The Trump Administration’s designation of certain cartels as foreign terrorist organizations creates significant new legal risks for companies operating in affected regions. Miller & Chevalier attorneys Nate Lankford and Matteson Ellis, along with ABB’s Nisha Sawhney-Murkett, explain how human rights due diligence processes can help identify these emerging exposures where traditional compliance approaches fall short.
As companies race to adjust their risk management strategies to keep pace with the Trump Administration’s new enforcement focus on cartels and foreign terrorist organizations (FTOs), legal and compliance teams should consider human rights due diligence as a valuable tool to mitigate these emerging legal compliance risks.
Human rights due diligence, or HRDD, is a general term to describe processes that companies use to manage human rights risks associated with their activities. As set out in the UN guiding principles on business and human rights, HRDD is a critical component of companies’ responsibility to respect the human rights of their stakeholders.
In recent years, many companies have implemented HRDD processes to fulfil their public commitments to the guiding principles (often reflected in policies, sustainability reports and public filings) and to address the rapidly evolving landscape of legal requirements incorporating key concepts from the UN framework, such as European Union mandatory sustainability reporting and due diligence laws.
While HRDD can take many forms, it typically involves the following key components: desktop research and scoping to identify potentially salient risks; engagement with relevant stakeholders; analysis of risks/impacts and company involvement; implementation of mitigation measures and remediation where necessary; and tracking, monitoring and reporting to support continuous improvement.
At each stage of the process, HRDD seeks to manage risks from the perspective of rights holders through meaningful engagement, which typically includes workers, suppliers and community members. In addition, UN guidance on business and human rights in conflict-affected regions and challenging contexts emphasizes the need for heightened due diligence and conflict-sensitivity where “the operating environment is challenging due to … poor enforcement of laws,” which may be compounded by “corruption, poverty, a lack of government resources or a lack of respect for the rule of law” – i.e., contexts in which cartels and FTOs often operate.
As such, HRDD involves input from a broad range of perspectives and an in-depth analysis of the operating context, which is critical to supplement traditional legal compliance strategies to address cartel/FTO risks effectively.
For example, traditional anti-corruption compliance risk assessments are helpful to consider how money might leave an organization and make its way improperly to cartels, but they have limits in that they tend to focus largely on touchpoints with government entities and officials, which would not necessarily capture the full range of circumstances in which cartel interactions could arise.
Similarly, anti-money laundering (AML) and economic sanctions analyses are helpful in that they consider whether suppliers, customers or other counterparties are sanctioned entities (most cartels are on restricted party lists), but such assessments largely focus on transactions and may not capture cartel/FTO risks in operational and employment matters.
Human rights due diligence, in contrast, is designed to leverage broader sources of information to identify exposure to severe human rights effects, such as violence and human trafficking, which can exist at the core of cartel/FTO activity. In this way, HRDD helps close the gap and position companies to understand their legal compliance risk more holistically.
For companies that already conduct HRDD to assess and mitigate risks in conflict-affected areas and other challenging contexts, these US enforcement developments underscore the need to ensure that those efforts are appropriately scoped and resourced. For companies that have not yet established such processes, these developments reinforce the value of doing so.
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The Trump Administration’s designation of certain cartels as FTOs creates new and enhanced legal and compliance risks under the Anti-Terrorism Act (ATA) for companies operating in Latin America and other areas where cartels and FTOs are present. Companies can be criminally liable for providing “material support,” defined broadly, to designated entities. Companies could face legal exposure under the FCPA and AML laws as well. For example, companies operating in cartel-controlled areas, companies supplying or transporting materials to/from/through such areas and financial services providers all face significant exposure under these laws if their activities or transactions involve US persons. This exposure is likely to increase as prosecutors move quickly to implement the administration’s new policy, as demonstrated by recent enforcement actions focused on human smuggling.
Cartel/FTO activities often involve severe adverse human rights impacts on a broad range of stakeholders, such as violence against community members and human trafficking, which can also give rise to civil litigation on behalf of individuals who have suffered harm. For example, under the ATA’s civil liability provisions, a US national injured as a result of an act of international terrorism may sue a company to recover threefold the damages the person sustained in the company engaged in an act of international terrorism by providing material support to the responsible FTO or knowingly provided substantial assistance to the perpetrators of an attack committed, planned or authorized by an FTO.
Why HRDD is a valuable tool to mitigate legal compliance risks associated with cartels/FTOs
Under the UN’s guiding principles on business and human rights, companies have a responsibility to respect human rights, which includes implementing HRDD “process[es] to identify, prevent, mitigate and account for how they address their impacts on human rights.” A primary component of HRDD is to assess the extent to which the company may be causing or contributing to adverse impacts through its own activities and/or the extent to which the company may be directly linked to adverse impacts through the company’s operations, products or services by its business relationships.
Given that cartel/FTO activities often involve severe human rights impacts like violence and human trafficking, it is natural that HRDD should include an assessment of any direct and indirect interactions with cartels/FTOs. As noted above, recent UN guidance on business and human rights in challenging contexts reinforces this approach by emphasizing the importance of conducting heightened HRDD in conflict-affected areas and other contexts where corruption, poverty and lack of respect for the rule of law are prevalent, which is often the case where cartels and FTOs operate.
By conducting HRDD in such challenging contexts, companies can achieve an informed understanding of their direct and indirect interactions with cartels/FTOs, among other circumstances that present human rights risks, which can serve as the basis for measures to mitigate the legal compliance risks at play.
For example, a company wishing to develop an asset or build a facility in Latin America may conduct HRDD to assess its human rights risks through research of available documentation and media reports and through local stakeholder discussions. In this process, the company may discover that organized crime is prevalent in local communities and in local politics in areas where the investment is planned, such that the company may need to interact with parties involved in organized crime, some of whom might be designated FTOs, in the project. Research might identify a prevalence of human trafficking or transport of narcotics as common in the area as well. The company could learn from its interviews with local community members that security payment requests are common.
In this type of situation, HRDD would help the company assess the risks holistically so that the company can consider how to mitigate risks of providing material support to FTOs and other cartels and adverse human rights impacts on local community member stakeholders. This would also position the company to make a more informed decision as to whether/how to move forward with developing the asset in light of the legal compliance risks (potentially including tailored safeguards to mitigate risks) or whether to refrain from the investment altogether.
Practical steps to leverage HRDD to mitigate risks associated with cartels/FTOs
To leverage HRDD to mitigate risks associated with cartels/FTOs, companies should consider the following practical steps:
Identify any existing HRDD processes that may already address cartel/FTO risks in conflict-affected and other challenging contexts
Legal compliance teams should confer with functions involved in HRDD to understand the extent to which the company may already have processes to manage risks in conflict-affected and other challenging contexts and whether they are specifically designed to assess interactions with cartels/FTOs in those contexts. For example, legal compliance teams should take stock of whether existing HRDD processes include mapping of cartel/FTO risks and identification of potential touchpoints with cartels/FTOs.
Supplement existing HRDD processes with specific inquiries regarding cartels/FTOs as necessary
Once legal compliance teams have a solid understanding of existing HRDD processes, they should consider how those processes could be enhanced to address cartels/FTO risks more effectively. For example, at the scoping stage, companies should specifically search for media reports regarding the presence of organized crime or violence by cartels/FTOs or other non-state armed groups and should compare the company’s geographic areas of operation against maps of areas controlled by cartels/FTOs. Similarly, when engaging with relevant stakeholders to identify human rights risks, companies should consider involving team members with expertise in local conflict dynamics and ask specific questions to assess how the company’s activities may affect the overall operating context including touchpoints and activities involving cartels/FTOs.
Structure HRDD to mitigate security risks to participants
In conducting HRDD in conflict-affected and other challenging contexts involving cartels/FTOs, it is important to ensure the safety of personnel participating in the HRDD, including not only people conducting the review but also stakeholders who may participate in interviews or otherwise provide information. Doing so requires careful staffing and planning to ensure the process involves team members with the right expertise and sensitivity to conflict and security risks in the specific operating context, with appropriate safeguards at each stage.
Structure HRDD to support appropriate confidentiality protections
Given the broad range of potential sources of legal liability associated with providing support to cartels/FTOs, companies should conduct HRDD in conflict affected areas and other challenging contexts with a similar attention to legitimate confidentiality concerns as is customary for investigations of serious legal compliance issues. In doing so, it is critical to map in advance the various types of communications and written deliverables for the assessment and structure them in a manner that responsibly manages confidentiality risks without unnecessarily impeding meaningful stakeholder engagement, which is essential for the credibility of HRDD under the UNGP framework.
For example, interviews with employees may be structured to support attorney-client privilege protections (similar to traditional compliance assessments), while non-privileged communications with external stakeholders should be carefully structured to share factual information necessary for meaningful engagement regarding risks without waiving any attorney-client privilege protections that may apply to other communications in the HRDD process.
Nate Lankford
Matteson Ellis
Nisha Sawhney-Murkett
