The settlement reached in February 2020 by Equitable Cambodia and Inclusive Development International on behalf of Cambodian victims and ANZ bank, under the auspices of the Australian National Contact Point (AusNCP) is the first of its kind for the global banking industry.
In a joint statement published on 27 February 2020, “ANZ recognises the continuing hardships faced by the affected communities, and has agreed to pay the profit it earned from the loan, to the affected communities”.
This agreement constitutes a landmark victory for the 681 Cambodian families who sought justice and corporate accountability since 2011, when ANZ provided a $40 million loan to Phnom Penh Sugar Co. Ltd to develop a sugarcane plantation and refinery in southern Cambodia. The project had led to forcibly displacements and land dispossession of hundreds of local families, arbitrary arrests and intimidation of local population, use of child labour and dangerous working conditions which had resulted in deaths.
The absence of recommendation about financial redress
While the victims’ representatives acknowledged that ANZ was only partially responsible for the harms suffered by local communities, in its 2018 Final Statement, the AusNCP found that the bank’s loan to Phnom Penh Sugar was inconsistent with the its own policies and the OECD Guidelines for Multinational Enterprises. It was acknowledged that ANZ had failed to conduct due diligence as a way to avoid negative impacts of its investments and had disregarded publicly available information suggesting the existence of risks associated with Phnom Penh Sugar Co. Ltd and its project.
Hence, the AusNCP recommended ANZ to promote internal compliance with its stated corporate standards, to strengthen its due diligence process, and to establish a grievance resolution mechanism.
While the victims’ representatives had sought ANZ to divest itself of the profits that it earned from the loan and provide them to the victims as reparations, the AusNCP did not make specific recommendations about financial redress, explaining that, as a non-judicial mechanism and considering the circumstances of the case, it was not its role to do so.
On-going dialogue and development of OECD guidances
In the aftermath of the Final Statement, the parties continued to negotiate through the AusNCP’s good offices process. The conciliation resulted in the adoption of a confidential agreement on 7 February 2020.
It is noteworthy to observe that in its Follow up Statement, the position of the AusNCP regarding financial compensation has evolved. In fact, considering guidances issued by the OECD Secretariat subsequent to its initial assessment of the case, the AusNCP asserted that “Where a company has gained revenue in a manner inconsistent with the OECD Guidelines, and that has resulted in parties being impacted, the payment of the revenues to those parties may be one way a company can comply with requirements of the OECD Guidelines” (§8).
One of the guidances referred to by the AusNCP is the 2019 Due Diligence for Responsible Corporate Lending and Securities Underwriting providing that “where a bank recognizes that it has contributed to an adverse impact through its client relationships, it should provide for, or cooperate in, the remediation of that impact, in a manner proportionate to its involvement. … The type of remedy or combination of remedies that will be appropriate will depend on the nature and extent of the adverse impact and the views of affected stakeholders. It may include a variety of different forms including apology, restitution, rehabilitation, financial or non-financial compensation, punitive sanctions, or taking measures to prevent future adverse impacts (such as improving due diligence processes). A bank may consider whether it would be appropriate to extend one or more of these forms of remedy even where the harm is being remediated through other legitimate processes. Co-operating in remediation does not necessarily mean that the bank will be expected to provide financial compensation to impacted stakeholders, although it may be appropriate in some cases to do so (emphasis added)”.
The interpretation of the guidances by the AusNCP sets an important precedent for the global banking industry. Banks should no longer earn money out of projects violating human rights without having to (financially) contribute to the remediation of their impacts.