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Legal crimes: jurisdiction shopping

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Nigerian lady with oil pipesWhen is a crime not a crime? This is a question that CrimeTalk will ask in 2012 as part of the current global interrogation of the ethics of capitalism, and whether the apparent absence of any ethics is inevitable or typical. As the global critique, and the legal problems raised by globalization continue, it raises issues about why politicians allow something to be done in their country that would be a crime in most other countries. One of the sadder answers is that a crime is not a crime in practice when the perpetrator commits the act abroad in a developing country with the collusion of local rulers in complete disrespect for the local population.

During the colonial period of British imperialism, for example, our rulers exported the theory of the rule of law in democracy but were often extremely slow or entirely forgetful in actually applying it to the sins of our own colonial military, miners, entrepreneurs, police and administrators. A local worker could be beaten to death by a mine supervisor in sub-Saharan Africa and receive only a small fine or even be found innocent if the poor victim had an ‘enlarged spleen’. In this article, Andrew Wright will outline another answer to our question: multinational companies today look for countries with lax regulatory regimes to expand their business, in what is known as jurisdiction shopping: as I type this on an Apple iMac made affordable to me by the low wages of South-East Asian workers in this age of neo- or economic colonialism. [Ed.]

Throughout the world, when crime is mentioned thoughts often turn to high volume crimes such as burglary. States address this illegal activity to varying degrees and, through various mechanisms, attempt to bring to justice those engaged in it. However, throughout these justice systems there are different ideas of what should be legal and what should not be, creating a patchwork of legislation internationally rather than a single, uniform code. In this age of neo-liberal, de-regulated economies, businesses are able to move with increasing ease throughout the globe and so this patchwork, masked by the free market, becomes problematic for people in developing countries (and those of us with a social conscience). There are many campaigners for workers' rights in developed countries such as the UK but they can be unaware of the exploitation workers face in developing nations - where much of their clothing and consumers goods come from. The irony is clear but the injustice is even greater. Businesses may claim their expansion into developing countries is due to any number of reasons: corporate global expansion or a more skilled workforce for example. Whilst these may seem harmless consequences of the free market there are occasions where the reason is more sinister and exploitation occurs: jurisdiction shopping.

Jurisdiction shopping, in this context, is where a multinational company (MNC) selects a country within which to operate partly due to its lax business laws and regulations. This enables businesses to operate legally abroad in a manner not permitted in their home state; in effect, they commit ‘crimes without lawbreaking’. For example, jurisdiction shopping can be used to ‘allow’ MNCs to exploit the labour force through the use of child labour, long working hours and poor pay. It also allows the exploitation of the natural environment through the draining of natural resources or the irreparable damage caused by pollution. For MNCs operating in these regulatory havens they are all but free from legal, if not moral, restriction.

MNCs often defend these practices by noting that they are operating within the country’s law and, furthermore, they are stimulating development where it is needed. In fact MNCs often increase exploitation and the export surplus, depriving societies of the benefit of their natural resources and labour. MNCs are able to increase their profitability at the expense of safety, quality, environmental and social considerations.

One example of how MNCs are able to exploit lax regulations is shown in examination of the garment industry in Sri Lanka. The development of the textile and garment industry in developing countries is often seen as a major step towards industrialisation and development, and therefore eagerly sought by developing countries. The Sri Lankan government recognised its importance and in 1977 began a process of liberalising the economy to encourage investment in this sector from overseas. It did this by to introducing ‘business-friendly’ regulations to encourage investment and thus boost development. These regulations provided incentives for MNCs to move their production to Sri Lanka as they offered the companies the opportunity to lower their labour costs, and thus increase their profits. The ‘incentives’ gave the MNCs the opportunity to subject workers to long working hours, excessively high production targets, and poor health and safety standards. Whilst in the developed world legislation is increasingly seeking to protect the rights of workers, implementing a maximum working week and minimum wage for example, the Sri Lankan regulations allowed no such protection. Instead they allowed MNCs the opportunity ‘escape’ their home jurisdiction and operate legally in a way not possibble in many developing countries.

A basic ‘living’ wage in Sri Lanka, according to Ranjani Kumari of the Natinoal Workers Union, is 20,000 rupees per month (this equates to around £250 or $385). The most the average garment worker can expect to earn, working long overtime hours for seven days a week, is 13,000 rupees a month (£165 or $250). To equate this to the UK, it would mean a person working significant overtime seven days a week (breaching working-time regulations in the process) would earn around £9,300 per year (significantly less than minimum wage). Clearly such exploitation would not occur in the UK, but unscrupulous MNCs can operate in Sri Lanka, and other developing nations, in this manner without sufficient regulation.

The legislative ‘incentives’ introduced by the Sri Lankan government do not just have short-term effects on the labour force but a long lasting, economic and social one. Once a company becomes established within a country like Sri Lanka the country becomes dependent on its investment. In the instance of Sri Lanka the garment industry is such a large part of the economy, representing 67% off all industrial production and employing thousands of people, that the government cannot risk raising working standards due to fear of industrial flight (the companies leaving the country). With numerous other developing countries also having lax working standards, Sri Lanka is forced to keep its laws ‘competitively low’ so companies do not decide to move their production elsewhere. The fear of losing such a lucrative element of the economy is, it seems, more important that the exploitation of its population in Sri Lanka and many other governments in developing nations. Their belief that the investment will lead to economic growth that will allow them to raise standards in the long-term is a false one with the power of many MNCs being too great to allow this to happen. The result is a situation where growth stagnates and these immoral business practices become the norm. As is often the case in these capitalist times it is the rich who benefit to the detriment of the poor. 

Another area where the impact of jurisdiction shopping is prominently felt is the oil rich Niger Delta in Nigeria; this time through environmental damage. This area is home to the Ogoni people, who rely on the Delta’s rich, delicate environment to survive, and more recently to multinational oil companies. The Ogoni claim that ‘either outright negligence of environmental management or a poor approach to its management’ has led to the devastating damage of their environment. Whilst the damage to such a stunning environment is, in itself, worthy of condemnation, when the reliance of the Ogoni people on this land for food and water is considered damaged it becomes indefensible.

Between 1970 and 2000 there were nearly 5,000 reported oil spills in Nigeria. In 1992 the oil company Shell claimed that 60% of the oil spills in the Delta region were due to sabotage from locals. Three years later however they were forced to admit, after significant pressure from NGOs, that in fact 75% of the spills were due to their own malpractice. They admitted to having used old and corroding pipes in the region, it does not require sophisticated technical analysis to see that this would make oil spills more likely. Further to this Shell made little effort to protect these pipes and lessen their impact on the indigenous people. In developing countries Shell makes every effort to hide the pipes which they use, often by burying them. However in the Niger Delta the pipes zigzag across fields and by people’s homes with little or no attempt to hide their existence…it would hardly be surprising if some pipes were vandalised in such circumstances. Not only does this make sabotage easier but it ruins a visually stunning environment. If the Delta was part of a developed countries environment it would be protected by safeguards preventing such clear abuse.

pipes and flamesAnother hugely damaging practice is gas flaring, which not only has detrimental effects on the environment but also is highly wasteful of scarce natural resource. In 2010 the USA produced 4 times more oil than Nigeria yet Nigeria had a gas flaring rate 620% higher than the USA. These statistics, coupled with the oil spill figures, demonstrate the exceedingly lax standards MNCs have when operating in developing countries. To operate in such a wasteful and unethical manner harms the local people and their environment but also denies the developed world of scarce resources and creates higher fuel prices. These operations in Nigeria have been likened to a bull in a china shop ‘trampling, slashing, and kicking everything in its way to smithereens’.

Oil companies are able to operate ‘legally’ in this manner as Nigerian environmental law gives them license to do so. Prior to 1988 environmental regulation in Nigeria was almost non-existent and reforms since have done little to change this. The Federal Environmental Protection Agency Decree 1988 (FEPA) was intended to be the solution to the environmental damage incurred on the Niger Delta, however in reality it did little to change the situation. Regulations are littered with general and imprecise terms that fail to set specific standards which oil companies must follow. Whilst these general terms make it easier for companies to side-step the laws, the major problem with the effectiveness of FEPA is the minimal sanctions that are in place for failing to meet the required standards. For example, the financial penalties the legislation details are only a small percentage of the expenditure that would be required to meet the standards. This means that it does not make financial sense for the companies to comply with the regulations as they will lose more money than they would be fined.

working with flamesThe final problem for Nigeria in preventing companies destroying their environment is their inability to monitor and detect the environmental practices of the companies. Monitoring environmental performance is not an easy task as it often requires specialists with specialist equipment in order to get accurate measurements. This in turn requires resources that are often not available to governments in developing nations - it allows companies to go largely unchecked in terms of their environmental performance. The result is companies are able to, and do, operate in a manner which is legal but immoral.

As has been shown throughout this article, jurisdiction shopping can have a detrimental effect on the social, environmental and economic well-being of a country. It is a problem that occurs due to the different regulations governing businesses throughout the world, with some affording less protection to the environment or workers than others. Whilst companies claim that these practices no longer occur there is strong evidence that they do. Developing countries are in a position where they face a choice between protecting their economy or protecting their nation: unfortunately, as is often the case in the capitalist world we live in, money speaks the loudest.

As was highlighted at the beginning of this piece, nothing these companies are doing is illegal. They are within their rights, and in fact should be encouraged, to branch out into other countries; potentially boosting the economy and improving the standard of living but these companies have a moral obligation to ensure that this investment is not exploitative. Ultimately, however, it is the case that economically weak states are the most unlikely to resist the effects of jurisdiction shopping, as has been evidenced in this article, and within those states it is the poorest and the most vulnerable people who will be most affected.

                        ‘The flames of Shell are flames of hell

                         We back below their light

                         Nought for us serve the blight

                         Of cursed neglect and cursed Shell’

                                                                          (A song from the Ogoni, Nigeria)

Andrew Wright is a researcher focusing on transnational and organised crime. He can be contacted through CrimeTalk's secure internal messaging system via our CrimSoc.

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