Alien Tort Claims Act: The Activist's Bazooka


Companies engaged in Greenwashing had better watch out for Terrence Collingsworth of the International Labor Rights Fund in Washington. I recently sat in on a presentation in New York City with one of Collingsworth's associates, and there happens to be a sidebar in the latest of issue of Forbes about the ILRF tactics. His tactic: the 19th century Alien Tort Claims Act which gives the US jurisdiction in cases of international law. Enacted to enable the prosecution of high seas piracy and the slave trade, the Act is now being used to clobber the companies who say one thing but do another.

Two companies are in the crosshairs of this act: Wal-Mart (NYSE:WMT) and Nestle (OTC:NSRGY, VTX:NESN). Wal-Mart is in court again, facing charges of labor abuses in its supply chain. Following a dust-up in 2002 over working conditions, Wal-Mart enacted a code of conduct in an effort to appease the activists. The problem was that the company did not do enough to ensure that its own code of conduct was followed. Collingsworth argues that issuing a code of conduct equates to a contract between Wal-Mart and the employees. Not following it constitutes breach of contract. Therefore, all of the employees affected are injured parties.

Nestle, being the largest purveyor of chocolate in the world, needs to procure lots of cocoa. Half of the world's cocoa is produced in the tiny African nation Ivory Coast. Ravaged by years of civil war, forced labor and indentured servitude are commonplace. Although Nestle owns no farm that uses forced labor, the network of middlemen makes it is easy for tainted cocoa to wind up in the company's chocolate. Archer Daniels Midland (NYSE:ADM) and privately held Cargill are the largest middlemen in the field, and are facing their own accusations. However, prompted by possible congressional legislation, Nestle instead signed on to an agreement five years ago to get their chocolate certified as "slave free" by 2005. The deadline has come and gone, and tainted cocoa still gets through. As in the case with Wal-mart, not following the terms forced on them constitutes a breach of contract.

There is much precedence for the use of the Alien Tort Claims Act. It was successfully used to challenge Unocal when they allegedly forced the Burmese military to build a pipeline. Exxon (NYSE: XOM) was accused of hiring a military junta to guard a gas liquefaction plant in Aceh province, Indonesia. For decades, Bridgestone/Firestone has been facing questions about the use of child labor at rubber plantations in Liberia.

The danger of over-using this Act is that companies will not bother to have a code of conduct, as it provides a fat target for class-action lawyers. Collingsworth's non-profit does not seek out-sized fees, but since the genie is out of the bottle, it is easy to imagine that greed-driven lawyers will see a chance to extract settlements out of multi-nationals.