf(accessed 23 Jan. 2019).

5About this documentThis document sets out the current underlying frameworkof law and governance that impose greater accountabilityand liability on businesses participating in the palm oilindustry, those indirectly benefiting and profiting andthose providing supporting services as the industry and itsparticipants continue to rely, partly or wholly, on a criminaland unlawful system of labour supply.AcknowledgementsThis publication is made possible by the generous supportof the American people through the United States Agencyfor International Development (USAID) as part of theUSAID Asia Counter Trafficking in Persons program. Thecontents are the responsibility of Liberty Shared and do notnecessarily reflect the views of USAID or the United StatesGovernment.Disclaimer:The report contains our finding based on a review of publiclyavailable sources in English (unless otherwise indicated).Liberty Shared does not accept responsibility for the accuracyof foreign laws, or the accuracy of the translations. Usersshould at all times consult the full text of the relevant laws inthe original language as well as seeking advice from localcounsel qualified in the relevant domestic jurisdictions. Thisreport does not constitute legal advice under any circumstance.

6RECOMMENDATIONS1For policymakers:2For companies:A more coordinated approach to legal and regulatory policy.Policymakers and regulators are hamstrung by the limitsof their scope– in the case of lawmakers, there is a limitto jurisdiction and the scope of extra-territorial laws (theFrench Corporate Duty of Vigilance Law applies only toFrench companies; the UK and Austra